August Payrolls Preview: Will It Be Ugly Enough For A 50bps Cut

The August nonfarm payroll report, the first since Trump fired the Biden-appointed BLS commissioner Erika McEntarfer one month ago, is expected to show 75k jobs were added last month, little changed from the 73k pace in July, but attention will also be on the prior revisions, given the huge downward revisions seen in July (which also cost McEntarfer her job). The unemployment rate is expected to rise to 4.3% from 4.2%, but still below the year-end Fed median projection of 4.5%. Average hourly earnings are seen at 0.3% M/M and 3.8% Y/Y, virtually unchanged from last month.

The report will help shape Fed rate cut expectations through year-end, with September largely already priced following the weak July jobs report and signal from Fed Chair Powell at Jackson Hole. A very ugly report could prompt Powell to cut 50bps. And even if the August jobs report is not catastrophic, next week's Benchmark revisions could be so adverse, they alone may prompt a jumbo rate cut, just like in 2024. Fed Governor Waller (dovish dissenter) has continued to call for lower rates, noting that data will dictate the pace of rate cuts after the first reduction, so this report will also influence expectations further out on the curve. CPI, PPI and the prelim benchmark revisions are also due next week before the September FOMC meeting, which will also be key to shaping Fed rate cut expectations while the Fed looks to distinguish the distances from both inflation and labor market goals.