1-14-25: The Latest “Hot” Jobs Number Will Likely Be Revised Lower

by Bryan Perry

January 14, 2025

Following the release of the December employment data last Friday – claiming that the economy added 256,000 new jobs versus expectations of just 155,000 – Treasury bond yields surged higher, and equities suffered a broad-based sell-off. This is not the first time that equity markets reacted violently to stronger-than-forecast headline jobs data – which have repeatedly been revised lower in subsequent months. 

Politicians always seek to report strong employment numbers, but in 2024, the later adjustments have been so large that the data put out by the Bureau of Labor Statistics (BLS) seemed highly politicized.

Here are just a few examples from the first half of 2024, with their later downward revisions:

January: Initially reported 353k, revised down to 229k and later revised to 256k (net -97k).

February: From 275k, revised to 270k and finally 236k (net -39k).

April: From 175k to 165k, then to 108k (net -67k).

May: From 272k to 218k, ending at 216k (net -56k).

Only during March 2024 were non-farm payrolls revised higher – up 12k, from 303k to 315k.

And then there was the August 1^st bombshell, when the BLS announced that there were 818,000 fewer jobs than previously estimated, the largest such downgrade in 15 years, suggesting political motives. The largest downward revision was in professional and business services, with estimated payrolls lowered by 358,000, followed by a 150,000 downgrade in leisure and hospitality and 115,000 in manufacturing.

This stunning downward revision set in motion the Fed’s half-point rate cut on September 18, the first rate reduction in over two-and-a-half years, after a period largely focused on combating inflation. Now, the Fed is being called into question for this large half-point cut, with the latest round of inflation and economic data matching (or better than) forecast – while other data suggests the Fed is on the right track.

For instance, continuing jobless claims in the U.S., which are seen as a proxy for the number of people receiving unemployment benefits, rose to 1,867,000 in the week ending December 28th, 2024, compared to a downwardly revised 1,834,000 in the previous period and forecasts of a rise to 1,870,000.

For all of 2024 the overall trend in jobless claims was gradually rising, as can be seen in the chart below.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Running counter to the hot December non-farm payrolls number is the ADP employment change for December, which reported private businesses in the U.S. added 122,000 workers to their payrolls, the lowest rise in four months, compared with 146,000 in November and well below forecasts of 140.000.

Nela Richardson, the chief economist for ADP, summarized the report: “The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains. Health care stood out in the second half of the year, creating more jobs than any other sector.”

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One area of steady job growth that may soon come to a grinding halt is work in the U.S. Government, after the Department of Government Efficiency (D.O.G.E) goes into action next week. Government at the federal, state, and local level added an average of 37,000 jobs per month in 2024, following average monthly gains of 59,000 in 2023, amounting to 1,152,000 new government jobs over the last two years.

On January 10, KPMG commented on the labor report, stating “Payroll employment rose by 256,00 in December, after a downwardly revised 212,000 in November. We generated 2.2 million jobs in 2024, the slowest pace since 2020, but still above the 1.99 million in 2019,” but they added this: “Brace yourself for significant downward revisions to payrolls in 2023 and early 2024 when benchmark revisions are released with the January employment report in early February.” If KPMG is right, this sharp pullback in stocks and corresponding spike in bond yields last Friday provides a buy-the-dip moment for both markets.