Tonight, the U.S. non-farm payroll may see a "million-level" downward revision

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

According to preliminary estimates from the BLS, employment growth during the period from April 2024 to March 2025 will be revised down by 750,000 to 900,000 jobs. Additionally, the BLS will update the business birth-death forecast data for the period from April to December 2025, which is expected to further reduce jobs by 500,000 to 700,000. This means that as of December 2025, up to 1 million jobs in the non-farm employment data never actually existed.

On Wednesday, according to ZeroHedge and related analyses, 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 "stalling line" as early as mid-2024, when the three-month moving average employment growth was only 55,000, far below the 180,000 needed to maintain a stable unemployment rate. After seasonal adjustments, there will be at least five months of negative employment growth in 2025.

The core of this adjustment lies in the BLS finally deciding to fix its controversial "birth-death adjustment" model. This model had previously failed to accurately exclude "phantom company" data generated during the pandemic to obtain PPP loans, leading to long-term distortions in employment statistics. The new calculation method will introduce real-time sample information, which, while helping to improve data accuracy in the long run, will lead to severe repricing of employment data and higher monthly volatility in the short term.

This "million-level" negative revision is expected to have a direct impact on monetary policy. As the labor market presents a more severe picture than expected, the pressure on the Federal Reserve to cut interest rates will significantly increase. Market analysts believe that this situation, similar to the significant downward revision of data in August 2024, will force the Federal Reserve to take action to support the fragile economic recovery, with expectations that the Fed may cut rates by 100 basis points this year.

Double Downward Revisions, Adjustments May Exceed One Million

The report released today will include two levels of downward revisions. First is the regular annual benchmark revision, where the BLS will adjust employment data from April 2024 to March 2025 based on more comprehensive Quarterly Census of Employment and Wages (QCEW) data. Preliminary estimates from the BLS indicate that employment growth during this period will be revised down by 911,000 jobs, but the final adjustment may be slightly smaller, expected to be between 750,000 and 900,000.

Secondly, the BLS will apply updated business birth-death forecasts and re-estimated seasonal factors for the period from April to December 2025. This part of the adjustment will incorporate the latest information from the QCEW and monthly employment surveys, with an expected further downward revision of 500,000 to 700,000 jobs.

According to Bloomberg economist Anna Wong's estimates, on an unadjusted basis, employment numbers will decrease by 3.025 million. However, since the BLS will re-estimate seasonal adjustment factors to reflect the benchmark revision and Birth-Death model updates, this uncertainty may cause employment data to fluctuate by 40,000 in either directionIn addition, due to the interruption caused by the government shutdown, the BLS has postponed the annual population control adjustments typically 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, indicating further negative revisions next month.

Significant Adjustments to the Birth-Death Model

The Birth-Death model was originally a reliable statistical adjustment tool used to estimate employment changes from new businesses and closures not covered by monthly surveys. However, this model has become the biggest statistical loophole in employment reports post-COVID-19.

The root of the problem lies in the PPP (Paycheck Protection Program) loan fraud during the pandemic. To take advantage of the government's free funding, thousands of fake "new companies" were created, severely distorting the underlying statistics of business birth rates. Since the Birth-Death model relies on historical patterns of business births and deaths for predictions, this abnormal wave of fake business creation has systematically overestimated actual employment growth.

This flaw has led to multiple large-scale downward revisions over the past few years. In August 2024, the BLS revised down 818,000 jobs, which became one of the bases for the Federal Reserve to initiate a significant rate-cutting cycle, even though inflation was still at 3% at that time.

Starting from this report, the BLS will implement a key methodological change: incorporating current sample information into the "Birth-Death model" each month. While this move will reduce the magnitude of future annual revisions, it also brings a side effect—monthly non-farm data volatility will significantly increase. This means that future employment reports may more frequently show "outliers" that deviate from market expectations, thereby exacerbating overall volatility in financial markets.

Labor Market Has Already Cooled, Pressure for Fed Rate Cuts Intensifies

After filtering out statistical noise, the true cooling path of the U.S. labor market will become clear. Analysis from Bloomberg Economics shows that the revised seasonally adjusted data indicates that the labor market lost momentum as early as the summer of 2024, with a three-month moving average employment growth of only 55,000, far below the 180,000 needed to keep the unemployment rate stable, according to analysts.

Moreover, recruitment activities further cooled due to the tariffs announced by Trump and the subsequent government shutdown. Data shows that after accounting for seasonal adjustments and revisions, there were at least five months of negative employment growth in 2025. Although the re-estimation of seasonal adjustment factors may bring an error of about 40,000, the overall trend points to significant deterioration.

This large-scale data downward revision will reshape market expectations for the Federal Reserve's policy path. Just as the significant downward revision in August 2024 prompted the Fed to aggressively cut rates by 50 basis points two months before the presidential election, the revealed "severe" labor market conditions will again become a catalyst for rate cuts.

Although some believe the labor market bottomed out in mid-2025 and began to recover slowly, the recovery foundation remains fragile. Combined with the upcoming potentially milder January CPI data, the window for Fed rate cuts is opening. Analysts point out that to address the economic weakness reflected in the revised data, the Fed not only needs to cut rates this year, but the magnitude may reach 100 basis points to prevent further deterioration of the labor market.**