Is the Jobs Report Losing Its Job?

When President Trump fires the nation’s top jobs statistician, markets and analysts scramble to make sense of the shocking move. Chief Market Strategist Steve Sosnick joins Andrew Wilkinson to unpack the politics, the data, and what it all means for rates, markets, and the truth behind the numbers.

Summary – IBKR Podcasts Ep. 280

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson

US stocks rebounded to start the week following the public firing of the government statistician who puts together the jobs data. This came after news of a weaker-than-anticipated labor market, with equity prices tumbling no sooner than they had reached yet another record high. To discuss the latest economic data and markets, I’m joined by Chief Market Strategist here at Interactive Brokers, Steve Sosnick. Welcome to the program, Steve. 

Steve Sosnick

Good morning, Andrew. Great to see you. 

Andrew Wilkinson 

Likewise, sir. Likewise. Steve, your take on the public firing of the BLS Statistics Chief by President Trump last week? 

Steve Sosnick

I happened to actually be doing a live TV broadcast when the numbers came out. I was on with an economist and a bond market strategist. We were on Yahoo Finance, and the number was stunning. I don’t know that you could really capture our reaction shot, but our jaws dropped — that revision was startling. 

And obviously, you have to question: when you essentially wipe out two months’ worth of job growth, what went wrong? As the dust settled, the explanations tended to be that there are household surveys, which track unemployment, and business surveys, which track non-farm payrolls. The response rate for these surveys has been getting worse and worse — apparently it used to be 85–90%, and now it’s down to about 60%. 

As a result, the data doesn’t always come in on time. Clearly, what happened was that people who had been hiring submitted their results on time, while people who had been firing held them back. The number was stunning, but there was an explanation for it. We absolutely should have gotten that explanation immediately — that would have been crucial. The problem is, I don’t like the idea of shooting the messenger. I see no reason to believe that the commissioner’s actions were at all nefarious. But as I listened to explanations — most recently, the president speaking on CNBC this morning — a lot of it seemed to be rooted in grievances about how the numbers came out around the prior election. 

That puts us on a very slippery slope. We need transparent data. The idea of sacking someone simply because you don’t like the data — even if it does raise eyebrows, drop jaws, and require a detailed explanation — sends us down a bad road. It’s going to make people question whether the data has been “cooked” to avoid political fallout.

Andrew Wilkinson

Correct me if I’m wrong, Steve, but the BLS also puts together the inflation report. 

Steve Sosnick 

Indeed they do. Again, the president was asserting, “We have no inflation.” I’m going to assume that’s hyperbole rather than a sincere belief, because the numbers clearly show zero is not the number. We can argue whether the current number is too high, too low, or adequate — by all means. But now, you have to wonder if those numbers will get politicized. 

It’s a slippery slope. Unfortunately, it’s the sort of thing that happens. I’m not going to go too far down that road, but it’s not a good look for the US. 

Andrew Wilkinson

Let’s get back to the jobs number though, Steve. For the past several months, the economist estimates have been lower than the actual outturn, so we’ve exceeded expectations by a lot. To me, they have dumbfounded the thought that the economy is hitting any kind of speed bump — or certainly anticipating the forthcoming tariffs, which are due to come in later this week. 

So are we just about where we should be if we had really hit the numbers economists were forecasting in February, March, April, May, and June? 

Steve Sosnick

Here’s the crazy part — I’ve always decried ADP as being a lousy indicator of the number that follows. Typically, ADP comes out on Wednesday and the government data comes out on Friday, and those numbers don’t usually match. 

But here’s the crazy part: I actually saw someone post — I forget where, or I’d point you to it — that the ADP report has basically shown a very flat level of labor over the past six months. When all is said and done, that’s actually what the BLS survey is showing us now. One might argue that the ADP number, on a longer-term basis, is actually more accurate than the BLS number. 

This is where I wish we had Jose to turn to today — I know he had a conflict — but it’s an interesting problem. The state of the labor economy… believe me, I’m sure Chairman Powell would have loved to have had these numbers on Wednesday, when he was basically saying — and I agreed with him — that we’re not in restrictive monetary policy. Monetary policy is not preventing us from doing anything that needs to get done in terms of credit, speculation, or otherwise. Less than 48 hours later, the data changed and showed that the labor economy is not nearly as healthy as everyone thought. Would he like to have that back? Would it have changed the Fed’s discussion? I’m going to guess probably. 

