What Is Up With The Payroll Revisions?

Every Friday here at HX Daily, we ask readers questions.

We are often surprised by some of the most interesting topics for our readers. The questions are always great, but sometimes they are on topics we would not expect.

This week, we received many questions about a recent data report.

That report was the preliminary benchmark revision of the number of workers on payrolls for the previous twelve months by the Bureau of Labor Statistics or “BLS.”

What does all that mean?

The BLS is the government agency responsible for compiling and reporting job market data. It sends surveys to employers and employees throughout the country and uses other government data to try to get a "read" on the state of the jobs market.

They have two main reports that are followed by the markets.

Every week, they report a number called the "Initial Jobless Claims" report showing the number of people applying for unemployment

 benefits.

They also report the "Employment Situation Summary," or as it is most commonly known, the Jobs Report, every month.

Whether you are familiar with these reports, they have been in the news a lot over the last month.

Remember that a disappointing July jobs report in early August set off the stock market sell-off.

The issue with that report is that it came in worse than expected. The economy added fewer jobs than expected, and the unemployment rate was higher.

This led investors to believe that the US economy was in trouble, with a greater potential for a recession than expected. A recession would be bad for earnings, and that would be bad for stocks. That is why stocks sold off…

We argued at the time that the report contained a couple of anomalies. You can read that report here. So far, we have been proven right, as the weekly data has come out in line or better than expected, supporting our thesis that there were just one-time issues.

The stock market has recovered with the data coming in better than expected.

Earlier this week, though, the BLS reported another set of data that they report only a few times a year.

While they report data weekly and monthly, they always compile and refine their data. This means that the current data is considered “initial” data. They see it from their first analysis of the data they receive.

They continue compiling the data, however, and then, throughout the year, they release revisions to that data. This is a more precise read of the data based on looking at more of the reporting that they have compiled.

This week's news was the revision to the previous jobs numbers for the twelve months through March 2024, which means the period from March 2023 to March 2024.

That number came in at -818,000 jobs. This means that the number of jobs added to the economy went down from 2.9 million to 2.1 million. The monthly numbers went from 242,000 per month to 174,000 per month, a 28% reduction.

Remember that the stock market freaked out over a worse-than-expected jobs report earlier in the month? How did it respond to this report?

It had a pretty good day! The S&P 500 was +0.42%, the technology-heavy NASDAQ Composite was +0.57%, and the small-cap Russell 2000 was +1.32%.

What the heck is going on?

If the stock market got hit on a weak one month, shouldn’t it have sold off a lot more on a week YEAR’s worth of data?

This is where the details matter.

The first aspect to consider is that this is old data. Remember that this is for a period that ended five months ago, in March 2024. It tells us what happened in the past, not what is happening right now.

The second aspect to consider is looking at previous periods when similar negative revisions were reported. Here is a table showing those revisions…

You can see from the data that this was the biggest negative revision since 2009.

Something is interesting about these two periods. They both were coming out of a recessionary period.

We are all familiar with what happened in 2008, but we also saw negative GDP growth in two quarters of 2022. It wasn't formally declared a recession (partially because job growth remained positive!), but the stock market treated it like one.

The data aligns with historical precedent. When economic growth is negative, job reports tend to be optimistic.

Note also that they tend to be pessimistic when we enter a recovery, which means that future revisions may be the opposite.

While the headlines look bad, we think the stock market is correctly analyzing the data and adjusting for these factors.

Ultimately, though, we don’t argue with the stock market. It is the ultimate arbiter of what matters.

If the stock market doesn’t think this number matters, then it doesn’t matter.

What WILL matter are the future jobs reports. If those come in worse than expectations—increasing the likelihood of a recession—then we think it will matter a lot.

Stay tuned!

Should the payroll revisions be more of a factor in the stock market? Let us know your thoughts in the comments section online or email us at [email protected].