Could Labor Market Recalibration Influence the Fed?

• The Department of Labor announced that it is restating jobs numbers because of a massive overestimation.
• This shows that the overall economy is not doing as well as we thought it was.
• As a result, the Fed has signaled that it intends to lower interest rates in September.

The government made a pretty massive restatement of some important job numbers last week that kind of went a little under the radar. But it should not. Because what it says about our economy could have pretty big ramifications. 

Last week the Department of Labor stated that the U.S. job market has been overstated by 818,000 jobs in the last year. As a result, the economy is not nearly as strong as we assumed. So what does this mean? Will the Fed take it into account when they meet in September? Lets talk about it.

Labor Department Restates Jobs Numbers

Last Wednesday, the Labor Department said that the jobs numbers have been overstated by approximately 818,000 jobs in the year that ended in March 2024. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 percent. The original numbers were estimates taken from surveys. This revision, though, comes from hard data from state unemployment numbers. Those numbers are more accurate but slower to report. 

The revised job numbers paint a less rosy picture than previously believed. While the economy has undoubtedly shown resilience in recent months, the overestimation suggests that the labor market may be more fragile than initially thought. This could have implications for consumer spending, business investment, and overall economic growth.

A less robust job market could also impact inflation. When unemployment is low, there is often upward pressure on wages, which can contribute to inflation. With the revised numbers, the inflationary pressures might be slightly less intense than anticipated.

What Will this Mean for the Fed?

We are commercial real estate folks. So lets talk about what we care about the most. Will this affect the Federal Reserve’s decision in September on whether to lower rates? Theoretically, the Fed has been closely monitoring economic indicators to determine the appropriate course of action for interest rates. Obviously its stated goal is to manage inflation. The revised job data, therefore, could influence the central bank’s decision-making. If the Fed believes that the economy is slowing down more than previously estimated, and this affects inflation, it could look to lower rates.

In fact, the Federal Reserve has already started to signal a potential pause in its rate hikes. Indeed, while I was writing this blog entry, it came across that Chairman Powell said its time for a rate cut. That is good news. The revised  job numbers probably reinforced this stance, along with other economic factors, such as inflation and consumer spending,.

Interest Rate Trends

We have seen a general downward trajectory in recent months for interest rates. This trend is partly due to concerns about economic growth and the possibility of a recession. The revised job data further exacerbates these concerns to this downward pressure on rates.

Depending on how much the Fed lowers rates in September, it would be a significant shift in monetary policy. Obviously this move would be very welcome in the real estate world. That combined with the certainty and clarity an election brings could lead to positive outlook and more transactions in the commercial real estate world.

Conclusion

The Department of Labor’s revised job numbers have introduced a new layer of complexity into the economic landscape. While the overall picture remains positive, the recalculation highlights the importance of careful analysis and interpretation of economic data. The Fed has already indicated that it will be lowering rates in September. No doubt these numbers influenced that decision.

As the economy continues to evolve, it is essential to stay informed about the latest economic indicators and their potential implications. The revised job numbers serve as a reminder that the economic outlook can change rapidly, and it is crucial to adapt to these shifts.