From: allin
The U.S. Labor Department has significantly revised down its job growth numbers, confirming predictions made by some panelists. This revision represents the largest and most significant downgrade since 2009, following the Great Recession [02:36:00].
Significant Downward Revision
The Bureau of Labor Statistics (BLS) updated its nonfarm payroll statistics, downgrading actual job growth by approximately 30% from what was initially reported [02:13:00]. This means the US economy created about 818,000 fewer jobs over the 12 months leading up to March 2024 than the originally reported 2.9 million new jobs [02:17:00]. Including all restatements over the last 12 months, the total revised figure could be as high as 1.2 million fewer jobs [04:03:00].
The largest downgrades occurred in:
- Professional and business services: 358,000 jobs lost over the last year [02:50:00]. This is observed in layoffs at tech companies, businesses, and finance companies [02:56:00].
- Leisure and hospitality [03:03:00]
- Manufacturing [03:03:00]
- Retail [03:05:00]
- Transportation [03:07:00]
Reasons for the Discrepancy
One panelist noted that they had predicted these revisions, observing widespread layoffs in tech and a slowdown in real estate due to high borrowing costs and a credit crunch [04:23:00]. Despite the media continuously reporting “hot jobs reports” for about a year, actual economic feedback suggested dismal conditions [04:55:00]. The revisions have consistently been downward, never upward, indicating a pattern [05:11:00]. This consistent downward trend suggests that the initial numbers did not accurately reflect the economic situation [06:06:00].
Implications for Monetary Policy
The revised numbers suggest the US economy is “a lot slower than what people thought” [06:49:00]. This slowdown could provide justification for the Federal Reserve to cut interest rates, possibly by 50 basis points, as early as September [06:57:00]. The Fed aims to balance inflation (targeting 2%) and unemployment (targeting 4%) [11:08:00]. The market is currently estimating a 100% chance of a 0.75% rate cut by the end of 2024 and a 70% chance of a one-point rate cut [11:32:00].
Despite the pressure, the Fed, particularly Chairman Powell, is reticent to begin rate cuts, fearing that inflation might tick back up [13:07:00]. The first rate cut is seen as a signal of a “regime change” in monetary policy [13:19:00].
Broader Economic Health and Government Spending
While the civilian unemployment rate remains relatively low (below 4%) [03:21:00], the downward revision of job numbers indicates that the economy is “shaky” and not experiencing a “perfectly soft landing” [14:14:00]. Concerns were raised that the US economy is being “propped up by massive amounts of government spending” [14:20:00], with the country running unsustainable annual deficits of around $2 trillion [14:27:00]. This level of spending is keeping the economy “narrowly staying out of recession” [14:35:00].
A theory suggests that when government spending reaches about half of GDP, and a significant portion of the population is directly or indirectly employed by the government, the principles of a free market economy (driven by enterprising individuals and productivity improvements) can be lost [01:19:07]. This shift could lead to more socialist policies becoming mainstream [01:19:28]. Historically, high government spending and intervention can lead to people and companies leaving high-tax jurisdictions for more favorable environments [01:09:46]. This is observed even within the U.S. (e.g., California to Texas/Florida) and globally (e.g., France, Norway) [01:09:17].
Calls for Better Data
A major problem highlighted is the reliance on “bad data” from official sources for such a sophisticated economy and capital market system [07:57:00]. This inaccurate data on employment can lead to an “inaccurate sense of where GDP is,” potentially leading to very problematic outcomes [07:32:00].
Suggestions for improving data collection include:
- Crowdsourcing data from various sources [08:34:00].
- Leveraging data from companies like Stripe and Gusto, or initiating a “DARPA challenge” for accurate prediction [09:21:00].
- The current unreliability of data leads to massive capital movements in financial markets based on potentially false premises [01:00:59].