Revisions to previously released jobs numbers have become increasingly common in recent years, but this week, investors and economists witnessed the largest revision to U.S. payroll data since 2009, just after the Global Financial Crisis.
The U.S. economy added 818,000 fewer jobs than previously reported between March 2023 and March 2024, the Bureau of Labor Statistics revealed Wednesday. Still, despite the ugly data, which led to concerns among some investors about a weakening labor market, the stock market reaction was muted. The Dow Jones industrial average rose 0.4% by 2 p.m. ET on Wednesday, while the S&P 500 and the tech-heavy Nasdaq Composite jumped 0.33% and 0.45%, respectively.
Brian Albrecht, chief economist at the International Center for Law and Economics, said he’s not surprised by the lack of market movement. “It’s a big revision, but we expected a big revision,” he told Fortune. “Private forecasters were putting out numbers—anything from 350,000 up to a million—and this is on the upper side of it, but we expected it to be on the high side, which is why we had a bunch of coverage on it before it even came out.”
To Albrecht’s point, investors widely anticipated a large negative revision to payroll growth on Wednesday, with some fearing an even more dramatic 1 million reduction in jobs between March 2023 and March 2024, as Fortune previously reported.
Eric Wallerstein, chief markets strategist at Yardeni Research, echoed Albrecht’s somewhat sanguine view as well. “The market’s lack of reaction is pretty telling,” he said. “I think the revisions, you can say, they were priced in. We were kind of expecting some sort of big revision … It’s kind of a nothing burger.”
Wallerstein noted that the negative revision to payrolls only dropped monthly payroll growth over the period in question from 241,000 additions per month to 174,000 per month. “That’s 2018, 2019 average monthly payroll growth,” he said. “So we’re not really sweating this one.”
Another reason investors may be brushing off signs of labor market weakness is that said weakness may only serve to increase the odds of more aggressive interest rate cuts from the Federal Reserve moving forward.
The Fed raised interest rates from near-zero in March 2022 to a range between 5.25% and 5.5%, and has held them at that level for over a year. But inflation is now fading, and investors have long been predicting interest rate cuts. Wednesday’s large negative revision to past payroll data helped reinforce that outlook, at least slightly. Bond market traders are now pricing in a 32.5% chance of an outsized 50 basis point rate cut in September, up from 22.5% on Monday, according to CME Group’s FedWatch Tool.
Still, most experts argued the impact of the recent payroll revision will be minimal for the Fed, since the data is so backward looking.
“The Fed’s labor market concerns stem from the weakness in job growth from [the second quarter] onwards, combined with deterioration in other indicators. It won’t be spooked by news that the labor market was ‘solid’ rather than ‘strong’ last year,” Bank of America U.S. economist Aditya Bhave wrote in a Wednesday note, arguing that even the change in investors’ expectations of rate cuts has been “minimal.”
Albrecht backed up that view. “The [Fed] governors know this stuff, and the voting members know this stuff,” he said. “So it shouldn't change too much.”
Finally, Wallerstein said that even if upcoming jobs data takes a turn for the worse, which he doesn’t expect, the Fed will have room to play hero—meaning investors should think twice about selling stocks. “Do you sell stocks, because you think: ‘Oh, no, the economy is unduly weak?’” he asked rhetorically, answering: “I don’t know, the Federal will rush in to save the day, they have an easing bias generally when things go wrong … The Fed put lives.”
Why was there such a big revision to past jobs numbers?
Another reason for the muted market reaction to the largest negative revision to payroll data in roughly 15 years is the “why” behind the revision.
Albrecht explained that there are always common errors that can occur when the Bureau of Labor Statistics (BLS) reaches out to businesses for employment data. “They don’t get every establishment, and so they get some sampling error,” he said, noting that “sometimes they get HR folks who do a really good job; sometimes they don’t. Sometimes they send [the payroll survey] back; sometimes they don’t.”
And beyond that, there is a unique, and likely temporary, issue with something called the Current Employment Statistics Net Birth-Death Model that has thrown off labor market data of late. This model is made to account for what the BLS calls “an unavoidable lag” between the opening of a new business and its appearance in payroll sampling data.
The issue is, over the past few years, the number of new businesses opening in the U.S. has surged dramatically—particularly in 2023, when a record 5,481,437 new businesses were created, according to U.S. Census Bureau data. This surge in new business creation was taken into account by the Net Birth-Death Model, and then extrapolated into an ongoing surge in new business formations which hasn’t arrived.
“The model overestimated based on a big jump in new business formation from the year before,” Albrecht explained. “It turns out that that was overly optimistic. Business formation still is up, but it skyrocketed and then flattened out.”
The good news, according to Albrecht, is that this sampling issue may soon be a thing of the past, because we have settled into a more “steady state” of business births and deaths.
“This revision was huge, yes, but we shouldn’t expect some big change next year in the revision, because the big reason for the revision—the kind of mess-up of the birth-death model—shouldn’t be there anymore,” he said.
Another caveat worth mentioning
There’s one final caveat to Wednesday’s (admittedly frightening) negative revision to previous payroll data: the impact of undocumented immigration. Yardeni Research’s Wallerstein pointed out that the BLS often struggles to measure the number of jobs that undocumented workers have managed to land, which can throw off payroll figures.
Using some back of the napkin math, based on the Congressional Budget Office’s data on the recent surge in immigration to the U.S., Wallerstein estimated that roughly 500,000 workers could be missing from the payroll data between March 2023 and March 2024.
“That gets us back to almost what we were at pre-revision,” he said. “So I still think immigration is a big deal.”
