The U.S. economy added far fewer jobs in 2023 and early 2024 than previously reported, a sign that cracks in the labor market are more severe — and began forming earlier — than initially believed.
On Wednesday, the Labor Department said monthly payroll figures overstated job growth by roughly 818,000 in the 12 months that ended in March. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 percent.
The revisions, which are preliminary, are part of an annual process in which monthly estimates, based on surveys, are reconciled with more accurate but less timely records from state unemployment offices. The new figures, once they’re made final, will be incorporated into official government employment statistics early next year.
The updated numbers are the latest sign of vulnerability in the job market, which until recently had appeared rock solid despite months of high interest rates and economists’ warnings of an impending recession. More recent data, which wasn’t affected by the revisions, suggests job growth slowed further in the spring and summer, and the unemployment rate, though still relatively low at 4.3 percent, has been gradually rising.
Federal Reserve officials are paying close attention to the signs of erosion as they weigh when and how much to begin lowering interest rates. In a speech in Alaska on Tuesday, Michelle W. Bowman, a Fed governor, highlighted “risks that the labor market has not been as strong as the payroll data have been indicating,” although she also said the increase in the unemployment rate could be overstating the extent of the slowdown.
This year’s revision was unusually large. Over the previous decade, the annual updates had added or subtracted an average of about 173,000 jobs. Still, substantial updates are hardly without precedent. Job growth for the year ending March 2019, for example, was revised down by 489,000, or about 20 percent.
Even accounting for the new estimates, the big picture remains relatively unchanged: Job growth is slowing, but not collapsing. The unemployment rate is rising, but layoffs remain low.
The revisions to some extent help bring the job growth numbers in line with other data showing a more significant cooling in the labor market. Job openings, hiring and employee turnover have all slowed significantly over the past two years. The robust monthly payroll figures were something of an outlier.
“We’ve known that things on net were probably moving gradually in the wrong direction,” said Guy Berger, director of economic research for the Burning Glass Institute, a labor market research and data firm. “This just largely confirms what a holistic view of the labor market data was saying before today.”
Some economists have also argued that the labor market is in better shape than recent data suggests. The unexpected slowdown in hiring and uptick in unemployment in July, for example, may have happened in part because of Hurricane Beryl, which temporarily closed businesses in Texas. And government data may not fully reflect the effect of increased immigration, which has provided employers with a supply of needed workers.
The monthly payroll figures are based on a survey of roughly 119,000 businesses and other employers. The large size of the survey makes it reliable, but not perfect. Government economists must make assumptions to account for businesses that open or close or that fail to report data. Those assumptions can be less reliable during periods of rapid changes in the labor market. Adding to the challenge: The response rate to all government surveys has been falling.
Forecasters had expected a large revision this year. Quarterly data, which is based on the same state records used to calculate the annual updates, had suggested that the monthly payroll estimates were overstating job growth. A few economists had predicted an even bigger reduction of as much as one million jobs.
Market reaction to the revisions was muted. The S&P 500 index was roughly flat in morning trading and ended the trading day up slightly.
The new numbers show that hiring was slower nearly across the board than originally reported. There were large downward revisions in white-collar sectors like professional services and information, as well as in the hospitality and retail industries. The transportation and warehousing sector, which includes many businesses involved in e-commerce, was one of the few in which job growth was revised up instead of down.