We have mentioned in the past how we are skeptical of the reliability of some government numbers relating to the economy that we have seen over the last few years. This is not a political statement. This is simply an opinion after watching governmental numbers and reports and the corresponding responses by the financial world for decades. Some of the most influential reports deal with employment numbers for a myriad of different reasons. Historically employment numbers can tell a lot about the health of our economy. More recently, people make short-term trading decisions driven by employment numbers in the near term assuming that the strength or weakness of the labor market will be very influential on whether the Federal Reserve raises or lowers interest rates. This will then reflect in the value of asset prices as lower interest rates tend to make such prices go up and conversely higher interest rates make asset prices go down. The reporting of labor market numbers from the BLS (Bureau of Labor Statistics) over the last year or so is appearing to be more of a political tool than an accurate description of the state of the employment marketplace. The December payroll numbers reported last week were no exception…
As a matter of fact, from this chart you can see that ten of the last eleven jobs reports have been revised substantially lower. Along with the December numbers which came out quite drastically higher than expectations, also came revisions lower of both October and November numbers. Someone is clearly manipulating the data – and we are not the only ones pointing this out!
Even if the December numbers aren’t revised lower in the months to come, looking under the hood of this report does not show a strong job market. The first concern of ours is that the government was the number one provider of “new jobs” in this report followed by jobs in travel and leisure. Government hiring does not engender a trustable economy and there are other cracks in the dam so to speak referencing current job statistics. When you look at part - time employment, the numbers of people with multiple jobs has rocketed to all-time highs. Full-time employment numbers haven’t rebounded since Covid with anything close to that sort of strength!
Whatever the current administration is doing to alter the true picture of the labor market for short term headlines, the reality is that things are starting to weaken. Of course, that begs the question as to whether or not the Federal Reserve will lower interest rates at the March meeting. With a stronger than expected headline number on this employment report the probability of lower rates is waning. The stock market has performed well over the last couple months and actually overextended the Santa Claus rally a bit. The rally was at least partially fueled by expectations of lower interest rates. That may not materialize until we get weaker economic data. Stay tuned for an interesting bad-news-is-good-news dichotomy as some investors hope economic numbers weaken so that the Fed will lower rates in order to bolster asset prices. Right now, we are seeing weakening economic numbers but not to the degree that would justify the rate cuts from the Fed that are already baked into our financial markets. So, will the administration keep skewing numbers for the image of a robust labor market in an election year? There is plenty of anecdotal stories about administrations of the past all the way back to LBJ that have tried to lean on the Fed to lower interest rates. It will be interesting to see if this administration changes horses and starts down the same path.
Regards and good investing,