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The job market likely furthered softened in August and we expect the release to continue to show evidence of both slowing cyclical demand and slowing structural supply of workers. Those forces should net out to our expectation of a cool but not frozen 64k jobs added in August, and just like last month, revisions will continue to add to volatility. We see the unemployment rate ticking up to 4.3%.

Bigger picture, our forecast continues to see a rise in the unemployment rate towards 4.6% by Q1 2026 and enough cyclical weakness in the labor market for the Federal Reserve to begin cutting (our current base case is the first cut is in December). In historical context, however, a 4.6% unemployment rate at peak would suggest very limited slack in the U.S. job market, reflecting the dichotomy of an economic slowdown coupled with a structural floor under how weak the job market can get.

To parcel out these impacts, we’ll be watching this particular Nonfarm Payrolls piece through 4 core lenses:

• The U.S. economy needs fewer jobs as the labor force continues to shrink off the back of mass retirements and slower immigration. Currently, our estimate of “breakeven” jobs growth is about 100k, implying the economy only needs about that amount to keep the unemployment rate stable and prevent further slack from accumulating. We likely won’t meet that bar in August, however, and so the unemployment rate will rise slightly to 4.3%.  If we’re correct, August will mark the fourth consecutive month of below breakeven job growth, signifying a cyclical cooling of the labor market worth monitoring. 

• Job growth continues to be centered in “non-cyclical” industries, particularly health care and social assistance which have contributed about 80% of job growth on average over the past six months. Effectively, structural demands from an aging population (ironically tied to accelerated retirements which slow supply) are masking the deeper cyclical weakness in play, and so partitioning these two components out of the release will be important in this (and most coming) releases (see chart).

• Trade-exposed sectors are shedding jobs. Most weakness in recent reports have been concentrated in manufacturing, wholesale trade, and professional and business services – (where temporary help services account for a sizeable share and are often used to backfill manufacturing job). As we covered in our Tariff Transmission Framework, importers have choices to make around passing on tariff costs to consumers or “absorbing” them by cutting other costs, i.e. labor. Inflation data tells us one part of that story, but job losses in trade-exposed sectors tell us the other.

• Wage-growth is slowing but is still on the slightly-warm side. Ongoing declines in labor force participation rates will keep a healthy clip behind wage-growth (one of the better medium-term drivers of services inflation). We expect to see a +0.3% m/m increase in August, leaving average hourly earnings at a 3.7% year-over-year clip. That’s a moderation from earlier peaks, but it’s still above the pre-pandemic average, a trend we expect to persist. Note that July’s Personal Income data also showed an acceleration in wages, with a separate measure of wages and salaries up 0.6% m/m (5.3% y/y). 

The coming week also contains weekly jobless claims and JOLTS data, and thus will focus disproportionately on the dovish side of the Federal Reserve’s mandate. Our larger concern is still on the inflation side of the picture, but PPI and CPI data will land only the following week. 

• We anticipate initial claims will hold relatively steady at 231k next week alongside an uptick in continuing claims, reflective of the fact that the job market is softening but not cracking.  

• The trade balance will likely point to a wider deficit (at -$77.6B) as we saw a surge in industrial supplies imports in the July Advanced Goods Trade Balance data from the Census. We already know from the goods data that distortions are more prevalent against the current backdrop, and we will continue to monitor this. 

• Job Opening and Labor Turnover Survey (JOLTS). It’s a lagging indicator with a dwindling response rate but has provided indications of the low hire/low fire dynamic at play in America and ongoing elevated job openings (again, helpful at suggesting the true issues at play in the U.S. economy are supply-side). Nonetheless, the labor market is indeed cooling, and we expect 7225k job openings in July, a near 3% decline from the month prior.  

• ADP will land on Thursday and garner attention ahead of the nonfarm payrolls report. We caution that the ADP sample differs from nonfarm payrolls as it only samples private companies and has a bias towards larger-sized businesses. As such, there are often differences in both directional and magnitude between ADP and NFP releases.  

• We will start the week off with ISM Manufacturing on Tuesday. In recent months, we have seen notable sentiment deterioration from firms citing tariff pressures and uncertainty which will likely continue this week. Importantly, we are monitoring for further depletion of stock-piled inventories which meaningfully impacts the timeline for price pressure (and/or layoffs) emanating from tariffs.

About the Authors

Frances Donald is the Chief Economist at RBC and oversees a team of leading professionals, who deliver economic analyses and insights to inform RBC clients around the globe. Frances is a key expert on economic issues and is highly sought after by clients, government leaders, policy makers, and media in the U.S. and Canada.

Carrie Freestone is an economist and a member of the macroeconomic analysis group. She is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.