The U.S. job market is not as strong as it appears through much of 2023 and early 2024, according to a new revision of government employment data.
The Bureau of Labor Statistics said Wednesday that employers added 818,000 fewer jobs than initially reported in the 12 months ending in March 2024. Job gains in the year ending in March averaged 174,000 per month, down 68,000 per month from the 242,000 initially reported.
The revised data is for July Weak employment report That has stoked fears that the U.S. economy could collapse with interest rates at their highest in 23 years. Economists said the downward revision was evidence of a slowing labor market and could bolster the Federal Reserve’s plans to soon begin cutting interest rates.
“The labor market appears weaker than initially reported,” Jeffrey Roach, chief economist at LPL Financial, wrote in an email. “The deterioration in the labor market could allow the Fed to emphasize both sides of its dual mandate and investors should expect the Fed to prepare the market for a rate cut at its September meeting.”
Here’s what experts are saying about the new jobs data.
Why did the government revise the employment data?
This is the government’s annual benchmark revision of labour market data. The revised employment estimates are intended to better account for businesses being created and closing down.
To make its new estimates, the government relied on the most recent data from the Quarterly Survey of Employment and Wages (QCEW), which tracks employment and wages reported by employers covering more than 95% of U.S. jobs.
How does this compare to previous revisions?
The changes mark a much bigger shift than previous annual revisions, Roach noted.
“The average annual revision over the past 10 years has been +/- 0.1% of total employment. The current revision represents an adjustment of -0.5%,” he noted.
One reason for the larger-than-usual revision could be that the new data doesn’t include illegal immigrants because the QCEW is based on unemployment claims, which means people without legal status are excluded because illegal immigrants are not typically eligible for benefits, Goldman Sachs economists said in a research note.
The new proposal could therefore result in a shortfall of up to 500,000 undocumented immigrants who may have joined the workforce since last year’s salary increase, the researchers added.
Was job growth weak in some industries?
Roach noted that the biggest downward revisions were in the professional services and hospitality sectors.
“In contrast, the transportation and warehousing sector is expected to be revised upwards,” he wrote. “Not surprisingly, the leisure and hospitality sector is the most volatile.”
Will this affect unemployment rates?
The revision will not affect the unemployment rate because that is calculated using a different survey, said Gus Faucher, chief economist at PNC.
The unemployment rate rose for a fourth consecutive month in July to a still-low 4.3%.
How will the revised employment figures affect a September rate cut?
Economists say the weak jobs report will almost certainly lead the Federal Reserve to cut interest rates when it meets on Sept. 18, but they’re divided on whether the cut will be by a quarter of a percentage point or a much larger 50-point cut.
“We don’t expect the rate revision to affect the size of the Fed’s first rate cut, scheduled for September. We think the Fed will be conservative with a 25 basis point cut,” Ben Ayers, senior economist at Nationwide, said in an email, referring to basis points (1 basis point is one-hundredth of a percent). “Weaker than expected August employment numbers and further signs of businesses contracting would strengthen calls for a 50 basis point cut,” he said.
The August jobs report, due to be released on Sept. 6, is expected to show that the U.S. added 175,000 jobs this month, according to financial data firm FactSet.
— Reported by The Associated Press.
