Market weaker than thought, raising expectations for Federal Reserve action
The US labor market proved far less robust than previously believed, after the Bureau of Labor Statistics (BLS) revised nonfarm payrolls down by 911,000 jobs through March 2025. The downward revision has intensified speculation about imminent Federal Reserve rate cuts.
The annual benchmark revision, released Tuesday, revealed that job growth over the past year was more than 50% lower than last year’s adjustment and landed at the high end of Wall Street’s expectations. The labor market created far fewer jobs than previously thought, adding to mounting concerns about both the health of the economy and the reliability of official data.
The revisions, which drew on more comprehensive census and tax data, showed the largest markdowns in leisure and hospitality (-176,000), professional and business services (-158,000), and retail trade (-126,200).
Most sectors saw downward revisions, with only transportation, warehousing, and utilities posting small gains. Almost all changes were in the private sector, while government jobs were adjusted down by 31,000.
“The job market is softening, with even sectors like health care, which had steadily contributed to job growth, now slowing. Job losses continued in the federal government and manufacturing sectors,” said Mike Fratantoni, SVP and chief economist at the Mortgage Bankers Association (MBA).
The agency also noted that the revisions, while backward-looking, reinforce recent monthly data showing a softening labor market. For example, June through August saw average payroll growth of just 29,000 per month, below the breakeven level needed to keep unemployment steady.
Implications for mortgage and Fed rate policy
For the mortgage sector, a weaker jobs market could mean softer demand and increased pressure on rates. For First American senior economist Sam Williamson, there could be a "potential 25-basis-point rate cut at its [Fed] September meeting."
“A rate cut in September would mark the first step in that adjustment, and could put downward pressure on long-term yields, offering some relief to prospective home buyers facing elevated mortgage rates and prices," he added.
While the stock market barely reacted, Treasury yields erased earlier losses and turned higher, reflecting shifting expectations for monetary policy.
The revisions amount to 0.6% of the 171-million-member labor force—a small share, but with significant political and economic ramifications.
Political and economic fallout
The timing of these revisions has not gone unnoticed in Washington. Most of the revised period predates President Trump’s latest round of tariffs, suggesting the labor market was already deteriorating.
"This is not a picture of an economy at ‘maximum employment,’ and the greater risk now appears to be that the job market will slip further in the months ahead,” said Fratantoni. “The pace of any additional cuts will certainly be tempered by the ongoing risk of a pickup in tariff-induced inflation.”
Following a weak July jobs report and further downward revisions, Trump fired then-BLS Commissioner Erika McEntarfer and nominated Heritage Foundation economist E.J. Antoni as her replacement. The August payrolls count was lower than July’s, and June’s total was revised to a loss of 13,000 jobs—the first negative reading since December 2020.
The BLS has faced criticism over its data collection methods, with Tuesday’s revisions likely to fuel further scrutiny.
