AI investment boosts the recovery of employment in the US manufacturing industry, and the non-agricultural sector adds another bargaining chip to the September interest rate hike, Cleveland Federal Reserve Chairman once again releases an “eagle”
The Zhitong Finance App learned that employment growth in the US was unexpectedly strong in August, and commodity production industries such as manufacturing and construction became an important driving force for this round of employment expansion. Meanwhile, Cleveland Federal Reserve Chairman Hamak once again sent a clear hawkish signal on Friday, saying that the current inflation situation indicates “time to act” and believes that the current monetary policy is still not sufficiently restrictive to the economy. With strong non-farm payrolls data combined with continuing inflationary pressure, the market further raised its bets on the Federal Reserve's interest rate hike in September.
Hamak said on Friday that both the latest economic data and the first-line feedback she received from Cleveland Federal Reserve companies showed that the current monetary policy is not sufficiently suppressing the economy. “Now I'm hearing the message that it's time to act.”
In particular, she mentioned that she recently had a conversation with the head of a manufacturing company in northeastern Ohio. The other party directly told her that the Federal Reserve should raise interest rates because the prices of many of the company's inputs are experiencing double-digit increases.
This feedback has further strengthened Hamak's concerns about inflationary pressures. She is also one of the most hawkish officials within the Federal Reserve recently. At the July interest rate meeting, the Federal Reserve decided to keep interest rates unchanged, and Hamak was one of the three policymakers who voted against it.
The Federal Reserve's next interest rate meeting will be held from September 15 to 16. As the August employment report released on Friday was clearly stronger than expected, the market's bets on the September rate hike are heating up rapidly. Investors now expect the probability that the Fed will raise interest rates this month is slightly higher than 60%.
The latest employment data has further increased the policy pressure faced by the Federal Reserve. Non-farm payrolls in the US recorded the biggest increase in five months in August, and the unemployment rate remained at 4.1%, indicating that the labor market is still quite resilient.
It is worth noting that this round of employment growth shows an unusual characteristic, that is, employment growth in the manufacturing, construction, and other commodity industries is outpacing the larger service sector, and this change may be closely related to the large-scale investment in AI infrastructure being carried out in the US.
According to data from the US Bureau of Labor Statistics (BLS), in the six months ending August, the number of people employed in the US commodity production industry increased by 0.6%, the biggest increase in any comparable period since 2023, and higher than the 0.4% increase in the same period in the service sector. Among them, the improvement in employment in the manufacturing industry is particularly evident. Over the past three months, the US manufacturing industry added 43,000 new jobs, the strongest performance since the end of 2022.
Citibank economist Veronica Clark believes that recent improvements in employment in manufacturing and construction are largely related to the large-scale promotion of AI infrastructure and data center construction in the US. As technology companies invest huge sums of money to build data centers, demand for plants, equipment, power infrastructure, and related manufacturing products continues to increase and gradually spread to the real economy job market.
Clark also pointed out that the tax provisions relating to investment in equipment and facilities in the “Big and Beautiful Act” passed last year have further stimulated corporate capital expenditure. Looking at specific industries, the breadth of employment growth in the US manufacturing industry has also improved markedly. According to BLS data, the employment breadth index covering 72 manufacturing industries rose to the highest level in nearly four years in August.
Manufacturers of machinery and equipment, primary metals and metal products, computers and electronic products, and electrical equipment and home appliances all recorded steady employment growth, indicating that this round of improvement in manufacturing employment was not concentrated in a few industries.
However, EY-Parthenon's chief economist Gregory Daco warned that the recent rebound in manufacturing recruitment needs to be viewed in conjunction with previous weak employment trends. Prior to this round of improvement, US manufacturing employment had been showing an overall downward trend for three consecutive years. Therefore, the current data is more likely to indicate a phased shift in manufacturing employment, and it remains to be seen whether a continuous trend can be formed.
The White House, on the other hand, quickly viewed the strong employment report as evidence that the Trump administration's economic policies had paid off. Hassett, director of the US National Economic Council, said that if we look further at the internal structure of employment data, we can see that the policy is having positive effects.
Hassett pointed out that since Trump took office, the number of people employed in factory construction-related jobs has increased by about 90,000. He believes that the construction of the new plant itself will not only create current jobs, but may also bring further long-term employment opportunities after these facilities are put into operation.
The strong job market also brought more attention to the Federal Reserve's policy choices in September. On the one hand, investment in AI data centers and manufacturing is driving growth in economic activity and employment; on the other hand, companies are still facing obvious upward pressure on investment costs, and inflation continues to be higher than the Federal Reserve's 2% target.
For Hamak, these signs suggest that the Federal Reserve's current policy restrictions may still be insufficient. If economic growth and labor markets continue to be resilient, and pressure on corporate costs does not cool down significantly, the Federal Reserve may need to further tighten monetary policy to prevent inflation from spreading again.
As Federal Reserve officials are about to enter a period of silence before the September interest rate meeting, Hamak's latest statement that “it is time to act” also became one of the clearest hawkish signals before the meeting. Against the backdrop of non-farm payrolls exceeding expectations in August, manufacturing recruitment clearly picking up, and corporate investment costs still high, market expectations for the Fed's interest rate hike in September are once again heating up, and economic resilience driven by AI investment is becoming a new variable affecting the Fed's policy decisions.