It’s a big week on the macro front in the US, where traders will return from the long holiday weekend to face a crowded data docket.
The headliner’s obviously Friday’s jobs report, the first of the post-Erika McEntarfer era at the BLS.
It’s not a stretch, nor is it a partisan statement, to suggest investors’ faith in the numbers was undermined by Donald Trump’s decision to oust McEntarfer when large downward revisions to headline hiring tallies for May and June reflected poorly on the US economy.
It’s hard to know what market participants are supposed to believe about the numbers going forward. Trump plainly isn’t going to countenance bad news on the jobs front, which means goods news will be eyed as suspect.
That’s not to say the BLS is just going to start making up the numbers but… well, again, what’s anyone supposed to think? As The Wall Street Journal, not exactly a bastion of the liberal “opposition,” put it, “Mr. Trump’s data denial is one more reason fewer Americans will trust the government.”
For what it’s worth, consensus expects 75,000 from the headline NFP print for August. That’d be in line with July’s pace as initially reported, and assuming that headline (July’s) isn’t revised up by at least 27,000, a consensus read for August would mark four months in a row below a 100,000 monthly hiring pace.
Not that anyone needs a reminder, but the size of the downward revisions to headlines from May and June were anomalous. Anything that’s both anomalous and unfavorable to Trump is, in his estimation, evidence of a conspiracy. So, the second revision to June’s headline and the first revision to July’s better not be downward. Or if they are, not by enough to irritate Trump.
The same’s true of the initial read on establishment survey hiring for August. At worst, these numbers can be underwhelming. Anything beyond that to the downside is a non-starter. Trump would lose his mind, and in the event of another extremely poor report, someone might lose their job. (Don’t scoff: That’s exactly what happened last month.) Consensus also expects the jobless rate to move up to 4.3%, the highest since October of 2021.
The Fed’s going to cut in September regardless, but a poor jobs report would help make the case for a repeat of last September’s upsized, 50bps move. That’s the paradox for Trump: To get the big rate cuts he wants, he needs to “let” the BLS say the labor market’s deteriorating. At least until he can gain control of monetary policy such that full employment’s not an impediment to aggressive rate cuts.
As discussed here late last week, the total eclipse moment for Fed politicization is 2026. That’s reflected in market pricing for Fed cuts which, while not really budging for 2025, is now nearly three quarter-point cuts to the dovish side versus the 2026 median dot from the June SEP.
“The lingering question regarding the pace at which the Fed will resume normalization will leave the focus on the 2025 year-end dot when the SEP is updated in a few weeks [but] given the sharp divergence between the market’s expectations and the Fed’s, we’ll be interested to see the extent to which policymakers are (or aren’t) willing to mark-to-market their projections for the 2026 dot,” BMO’s Ian Lyngen and Vail Hartman remarked.
Also on the schedule this week in the US: ISM manufacturing (seen in contraction territory for a 31st month in 34), ISM services (seen at 52), JOLTS and ADP private hiring (seen at 83,000). Note that the ADP print will take on a new sense of urgency in the event traders start to question the reliability of the BLS figures.
Perhaps the President’s friend can loan us some of his statisticians to help clean up the BLS and Fed?
Let’s not forget that Trump’s rumored purchase of $100 mil in treasuries has nothing to do with interest rates. Bet he and his colleagues have big chunks of Intel as well.
If one’s only interest is the next 3-6 mo equity returns, which describes most investors, then economic data feels less important now, accuracy aside. If the zombified Fed is going to march FF down 300 bp over the next two years, regardless of how that economic data comes in, then who cares if people can’t find work or afford food or buy houses or get medical care or etc etc. “Don’t Fight The Zombie [Fed]” probably won’t work for the whole two years, but it may well work for the next 3-6 months.
As with all things Republican the ADP has now become the more reliable data on jobs. Not because the government is inherently bad at the things that it does (although it can be). But because Republicans consistently undermine the institutions they are supposed to support and then point fingers at them. Soon we’ll be abolishing the BLS entirely and paying corporations 10X to produce the data because that satisfies the “government is bad” narrative.