Some Good News and Some Bad News About the Jobs Report

Key Talking Points:

• The bad news is that recent revisions have been largely to the downside. The good news is investors have alternative data sources.
• Unemployment in August rose to 4.3% from 4.2% the previous month. This is what a soft landing looks like, but we are in the early innings of the slowdown.
• Payrolls grew by 22,000 in August, but employment in June and July combined is 21,000 lower than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.)
• August gains were concentrated in healthcare and social assistance. Other categories showed little change over the month.
• Average hourly earnings grew 3.7% and continue to outpace inflation, giving some spending power to consumers.
• Bottom Line: The labor market is coming to a standstill as businesses slow the pace of hiring and await clarity on tariffs and Federal Reserve (Fed) policy. As the Fed prepares for its upcoming meeting, policy makers will likely focus on weakness in the job market to defend their decision to cut rates. The labor data is probably not weak enough for the Fed to cut by 50 basis points, so as of now, our expectations are for a 25-basis point cut.

First, the Good News

When July’s employment report was released in early August, the Bureau of Labor Statistics (BLS) revised downward the previous two months. Revisions do not often get such publicity, but this time, the President responded by firing the BLS Commissioner. Now to be fair, the commissioner probably was not at fault behind the revisions, but they serve at the pleasure of the President, so commissioners know they can be fired for no cause.

Revisions come about honestly. Not all respondents send their surveys back to the BLS in time for the initial estimate. As more data trickles in, the BLS will update the previous estimates. The good news is investors have access to other data that can augment the data from the government. ADP publishes data on monthly private job creation, and since the pandemic, this data tracks the public data and should satisfy those concerned about data integrity.

Amid debates about data reliability, investors can use the ADP Employment report as an alternative indicator for the health of the labor market.

ADP Becoming a Better Predictor for BLS

Source: LPL Research, Automatic Data Processing, Bureau of Labor Statistics, 09/05/25

Now the Bad News

In more recent years, data revisions have been more pronounced, adding angst to market watchers. The BLS will revise numbers to increase accuracy over time. Two main issues drive these revisions. First, as mentioned earlier, some businesses respond late to the survey. But more importantly, the BLS makes benchmark revisions, which incorporate comprehensive data from state unemployment insurance records. The annual revision, using data from the Quarterly Census of Employment and Wages (QCEW) provides a more accurate picture of the labor market than the initial monthly estimates.

Revisions Skewed Downward in Recent Months

Source: LPL Research, Bureau of Labor Statistics, 09/09/25

The difference between the third estimate and the initial monthly estimate is quite choppy. But the “Revisions Skewed Downward in Recent Months” chart also includes a smoothed 12-month average of those revisions. During most recessions, the third estimate is often lower than the initial print, suggesting the job market is weaker than previously thought. Last week, the June estimate was revised downward by 160,000 from the initial estimate. Our view is the labor market is coming to a standstill as businesses await clarity from the Fed and the White House on trade policy.

Summary

Despite the weakening labor market, we think the economy could skirt a recession if the Fed eases rates and businesses successfully adjust to an evolving international trade environment. Risk assets historically perform well when the Fed eases in non-recessionary periods.

LPL Research’s Strategic and Tactical Asset Allocation Committee (STAAC) remains neutral toward equities overall, slightly favors the growth style over value, large caps over small caps, and remains neutral on a regional basis. The Committee continues to look for opportunities to add equities on potential pullbacks.