Latest Nonfarm Payrolls Forecast: Job Growth May Slow, Complicating Fed's Decision

Original title: Wolfe Research Expects August Payrolls to Rise 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. After July's nonfarm payrolls unexpectedly fell by 23,000, and May and June data were revised down by a combined 103,000, the market is trying to determine whether U.S. employment is merely entering a low-growth phase or has already begun to contract significantly.

Wolfe Research expects August nonfarm payrolls to increase by 65,000, slightly above the 55,000 market consensus cited in the original article. This forecast itself is not strong: according to Wolfe's estimates, with slowing labor force growth, about 65,000 new jobs per month would only maintain basic balance in the labor market. In other words, even if the forecast is realized, it would be difficult to argue that employment demand is re-accelerating.

The more noteworthy part of this forecast is that different indicators may send conflicting signals. Wolfe expects the unemployment rate to rise from 4.09% to 4.16%, while monthly wage growth could reach 0.35%, above market expectations; year-over-year wage growth is expected to slow from 3.2% to 3.1%. The coexistence of cooling employment and short-term wage resilience could complicate the Fed's judgment.

The original article also expected the annual benchmark revision to raise total nonfarm payrolls by 180,000. However, this forecast has already been overturned by subsequently released data. The preliminary results released by the U.S. Bureau of Labor Statistics on August 28 showed that nonfarm payrolls through March 2026 may need to be revised down by 79,000. This result does not yet incorporate current monthly employment data, and the final revision will be released in February 2027. Therefore, the original article's judgment on the benchmark revision can only be retained as Wolfe's forecast at the time and cannot continue to be used as fact.

The following is a compiled translation of the original article:

Wolfe Research expects U.S. August nonfarm payrolls to increase by 65,000, slightly above the 55,000 market consensus cited in the original article. Of this, the private sector is expected to add 75,000 jobs, while government employment may decline by 10,000.

If the forecast is realized, August employment will improve from July's negative growth. However, Wolfe believes that 65,000 new jobs is roughly the monthly "breakeven level" for the current U.S. labor market—the minimum growth needed to keep employment and the labor force relatively stable.

This estimate is not an official indicator and can change with factors such as population, labor force participation rate, and immigration. The real judgment it conveys is that even if job growth returns to positive territory, it may only represent temporary stabilization of the labor market, not a renewed strengthening of hiring demand.

Is 65,000 New Jobs Only Enough to Maintain Labor Market Balance?

Wolfe's forecast of 65,000 new nonfarm jobs is roughly consistent with the average monthly increase of about 61,000 since 2026. This suggests that U.S. employment may continue its low-growth trajectory rather than accelerate further.

Weakness in recent months has been concentrated in certain sectors. The original article cites Wolfe data showing that leisure and hospitality employment fell by 43,000 in June and another 40,000 in July. Wolfe attributes part of the decline to seasonal factors and the fading of temporary employment growth related to the World Cup.

With seasonal factors turning relatively favorable in August, Wolfe expects leisure and hospitality employment to increase slightly by 5,000.

However, whether a sectoral employment rebound represents an improvement in overall demand still requires cautious judgment. If new jobs come mainly from technical corrections in sectors that previously declined sharply, while manufacturing, professional services, and retail remain weak, the overall labor market may still be cooling.

Moreover, the downward revision of July data has already increased market sensitivity to historical data revisions. Data released by the U.S. Bureau of Labor Statistics showed that May nonfarm payroll growth was revised down from 129,000 to 63,000, and June from 57,000 to 20,000, a combined reduction of 103,000 over the two months. Therefore, beyond the August job gains, whether the previous two months are revised down again is equally important.

Monthly Wage Growth May Rebound, but Year-over-Year Trend Still Cooling

Wolfe expects average hourly earnings to rise 0.35% month-over-month in August, above the 0.2% market consensus cited in the original article; year-over-year growth may slow from 3.2% in July to 3.1%.

The divergence between monthly and annual trends is not contradictory. Monthly wage growth can be affected by factors such as survey dates, bonus payments, industry composition, and hours worked, while year-over-year data reflect cumulative changes over the past 12 months.

Wolfe believes that the August employment survey reference period covers mid-month, which may more fully capture mid-month pay raises, thereby boosting average hourly earnings for the month. This is the firm's explanation of the survey structure; actual results may still be influenced by changes in the employment share of high-wage and low-wage industries.

