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U.S. job growth revised down by the most since 2009. Why this time is different

Published

7 months ago

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People line up as they wait for the JobNewsUSA.com South Florida Job Fair to open at the Amerant Bank Arena on June 26, 2024, in Sunrise, Florida. 

Joe Raedle | Getty Images

There’s a lot of debate about how much signal to take from the 818,000 downward revisions to U.S. payrolls — the largest since 2009. Is it signaling recession?

A few facts worth considering:

  • By the time the 2009 revisions came out (824,000 jobs were overstated), the National Bureau of Economic Research had already declared a recession six months earlier.
  • Jobless claims, a contemporaneous data source, had surged north of 650,000, and the insured unemployment rate had peaked at 5% that very month.
  • GDP as reported at the time had already been negative for four straight quarters. (It would subsequently be revised higher in the two of those quarters, one of which was revised higher to show growth, rather than contraction. But the economic weakness was broadly evident in the GDP numbers and ISMs and lots of other data.)

The current revisions cover the period from April 2023 to March, so we don’t know whether current numbers are higher or lower. It may well be that the models used by the Bureau of Labor Statistics are overstating economic strength at a time of gathering weakness. While there are signs of softening in the labor market and the economy, of which this could well be further evidence, here’s how those same indicators from 2009 are behaving now:

  • No recession has been declared.
  • The 4-week moving average of jobless claims at 235,000 is unchanged from a year ago. The insured unemployment rate at 1.2% has been unchanged since March 2023. Both are a fraction of what they were during the 2009 recession.
  • Reported GDP has been positive for eight straight quarters. It would have been positive for longer if not for a quirk in the data for two quarters in early 2022.

As a signal of deep weakness in the economy, this big revision is, for now, an outlier compared to the contemporaneous data. As a signal that job growth has been overstated by an average of 68,000 per month during the revision period, it is more or less accurate.

But that just brings average employment growth down to 174,000 from 242,000. How the BLS parcels out that weakness over the course of the 12-month period will help determine if the revisions were concentrated more toward the end of the period, meaning they have more relevance to the current situation.

If that is the case, it is possible the Fed might not have raised rates quite so high. If the weakness continued past the period of revisions, it is possible Fed policy might be easier now. That is especially true if, as some economists expect, productivity numbers are raised higher because the same level of GDP appears to have occurred with less work.

But the inflation numbers are what they are, and the Fed was responding more to those during the period in question (and now) than jobs data.

So, the revisions might modestly raise the chance of a 50 basis-point rate reduction in September for a Fed already inclined to cut in September. From a risk management standpoint, the data might add to concern that the labor market is weakening faster than previously thought. In the cutting process, the Fed will follow growth and jobs data more closely, just as it monitored inflation data more closely in the hiking process. But the Fed is likely to put more weight on the current jobless claims, business surveys, and GDP data rather than the backward looking revisions. It’s worth noting that, in the past 21 years, the revisions have only been in the same direction 43% of the time. That is, 57% of  the time, a negative revisions is followed the next year by a positive one and vice versa.

The data agencies make mistakes, sometimes big ones. They come back and correct them often, even when it’s three months before an election.

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

The jobs data could be subject to noise from immigrant hiring and can be volatile. But there is a vast suite of macroeconomic data that, if the economy were tanking like in 2009, would be showing signs of it. At the moment, that is not the case.

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Economics

Checks and Balance newsletter: Who is (or was) the smartest person in government?

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20 hours ago

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March 29, 2025

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Checks and Balance newsletter: Who is (or was) the smartest person in government?

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Economics

Consumer sentiment worsens as inflation fears grow, University of Michigan survey shows

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2 days ago

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March 28, 2025

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A shopper pays with a credit card at the farmer’s market in San Francisco, California, US, on Thursday, March 27, 2025. 

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The deterioration in consumer sentiment was even worse than anticipated in March as worries over inflation intensified, according to a University of Michigan survey released Friday.

The final version of the university’s closely watched Survey of Consumers showed a reading of 57.0 for the month, down 11.9% from February and 28.2% from a year ago. Economists surveyed by Dow Jones had been expecting 57.9, which was the mid-month level.

It was the third consecutive decrease and stretched across party lines and income groups, survey director Joanne Hsu said.

“Consumers continue to worry about the potential for pain amid ongoing economic policy developments,” she said.

In addition to worries about the current state of affairs, the survey’s index of consumer expectations tumbled to 52.6, down 17.8% from a month ago and 32% for the same period in 2024.

Inflation fears drove much of the downturn. Respondents expect inflation a year from now to run at a 5% rate, up 0.1 percentage point from the mid-month reading and a 0.7 percentage point acceleration from February. At the five-year horizon, the outlook now is for 4.1%, the first time the survey has had a reading above 4% since February 1993.

Economists worry that President Donald Trump’s tariff plans will spur more inflation, possibly curtailing the Federal Reserve from further interest rate cuts.

The report came the same day that the Commerce Department said the core inflation rate increased to 2.8% in February, after a 0.4% monthly gain that was the biggest move since January 2024.

The latest results also reflect worries over the labor market, with the level of consumers expecting the unemployment rate to rise at the highest level since 2009.

Stocks took a hit after the university’s survey was released, with the Dow Jones Industrial Average trading more than 500 points lower.

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Economics

PCE inflation February 2025:

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2 days ago

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March 28, 2025

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Core inflation in February hits 2.8%, hotter than expected; spending increases 0.4%

The Federal Reserve’s key inflation measure rose more than expected in February while consumer spending also posted a smaller than projected increase, the Commerce Department reported Friday.

The core personal consumption expenditures price index showed a 0.4% increase for the month, putting the 12-month inflation rate at 2.8%. Economists surveyed by Dow Jones had been looking for respective numbers of 0.3% and and 2.7%.

Core inflation excludes volatile food and energy prices and is generally considered a better indicator of long-term inflation trends.

In the all-items measure, the price index rose 0.3% on the month and 2.5% from a year ago, both in line with forecasts.

At the same time, the Bureau of Economic Analysis report showed that consumer spending accelerated 0.4% for the month, below the 0.5% forecast. That came as personal income posted a 0.8% rise, against the estimate for 0.4%.

Stock market futures moved lower following the release as did Treasury yields.

Federal Reserve officials focus on the PCE inflation reading as they consider it a broader measure that also adjusts for changes in consumer behavior and places less of an emphasis on housing than the Labor Department’s consumer price index. Shelter costs have been one of the stickier elements of inflation and rose 0.3% in the PCE measure.

“It looks like a ‘wait-and-see’ Fed still has more waiting to do,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”

Good prices increased 0.2%, led by recreational goods and vehicles, which increased 0.5%. Gasoline offset some of the increase, with the category falling by 0.8%. Services prices were up 0.4%.

The report comes with markets on edge that President Donald Trump’s tariff intentions will aggravate inflation at a time when the data was making slow but steady progress back to the Fed’s 2% goal.

After cutting rates a full percentage point in 2024, the central bank has been on hold this year, with officials of late expressing concern over the impact the import duties will have on prices. Economists tends to consider tariffs as one-off events that don’t feed through to longer-lasting inflation pressures, but the encompassing scope of Trump’s tariffs and the potential for an aggressive global trade war are changing the stakes.

Correction: Consumer spending increased 0.4% in February. An earlier headline misstated the number.

This is breaking news. Please refresh for updates.

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