​​US non-farm payrolls preview: job growth to keep slowing​

​​​The upcoming July US jobs report is poised to cap off a busy week for markets. Following June's indication of a cooling job market, the July data is expected to continue this trend, further solidifying the case for a Federal Reserve (Fed) interest rate cut in September.

​Expectations for non-farm payrolls

​Analysts anticipate payrolls to have increased by approximately 178,000 in July, just below June's 206,000 gain and in line with the recent three-month average of 177,000. This figure, while still positive, represents a continued deceleration in job creation compared to the 'breakeven' pace of around 250,000 required to keep up with labour force growth.

​Potential risks and influencing factors

​Several factors may influence the July report, potentially skewing the numbers lower than consensus estimates. Hurricane Beryl, which made landfall during the survey week, could have a negative impact, particularly on the establishment survey. Additionally, the National Federation of Independent Business (NFIB) hiring intentions survey, which has been a reliable indicator this cycle, points to job growth at the lower end of forecasts, around 100,000.

​Wage growth and unemployment expectations

​Average hourly earnings are expected to maintain a 0.3% month-over-month (MoM) increase, with the annual rate cooling to 3.7% due to base effects. This moderation in wage growth would likely be viewed favourably by the Fed.

​Implications for monetary policy

​While the July jobs report is unlikely to dramatically alter the Fed's policy trajectory, it will play a crucial role in cementing expectations for a September rate cut. The report's various components, particularly wage growth and overall job creation, will be closely scrutinised for signs of continued labour market normalization.

​Market impact and dollar outlook

​The jobs report is anticipated to be a significant volatility event for financial markets. Traders are likely to interpret the data through the lens of longer-term Fed policy, potentially leading to the US dollar strengthening if current aggressive rate cut expectations are tempered. With over 65 basis points of cuts priced in by year-end, there's room for market expectations to align more closely with a more measured Fed approach.