BLS Gut-Punch

Markets opened cautiously, and modestly, higher this morning. The Dow is up around 100 points and the S&P 500 is up .1%. Treasury yields dipped slightly at the open, as markets cement expectations for a .25% rate cut at the next Federal Reserve policy meeting on September 17.

We got more evidence that the job market is cooling. Our economy generated a rather modest 22,000 new jobs in August, which was well below expectations. And this morning the Bureau of Labor Statistics (BLS) revised down previously announced monthly data, removing about 900,000 jobs from the year ended in March. So the labor market has apparently been softer than we’d appreciated. In our view, this announcement ensures the Fed will cut interest rates by .5% before year-end.

We were surprised and disappointed by the magnitude of this data revision. BLS now thinks average job growth per month during the year ended March 2025 was about half of what they originally reported. Payrolls were taken down across most industries and states. So why isn’t the stock market falling today?

This isn’t is a panic moment. If anything, it reveals in stark detail the “no hire, no fire” job market we’ve been talking about. Not good, but not a disaster. The unemployment rate remains steady at a low level and wage growth is still positive. New filings for unemployment benefits have been low, as have layoff and quit rates. Also, bank and credit card CEOs are pretty uniform in their opinions that consumer spending has been healthy.

The Federal Reserve’s dual role is to foster an environment for full employment and low, steady inflation. So they cannot ignore the BLS data revision, nor the recent trend of slower job growth. In addition, Fed Chair Powell readily admits that interest rates are “restrictive” to economic growth at their current level. Blackrock’s Rick Reider notes that US Treasury bond yields are falling, and that tells him that the Fed-funds interest rate is too high. Both stock and bond investors are happily anticipating lower rates ahead, and this has clearly propped up stock prices.

I’d like to make one more point regarding this ridiculously large data revision from the BLS. It serves as a reminder that predicting the economy’s trajectory is extremely difficult. JP Morgan Chase CEO Jamie Dimon agrees, noting conflicting messages in the information we’re receiving. Consumers still have jobs & are still spending money. Corporate profits are still up. But it also appears that economic growth is slowing. “There are a lot of different factors in the economy…and it’s hard to figure out what it all means.”

Bottom Line:
• Economy: Weak revisions and sluggish job growth highlight growing labor market softness.
• Fed: Rate cut expectations are entrenched, with a 25‑bp move near certainty.
• Markets: Stocks tread higher as easing hopes rise, led by strong corporate headlines.