Goldman Sachs is weakening the US job market: the increase in non-farm payrolls in June is expected to be only 85,000

The Zhitong Finance App learned that Goldman Sachs predicts that the number of non-farm payrolls in the US will increase by 85,000 in June. This forecast is far lower than the general market forecast of 113,000, and lower than the average of 135,000 over the past three months. Goldman Sachs believes that the factors that dragged down the number of new non-farm payrolls in the US in June include weak large-scale data indicators, changes in immigration policies, and federal government layoffs. Meanwhile, Goldman Sachs expects the unemployment rate to rise to 4.3% from 4.24% in May, and the average hourly wage is expected to increase 0.3% month-on-month. The bank added that the end of the workers' strike brought some positive news, but not enough to substantially boost the overall data.

Goldman Sachs believes that the June non-farm payroll report will confirm that the US labor market is slowing down. This should reinforce the Fed's gradual shift to a dovish stance and put continuing downward pressure on the US dollar, especially when wage growth shows further signs of slowing inflation.

The US Department of Labor will release the June non-farm payrolls data at 20:30 Beijing time on Thursday. If the data released tonight shows signs that the US economy is deteriorating at an accelerated pace, the market will increase bets that the Federal Reserve will take early action at the upcoming policy meeting on July 29-30.

Currently, according to the Chicago Mercantile Exchange (CME)'s “Federal Reserve Watch” tool, the probability that the Fed will keep interest rates unchanged in July is 73.1%, and the probability of cutting interest rates by 25 basis points is 26.9%; the probability that the Fed will keep interest rates unchanged in September is 12.9%, the probability of cutting interest rates by 25 basis points is 64.9%, and the probability of cutting interest rates by 50 basis points is 22.1%.

According to data released on Wednesday, ADP employment in the US, known as “small non-farmers,” unexpectedly experienced a negative increase of 33,000 in June, far below the 95,000 increase generally expected by the market, and also lower than 29,000 after being revised in May. ADP chief economist Nela Richardson said in a statement: “Although corporate layoffs are still rare, employers are wary of new hires and are unwilling to fill the vacancies of former employees, which led to a contraction in employment last month.”

It should be noted that the ADP report's predictive accuracy of subsequent official non-farm payrolls data has always been unstable, and the market usually pays more attention to authoritative reports from the US Department of Labor. For example, the weak ADP data for May deviates significantly from the official employment data released later that week.

Nancy Vanden Houten, chief American economist at the Oxford Institute of Economics, said, “The weak job market in June indicates future trends. We expect employment growth trends to continue to weaken for the rest of the year due to high tariff and policy uncertainty.”

It is worth mentioning that Goldman Sachs predicted the timing of the Fed's interest rate cut earlier this week. It is expected that the Fed will resume cutting interest rates in September rather than December because the impact of tariffs on inflation “appears to be less than expected.” Goldman Sachs expects the Federal Reserve to cut interest rates by 25 basis points each at the September, October, and December meetings, and to “lower the final interest rate forecast to 3%-3.25%” from the previous 3.5%-3.75%.

Goldman Sachs's economic team wrote, “We think the possibility of cutting interest rates in September is slightly more than 50% because we see a variety of ways to achieve this goal — less significant impact of tariffs, greater anti-inflation offsetting factors, actual labor market weakness, or fears caused by monthly fluctuations. We doubt that the Federal Reserve leadership shares our view that tariffs will only have a one-time impact on price levels.”

Goldman Sachs analysts said, “If there is any insurance motive to cut interest rates, then cutting interest rates at consecutive meetings (like in 2019) is the most natural choice. We don't expect to cut interest rates in July, unless this week's employment data falls far short of expectations.” Goldman Sachs pointed out that the labor market is still “healthy,” and stated that “it is becoming more and more difficult to find jobs. Seasonal factors and changes in immigration policies all pose short-term downside risks to the number of employed people.”