Goldman Sachs analysts have raised concerns that an upcoming revision to U.S. nonfarm payroll data could exaggerate the apparent weakness in the labor market.
The Bureau of Labor Statistics (BLS) is expected to announce a substantial downward revision next week, which could reduce payroll growth by between 600,000 and 1 million jobs for the year ending in March 2024.
However, Goldman Sachs cautions that this revision may present a misleading picture of the labor market’s condition. According to the investment bank’s analysts, while the adjustment is anticipated to lower the average monthly payroll growth from 250,000 to around 165,000-200,000 jobs, this decrease might be overstated.
The analysts argue that the actual pace of job growth during this period is likely closer to 200,000-240,000 jobs per month. They point to two key factors contributing to the potential discrepancy.
Firstly, the revision relies heavily on data from the Quarterly Census of Employment and Wages (QCEW), which largely excludes unauthorized immigrants. Goldman Sachs suggests this could lead to an erroneous reduction of 300,000-500,000 jobs, as unauthorized immigrants have played a significant role in employment growth.
Secondly, the bank notes that the QCEW data itself has often been subject to upward revisions in recent years. Since 2019, preliminary estimates of benchmark revisions have, on average, understated the final revision by approximately 100,000 jobs.
“Our previous analysis indicates that benchmarking to the QCEW could mistakenly exclude 300,000-500,000 unauthorized immigrant workers from payroll growth for the year ending in March 2024,” the analysts stated.
Goldman Sachs warns that the forthcoming benchmark revision may unfairly depict the labor market as weaker than it actually is, overstating the slowdown in job growth over the past year.
