Goldman Sachs has issued a new report that challenges the optimistic view of the U.S. labor market presented by the Trump administration. The report, released in response to recent criticisms from the administration, suggests that the labor market is likely to worsen. This report is part of an ongoing debate between the Trump administration and Goldman Sachs, with the latter maintaining a more pessimistic outlook on the economic situation.
The report highlights several key points that contribute to this pessimistic outlook. Goldman Sachs economists warn that the slowdown in the U.S. job market is far from over and may even deteriorate further. They note that the hiring momentum is weaker than previously thought, and current employment growth levels are insufficient to sustain full employment. The economists, David Mericle and Jessica Rindels, stated that their estimates for trend employment growth are now significantly below the 30,000 per month threshold. They also mentioned that future employment growth adjustments are more likely to be negative, citing weaknesses in sectors such as healthcare employment, seasonal hiring, and government model calculations for new businesses.
This report comes just days after the U.S. President criticized Goldman Sachs’ team for their past market predictions, calling them “wrong” and overly negative about the economy. The report contrasts with the relatively stable unemployment rate, which has hovered around 4%. However, Goldman Sachs points out that while the unemployment rate does not show significant cracks, other indicators are flashing warning signs. Labor force participation is declining, job openings are starting to decrease, and hiring activity has slowed to near zero in most industries.
This slowdown is crucial for both the Federal Reserve and the White House. For the Federal Reserve, the slowing employment growth provides a rationale for lowering interest rates to support growth. Goldman Sachs predicts that the Federal Reserve will cut interest rates three times this year, by 25 basis points each in September, October, and December. They also forecast that if hiring continues to weaken, the Federal Reserve may cut rates twice more by 2026.
For the Trump administration, strong job creation has been a key part of their economic narrative. Any further cooling in the job market could weaken this argument. The Goldman Sachs team also pointed out structural changes that are putting pressure on employment. The sharp decline in immigration means the economy needs fewer new jobs each month to maintain full employment. Stricter immigration policies also mean that immigrant workers are less likely to be employed or included in official data.
However, this slowdown appears to be more severe than just an immigration issue. Industries like healthcare and education, which previously made up for pandemic-related labor shortages through “catch-up hiring,” are no longer showing significant growth. This has led to a general slowdown in job creation. Goldman Sachs analysts warn that other sectors, including technology, manufacturing, and retail, may also face labor market headwinds in the coming months.
Even a mild further slowdown could have significant consequences. Analysts note that in an environment where the labor market is already at what economists consider its maximum employment edge, a low-mobility environment could make it harder for unemployed workers and recent graduates to enter the labor market. This dynamic could risk leaving some workers “locked out” of the labor market, even if the unemployment rate does not spike.
Additionally, several special factors in the coming months could further strain employment, including reductions in Federal Reserve System staff, the expiration of temporary protected status for some immigrants, and stricter immigration enforcement. Federal Reserve Chairman Powell is scheduled to deliver his most critical policy speech of the year at the annual Jackson Hole Economic Symposium later this week. Investors are eager to hear his stance on potential rate cuts, which is expected to be a key issue addressed in his speech.
Source: ainvest.com
