To what extent has the U.S. labor market slowed down? Keep a close eye on Wednesday's non-farm payroll report, which is significant and information-rich

The upcoming U.S. employment report is significant and densely packed with information, expected to reveal the extent to which the U.S. labor market has slowed in recent years, or possibly, that it has not grown at all.

This report, compiled by the Bureau of Labor Statistics (BLS), was originally scheduled for release on February 6 but has been postponed due to a partial government shutdown.

In the more routine parts of the report, according to the median forecast from a Bloomberg survey of economists, non-farm payrolls in January are expected to increase by 69,000; the unemployment rate is expected to remain at 4.4%, slightly below the four-year high of 4.5% reached in November last year. Analysts expect that the January non-farm payroll report may not change the overall picture of a weak labor market.

In addition to the regular monthly non-farm employment and unemployment rate data, the January employment report to be released this Wednesday will also include closely watched employment data revisions. Previous preliminary estimates indicated that employment numbers could be revised down by 911,000 for the year ending in March 2025, setting a record, which means the pace of hiring will be significantly downgraded.

Industry insiders believe that this year's annual benchmark revision will be more important than usual. The labor market currently appears to be at a critical point between new job creation and potential job losses.

Every January, when the employment report is released, the BLS aligns non-farm employment data with a more accurate but less timely set of data, namely the Quarterly Census of Employment and Wages. This data is based on unemployment insurance tax records from each state and covers most jobs in the U.S.

In addition to releasing the adjusted employment levels for March 2025, the BLS will also revise the non-farm employment change data for each month of the previous year. These revisions reflect the agency's updates to the model used to incorporate business openings and closures, as well as new seasonal adjustment factors.

Last year, the U.S. labor market was widely regarded as gradually weakening, with economists describing it as an environment of "low hiring and low layoffs." However, this revision may show that the extent of the slowdown in hiring is more severe than previously expected.

This could change the Federal Reserve's view of the labor market. Federal Reserve Chairman Jerome Powell recently stated that the labor market is showing signs of stabilizing. He believes that job growth may have been overestimated, but the overall economic condition remains robust enough for officials to keep interest rates unchanged for now.

His colleague, Federal Reserve Governor Christopher Waller, holds a different view. Waller explained why he voted to support another rate cut at the January monetary policy meeting, stating that these revisions are likely to indicate that there was almost no job growth last year. "Zero. None. Absolutely none. This does not resemble a healthy labor market at all."

Data released last week supported this view. The number of layoffs announced by U.S. companies reached the highest level for any January since the worst periods of the Great Recession, while JOLTS job openings fell to their lowest point since 2020 in December

Data Revision

It should be noted that the above revisions will not affect the unemployment rate, as the unemployment rate is derived from household surveys; non-farm employment data comes from surveys of businesses.

Typically, the BLS incorporates new population estimate data into the household survey in the January employment report. However, due to last year's record-long government shutdown, this adjustment was delayed by a month.

In recent years, the magnitude of revisions to employment data has generally been higher than in the past, with some economists attributing this to the unique economic dynamics following the pandemic. The issue of revisions has also become highly politicized and largely contributed to former President Trump's decision to fire the previous BLS director, when he claimed that employment data was manipulated for political purposes. Upon the recent appointment of a new director, Trump again criticized the BLS for consistently releasing "extremely inaccurate data."

Economists generally refute this claim. They argue that as more raw data becomes available, revisions are inevitable, and these adjustments help data publishers strike a balance between speed and accuracy while maintaining the comparability of data over time. "Revisions can cause confusion, sometimes fueling conspiracy theories, and some have even been fired because of this. But as long as revisions are transparent, predictable, and well-documented, they should actually increase your trust in official statistics."