TLDR:
- The upcoming BLS job report may show exaggerated economic weakness
- Goldman Sachs warns the data could be misleading and overstate job losses
- Market reactions could impact crypto and other risk assets
- Significant downward revisions to payroll numbers are expected
- The Fed’s meeting minutes release will provide insights on monetary policy
The U.S. Bureau of Labor Statistics (BLS) is set to release its preliminary estimate of job growth on Wednesday, covering the period from April 2023 to March 2024.
This report, which includes benchmark revisions to monthly nonfarm payrolls, is expected to show a significant downward revision in job growth numbers.
However, several financial firms are warning that this data may present a misleading picture of the U.S. economy.
Goldman Sachs has cautioned that the upcoming BLS job report might exaggerate economic downturns.
The investment bank’s Economics Research team stated,
“While next week’s revision could revise the pace down to 165-200k/month, we believe that a portion of that revision will be erroneous and that the ‘true’ pace of employment growth during that period was probably closer to 200-240k/month.”
Morgan Stanley projects a substantial downward revision of payrolls, estimating a reduction of 600,000 jobs from current reports. This implies a trimming of approximately 50,000 jobs per month over the 12-month period through March. Other estimates from Wall Street analysts range from a reduction of 600,000 jobs to a record 1 million.
The potential for misleading data stems from several factors. The government’s benchmarking process relies on variables that can complicate Wall Street estimates. One significant factor is the number of new businesses created each year and the number that fail or close. The BLS uses a “birth/death model” to estimate trends in business formation and destruction.
Another complicating factor is immigration. The U.S. has experienced a massive surge in immigrants in recent years, and their presence in the labor force is challenging for the government to measure accurately. These variables could result in a smaller than expected reduction in total job gains for the period in question.
The release of potentially weaker job growth data could reignite recession fears and trigger a shift away from risk assets, including cryptocurrencies.
This reaction would mirror market behavior observed following the July jobs report released earlier this month. However, some market participants may look beyond headline numbers to assess the true state of the U.S. economy.
Following the BLS data release, market attention will shift to the minutes of the Federal Reserve’s July meeting, scheduled for release at 18:00 UTC.
These minutes are expected to provide insights into the Federal Open Market Committee’s (FOMC) considerations regarding monetary policy easing and potential interest rate cuts.
The combination of potentially misleading economic data and insights into the Federal Reserve’s monetary policy deliberations could create a complex trading environment for financial markets.
While initial reactions may lean bearish if the jobs data appears weak, investors will need to carefully weigh the implications of Wednesday’s releases against broader economic trends and potential policy shifts.
Despite the potential for significant revisions, some economists argue that even in a worst-case scenario, the benchmark revisions would still show the economy added a solid 150,000 to 160,000 jobs a month from the spring of 2023 to the spring of 2024. This is slightly below the average increase in the decade prior to the pandemic.
