Could July’s large U.S. payrolls revisions be a potential recession warning? Investing.com - Earlier this month, figures from the Labor Department’s Bureau of Labor Statistics showed that the U.S. added fewer jobs than anticipated in July. However, much of the reaction to the report swirled around its heavy downward revisions to numbers from June and May, which indicated that the economy’s resilience since President Donald Trump’s announcement of elevated "reciprocal" tariffs on April 2 may not be as strong as it had seemed. Stocks fell in the wake of the jobs data, with sentiment also pinned down by Trump’s decision to roll out new heightened tariffs on a range of countries. Trump further exacerbated concerns over the data when he announced the firing of the commissioner of the BLS, citing, without providing evidence, his belief that the numbers were "rigged." In a note, analysts at Nomura argued that, if the BLS data had been released prior to the Fed’s last interest rate decision in July, the central bank would have slashed borrowing costs. Citing in part the need to see more data to determine the impact of Trump’s tariffs on the wider economy, the Fed kept rates steady at a range of 4.25% to 4.5%. With some policymakers suggesting this week that the case for a drawdown has been bolstered following the jobs report, markets are now widely pricing in a rate reduction at the conclusion of the Fed’s September 16-17 gathering. According to CME’s FedWatch Tool, the chances of a quarter-point cut then now stand at over 88%. "[U]nless economic data improves much more than expected by the next meeting in September, a rate cut decision then seems like a natural decision," the Nomura analysts wrote. "That said, monetary policy views and market views will differ significantly depending on whether this sharp slowdown in payroll gains over the past three months is seen as the result of corporate activity halted temporarily due to the tariff shock or as a sign of weak consumer spending and investment activity that will worsen further going forward." Meanwhile, while the May and June revisions were the largest to the downside since 1979, outside of the COVID-19 crisis, such alterations provide only "marginal" signals about recession risks, according to analysts at Morgan Stanley. Instead, changes in current-month employment -- that is, the weaker-than-anticipated addition of 73,000 jobs in July -- matter more, they argued. With this in mind, the strategists concluded that "recession risk remains elevated, but may not have risen materially enough to alter our view on the U.S. economy." With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record. With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.

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