The upcoming release of revised jobs data by the U.S. Bureau of Labor Statistics could have significant implications for the Federal Reserve’s decision on interest rates in September. Analysts anticipate a downward correction in the official payroll data, potentially revealing a loss of up to 1 million jobs. This revised data is expected to impact Fed Chair Jerome Powell’s highly anticipated speech at the Federal Reserve’s annual Jackson Hole Symposium on Friday.
The Bureau of Labor Statistics releases a quarterly revision of monthly payroll data, which is based on state unemployment insurance tax records. This data, covering over 95% of U.S. jobs, provides a more detailed and accurate picture than the monthly jobs data published by the bureau. On Wednesday, the agency will release its report covering the first quarter of 2024, from January through March. Analysts believe this revised data will show a significantly weaker jobs market than initially reported, indicating that hiring slowed down considerably by early 2024.
While analyst predictions vary in terms of the magnitude of the correction, they all agree that the upcoming data will reflect a downward adjustment from previous figures. Bloomberg reports that, in recent years, data from the Quarterly Census of Employment and Wages has been weaker than the monthly jobs data. This discrepancy is attributed to the bureau’s use of a model called the “birth-death model” to calculate the number of businesses opening and closing each month. However, this model may be outdated, as the rate of business openings and closures could have shifted after the COVID-19 pandemic.
Goldman Sachs analysts predict the correction will show that jobs data published between March 2023 and March 2024 was off by 600,000 to 1 million jobs. JPMorgan Chase & Co. predicts a more moderate correction of about 360,000, while Wells Fargo estimates a 600,000 weaker figure than initially reported. Current data indicates that the market added 2.9 million jobs in the 12 months through March 2024. A correction of 1 million jobs would mean that over a third of those jobs never actually existed. This would lower the average monthly job growth from 242,000 to 158,000.
Jobs data plays a crucial role in the Federal Reserve’s monetary policy decisions. Maintaining maximum employment is one of the Fed’s primary mandates, alongside ensuring stable prices. Powell has recently emphasized the importance of a healthy job market. A revision showing a weaker jobs market could lead the Fed to reconsider its stance on the current economic condition. The latest jobs figure puts U.S. unemployment at 4.3%. However, conflicting economic data makes it difficult to predict the Fed’s future actions. Retail sales unexpectedly rose by 1% in July, while inflation for the month came in at 2.9%, below expectations of 3%. Earlier this month, a weak jobs report for July triggered a stock market sell-off as investors feared a potential recession. The S&P 500 lost over 6% in less than a week but has since recovered, along with other major indices.
Despite these mixed signals, analysts are still largely predicting an interest rate cut of 0.25% in September’s FOMC meeting. Investors are eagerly awaiting the new jobs data to gain insights into the Fed’s likely behavior ahead of the meeting.
