Tonight, the US nonfarm payrolls may see a "million-level" revision.

The U.S. Bureau of Labor Statistics (BLS) will release the delayed January non-farm payroll report tonight, along with the annual benchmark revision and methodological update. The market expects this revision to erase about 1 million jobs, which is one of the largest downward adjustments in the history of U.S. employment statistics.

According to BLS preliminary estimates, employment growth from April 2024 to March 2025 will be revised down by 750,000 to 900,000 jobs. In addition, BLS will update business birth-death projection data for April to December 2025, with an expected further reduction of 500,000 to 700,000 jobs. This means as many as 1 million jobs reflected in non-farm payroll data through December 2025 never actually existed.

On Wednesday, ZeroHedge and related analysts pointed out that this revision will significantly alter the actual state of the U.S. labor market. The revised data will show that the labor market fell below the "stall line" as early as mid-2024, when the three-month moving average employment growth was only 55,000, much lower than the 180,000 needed to keep the unemployment rate stable. After seasonal adjustment, at least five months in 2025 will show negative employment growth.

The core of this adjustment is that BLS has decided to finally fix its controversial "birth-death adjustment" model. Previously, this model failed to accurately remove "fake company" data created during the pandemic for PPP loan purposes, resulting in long-term distortion of employment statistics. The new calculation method will incorporate real-time sample information, which will help improve data accuracy in the long run, but will lead to sharp repricing and higher monthly volatility in employment data in the short term.

This "million-level" downward revision is expected to have a direct impact on monetary policy. As the labor market presents a bleaker picture than expected, the pressure for the Federal Reserve to cut rates will increase significantly. Market analysis suggests that, similar to the sharp data downward revision in August 2024, this situation will force the Fed to take action to support the fragile economic recovery, and the expectation is that the Fed may cut rates by 100 basis points this year.

Double Downward Revisions, Adjustment May Exceed One Million

The report released today will include revisions on two levels. First is the routine annual benchmark revision, where BLS will adjust employment data from April 2024 to March 2025 based on the more comprehensive Quarterly Census of Employment and Wages (QCEW) data. Preliminary BLS estimates show a downward revision of 911,000 jobs during this period, but the final adjustment may be slightly less, estimated at between 750,000 and 900,000.

Secondly, BLS will apply updated business birth-death projections and recalculated seasonal factors to April to December 2025. This adjustment will incorporate the latest QCEW and monthly employment survey information, and is expected to further revise down employment by 500,000 to 700,000 jobs.

According to Bloomberg economist Anna Wong, the number of jobs will decrease by 3.025 million on a non-seasonally adjusted basis. However, since BLS will recalculate seasonal adjustment factors to reflect the benchmark revisions and updates to the Birth-Death model, this uncertainty could cause job data to fluctuate by 40,000 in either direction.

In addition, due to interruptions caused by the government shutdown, BLS has postponed the annual population control adjustment, which is usually released in the January employment report, to next month's February report. Wong expects this adjustment to reduce the population level by at least 700,000, meaning further negative revisions next month.

Major Adjustments to the "Birth-Death" Model

The Birth-Death model was originally a reliable statistical adjustment tool used to estimate employment changes from new and closed businesses not covered by monthly surveys. But after the pandemic, the model has become the biggest statistical loophole in employment reports.

The root of the problem lies in PPP (Paycheck Protection Program) loan fraud during the pandemic. To take advantage of government free funding, thousands of fake "new companies" were created, severely distorting the basic statistics for business birth rates. As the Birth-Death model relies on historical business birth and death patterns for forecasting, this abnormal wave of fake company creation led to systematic overestimation of actual job growth.

This flaw has triggered several large-scale downward revisions over the past few years. In August 2024, BLS revised down 818,000 jobs, and this revision became one of the bases for the Fed launching a major rate cut cycle, even though inflation remained at 3% at the time.

Starting from this report, BLS will implement a key methodological change: including current sample information in the "birth-death model" every month. This move will reduce the scale of future annual revisions, but it carries a side effect—the volatility of monthly non-farm payroll data will rise sharply. This means future employment reports may more frequently show "outliers" deviating from market expectations, increasing overall financial market volatility.

The Labor Market Has Already Cooled, Fed Faces Mounting Rate-Cut Pressure

After removing statistical noise, the true cooling path of the U.S. labor market will become clear. Bloomberg Economics analysis shows that seasonally adjusted revised data indicated the labor market lost momentum as early as summer 2024, when the three-month moving average employment growth was only 55,000, much lower than the 180,000 analysts say is needed to keep unemployment stable.

Moreover, hiring cooled further due to tariff policies announced by Trump and subsequent government shutdowns. Data shows that after seasonal adjustment and revision, at least five months in 2025 will actually have negative employment growth. While recalculation of seasonal adjustment factors may introduce about 40,000 discrepancies, the overall trend points towards significant deterioration.

This large-scale data revision will reshape market expectations for Fed policy paths. Just as the sharp downward revision in August 2024 prompted the Fed to cut rates aggressively by 50 basis points two months before the presidential election, the “grim” labor market reality revealed this time will again serve as a catalyst for rate cuts.

Although some believe the labor market hit bottom in mid-2025 and has begun a slow recovery, the foundation for recovery remains fragile. Coupled with a possibly softer January CPI reading to be released soon, the Fed’s rate-cut window is opening. Analysts point out that to address the economic weakness reflected by the revised data, the Fed not only needs to cut rates this year, but the magnitude could reach 100 basis points to prevent further labor market deterioration.

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