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

There is much debate over how much of a signal to take from the 818,000 downward revisions to US payrolls – the most since 2009. Does it signal recession?

A few facts worth considering:

• By the time the 2009 revisions came out (824,000 jobs were overestimated), the National Bureau of Economic Research had already declared a recession six months earlier.
• Jobless claims, a contemporary source of data, rose north of 650,000, and the insured unemployment rate peaked at 5 percent that very month.
• GDP reported at the time had already been negative for four consecutive quarters. (It would later be revised higher in two of those quarters, one of which was revised higher to show growth rather than contraction. But the economic weakness was generally evident in the GDP and ISM numbers and many other data. )

The current revisions cover the period from April 2023 to March, so we don’t know if the current figures are higher or lower. The models used by the Bureau of Labor Statistics may be exaggerating economic strength at a time when weakness is gathering. While there are signs of a softening of the labor market and the economy, which could be further evidence, here’s how the same indicators are performing since 2009:

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

As a signal of deep weakness in the economy, this major revision is, for now, an outlier compared to contemporary data. As a signal that job growth was overstated by an average of 68,000 per month over the review period, it is more or less accurate.

But that only reduces average employment growth to 174,000 from 242,000. How the BLS spreads this slack over the 12-month period will help determine whether the revisions were more concentrated toward the end of the period, meaning they have more relevance to the current situation.

If that’s the case, the Fed may not have raised rates so high. If weakness has continued beyond the review period, Fed policy may be easier now. This is especially true if, as some economists expect, the productivity numbers are inflated more because the same level of GDP appears to have occurred with less work.

But inflation numbers are what they are, and the Fed was more responsive to those over the period (and now) than to jobs data.

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

Data agencies make mistakes, sometimes big ones. They go back and correct them often, even when it’s three months before the election. Employment data may be subject to noise from immigrant employment and may be volatile. But there is a broad suite of macroeconomic data that, if the economy were to shrink like it did in 2009, would show signs. At the moment, this is not the case.