Friday's jobs report came with downward revisions, yet again.
As we discussed late last month, over the past three years the Biden Bureau of Labor Statistics (BLS) has consistently reported jobs data in a way that has led to very consequential misreads on the health of the economy by policymakers.
In 2021, the initial monthly reports from the BLS UNDER reported job creation by 1.9 million jobs for the full year. The BLS ultimately revised UP eleven of the twelve months.
The economy was a lot hotter than the Fed thought. Inflation ran wild, and the Fed was behind the curve.
In 2023, the initial monthly reports from the BLS OVER reported job creation by what was initially thought to be 360k jobs. Not only did they end up revising DOWN ten of the twelve months of payroll numbers, but they also followed with a huge one-off downward adjustment to the job picture for much of that period (818k fewer jobs than initially reported for twelve months through March 2024).
That brings us to Friday. August job creation came in 20k fewer than expected, and came with news of 86k fewer jobs (as revised down) from the previous two month reports.
So, the unreliable BLS reporting on jobs first led the Fed to hold policy too easy for too long, fueling historic inflation. Now, the risk is growing that the unreliable BLS reporting (in the opposite direction) may have led the Fed to hold policy too tight, for too long.
On that note, remember the Fed Chair himself has told us numerous times over the past year, that if they wait for inflation to get to two percent before they start cutting, "it would be too late."
Too late means overshooting to the downside. And overshooting to the downside means putting deflation risk back on the table.
With that, we get CPI on Wednesday. It's expected to come in at 2.6% (the headline number).
What if we get a downside surprise on inflation?
Clearly that would have been celebrated a few months ago. But now, given the deterioration in the jobs picture, a downside surprise in the inflation data would further signal that the Fed is behind the curve — they've miscalculated.
What are some clues on Wednesday's report?
If we look to China and the input prices on many of the products we buy, the recent producer prices report shows input prices have fallen now for nine of the past ten months, and year-over-year prices have been in deflationary territory for 23 consecutive months.
As for direct inputs into U.S. CPI, the biggest contributor to the sharp fall in U.S. inflation from 9% to under 3% has been energy prices. So, if we look at the price records from the EIA for August (Energy Information Administration), oil was down 6%, retail gas prices were down 12%, and natural gas was down 23% (all for the same period a year ago).
