A Huge Negative Payroll Revision: Blind Squirrels Don't Care

The U.S. Bureau of Labor Statistics (BLS) released today a very concerning downward revision to its non-farm payroll data for the 12 months ending March 2024.

To put this into perspective, The BLS typically sees benchmark revisions to payroll data range from -0.3% to 0.3%. This announcement would represent a -0.5% change, which is the largest downward revision since 2009 if it holds (the final revision will be released in February 2025). So I believe the timing and level of this latest revision today is quite telling.

While I normally do not like to focus too much on a single data point (by definition, the government data is wrong and subject to change), it is the magnitude and timing of this revision that worries me. Given the revision is through March 2024, it naturally makes me wonder the level of accuracy in the payroll data since then, especially considering the increased amount of CEO chatter and negative earnings estimate revisions that have surfaced about more discerning consumer spending trends. This revision calls into question a lot about the economy in recent months (since period affected by this revision), and further makes the case that the Fed may already be too late in cutting rates to avoid a recession.

Yes, there have been some stronger retail results out there too recently, such as those from Walmart and Target, that have assuaged market fears and deflected the weaker economy argument. Like the consumer itself, I believe there are diverging trends between the haves and have nots among retailers. The companies that have sufficient scale to cut prices in the current environment are attracting the most discerning consumers who are running into a financial wall, and thus taking share. Execution still matters, and matters even more when the tide is going out. But company-specific execution does not explain the growing list of consumer-facing companies that are increasingly telling a different story.

The other "good" news here is that the weakness in the employment data is exactly what the Fed needs and wants to finally shift from the Fed "Plateau" that I postulated back in 2022 (when others were already trying to anticipate the Fed pivot). Two years later, we are finally here.

So while normalization is good, now the question is whether the Fed can control the negative feedback loop of less-good or worsening jobs data in the broader economy. The headline data on its surface does not portend recession, but I see more canaries flying around lately, and in my mind the rate of change matters much more than the absolute level of the data when many consumers today are not prepared to absorb a job loss in the household.

The key will be to watch how the employment data trends in the coming months, and how quickly it deteriorates. The aforementioned negative revision does makes me wonder whether the stock market today is akin to the blind squirrel trying to find a nut. Certainly, the recent shift down in Treasury yields is concerning and implies much more economic weakness ahead. It would be another historical aberration for both stocks and Treasuries to both be right in this scenario from here.

**All commentary in this article represent my own personal views and opinions, and are not representative of those of my current or past employers, nor intended to do so. None of my comments are intended as or should be viewed as personal investment advice, nor am I compensated to provide any of the commentary above.**