Goldman Sachs drops contrarian take on the jobs market

The unemployment rate says the job market is holding steady.

Goldman Sachs analysts, though, say that might not tell the whole story.

In a fresh note shared with me, the firm argues that the labor market is softer than the headline 4.3% unemployment rate suggests.

They argue that the job market is losing strength in ways that aren’t showing up cleanly in the one number most fixated on.

For the most part, the latest government jobs report looked solid on the surface.

Nonfarm payrolls rose by 172,000 in May, and the unemployment rate stayed unchanged at 4.3%.

However, Goldman’s point is that ‘stability’ is not the same thing as strength.

The firm’s updated slack tracker, which weaves together 10 labor-market indicators, sits at 4.8%. 

That is significantly higher than the official unemployment rate, suggesting more weakness beneath the surface than the headline number shows.

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May jobs report shows steady hiring 

• Payrolls rose 172,000 in May.
• Unemployment held at 4.3%.
• Leisure and hospitality added 70,000 jobs.
• Local government added 55,000; health care added 35,000.
• Financial activities lost 22,000 jobs.
  Source: U.S. Bureau of Labor Statistics, May 2026 Employment Situation.

Goldman Sachs says the jobs market is weaker than it looks

The unemployment rate is the clearest number in the jobs report, but Goldman Sachs argues it may not be the most complete.

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The firm lays out the case that the labor market is softer than the 4.3% unemployment rate suggests. 

However, Goldman isn’t being apocalyptic about it either.

The firm says the market has shown signs of stabilization, with trend job growth running at or above its breakeven pace estimate. But the broader dashboard tells a more cautious story.

Goldman’s updated slack tracker now stands at 4.8%, above the official unemployment rate. The tracker pulls in 10 measures of labor-market tightness, including the quits rate, median unemployment duration, involuntary part-time work, discouraged workers, the prime-age employment-population ratio, and the gap between job openings and unemployed workers.

So in essence, Goldman is saying the labor market can feel weaker before layoffs surge.

That is especially true in what the firm calls today’s “low-hire, low-fire environment". Workers may not be losing jobs in large numbers, but they may also have fewer good options if they want to switch roles or re-enter the workforce.

Moreover, Goldman Sachs analysts expect unemployment to rise only 0.1 percentage point further this year, peaking at 4.4%.

A softer jobs market could change the Fed’s calculus

Goldman’s job-market warning lands in the middle of a messy Fed debate.

Naturally, with a stronger surface-level report, things get remarkably tricky.

A tighter jobs market can keep wages elevated because companies must compete harder for workers. 

Higher wages are not bad for households, but they can keep service-sector inflation sticky if businesses pass those labor costs on to customers. 

That gives the Fed a reason to hold rates higher for longer.

A softer labor market points in the other direction.

When hiring slows, quits fall, and job seekers have a harder time finding work, wage pressure can ease even if unemployment has not jumped. 

That gives the Fed more room to cut because inflation risks look less threatening. Goldman’s point is that some of that softening may already be happening beneath the surface.

Hence, the current scenario leaves the Fed in a difficult spot. 

If it waits for unemployment to spike, it may be too late. But if it cuts too soon while inflation remains sticky, it risks reigniting price pressure. 

That soft-under-the-surface view would normally support rate cuts. But the problem for the Fed is inflation. Goldman recently pushed its expected Fed cuts into 2027, citing stronger activity, job growth, tariff risk, higher oil prices, and the need for core PCE inflation to move closer to the Fed’s 2% target. 

Reuters reported that Goldman now expects cuts in June and December 2027, rather than in December 2026 and March 2027.

Other firms are also leaning hawkish. J.P. Morgan Global Research sees the Fed holding rates steady through 2026, with the next move more likely a 25-basis-point hike in the third quarter of 2027.

So Goldman’s jobs note suggests that the Fed’s cushion may be thinner than unemployment suggests. 

Related: Jim Cramer drops blunt 7-word verdict on oil prices