Government economists erase 101,000 jobs over 2 months

The Labor Department’s latest batch of employment data raised eyebrows last week, and not for the reasons you’d expect.

U.S. employers added 150,000 workers to payrolls in October, much less than the 180,000 expected and the weakest pace of hiring since June.

The other indicators for October weren't looking up, either.

The unemployment rate ticked up to 3.9% from 3.8% even as workforce participation declined. In other words, fewer people were looking for work, and there was higher unemployment.

But the real kicker was the downward revisions to the previous months’ job numbers.

As it turns out, the economy only added 297,000 workers in September, far fewer than the 336,000 reported last month. And the 227,000 increase in August? That was revised down to 165,000.

All said, the Labor Department quietly erased 101,000 jobs over two months.

Revisions or miscalculations?

While downward revisions to previous job reports aren’t uncommon, government economists have gotten into a bad habit of skewing our perception of the labor market.

Since the start of 2023, the Labor Department has revised down eight of the previous nine monthly job reports. With a track record like that, some economists say it’s hard to get an accurate read of the labor market until many months later.

The Labor Department argues that “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”

Once a year, the Labor Department benchmarks employment levels to the Quarterly Census of Employment and Wages, which is considered a more accurate data source.

According to Bloomberg Economics’ Stuart Paul, this exercise should reveal that the labor market isn’t as strong as the monthly nonfarm payrolls numbers suggest.

So, what are the numbers telling us?

Despite its apparent faults, the nonfarm payrolls report indicates that job creation is slowing from its post-pandemic peak. That’s bad for workers but good for the Fed, which has raised interest rates to 5.5% in a bid to stabilize inflation.

“This is a very Fed-friendly report,” Sal Guatieri, a senior economist at BMO Capital Markets, said of the October numbers.

“[T]he overall softness in the report will go a long way to keeping the Fed on the sidelines for a third straight meeting in December.”

Kathy Bostjancic, chief economist at Nationwide, agrees. “October could be the turning point for the economy,” she said.

“We are seeing a cooling in labor demand and slow income growth, which means we’re poised to see consumer spending slow quite dramatically.”

Consumer spending powered the U.S. economy to a 4.9% annual gain in the third quarter, but economists say that performance won't likely repeat in Q4.

A weakening labor market and higher interest rates will likely keep the consumer in check for now.