2024 benchmark payroll revision: Your questions answered

Summary

Despite having slowed in recent months, the strength of nonfarm payroll growth over the past year has been a notable outlier among other indicators showing a significant cool down in the labor market. Could upcoming benchmark revisions be the key to resolving the mystery over payrolls' seeming exceptionalism this past year? In this report, we address questions about the Bureau of Labor Statistics (BLS) annual benchmark process, including what to expect for the upcoming preliminary benchmark estimate and what it could mean for the current perception of the jobs market.

Why is an annual benchmark needed and what period does it cover? Each year the BLS aligns the level of employment as reported by the Current Establishment Survey (CES) to more comprehensive data from administrative sources (such as unemployment insurance systems) to address response and sampling errors in the survey. The CES estimated count of nonfarm payrolls in March of each year is revised to correspond with the actual employment count in that month, leaving the benchmark period to cover the 12 months through March of each year.

Does it usually alter the current labor market landscape? The benchmark revision has typically not left a meaningful mark on the present view of the jobs market. It is somewhat dated upon its release; the preliminary estimate is not available until August of each year, while the final benchmark revision is not issued until February the following year (with the release of the January jobs report). Further, the benchmark revision has had a historically small effect on the level of payrolls each March. Over the past 10 years, revisions averaged an absolute change to the level of employment of 0.1%, with a maximum impact of 0.3%.

Could 2024's benchmark be more meaningful? Data through Q4–2023 from the Quarterly Census of Employment and Wages (QCEW), the key administrative data used in the annual benchmarking process, imply a negative revision ahead. Year-over-year job growth in the CES is currently reported at 2.0% in December—0.5 percentage points higher than the 1.5% annual grogwth in the QCEW data. If that percentage point gap persisted through March 2024, the average monthly pace of payroll growth in the CES for the year through March would be revised down from 246K to 189K—a less remarkable albeit still strong pace of job growth. Nevertheless, that would equate to the largest downward revision since March 2009.

Why has the Establishment Survey likely overstated payroll growth? The birth-death model may not yet be capturing a more difficult business climate and slowdown in business formation. Declining response rates to the CES and differing characteristics between the firms that do and do not respond may be another factor.

Could the preliminary benchmark estimate affect the FOMC's near-term rate path? We doubt the preliminary benchmark estimate will be a complete game-changer for FOMC members' current perceptions of the labor market. The months covered by the benchmark period—April 2023 to March 2024—will make even the preliminary estimate somewhat dated and will not say anything explicit about job growth in the subsequent months. In addition, FOMC members, including Chair Powell, already seem dialed-in to the potential for a downward revision. That said, a large negative revision would indicate that the strength of hiring was already fading before this past April, making risks to the full employment side of the Fed's dual mandate more salient amid widespread softening in other labor market data.

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