US job growth may see the second largest revision in history? Wall Street can't even guess

The answer to this question will be revealed this Wednesday, when the government will announce the benchmark revision data for the growth of US employment from April 2023 to March 2024. In short, these revisions will attempt to more accurately describe how many jobs the US created during this period.

Wall Street predicts that job growth will be significantly revised downward. It is estimated that the number of jobs will be revised down by anywhere from 600,000 to a record 1 million.

If Wall Street is correct, this conclusion will indicate that the labor market is not as robust as it appears, and its cooling rate is much faster than imagined.

Economists say that if the data revision is significant enough, it could prompt the Federal Reserve to cut interest rates in September by more than currently expected by Wall Street, and it could also lead to faster rate cuts in the coming months.

This revision is based on a quarterly survey of all US companies participating in state and federal unemployment insurance programs, which must provide employee numbers for tax purposes. Tax-related information helps the Bureau of Labor Statistics more accurately measure the growth of real job positions.

Based on the results of the first three quarters of the survey, job growth in the US was overestimated by about 735,000 in the 12 months ending in March 2024, or an overestimation of 82,000 jobs per month.

Such a large revision will be the second largest in history and will clearly indicate that the labor market is not as strong as previously shown in monthly employment reports. The strong job growth during this period may even have prevented the Federal Reserve from cutting rates early.

However, as some economists have warned, government revisions to employment growth benchmarks are complex and not always easy to predict. In fact, the revision results for some years have been exactly the opposite of economists' expectations.

First, the government's benchmark revision process depends on many variables that could disrupt Wall Street's estimates.

For example, an important factor is the number of new businesses established each year and the number of businesses that close. The Bureau of Labor Statistics uses a "birth/death model" to calculate trends in business establishment and closure.

Stephen Stanley, chief economist at Santander Capital Markets, said, "If the rate of new business creation, or the rate of closure of existing businesses, is faster or slower than the assumptions of the Bureau of Labor Statistics, the actual employment situation will differ from the estimates.

Another variable is immigration. In recent years, the number of immigrants to the US has surged, making it difficult for the government to measure their presence in the workforce.

Therefore, the revision results are not always as Wall Street expects.

Take, for example, the 12 months ending in March 2021. Economists predicted that the benchmark revision would reduce job growth by 270,000. However, during this period, job growth increased by 374,000.

Many analysts believe that these variables could result in a significantly smaller downward revision in the total number of job positions added in the 12 months ending in March 2024 than expected Even in the worst case scenario, benchmark revisions will show that from spring 2023 to spring 2024, there will still be 150,000 to 160,000 new job positions added each month, slightly lower than the average growth rate of the past decade before the COVID-19 pandemic.

So, what indications does the revised result have for the 4 months starting from March 2024? Not many, these changes are retrospective and do not tell us about the direction of the labor market and the economy. For example, if the Federal Reserve cuts interest rates as expected, it may boost the economy and lead to an acceleration in employment