March 2024 Sees Largest Job Overestimation in 15 Years, May Prompt Fed Rate Cuts
AInvestWednesday, Aug 21, 2024 11:00 am ET
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Preliminary estimates from the U.S. Bureau of Labor Statistics (BLS) show an 818,000 downward revision in nonfarm employment for March 2024, a revision rate of 0.5%.

According to BLS, the Quarterly Census of Employment and Wages (QCEW) data, which will include revisions for nonfarm employment numbers from April 2023 to March 2024, is set to be released at 10 a.m. EST.

The QCEW data is derived from state unemployment insurance tax records, covering nearly all employment positions, offering significantly higher accuracy compared to monthly nonfarm payrolls. The primary drawback is its timeliness.

This substantial revision is anticipated to be far below prior estimates, potentially raising calls for further interest rate cuts due to concerns that the Federal Reserve may have delayed initiating a loosening cycle for too long.

Earlier in the month, underwhelming U.S. July nonfarm payrolls triggered recession fears, leading to a significant drop in U.S. stocks. The nonfarm employment revisions anticipated this Wednesday might indicate that BLS previously overestimated U.S. job additions, potentially being the largest overestimation in the past 15 years. Investors will be closely monitoring the data release.

The data adjustment expected to exceed 501,000 would mark the largest downward revision in 15 years, suggesting the U.S. labor market cooling has been more prolonged and severe than anticipated.

Given the Federal Reserve's dual mandate of stabilizing prices and promoting maximum employment, these revised figures may influence Chairman Jerome Powell's speech at the Jackson Hole Economic Policy Symposium on Friday.

QCEW data accuracy is bolstered by near-complete employment coverage through state unemployment insurance tax records; however, it sacrifices timeliness for precision.

Even with significant downward revisions, job growth would still indicate a healthy level. According to pre-revision BLS data, the U.S. added 2.9 million nonfarm jobs from April 2023 to March 2024, averaging 242,000 jobs per month. If revised down by 1 million, the average would be 158,000 jobs per month—a still healthy rate but slower compared to post-pandemic peaks.

U.S. Dollar Index fell to its lowest since January, influenced by employment revision expectations and anticipation of Powell’s speech.

CME FedWatch Tool indicates traders expect the Fed to cut rates by 100 basis points by end of the year: 25 basis points in September and November each, followed by a 50 basis points cut in December.

Note, QCEW data has significant limitations. It largely excludes undocumented workers, potentially skewing figures by 300,000 to 500,000, and initial QCEW estimates typically undershoot final counts by an average of 100,000.

Barclays’ Senior U.S. Economist Jonathan Millar cautioned that BLS could make significant downward revisions this Wednesday, yet the actual revisions might be lesser than preliminary estimates due to known bias in QCEW data during the pandemic.

Millar added that despite possible significant initial revisions, final adjustments could offset the early downtrend, predicting stronger adjustments in the final data to be released in December 2024.
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