Goldman Sachs predicts that US jobs data will show signs of weakening but not complete collapse. They expect non-farm payrolls to increase by 60,000, but risks remain for a lower number due to seasonal trends in August. The unemployment rate is forecasted to rise to 4.3%, indicating a slowdown in the labor market. Average hourly earnings are expected to grow by 0.3% month-over-month due to favorable calendar effects. Overall, this data could support the Federal Reserve’s decision to cut rates in September, although the timing may still be debated based on other economic developments. This week’s US jobs report is expected to indicate continued weakness. We estimate non-farm payrolls to be around 60,000, but there is a risk of an even lower figure due to seasonal factors that affect August reports. Since the second quarter of 2025, there has been a clear trend of cooling in job growth, with monthly gains often falling below 100,000. We also predict the unemployment rate to climb to 4.3%, a level not seen since late 2023, showing further cooling in the labor market. This increase marks a notable shift from the rates below 4% seen throughout much of 2024. However, wage growth is expected to remain in check, with average hourly earnings likely up by only 0.3% month-over-month. This combination of slowing payroll growth and rising unemployment supports the case for a Federal Reserve rate cut at its upcoming meeting. With Core PCE inflation around 2.7% as of July, the Fed faces more pressure to shift focus towards supporting the economy. This data is crucial, as the market sees a roughly 65% chance of a rate cut, according to Fed funds futures. For derivative traders, this situation suggests preparing for increased volatility ahead of the jobs report and the September Federal Open Market Committee (FOMC) meeting. The Cboe Volatility Index (VIX), which has been stable around 15, could spike if the payrolls number is lower than expected. Buying short-dated VIX call options or straddles on the SPY ETF may be a smart way to trade this anticipated volatility. In the interest rate market, options on SOFR futures show uncertainty about the timing of the Fed’s first move. Given our outlook, traders might consider bull steepener trades using Treasury futures, betting on short-term rates falling faster than long-term rates. This strategy would benefit if the Fed signals a more aggressive rate-cutting approach in response to weak labor data. Due to the risks associated with payroll figures, it is wise to hold some downside protection. We recommend purchasing out-of-the-money put options on the S&P 500 or Nasdaq 100 indices for a cost-effective hedge. A significantly weaker-than-expected jobs report could lead to a risk-off market reaction, even if it supports the case for a rate cut.

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