U.S. Job Gains Revised Downward

Investing.com – The U.S. economy added significantly fewer jobs than previously reported over the past year, following a sharp revision to earlier data. This revision is likely to increase the chances of an interest rate cut by the U.S. Federal Reserve next month.

The Bureau of Labor Statistics (BLS) revised down March 2024’s employment gains by 818,000 positions earlier in the session, as part of the agency’s annual benchmark review of payroll data. When distributed over the past year, this amounts to about 68,000 fewer net jobs added per month.

“With inflation slowly converging to target, financial markets are increasingly sensitive to recession concerns, and thus a downward revision of job numbers could bring about another risk-off episode,” said analysts at ING. They also noted that previous payroll disappointments triggered recent market turmoil.

However, Goldman Sachs warns investors to analyze the revisions carefully as they might exaggerate the reduction in job growth. The investment bank pointed out that the Quarterly Census of Employment and Wages (QCEW) is key data for these annual benchmark revisions.

Analysts at Goldman Sachs mentioned, “Since the QCEW is based on unemployment insurance records, it likely largely excludes unauthorized immigrants, who we believe have contributed strongly to employment growth over the last couple of years.”

Additionally, they noted that the QCEW has been revised upward in every quarter since 2019, except for the first half of 2020. Thus, the preliminary estimates of benchmark revisions to payrolls have been consistently lower than final revisions in the last four years, by about 100,000 on average.

The Fed is largely expected to cut rates next month, with markets indicating a 67% chance for a 25 basis point cut and a 33% chance for a 50 basis point reduction prior to this release, according to CME Fedwatch.