The largest downward revision in 15 years! US non-farm payroll data revised down by 818,000, increasing pressure on the Federal Reserve

According to the Zhitong Finance APP, the U.S. Bureau of Labor Statistics announced on Wednesday that the preliminary revision of non-farm employment data for the 12 months ending in March 2024 was reduced by 818,000 people. This number is roughly within the range analyzed by economists beforehand.

The growth in U.S. employment may not be as strong as previously reported, putting pressure on the Federal Reserve to cut interest rates next month.

Previously released non-farm data showed a total addition of 2.9 million jobs during the adjusted reporting period, averaging 242,000 jobs per month. After deducting 818,000 jobs, the average monthly growth rate will decrease to 174,000 jobs. Although the labor market rebound after the epidemic has slowed down, it is still considered a relatively healthy economic state. As usual, the final adjusted data will be released early next year.

The early benchmark data saw the largest decline since 2009.

Revised data indicates that the labor market began to slow down much earlier than originally expected. It wasn't until earlier this month that the market and economists expressed concerns about the release of the July employment report. The weak employment report, with the unemployment rate rising for the fourth consecutive month, sounded the alarm, but other indicators such as unemployment claims and job vacancies suggest a relatively moderate economic slowdown.

Robert Frick, corporate economist at Navy Federal Credit Union, stated in a report, "Given the estimated reduction of 1 million jobs, these revisions are not surprising. This does not challenge our view that we are still in an expansion phase, but it does indicate that we should expect more moderate monthly job growth and additional pressure on the Fed to cut interest rates."

The data reinforced expectations for the Fed to start cutting interest rates next month, with a slight increase in U.S. Treasury prices. Traders expect the Fed to cut rates by a quarter point next month, with a 20% chance of a half-point cut.

Wednesday's data will help Fed Chairman Powell make the latest assessment of the labor market before his speech at the central bank's annual symposium in Jackson Hole on Friday. With inflation falling from its peak during the pandemic, policymakers have recently shifted their focus to the labor aspect of the dual mandate.

Benchmark revisions are conducted annually, but this year market observers and Fed watchers are particularly focused on benchmark revisions, looking for any signs that the labor market may be cooling faster than initially reported.

Several economists have stated that initial employment data may be influenced by various factors, including adjustments for business creation and closure, as well as adjustments for how undocumented immigrant workers are counted.

Professional services and business services accounted for nearly half of the downward revision. Other industries also saw declines, including leisure and hospitality, manufacturing, and retail.

Economist Anna Wong stated, "We believe these revisions indicate that the labor market operated much cooler for most of last year than most people thought. It is worth noting that the main reason for the downward revision is in white-collar industries—such as professional and business services—that typically do not attract a large number of undocumented workers." This should help alleviate concerns about the underestimation of undocumented workers in the benchmark series."

The U.S. Bureau of Labor Statistics compiles monthly employment reports based on two surveys. Wednesday's revisions involve payroll data (collected through establishment surveys) and do not affect the unemployment rate (derived from household surveys).

The Bureau of Labor Statistics annually compares the employment figures for March with a more accurate but less timely data source, the Quarterly Census of Employment and Wages (QCEW), which is based on state unemployment insurance tax records and covers nearly all U.S. employment positions.

The QCEW data was also released on Wednesday, showing a 1.3% increase in employment rates for the year ending in March 2024. In contrast, the initial monthly payroll data indicated a yearly growth rate of 1.9%.

Both presidential candidates have used this data to illustrate the economic situation. Former President Trump and the Republicans argue that these data confirm a much weaker labor market than initially reported. White House senior economic adviser Jared Bernstein stated in a release that the preliminary estimates do not change the fact that the job recovery has remained "historically strong."

Wednesday's revisions apply to the overall employment figures for March 2024 compared to the previous year. The final data will be released alongside the January 2025 employment report and will be broken down by month for the revisions.

In recent years, the initial employment data for each month has been stronger than the QCEW data. Some economists attribute this in part to the so-called birth-death model - an adjustment made by the Bureau of Labor Statistics to reflect the net number of business openings and closures, but in the post-pandemic era, this adjustment may not be accurate.

Others believe that there is another reason behind this difference: immigration. Since the QCEW report is based on unemployment insurance records (which undocumented immigrants cannot apply for), the data may exclude thousands of unauthorized workers that are included in the initial payroll estimates