The US jobs market in the year leading up to the spring was significantly weaker than previously thought — raising jitters about the overall health of the economy and all but sealing the case for the Federal Reserve to finally cut rates next week.
The Bureau of Labor Statistics on Tuesday revised downward the number of jobs created during the 12 months ended in March by a staggering 911,000 — the biggest downward adjustment since 2000, including last year’s monster markdown of 818,000 jobs.
Wall Street had expected a drop of 600,000 to 1 million jobs in the data.
Economists expect the numbers — which translate to just 70,000 jobs being created each month versus the 147,000 that had been reported — will look somewhat better when they’re finalized in February. Still, year’s revision was adjusted to a still-painful loss of 598,000 jobs.
“The jobs picture keeps deteriorating and while that should make it easier for the Fed to cut rates this fall, it could also throw some cold water on the recent rally,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a note Tuesday.
“Worse still, if the CPI shows a worsening trend of higher inflation on Thursday then the market will begin worrying about stagflation.”
All three indexes closed at record highs. The Dow Jones Industrial Average rose nearly 200 points, or 0.4%, the S&P 500 and Nasdaq gained 0.3% and 0.4%, respectively.
Recent data has signaled the labor market has been weakening over the past few months, with an average payroll growth of just 29,000 in June, July and August. That’s below the breakeven level required to keep unemployment steady.
Tuesday’s revision included the largest chops in leisure and hospitality, down 176,000; professional and business services down 158,000; and retail trade down 126,200.
“The revised data demonstrate more clearly that AI is automating away jobs in the tech sector,” Bill Adams, chief economist for Comerica Bank, said in a statement.
“The downward revision hit employment in information industries especially hard – this is the category that includes many internet businesses.”
Most of the period covered in the report is from before President Trump took office, meaning the labor market started at an even softer point than known before he imposed sweeping tariffs.
Trump has already taken aim at the BLS, abruptly firing chief Erika McEntarfer in August over accusations of inaccurate data. He has nominated EJ Antoni, an economist at the conservative Heritage Foundation, as her replacement.
The Labor Department relies on a survey of 120,000 employers for its release of monthly jobs data. New businesses are not included in these surveys, and it’s difficult to determine whether a company that stops responding has closed its doors.
Annual revisions account for these gaps in the data by using state unemployment tax records, which nearly all employers are required to complete. These forms cover 95% of US employment.
They are also subject to revisions, since some tax filers are late, so the final adjustment comes out in February each year.
Trump has argued that the Biden administration “rigged” the jobs numbers to help Democrats keep control of the White House, only to revise them sharply downward after Trump won the election.
Economists have argued the pandemic has caused large shifts in the data. After the lockdown, a flurry of new businesses formed, which weren’t properly counted in the jobs data.
For the 12 months ended March 2023, jobs growth was revised upward by a hefty 506,000.
New business activity then quickly normalized, which led the Labor Department to start overstating job growth.
Revisions also tend to be particularly large at the start of economic recessions.
Most sectors saw downward revisions, though transportation and warehousing and utilities saw small gains.
Government jobs were adjusted down by 31,000.
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