Goldman Sachs Nonfarm Payrolls Preview: 60K! Below market expectations, but above recent averages.

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The US August Non-Farm Payrolls will be released tonight. Goldman Sachs expects an increase of 60,000 in non-farm employment and a slight uptick in the unemployment rate to 4.3%. The non-farm report will also provide evidence for assessing the impact of policies such as tariffs, government layoffs, and immigration on the labor market.

On September 5, according to WindChaser Trading Desk, Goldman Sachs stated in its latest research report that it expects an increase of 60,000 in August non-farm employment, below the market consensus of 75,000, but higher than the 35,000 average over the previous three months. This forecast reflects the dual impact of moderate improvement in private sector job growth and continued contraction in government employment.

Goldman Sachs analysts Ronnie Walker and Jessica Rindels said that although overall growth remains sluggish, big data indicators show a trend of continuous improvement in private sector job growth. They expect an increase of 80,000 private sector jobs, exceeding the market expectation of 75,000.

However, Goldman Sachs also warned that there is a systemic historic bias for August non-farm data to be initially reported on the weaker side, coupled with an expected decline of 20,000 in federal government employment, which may drag down the overall job data.

Analysis points out that this forecast highlights the current complex situation in the US labor market: on the one hand, the private sector shows signs of moderate recovery, while on the other hand, changes in government policy continue to put pressure on employment growth.

Additionally, Goldman Sachs analysts predict that the unemployment rate will edge up from 4.248% in July to 4.3%, and average hourly earnings will rise 0.3% month-over-month.

Big data indicators show moderate improvement in private sector employment

Goldman Sachs analysts pointed out that alternative employment data showed positive signals in August.

Multiple big data indicators averaged an increase of 81,000 private sector jobs, supporting their forecast of an 80,000 increase in private sector employment.

These big data indicators include the Census Bureau's Business Pulse Survey, ADP employment data, and alternative data sources such as Homebase, providing a relatively optimistic foundation for forecasts.

The report said that although the growth rate remains weak, the continuous improvement trend provides some support for the job market. This improvement in alternative data mainly reflects in services and some manufacturing sectors, indicating that corporate hiring activity is gradually picking up, although growth rates still lag historical averages.

August Data Historical Bias and Government Employment Drag

In its research, Goldman Sachs specifically highlighted the August non-farm data's historical bias problem. Data shows:

Since 2010, the initially released August non-farm employment data has declined relative to the previous three-month moving average every year, with a median decline of 39,000.

Over the past 15 years, the August non-farm data has fallen short of market expectations 10 times, mainly due to mismatch in seasonal adjustment factors.

Goldman Sachs analysts noted that final revised data is usually adjusted upwards by 61,000, mainly through non-seasonally adjusted components, indicating that employment data submitted later by companies tend to be more positive.

For the government sector, Goldman Sachs expects federal government employment to decrease by 20,000, mainly because a federal hiring freeze has been extended from July 15 to October 15, continuing to put pressure on federal government jobs, while state and local government employment remains unchanged. Since the issuance of the federal hiring freeze order on inauguration day, job vacancies in Washington D.C. have dropped by 17%.

Goldman Sachs analysts also pointed out that the upcoming employment report will provide timely evidence for assessing the impact of multiple government policies on the labor market.

Tariff policies may continue to put pressure on manufacturing employment, as manufacturing sector jobs have declined by an average of 12,000 per month over the past three months.

Federal downsizing will directly reduce federal jobs, and federal spending cuts may spill over to state and local governments, healthcare, and education sectors. Since February, federal government jobs have decreased by an average of 14,000 per month.

Tighter immigration policies may impact industries reliant on immigrant labor. Sectors most affected by immigration policy changes saw job growth of only 4,000 in Q2, well below the 2024 average monthly growth of 27,000.

Unemployment Rate Expected to Rise Slightly to 4.3%

Goldman Sachs forecasts the August unemployment rate to rise from July’s 4.248% to 4.3% (after rounding). This forecast is based on continued weakness in other labor market slack indicators, including the Conference Board's labor differential and continued jobless claims.

The Conference Board's labor differential is the proportion of respondents who say "jobs are plentiful" minus those who say "jobs are hard to get."

In August, this indicator fell by 1.3 percentage points to 9.7, the lowest since February 2021, and far below the 2019 average of 33.2. This decline reflects a cooling US labor market and may also indicate an economic slowdown or rising job market pressure.

In addition, the two-week moving average of continued unemployment claims also shows an upward trend.

However, analysts believe that the abnormal rise in the unemployment rate among new labor force entrants in July may partially retrace, which will exert downward pressure on the unemployment rate. The number of unemployed new entrants rose significantly in July and may return to normal levels in August.

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The above highlights are from WindChaser Trading Desk.

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