We still don’t really know the inflationary outcome from the tariffs — they’re still pretty much a work in progress. For the most part, they’re just getting implemented tomorrow, or the day after. 

Andrew Wilkinson 

And some might say, yeah, actually on the fly.

Steve Sosnick  

Yeah, and that also means — considering you’re talking about government systems — how long does it take for those systems to adapt and get the right numbers in them? It’s still very much a work in progress. 

There’s still uncertainty. People were hoping the uncertainty would be behind us. But if you still don’t know the outcome with China and Canada — two of our three biggest trading partners — it’s hard to say there’s a lot of clarity. 

This is all what’s been reflected in the markets recently. 

Andrew Wilkinson

So, notwithstanding that we still don’t know with any clear outcome, I think it’s safe to say — as you said — there’s a potential slippery slope ahead of us in terms of future data and who’s controlling the data. There’s a stronger likelihood, rather than a weaker one, of lower interest rates and sooner. Are you more surprised that the dollar hasn’t weakened in response to what happened on Friday, or that the longer yields haven’t risen?

Steve Sosnick  

The dollar actually, I think, got a bit oversold. I am surprised, still, that we’re not seeing a steeper yield curve. The action at the short end of the curve is what you would expect if you were drastically rejiggering your rate cut expectations.

Andrew Wilkinson  

True. 

Steve Sosnick 

Also, one of the more perplexing things to me was that the bond market was either stagnant or seeing rising yields at the same time the dollar was weakening. That’s a sign that people are selling bonds. 

What we saw on Friday was the dollar weakening as bond yields plummeted — that fits. The problem is, there are all these different moving parts. What was more perplexing yesterday was that bonds didn’t really change their point of view, currencies didn’t change their point of view, commodities didn’t really change their point of view — and stocks just decided Friday didn’t happen. That, to me, is the far more perplexing part of it. It just shows the willingness of traders to buy dips and chase rallies. The fact is, what the bond market and other asset markets decided on Friday pretty much held yesterday, and seems to be holding today. 

We’re not seeing big moves in bonds or the dollar. But going forward, I do have to wonder about the steepness of the yield curve, because I think we’re introducing some combination of higher deficits and/or higher inflation — both of which can be punishing to the long end of the curve. Particularly if you’re going to have a Fed that errs toward cutting rates rather than keeping them stable, that pushes down the short end of the curve while potentially raising the long end. That, to me, is the tell we really have to watch going forward. 

Andrew Wilkinson 

So, the path of least resistance for now would be up for stocks. What are the weaker parts of the stock market that currently give you pause for thought? Are you seeing any signs of weakness or red flags going up? 

Steve Sosnick 

The biggest red flag is that we really have a very bifurcated market. I’m not going to make a case here against the mega-cap tech stocks — it’s very hard to do, at least after seeing some of the numbers from Meta, Microsoft, and Alphabet, and from Palantir yesterday. These companies are delivering. 

The problem is concentration. We’ve been in a bifurcated market all along — say, growth versus value. I want to be watching consumer discretionary stocks, travel stocks — these kinds of things — because there’s a lot of anecdotal evidence piling up that consumers are cutting back. Consumers are two-thirds of the economy. So even if AI spending proves to be fruitful — because companies that are spending on AI are accelerating that spending, and clearly believe it’s money well spent — you ultimately need a decent economy. 

I think that’s something the stock market loses sight of. One rationale given for why the market rallied yesterday was the idea that rate cuts might be coming faster and deeper than priced in. But you have to ask why. If you’re getting rate cuts because inflation is benign and the economy is steady-state, then fine — you can cut 25 or 50 basis points here and there, and that’s a good cut. But if you have to cut because the economy is weakening, the Fed is often behind the curve on that. That’s a “careful what you wish for” situation. 

Again, that’s why I look at the disjointed nature of stock and bond returns yesterday and think about it in a different state of mind. 

Andrew Wilkinson

Steve Sosnick, thank you very much for joining me today.

Steve Sosnick  

Thanks, Andrew. Take care. Bye-bye. 

Andrew Wilkinson 

And to the audience — if you enjoyed today’s podcast, don’t forget to subscribe wherever you get your podcasts. Bye for now.