BLS Cuts Prior Jobs Growth by 911,000, Increasing Pressure on Fed to Cut Rates

The Bureau of Labor Statistics on Tuesday revised downward the number of jobs created in the 12 months ended in March by 911,000 — the largest annual downward adjustment since 2000 — leaving the U.S. labor market materially weaker than previously reported and increasing expectations that the Federal Reserve will cut interest rates next week.

The revision reduces average monthly payroll gains for the period from 147,000 to 70,000. Economists said the weakened picture makes a rate reduction more likely but adds uncertainty about the durability of the recent equity rally and the broader economic outlook.

The BLS said the annual benchmark revisions, which use state unemployment insurance tax records covering roughly 95% of U.S. employment, corrected for gaps in the monthly employer survey of about 120,000 firms. The department cautioned that some tax filers submit late and the final adjustment is typically issued in February, when further data become available.

The downward revision included large cuts in several sectors. Leisure and hospitality employment was revised down by 176,000; professional and business services by 158,000; and retail trade by 126,200. Transportation and warehousing and utilities registered modest upward revisions, while government employment was adjusted down by 31,000.

Markets reacted modestly to the news. The Dow Jones Industrial Average rose 0.1%, while the S&P 500 and Nasdaq slipped less than 0.1%. Traders have priced in a high probability that the Fed will lower its policy rate at its next meeting, reflecting the view that a softer labor market reduces the risk of persistent overheating.

Recent monthly payroll reports have already signaled a cooling labor market: average payroll growth was just 29,000 in June, July and August, a pace below the level needed to keep the unemployment rate stable. "The jobs picture keeps deteriorating and while that should make it easier for the Fed to cut rates this fall, it could also throw some cold water on the recent rally," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

Economists noted the revisions stem in part from measurement challenges that intensified during the pandemic. The Labor Department said that after lockdowns, a surge in new business formations was not fully captured in the monthly employer survey; when that activity normalized, the survey began overstating job growth. For the 12 months ended March 2023, the annual benchmark revision had moved job growth up by 506,000.

Some analysts flagged sector-specific forces. "The revised data demonstrate more clearly that AI is automating away jobs in the tech sector," Bill Adams, chief economist at Comerica Bank, said, noting particularly large downward adjustments in information industries that include internet businesses.

The timing of the period covered by the revision also intersects with political developments. Most of the months in the revised window predate the current administration, and the issue has drawn scrutiny from the White House. The president in August dismissed the Bureau of Labor Statistics commissioner and has nominated a replacement. The administration has criticized past reporting and suggested political motives; BLS officials and independent economists have repeatedly described the benchmark revision process as a routine statistical correction based on tax records.

Policy makers and market participants will weigh the revised employment data alongside upcoming inflation readings. Some strategists warned that if the consumer price index shows renewed upward momentum, conversations about stagflation could resurface despite weakening payrolls. Others said the softer employment profile strengthens the Fed's case for easing monetary policy to support growth.

The annual benchmark revisions are intended to reconcile monthly survey estimates with more complete employment counts from state payroll tax records, and such adjustments can be particularly large near recessions or periods of rapid economic change. The Labor Department said that further refinement of the job counts will follow as additional tax filings are processed and the department issues its final annual revision next February.

Analysts said the downgrades complicate the outlook for wages, consumer spending and corporate earnings, all of which are sensitive to labor-market conditions. For now, the revised payroll figures leave officials and investors reassessing how quickly the economy is slowing and how aggressive the Fed must be in its next policy moves.