The U.S. Labor Department today announced a significant downward revision in nonfarm payroll growth, adjusting the figures by 818,000 jobs for the private sector but 1,000 more gov’t jobs for the 12-month period through March 2024. This revision indicates that the U.S. economy created substantially fewer jobs than initially reported during this timeframe. Such revisions are not uncommon as they reflect more comprehensive data that becomes available after initial estimates are released. These adjustments can impact economic assessments and policy decisions, as they provide a clearer picture of employment trends and labor market conditions.
Details: Manufacturers added 115,000 fewer jobs, retailers 129,000 and the leisure and hospitality sector 150,000. The biggest downgrade came in professional and business services, where job growth was cut by 358,000.
Of note: The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March — or around 68,000 less each month — according to the Bureau of Labor Statistics’ (BLS) preliminary benchmark revision. This brings the total employment growth (not including farm jobs) for the 12-month period from 2.9 million to about 2.1 million, knocking average monthly growth during that period from about 242,000 to about 174,000.
Stocks reacted positively to the announcement, with the S&P 500 rising by about 0.3% shortly after the revisions’ release, extending its daily gain to 0.5% and hitting its highest price since July 16.
A Goldman economist wrote ahead of the Labor Department report that the downward revision is likely “erroneous” and “misleading,” estimating the new forecast likely overstated the error by 400,000 to 600,000, due in large part to the methodology mostly excluding unauthorized immigrants, a group which strongly contributes to overall job growth. “We’re not sweating this report,” wrote Yardeni Research founder Ed Yardeni, who added the revision is largely “old news” considering it tracks employment data from several months ago.
Key implications:
• Perception of economic strength: The revision raises questions about the previously perceived strength of the U.S. labor market. Economists and analysts may need to reassess their views on the robustness of job creation during the revised period, which could influence broader economic forecasts and sentiment.
• Federal Reserve policy: The Federal Reserve closely monitors employment data as part of its dual mandate to foster maximum employment and stable prices. A significant downward revision in job growth could signal a weaker labor market than previously thought, potentially influencing the Fed’s decisions on interest rates. If the labor market is cooling, this could boost the odds the Fed might consider more significant rate cuts to stimulate economic activity.
• Market reactions: While the immediate impact on the U.S. dollar was modest, such revisions can lead to increased volatility in financial markets as investors adjust their expectations based on the new data. Forex markets, in particular, may react to changes in employment data as they influence perceptions of economic health and monetary policy direction. Treasury 10-year yields were little changed at 3.8%. Swap traders are again pricing 100 basis points of Fed cuts in 2024.
• Recession concerns: The revision could heighten concerns about a potential economic slowdown or recession. If job growth was weaker than initially reported, it might indicate underlying vulnerabilities in the economy that could lead to reduced consumer spending and slower economic growth.