Goldman Sachs is bearish on the U.S. job market: June non-farm payrolls are expected to increase by only 85,000

According to the Zhitong Finance APP, Goldman Sachs predicts that the U.S. non-farm payrolls will increase by 85,000 in June, a forecast that is significantly lower than the market's general expectation of 113,000 and also below the average of 135,000 over the past three months. Goldman Sachs believes that factors dragging down the U.S. non-farm payroll growth in June include weak large data indicators, changes in immigration policy, and federal government layoffs. Meanwhile, Goldman Sachs expects the unemployment rate to rise from 4.24% in May to 4.3%, with average hourly wages expected to grow by 0.3% month-on-month. The bank added that the end of worker strikes has brought some positive news, but it is not enough to substantially boost the overall data.

Goldman Sachs believes that the June non-farm payroll report will confirm that the U.S. labor market is slowing down, which should strengthen the trend of the Federal Reserve gradually shifting to a dovish stance and exerting continued downward pressure on the dollar, especially as wage growth further shows signs of easing inflation.

The U.S. Department of Labor will release the June non-farm payroll data at 20:30 Beijing time on Thursday. If the data released tonight shows signs of accelerated deterioration in the U.S. economy, the market will increase bets that the Federal Reserve will take action ahead of its policy meeting scheduled for July 29-30.

Currently, according to the Chicago Mercantile Exchange (CME) "FedWatch" tool, the probability of the Federal Reserve maintaining interest rates in July is 73.1%, while the probability of a 25 basis point rate cut is 26.9%; the probability of the Federal Reserve maintaining interest rates in September is 12.9%, with a cumulative probability of a 25 basis point rate cut at 64.9% and a cumulative probability of a 50 basis point rate cut at 22.1%.

Data released on Wednesday showed that the U.S. June ADP employment numbers, known as the "little non-farm," unexpectedly experienced negative growth, decreasing by 33,000, far below the market's general expectation of an increase of 95,000, and also lower than the revised figure of 29,000 for May. ADP Chief Economist Nela Richardson stated in a statement: "Although layoffs remain rare, employers are cautious about new hiring and are unwilling to fill vacancies left by departing employees, leading to a contraction in employment last month."

It is important to note that the ADP report's accuracy in predicting subsequent official non-farm payroll data has historically been unstable, and the market typically places more emphasis on the authoritative report from the U.S. Department of Labor. For example, the weak ADP data in May showed significant deviation from the official employment data released later that week.

Nancy Vanden Houten, Chief U.S. Economist at Oxford Economics, stated: "The weakness in the employment market in June signals future trends. We expect that due to tariffs and high policy uncertainty, the trend of employment growth will continue to weaken for the remainder of the year."

Notably, Goldman Sachs earlier this week brought forward its forecast for the timing of the Federal Reserve's rate cuts, expecting the Fed to resume rate cuts in September rather than December, as the inflation impact from tariffs "seems to be smaller than expected." Goldman Sachs anticipates that the Federal Reserve will cut rates by 25 basis points at its meetings in September, October, and December, and will lower its "final interest rate forecast from the previous 3.5%-3.75% to 3%-3.25%." Goldman Sachs' economic team wrote: "We believe the likelihood of a rate cut in September is slightly above 50%, as we see multiple pathways to achieving this goal—insignificant tariff impacts, greater anti-inflation offset factors, genuine weakness in the labor market, or panic caused by monthly volatility. We suspect that the Federal Reserve leadership shares our view that tariffs will only have a one-time impact on price levels."

Goldman Sachs analysts stated: "If there is any insurance motivation for a rate cut, then cutting rates in consecutive meetings (like in 2019) is the most natural choice. We do not expect a rate cut in July unless this week's employment data is significantly below expectations." Goldman Sachs pointed out that the labor market remains "healthy" and noted that "finding a job is becoming increasingly difficult, with seasonal factors and changes in immigration policy posing short-term downside risks to employment numbers."