The American labor market appears to be far softer than initially estimated, according to the annual benchmark revision of employment data released by the Bureau of Labor Statistics on Tuesday.
Between April 2024 and March 2025, the economy generated 911,000 fewer jobs than initially estimated using survey-based data, according to the BLS.
That amounts to roughly 71,000 fewer jobs a month, far fewer than the original estimate of 147,000 jobs created a month.
The data bolsters the case for what is expected to be a rate reduction by the Federal Reserve when it meets on Sept. 17.
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And in a strange twist, the revised data in retrospect supports the Federal Reserve’s decision late last year to reduce its policy rate by 100 basis points.
On a state-by-state basis, the benchmark revisions ranged from a decline of 1.8% in Colorado to an increase of 1.1% in Arizona and New York. The average preliminary revision across all states was a decline of 0.5%.
The average benchmark revision across the 56 metro areas with populations of 1 million or greater was an increase of 0.8% while the average revision across all large metropolitan areas was a decline of 0.2%.
In an economy where 163.3 million people are employed, a downward revision of 911,000 jobs over 12 months is not that large from a quantitative point of view. We will not know the monthly distribution of those downward revisions until February next year.
In my estimation, that revision contributed to an overestimation of new firms versus firms that have gone out of business, which is part of the seasonal residuality problem that continues to bedevil estimates that have not yet been properly adjusted following pandemic-era shocks.
This overestimation is similar to the challenges the BLS faced in adjusting data following the financial crisis.
The BLS birth-death model has well-known issues in capturing declines in business formations and bankruptcies, especially around midcycle corrections and end-of-cycle dynamics.
In addition, the adverse supply shock that the labor market is experiencing through the retirement of boomers and few external workers entering the workforce on the margin is in my view contributing to the challenges in estimating labor market dynamics.
The preliminary benchmark is well aligned with the economy’s 1.4% average growth in the first half of the year and supports our forecast that growth this year will finish at or near 1%.
The initial monthly BLS estimates are drawn from a survey. The preliminary benchmark estimate is drawn from the Current Employment Statistics estimates that are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages.
These counts are derived primarily from state unemployment tax records that nearly all employers are required to file with state agencies.
The BLS stated that the primary contributors to the overestimation of employment growth are most likely the result of two sources—response error and non-response error.
In my estimation, those errors contributed to an overestimation of new firms versus firms that have gone out of business.
