Economists anticipate that Friday's non-farm payroll report will demonstrate continued weakness in US employment growth, marking the softest performance since the pandemic and removing the last vestiges of doubt regarding Federal Reserve rate cuts.

The median forecast from economists surveyed expects August non-farm payrolls to increase by 75,000, marking the fourth consecutive month below 100,000. The unemployment rate is projected to rise to 4.3%, reaching its highest level since 2021.

Recent months have witnessed a significant slowdown in US employment growth, with August expected to deliver the fourth consecutive month of sub-100,000 job additions.

In recent months, businesses have grown increasingly concerned about consumer demand, cost pressures, and ongoing economic uncertainty stemming from trade policy, leading to a notable deceleration in hiring activity. This places greater pressure on Federal Reserve officials who need to take action to support the weakening labor market.

Gregory Daco, Chief Economist at EY-Parthenon, anticipates that private sector employment growth will be primarily driven by healthcare, leisure, and hospitality sectors.

Economist Anna Wong noted that local government hiring will boost overall employment figures following the unfreezing of federal education funding.

According to Thursday's ADP data, private sector employment added only 54,000 jobs in August, falling short of expectations.

The July non-farm employment report released on August 1st revealed that recent months' job growth was significantly weaker than previously reported, altering many economists' and policymakers' perspectives on the labor market. The substantial downward revisions prompted concerns about the integrity of US data.

Bank of America economist Shruti Mishra stated that given the frequency of revisions in 2025 to date, July's job additions may also be revised downward. "If this proves true, it could indicate that labor market weakness is more severe than we anticipated."

The Bureau of Labor Statistics will release preliminary benchmark revision data next Tuesday, an adjustment that could reduce employment positions by hundreds of thousands over the year ending in March.

Impact on the Federal Reserve

Daco noted in a report that "amid increasingly fragile labor market conditions, Fed Chairman Powell remains open to rate cuts, and a weak August employment report will further strengthen the case for rate reductions."

Other indicators and surveys also demonstrate softening labor market conditions. Data released Wednesday showed US job openings fell to a 10-month low in July. Analysts at Evercore ISI indicated this makes it increasingly unlikely that non-farm data could reverse September rate cut expectations.

Government data released Thursday showed US initial jobless claims rose to their highest level since June. Data from Challenger, Gray & Christmas revealed that planned hiring in August dropped to the weakest level on record, while layoff intentions increased.

A particularly weak employment report could even drive market bets toward larger rate cuts this month. Zachary Griffiths, Head of Investment Grade Credit and Macro Strategy at CreditSights, suggested that if August job additions result in three-month average employment growth remaining below 50,000, it could be sufficient to trigger rate cuts.

Futures contract pricing indicates Fed officials are likely to reduce the benchmark rate by 25 basis points at their September 16-17 meeting. However, the Fed's actions at subsequent meetings remain unclear.

Wells Fargo Senior Economist Sarah House noted that given persistent inflation and weakening labor markets, policymakers find themselves caught between their dual mandates of employment and price stability. Disagreements among Federal Open Market Committee (FOMC) members may also become increasingly frequent.

However, she expects the labor market to become the primary determinant of interest rate decisions in coming months.

House stated: "At least in the near term, monetary policy direction will depend more heavily on employment market changes. The labor market could shift more rapidly."