The July Jobs Report Is Total Bunk, Here’s Why

Stocks fell this morning after the Bureau of Labor Statistics (BLS) revealed a way stronger than expected July jobs report. The Dow, S&P, and Nasdaq Composite all sunk on the “good news is bad news narrative.”

“This is hot. For the Fed, this is another 75 basis point hike,” said Diane Swonk, KPMG’s chief economist.

“The Fed is dealing with strong demand in a supply-constrained economy, and that demand extends to labor,”

According to the BLS, the US added a stunning 528,000 jobs last month, beating the 250,000 job estimate with ease while hitting a monthly payroll gain unseen since February (when 714,000 jobs were added). Last month’s jobs tally was revised to 398,000 (up from 372,000) as well.

“Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station because that’s not in the cards,” said B. Riley Financial’s Art Hogan.

“It is clearly a situation where the economy is not screeching or heading into a recession here and now.”

Unemployment slid from 3.6% to 3.5% as a result despite a puzzling reduction in the labor participation rate, which fell from 62.2% to 62.1%. Labor participation has been trending lower since March.

Wages also climbed 5.2% year-over-year, beating the +4.9% estimate. This perhaps scared bulls the most as the Fed is expected to view red-hot wages as a reason to raise rates aggressively.

And, below the headline jobs gain (as reported by the establishment survey), the household survey was somewhat underwhelming once more. Showing little gain in the number of US workers (just +179,000 in July), the discrepancy between the household and establishment surveys grew to 1.8 million, up from 1.5 million in June.

Keep in mind, too, that July’s major beat was driven by a heavy-handed seasonal adjustment – something the mainstream media seemed to miss today.

The BLS applied a seasonal adjustment of about 900,000 jobs last month. No, you read that correctly.

Unadjusted, the US economy actually lost roughly 385,000 jobs. July 2021’s unadjusted jobs number was just -41,000 jobs by comparison.

That’s probably why the household survey hasn’t tracked the headline jobs gains month after month; the BLS is going way overboard with seasonal adjustments to the upside.

Meanwhile, the number of multiple jobholders continues to climb opposite full and part-time workers. In fact, multiple jobholders whose primary and secondary jobs are both full-time positions just hit a record high in July.

And so, really, the situation isn’t at all different from June. More importantly, the jobs data coming in is persistently confounding.

That’s why investors should probably ignore it moving forward. In January, the BLS revised down March-July 2021’s jobs reports by a total of 1.061 million payrolls. Then, they revised August-December 2021’s tally higher by 817,000 jobs.

In other words, investors were virtually flying blind for the entirety of 2021. Seasonal adjustments were to blame.

Come January 2023, I bet we’ll see a similarly impressive downward revision for March-July of this year for the same reason. And, just like last January, the BLS will quietly slide the correction in under a major headline jobs beat, once again obscured by a stiff seasonal adjustment that makes US labor look far stronger than it really is.


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