The Fed thinks America might be quietly shedding jobs. Here's why
Fed Chair Jerome Powell says official hiring data could be so inflated that the economy is actually shedding jobs, not adding them
Al Drago/Bloomberg via Getty Images
Federal Reserve Chair Jerome Powell added a jarring footnote to Wednesday’s interest rate cut decision: The U.S. job market may be even weaker than previously thought.
Speaking at his post-meeting news conference, Powell said Fed staff believe the government may be overstating monthly job creation by as much as 60,000 jobs. Given that published data show the economy adding roughly 40,000 jobs a month since spring, Powell’s statement means the real number could plausibly be negative — to the tune of a 20,000-job decline per month.
“We think there’s an overstatement in these numbers,” Powell said, warning that what looks like a weakening labor market may in reality be something closer to full-blown contraction.
Cutting to save jobs, but flying half-blind
The potential for such contraction explains why the Fed pushed ahead with its third consecutive rate cut this year despite unemployment still sitting in the mid-4% range and headline readings suggesting modest economic growth. With major government statistics delayed or disrupted following the prolonged shutdown this fall, Fed officials have had to rely on private-sector indicators, many of which suggest a job market weakening across industries and especially among white-collar workers.
The potential miscount stems from the way the Bureau of Labor Statistics estimates jobs created by new businesses or lost when firms close, known as the “birth-death” model. Brand-new companies and shuttered ones can’t be surveyed directly, hence the need for estimates. In recent years, however, that “birth-death” model has repeatedly overshot reality, leading to big downward revisions long after official numbers have been released.
The BLS is planning an overhaul early next year, but for now, Powell acknowledged, policymakers may be flying partly blind. Per Wall Street Journal reporting, the issue with the the "birth-death" model is only one of many problems the BLS is facing, including understaffing and now a significant backlog resulting from the record government shutdown.
Powell also noted that it’s “a little bit curious” that headlines about big-name companies laying off thousands of employees—with AI cited as one reason for cuts—haven’t so far translated to rising numbers of people seeking unemployment.
Next round of revisions to land next week
All in all, Powell’s statement bring the Fed’s thinking into sharper focus. With FOMC members understanding jobs numbers may be overestimates and that what appears to be growth could in fact turn out to be contraction, it's less surprising they’ve sought to support the labor market via the three cuts made in 2025, with one further cut projected for 2026.
Certainly, Powell’s message is unusually blunt, at least for him: The labor market could be far weaker than the official numbers let on, perhaps much more in line with markedly negative consumer sentiment. In any case, next week’s long-delayed jobs data for October and November — along with any revisions — will likely carry more weight and draw even more attention than usual.