Why job growth could be 'significantly weaker' than it has appeared

Key Points
  • Initial benchmark revisions for the payroll count over the past year took 501,000 off original estimates.
  • Capital Economics expects the second quarter also to show growth at less than what was reported.
  • Payrolls gains have declined in 2019 to the slowest pace in eight years.
Job seekers line up to meet with recruiters during the Job Hunters Boot Camp in San Mateo, California.
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The pace of payrolls growth, already around the weakest of the decade-old recovery, could look even weaker once the numbers-crunchers get through counting.

Benchmark revisions to government employment data already knocked off 501,000 in the first benchmark revision to be released in January.

When Bureau of Labor Statistics researchers start counting the numbers for the second quarter, they are likely to take that jobs count down even more, according to calculations by Michael Pearce, senior U.S. economist at forecasting firm Capital Economics.

"The latest quarterly census employment data, on which those revisions are based, suggest that the pace of payroll gains will be revised sharply lower in the second quarter too, painting a significantly weaker picture of the labor market," Pearson aid in a recent note to clients.

Hunter did not provide an estimate for how much the revision might be.

Courtesy Capital Economics. Source: BLS and Refinitiv

Job growth has averaged just 167,000 a month in 2019, the slowest pace since 2011 and down sharply from 2018's 223,000.

To be sure, that's come with a maturing cycle as the longest recovery in U.S. history hits its 10th year. A slowing in job growth would be expected at this point, though there are still more than 7 million job openings against 5.9 million employment seekers, a gap that reflects slack and an ability to expand.

"A slower pace of payroll growth would help to explain the broader turn in the survey evidence over the past year or so," Hunter wrote. "The Conference Board jobs hard to get measure has leveled off, while the share of small businesses reporting jobs are hard to fill has fallen. The job openings and job quit rates have both declined too. Even if it's true that hiring has slowed more sharply than the payroll figures currently let on, we've still not seen signs of a pick-up in layoffs yet, with jobless claims close to historically low levels.

Investors will get another look at the labor market on Friday when the Labor Department releases its nonfarm payrolls report.

Due in large part to the end of the General Motors strike, the report is expected to show a gain of 187,000 and the unemployment staying near a 50-year low of 3.6%.

The Week Ahead: November employment report on Friday