Liz Looks at: The Power of Revisions

Revisionist History

I don’t remember a time when markets and commentators were this on edge about a data revision. Recent data releases for major economic indicators, sure. But a number that revises data released 6-18 months ago? This is different.

Today, the Bureau of Labor Statistics (BLS) released its Quarterly Census of Employment Wages report, which is a preliminary revision to U.S. payrolls data from April 2023 through March 2024. In essence, it says that the monthly jobs added data markets have been reacting to needs to be updated.

The preliminary revision came in at -818k, or an average of 68k fewer jobs added per month than originally reported in the monthly jobs reports.

By the looks of it, that’s a large number and one that markets should care about if the labor market hasn’t been as strong as we thought. Despite some volatility around the time of the release (which was delayed by roughly 30 minutes, putting everyone even more on edge), both Treasury yields and the S&P 500 were back to where they were beforehand within minutes of the data being published.

It felt like a lot of anticipation for very little reaction. Perhaps because there is a decent amount of skepticism around important data being excluded from this report (immigration effects on employment data, for example), and because it is so lagged that it looks stale.

In any event, the sheer size of this revision from the BLS has investors wondering about the reliability of data in general, which makes the state of the economy seem unclear.

Moving Targets

If markets are unperturbed, why is all this important?

Because the Federal Reserve’s other mandate besides inflation is jobs, and we have to wonder if, or how, this may affect their upcoming rate decisions. Not to mention, this comes just before we will hear from Jerome Powell at the Fed’s annual Jackson Hole symposium on Friday.

As it turns out, revisions are a regular thing for most data points, including the Fed’s summary of economic projections, released quarterly, with the next update coming at their September meeting.

The main components of their quarterly projections are inflation, the labor market, and GDP growth. We can see in the chart that their expectations for the end of this year have not moved much, but current readings of inflation and unemployment render these projections stale if we assume the trend continues.

We can only assume more revisions are coming, with inflation projections likely revised downward, unemployment revised upward, and growth possibly revised slightly downward as well. The combination of those three suggests that the economy is cooler than they expected in June, which would pave the way for more cuts than they projected at that time (one 25 bp cut by year end).

Markets currently expect four cuts by year end, which leaves a pretty big gap between what FOMC officials are saying and what the market is pricing in. That gap will undoubtedly narrow as December nears, but we can’t know for sure which one of the projections will move. It’s possible they’re both wrong. In the meantime, Powell’s Jackson Hole speech has the potential to change this picture and will be the next big edge-of-our-seats event. So much for relaxing summer Fridays.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.
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