Labor market data triggers political reaction, focus on Fed

The recent massive downward revision of jobs created in the United States within a year triggered political reactions and also raised the question of whether the US Federal Reserve waited too long to lower the key interest rate.

The U.S. government reported on August 21 that the economy created 818,000 fewer jobs from April 2023 to March 2024. According to the Bureau of Labor Statistics (BLS), this was the largest revision to federal labor market data in 15 years.

Overall, the correction resulted in a downward movement of about 0.5 percent. This means that the monthly increase in employment during this period was on average about 174,000, compared to the previously reported figure of 242,000.

If the number remains unchanged until the last revision in February, this would be the largest downward revision since the employment figures were downgraded by 902,000 in March 2009.

“What you're seeing is an echo of the big shocks (from the pandemic era) that we're going through right now,” said Joe Brusuelas, chief economist at RSM, according to the Washington Post. “We're trying to figure out the size of the labor force and its flows.”

The Biden administration insisted that the labor market in the United States remains robust and that unemployment will average below four percent between April 2023 and March 2024.

“This preliminary estimate does not change the fact that the labor market recovery has been and remains historically strong, bringing solid job and wage gains, strong consumer spending, and record small business startups,” Jared Bernstein, chairman of the White House Council on Economic Advisory Services, said in a statement.

Biden has often mentioned job creation in his public statements and did so again in his Aug. 19 speech at the Democratic National Convention, saying he helped create “a record 16 million new jobs.”

However, former U.S. President Donald Trump, the 2024 Republican presidential candidate, addressed the revised BLS number at a campaign rally in North Carolina on August 21.

He accused his Democratic opponent in November's election, Vice President Kamala Harris, and Biden of “fraudulently manipulating labor market statistics to hide the true extent of the economic ruin they have inflicted on America.”

“They said they existed and they never existed,” Trump said. “They built them up so they could say what a wonderful job they were doing.” Trump also repeatedly criticized the revisions on his Truth Social platform that day.

Jodey Arrington, a Texas Republican and chairman of the Republican-controlled House Budget Committee, said in an Aug. 21 statement: “The economy is the most important issue in this presidential campaign, and the recently revised downward employment numbers, along with persistently high prices and interest rates, suggest that the economy under Biden and Harris is much weaker than we have been led to believe.”

“The Biden-Harris economic agenda of taxes, spending and regulation has failed, and no one knows this better than working Americans.”

The revision could also change the Fed's timetable for interest rate cuts.

“This is a significantly larger correction than … normal … and it would not be far-fetched for the Fed to assume that recent job growth is also overstated. This reinforces its decision to shift attention from inflation to the labor market,” said Ryan Sweet, chief U.S. economist at Oxford Economics, according to Reuters.

“This does not challenge the notion that we are still in an expansion phase, but it does signal that we should expect more subdued monthly job growth and will put additional pressure on the Fed to cut interest rates,” Robert Frick, economist at Navy Federal Credit Union, told the Associated Press.

Fed policymakers may take a weaker labor market into account when considering future rate cuts, after the first rate cuts were already expected at their meeting on September 17 and 18.

In July, employment was weaker than expected, sparking speculation that the Fed may have waited too long to cut interest rates as the unemployment rate rose to a post-pandemic high of 4.3 percent.

The central bank has kept its key overnight interest rate in the range of 5.25 to 5.50 percent for over a year and has raised it by 525 basis points in 2022 and 2023 to combat high inflation.

The revision of employment policy also sparked reactions on social media.

“More than any other data, these data have given the impression of a strong economy this year, in stark contrast to other labor market data – such as household employment,” wrote economist Albert Edwards on X.

Journalist John Carney wrote on X: “Contrary to what you've heard from GOP officials, the correction of the employment numbers was not evidence that the BLS was cooking the books.” However, he speculated that “a huge number of jobs were created during the Biden administration” that went illegally to people in the United States.

Julia Pollak, chief economist at ZipRecruiter, defended the BLS in a series of posts on X on August 21.

“Is the Bureau of Labor Statistics a massive pro-Biden administration shill? And are today's changes in labor market statistics evidence of a vast conspiracy to inflate economic data? The answer is a resounding NO.”

She also wrote that she was “consistently surprised and impressed by the professionalism, nonpartisanship, and transparency of the BLS. It is a quite unique gem that accomplishes a lot with modest resources and helps us all make better-informed decisions.”

Pollak qualified her praise by saying that she is someone who is “deeply skeptical of government, shocked at how rampant corruption is in the United States, and by no means naive about the political leanings of most Washington DC residents or government employees.”