Goldman Sachs sees below-consensus July jobs report

Following a largely anticipated statement from the Federal Open Market Committee (FOMC) on Wednesday, the market focus has now shifted to the upcoming employment report due on Friday. Economists and analysts largely expect the report to provide signs that economic conditions are conducive to a rate cut in September.

Goldman Sachs economists estimate that nonfarm payrolls rose by 165,000 in July, below the consensus of 175,000 and the three-month average of 177,000. They also estimate a 125,000 increase in private payrolls, compared to the consensus of 148,000.

"While an influx of labor supply at the start of summer typically leads to an acceleration in seasonally-adjusted job growth when the labor market is tight, alternative measures of job growth indicate a pace of job creation below the recent payrolls trend, and we assume a 15k drag from Hurricane Beryl,” they said in a note.

Hurricane Beryl, which caused power outages for over 2 million Texans, significantly impacted employment in the state. Goldman noted its past analyses have shown that major hurricanes typically reduce payroll growth by around 25,000 on average, although the effects vary depending on the severity and timing of the storm.

In fairness, the hurricane had only a modest impact on this week’s ADP employment report, with employment growth in the Texas region about 10,000 below its average pace from the first half of the year.

For the unemployment rate, Goldman Sachs economists expect it to remain unchanged at 4.1%, in line with consensus.

The Wall Street firm pointed out two-sided risks to this forecast. Continued, though slowing, above-trend immigration could increase the unemployment rate, while a catch-up of household employment towards nonfarm payrolls, after a period of underperformance, could decrease it.

Economists also estimate that average hourly earnings rose 0.3% month-over-month, which would reduce the year-over-year rate by two-tenths to 3.7%, consistent with consensus and last month's increase.

"This month’s calendar configuration should weigh on average hourly earnings, but the impact of Hurricane Beryl could boost them, as reported hours typically fall more sharply than earnings during severe weather events,” they noted.