Original author: Xu Chao Source: Wall Street Journal The U.S. August nonfarm payrolls report is due tonight. Wall Street is looking for a modest rebound after July posted an unexpected decline, but the market's reaction function has shifted: stronger labor data may not be welcomed, while softer numbers may not automatically be viewed as a disaster. At the center of the tug-of-war is the Federal Reserve's next rate move. Consensus forecasts call for payrolls to rise by 55,000 in August after falling 23,000 in July. The unemployment rate is expected to hold at 4.1%, and average hourly earnings are seen up 0.3% month over month. Goldman Sachs is slightly below consensus, projecting 40,000 job gains. JPMorgan's Market Intelligence team said Fed Chair Warsh made clear at the Jackson Hole symposium that the economy remains at full employment while inflation pressures persist. In that setup, markets may treat "good news as bad news": strong hiring can lift Treasury yields and weigh on U.S. equities. JPMorgan argues that next week's CPI release is likely to matter more for the Fed's September 16 meeting than tonight's payrolls report. The bank estimates implied one-day volatility for S&P 500 options expiring September 4 at about 1.1%. Bloomberg Chief Economist Anna Wong added that if August payrolls print negative again, "there is no precedent in modern Fed history" for the Fed to hike rates after two consecutive months of negative nonfarm payrolls. Mixed signals ahead of the print Leading indicators for August have been unusually divergent. ADP reported private-sector employment rose just 38,000, the slowest pace since January and below the 47,000 consensus estimate. Revelio's public labor statistics show total nonfarm employment increased 36,500 in August, slowing from 79,200 in July. Initial jobless claims during the BLS survey window rose to 207,000 from 189,000 in July. Goldman Sachs' alternative employment indicators averaged 31,000 versus 65,000 in July. Challenger reported announced layoffs of 52,900 in August, up from 33,400 in July. Even so, cumulative layoffs in the first eight months of 2026 totaled about 530,000, the lowest for the period since 2022, while hiring plans reached their highest level since 2023. Other measures point to resilience: the monthly average of initial claims was 204,000, below 210,000 in July, and the JOLTS layoff rate fell 0.1 percentage point month over month to 1.0%. Sector-specific moves may also distort the headline. Leisure and hospitality employment fell a combined 83,000 over the past two months, while local government education jobs declined 61,000, leaving room for a normalization rebound. Job openings measures (combining JOLTS, Indeed and LinkUp) were largely unchanged in July, offering little directional clarity. Surveys remain split: the ISM Manufacturing Employment Index slipped to 51.2 but stayed in expansion; the ISM Services Employment Index ticked up to 47.8, still signaling contraction for a second month; S&P Global's manufacturing and services PMI employment subindices both improved, with services showing the fastest job growth in nearly 18 months. TPS expiration seen as mechanical drag Analysts have also flagged a policy-related factor that could mechanically depress payroll counts. Temporary protected status (TPS) for about 300,000 immigrants—primarily of Haitian descent—expired at the end of July, ending their U.S. work authorization. Barclays estimates roughly 200,000 people were still counted as employed in July's payroll survey, and about 25,000 could drop out of August payrolls as employers remove them from payrolls. The drag may persist in coming months as remaining cases go through eligibility reviews. Some individuals filed for asylum before the deadline, and some were approved prior to expiration and retained authorization. Others may still appear temporarily on payroll records as employers complete verification. Wong said these factors raise the probability that August payrolls could post a second consecutive negative reading. Benchmark revision: smaller than last year's shock Investors will also parse the Bureau of Labor Statistics' annual benchmark revision released in August. The revision shows that as of March 2026, non-seasonally adjusted employment was 79,000 lower than previously estimated, about a 0.1% reduction. That is far smaller than last year's revision, when March 2025 was revised by as much as 911,000. Private-sector employment saw a larger downward revision of 178,000, implying actual monthly growth of 24,000 rather than the previously reported 38,000. By industry, retail had the largest downward revision (154,600), while transportation and warehousing had the largest upward revision (+135,100). Government employment was revised up by 99,000 despite federal employee cuts. The revised series will be fully incorporated into the employment report in February 2027. Fed path: CPI likely the decisive input Strategists broadly agree that a payrolls print near expectations with a steady unemployment rate would support the view that the labor market is cooling but not deteriorating sharply, keeping the Fed's emphasis on inflation. The scenario most likely to change the policy narrative is a meaningful negative payrolls result. Wong said another negative month would effectively freeze any expectations for rate hikes, given the lack of historical precedent. With only one payrolls report and one CPI release left before the September 16 decision, JPMorgan sees CPI as the heavier-weight data point. Still, a strong payrolls surprise could push yields higher and pressure equities, reinforced by a "more jobs → more consumption → more hiring" feedback loop. Given Warsh's Jackson Hole warning about risks from loose financial conditions, JPMorgan argues this transmission channel deserves close attention. JPMorgan places a "Goldilocks" range at 30,000 to 70,000 jobs, where markets are more likely to remain stable. Above 100,000, the bank expects significant equity pressure. Its scenario map: above 100,000 would likely lift the 10-year Treasury yield, weigh on stocks and increase pricing of a September hike; 70,000 to 100,000 would bring mild equity pressure with modestly higher yields; 30,000 to 70,000 would be largely neutral; below 30,000 or negative would pull short-term rates down quickly, though an outright negative print could spark "stagflation concerns" and complicate expectations for the Fed's path. On wages, Goldman Sachs expects average hourly earnings to rise 0.4% month over month, above the 0.3% consensus, citing favorable calendar effects. Its wage tracker shows average hourly earnings running at 2.8% annualized quarter over quarter and 3.6% year over year, still below the firm's estimated 4% pace consistent with a 2% inflation target.