BLS revises April-May payrolls down 74,000 jobs, darkening labor outlook

The Bureau of Labor Statistics revised down April nonfarm payrolls to 148,000 from 179,000 and May to 129,000 from 172,000, a combined 74,000-job cut that signals a cooling labor market. The revisions bring the two-month average to 138,500, down sharply from the initially reported 175,500.

"The magnitude of these revisions suggests the labor market was softening more than the initial prints indicated," said Jocelyn Paquet, senior economist at National Bank of Canada. "This changes the baseline for the June report and the Fed's assessment of whether the economy is still running above trend."

The April revision of 148,000 was 31,000 below the initial estimate, while the May revision of 129,000 was 43,000 lower. The combined 74,000 downward adjustment marks the steepest two-month revision since early 2025. The data comes ahead of the June employment report, due Thursday, for which economists expect payrolls to rise by 110,000, according to a Bloomberg survey. The unemployment rate is forecast to hold at 4.3 percent, with average hourly earnings expected to edge up to 3.5 percent year over year from 3.4 percent.

The weaker labor market picture increases pressure on the Federal Reserve to consider rate cuts, with markets now pricing in about a 34 percent probability of a 25-basis-point hike in July, down from elevated expectations earlier this month. Cleveland Fed President Beth Hammack said Tuesday that inflation remains "still too high" and that rate hikes "may need to be considered," but the downward revision to payrolls could shift the debate. The next FOMC decision is scheduled for July 29.

The revisions come after three consecutive months of surprisingly strong payroll gains that had kept the Fed focused on inflation risks. The initial April and May prints had suggested the labor market was running well above the Atlanta Fed's estimated breakeven rate of roughly 100,000 to 130,000 jobs per month needed to keep the unemployment rate stable. The revised figures bring both months closer to or below that threshold.

The downward revision also aligns with other softening labor market indicators. The ADP private payrolls report for June, released Wednesday, showed 98,000 jobs added, below the 113,000 consensus estimate and down from 122,000 in May. Initial jobless claims have ticked higher between the May and June survey periods, according to National Bank of Canada, suggesting layoffs may be increasing.

For the Federal Reserve, the data complicates an already difficult policy picture. While inflation remains sticky — partly due to elevated costs in consumer electronics driven by AI hardware demand — the labor market is showing clearer signs of cooling. The Fed has held its benchmark rate at 5.25 percent to 5.5 percent since July 2023, and Chair Kevin Warsh has maintained a hawkish posture since taking office.

The last time the BLS issued a downward revision of this magnitude was in early 2025, when the Fed responded by signaling a slower pace of tightening. If the June payrolls report due Thursday also comes in below expectations, it could accelerate the shift in market pricing toward rate cuts rather than hikes.

In currency markets, the U.S. Dollar Index edged lower on the revision, while Treasury yields declined as traders reassessed the probability of further tightening. The 2-year yield, most sensitive to Fed policy expectations, fell 4 basis points to 4.12 percent. The S&P 500 opened marginally higher as lower rate expectations offset growth concerns.

TD Securities analysts expect June payrolls to moderate to 80,000, below the consensus of 110,000, with private sector gains of 55,000 and government adding 25,000. "Job growth broadened beyond healthcare, led by trade/transport and leisure, but should cool this month," the firm said in a note. "Local governments may stay firm on World Cup effects."

The combination of downward revisions and softening forward indicators raises the stakes for Thursday's June report. A print below 70,000 could trigger a meaningful repricing of Fed expectations, while a result above 130,000 would likely reinforce the hawkish narrative that has dominated since early 2026.

This article is for informational purposes only and does not constitute investment advice.