Pro Perspectives 8/4/25

 

 

 

 

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August 04, 2025

In my last note, we talked about the setup going into the jobs report.
 
It looked very similar to the jobs report of a year ago (July 2024):  Inflation in the mid-2s, the job market showing "cracks," and a Fed stubbornly holding policy too tight.   
 
Like last July, we got a negative surprise this past Friday. 
 
Like last July, we got negative revisions.  
 
And like last July, we got a breakdown in stocks. 
 
And like last July, the short end of the interest rate market (2-year yields) repriced (lower) by 25 basis points, conveying the message to the Fed that, once again, it made a policy mistake
 
But we get a bounce back in stocks today, for the reasons we've been discussing over the past month.  
 
Those reasons:  The Trump administration has effectively diminished the voice of the Fed, by elevating a "shadow Fed" — a lineup of Trump-aligned Fed Chair candidates that have already openly signaled future monetary policy to markets (i.e. significant easing).
 
Let's talk about the revisions …
 
 
See the bold numbers in the table above:  Not only did the July payroll number undershoot expectations, the prior two months had huge downward revisions.
 
What's all the fuss about? 
 
The Bureau of Labor Statistics (BLS) has overshot job growth on its initial report seven consecutive months — nearly half a million jobs.
 
The result has been, fiscal and industrial policy with a foot on the gas pedal, and monetary policy with a foot on the brake pedal.
 
Is this just coincidence that the revisions have been in one direction, and that the initial reports have served as a headwind to the Trump administration?  Or is it political?
 
To answer that, let's revisit the analysis we've done on this topic. 
 
As we've discussed over the past four years, the Biden BLS had a record of making large revisions in the jobs data which led to very consequential misreads on the health of the economy by policymakers.
 
Here's a look at 2021 …
 
 

As we know, the inflation fire was burning in 2021, driven by the textbook inflationary ingredients of a massive boom in the money supply.  Yet the Fed continued its emergency monetary policies all along the way (zero rates + QE), dismissing the rise in prices as "transitory."  

 

And Congress used the Fed's assessment to rationalize even more fiscal spending (more fuel for the inflation fire).

 

How could the Fed justify its claim that inflation was "transitory?"  A relatively modest job market recovery.

 

But as you can see in the table above, it turns out that the BLS revised UP eleven of the twelve months of nonpayroll numbers in 2021. 

 

The initial monthly reports UNDER reported job creation by 1.9 million jobs for the full year. 

 

So, the economy was a lot hotter than the Fed thought. 

 

And as we know, the Fed was wrong on inflation, and well behind the curve in the inflation fight.  It was a mistake that did considerable harm.    

 

Now, let's look at 2023 …

 

 

Remember, the Fed continued raising rates through July of 2023.  And along the path of its tightening campaign, the Fed was explicitly trying to slow the job market

 

What did the BLS do along the way? 

 

They OVER reported job creation

 

As you can see in the table above, the BLS later revised DOWN ten of the twelve months of payroll numbers in 2023.

 

The job market was not as hot as the Fed thought from initial reports. 

 

As a result, they unnecessarily throttled economic growth. 

 

That brings us to last year. 

 

The Fed stubbornly held policy at historically high real rates for twelve consecutive months, even as inflation was sharply falling — back into the 2s. 

 

Along the way the Fed explicitly cited "cracks" in the job market as a condition to start the easing cycle.

 

Then in August, the BLS ended up making a massive one-off adjustment to the payroll numbers. 

 
The annual revision of 818,000 jobs was the largest negative one-off adjustment since 2009 (the depths of the financial crisis). 
 
This is what the adjustment looked like in a chart …
 
 
In short, the initial payroll numbers were overstated by an average of 100,000 jobs a month.
 
What does it all mean? 
 
From the unreliable jobs data, it means we got reckless fiscal spending in 2021, when the economy was already running hot/ inflation was already on fire. 
 
And then, later, we got all of the debt from the trillions of dollars of government spending, and a devalued dollar, but only a fraction of the economic growth — because the Fed had its foot on the brake, with an inaccurate picture of the health of the economy.
 
Bottom line:  The events of the past month have damaged the Fed's credibility, and the reliability of the data they claim to be 'dependent' on.
 
That said, regime change appears to be coming.  And the markets should be favorable to an outlook where monetary policy soon aligns with fiscal and industrial policy. 
 
For my AI-Innovation Portfolio members, please keep an eye out for a note from me tomorrow.  We will be making a new addition to the portfolio.  If you're not a member, you can join us here