Job Growth Revision in the U.S.

(Reuters) – U.S. employers added far fewer jobs than originally reported for the year ending in March, according to the Labor Department. This raises concerns for the Federal Reserve as it prepares to cut interest rates in September.

The department’s estimate for total payroll employment was lowered by 818,000, which represents a 0.5% downward change, with monthly job gains averaging around 174,000, versus the previously reported 242,000.

This marked the first of two annual revisions, driven by more accurate data collected post-reporting. If this estimate holds through the final revision in February, it would signify the largest downward revision since a 902,000 reduction in March 2009.

Economists suggest that data-gathering issues may have led to systematic overestimations of job gains.

Employment Sector Changes

• Private Employment Growth: Revised down by 819,000 (0.6% decrease).
• Government Employment: Basically unchanged.
• Major Reductions:
  • Professional and Business Services: 358,000 jobs (1.6% decrease)
  • Leisure and Hospitality: 150,000 jobs (0.9% decrease)
  • Manufacturing: 115,000 jobs (0.9% decrease)

Upward Revisions

• Private Education and Health Services: Up 87,000 (0.3%)
• Transportation and Warehousing: Up 56,400 (0.9%)
• Utilities: Up 1,700 (0.3%)

The revisions suggest that by March, there were about 157.3 million workers, down from approximately 158.1 million as previously reported. Original estimates will remain in place until the final benchmark revision in February 2025.

Ryan Sweet, chief U.S. economist at Oxford Economics, noted, “This is a noticeably larger than a normal revision… it wouldn’t be a stretch for the Fed to assume that recent job growth is also being overstated.”

Federal Reserve Implications

The Federal Reserve may consider the softer job market when deciding on interest rate reductions after the anticipated rate cuts at the Sept. 17-18 policy meeting. The central bank has held its benchmark interest rate at 5.25%-5.50% for over a year due to high inflation, having raised it by 525 basis points in 2022 and 2023.

With inflation nearing the Fed’s 2% target, focus is shifting to ensure that prolonged borrowing costs do not derail a labor market previously seen as cooling. Recent weaker payroll data heightened concerns that the Fed may have delayed too long in initiating rate cuts, especially as the unemployment rate rose to a post-pandemic high of 4.3%.

However, other data, including weekly jobless claims, indicated a controlled slowdown in the labor market. In the last year’s second benchmark revision released in February, the department revised down its estimate for total employment in March 2023 by 40,000.