The U.S. Bureau of Labor Statistics (BLS) is scheduled to release the delayed January nonfarm payrolls report tonight, concurrently implementing its annual benchmark revision and methodological updates. Markets anticipate this revision will erase approximately one million jobs, marking one of the largest downward adjustments in the history of U.S. employment statistics.

Based on preliminary BLS estimates, job growth for the period from April 2024 to March 2025 will be revised down by 750,000 to 900,000 positions. Furthermore, the BLS will update its business birth-death model forecasts for April to December 2025, which is expected to reduce the count by an additional 500,000 to 700,000 jobs. This implies that up to one million jobs previously reported through December 2025 never actually existed.

Analysis indicates this revision will significantly alter the perceived state of the U.S. labor market. The revised data is expected to show that the labor market fell below its "stall speed" as early as mid-2024, when the three-month moving average for job growth was a mere 55,000, far below the approximately 180,000 needed to keep the unemployment rate stable. After seasonal adjustments, job growth was negative for at least five months in 2025.

The core of this adjustment lies in the BLS's decision to fix its controversial birth-death adjustment model. This model had long distorted employment figures due to its failure to accurately exclude data from "ghost companies" created during the pandemic to obtain Paycheck Protection Program (PPP) loans. The new calculation method will incorporate real-time sample information. While this is intended to improve long-term data accuracy, it will likely lead to sharp repricing of employment figures and higher monthly volatility in the short term.

This "million-plus" negative revision is anticipated to directly impact monetary policy. As the labor market picture appears more severe than previously thought, pressure on the Federal Reserve to cut interest rates will increase substantially. Market analysis suggests that a situation reminiscent of the significant downward revision in August 2024 could force the Fed to act to support a fragile economic recovery, with expectations now pointing towards potential rate cuts totaling 100 basis points this year.

The report released tonight will incorporate a two-pronged downward revision. First is the routine annual benchmark revision, where the BLS adjusts data from April 2024 to March 2025 based on more comprehensive Quarterly Census of Employment and Wages (QCEW) data. Preliminary BLS estimates point to a downward revision of 911,000 jobs for this period, though the final figure may be slightly lower, projected between 750,000 and 900,000.

Second, the BLS will apply updated business birth-death forecasts and recalculated seasonal factors for the period from April to December 2025. This adjustment will incorporate the latest information from the QCEW and monthly payroll surveys and is expected to result in a further reduction of 500,000 to 700,000 jobs.

On a not-seasonally-adjusted basis, it is estimated that the employment level could be reduced by 3.025 million. However, because the BLS will recalculate seasonal adjustment factors to reflect both the benchmark revision and the birth-death model update, this uncertainty could cause the employment data to fluctuate by approximately 40,000 in either direction.

Additionally, due to disruptions caused by a government shutdown, the BLS has postponed the annual population control adjustment, typically released with the January report, until next month's February report. This adjustment is expected to lower the population level by at least 700,000, implying a further negative revision next month.

The birth-death model, originally a reliable statistical tool for estimating employment changes from new business formations and closures not captured in the monthly survey, became the largest statistical flaw in the jobs report post-pandemic.

The root cause was PPP loan fraud. Thousands of fake "new companies" were created to access government funds, severely distorting the baseline statistics for business formation rates. Because the birth-death model relies on historical patterns of business births and deaths for its forecasts, this anomalous wave of fraudulent business creation caused the model to systematically overestimate actual job growth.

This flaw has triggered multiple large downward revisions in recent years. In August 2024, the BLS revised payrolls down by 818,000 jobs, a correction that became a basis for the Fed to initiate a significant rate-cutting cycle, even while inflation remained around 3%.

Starting with this report, the BLS will implement a key methodological change: incorporating current sample information into the birth-death model on a monthly basis. While this measure is expected to reduce the magnitude of future annual revisions, it carries a side effect—significantly increased volatility in the monthly nonfarm payrolls figures. This means future employment reports may more frequently produce "outliers" that deviate from market expectations, thereby amplifying overall financial market volatility.

Once statistical noise is stripped away, the true cooling path of the U.S. labor market becomes clear. Analysis of the revised, seasonally adjusted data indicates the labor market lost momentum as early as the summer of 2024. Furthermore, influenced by announced tariff policies and the subsequent government shutdown, hiring activity cooled further. The data shows that, after accounting for seasonal adjustments and revisions, job growth was actually negative for at least five months in 2025.

This large-scale data revision will reshape market expectations for the Federal Reserve's policy path. Similar to how the significant downward revision in August 2024 prompted the Fed to enact an aggressive 50-basis-point rate cut just two months before the presidential election, the "grim" labor market reality revealed by this revision is expected to act as a fresh catalyst for rate cuts.

Although some believe the labor market may have bottomed in mid-2025 and begun a slow recovery, the foundation remains fragile. Coupled with potentially mild upcoming CPI data for January, the window for Fed rate cuts is opening. Analysts suggest that to counter the economic weakness reflected in the revised data, the Fed may not only need to cut rates this year, but the magnitude of cuts could reach 100 basis points to prevent further deterioration in the labor market.