The labor market is not as strong as it initially appeared.
A massive government revision released Tuesday showed the US economy added 911,000 fewer jobs in the 12 months through March 2025 than initially reported — the steepest downgrade in at least two decades, according to preliminary estimates from the Bureau of Labor Statistics.
That sobering revision came just days after August payrolls data showed the job market slowdown is still underway. Job growth came in far weaker than expected, with payrolls up only 22,000 last month, averaging a tepid 29,000 over the past three months.
Additionally, modest downward revisions left June’s figure showing the first monthly decline since December 2022, with Oxford Economics noting that “the stag in stagflation became more pronounced last month.” Stagflation occurs when economic growth stalls while both inflation and unemployment remain high.
The weaker data added to expectations of Federal Reserve rate cuts and fueled concerns that the bull market could be nearing an inflection point if inflation remains sticky.
JPMorgan Chase CEO Jamie Dimon said the revisions confirmed the economy is slowing: “I think the economy is weakening,” he told CNBC on Tuesday. “Whether it’s on the way to recession or just weakening, I don’t know.”
Economists warn the Fed faces a difficult balancing act at next week’s meeting: Easing rates too aggressively risks fueling inflation that is already above target, while easing too cautiously risks tipping a fragile labor market into deeper recession.
That tension was evident in the bond market, where the 10-year Treasury yield (^TNX) climbed four basis points to trade near 4.1% Tuesday, and the 30-year (^TYX) pushed above 4.7%. The move unwound part of the recent rally on Fed rate-cut bets and suggested traders may be increasingly bracing for recession — or even stagflation — with key inflation data, the Consumer Price Index (CPI), due later this week.
“If the CPI shows a worsening trend of higher inflation on Thursday, then the market will begin worrying about stagflation,” said Chris Zaccarelli, chief investment officer at Charlotte, N.C.-based Northlight Asset Management. “The bull market has been extremely resilient this year, but we could be approaching an inflection point where it is tested again.”
Bloomberg consensus expects August’s “core” CPI, which excludes volatile categories like food and energy, to rise 0.3% month over month and 3.1% year over year, keeping inflation well above the Fed’s 2% target.
Gus Fucci, chief economist at PNC Financial Services Group, told Yahoo Finance he expects those pressures to persist: “Inflation is starting to pick up as businesses pass higher tariff costs along to their customers, and that’s going to be the story throughout the rest of 2025.”
‘More significant slowing’
The revisions themselves cut average monthly job growth nearly in half, to 71,000 from 147,000, with the sharpest losses concentrated in information, professional services, and leisure and hospitality.
“The overall story hasn’t really changed that much,” Fucci added. “We had a very strong labor market in 2023. We had slower job growth in 2024, and then we’ve seen an even more significant slowing this year.”
Economists said much of the downgrade likely stemmed from flaws in the BLS’s birth-death model, which estimates hiring and firing at new businesses not yet captured in government records. The model is meant to reflect the churn of small firms, but it can overshoot during periods of economic stress.
Pantheon Macroeconomics chief economist Samuel Tombs argued that most of this year’s revision “looks set to be due to weaker job creation at new firms than the BLS initially inferred.”
Still, Goldman Sachs economists cautioned the revision may exaggerate weakness, noting these adjustments are often revised higher in later releases. They estimate monthly job growth was likely closer to 100,000 — weaker than initially reported, but not as soft as the 71,000 pace implied by Tuesday’s figures.
The scale of the revision quickly reverberated in Washington, D.C., where the integrity of the data has come under growing scrutiny. Vice President JD Vance said after the release that “it’s difficult to overstate how useless BLS data had become,” while White House press secretary Karoline Leavitt ramped up pressure on Fed Chair Jerome Powell, arguing he “has officially run out of excuses and must cut the rates now.”
