The Big Idea

Thinking ahead to the benchmark payroll revision

| June 12, 2026

This material is a Marketing Communication and does not constitute Independent Investment Research.

Former Fed Chair and now Governor Powell has repeatedly argued that the large downward revisions in recent years to benchmark payroll employment would continue to recur, suggesting that the current rate of job growth in reality has been lower than the preliminary data suggest. A preliminary estimate of the next annual revision is due late this summer for the 12 months ending in March. However, with three quarters of the relevant data in hand, it appears the size of the next benchmark revision may be down much more modestly and could even be positive. This would reinforce the narrative that the labor market has perked up after a difficult stretch that extended through 2025.

Payroll survey data

The payroll employment figures are derived from a monthly establishment survey conducted by the Bureau of Labor Statistics.  According to the BLS, the survey canvasses about 119,000 business and government agencies, and the total job count from the sample represents about 27% of total nonfarm employment.  As surveys go, this is a pretty big one.  By comparison, the household survey captures results from about 60,000 US households out of 134 million, or 0.05%.

Aside from garden-variety survey bias—the companies that the BLS happens to survey may be adding jobs faster or slower than the true underlying universe of firms—a key source of uncertainty for scaling the establishment survey results up to an estimate of total employment is the shift in the number of existing businesses. If new firms are being created faster or slower or if existing firms are closing faster or slower than the BLS assumes, then the true employment picture can differ from the monthly estimates.  The BLS runs a birth-and-death model based on historical data to estimate these dynamics, but if there is a sharp turn in the economy, then the model’s projections may be off substantially.

All firms that participate in unemployment insurance are required to report to the federal government their employment levels once a quarter so that their taxes into the UI system can be ascertained.  This amounts to a quarterly census of employment, covering almost the entire universe from which the establishment survey sample is selected. There is a small fraction of firms not included in the unemployment insurance system, which is why the level of payroll employment is somewhat higher than the raw benchmark numbers.  These benchmark figures are reported on a quarterly basis with a lag of about five months.  The report for the fourth quarter of last year was issued on June 2, and the data for the first quarter of 2026, the last needed to calculate an estimate of the annual benchmark revision, are due out on August 28.

Once a year, the BLS replaces the survey estimates for payrolls with the full census results, eliminating the various errors in the preliminary data such as sampling error, birth-and-death and so on.  The BLS chooses to consider the 12 months ending in March as its benchmark period.  Therefore, once the first quarter numbers are available, BLS is in a position to estimate the magnitude of the benchmark revision.  Then, the actual revision to the data is typically implemented with the January release of the following year, the report that is published in early February.  Thus, the benchmark data for the period from April 2025 through March 2026 will become official in early 2027.

To the extent that the employment census results are published quarterly, one can follow along with the discrepancy as the benchmark year proceeds.  At the moment, we have three of the four quarterly reports that will correspond to the annual benchmark.

Possible shift

Governor Powell has stated repeatedly with confidence that the large downward benchmark revisions are likely to continue.  As recently as the December 2025 FOMC press conference, he noted “Payroll jobs averaging 40,000 per month since April.  We think there’s an overstatement in these numbers by about 60,000, so that would be negative 20,000 per month.”  The way Powell expressed that suggests that this is not just his personal view, but a precise estimate generated by a Fed Board staff model.

However, there are solid reasons to be skeptical of this view and certainly to question the degree of confidence with which it has been put forward.  First, job growth in the preliminary payroll data over the past couple of years clearly seemed excessive compared to the universe of alternative gauges of the labor market.  Prior to the last benchmark revision, the average job gain for the 12 months ended March 2025 was estimated at nearly 150,000 a month, but the broader conditions in the labor market pointed to much more muted net hiring.  The massive benchmark revision of almost 900,000 to the March 2025 employment level cut that pace roughly in half. Similarly, the March 2024 benchmark revision narrowed a robust 242,000 pace of job growth to a still-solid 194,000.

In contrast, the preliminary payroll readings for the last nine months of 2025 were much softer than in the prior two years. For the 12 months ending March 2026, the relevant period for the next benchmark revision, the survey-based preliminary estimates add up to an average job gain of only 23,000 per month.  As Powell noted above, the Fed is assuming another massive negative annual revision and believes that the actual performance was net contraction. However, in my view, that would be inconsistent with the overall array of information on the labor market.  Stagnation or close to it?  Perhaps.  Sustained job shedding?  That is not consistent with the various other signals of the job market.

Second, and perhaps a more compelling point, the BLS changed its methodology for its birth-and-death model, which is used as a plug factor to account for businesses starting or dying and not captured adequately in the survey data.  Until recently, the birth-and-death plug factor was derived based on the historical data up through the latest benchmark.  After testing extensively, BLS statisticians began using real-time data and the latest quarterly UI census data to update the birth-and-death estimates.  Beginning in January, the BLS is updating the birth-and-death estimates using data right up to the latest month.  The thinking was that this would help address the upward bias that had developed in the preliminary figures.  The fact that payroll gains have been modest, seemingly more in tune with the actual labor market landscape, since the changes began to be implemented, suggests that the tweaks to the birth-and-death model calculations have worked in the direction of narrowing (or even removing) the bias that had previously been in place.

Crunching the numbers

Ultimately, the proof is in the pudding.  As noted above, we have in hand three quarters’ worth of the underlying unemployment insurance figures (QCEW reports) needed to calculate an estimate of the benchmark revision.  Exhibit 1 shows the changes in employment levels in the survey-based payroll estimates and the QCEW census figures over the first nine months of the most recent benchmark period (the 12 months ended March 2026).  The QCEW employment figures are reported only on a not seasonally adjusted basis, so I compare them to the not seasonally adjusted payroll numbers.

Exhibit 1: Payroll and QCEW Employment Changes, April 2025 through December 2025

Source: BLS.

And what do you know?  The QCEW figures for the first nine months of the benchmark period show more job gains than the preliminary payroll survey figures by a margin of around 200,000.  That, of course, is not the final word.  The gap could narrow or even reverse in the first three months of 2026, and the BLS benchmark revision estimate is never exactly the same as the gap between the two datasets.  Nonetheless, the data that we have so far actually point to a small upward adjustment to the pace of payroll gains during the 12 months ending in March, which suggests that the Fed’s working assumption could be off by around 75,000 per month.

Implications for policy

The ramifications for monetary policy of this discrepancy are limited.  At the end of the day, what the FOMC should most care about is how job growth stacks up vs. their guess of the breakeven pace, the clip needed to keep the unemployment rate steady over time.  The best method for assessing that is whether the unemployment rate is rising or falling.  Note that when an unusually large benchmark revision to payrolls occurs, the unemployment rate is unaffected.  In this case, if the payroll trend is far healthier than the Fed currently believes, then Board staff would likely just raise their assessment of the breakeven pace of job gains, leaving the gap between the actual and the breakeven little changed.  Still, I suspect that an upward benchmark revision announcement in a few months, when the Fed and likely most financial market participants anticipate a substantial downward adjustment, would lead investors to further upgrade their thinking with regard to the state of the labor market.

Stephen Stanley
stephen.stanley@santander.us
1 (203) 428-2556

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