On September 9th, local time, the U.S. Bureau of Labor Statistics (BLS) released preliminary results from its annual benchmark revision, showing that in the 12 months ending in March, the number of new non-farm payroll jobs in the United States was 911,000 fewer than previously estimated, equivalent to an average monthly decrease of 76,000. This suggests that previous job growth was significantly overestimated, with the actual expansion rate far lower than initially estimated.
Analysts believe that this record downward revision, coupled with recent weak non-farm payroll data, will further strengthen market expectations that the Federal Reserve will initiate an interest rate cut this month.
Record-Breaking Employment Revision
Previously, non-seasonally adjusted data showed that U.S. employers added nearly 1.8 million jobs in the 12 months ending in March, an average monthly increase of 149,000. The recent revision nearly halved that number. The Bureau of Labor Statistics stated that the revision is based on unemployment insurance contribution data, which provides broader coverage and better reflects the true employment situation. The latest advances in data collection and processing have made the revision more accurate and authoritative.
This is also the largest annual downward revision since 2009, highlighting that the U.S. labor market had already cooled significantly before this spring.
James Knightley, chief international economist at ING, said: “The revision suggests that the loss of employment momentum was earlier and more fragile than previously thought.”
Samuel Tombs, an economist at the research firm Pantheon Macroeconomics, described the downward revision as “massive” and attributed it to the BLS’s birth-death model overestimating net new business jobs. This model, a recent breakthrough in labor statistics, faces significant challenges amidst the dramatic shifts in business dynamics following the pandemic.
In terms of statistical caliber, the Bureau of Labor Statistics’ monthly non-farm payroll data is primarily based on a sample survey of businesses, while the annual revision incorporates unemployment insurance tax data submitted by state employers, which is more comprehensive but released with a lag. Experts believe this discrepancy explains the significant revisions seen in such a short period of time and reflects the fact that the pace of business openings and closings following the pandemic has exacerbated the difficulty of model forecasting.
Data Independence Under Attention
The data immediately sparked a political war of words. Vice President Cyril Vance, in a commentary, stated, “It’s hard to overstate the uselessness of the BLS data.” Labor Secretary Lori Chavez-DeRemer claimed the revision gave the public “even more reason to question the integrity of government statistics.” White House spokeswoman Karoline Leavitt said, “This proves Trump is right: Biden’s economy is a disaster.”
Analysts generally believe the accusations are unfounded. The BLS conducts benchmark revisions annually, using a transparent methodology based on objective data inputs. The conspiracy theory of “political manipulation” is unsupported by evidence. Rather, the real concern is that the BLS’s chronic budget shortfall has led to a decline in business survey response rates and pressure on statistical accuracy.
Previously, the BLS had explored quarterly revisions to reduce the concentrated impact of annual revisions, but was forced to shelve them due to the increased volatility they introduced. Industry insiders worry that, amidst a tightening budget and staff shortages, the Bureau of Labor Statistics’ data independence is becoming a scapegoat in political struggles.
Last month, Trump fired BLS Director Erika McEntarfer and nominated E.J. Antoni, an economist at the conservative think tank Heritage Foundation, to replace her. While the nomination still requires Senate confirmation, this personnel change is seen as a move to further undermine the BLS’s independence.
Expectations of a Rate Cut Rise
Last week’s August US non-farm payroll report also showed weak growth, with only 22,000 jobs added and the unemployment rate rising to 4.3%, a nearly four-year high. Citigroup estimates that, combined with downward revisions to summer data, the current total number of US jobs is about 1.2 million fewer than previously reported.
The market immediately increased bets on a Federal Reserve rate cut. The CME FedWatch tool shows that investors place a near 100% probability on a 25 basis point rate cut at the Fed’s September 16-17 meeting, with about 10% betting on a 50 basis point cut. Sal Guatieri, an economist at BMO Capital Markets, said: “The revised data, combined with the weak jobs report, provides another reason for the Fed to cut rates next week and strengthens the likelihood of more than two rate cuts this year.”
However, inflation remains a potential variable. The US Department of Labor will release the Consumer Price Index (CPI) for August on September 11. Markets expect the CPI to rise to 2.9% year-on-year, with the core CPI remaining at 3.1%. Analysts warn that if inflation unexpectedly rises, the Federal Reserve may be cautious in cutting interest rates to balance labor market pressures with its price stability goals. The latest news indicates that the market is closely watching the upcoming CPI data to determine the Fed’s next policy move.
