**Is the Massive Downward Revision of U.S. Payrolls a Harbinger of Recession?**
The recent adjustment to U.S. payroll figures—an 818,000 downward revision, the largest since 2009—has sparked considerable debate. Is this a sign of an impending recession? Let's delve into some key points to understand what this revision might indicate.
### Historical Context and Current Indicators
In 2009, when revisions revealed that 824,000 jobs had been overstated, the National Bureau of Economic Research had already declared a recession six months prior. At that time:
- Jobless claims had surged beyond 650,000.
- The insured unemployment rate peaked at 5%.
- GDP had been negative for four consecutive quarters, though subsequent revisions showed some quarters with positive growth.
### Current Data vs. 2009
The recent revisions cover the period from April 2023 to March 2024, and we currently lack data on whether the present numbers are higher or lower. Here’s how current indicators compare to those from 2009:
- **Recession Status**: No official recession has been declared yet.
- **Jobless Claims**: The 4-week moving average stands at 235,000, unchanged from a year ago. The insured unemployment rate remains at 1.2%, much lower than during the 2009 recession.
- **GDP**: Reported GDP has been positive for eight consecutive quarters, despite data quirks in early 2022.
### Implications of the Revisions
The revisions suggest that job growth was overstated by an average of 68,000 per month, reducing the average monthly job growth from 242,000 to 174,000. The impact of these revisions on current economic conditions depends on their timing. If the weakness was concentrated in the latter part of the revision period, it might have implications for recent economic policies.
**Potential Fed Actions**:
- **Rate Adjustments**: If the revisions indicate significant recent weakness, the Federal Reserve might reconsider its rate policies. This could increase the likelihood of a 50 basis-point rate cut in September, particularly if inflation numbers remain steady.
- **Focus on Current Data**: The Fed is likely to weigh current jobless claims, business surveys, and GDP data more heavily than past revisions. Historically, negative revisions are not always followed by negative data the next year.
### Data Accuracy and Future Outlook
Economists, including those from Goldman Sachs, suggest the revisions might be overstated by up to half a million jobs due to inaccuracies in immigrant employment reporting and general tendencies for initial revisions to be excessive.
In conclusion, while the revisions highlight potential past overstatements in job growth, they do not currently indicate a severe downturn akin to 2009. The broader economic data, including jobless claims and GDP, suggest that the economy is not showing signs of a severe recession at this time.