Mitch's Mailbox

October 9th, 2024

How Accurate Are Latest Job Growth Numbers? 

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Megan H. from Sparks, NV asks: Hello Mitch, I saw recently that the United States had a big month with new jobs, and I’m wondering two things. First, do you think this data is actually accurate? Second, what do you think this means for the economy and interest rates heading into the end of the year?

Mitch’s Response:

Thanks for sending your questions, Megan. September was indeed a busy month for employers around the country. According to the Labor Department, the U.S. economy added 254,000 new jobs, which blew past economist expectations of 150,000. It was the largest monthly payroll increase since March, and the gains pulled the unemployment rate down to 4.1%.1

Total Nonfarm Jobs (Change in Thousands of Persons, Monthly)

Source: Federal Reserve Bank of St. Louis2

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You make a fair point about whether the data is accurate.

Historically speaking, the Labor Department will release monthly data, and then revise it in future months as more data comes in. This is very typical. What made headlines recently, however, was when the Labor Department suggested it may have overstated job gains by 818,000 (in the 12 months through March). This was an abnormally large revision, and it naturally raised questions about the reliability of the payrolls data.

What I’ve found over time, however, is that while revisions are sometimes meaningful in nominal terms, they rarely mark an outright reversal of a trend. In other words, we don’t see situations where initial data told us the job market was expanding, only to find out months later that it was contracting. In the case of the aforementioned revision, it was previously assumed that the U.S. economy had added close to 250,000 jobs per month in the year ending March 2024, but the revision suggests it was more like 175,000. This is a meaningful difference, but I think the takeaway is the same: we’re seeing relatively solid job growth in the economy.

One way to cross reference Labor Department data is to look at private jobs data, provided by the payrolls processing firm ADP. The September report also showed stable job growth, with companies adding 143,000 new jobs—an acceleration from the 103,000 in gains for August and about 15,000 jobs higher than consensus estimates. Again, the public and private reports will often diverge in monthly job gains/losses, but not necessarily in where the labor market is trending.

To your second question about what the jobs report implies about the economy and interest rates, I think it confirms the economy is still in expansion mode and that the Fed will likely stick to its plan of cutting rates a bit more from here—assuming inflation does not pick up in Q4. In my view, I believe that means a 25-basis-point rate cut in November and another one in December.

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Disclosure

1 Wall Street Journal. October 4, 2024. https://www.wsj.com/economy/jobs/jobs-report-september-unemployment-economy-dfa7c99f?mod=economy_lead_story

2 Fred Economic Data. October 4, 2024. https://fred.stlouisfed.org/series/PAYEMS#

3 ZIM may amend or rescind the “The Perils of Market Timing” guide for any reason and at ZIM’s discretion.

4 ZIM may amend or rescind the “The Perils of Market Timing” guide for any reason and at ZIM’s discretion.

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