The current trajectory of the Federal Reserve's monetary policy easing will largely hinge on the forthcoming jobs report for August, due to be released by the Bureau of Labor Statistics (BLS) this Friday. According to recent insights from Goldman Sachs, a lackluster jobs report could lead to a significant reduction in interest rates by as much as 50 basis points.
Analysts anticipate that the jobs report will show that the US economy generated approximately 164,000 new jobs last month, although Goldman Sachs predicts a slightly lower figure of 155,000 jobs added. Goldman Sachs highlighted their cautious outlook, noting: "We are below consensus on payroll growth because the August payrolls have consistently shown a negative bias in their initial readings over the past decade.
Moreover, indicators from Big Data suggest a deceleration in job growth, and any boost from immigration that has contributed to labor force growth may also be showing signs of tapering off. However, it is worth considering that we may see some rebounding in job figures due to severe weather impacts observed in July." According to Goldman’s predictions, the August unemployment rate is expected to decrease slightly, by about 0.1 percentage points to approximately 4.2%.
This follows a disappointing BLS report from last month, which revealed that job growth in July fell short of expectations and caused an unexpected rise in the unemployment rate. However, fears of a recession that were sparked by July’s figures have since diminished. Further adding to the economic narrative, Thursday’s second estimate from the Bureau of Economic Analysis reported that the US real GDP grew at an annualized rate of 3% in the second quarter, which is an increase from the earlier forecast of 2.8%.
The first quarter saw a robust growth of 1.4%. Goldman Sachs expressed their belief that if the August jobs report aligns closely with their predictions or indicates an improvement, the Federal Open Market Committee (FOMC) would likely respond with a 25-basis-point rate cut in their meeting on September 18.
They also expect that this trend could continue with similar cuts anticipated in November and December. However, should the jobs data from August underperform expectations, it could prompt the FOMC to consider a more aggressive 50-basis-point rate cut. Notably, Goldman’s forecast on the unemployment rate also takes into account a potential reversal of temporary layoffs that occurred during July, which were associated with seasonal auto plant retooling shutdowns and extreme heat.
They concluded by stating, "We believe that most of the temporary impacts on the unemployment rate from recent immigration influxes have already been processed through the system." The implications of these reports and forecasts will be closely watched by investors and policymakers alike, as they shape expectations around interest rates and economic growth in the upcoming months..