Over the last week or so we have seen quite a change in the economic data coming out of the US in an area the Federal Reserve looks at closely. Yesterday saw this from the Bureau of Labor Statistics.
The economy added 911,000 fewer jobs (or -0.6% of total employment) than initially reported during the 12 month period ending March 2025. The administrative data used to make this preliminary revision will produce a final revision in February. ( Nick Timiraos)
Just as a reminder Nick Timiraos operates as a mouthpiece for Fed Chair Jerome Powell so it was also interesting that he told us this.
Not really. It doesn’t say anything about job creation since March, per se. And even if it confirms that payroll growth has been overstated,
To my mind that is a case of never believe anything until it is officially denied because he also tells us this.
Currently, payroll employment has been measured as +1.758 million over this period, or around 146K jobs per month……….A downward revision of 1 million would lower the 12-month payroll gain to 758K, or 63K jobs per month.
It was not quite a million but monthly jobs growth has been more than halved. That continues quite a sequence for this series.
Last year, for example, the preliminary estimate said job growth for the 12-months ended March 2024 should be lower by 818,000 jobs. But in February, payroll employment for this period was revised down by 598,000.
In terms of a statistical series there is clearly an issue when the revisions are not only all one-way but they are also large.
According to the BLS, over the last decade, absolute benchmark revisions have had a range of -0.4% to +0.3%, with an average absolute revision of +0.1%. The final revision for last year (of -0.4%) was the largest since 2009 (which was -0.7%).
This year’s revision was 0.6% so for those that bother to look at the full situation there is clearly a problem and President Trump will see it as a justification for firing the head of the Bureau of Labor Statistics. But for our purposes the US economy is now seen to be clearly weaker on the jobs front that before and let me bring in the Federal Reserve mandate.
The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate
from Congress of promoting maximum employment, stable prices, and moderate long-term interest
rates.
That is from its statement on August 22nd and as you can see maximum employment comes first something that is repeated later.
The Committee’s monetary policy strategy is designed to promote maximum employment and stable
prices across a broad range of economic conditions. Employment, inflation, and long-term interest
rates fluctuate over time in response to economic and financial disturbances.
Non-Farm Payrolls
All of this comes on the back on the usual monthly update last Friday.
Total nonfarm payroll employment changed little in August (+22,000) and has shown little change
since April, the U.S. Bureau of Labor Statistics (BLS) reported today……The change in total nonfarm payroll employment for June was revised down by 27,000, from +14,000
to -13,000, and the change for July was revised up by 6,000, from +73,000 to +79,000. With these
revisions, employment in June and July combined is 21,000 lower than previously reported.
So the monthly numbers were weak and allowing for revisions then jobs growth was flat.
President Trump
As you can imagine he is on the case except the opening of his message was much more nuanced that is often the case.
“If the Fed had followed what we published, they would have raised rates in early 2021. The entire Organization is broken. It needs to be fixed. They need to use modern sources of information.”
He has a point there are they should have raised interest-rate earlier and I was arguing that back then. He also has a point about the money supply.
He (“Too Late!”) has done a terrible job since he adapted a two target? It’s too low, it’s too rigid, they followed Data that’s years delayed. They don’t believe that money supply matters, it’s like the Pope not believing in Jesus.
Then we got to a rather familiar theme.
“Chair Powell was late to raise rates, they need to come down here, there’s no question about it. He’s dragging his feet. The Feds going to come down here 50, 75, Maybe 100.” Greg Faranello, American Securities on Maria B.
US Bond Market
We can take a direct hint from the US 2-year yield which was 3.8% at its recent peak on the 22nd of August and is 3.54% now. So it has factored in another 0.25% cut as it was already below the official Federal Reserve interest-rate. So we have perhaps the 50 mentioned above but are a long way from the 100 or 1%.
Switching to the benchmark 10-year it is now at 4.08% and over a similar time frame to the above has fallen from 4.35% so again factoring in a 0.25% cut. The move is especially significant as it is suggesting that longer-term bond yields might follow official interest-rates this time around rather than ignoring them and often heading in the opposite direction. Such moves have this implication.
The average 30-year fixed mortgage rate today: 6.29% That’s 97 bps below the 52-week high (7.26%) Same day last year: 6.25% —————- 10-year Treasury yield today: 4.07% Spread today: 222 bps ( Lance Lambert)
What a difference a week can make…..
Stock Market
It is increasingly difficult to link the stock market to interest-rates however hard the headline writers might try. We keep seeing headlines like this.
S&P 500: record high
Nasdaq: record high
Dow Jones: record high ( @brewmarkets)
Yet the reality is that we saw similar headlines when the Federal Reserve was standing firm on future interest-rate cuts.
Money Supply
Here we see that the broad or M2 measure is at US $22.1 trillion and is up some 4.8% over the past year. That is really rather awkward for those keen on interest-rate cuts as for example for those keen on a type of nominal GDP targeting would want annual growth of 5%. In theory that would give 3% of real economic growth and 2% inflation so for then the porridge is in Goldilocks terms just right.
Personally I am not a fan of nominal GDP targeting but in this instance I find it hard to make a case for interest-rate cuts when you also allow for the QT balance sheet reductions. As of September 4th the impact on the money supply over the past year should have been US $391 billion so allowing for that suggests underlying money supply growth of over 6%.
Comment
As you can see the mood music is now in the direction of interest-rate cuts in the United States. In the turf war between President Trump and Fed Chair Jerome Powell we see that The Donald is winning as I note this from the July statement.
. The unemployment rate
remains low, and labor market conditions remain solid.
How is the latter part going? But if we look ahead via the money supply things get more awkward as it does not make a case for interest-rate cuts. Or to put it another way the Federal Reserve is only an inflation targeter when it is forced too.Otherwise maximum employment holds sway.
