US job growth revised down by most since 2009. Why this time is different

There is much debate about how much to read from the 818,000 downward revisions in US payrolls — the largest since 2009. Is it a sign of a recession?

Some facts worth considering:

• When the 2009 revision was released (824,000 jobs overreported), the National Bureau of Economic Research had already declared a recession six months earlier.
• Data sources also showed that jobless claims surged to more than 650,000 and the insured unemployment rate peaked at 5% that very month.
• Reported GDP at that point had been negative for four consecutive quarters. (GDP would later be revised upward for two of those quarters, one of which was revised upward to show growth, rather than contraction. But the economic weakness was evident in GDP and ISM numbers, among other data.)

The current revisions cover the period from April 2023 to March, so we don’t know if the current numbers are higher or lower. It’s possible that the models used by the Bureau of Labor Statistics are overstating economic strength at a time of weakness. While there are signs of weakness in the labor market and economy that may be more evident, here’s how the same indicators from 2009 are doing now:

• No recession has been declared yet.
• The four-week moving average of jobless claims is 235,000, unchanged from a year ago. The insured unemployment rate is 1.2%, unchanged since March 2023. Both are a fraction of the levels seen during the 2009 recession.
• GDP has been positive for eight consecutive quarters, and will remain positive for even longer if there are no changes in the data in the two quarters in early 2022.

As a sign of serious economic weakness, this large correction is, for now, an outlier in the data. As a sign that job growth has been overstated by an average of 68,000 jobs per month over the correction period, it is more or less accurate.

But that only reduced the average job growth to 174,000 from 242,000. How the BLS spreads that weakness across the 12-month period will help determine whether the revisions were more concentrated toward the end of the period, meaning they were more relevant to the current situation.

If that’s the case, the Fed may not have raised rates as high. If weakness persists after the adjustment period, the Fed may be more accommodative now. That’s especially true if, as some economists predict, productivity figures rise higher, since the same level of GDP appears to have occurred with fewer jobs.

But the inflation numbers are still there, and the Fed reacted more to those numbers in the period in question (and still does) than to the jobs data.

So the adjustments could slightly increase the likelihood of a 50 basis point rate cut in September for a Fed that was already leaning toward a cut in September. From a risk management perspective, the data could add to concerns that the labor market is weakening faster than previously thought. The Fed will be watching growth and employment data more closely during the cut, just as it watches inflation data more closely during the rate hike. But the Fed will likely focus more on current jobless claims, business surveys, and GDP data than on adjustments in the opposite direction. Notably, over the past 21 years, adjustments have been in the same direction only 43% of the time. That is, a negative adjustment was followed by a positive adjustment the following year 57% of the time, and vice versa.

Data agencies make mistakes, sometimes big ones. They frequently go back and fix them, even three months before the election.

In fact, economists at Goldman Sachs later said on Wednesday that they thought the BLS may have overstated the revisions by as much as half a million. Unauthorized immigrants who are not currently in the unemployment system but were initially listed as employed accounted for some of the difference, along with the general tendency for initial revisions to be overstated, the Wall Street firm said.

Employment data can be noisy from immigration hiring and can be volatile. But there is a large set of macroeconomic data that, if the economy were in a recession like 2009, would show signs of it. Right now, that is not the case.