Goldman Sachs economists now expect the Fed to cut rates by 25 basis points at each of the three remaining meetings this year. They previously expected two rate cuts.
“Today’s report suggests that the slowdown in labor market conditions has now gone beyond what was welcome,” Goldman notes.
In addition, economists there see the possibility of a 50 basis point interest rate cut in September if the August jobs report comes in weak.
From the note:
“Nonfarm payrolls rose by 114,000 jobs in July, missing consensus expectations. Industry composition was also weak, with health care accounting for more than half of July’s job gains and the payroll diffusion index falling to its lowest level since May 2016. The household survey was also weak, with the unemployment rate rising 0.2 percentage points to 4.3%. The Bureau of Labor Statistics noted that Hurricane Beryl “had no discernible impact on national employment and unemployment data for July.” However, the number of weather-related unemployed workers in the household survey increased by 280,000 (SA by GS), and the number of unemployed workers on temporary layoffs increased by 249,000, accounting for 70% of the increase in the total number of unemployed workers this month. Our estimate of the underlying pace of job growth based on the payroll and household surveys is now 146,000 after adjusting for the undercounting of immigrants in official statistics. Average hourly earnings rose 0.2% month-over-month in July, below expectations. Our estimate The underlying pace of average hourly earnings growth is +3.9%. Today’s report suggests that the slowdown in labor market conditions has now exceeded what was welcome. As a result, we now expect an initial series of 25 basis point rate cuts in September, November, and December (versus our previous expectation of cuts at every other meeting). We believe that the slowdown in job growth in the July report is likely to overstate the decline in the underlying trend, but if the August employment report is also weak and confirms the slowdown in job growth, a 50 basis point cut could become likely at the September meeting.“.”