Lies, Damned Lies, and the Bureau of Labor Statistics

Mark Twain famously wrote, “There are three kinds of lies: lies, damned lies, and statistics.”

Twain attributed the quote to British Prime Minister Benjamin Disraeli, but Disraeli never used it. Other British luminaries apparently did use it, but it was Twain who made it famous.

If it were up to me I’d phrase it, “There are three kinds of lies: lies, damned lies, and BLS statistics.” The BLS is that agency of the US Labor Department that brings us the monthly reports on the CPI and jobs, including non-farm payrolls and the unemployment rate.

In compiling those reports, the Bureau surveys tiny samples of business establishments and households. It then applies all kinds of statistical manipulation to project numbers that purport to show a snapshot of the entire US economy.

I have been actively tracking this data for 19 years. I must tell you that I have not been impressed with the quality of the BLS headline numbers that the Wall Street media dutifully spins to the public. With Twain in mind, forgive me if I refer to the BLS as the Bureau of Liar Statistics.

The BLS’s biggest and longest ongoing manipulation of the truth is probably the fact that they stopped including actual US housing prices in the CPI in 1982. That’s an issue I have brought to your attention several times in these pages. Since the beginning of the recovery in housing inflation in 2012 it has resulted in the CPI being understated by about 1% point on average.

While the CPI has this built in long running fudge factor, the jobs data is manipulated in so many ways my head spins at the thought of trying to figure it all out. The just released January payrolls data may have been one of the biggest whoppers a US government economic statistical agency has ever told.

And that matters. It matters because it influences monetary policymaking. So let’s take a look at what they misrepresented…

BLS Headlines are Usually Bogus, But This Was a Whopper

The BLS reported, and the Wall Street captured media dutifully parroted, the idea that nonfarm payrolls had grown by 304,000 in January. That number was huge. It not only beat economist’s expectations. It crushed them. The consensus guesstimate was for a gain of 160,000. Wow.

Before we get to the crux of this issue, consider that the December number was revised down by 90,000. That was an adjustment of a mere 29% from the original published number. 29%! And yet everyone acted as if the December number was real. Now the BLS tells us that the December number wasn’t the blockbuster 312,000 that it first reported, but a more mundane 222,000.

And we’re supposed to believe that January had a gain of 304,000, when 800,000 federal workers were furloughed without pay?

And that’s not the half of it. Every February the BLS benchmarks the last 5 years of their seasonally adjusted artistic impressions of reality to hard data. That’s right, the last 60 months’ data points on your FRED charts of nonfarm payrolls get jiggled. It’s historical curve fitting.

Eventually the line represents historical accuracy because once a year for 5 years that line gets fitted to updated hard data.

It’s the current number that’s the problem. It may bear no semblance of reality. The statistical method that the BLS uses to derive this seasonally adjusted Bob Ross work of art is essentially a 10 year moving average were only the last 5 years are known. The rest of the inputs are estimated. Then each year they get adjusted to reality. This Friday’s release will be finalized 5 years from now.

The BLS tells us that, “The benchmark process results in revisions to not seasonally adjusted data from April 2017 forward. Seasonally adjusted data from January 2014 forward are subject to revision. In addition, data for some series prior to 2014, both seasonally adjusted and unadjusted, incorporate other revisions.

Funny thing there. I got curious. So I checked the historical data published Friday against my private database that had the historical data from before this month. I found revisions as far back as the year 2000. At that point, I just shook my head and stopped the exercise. True, the changes weren’t material, but the point is that the BLS doesn’t know in real time what the current number is. It just makes it up. Then it hones and hones and hones the number until it’s not to hot, not to cold, but just right.

Yet investors hang on the current headline release as if it’s the most important data they’ll ever see.

It’s not even real! The Wall Street Journal and CNBC will never tell you that!

Here’s the Chart That Shows Reality

Here’s reality. It’s my chart of Federal Withholding Taxes. This is real time data. The US Treasury publishes it every day with a one day lag.

KABOOM! The bridge collapsed in January.

That’s what happens when 800,000 Federal workers go without a paycheck for 35 days.

BLS Admitted Its Number Was Slightly Bogus

But the BLS counted them as employed!

In the establishment survey, businesses and government agencies report the number of people on payrolls during the pay period that includes the 12th of the month. Individuals who work or receive pay for any part of the pay period are defined as employed. Federal employees on furlough during the partial federal government shutdown were considered employed in the establishment survey because they worked or received pay (or will receive pay) for the pay period that included the 12th of the month.

Talk about putting lipstick on a pig! I highlighted a few words there to make this point. Those furloughed Federal workers did NOT get paid on that day. But it’s ok. The BLS counted them as employed because they’re the BLS, and they can do whatever suits the Regime’s purpose.

Taking my tongue out of my cheek for a moment, sure, there’s a rationale for it. Because we knew those people would be coming back to work and would get paid at some point. So maybe you can argue that it’s ok to pretend that they were employed.

But to suggest that the BLS knows that January was the best January since 2012, and the fourth best month overall in the past 7 years, when the GSD certainly had ripple effects through other parts of the labor force? I mean, come on. That is simply fantasy.

They get away with publishing this nonsense because it’s what their client wants, and because Wall Street just eats it up. Sadly, most investors believe it, particularly professional investors playing with other people’s money. Your money, perhaps. They use this propaganda to keep you hooked, to keep your money under their control, where they can constantly skim it.

The Piper Must be Paid

Now don’t get me wrong. I’m not saying that the underlying employment trend is weak. It’s not. It’s perking along.

So the Fed cannot use the economy as an excuse to ease monetary policy. Solid increases in both individual non-withheld taxes and excise taxes collected in January showed that the economy is bubbling along, heated by the furnaces of the of the Twin Trump Towers, the massive tax cut and massive increase in federal spending.

But those furnaces leave behind a massive and growing Federal deficit. The debt load is the wretched refuse of your teeming profligacy. Trump’s entire empire consists of debt. So you know he loves debt. And we certainly have reason to suspect to whom he owes it, don’t we?

Meanwhile, economic growth resulting from the tax cut and spending increase has not been not enough to boost total tax revenues.

So now that those government workers are back at their desks receiving their back pay, the government must pay for it. This week the Treasury went into the market with an unexpected $50 billion Cash Management Bill (CMB) issue. The auction came today at the tidy interest rate of 2.395%. The settlement is next Monday, February 11. That’s the day that the dealers and investment firms that bought these CMBs must pay for them.

The money has to come from somewhere, because the Fed ain’t printin’ it like it used to!

And that’s just the first installment and the mind bending deficits that lie ahead. The TBAC released its revised financing forecast for the rest of the first quarter, and its first forecast for the second, and the amounts are gargantuan.

The Sine Qua Non for the Fed to Ease is a Major Market Accident

Even though my technical projections suggest that the market may still have some upside, I don’t believe that the stock market rally can survive this onslaught. And the economy won’t give the Fed an excuse to restart QE. So it will have to wait for the market to do it.

Under the circumstances, being heavily invested in stocks while waiting for the Fed to ease monetary conditions just because it says it can, is not a strategy that makes sense. The sine qua non for a Fed easing is a major market accident.

In the meantime, I’m all for setting aside a limited amount of risk capital to use for trading puts and calls. The leverage they afford can offer fantastic profits in a few weeks, or even days. The long term is irrelevant when trading options. Just be sure to limit the size of your bets to what you can afford to lose because options can and do sometimes go to zero.Lee Adler

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