Is job growth really negative right now? Morgan Stanley answers

Investing.com -- Morgan Stanley told investors in a note that recent comments from Federal Reserve officials about the possibility of negative U.S. job growth may be overstating the degree of labour-market weakness, even as hiring cools and unemployment edges higher.

The debate intensified after Chair Jerome Powell said “job creation may actually be negative,” citing concerns that payroll figures could be overstated.

Fed Governor Christopher Waller added that the economy is “close to zero job growth,” warning that this is “not a healthy labor market.”

Morgan Stanley’s Michael Gapen notes those remarks reflect officials’ “second-guessing the payroll prints since March.”

“In BLS estimates of the benchmark revision, payrolls are due to be revised down by about 76k per month in the 12 months through March 2025,” noted Gapen.

Powell said payrolls averaging 40,000 a month since April may be overstated by “about 60,000,” implying they “would be negative 20,000 per month.”

But Morgan Stanley says new data from the Census of Employment and Wages suggests the overstatement may be modest.

The latest CEW release “did not suggest significant further mis-statement,” the analysts wrote, adding that the slight widening of the gap between CEW and payroll surveys “could be noise as easily as it could be signal.”

Private payrolls have averaged 58,000 a month since March. Adjusting for a potential 20,000 downward revision would still leave job growth positive, a “smaller slowdown than feared by Fed officials,” Morgan Stanley said.

The bank expects the Fed to cut rates again in January as unemployment holds at 3.6% and tariff-related pressures weigh on consumption.

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