Latest Non-Farm Payrolls Forecast: Job Growth Could Slow Down, Putting the Fed in a Tight Spot

Original Title: Wolfe Research Sees August Payrolls Rising by 65,000 Ahead of September Fed Meeting
Original Author: Fiona Craig, InvestorsHub

Editor's Note: On September 4, the U.S. Bureau of Labor Statistics will release the August employment report. Following an unexpected decrease of 23,000 in July and a combined downward revision of 103,000 for May and June, the market is assessing whether U.S. employment is merely entering a phase of low growth or has already begun a noticeable contraction.

Wolfe Research expects that nonfarm payrolls for August will increase by 65,000, slightly higher than the 55,000 market consensus cited in the original article. This forecast figure is not particularly robust on its own: according to Wolfe's estimates, with the slowdown in labor force growth, an additional 65,000 jobs per month can only maintain basic equilibrium in the labor market. In other words, even if the forecast materializes, it would be difficult to indicate a reacceleration in employment demand.

What is more noteworthy in this forecast is that different indicators may send out conflicting signals. Wolfe expects the unemployment rate to rise from 4.09% to 4.16%, while the month-on-month wage growth rate could reach 0.35%, higher than market expectations; however, the year-on-year wage growth rate is projected to slow from 3.2% to 3.1%. The cooling of employment coexisting with short-term wage resilience may make the Fed's assessment more complex.

The original article also anticipated that annual benchmark revisions would increase nonfarm payrolls by 180,000. However, this forecast has been overturned by subsequent data releases. Preliminary results released by the U.S. Bureau of Labor Statistics on August 28 showed that nonfarm payrolls as of March 2026 may need to be revised downward by 79,000. This result is not yet reflected in the current monthly employment data, and the final revision will be published in February 2027. Therefore, the original article's assessment of benchmark revisions can only be preserved as Wolfe's forecast at that time and cannot be continued to be treated as fact.

The following is the translation of the original article:

Wolfe Research anticipates that U.S. nonfarm payrolls will increase by 65,000 in August, slightly above the original article's cited market consensus of 55,000. Among these, the private sector is expected to add 75,000 jobs, while government employment may decline by 10,000.

If the forecast comes true, August employment will show some improvement from the negative growth in July. However, Wolfe believes that the addition of 65,000 jobs is roughly just the monthly "break-even point" for the current U.S. labor market, representing the minimum growth level required to maintain relative stability between employment and the labor force.

This estimate is not an official indicator and will change with factors such as population, labor force participation rate, and immigration. The key message it conveys is that even if new jobs return to positive territory, it may only represent temporary stability in the labor market and does not necessarily mean that hiring demand is picking up again.

65,000 New Jobs Added, Just Enough to Maintain Labor Market Balance?

Wolfe's forecast of 65,000 new non-farm jobs is roughly in line with the average monthly increase of about 61,000 jobs since 2026. This suggests that U.S. employment may continue to grow at a slow pace rather than accelerate further.

The recent weakness has been mainly concentrated in certain industries. The original text cites Wolfe's data, stating that the leisure and hospitality sector lost 43,000 jobs in June and another 40,000 in July. Wolfe attributes part of the decline to seasonal factors and the fading of temporary employment related to the World Cup.

With seasonal factors turning relatively favorable in August, Wolfe expects a slight increase of 5,000 jobs in the leisure and hospitality sector.

However, whether the industry's job rebound can represent an overall improvement in demand still requires careful assessment. If the new positions mainly come from a technical rebound in previously hard-hit industries, while sectors like manufacturing, professional services, and retail remain weak, the overall labor market may still be cooling off.

In addition, the downward revision of July data has increased the market's sensitivity to historical data revisions. Data released by the U.S. Bureau of Labor Statistics shows that the non-farm payroll increase for May was revised down from 129,000 to 63,000 and for June from 57,000 to 20,000, totaling a net addition of 103,000 jobs less than initially reported. Therefore, besides the August job additions, it is equally important to watch for any downward revisions for the previous two months.

Average Hourly Earnings May Rebound on a Monthly Basis, but Year-on-Year Trend is Cooling Off

Wolfe predicts that average hourly earnings will grow by 0.35% month-on-month in August, above the 0.2% market consensus cited in the original text; while the year-on-year growth rate may decline from 3.2% in July to 3.1%.

An opposite trend between monthly and yearly data is not contradictory. Monthly wage growth rates may be influenced by factors such as survey timing, bonus payments, industry structure, and working hours, while year-on-year data reflects the cumulative change over the past 12 months.

Wolfe believes that the mid-month coverage of the August employment survey reference period may more fully capture mid-month effective raises, thereby boosting the average hourly earnings for that month. This is the institution's interpretation of the survey structure, and actual results may still be affected by changes in the proportion of high-wage and low-wage industry employment.