From the Fed's perspective, a 0.35% monthly wage increase could reinforce the view that short-term wage pressures remain resilient; but if year-over-year growth continues to decline to 3.1%, it suggests that the medium-term direction of wage inflation is still slowing.

Therefore, the market needs to monitor three dimensions simultaneously: whether monthly wage growth exceeds expectations, whether year-over-year growth continues to decline, and whether average weekly hours change. A one-month rebound in average hourly earnings alone is not enough to confirm that wage pressures are re-accelerating.

Unemployment Rate May Rise to 4.16%, but Labor Force Participation Rate Is More Critical

Wolfe expects the August unemployment rate to rise from 4.09% in July to 4.16%. In the usual published format, this may appear as an increase from 4.1% to 4.2%.

The firm believes that the household survey may continue to show significant volatility. According to its statistics, the U.S. labor force has shrunk by about 2.5 million since 2026, with about 1 million of that occurring in the last two months. Rapid changes in the labor force size complicate the interpretation of the unemployment rate.

The unemployment rate depends on both the number of unemployed and the total labor force. If some workers stop looking for work and exit the labor force, the unemployment rate may remain stable or even decline despite weakening employment demand; if the labor force participation rate rebounds and more people re-enter the labor force, the unemployment rate may rise even without significant layoffs.

Therefore, a 4.2% unemployment rate does not necessarily indicate a sudden deterioration in the job market. The more critical question is whether the rise in unemployment comes from a decline in employment or a rebound in labor force participation.

In July, the unemployment rate fell to 4.1% while the labor force participation rate dropped to 61.4%. If the participation rate rebounds in August and the unemployment rate rises slightly, it may simply mean more workers are re-entering the labor force; if the participation rate remains subdued and the unemployment rate continues to climb, the signal of a cooling job market would be clearer.

Wolfe Got the Benchmark Revision Wrong, but Downward Revision Is Limited for Now

At the time of the original article's publication, Wolfe expected the U.S. Bureau of Labor Statistics to revise total nonfarm payrolls through March 2026 upward by about 180,000 in the annual benchmark revision, equivalent to an average monthly increase of about 15,000 over the previous 12 months.

The results released on August 28 contradicted this forecast. The U.S. Bureau of Labor Statistics' preliminary estimate indicates that total nonfarm payrolls through March 2026 need to be revised down by 79,000, or about 0.1%; private sector employment needs to be revised down by 178,000.

This revision is based on more comprehensive administrative records such as the Quarterly Census of Employment and Wages (QCEW) and is used to calibrate the monthly establishment survey. The preliminary downward revision of 79,000 suggests that previous employment totals were slightly overestimated, but relative to the overall nonfarm payroll level, the revision is limited and smaller than the average absolute benchmark revision of 0.2% over the past decade.

It should be noted that this is only a preliminary estimate and will not immediately alter the currently published monthly nonfarm payroll data. The final result will be released in February 2027 along with the January 2027 employment report.

More precisely, this revision does not change the overall judgment that employment is cooling, nor does it provide evidence that the labor market was previously significantly overestimated. What it truly overturns is Wolfe's specific forecast of an "upward revision of 180,000."

Nonfarm Payrolls May Improve, but Not Necessarily Enough to Prove Employment Is Strengthening

According to Wolfe's forecast, the August employment report may present a complex combination: job growth turns positive but only at a level that maintains labor market balance; the unemployment rate rises slightly; monthly wage growth exceeds expectations while year-over-year growth continues to slow.

This combination will not provide the Fed with a simple answer.

If job growth is near 65,000, the unemployment rate rises to 4.2%, and previous months are revised down again, the market may interpret this as continued labor market cooling. If monthly wage growth reaches 0.35%, policymakers will still face the issue of relatively strong short-term wage pressures.

If job growth significantly exceeds the forecast and wages strengthen in tandem, expectations for rate hikes may gain support; if employment falls well below the breakeven level, the unemployment rate rises, and wages slow, 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 on September 4 at 8:30 a.m. Eastern Time. The August PPI and CPI are scheduled for release on September 10 and 11, respectively, and the Fed's policy meeting will be held on September 15-16.

Therefore, nonfarm payrolls will determine whether the employment-side evidence continues to weaken, but it is not the only variable in the September policy decision. Even if job growth is only 65,000, what truly influences the Fed's judgment is whether employment, participation rate, wages, and inflation collectively point in the same direction.