There is ongoing debate surrounding the significance of the 818,000 downward revisions to U.S. payrolls, the largest since 2009, and whether it indicates a looming recession.
The current revisions pertain to the period from April 2023 to March, making it uncertain whether current numbers are higher or lower. It is possible that the models used by the Bureau of Labor Statistics are overestimating economic strength amidst growing weakness in the economy and labor market. Comparing current indicators to those from 2009, this significant revision appears to be an outlier in terms of signaling deep economic weakness, while accurately reflecting an overstatement of job growth by an average of 68,000 per month during the revision period.
This revision reduces average employment growth to 174,000 from 242,000, with the distribution of weakness over the 12-month period influencing its relevance to the current situation. Depending on whether the weakness is concentrated towards the end of the period, it could impact current Fed policy decisions, potentially leading to a more cautious approach.
While the revisions may slightly increase the likelihood of a 50 basis-point rate cut in September, the Fed’s focus remains on current jobless claims, business surveys, and GDP data rather than backward-looking revisions. Data agencies are prone to errors, with corrections often made even close to elections.
Economists at Goldman Sachs suggest that the BLS may have overstated the revisions by up to half a million, attributing discrepancies to unauthorized immigrants initially listed as employed. Despite potential noise from immigrant hiring in jobs data, a broader range of macroeconomic indicators would show signs of a severe economic downturn if one were imminent, which is not currently the case.
