Consumers pay for inflated job growth and keep interest rates high

A downward revision of the previously published labor market data could be enough to trigger interest rate cuts.

But the damage to the economy in which everyone lives paycheck to paycheck – and to all consumers, but especially the most vulnerable low-income consumers – may already be done.

The U.S. Bureau of Labor Statistics (BLS) said on Wednesday (21 August) that the United States Business 818,000 fewer people were employed (equivalent to 0.5% of all non-agricultural employees) than originally reported.

Revisions are a mainstay of economic data. Every year Ministry of Labour is revising its employment data to provide a clearer picture of what is happening and whether the gains and losses over the past 12 months and the resulting snapshot of the economic situation have proven accurate.

Wednesday's data is provisional. The final statistics will not be published until early 2025.

According to the revised data, the service sector was hit the hardest, with employment revised downward by 358,000 jobs, followed by leisure and hospitality jobs, which were revised downward by 150,000 jobs. To get a sense of the revision, one must consider the fact that, as the BLS noted, “for national [Current Employment Statistics (CES)] According to employment series, annual benchmark revisions over the past decade have averaged plus or minus one-tenth of a percent of total nonfarm employment.”

The data reduced monthly job gains in the US economy during the year ending in March from 242,000 to 174,000.

Data from PYMNTS Intelligence shows that low-wage earners are more likely to work in service sectors such as nursing or hospitality. About a third of consumers earning less than $50,000 a year work in customer-facing or non-customer-facing service jobs.

The The US Federal Reserve bases its policy on BLS and other such data. A hot labor market indicates inflation, and therefore higher interest rates. A cooler employment landscape means price increases could slow (and pressures on households could affect spending, which in turn affect gross domestic product), so interest rates tend to fall.

The Fed could decide to cut interest rates as early as next month. In the meantime, the potentially unnecessarily high debt is a burden on the state's coffers.

Every quarter point rise in the interest rate – the prime rate is the yardstick by which all types of debt are measured in terms of prime rates and financing costs – adds billions of dollars to the cost of borrowing. Almost all credit card debt is variable, so the financial impact of rate hikes can be felt quickly and sharply. A wide gap is emerging between consumers who have the means and financing to cushion the shockwaves and those who do not.

“Low-income earners” have exhausted much of their purchasing power, having used up 79 percent of the available limits. They also have savings of about $5,600, compared to up to $16,000 for individuals and households with annual incomes above $100,000.