From the Fed's perspective, a 0.35% month-over-month wage growth rate may reinforce the view that short-term wage pressure remains resilient; however, if the year-over-year growth rate continues to decrease to 3.1%, it indicates that mid-term wage inflation is still slowing down.

Therefore, the market needs to observe three dimensions simultaneously: whether the wage growth rate exceeds expectations, whether the year-over-year growth rate continues to decline, and whether the average weekly hours worked have changed. Relying solely on a one-month rebound in average hourly earnings is not enough to confirm a reacceleration of wage pressure.

Unemployment Rate May Rise to 4.16%, but Labor Force Participation Rate is Key

Wolfe anticipates that the unemployment rate in August will increase from July's 4.09% to 4.16%. By the usual published measure, this may appear as an increase from 4.1% to 4.2%.

The institution believes that the household survey may continue to show significant fluctuations. According to its statistics, the U.S. labor force has decreased by about 2.5 million since 2026, with around 1 million of that decline occurring in the past two months. The rapid change in the labor force size makes the interpretation of the unemployment rate more complex.

The unemployment rate depends on the number of unemployed individuals and the total labor force. If some workers stop job hunting and exit the labor market, even if there is a weakening in job demand, the unemployment rate may remain stable or even decrease. If the labor force participation rate rebounds and more people reenter the labor market, the unemployment rate may rise, even if there are no significant layoffs by companies.

Therefore, a 4.2% unemployment rate itself does not necessarily indicate a sudden deterioration in the labor market. The more critical question is whether the increase in the unemployment rate stems from a reduction in employment or a resurgence in the labor force participation rate.

While the July unemployment rate dropped to 4.1%, the labor force participation rate decreased to 61.4%. If the participation rate rebounds in August and the unemployment rate edges up slightly, it may just mean more workers are starting to look for jobs again. If the participation rate continues to languish and the unemployment rate still rises, the signal of a cooling job market will be more evident.

Wolfe Misjudges Benchmark Revision, but Downward Revision Impact Temporarily Limited

At the time of the original publication, Wolfe expected the U.S. Bureau of Labor Statistics to revise the total nonfarm employment level as of March 2026 upward by about 180,000, equivalent to an average monthly increase of around 15,000 positions over the previous 12 months.

The results released on August 28 were contrary to this forecast. The U.S. Bureau of Labor Statistics' preliminary estimate suggests that the total nonfarm employment level as of March 2026 needs to be revised downward by 79,000, a magnitude of around 0.1%; while private-sector employment needs to be revised downward by 178,000.

This revision is based on more comprehensive administrative records such as the Quarterly Census of Employment and Wages (QCEW) to recalibrate the monthly Establishment Survey. The preliminary downward revision of 79,000 indicates a slight overestimation of total employment previously, but the revision is limited relative to the overall nonfarm employment level and is smaller than the average absolute level of benchmark revisions over the past decade at 0.2%.

It is important to note that this is just a preliminary estimate and will not immediately overwrite the currently published monthly nonfarm data. The final results will be released in February 2027 along with the January 2027 employment report.

More specifically, this revision has not altered the overall assessment that employment is cooling off, but it also does not provide evidence that the labor market was significantly overestimated before. What it truly dispels is Wolfe's specific forecast of an "upward revision of 180,000."

Nonfarm May Improve, but Not Necessarily Enough to Prove a Strong Rebound in Employment

According to Wolfe's forecast, the August employment report may present a rather complex combination: job additions shift from negative to positive but remain at a level merely sustaining labor market equilibrium; the unemployment rate edges up slightly; wage growth exceeds expectations on a monthly basis while the year-over-year growth rate continues to decelerate.

This combination will not offer a straightforward answer to the Federal Reserve.

If job additions are close to 65,000, the unemployment rate rises to 4.2%, and the previous figure is revised downward again, the market may interpret this as a further cooling of the labor market. Should wage growth reach 0.35% month-over-month, policymakers will still need to address the issue of relatively strong short-term wage pressure.

If job additions are significantly higher than forecasted and wages strengthen concurrently, rate hike expectations may gain support. In contrast, if employment is well below the breakeven line, the unemployment rate rises, and wage growth slows, the threshold for the Fed to continue raising rates may increase.

The U.S. Bureau of Labor Statistics has confirmed that the August employment report will be released at 8:30 a.m. Eastern Time on September 4. The August PPI and CPI are scheduled for release on September 10 and 11, respectively, with the Fed's interest rate meeting set for September 15 to 16.

Therefore, the nonfarm data will determine whether the evidence on the employment side continues to weaken, but it is not the sole variable in the September policy decision. Even if job additions are only at 65,000, what will truly influence the Fed's assessment is whether employment, participation rate, wages, and inflation can all point in the same direction.