Massive downward jobs revision not budging mortgage rates

A rebenchmarking of jobs numbers that suggests the U.S. added 911,000 fewer jobs than previously thought over the year ending in March is generating political heat but having little impact on interest rates.

That’s because the massive revision is tied to a well-known and longstanding issue with the “birth-death model” the Bureau of Labor Statistics uses to estimate jobs that are created by startups and lost when companies go out of business.

The preliminary benchmark revision issued by the Bureau of Labor Statistics (BLS) Tuesday^[1] suggests that the U.S. added an average of 73,000 jobs per month during the 12 months ending in March, rather than 149,000.

Economists polled by Reuters^[2] had expected a downward revision of between 400,000 and 1 million jobs, so the impact on interest rates was minimal. Yields on 10-year Treasury notes,^[3] a barometer for mortgage rates, climbed slightly Tuesday, by two basis points (two hundredths of a percentage point).

But the revision sparked renewed criticism of the BLS from the Trump administration, with the White House issuing a statement claiming that “Biden’s economy was a disaster and the BLS is broken.”

President Trump fired BLS Commissioner Erika McEntarfer on Aug. 1, accusing the economist of having manipulated payroll numbers “for political purposes” after previous estimates of hiring in May and June were revised down by a total of 258,000 jobs^[4].

Some economists have questioned the qualifications of Trump’s pick to succeed McEntarfer, E.J. Antoni, and raised doubts about whether BLS statistics will be trustworthy in the future, The Wall Street Journal reported^[5].

But Tuesday’s annual rebenchmarking highlights methodology issues that predate Trump’s second term, rather than political meddling, Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.

Last year’s preliminary benchmark revision to March 2024 payrolls also resulted in a preliminary downward revision of 818,000 jobs, a figure that was later revised to 598,000, Tombs noted.

Samuel Tombs

Some of this year’s downward revision could be due to unauthorized workers being removed from previous estimates, he said. But the “gargantuan downward revision is probably mostly due to the faulty birth-death model^[6],” Tombs said.

To estimate payrolls, the BLS surveys about 121,000 businesses and then extrapolates those results to reflect an estimate of the total number of businesses and their employees. The surveys are benchmarked once a year against the estimated population count, known as the Quarterly Census of Employment and Wages (QCEW).

The problem with the BLS’s methodology seems to be that it overstates the net number of jobs created by businesses that have just started up or collapsed. Pantheon Macroeconomics estimates that about two-thirds of the downward benchmark revision 0f 911,000 jobs is probably due to weaker job creation at new firms than the BLS initially inferred from its model.

That’s something the BLS can try to adjust going forward. But Tuesday’s record downward revision once again has the bureau in the hot seat.

“Leaders at the bureau failed to improve their practices during the Biden administration, utilizing outdated methods that rendered a once reliable system completely ineffective and calling into question the motivation behind their inaction,” Secretary of Labor Lori Chavez-DeRemer posted^[7] on the social media platform X.

The Trump administration has been pressuring the Federal Reserve to lower interest rates, and Fed Chair Jerome Powell suggested on Aug. 22^[8] that the job market is becoming a bigger issue than inflation to central bank policymakers.

Mortgage rates hit new 2025 low

Rates on 30-year fixed-rate mortgages tracked by Optimal Blue^[9] fell to a new 2025 low of 6.27 percent Monday following another weak jobs report Friday^[10] showing employers added just 22,000 jobs to U.S. payrolls in August, 53,000 fewer than forecasters had expected.

Futures markets tracked by the CME FedWatch tool^[11] on Tuesday show investors view a Sept. 17 Fed rate of at least one-quarter of a percentage point as a certainty. But futures markets foresee only an 8 percent chance of a half percentage point rate cut this month, down from 10 percent on Monday.

Futures markets tracked by the CME FedWatch tool predict the Fed will cut short-term rates by three-quarters of a percentage point at its final three meetings of the year.

Melissa Cohn

Lower mortgage rates could spur homebuying, but that effect could be muted if the wider economy is in a recession and would-be homebuyers lose their jobs or see their investments lose value, William Raveis Mortgage executive Melissa Cohn^[12] said in a statement.

Cohn blames tariffs for “kneecapping the economy.”

“When the tariffs were announced, that’s when the market started to fall apart,” Cohn said. “Tariffs are government-inflicted pain. And President Trump is not shy about the fact that it’s not going to be an easy road.”

US payrolls shrank in June

The latest estimate is that rather than growing by 14,000 in June, U.S. nonfarm payroll employment actually shrank by 13,000.

But Tombs said that the birth-death model probably continues to over-inflate estimates of payroll growth.

“We expect to find again this time next year that job creation at newly-formed businesses has been overstated,” he said.

If next year’s rebenchmarking is as dramatic as this year’s, it could turn out that instead of adding an average of 29,000 job a month in June, July and August, the economy was actually shedding 47,000 jobs a month, Tombs said.

As a result, he said, “these revisions also add to doubts over the quality of early estimates of payrolls today, and reinforce the case for the [Federal Reserve] to ease policy to counteract flat-to-falling employment.”

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Email Matt Carter^[15]