U.S. Nonfarm Payrolls Report Tonight: Good News Could Be Bad News

Original author: Xu Chao

Source: Wall Street Journal

The U.S. August non-farm payrolls report will be released tonight, with Wall Street expecting a slight rebound from July’s negative figure. However, market logic has shifted abruptly—for investors, a strong data release isn’t necessarily good, and a weak jobs report doesn’t necessarily mean disaster. The core of the data博弈 lies in the Fed’s next interest rate path.

The market consensus expects non-farm payrolls to increase by 55,000 in August, rebounding from a decline of 23,000 in July, with the unemployment rate forecast to remain unchanged at 4.1% and average hourly earnings projected to rise 0.3% month-over-month. Goldman Sachs holds a more cautious view, forecasting only 40,000 job additions, slightly below the consensus. According to JPMorgan’s Market Intelligence team, Fed Chair Warsh has clearly stated at the Jackson Hole symposium that the economy is currently at full employment with persistent inflationary pressures, meaning the non-farm data is operating under a "good news is bad news" framework—strong employment will push up bond yields and weigh on U.S. equities.

In terms of market impact, J.P. Morgan believes that next week’s CPI data will have a greater influence on the Fed’s September 16 meeting than today’s nonfarm payrolls report, given the current policy environment. According to J.P. Morgan, the implied daily volatility for the S&P 500 index options expiring on September 4 is approximately 1.1%. According to Bloomberg Chief Economist Anna Wong, if August’s nonfarm payrolls again show a negative reading, “there is no precedent in modern Fed history of the Fed hiking rates after two consecutive months of negative nonfarm payrolls.”

Leading indicators for the August labor market showed significant divergence, making predictions more difficult than usual.

ADP reported that private sector employment in August increased by only 38,000 jobs, the slowest pace since January this year, below the consensus estimate of 47,000 and marking the largest miss in recent times.

Revelio’s public labor statistics show that total non-farm employment increased by 36,500 in August, a notable slowdown compared to 79,200 in July. Initial jobless claims rose to 207,000 during the BLS survey period, up from 189,000 in July. The average reading of Goldman Sachs’ alternative employment indicators was 31,000, below 65,000 in July. Additionally, Challenger’s report showed that employers announced 52,900 layoffs in August, a significant increase from 33,400 in July.

But overall layoffs remain restrained—Challenger’s data shows that cumulative layoffs through the first eight months of 2026 totaled approximately 530,000, the lowest for this period since 2022, while hiring plans reached their highest level since 2023.

The monthly average of initial jobless claims was 204,000, below 210,000 in July, and the JOLTS layoff rate also decreased by 0.1 percentage point month-over-month to 1.0%. Additionally, employment in the leisure and hospitality sector declined by a cumulative 83,000 over the previous two months, and employment in local government education fell by 61,000, both leaving room for a normalization rebound.

Job openings data (combined JOLTS, Indeed, and LinkUp) remained largely unchanged in July, with no clear trend emerging recently.

Business survey signals remain mixed: the ISM Manufacturing Employment Index edged down to 51.2, still in expansion but at a slower pace; the ISM Services Employment Index rose slightly to 47.8, remaining in contraction for a second consecutive month; however, S&P Global’s manufacturing and services PMI employment subindices both strengthened, with the latter recording its fastest job growth in nearly 18 months.

Analysts specifically highlighted a policy factor that may mechanically suppress employment data—the temporary protected status (TPS) of approximately 300,000 immigrants, primarily of Haitian descent, expired at the end of July, resulting in the termination of their work authorization in the U.S.

According to Barclays' estimates, approximately 200,000 individuals were still counted as employed in the July non-farm payroll survey, and about 25,000 are expected to disappear from the August statistics as employers cease including them on payrolls. The drag will continue over subsequent months as the remaining individuals complete their eligibility reviews. Some individuals have already applied for asylum before the deadline, and a portion have been approved before their status expired, retaining their work authorization; others may still temporarily appear on employer payroll records due to employers not yet completing work eligibility verifications.

According to Anna Wong, Chief Economist at Bloomberg, taking into account the above factors, there is a high probability that non-farm payrolls will show a second consecutive month of negative growth in August.

In the context of this data release, the U.S. Bureau of Labor Statistics' (BLS) August annual benchmark revision estimates must also be considered.

Revisions show that, as of March 2026, employment levels before seasonal adjustment were 79,000 lower than previously estimated, a decrease of approximately 0.1%. This magnitude is far smaller than last year’s revision—the revision for March 2025, the base period, was as large as 911,000.

Looking at the details, private-sector employment was revised downward by a larger amount—178,000—meaning the actual monthly growth was 24,000, not the previously reported 38,000. By industry, retail saw the largest revision downward (-154,600), while transportation and warehousing saw the largest upward revision (+135,100). Despite federal employee cuts, government employment was still revised upward by 99,000. The final revised data will be officially incorporated into the employment report in February 2027.

At the Federal Reserve policy level, analysts are in broad agreement: non-farm payroll data close to expectations and a stable unemployment rate would align with the assessment that "the labor market is cooling but not deteriorating sharply," a scenario that would keep policymakers focused on inflation-related policy objectives.

The scenario that would truly alter the policy logic is a significant negative non-farm payrolls growth. Anna Wong explicitly stated that if August’s non-farm payrolls again turn negative, "there is no precedent in modern Fed history of raising rates after two consecutive months of negative growth," which would immediately freeze any market expectations of rate hikes.

From the market reaction framework, JPMorgan believes that, with only one non-farm payroll and one CPI report remaining before the Fed meeting on September 16, the CPI data carries greater weight. A strong non-farm payroll report could push bond yields higher, suppressing equities through a self-reinforcing logic of "more jobs → more consumption → further corporate hiring." Given that Warsh has already highlighted risks associated with loose financial conditions at Jackson Hole, this transmission mechanism warrants particular caution.

JPMorgan has set the "Goldilocks range" at an additional 30,000 to 70,000 jobs, within which the market is more likely to remain relatively stable.

According to JPMorgan, the market response paths corresponding to different data ranges are as follows:

If the data exceeds 100,000, U.S. equities will face significant pressure, the 10-year Treasury yield will rise, and markets will more fully price in a September rate hike; if it falls within the 70,000 to 100,000 range, equities will experience mild pressure with modestly higher yields; 30,000 to 70,000 is the "Goldilocks zone," with a neutral market response; if it falls below 30,000 or turns negative, short-term rates will decline rapidly, but a negative reading could trigger "stagflation concerns," making market expectations for the Fed’s policy path significantly more complex.

Goldman Sachs expects the month-over-month increase in average hourly earnings to be 0.4%, above the consensus of 0.3%, believing that positive calendar effects will support stronger wage data. Goldman Sachs’ wage tracking indicator shows that average hourly earnings rose at an annualized rate of 2.8% quarter-over-quarter and 3.6% year-over-year, still below its estimated threshold of 4% consistent with a 2% inflation target.