US payroll growth in the year through March is forecast to be weaker than current data illustrate — by one estimate about 500,000 jobs weaker.
JPMorgan Chase & Co.’s Daniel Silver estimates Wednesday’s government preliminary benchmark revision will shave nearly half a million off the level of total employment for March, or about 40,000 fewer jobs per month over the 12-month period.
Even with a downward revision of that size, average job growth would still be strong at around 300,000 payrolls a month. As a result, the revisions would likely not fundamentally alter economists’ views on the health of the labor market.
“While we expect the BLS preliminary estimates to indicate that payrolls growth has not been as strong as initially reported, revisions are not likely to be so large as to suggest a meaningful shift in labor market conditions,” said Oscar Munoz, chief US macro strategist at TD Securities.
Last year, the government’s employment reports consistently surprised economists with larger-than-expected payroll gains. The figures were also a key reason behind a steady drumbeat of Federal Reserve interest-rate hikes as policymakers scrambled to contain inflation.
Revisions Big and Small
JPMorgan expects the preliminary revision to shave off nearly 500,000 jobs
Source: Bureau of Labor Statistics data compiled by Bloomberg
Each month, the Bureau of Labor Statistics releases an estimate of payrolls across a range of industries based on responses from a sample of employers. With every fresh monthly jobs report, the two prior months are typically revised as more businesses send in their payroll data.
Once a year, the BLS also benchmarks the March payrolls level to a more accurate but less timely data source called the Quarterly Census of Employment and Wages.
The QCEW data are based on state unemployment insurance tax records and cover nearly all of US jobs. Once the March payroll figures are aligned to that count, the change is proportionally distributed across the year ended in March.
Strong but Moderating
US payrolls surprised to the upside nearly every month last year
Source: Bureau of Labor Statistics
First-quarter QCEW figures will also be released on Wednesday, but as the data currently stand, reported payroll growth is running stronger than the QCEW data imply. That helps explain why economists expect the preliminary benchmark revision to payrolls to show less job growth. Some Fed officials pointed to this discrepancy, minutes of their June policy meeting showed.
For Munoz, “the message is likely to remain the same; that of a labor market that continues to steadily normalize.”
The durability of the labor market is key to the resilience of the US economy, and economists have been closely watching it for signs of weakness. Job gains have gradually moderated but continue to indicate robust labor demand.
Bloomberg Economics’ Stuart Paul said the QCEW data will likely validate the group’s long-held view that the labor market is weaker than the headlines suggest. But “people who have been outright saying ‘the labor market is tight’ might be in for a shock,” he said.
Standard Chartered Bank’s Steve Englander estimates the downward revision could be around 650,000, with much of that softness concentrated in recent quarters. That would indicate “a much weaker labor market profile” than what underpinned Fed tightening in recent quarters, Englander said. “This would reduce the pressure for further hikes.”
The government’s preliminary benchmark projection will be followed by final revisions that are incorporated into the January employment report that is released in February.
Birth-Death Model
One of the reasons economists have argued that the monthly payroll data are stronger than the QCEW figures is due to what is known as the birth-death adjustment. In any given month, new businesses open, and others close. BLS uses historical data in an effort to adjust for this in various industries in their sample.
“A lot of people actually think that the birth-death adjustment in the establishment survey is too large,” said Jonathan Millar, senior economist at Barclays Plc. But if you look at other data sources, like new business applications, “it suggests that probably the birth-death adjustments are just fine.”
Business Formation
Applications to start a business surged in 2020 but remain elevated
Source: Census Bureau
“I wouldn’t be surprised if the revision ended up being smaller to the downside than what you might infer from the fourth quarter,” Millar said. “I also wouldn’t be surprised if it showed a positive revision.”
In fact, he noted that it’s possible the preliminary benchmark announcement could be negative but completely go away by the time the official data are published early next year if the QCEW data are revised higher.
According to a recent survey conducted by PriceWaterhouseCoopers (PwC), both bosses and workers have concerns about emerging technology, but for different reasons. The survey, which polled over 600 US leaders, found that three in four business executives believe their employees are fearful that technology will take away their jobs.
For leaders, their worries revolve around getting a return on their tech investments and ensuring their employees are adequately trained on new technology. About 85% of leaders reported concerns about the cost of adopting new tools, changing operating models to fit with the technology, and training workers on the new tools. However, despite these concerns, nearly half of the executives expressed their intention to invest in generative artificial intelligence (AI) tools in the next 12 to 18 months.
On the other hand, employees are nervous about being replaced by automation and AI. They fear that these new technologies will render their jobs obsolete. To address these concerns, many leaders are focused on clarifying and communicating expectations regarding future roles and responsibilities to their employees.
While AI has the potential to improve productivity and provide economic opportunities, proper preparation by governments, CEOs, and workers is crucial to ensure a smooth transition. An article by Emil Skandul highlights the need for urgency in preparing for the AI revolution to avoid potential pain and disruption.
The survey also indicated that bosses are less worried about employees leaving compared to a year ago. Only 26% of bosses considered talent acquisition and retention as a significant risk, down from 38% the previous year. This shift may be attributed to the cooling job market and over 300,000 job cuts in the tech industry during the first half of the year, along with concerns about a possible recession. However, three in four leaders expressed confidence in their ability to attract and retain the workers they need.
Regarding the economic outlook, the survey found that executives are less concerned about a recession in the next six months compared to previous months. Only 17% strongly agreed that a recession is imminent, down from 35% in October. This positive economic outlook, coupled with easing inflation pressures, may provide a boost to hiring and give restive workers the confidence to explore new job opportunities.
Overall, the survey highlights the different concerns and perspectives held by leaders and workers regarding emerging technology. It also underscores the importance of addressing employee concerns, ensuring proper training, and preparing for the AI revolution to maximize its potential benefits.