Goldman Sachs' Non-Farm Payroll Preview: 60K! Below market expectations, but above recent averages

The U.S. non-farm payroll data for August will be released tonight. Goldman Sachs expects an increase of 60,000 non-farm jobs, with the unemployment rate slightly rising to 4.3%. The non-farm report will also provide evidence for assessing the impact of tariffs, government layoffs, immigration, and other policies on the labor market.

On September 5th, according to news from the Chasing Wind Trading Desk, Goldman Sachs stated in its latest research report that it expects an increase of 60,000 non-farm jobs in August, lower than the market's general expectation of 75,000, but higher than the average level of 35,000 over the past 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 noted that although overall growth remains weak, big data indicators show a continuous improvement trend in private sector job growth, with an expected increase of 80,000 private sector jobs, exceeding the market expectation of 75,000.

However, Goldman Sachs also warned that historically, there is a systematic bias towards weaker initial releases of August non-farm data, coupled with an expected decline of 20,000 in federal government employment, which may drag down overall employment data.

Analysis points out that this forecast highlights the complex situation of the current U.S. labor market, where the private sector shows signs of moderate recovery, while changes in government policy continue to exert pressure on job growth.

Additionally, Goldman Sachs analysts predict that the unemployment rate will slightly rise from 4.248% in July to 4.3%, with average hourly wages increasing by 0.3% month-on-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 to show an increase of 81,000 private sector jobs, supporting their forecast of an increase of 80,000 private sector jobs.

These big data indicators include the Census Bureau's Business Pulse Survey, ADP employment data, and alternative data sources like Homebase, providing a relatively optimistic basis for the forecast.

The research report states that although the growth rate remains weak, the continuous improvement trend provides some support for the job market. The improvement in these alternative data mainly reflects in the service industry and certain manufacturing sectors, indicating that corporate hiring activities are gradually warming up, although the growth rate is still below historical averages.

Historical Bias in August Data and Government Employment Drag

Goldman Sachs particularly emphasizes the historical bias issue of August non-farm data in its research report. Data shows:

Since 2010, the initial release of August non-farm employment data has shown a decline each year relative to the moving average of the previous three months, with a median decline of 39,000.

Over the past 15 years, August non-farm data has been below market expectations in 10 years, and this bias mainly stems from mismatches in seasonal adjustment factors.

Goldman Sachs analysts stated that the final revised data usually sees an upward adjustment of 61,000, mainly achieved through the non-seasonally adjusted portion, indicating that employment data submitted by companies later tends to be more positive.

Regarding government employment, Goldman Sachs expects federal government employment to decline by 20,000, mainly due to the federal hiring freeze being extended from July 15 to October 15, continuing to exert pressure on federal government employment, while state and local government employment remains unchanged. Job vacancies in Washington, D.C. have decreased by 17% since the federal hiring freeze order was issued on the inauguration day Goldman Sachs analysts also pointed out that the upcoming employment report will provide timely evidence for assessing the impact of various government policies on the labor market.

Tariff policies may continue to exert pressure on manufacturing employment, with an average monthly decline of 12,000 jobs in manufacturing over the past three months.

Federal government layoffs will directly lead to a reduction in federal employment positions, and cuts in federal spending may have spillover effects on state and local governments, healthcare, and education sectors. Since February, federal employment has decreased by an average of 14,000 jobs per month.

Tightening immigration policies may impact industries that rely on immigrant labor. Industries most affected by changes in immigration policy saw only 4,000 jobs added in the second quarter, far below the average growth level of 27,000 jobs in 2024.

Unemployment Rate Expected to Rise Slightly to 4.3%

Goldman Sachs predicts that the unemployment rate in August will rise from 4.248% in July to 4.3% (rounded). This forecast is based on the continued weakness of other labor market slack indicators, including the Conference Board's labor differential index and the number of continuing unemployment claims.

The Conference Board's labor differential index measures the difference between the proportion of people who believe "there are many jobs" (easy to find work) and those who believe "jobs are hard to find."

In August, this index fell by 1.3 percentage points to 9.7, the lowest level since February 2021, and well below the average level of 33.2 in 2019. This decline reflects a cooling labor market in the United States and may indicate an economic slowdown or rising employment pressures.

Additionally, the two-week moving average of continuing unemployment claims also shows an upward trend.

However, analysts believe that the unusual rise in the unemployment rate for new entrants to the labor market in July may see some partial correction, which would exert downward pressure on the unemployment rate. The number of unemployed new entrants saw a significant increase in July and may return to normal levels in August