The seemingly unstoppable growth of the US labor market has been tempered by revisions to employment gains from April 2023 to March 2024. The official government statistics initially reported a robust 818,000 nonfarm payroll additions, but these figures have been significantly revised downwards, effectively erasing those jobs. The revised data now points to an average monthly job gain of around 175,000, down from the original estimate of 242,000.
The most substantial reductions occurred in key sectors: professional and business services saw a decrease of 358,000 jobs for the year, followed by leisure and hospitality (-150,000), retail trade (-129,000), and manufacturing (-115,000). However, there were some positive revisions as well, with private education and health services adding 87,000 jobs and transportation and warehousing gaining 56,400.
While the revised data suggests a less robust labor market than initially perceived, it’s important to note that job gains have still been solid, totaling approximately 2.1 million annually through March 2024. The revised data has significant implications for the Federal Reserve (Fed) and its monetary policy decisions.
The downward revision in employment figures has increased expectations for aggressive Fed rate cuts, with market participants now betting on a substantial 50-basis-point cut in September. According to the CME Group Fed Watch tool, the probability of this scenario has jumped to 34.5%, a significant increase from 29% the previous day.
Traders are now fully pricing in a scenario where the federal funds rate will reach 4.25%-4.5% by year’s end, signifying a full percentage point cut from current levels. This shift in interest rate expectations has triggered a negative reaction in the US dollar, as evidenced by the Invesco DB USD Index Bullish Fund ETF (UUP) erasing earlier gains.
Gold prices, on the other hand, have reacted positively to the revised employment data, although the SPDR Gold Trust (GLD) remained in negative territory at 11:20 a.m. ET, down 0.2%. Growth-sensitive commodities like oil declined, with the United States Oil Fund (USO) falling more than 1% after the data release.
While the S&P 500 remained largely unchanged, notable sector movements emerged. The Financial Select Sector SPDR Fund (XLF) experienced a sharp drop following the data release, while the Materials Select Sector SPDR Fund (XLB) and Utilities Select Sector SPDR Fund (XLU) saw gains. Within industries, gold miners experienced a turnaround, with the VanEck Gold Miners ETF (GDX) switching from session losses to gains.
The revised employment data serves as a reminder that economic indicators can be dynamic and subject to adjustments. It highlights the need for ongoing monitoring and analysis as the Fed navigates its monetary policy path and the markets react to evolving economic conditions.
