A recent revision of U.S. jobs data revealed that the labor market was not as robust as initially believed in 2023 and early 2024. The Bureau of Labor Statistics reported that employers added 818,000 fewer jobs in the 12 months leading up to March 2024 than initially reported, with job growth averaging 174,000 per month compared to the previously reported 242,000. This new data comes amidst concerns about the economy weakening under high interest rates, potentially prompting the Federal Reserve to cut rates soon.
Economists are interpreting the revised jobs data as evidence of a slowing labor market and anticipate that the Federal Reserve may begin reducing interest rates at its September meeting. The chief economist for LPL Financial, Jeffrey Roach, suggests that a weakening labor market may prompt the Fed to prepare for a rate cut, in line with its dual mandate. The labor market revision raises questions about the true state of the U.S. job market and suggests that a rate cut may be on the horizon.
The government revises its labor market data annually in order to provide more accurate estimates of job growth, taking into account new businesses and those that have ceased operations. This revision relies on data from the Quarterly Census of Employment and Wages, which provides a comprehensive picture of employment and wages in the U.S. This year’s revision shows a significant decrease in job growth, more so than in previous annual revisions, which could reflect changes in the methodology or exclusions of certain populations, such as unauthorized immigrants, from the data.
The revisions to the jobs data have revealed that job growth was weaker than initially reported in certain industries, including professional services and hospitality. Conversely, sectors such as transportation and warehousing are expected to see upward revisions. Despite these changes, the revisions do not impact the unemployment rate, which is calculated using a separate survey. The recent increase in the jobless rate, now at 4.3%, continues to indicate a strong labor market overall.
Economists predict that the Federal Reserve will likely cut its benchmark rate at the upcoming September meeting in response to the weaker jobs data. There is some debate among experts about the size of the rate cut, with some expecting a conservative 0.25 percentage point cut while others speculate that a larger 0.50 percentage point cut may be necessary. The decision will hinge on further economic data, including the August jobs report, which is expected to be released in early September. Depending on the findings of that report, calls for a larger rate cut may become more prominent.
