US Job Growth Revised Lower: Key Implications for the Federal Reserve
The US Department of Labor has sharply lowered job growth numbers for the year ending March 2024, issuing the new numbers in a revision released Wednesday.
Downward Revision to Key Magnitude in Job Growth Statistics
The revision tests the fact that by that time, employers had created 818,000 fewer jobs than anybody had been suspecting and therefore recalibrates the view of just how healthy the job market looks. An important element of the revision is that it only affirms that the employment gains throughout the year have been overstated—and casts new doubt on earlier forecasts for the economy.
The new figures show that the firm plans to cut off a total of around 0.5% in total payroll employment, with the monthly job gains now falling to around 174,000, down from its initial estimate of 242,000. If the revision goes unchanged until the final benchmark in February 2025, it will amount to the most significant corrections since March 2009, when the department slashed employment totals by 902,000.
Implications for the Federal Reserve
This larger-than-expected downshift in job growth data could not be coming at a more perfect time, since the Federal Reserve is all but ready and waiting to most likely slash interest rates this September. The information reflects a possible weaker job market than most thought earlier, and policymakers of the Fed may just keep that in mind while deciding on further rate cuts.
More important, said Ryan Sweet, chief U.S. economist at Oxford Economics, it was a big upward revision that could cause Fed officials to conclude that job growth in recent months was overstated. That could tip the central bank’s calculus away from concerns about inflation and toward the health of the labor market as it plots its next moves.
The Fed has held the benchmark interest rate steady in the 5.25%-5.50% region for over a year now since the central bank adopted a streak of interest rate increases throughout 2022 and 2023 over high inflation. With inflation currently at or near the Fed’s 2% target, much of the focus is on whether current borrowing costs are too tight for the labor market.
Industry-Specific Notable Updates
According to sector-specific data on revisions, the following was the case:
Professional and Business Services: the sector lost 358,000 jobs, that is reduced by 1.6 percent relative to previously established estimates
Leisure and Hospitality: the jobs came down by 150,000 or reduced by 0.9 percent
Manufacturing: the jobs were downward-revised by 115,000 that is down by 0.9 percent.
Further, the revisions were on the higher side for several other industries:
Private Education and Health Services: 87,000 jobs, or 0.3 percent substantively were upward revised
Transportation and Warehousing: 56.
Utilities: 1,700 jobs gain, 0.3%.
These revisions give a far more accurate sense of the texture of the job market, with some sectors doing notably better than had been earlier reported and others notably worse.
Possible Policy Implications for the Federal Reserve
New job growth figures revised also stand to influence the Fed’s path with respect to monetary policy. Weaker-than-expected payroll data, coupled with the jobless rate climbing to 4.3% in July, hit a pandemic-high reading, something that has got people conjuring fears that the central bank had taken too long in starting to cut rates.
Other indicators, including weekly jobless claims, do point to a relatively orderly softening in the labor market. This, in conjunction with the promise that accompanied the rates cut by the Fed to watch for economic conditions much more broadly, becomes important for policy decisions down the track.
Reactions in the Market and Outlook
Following the revised employment data release, US Treasury yields meandered lower, as investors continued to look for a possible Fed easing cycle starting as early as next month. This week, market participants are at high alert for comments from Fed Chair Jerome Powell for clues regarding the size and scope of the probable rate cuts.
This revision underscores the significance of labor market data in the formulation of economic policy and how murky this scenario has become for the Federal Reserve. With these new figures, it’s very likely to play a key role at the Fed’s September meeting in its deliberations on the future path of interest rates.
Quite simply, the big downsizing in job creation reflects continuation of structural problems in the U.S. labor market, and it may reflect heavily on thinking at the Federal Reserve in months ahead. The revised figures provide a more cautious view of the employment trends that might affect the central bank’s strategy while weighing control of inflation with stability in the labor market.
Read more about related article, just click here
