Goldman Sachs: We expect a below-consensus 85K non-farm payrolls

Goldman Sachs forecasts a below-consensus US June payrolls print of +85k, significantly under the 113k market median, attributing the weakness to softer big data signals, the expiration of Temporary Protected Status for Venezuelans, and federal layoffs. The firm anticipates the unemployment rate will rise to 4.3% and average hourly earnings will increase 0.3% MoM, with further wage deceleration expected. This outlook confirms a slowing US labor market, which would reinforce the Federal Reserve's gradual dovish shift and maintain downward pressure on the USD, particularly if disinflationary wage trends persist.

Analysis

Goldman Sachs projects a significant slowdown in the U.S. labor market, forecasting a non-farm payrolls increase of only 85,000 for June, which is substantially below the market consensus of 113,000 and the three-month average of 135,000. This bearish outlook is attributed to a confluence of factors, including softening big data signals, a 25,000 reduction from the expiration of Temporary Protected Status for Venezuelan migrants, and a 15,000 decline in federal payrolls. The bank anticipates further signs of labor market slack, with the unemployment rate expected to climb to 4.3%. While average hourly earnings are projected to rise 0.3% month-over-month, underlying wage survey indicators point towards a continued deceleration in wage growth. The cumulative effect of these trends is expected to reinforce the Federal Reserve's gradual dovish policy shift, creating a headwind for the U.S. Dollar, particularly if the wage data confirms a disinflationary trajectory.

Key Decisions for Investors

• Consider positioning for potential US Dollar weakness, as a jobs report confirming this forecast would likely reinforce a dovish Federal Reserve outlook and weigh on the currency.
• Investors should evaluate exposure to US Treasuries, as a weaker-than-expected labor market could drive yields lower, presenting a potential opportunity in fixed-income assets.
• Monitor the wage growth component of the official report closely, as a significant deceleration could bolster the 'soft landing' narrative and support risk assets, whereas a sharper-than-expected slowdown may signal recessionary headwinds.
• Given the forecast's deviation from consensus, review portfolio risk and consider hedging strategies for positions sensitive to US economic data ahead of the official release to mitigate potential volatility.