NEW YORK ( TheStreet) -- Goldman Sachs (GS) takes a more pessimistic view than average of May jobs growth, the last piece of economic data available to the Federal Reserve before a June meeting where raising interest rates will likely dominate discussion.
The Fed has been famously cautious about when and how it will raise rates, which were slashed to nearly zero during the financial crisis. While employment in the U.S. has met the quantitative figures the Fed wanted, Chairwoman Janet Yellen has voiced concern about qualitative issues -- namely slack in the labor market.
Although unemployment has fallen to 5.4% -- better than the central bank's target of 6.5%, wage growth has been slow. Lower wage growth figures hint that the job market may not be as good as the headline unemployment figure suggests.
Friday's report on May employment is expected to show around 226,000 jobs were created that month, the consensus of analysts' estimates and a gain of about 3,000 from April. New York-based Goldman Sachs, however, predicts the report will show only about 210,000 new positions.
The bank identified four factors this week that may lead to the slower growth. First, several business surveys showed fewer jobs created in May than in April. The ISM manufacturing index, which looks at employment, production inventories, new orders, and supplier deliveries of 300 manufacturing firms, fell to 55.7 from 57.8 in April. Meanwhile, the Chicago PMI, which tracks manufacturing and non-manufacturing business in Chicago, fell 6.1 points in May to 46.2. Finally, the Dallas Fed manufacturing survey showed a continuing decline in Texas factory activity.
Second, Goldman Sachs sees more bad news for Texas -- specifically in the continuing loss of mining sector jobs. "Although the number of drill rigs in operation appears to be stabilizing, and unemployment claims in Texas have come down a bit from their earlier highs, we still expect a drag of around 15,000 in mining sector employment," Kris Dawsey, the U.S. economist for Goldman Sachs, wrote in the report.
Goldman Sachs' points to weather as a third factor dragging on May's employment numbers: Not only did the Lone Star State suffer devastating floods, other parts of the country experienced a late, and chilly, spring.
Finally, the bank acknowledges a reporting bias that may be inflating May projections: "Consensus has a tendency -- but by no means a reliable tendency -- to overestimate job growth in May," Dawsey wrote. "Over the past five years, the average consensus error" has been about 56,000.
Despite these headwinds, Goldman Sachs expects the unemployment rate to stay at 5.4% and that average hourly earnings to increase by 0.3%.