Investing.com - The U.S. economy added significantly fewer jobs than first reported during the past year, after a sharp revision to previously published data, likely cementing the probability of an interest rate cut by the U.S. Federal Reserve next month.
The Bureau of Labor Statistics revised down March 2024’s employment gains by 818,000 positions earlier in the session, as part of the agency’s annual benchmark review of payroll data.
When spread through the prior year, that amounts to about 68,000 fewer net jobs added per month.
“With inflation slowly converging to target, financial markets are increasingly sensitive to recession concerns, and thus a downward revision of job numbers could bring about another risk-off episode,” said analysts at ING, in a note. “Remember that previous payroll disappointment helped trigger the turmoil just a few weeks ago.”
However, Goldman Sachs (NYSE:GS) cautions investors to look carefully at the revisions as they could overstate the downgrade of jobs growth.
The investment bank noted that the Quarterly Census of Employment and Wages (QCEW) is the key source data for the annual benchmark revision.
“Since the QCEW is based on unemployment insurance records, it likely largely excludes unauthorized immigrants, who we believe have contributed strongly to employment growth over the last couple of years,”analysts at Goldman Sachs said, in a note.
Additionally, “the QCEW itself has been revised up in every quarter since 2019 with the exception of 2020H1. As a result, the preliminary estimate of the benchmark revision to payrolls has been below the final revision in each of the last four years, by roughly 100k on average.”
The Fed is widely expected to cut rates next month, with markets pricing in a 67% chance for a 25 basis point cut and a 33% chance of a 50 bps reduction before this release, according to CME Fedwatch.