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What Do the US Payroll Growth Overestimates Mean?

August 28, 2023

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We’ve got a load of payroll stats for you this week, so let’s jump right in.

Shifting Job Numbers:

  • Recent data suggests 500,000 jobs may have overestimated US payroll growth in the year through March.
  • Last year, the US Bureau of Labor Statistics reported over 10 million job openings for 20 consecutive months. This data significantly influenced the Federal Reserve’s interest rate increase.
  • JPMorgan Chase economist Daniel Silver expects the forthcoming revision to show around 40,000 fewer jobs per month for the year ending March 2023.

What This Means for the Economy:

  • The BLS frequently revises past job reports. For instance, the July jobs report indicated 25,000 fewer jobs than initially reported in May. It’s not unusual for analysts to look back and amend data.
  • But, even with these revised numbers, Silver believes the average monthly job growth is strong, with approximately 300,000 through March 2023.
  • A more comprehensive report, the Quarterly Census of Employment and Wages (it’s dry but it’s extremely useful), based on state unemployment insurance tax records, will also be released soon.
Graphic of green and white bar chart indicating differing dollar amounts. Payroll
500,000 jobs might be wiped from the slate in a new data reshuffle.

Differing Opinions:

  • Steven Englander from Standard Charter Bank suggests a steeper revision, closer to 650,000.
  • Stuart Paul from Bloomberg Economics agrees that the labor market may be weaker than previously believed.
Graphic of a piggy bank in front of a stack of coins Payroll
Is the US job market actually a lot less robust than we had thought? Photo by Monstera.

Implications for Alternative Asset Investors:

The Federal Reserve recently hiked interest rates to between 5.25% and 5.5% to combat inflation, and the supposed strength of the job market was a key influence in this decision. But, if the labor market is weaker than believed, it might lead to a reconsideration of further hikes.

The potential downward revision of US payroll growth poses a conundrum for policymakers and investors alike. If these revised figures are accepted, it could highlight a less resilient job market than initially believed. This, in turn, might challenge the Federal Reserve’s recent aggressive stance on interest rates and hint at a slower economic recovery pace.

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