Are the recent downward revisions of job growth an indication of a weakening economy, or are they simply statistical errors? This question has sparked a debate about the health of the U.S. labor market and the broader economic landscape.
The Bureau of Labor Statistics (BLS) recently revised employment growth down by 818,000 jobs from April 2023 to March 2024. This represents the sharpest downward adjustment since the global financial crisis in 2008–2009. The revisions show that the economy created roughly 2.1 million jobs in the 12 months through March, instead of the previously reported 2.9 million.
Various sectors witnessed lower job gains, including professional and business services, leisure and hospitality, retail, and manufacturing. These revisions have raised concerns about the health of the labor market and the U.S. economy.
It’s worth noting that downward revisions have become a noticeable component of the monthly jobs report, with adjustments occurring nearly every month since January 2023. In fact, five out of the past six job reports have been revised lower. The BLS has also recorded sizable revisions to employment data in previous years.
The BLS’s recent revisions confirmed a 0.5 percentage point error on payrolls, up from last year’s 0.2 percentage point mistake. This suggests that there are some clear issues with the assumptions the BLS uses to complement its surveys of U.S. businesses.
One criticism of the BLS’s methodology is the birth-death model, which is related to the birth and death of businesses, not individuals. This model has attracted considerable scrutiny over the years, as it can become inaccurate at the peaks of business cycles.
While the revisions have generated significant attention, they don’t change much about the state of the U.S. economy. The total non-farm payrolls have increased from 156.211 million a year ago to 158.723 million currently.
Dean Baker, a senior economist at the Center for Economic and Policy Research, argues that the revisions indicate slower job growth but don’t necessarily signal a problem. He points out that high levels of employment with fewer jobs could indicate faster-than-estimated productivity growth.
However, there are concerns forming throughout the labor market that can’t be ignored. The July jobs report showed an increase in the unemployment rate to 4.3 percent, the highest level since October 2021. This has activated the Sahm rule, which suggests that when the jobless rate is 0.5 percent or more above its low over the previous 12 months, the economy could be in the early stages of a recession.
Former Federal Reserve economist Claudia Sahm doesn’t believe the U.S. economy is contracting but does think the country is close to a recession. Fed Chair Jerome Powell has also expressed concern about the cooling labor market conditions.
Full-time employment has been trending downward over the past year, while part-time employment has increased. This shift from stable, full-time jobs to multiple part-time gigs has created income volatility for many workers.
There has also been a divergence between U.S.-born and foreign-born workers in recent years. Native-born employment has declined, while foreign-born employment levels have increased. This trend includes both legal and illegal immigrants.
Amid concerns about the U.S. economy, workers are becoming nervous and fearful about the labor market. The New York Fed’s Labor Market Survey shows that the share of individuals who think they will become unemployed in the next four months has surged to a series high. Additionally, more people are actively searching for work.
While economists don’t anticipate a recession in the next 12 months, many Americans feel that the nation is facing economic difficulties. This sentiment, known as a “vibecession,” could affect the labor market as individuals become more cautious about quitting their current jobs or pursuing new opportunities.
In conclusion, the downward revisions of job growth have raised concerns about the health of the U.S. labor market and the broader economy. While some argue that the revisions indicate slower job growth and potential productivity gains, there are other factors, such as the rising unemployment rate and income volatility, that suggest trouble brewing in the labor market. Workers are becoming more nervous about their job security, and this sentiment could impact their decisions about quitting or pursuing new opportunities.
