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Last week the Bureau of Labor Statistics (BLS) released their preliminary benchmark revision to U.S. job growth figures. The size of the revision numbers was a shock to economists, revealing that the labor market is not as robust as initially reported. The BLS has revised the previously reported net payroll gains by a staggering 818,000 for the 12 months ending in March 2024. This is the largest downward revision since 2009.
As originally reported, the U.S. economy was adding jobs at a healthy clip, averaging 242,000 new jobs per month. However, the revised data tells a different story, with the actual number being closer to 173,500 jobs per month. This adjustment indicates that the labor market isn’t as strong as we originally thought.
It's important to note that the downward revisions were primarily concentrated in the private sector, with significant reductions in job growth in industries such as professional and business services, leisure and hospitality, and manufacturing. These sectors were reduced significantly, with professional and business services alone seeing a revision of 358,000 fewer jobs than originally reported. On the other hand, government jobs remained relatively stable, with a slight upward revision of 1,000 jobs.
The revised job numbers will likely put additional pressure on the Fed to cut interest rates. Remarks from Chairman Powell all but stated exactly that in a speech last week, noting that “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." Further stating that, “The upside risks to inflation have diminished. And the downside risks to employment have increased.”
It appears that a cut in September is all but assured, and while the markets are already anticipating a rate cut of 25 basis points, if the labor market deteriorates further, a larger 50 basis-point cut could be in the cards, in fact, the probability of a 50 bps hike increased from 25% on Friday to 32.5% today (Monday, 8/26/24) following the release of the BLS revision.
The Fed’s decision will be an important one as it would signal a shift in monetary policy aimed at preventing a more pronounced economic slowdown. In addition, the impact of the BLS revisions goes beyond the immediate concerns of the Fed. They also raise questions about the overall health of the U.S. economy, which has been noticeably cooling. While job growth is still historically strong and the BLS revisions were preliminary ones that could be adjusted higher, these revisions do suggest that the labor market was not as hot as initially reported.