Goldman Sachs analysts cautioned that the upcoming benchmark revision to U.S. nonfarm payrolls is likely to overstate the weakness in the labor market.
The Bureau of Labor Statistics (BLS) is expected to announce a significant downward revision on Wednesday, potentially lowering payroll growth by 600,000 to 1 million jobs for the year ending in March 2024.
However, Goldman Sachs argues that this revision could be misleading.
According to the investment bank's analysts, the revision is expected to lower monthly payroll growth from 250,000 to approximately 165,000 200,000, but this adjustment may be exaggerated.
The analysts suggest that the “true” pace of job growth during this period is likely closer to 200,000-240,000 per month. They attribute this discrepancy to two main factors.
First, the Quarterly Census of Employment and Wages (QCEW), which is used for the revision, largely excludes unauthorized immigrants.
Goldman Sachs believes this could lead to an erroneous downward revision of 300,000-500,000 jobs, as unauthorized immigrants have significantly contributed to employment growth.
Second, Goldman Sachs explains that the QCEW itself has consistently been revised upwards in recent years. Since 2019, the preliminary estimate of the benchmark revision has been below the final revision by an average of 100,000 jobs.
"Our earlier analysis suggests that benchmarking to the QCEW could erroneously revise 300-500k working unauthorized immigrants out of payroll growth over the year ending in March 2024," they write.
Goldman Sachs warns that the upcoming benchmark revision may paint an unduly negative picture of the labor market, overstating the degree of weakness in job growth over the past year.