Upcoming revisions to U.S. payroll data are expected to reveal significantly fewer jobs than previously reported, potentially influencing Federal Reserve policy.

U.S. Labor Market Revisions Anticipated to Show Weaker Job Growth

U.S. economic data is poised for a significant reevaluation as the Labor Department prepares to release its annual payroll benchmark revision on September 9. This revision is widely expected to reveal a substantially weaker job market than previously reported, with hundreds of thousands of previously estimated positions potentially not existing.

The Event in Detail: Payroll Data Under Scrutiny

The annual benchmark revision, which recalibrates employment figures using more comprehensive tax filing data, is a critical assessment of the U.S. jobs market. Economists from various institutions anticipate substantial downward adjustments. Wells Fargo forecasts March 2025 payrolls could be revised down by 475,000 to 790,000 jobs. Evercore ISI projects a drop of approximately 625,000, while Goldman Sachs anticipates a downward revision ranging from 550,000 to 950,000 jobs. The high end of these estimates would mark the largest one-year revision since 2010, continuing a downtrend observed since 2023.

This follows a significant revision last year that trimmed nearly 600,000 jobs from the March 2024 tally. The potential for such a large negative revision suggests that the U.S. economy might have experienced a net job loss over the past four years, a stark contrast to the robust job growth observed in 2022.

Analysis of Market Reaction: Bad News, Good News for Equities?

A significant downward revision in job numbers could be interpreted by markets as a signal of a cooling economy, potentially influencing the Federal Reserve's monetary policy decisions. The anticipation of weaker labor market data has already begun to shape market expectations regarding interest rates. For instance, the S&P 500 reacted positively to prior revision announcements, suggesting that investors may interpret slowing job growth as a catalyst for the Federal Reserve to implement interest rate cuts sooner rather than later.

This "bad news is good news" dynamic stems from the expectation that a weaker labor market, combined with moderating inflation, could prompt the Federal Reserve to ease its monetary policy. Such a move would typically support equity valuations by reducing borrowing costs for corporations and making alternative investments like bonds less attractive.

Broader Context and Implications: A Shift in Fed Policy?

This anticipated revision holds significant implications for the Federal Reserve's future policy actions. Fed Governor Chris Waller has estimated that these revisions could reduce the monthly average of job creation by approximately 60,000. He notes:

"That would mean that private-sector employment actually shrank, on average, in the past three months and that job creation earlier in the year was weaker than currently reported."

Such a revelation could strengthen the case for earlier and potentially larger interest rate cuts. Prior expectations, especially after Fed Chair Jerome Powell's remarks at the Jackson Hole Symposium, leaned towards a 25 basis point rate cut. However, a repeat of last year's substantial revision could increase the odds of a 50 basis point reduction.

Furthermore, persistent major revisions to official jobs data may erode trust in the monthly reports, pushing investors and policymakers to rely more heavily on alternative employment indicators, such as those from the ADP. This reassessment of the labor market's true strength could lead to a re-evaluation of economic growth forecasts and corporate earnings expectations across various sectors.

Expert Commentary: Economists Weigh In

Economists have underscored the potential for a less robust labor market picture. Wells Fargo Senior Economist Sarah House attributes the likely overestimation to inherent sampling and non-response errors in surveys. She suggests:

"With the benchmark revision likely to show a weaker pace of job growth through March, a loss of momentum at the beginning of the year would cast a shadow on the true strength of payroll growth since then."

Bill Adams, chief economist at Comerica, also anticipates a weaker outlook for the labor market following the preliminary benchmark revision.

Looking Ahead: Rate Cuts and Market Volatility

The upcoming September 9 revision is a critical event for investors and policymakers. A significant downward adjustment in job figures could lead to increased volatility in equity markets, particularly for broad indices like the QQQ (Nasdaq 100 ETF), as investors digest the implications for economic growth and monetary policy. The market is widely anticipating a quarter-point interest rate cut by the Federal Reserve at its policy meeting concluding on September 17, driven by weaker employment data and moderating inflation.

Looking further ahead, analysts at Federated Hermes anticipate two quarter-point cuts in 2025, one in September and another in December, with additional cuts in 2026. This outlook, coupled with potentially lower bond yields, could continue to support equity valuations, presenting a cautious yet optimistic outlook for markets navigating a potentially softer economic landscape.