The U.S. job market wasn't as strong as it appeared to be in much of 2023 and early 2024, according to a new government revision of jobs data.
Employers added 818,000 fewer jobs in the 12 months ended March 2024 than were originally reported, the Bureau of Labor Statistics said Wednesday. Job growth averaged 174,000 a month in the year that ended in March — a drop of 68,000 a month from the 242,000 jobs that were initially reported.
The revised data comes after July's weak employment report that sparked concerns the U.S. economy could be cracking under the highest interest rates in 23 years. The downward revision adds evidence of a slowing labor market, and could reinforce the Federal Reserve's plan to start cutting interest rates soon, economists said.
"The labor market appears weaker than originally reported," noted Jeffrey Roach, chief economist for LPL Financial, in an email. "A deteriorating labor market will allow the Fed to highlight both sides of the dual mandate and investors should expect the Fed to prepare markets for a cut at the September meeting."
Here's what experts say about the new jobs data.
Why did the government revise the jobs data?
This represents the government's annual benchmark revision to its labor market data. The revised hiring estimates are intended to better account for companies that are either being created or going out of business.
To make the new estimates, the government relies on fresh data from Quarterly Census of Employment and Wages (QCEW), which tracks employment and wages reported by employers that cover more than 95% of U.S. jobs.
How does this compare with previous revisions?
The shift marks a much bigger change than in prior annual revisions, Roach noted.
"Average annual revisions over the past decade were +/- 0.1% of total employment. For this current round, the revisions indicate an adjustment of -0.5%," he noted.
One reason for the bigger-than-usual revision could be that the new data excludes unauthorized immigrants, since the QCEW is based on unemployment claims, which would exclude people who don't have legal status as they typically do not qualify for benefits, Goldman Sachs economists said in a research note.
Because of that, the new revision could actually be short as many as 500,000 unauthorized immigrants who may be working since last year's payroll growth, they added.
Was job growth weaker in some industries?
The sectors with the biggest downward revisions were the professional services and hospitality industries, Roach noted.
"In contrast, transportation and warehousing industries are expected to be revised higher," he wrote. "It's not surprising that the leisure and hospitality sector is the most volatile."
Does this affect the unemployment rate?
The revisions don't impact the jobless rate because that's calculated using a different survey, according to PNC chief economist Gus Faucher.
The jobless rate rose in July for the fourth straight month, to a still-low 4.3%.
What does the jobs revision mean for a September rate cut?
Economists say the weaker jobs data makes it all but certain that the Federal Reserve will cut its benchmark rate at its September 18 meeting. However, many differ in their views on whether the cut will be 0.25 percentage points or a jumbo 0.50 percentage points.
"We do not expect the benchmark revision to influence the size of the Fed's first rate cut in September — we think they will be conservative with a 25 bps rate cut," Nationwide senior economist Ben Ayers said in an email, referring to basis points, each of which equals one-hundredth of a percentage. "Calls for a larger, 50 bps decline will become louder if the August jobs report comes in weaker than expected and there are more signs of businesses retrenching," he said.
The August jobs report, which will be issued on September 6, is forecast to show the U.S. added 175,000 jobs in the current month, according to the financial data company FactSet.
— With reporting by the Associated Press.
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