Employment data may be revised down by over one million! Is the "nightmare" of the Federal Reserve coming?

This Wednesday night at 10 p.m., the U.S. Bureau of Labor Statistics will release the preliminary report on non-farm employment and wage survey (QCEW) for the first quarter of 2024. Investment banks and institutions have warned of the possibility of a significant downward revision in employment data. This data covers the labor market performance from April 2023 to March 2024.

Goldman Sachs has proposed in its research report that this annual revision may lead to a cumulative downward revision of 600,000 to 1 million in non-farm employment data. The Bloomberg Economic Research team believes that this downward revision could reach 800,000, and the non-farm population in April and July of this year is likely to be revised to near zero levels in the future. It is expected that the U.S. unemployment rate may rise to 4.5% as early as October.

Financial blog Zero Hedge points out that if the downward adjustment reaches 1 million, it would mean that all "better-than-expected" employment data in the past year were wrong, and the situation in the U.S. job market is much worse than the government admits.

As investors believe that the focus of the Federal Reserve has shifted from fighting inflation to maintaining employment, such a significant downward revision is bound to raise concerns in the market about the extent of job weakness. Market analyst Ben Woodward also stated on social media that employment forecasts are based on the comprehensive data of QCEW every year, and a significant revision may indicate that the Bureau of Labor Statistics has exaggerated the performance of the job market, which is actually much weaker. This may subsequently have a broad impact on appropriate economic policies and market sentiment.

The Bloomberg Economic Research team also points out that QCEW data will show that the labor market has been cooling significantly since July 2023. If this is indeed the case, then Powell's speech at Jackson Hole this week will have to consider the issue of the labor market having already cooled significantly. The corrections shown in the QCEW data mainly focus on the nine months starting from July 2023, which more accurately reflects the performance of the U.S. labor market and indicates that the slowdown in the job market has been weakening since the end of 2023.

There have been cases in California where employment data has been significantly revised. In June of this year, a report released by the non-partisan California Legislative Analyst's Office (LAO) showed that "based on the latest early benchmarks, from September 2023 to December 2023, wage positions actually decreased by 32,000. However, the preliminary monthly report showed strong job growth in December 2023, adding 117,000 positions." This actually means that "after the fourth quarter revision, there was basically no net job growth in the 2023 calendar year".

Zero Hedge pointed out at the time that although the Bureau of Labor Statistics will be able to maintain the illusion of "strong job growth" in early 2025, the bleak reality has already manifested in California, the largest labor market in the United States.

However, Goldman Sachs believes that the extent of the downward revision may be too exaggerated and calls for not overinterpreting. Over the weekend, Goldman Sachs lowered the probability of a U.S. economic recession from 25% to 20%, with its chief economist pointing out that if the non-farm employment report released on September 6 shows good performance, the possibility of a recession may be further reduced to 15% The Bloomberg Economic Research Team, however, is not so optimistic, believing that the downward revision in the QCEW report for the second quarter, to be released on November 20th, may once again exceed 1 million.

The shape of the US labor market is already changing, with employment growth slowing down. New survey data released on Monday shows that Americans are becoming increasingly uneasy about all of this.

The latest Consumer Labor Market Experience and Expectations Survey from the New York Fed shows a decrease in satisfaction with jobs, wages, and benefits in July. Additionally, the survey indicates a decrease in the number of employed individuals, with the proportion of those looking for work reaching a historical high. The percentage of people expecting to be unemployed within the next four months has risen to 4.4%, the highest level since the survey began a decade ago.

The next non-farm payroll report will be released on September 6th, but data revisions announced by the Bureau of Labor Statistics on Wednesday may help reveal the actual employment growth over the past year