Optimism on Labor Market Takes Yet Another Hit
For the past six months or so, Wall Street has faced growing anxiety over the state of the U.S. labor market. On Wednesday, that anxiety ratcheted up a few more notches when the Department of Labor announced that 818,000 fewer jobs were added during the 12 months ending March 2024 than previously reported. The downward revision effectively reduced the number of jobs added during this 12-month period from 2.9 million to 2.1 million, a 28% decline. On a monthly basis, it equates to 68,000 fewer jobs added than previously reported. So, how did this happen?
Each month, the Department of Labor releases its highly anticipated Employment Report. These monthly reports detail the current unemployment rate, number of jobs added, wage growth and many other labor-oriented metrics. The Department of Labor collects its monthly data through two surveys. The first is a survey of approximately 60,000 eligible households. The second is an establishment survey which collects data from payroll records from roughly 629,000 nonfarm businesses and government agencies. The goal of the monthly Employment Reports is to provide a rough, but fairly representative, picture of the current state of the labor market.
Each year, however, the Department of Labor will derive a clearer picture of the labor market based on calculations from state unemployment insurance tax records that employers are required to file. This year, those state records reflect 818,000 fewer jobs were added than the monthly Employment Reports had originally projected. The 818,000 downward revision is the largest annual adjustment to job gains since 2009, at the height of the global financial crisis.
Of the 11 economic sectors tracked by the Department of Labor, the sector with the largest downward revision was Professional & Business Services. This sector’s job gains for the 12 months ending March 2024 were revised lower by a hefty 358,000. Nearly half (44%) of the total revision came from this sector. Rounding out the Top 5 largest revisions are No. 2 Leisure & Hospitality (-150,000) followed by Manufacturing (-115,000), Trade, Transportation & Utilities (-104,000) and Financial Activities (-76,000).
The Department of Labor’s revision adds to the recent string of data that signals a cooling labor market. In its July Employment Report, the Department of Labor announced the national unemployment rate rose from 4.1% to 4.3%, a three-year high. In July, only 114,000 new jobs were added, one of the lowest monthly gains in nearly four years. Annual wage growth fell to a three-year low. Finally, the number of job openings across the nation is at 8.18 million. This is a three and a half year low and down 914,000 from 12 months ago.
For Wall Street, the bigger picture is a weakening U.S. economy. Over the past month, concerns the economy will significantly pull back in the second half of the year have heightened. If the economy does weaken, employers will inherently need fewer workers. The Department of Labor’s Employment Report for August will be released on Friday, Sep. 6. It will likely be the subject of intense scrutiny and conjecture as Wall Street tries to glean any insight on the state of the labor market – as well as for the economy.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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