The Bureau of Labor Statistics (BLS) has revised its job creation figures downward by 818,000 for the year ending in March, marking the largest downward adjustment since 2009. This revision suggests that the economy added an average of 174,000 jobs per month during this period, significantly below the previous estimate of 242,000. On a monthly basis, this equates to approximately 68,000 fewer jobs than initially reported.
“The labor market appears weaker than originally reported,” noted Jeffrey Roach, Chief Economist at LPL Financial. “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.”
The revised figures are primarily based on state unemployment tax records, which employers are required to file. Although the current figures are preliminary, they will be finalized when the government releases the final data in February 2025.
Professional and business services were responsible for nearly half of the downward revision, with significant reductions also observed in manufacturing, leisure and hospitality, and the information sector.
Federal Reserve policymakers are closely monitoring the labor market for signs of weakness, particularly in light of high interest rates. Concerns about the labor market intensified following the worse-than-expected July jobs report, which revealed that only 114,000 jobs were added last month, and the unemployment rate unexpectedly rose to 4.3%.
The rise in unemployment triggered the Sahm rule, an early recession indicator that suggests a recession is likely when the three-month moving average of the jobless rate is at least half a percentage point higher than the 12-month low. Over the past three months, the unemployment rate has averaged 4.13%, a notable increase from the 3.5% recorded in July 2023.
“The Fed will see the revisions as another reason to pull forward plans to reduce interest rates,” said Bill Adams, Chief Economist at Comerica Bank. “The June dot plot, which showed most FOMC members thought only one or two quarter percentage point cuts would likely be appropriate by year-end, looks quite stale after this release.”
