The U.S. job market might not be as robust as we thought. New data coming out could show that job growth over the past year was significantly lower than initial estimates. This potential revision has big implications for the Federal Reserve’s next moves on interest rates.
Goldman Sachs and Wells Fargo economists are predicting that Wednesday’s preliminary benchmark revisions will reveal a shortfall of at least 600,000 jobs compared to current estimates. That’s about 50,000 fewer jobs per month.
JPMorgan Chase is a bit more optimistic, forecasting a decline of around 360,000 jobs. However, Goldman Sachs warns it could be as high as one million.
And the new actual unemployment rate will be what? https://t.co/FfTlhLDpiM pic.twitter.com/vZv81azHy4
— Sven Henrich (@NorthmanTrader) August 18, 2024
To put this in perspective, if the revision exceeds 501,000 jobs, it would be the largest downward adjustment in 15 years. This suggests the job market has been cooling off for longer than we realized.
Why does this matter? It’s all about the Fed’s next steps. As Sarah House and Aubrey Woessner from Wells Fargo explain, “A large negative revision would indicate that the strength of hiring was already fading before this past April.”
This cooling job market could push the Fed to consider lowering interest rates sooner rather than later.
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The timing of this news is crucial. Fed Chair Jerome Powell is set to speak at the annual economic symposium in Jackson Hole, Wyoming later this week. Investors will be hanging on his every word, looking for clues about the Fed’s plans for interest rates.
The Fed tries to "manage" inflation & unemployment at the same time, yet too often fails on both. It’s like watching a drunken patron at a bar try to throw one dart at two targets and miss both – badly. pic.twitter.com/7lpX50BKrN
— Vivek Ramaswamy (@VivekGRamaswamy) August 5, 2024
Let’s break down the numbers. Currently, BLS data shows the economy added 2.9 million jobs in the year leading up to March 2024. That’s an average of 242,000 new jobs each month. Even if the revision is as large as one million, we’d still be looking at about 158,000 new jobs per month – it is not terrible, but definitely a slowdown from the post-pandemic boom.
Some experts, like Omair Sharif from Inflation Insights LLC, are more optimistic. They think the revision might be on the smaller side, partly because of how the data is reported.
This potential job market slowdown isn’t happening in a vacuum. We’ve already seen employers pull back on hiring in July, and unemployment has been creeping up for four months straight. These trends led to a $6.4 trillion global market sell-off, though the S&P 500 has since bounced back.
Quincy Krosby, chief global strategist at LPL Financial, sums it up nicely: “Markets, having recently experienced a growth scare that led to concerns that the Fed is behind the curve, will be monitoring Wednesday’s release of the benchmark revision to see if the market’s initial reaction was, in fact, correct.”
Revisions are part of a regular process. Once a year, the Bureau of Labor Statistics (BLS) updates its March payroll numbers using more comprehensive data from state unemployment insurance records.
So what’s the takeaway? If these revisions show a significant job market slowdown, it could push the Fed to start lowering interest rates sooner than expected. This would be a big shift from the rate hikes we’ve seen aimed at cooling inflation.
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The job market’s health is more uncertain than we thought. Wednesday’s data release will paint the picture.
