Big Negative Benchmark Revision

Job creation from April 2018 to March 2019 was revised lower by 514,000. This was the biggest downgrade in payrolls growth since 2009. However, this wasn’t a shock to investors because the BLS pegged the revision at -501,000 a few months ago. This update incorporated the revision into the data for the first time. Interestingly, this change left February 2019 with just 1,000 jobs created which means the record-long streak of positive job creation just barely continued. This shows how chance has played a role in this streak.

Source: Oxford Economics

The chart above shows the pre-benchmark and post-benchmark revisions to job creation. Payrolls growth is now slower in 2018 and early 2019. The upturn related to the tax cut wasn’t as pronounced as it was originally thought to be. It’s also notable that job creation has been in a downtrend since 2015. This makes us believe the downtrend is related to the economy approaching full employment. The cyclical factors are less pronounced as the labor market nears full employment as there’s only a certain number of people available to get jobs. Total job creation in 2019 was the lowest since 2011. Even if the economy has a cyclical improvement in 2020, there might not be an increase in job creation. Wage growth was revised higher in this benchmark change. Higher wage growth than initially expected (although off the peak) is consistent with the idea that this revision was related to the labor force running out of slack.

Great Headline Job Creation

There were 225,000 jobs created in January which beat consensus of 160,000. This beat the most optimistic estimate which was 200,000. This report was probably helped by the mild winter weather as a construction created a large number of jobs. 206,000 private-sector jobs were created, which beat estimates for 150,000. In a previous article, we mentioned that when the ADP report is strong, it’s usually above the upcoming BLS reading. That’s what happened (ADP showed 291,000).

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