Employment growth was not as strong as expected – but it is still growth

Hear that? That's the economic equivalent of screeching brakes and screeching tires from the Bureau of Labor Statistics – the government agency that told us month after month that hundreds of thousands of new jobs were being added to the economy.

On Wednesday, the BLS announced that fewer jobs were created between March last year and March this year than expected: around 818,000 fewer.

Such updates are called payroll revisions and are a normal part of the BLS process. They are just not usually as extensive.

The employment numbers the bureau releases each month are based on surveys, said Elise Gould, a senior economist at the Economic Policy Institute.

“They look at the number of employees. They look at a number of companies … and include that data in their first employment report, which comes out the first week of the following month,” she said.

But sometimes companies change their plans and hire fewer people than they said they would. Or they don't get back to the folks at BLS. “They don't get all the answers, so they have to estimate based on the answers they have,” Gould said.

So the BLS later revises these estimates. In this case, the actual job growth was almost 30% lower than originally reported. Still 2.1 million more jobs! But this is the largest revision since 2009.

“It sounds scary,” Gould said. “But you have to look at it as if these jobs never existed.”

Chris Rupkey of fwdbonds.com said he saw this coming. Because there are two surveys, one of employers, as we described, and one of employees. And they didn't agree.

“A survey of wage and salary jobs says it's 2.9 million, while the household survey says 600,000,” he said.

Frank Fiorille from the payroll company Paychex is not worried about this. After all, even without these “phantom jobs,” things were going well for the gross domestic product and consumer spending. And the labor market itself?

“It may not be as robust as initially reported, but I still think it's a pretty solid number,” he said.

Fiorille said the correction makes the Federal Reserve's next move easier to predict: “It probably just means more certainty about a rate cut,” he said.

By the way, no one is really sure why this revision is so large. Some have only made guesses, but that's all. Nevertheless, the economy continues to create new jobs – 114,000 in July. That's a good sign that we are not yet in a recession.