The most serious overestimation in 15 years? The number of non-farm jobs in the United States may be significantly revised down by millions in a year

A major revision released this Wednesday may indicate that the U.S. government's statistical department has significantly overestimated domestic employment figures, with the degree of overestimation possibly being the largest in 15 years. This will raise concerns in the market that the Federal Reserve's interest rate cuts may significantly lag behind, as the labor market is not as resilient as previously indicated by the data.

On Wednesday, August 21st, Eastern Time, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor will release the Quarterly Census of Employment and Wages (QCEW) data for the first quarter of this year. According to the QCEW, preliminary benchmark revisions will be made to the non-farm employment figures for March of this year. Next year, the final benchmark revision will be made based on the non-farm employment data for January and February of the following year.

Every year, the BLS revises the employment data for March as a benchmark based on the QCEW. When the data for March changes, the data for other months within the year up to March will correspondingly change. Therefore, the data released by the BLS this Wednesday will mean a significant adjustment to the employment figures within the year up to March. Currently, Wall Street institutions generally expect a downward revision of the employment figures for the year up to March, with varying predictions on the extent of the revision.

Economists from Goldman Sachs and Fidelity Bank predict that after the BLS revision, the non-farm employment growth for the year up to March will be at least 600,000 lower than the current data, equivalent to a decrease of about 50,000 per month. Forecasters at J.P. Morgan believe that the non-farm employment population for the year up to March will be revised down by about 360,000, while Goldman Sachs predicts that the highest downward revision could reach 1 million people.

The media points out that if the downward revision of employment figures exceeds 501,000, it will be the largest scale downward revision in 15 years. This would indicate that the cooling of the labor market may last longer than originally thought, and possibly even longer. These data may also affect the tone of Federal Reserve Chairman Powell's speech at the Jackson Hole Global Central Bank Annual Meeting this Friday.

Commentators suggest that a significant downward revision of employment figures may reignite the debate on whether a slowdown in the U.S. labor market will lead to a more severe economic downturn. The U.S. July non-farm employment report released earlier this month showed that the increase in non-farm employment in July was much lower than expected, and the unemployment rate unexpectedly rose for the fourth consecutive month. Following this, global markets experienced a $6.4 trillion sell-off, but by last Friday, the U.S. benchmark stock index S&P 500 had regained all the lost ground since the beginning of the month.

Quincy Krosby, Chief Global Strategist at LPL Financial, stated that the market has recently experienced a growth panic, with concerns that the Federal Reserve may fall behind the curve in not cutting interest rates. The market will pay attention to the benchmark revision released this Wednesday to see if the initial market reaction to the employment data was correct.

Even if the BLS announces a significant downward revision of non-farm employment figures on Wednesday, it does not mean that the U.S. employment growth is collapsing.

Current BLS data shows that the U.S. added 2.9 million employed individuals in the year up to March, averaging 242,000 per month. If the maximum downward revision of 1 million as predicted by Goldman Sachs occurs, the average monthly increase in employment would be around 158,000, still considered a healthy level of employment growth by economists, albeit slower compared to the peak employment period after the COVID-19 pandemic Omair Sharif, President of Inflation Insights LLC, believes that the BLS revision will be close to the lower end of Wall Street's expected range, partly due to lagging data reports, with QCEW data often leaning towards the higher end.

Goldman Sachs' report suggests that BLS's downward revision may exaggerate the extent of the weakness in March's year-over-year labor market growth, as the QCEW data used for revisions largely excludes undocumented immigrants, who have made significant contributions to employment growth. Furthermore, Goldman Sachs points out that QCEW itself has been consistently revised upwards in recent years. Since 2019, preliminary benchmark revisions based on QCEW have averaged 100,000 fewer employed persons compared to the final revised results.

Goldman Sachs' analysis indicates that based on QCEW estimates, BLS may mistakenly exclude 300,000 to 500,000 nonfarm employment positions belonging to undocumented immigrants from March's year-over-year employment figures. In other words, BLS may inaccurately downwardly revise 300,000 to 500,000 employment positions