BLS job count falls off a cliff

In June, the US economy added 147,000 jobs; in late July, Federal Reserve Chair Jerome Powell cited the strength of the labor market in his Federal Open Market Committee (FOMC) presser; and, six weeks ago, the US unemployment rate sat at 4.1%. Markets responded by decreasing the odds of a rate cut in September to less than 40%, and the total number of cuts for 2025 to a smidge over one. However, this confidence lasted only a few days, as the Bureau of Labor Statistics (BLS) July jobs report posted the highest unemployment rate in months and it revised downward June’s total nonfarm payrolls by 133,000 jobs. Today, we received yet another BLS update to prior employment data in the form of its lesser-known annual benchmark revision. The result was shocking: a greater-than-expected revision of -911,000 jobs—the largest adjustment since the Bureau instituted this process in 2000.

What is the annual benchmark revision? It is a way for the BLS to cross-reference the monthly job reports, which contain estimates on items like births, deaths, and business formations, with census data and unemployment records. The Bureau releases a preliminary revision in September and finalizes it in March.

Why is it important? The primary reason is it provides a more accurate picture of the labor market. The revisions often pass by mostly unnoticed, but that has changed over the past few years due to the uncertainty of monetary policy, the magnitude of the revisions and President Trump’s claim that the revisions were politically motivated — and his firing of the BLS director last month. In September 2024, the BLS announced that the prior 12-month total count had been overstated by 818,000 jobs. In the final report, that number was amended to a still-large downward revision of 598,000 jobs. While the FOMC did not state the report was a reason for the 50 basis-point rate cut that September, it likely had a significant impact. This year, the report comes amid similar rate uncertainty, with markets pricing a certainty of a 25 basis-point cut and even a 12% chance of a 50 basis-point reduction at the FOMC meeting next week.

What could this mean for rates? In our view, the substantial revision of -911,000 jobs confirms that the Federal Reserve should have resumed its easing cycle by now. It is already behind the eight ball and should lower the fed funds target range at least a quarter-point, to 4-4.25%. The futures market has priced in the Fed issuing the quarter point cut next week and forecasts at least one more by year-end.

Today’s report is not necessarily a bearish sign for the economy. Company earnings reports have been better than expected, retail sales have been strong and jobs reports suggest a growing labor market, albeit slower than the last few years. The US economy is also softening. But this could prove temporary rather than the start of a major slowdown. In fact, we think it is poised to expand further in 2026.