October and November employment data revised downward, increasing the Fed's pressure to cut interest rates again

The revised data released today by the U.S. Bureau of Labor Statistics shows that the true state of the U.S. labor market is weaker than previously reported. Non-farm employment data for October and November were both revised downward, with a total adjustment of 76,000 jobs. This not only reflects a cooling trend in the labor market but also adds new pressure to the Federal Reserve’s policy decisions.

Details of Employment Data Revisions

Why were these data revised?

The U.S. Bureau of Labor Statistics typically releases revised data for the previous two months when publishing new monthly figures. The background for this revision is unusual: in October last year, the U.S. experienced a government shutdown, leading to incomplete data collection. After the shutdown ended, the BLS supplemented the data collection, resulting in this revision. The decline in non-farm employment in October was the largest since the end of 2020, with federal government employment decreasing by 162,000, mainly because workers participating in the buyout resignation program officially exited the employment list.

Signals from the revised data

This revision exposes a reality: the cooling of the U.S. labor market is more severe than previously reported. Although November still showed positive growth, the figure was revised down from 64,000 to 56,000, indicating that employment growth is slowing. According to related reports, the U.S. labor market is already showing clear signs of cooling, which corroborates the recent ADP employment data that was weaker than expected.

Impact on Federal Reserve policy

Further strengthening of rate cut expectations

The weakness in the labor market is one of the core premises for the Fed considering rate cuts. This data revision further reinforces market expectations for a rate cut within the year. According to related reports, the market has already formed strong expectations that the Fed will start cutting rates in the first half of 2026.

The Fed faces a policy dilemma

Interestingly, U.S. Treasury Secretary Yellen recently pressured the Fed, stating that rate cuts are “the only factor missing for strong economic growth.” The downward revision of employment data seems to provide new arguments for her position. However, the Fed needs to balance: although the labor market is cooling, the unemployment rate remains relatively moderate (4.6% in November), giving the Fed reason to maintain a wait-and-see stance.

Market reactions and upcoming focus

December data to be released soon

According to related reports, the U.S. Bureau of Labor Statistics will release the December non-farm payroll report tonight, with market expectations of a net increase of 60,000 jobs and an unemployment rate of 4.5%. This report will further confirm the trend in the labor market. If December’s data continues to be weak, it will further strengthen market expectations for rate cuts; if the data surprises to the upside, it could weaken those expectations.

Multiple market reactions

The weakness in the labor market could trigger a chain reaction: the dollar may weaken, U.S. stocks might initially rebound, but then concerns about economic growth could dominate the market. Safe-haven assets like gold may also benefit from a weaker dollar.

Summary

The double downward revision of employment data further confirms that the U.S. labor market is cooling. Although the reasons for the revision are related to the special event of the government shutdown, it indeed reflects the reality of slowing employment growth in the U.S. For the Fed, this increases the rationale for rate cuts; for the market, it reinforces expectations of a policy shift by the Fed. The upcoming December non-farm payroll data will be crucial, as it will determine whether the market further adjusts its expectations for Fed policy. The current performance of the labor market has shifted from “strong” to “balanced” or even “weak,” which could have significant implications for the policy trajectory and asset prices for the rest of the year.