Arguably the biggest news in Friday’s jobs report wasn’t what it said about July. It was the steep downward revision to estimates of job growth in the previous two months.
U.S. employers added more than a quarter-million fewer jobs in May and June than initially reported, the Labor Department said Friday. What had previously looked like healthy gains of more than 140,000 jobs each month now appears to have been a much more anemic gain of under 20,000 jobs.
Such a big revision is bad news on its own terms, showing much weaker growth than previously understood. But it is also bad for another reason: When hiring is consistently revised down, it often means the economy is in, or headed for, a recession.
Take the jobs report for September 2008, for example. The initial estimate, released on Oct. 3 of that year, showed a decline of 159,000 jobs, a clear sign that the swirling global financial crisis was hitting the U.S. labor market.
In reality, that figure severely understated the damage. A month later, the September estimate was revised to show a loss of 284,000 jobs. A month after that, the figure was revised again, to a loss of more than 400,000. Today, government data indicates the economy lost nearly 450,000 in September 2008.
Negative revisions can be a warning sign because of the way the jobs figures are calculated.
The monthly numbers are based on a huge survey of businesses and other employers. Not all businesses respond in time for the initial estimate, however, forcing government statisticians to fill in the gaps with a statistical technique that essentially assumes the businesses that didn’t respond behaved the same way as the ones that did.
That approach works fine during normal times. But during periods of rapid change, that assumption can be misleading. Businesses that fail to respond might be struggling to keep their doors open, for example. Or they might have shut down altogether.
Still, downward revisions aren’t always a sign of trouble. There was a steady stream of negative revisions during much of the Biden administration, for example, but unemployment stayed low and the job market remained strong.
Ben Casselman is the chief economics correspondent for The Times. He has reported on the economy for nearly 20 years.
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