Significant downward revision? Nomura: Nonfarm annual benchmark revision to be released; both the market and the Fed are expecting it.

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The U.S. Bureau of Labor Statistics is about to release the annual benchmark revision of nonfarm payroll data. Nomura Securities says both the market and the Fed are already expecting a major downward revision.

On September 3, according to information from Trade Wind Trading Desk, Nomura Securities stated in its latest research report that it expects the annual benchmark revision of nonfarm payrolls, to be released by the U.S. Bureau of Labor Statistics (BLS) on September 9, will see a significant downward adjustment, with the revision expected to be between 600,000 and 900,000 jobs.

This revision will cover the 12-month period from April 2024 to March 2025, meaning monthly employment growth will be lowered by 50,000 to 75,000 jobs. Nomura analysts based this forecast on data such as the Quarterly Census of Employment and Wages (QCEW).

According to the research report, the main reasons for the data revision are estimation biases in undocumented immigration and new business formation. In addition, the Bureau of Labor Statistics will also release sector-level breakdowns of the annual benchmark revisions. Nomura expects that employment growth will become further concentrated in a handful of sectors.

Nomura believes that although this revision may have a dovish impact on the market, it is a dovish signal already anticipated by the market, and because Fed officials are already expecting this adjustment, the actual impact on monetary policy may be limited.

Nomura maintains its forecast that the Fed will start cutting rates by 25 basis points per quarter starting from September. Unless there are massive layoffs or severe financial stress, it will not opt for a 50-basis-point cut or consecutive rate cuts at meetings.

Multiple Data Points Support Expectation of Major Downward Revision

Nomura's analyst team finds from QCEW data analysis that data for the second through fourth quarters of 2024 suggest that nonfarm payroll reports have overestimated employment growth by 857,000 jobs (about 95,000 per month). If simply extrapolated, this would bring the 12-month average monthly nonfarm payroll growth as of March 2025 down from the current official figure of 146,000 to about 50,000.

However, second-to-fourth-quarter QCEW data is usually revised upward, which means the gap between nonfarm payrolls and QCEW could be narrowed. Conversely, first-quarter QCEW data is often weaker than nonfarm payroll data, which could partly offset the positive impact of upward revisions in subsequent quarters.

It is worth noting that QCEW data covers more than 95% of jobs in the U.S. While it is released with a 6-to-9-month delay, it is much more comprehensive and accurate than monthly nonfarm data.

Apart from QCEW data, Nomura has also analyzed other relevant data (such as unemployment claims and tax data), which also suggest that nonfarm payrolls will be significantly revised down.

Also, as of March 2025, nonfarm jobs stand out as being higher compared to household employment and other employment indicators such as ADP, further confirming the need for an adjustment.

Multiple Factors Cause Employment Data Deviations

Nomura analysts believe the large gap between QCEW and nonfarm data may stem from two main factors:

First, QCEW data cannot capture employment by undocumented immigrants, while nonfarm data may reflect part of employment in this group.

Second, the "birth-death" adjustment embedded in monthly nonfarm data by the Bureau of Labor Statistics may overestimate actual employment growth.

This adjustment is intended to capture net employment changes caused by business openings and closings, but forecast errors often account for a large proportion of annual revisions.

Historical data shows that forecast errors in "birth-death" adjustments are typically a major component in annual nonfarm data revisions; this large downward revision is also likely linked to this.

Rising Employment Growth Concentration Raises Concerns

The Bureau of Labor Statistics' annual benchmark revision will also reveal a more concentrated industry distribution of employment growth. Nomura expects that job growth will be increasingly concentrated in a handful of industries, because only a few sectors have driven job gains in recent months. The research report states:

Based on QCEW data for the second to fourth quarters of 2024, it is expected that professional services, construction, information technology, and manufacturing will see major downward employment revisions. Among them, the information technology sector may see the largest downward revision, which partly reflects the impact of AI.

Even before the preliminary benchmark revision, Nomura's calculations showed that the proportion of industries with monthly job losses rose from 25% in March 2024 to about 45% in July 2025. The further deterioration in employment growth concentration should increase downside risks to future job growth.

Maintaining Fed Quarterly Rate Cut of 25 Basis Points Expectation

Nomura says that despite the major downward revision being a dovish signal for the market, the actual impact on monetary policy is expected to be limited for the following reasons:

Fed officials have anticipated this: Powell mentioned in his Jackson Hole speech that based on QCEW data, nonfarm payrolls "will be significantly revised down." Governor Waller also said that monthly job creation would on average be reduced by about 60,000, corresponding to an annual downward revision of 720,000.

Unemployment rate unaffected: This revision does not involve adjustment of the unemployment rate, which is a key metric repeatedly emphasized by Powell and New York Fed President Williams.

Many FOMC members believe that given the reduction in labor supply due to immigration policy, the unemployment rate better reflects labor market conditions than nonfarm payrolls.

Nomura continues to expect that the Fed will begin quarterly rate cuts of 25 basis points starting in September, rather than large 50-basis-point or consecutive cuts, unless there is a sharp increase in layoffs or severe financial stress.

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The above highlights come from Trade Wind Trading Desk.

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