BLS sharply lowers jobs data, casting doubt on Fed rate path

The Bureau of Labor Statistics (BLS) has reduced the job gains it reported for July and August by 60,000. Those initial, more hopeful figures were a factor in the Federal Reserve's decision to increase its benchmark interest rate on September 16.

The Fed governors' rate hike, the first in three years, made mortgages and credit costlier. They based the move on a belief that the labor market was meeting its mandate, which gave them room to tackle inflation.

The BLS initially reported a gain of 21,000 jobs for July when the Fed voted. It now shows a loss of 10,000 jobs. The bureau also cut the August estimate by 29,000 positions.

On the day of the hike, September 16, the Fed said in a statement, “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

“Job openings and weekly hours have been increasing,” Warsh told reporters in September. The comment relied on inaccurate data portraying the US economy as “largely acting consistent with full employment.”

August was ‘nothing more than a rebound’

Following the upbeat August job-openings report, UBS estimated that market odds of a rate hike rose from 50% to 60%. With benchmark rates on the rise, the cost of mortgages and credit was set to increase further.

September's figures were worse. Employers added just 29,000 jobs against an 84,000 forecast, and the unemployment rate climbed to 4.2%.

Jefferies' chief US economist downplayed the nominal increase, commenting, “It appears that the August number was nothing more than a rebound from very weak hiring in June and July.”

The Fed required more precise data

Financial analyst ZeroHedge wrote that the Fed would not have raised rates if accurate data had been available.

The BLS attributes the revisions to new business and government reports plus seasonal adjustments, meaning the new numbers are more precise.

After the September hike, 16 of 18 Federal Open Market Committee members had expected another rate increase this year. Those expectations are now being seriously reconsidered in the wake of these BLS revisions.