US payrolls revisions jolt markets, making Fed look behind the curve
By Davide Barbuscia
NEW YORK (Reuters) -News of a surprise weakening in the U.S. labor market last month jolted investors on Friday, as hefty revisions to past months raised fears the Federal Reserve may have been flying blind in recent months and may need to play catch-up with interest rate cuts.
Nonfarm payrolls increased by 73,000 jobs in July after rising by a downwardly revised 14,000 in June, the Labor Department’s Bureau of Labor Statistics said in its employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 110,000 jobs after rising by a previously reported 147,000 in June.
The report comes two days after the U.S. central bank left unchanged its benchmark interest rate and avoided signaling imminent rate cuts, dialing back market expectations for an easing at the next policy meeting in September.
That changed dramatically on Friday, with odds for a 25 basis point cut in September jumping to around 81% after the data from 38% on Thursday, according to CME Group data.
“The Fed’s job is becoming increasingly difficult based on the deterioration of the economic data,” said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. “These revisions are massive and really are a game changer to the Fed’s reaction function, and so I think this Fed meeting is one that they’d like to revise.”
Revisions for May and June came in well above the norm, the Bureau of Labor Statistics said. It gave no reason for the revised data but noted 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.”
May’s nonfarm payroll gain was slashed by 125,000, from 144,000 to just 19,000, while June’s downward revision was by 133,000. In total, employment over the two months is now 258,000 lower than initially reported.
“It is painfully obvious that the U.S. government has an improper model for payroll calculations,” said Michael Green, portfolio manager at Simplify Asset Management. “If you don’t have reliable data, you make bad policy.”
Spencer Hakimian, founder of macro hedge fund Tolou Capital Management, said layoffs across several government departments, part of U.S. President Donald Trump’s plans to reduce wasteful government spending, have prompted him to rely more heavily on alternative measures of economic strength than just government data, such as credit card data, and data from Truflation, an independent inflation index alternative to official government inflation measures.