Goldman Sachs chief economist Jan Hatzius says the latest jobs data points to a cooling labor market and strengthens the case for the Federal Reserve to cut rates this month.
In Goldman Sachs Research’s Global Views report, the team led by Hatzius says the much-delayed September jobs report showed signs that the labor market continues to cool, which may have locked in a rate cut next week.
With the next jobs report slated for December 16 and the next Consumer Price Index (CPI) print scheduled on December 18, Hatzius says “there is little on the calendar to derail a cut on December 10.”
Hatzius notes that while the Bureau of Labor Statistics reported that non-farm payrolls edged up 119,000 in September, Goldman Sachs Research projects that the underlying job growth trend stands at only 39,000. The team’s alternative indicators also show renewed job losses in October.
Goldman Sachs Research adds that other components of its layoff trackers have been on the up and up in the past few months, despite low initial jobless claims.
Says Hatzius,
“This could mean that the weakness in the labor market is becoming too entrenched to be checked by a modest cyclical growth acceleration.”
Goldman Sachs Research says the pressures on college-educated workers stand out as a key signal. The team’s data shows that as of September, the unemployment rate for college graduates aged 25 or older stood at 2.8%, about 50% higher than its 2022 low. Meanwhile, the unemployment rate for college graduates aged 20-24 has skyrocketed to 8.5%, a 70% increase from its 2022 low.
The team notes that college graduates represent over 40% of the US labor force and an estimated 55-60% of US labor income. Hatzius says AI and other productivity-boosting measures have contributed to the rising unemployment rate among college graduates.
“A further deterioration in employment opportunities for this key demographic—perhaps reflecting artificial intelligence (AI) and other efficiency-enhancing measures—could have a disproportionate negative impact on consumer spending and prompt further rate cuts over time.”
Amid a weakening labor market, Goldman Sachs Research predicts a rate cut this month, followed by a pause in January before fresh rate cuts in March and in June to drive interest rates from 3.75-4% down to 3-3.25%.
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