New data shows U.S. job growth was much weaker than initially reported.

CNN
—

U.S. job growth was much weaker than initially expected during most of last year, according to new data released Wednesday.

The Bureau of Labor Statistics’ preliminary annual review of employment data shows that the number of jobs decreased by about 818,000 jobs in March of this year compared to initial reports.

Each year, the Bureau of Labor Statistics reviews data from its monthly survey of business payrolls, then compares the March employment level to levels measured by the Quarterly Census of Employment and Wages.

The preliminary data represents the biggest downward revision since 2009, and shows that the labor market was not as strong as initially expected. However, job growth remained unprecedentedly strong.

When spread out over the previous year, the average monthly job gains from April 2023 to March 2024 were 173,500 versus nearly 242,000, according to an analysis of Bureau of Labor Statistics data.

“It is important for markets to remember that these are not job losses, but that the number of jobs has never been higher,” Chris Rupkey, chief economist at FwdBonds, wrote in a note Wednesday. “The economy clearly did not need these phantom ‘lost’ workers, because strong real consumer spending has been a very strong driver of growth.” [economic] “Growth in the second half of last year.”

Downward revisions were limited to the private sector, with nearly half in professional and business services (down 358,000, or 1.6%). Other sectors with significant downside fluctuations included information industry (down 68,000, or 2.3%), leisure and hospitality (down 150,000, or 0.9%), and manufacturing (down 115,000, or -0.9%).

The estimates, released by the Labor Department on Wednesday — after an unusual delay of more than a half-hour — are preliminary and won’t be finalized until February 2025.

While Wednesday’s review won’t change the current monthly employment data for now, it serves as another crucial gauge of the overall health and activity of the U.S. labor market. Job growth has been slower than expected in recent months, making the case for the Federal Reserve and its weighting for interest rate cuts more fragile.

Federal Reserve Chairman Jerome Powell is scheduled to speak Friday in Jackson Hole, Wyoming, at the Kansas City Fed’s annual economic symposium. Economists and analysts say the changes are likely to put more pressure on the central bank to ease monetary policy.

This may serve as a wake-up call for Paul and [Fed policymakers] “They need to commit to the cuts and provide more explicit guidance,” Michael Block, co-founder and chief strategy officer at AgentSmyth, told CNN.

Economists say Wednesday’s initial downward revision was expected, noting that the later but more accurate reading Quarterly Census of Employment and Wages, or QCEWData released by the U.S. Bureau of Labor Statistics later showed a slower pace of job gains than monthly employment surveys and more accurate but less comprehensive estimates (*more on this methodology and review process later).

However, Ryan Sweet, chief U.S. economist at Oxford Economics, said the size of the initial revision was a bit surprising. He attributed this to the way the Bureau of Labor Statistics attempts to record new business formation and business closures (known as Birth and death model).

The pandemic had a seismic impact on the US economy and labor market, and its aftershocks are still being felt today. New business orders surged, but with births came deaths, and the BLS model overstated new business formation and understated deaths, Sweet told CNN.

To that end, Torsten Slok, chief economist at Apollo Global Management, told CNN: “It’s really just a math issue” and a measurement issue versus a red flag about the health of the labor market.

“160 million people have jobs,” Slok said. “Telling me that over the last 12 months it wasn’t 160 million people, it was 159.2 million people, doesn’t make a big difference to the way the Fed and financial markets think about the economy.”

Other economists cautioned that Wednesday’s numbers are still preliminary (final benchmark revisions will be released alongside the January jobs report in February 2025), and that while the QCEW captures some of the impact from the recent surge in immigration, it may not fully reflect undocumented workers.

While this backward-looking view suggests that job growth was slowing a bit earlier than previously thought, the labor market was strong at the time, Sweet said. The market still has some good fundamentals now, he added, noting that the unemployment rate rose because more people were looking for work (as opposed to higher layoffs) and that employment-to-population ratios remain high.

“I think the real key will be hiring in August,” Sweet said, referring to the upcoming jobs report due in two weeks.

Economic data are revised more frequently – especially as more comprehensive information becomes available – to provide a clearer and more accurate picture of the dynamics involved.

One of the most illustrative examples of this is Labor market data from the Bureau of Labor Statistics In particular, the all-important jobs report.

The BLS’s monthly snapshot of the labor market consists of two surveys: one for households (which provides demographic data and goes into calculating the all-important unemployment rate) and one for businesses (designed to measure employment, hours worked, and earnings).

The latest establishment survey is responsible for monthly estimates of the number of jobs added or lost.

It’s important to note the “estimates” part of this: It’s ultimately just a survey, albeit a fairly robust one (BLS surveys include over 100,000 businesses and government agencies, representing approximately 629,000 individual work locations).

When a market-moving jobs report is released, this initial estimate is often based on incomplete data, and so it will be revised twice more in the next two jobs reports as the BLS receives more information.

In addition to the survey, the BLS also incorporates a methodology to try to capture hiring activity at new businesses and those that have closed.

Even in this case, the monthly figures are not final and fully comprehensive.

This is where annual reviews of standards come in. The first part of this process is What happened on Wednesday?.

Each year, the Bureau of Labor Statistics conducts annual revisions to the standards to replace sample-based employment estimates with more complete employment counts as recorded in the QCEW.

The QCEW provides a more comprehensive reading of the number of businesses, employees, and wages at the state, regional, and provincial level because it derives this data from the quarterly tax reports that businesses file with their states.

Given this process, the QCEW is significantly behind: data for the first quarter of 2024 was also released on Wednesday and showed that in March 2024, national employment rose to 153.6 million, up 1.3% over the past year.