Something Doesn’t Add Up in Friday’s Jobs Report

Friday’s jobs report delivered exactly what markets feared: another apparently strong labor-market reading that could give the Fed more room to raise rates.

But the headline numbers don’t tell the whole story.

Once you dig into the seasonal adjustments and an unusually large jump in the civilian labor force, the picture starts to look very different — and potentially much weaker than the top-line data suggests…

Click below for the full story:

Video Transcript

I’m Andrew Zatlin. Welcome to Moneyball Economics and welcome to Payroll Friday!

The past few weeks, we have seen the stock and bond markets both heading down. They’re afraid that at the next Fed meeting a couple of weeks from now in mid-September, we’re going to see a rate hike. And they have been focused on the labor market data coming out today because if this data comes out strong, that’s kind of the deciding factor. It’s a green light for the Fed to raise rates.

Well, guess what? The data came out strong.

You would expect the markets to be panicking today, heading down hard. In fact, not so much. And that’s what I want to talk about. Partly how the markets are responding because it’s pretty much priced in. They have already changed their positions. Expectations were for a rate hike, and this just confirms that they did the right thing. Nothing more needs to be done.

But another reason why the markets are kind of shrugging this off a little bit is because they’re scratching their heads. At the headline level, the data looks good, but when you open it up and you pull back the curtain, something screwy is going on. It’s kind of a clown show.

It’s almost like what Robert Downey Jr. says to Ben Stiller in the movie Tropic Thunder. “You never go full retard.” Well, folks, guess what? The Bureau of Labor Services went full retard. The fixes in, they forced the numbers. And the question is how? And the other question is why? Well, let’s take a look at the numbers.

Okay, first of all, July was revised up pretty substantially too, but still soggy. Previously, minus 30K was the preliminary number, came out to about 22K. 22K, basically no jobs added, so not a good sign.

But this month, 167,000 jobs were added. That’s a great number. Add them together. All right, so we’re averaging about 100,000 jobs. That’s pretty good. That’s kind of a Goldilocks, not too hot, not too cold.

The challenge is how we got there.

So the reason July was so super low is because the local schools, the K-12 schools laid off 60,000 people in July. That’s kind of weird. Yeah, it’s weird. But in August, they hired them back. So we have the K-12 forcing down July and forcing up August. Let’s ignore it. Let’s strip it out. What do we have if we just talk about the private sector?

Well, the news is a little bit more steady and just as good. Private sector in July up over 70,000 jobs. I had forecasted 100,000, so pretty much in line with what I expected. And for August, 127,000. It’s a big drop from that 167 headline number.

Private sector, 127, good. And again, you average these two, the 70, the 127, bing, bang, boom. Private sector moving forward, 100,000 jobs per month the last two months. Good. Not awesome. In 2023 and 2024, each month was adding 170, sometimes 200,000 jobs, 100,000 respectable considering all we’ve been through over the past year or so.

But this is the number that comes out after you take the raw data and massage it with what’s called a seasonal adjustment. If we look at the raw data, the story is completely different. If you take a look at what happened in August at the raw data level, the number’s pretty much the same as what we saw last year, August and 2024 August, literally the same raw number for the private sector. But when you look at it on a seasonally adjusted basis, it’s a hundred thousand higher, 150,000 higher.

It’s a massively different signal. See, what’s happened here folks is the seasonal adjustment was artificially boosted, and I mean significantly boosted. As this chart shows you, 300,000 was a seasonal adjustment. Last year was about 150,000. Year before about 150,000. In the years prior, the biggest would be about 200,000.

So in reality, the numbers that came out today are artificially boosted. Didn’t happen. Well, let’s talk about unemployment rate because you’re going to see the same level of tinkering with the model. Unemployment rate last month, July, 4.1%. This month, 4.1%. Although to be precise, it was 4.14% and I had predicted 4.15%. So for whatever it’s worth, yeah, I’m an anal geek numbers guy.

However, that 4.1%, well, it’s the result of two numbers. One is the number of unemployed and the second one is the civilian labor force. So how much of that civilian labor force is unemployed is what’s popularly known as the unemployment rate.

You got numerator, you got your denominator. Well, the numerator went up. About 100,000 more people raised their hand and said, “I ain’t got a job in August.” Okay. If it goes up, then the unemployment rate should go up. That’s actually a lot of people who said they’re not employed. Remember the numbers hovering around seven million. So 100,000, that’s not noise.

But guess what changed the most and outshone that increase in the numerator? The denominator.

The civilian labor force jumped 700, almost 800,000 people. What it says is, “Hey, more people are out there who could be working.” And so you get this growth in the number of unemployed. That’s small relative to the base. Guess what? The unemployment rate didn’t change. But let’s talk about this one month jump in the number of people working, the 700, 800,000 people. For context, how do I put this?

It never has happened before. Let me add one little caveat to that. Every January they come out and they revise the January numbers. And so you’ll see every year in January a jump up. Could be a million, could be 800,000. You always see it in January. So an 800,000 move has happened, but only in January when they revise the data. We never see this kind of jump in one month.

We might see a few hundred thousand, 500,000 in peak times. 800,000 never happens.

So step back. The reason unemployment didn’t go up is because this incredibly bizarre and unusual event happened that happened to boost the denominator and keep interest rates low. Sending out the message of labor strength staying strong. Had it gone up a little bit to 4.2%, that would’ve suggested that the labor market is softening and slowed down the rush to a rate hike.

Same thing with payrolls.

If we didn’t have this artificially boosted via a massaged, played with seasonal adjustment, payrolls would also be soft. Without this aggressive, and I call it aggressive tinkering with the model, the labor market would flash that we are actually pretty soft. The fix is in. There is a definite desire to give the Fed an excuse to raise interest rates. Let’s see what they do. This is not a good thing for Trump.

Midterm election’s coming up. We’re about to see rates go up and that trickles through the economy pretty fast as a way of putting a break on things at a time when he wants to declare that the economy’s doing great, stock markets are doing great, everything is great.

It also sets up October for bad news. You can’t massage the data this aggressively in a positive way without there being the consequence of it coming in negative in the next month. There’s going to be a lot of volatility, folks.

It’s going to be swinging one direction and then the other, and I’m encouraging you to take the right positions to play this volatility. I noticed that the VIX has been swinging around a lot, for example.

Whatever the case, I’m here to help guide you through these waters because we’re in it to win it.

Zatlin out.