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  • Writer's pictureDavid Greenfield

Lies, Damned Lies, and Nonfarm Payrolls

Updated: Feb 11, 2023


The January Number

If you think the economy had a surprise to the upside when the January Nonfarm payrolls number came out, you’re not alone. Nearly everyone was projecting the economy would add between 150,000 and 300,000 jobs. Then the number came out and showed Nonfarm payrolls increased by 517,000 jobs. Everyone went wild, the bond market started selling off and all the pundits started talking about how strong the labor market is. The truth is, the economy didn’t really add these jobs ... or did it?


How We Got Here

A quick recap of how we got here. Basically, the economy was running hot. Employment was high, unemployment was at record lows, wages were up, average hourly earnings were up, the consumer’s balance sheet was improving, and the economy was hot. This presented a problem for the Fed. Inflation was getting out of control. Things were getting too expensive, and the Fed had enough (let’s just forget completely about supply-side economics here, which apparently the Fed did. For more on this see The Federal Reserve Wants You Fired). The Fed decided it was going to step in and make sure consumers no longer had the money they needed to continue to inflate prices. They wanted more people unemployed and basically some people needed to get fired; heads had to roll. So, it did what the Fed does, and raised rates the fastest and most aggressive in history to shock the economy and tame inflation.


The Fed and the Bond Market

When the Fed raises rates, U.S. Treasury rates will increase. The bond market and the Fed don’t always play nice but the bond market will react to what it thinks the Fed is going to do. You can see this reaction by observing movements in treasury rates when the data that the Fed monitors is released.

Currently, we are in the situation where good labor news is considered bad news for bonds. By that I mean, the Fed want’s more people unemployed. If we have positive labor news (meaning the labor market is strong) then the treasury market will sell off. That means treasury prices will go down and yields will go up. This is because the bond market will expect the Fed to continue to increase rates until the labor market cools, i.e. fewer people working, and more people fired. Back to the current situation, and Nonfarm payrolls. When the January Nonfarm payrolls came out showing the U.S. added 517,000 jobs, this appeared to indicate an aggressively strong labor market. Since the current situation is one where good news is bad news, this strong labor print resulted in the treasury market selling off massively. The treasury market’s assumption is that the Fed would be very upset by these added jobs leading them to increase interest rates even higher. This increase in rates will result in further losses for current bond holders. No one wants to buy a bond yielding 3.5% when the same bond will yield 4% after the Fed makes an announcement that they will raise rates. Just hold on a few days to get 0.5% more and to not take an immediate loss on your investment.


It Depends on Your Definition of Addition

Now the $517,000 question … did the U.S. really add these jobs. Well, it depends on how you look at it. If your significant other told you they went to the mall with your debit card and bought a bunch of items that were on sale, so they made you money, and you actually believe this, then yes, the economy added 517,000 jobs. However, if you started with $100 in your bank account and after the visit to the mall, your partner bought $100 worth of items, but they were on sale for 20% off so you still have $20, this isn’t really much of an addition to your bank account. I mean, you started with $100 and now you have $20. Most people would say your net is an $80 loss. To say you “added” $20 to your account is pretty fuzzy math. But hey, lies, damned lies and well, you know how it goes. So here it is. The actual data. The U.S. added 517,000 jobs only when looked at on a seasonally adjusted basis. In raw numbers, the U.S. LOST 2,505,000 jobs. Since we were expecting to lose 3,022,000 the theory is we added 517,000 by not losing as many jobs as we thought we would lose. So there it is, there’s your added jobs; see the similarity between this and the shopping example? It should be noted that in January the U.S. economy typically will have a dip in adding jobs and that’s why the reported number is “seasonally adjusted.”


Source: Link: https://fred.stlouisfed.org

Source: Link: https://fred.stlouisfed.org





I’m not really going to say if seasonally adjusted or non-seasonally adjusted is the correct way to look at it, the answer is it really depends. I just want to make the reader aware of how this “job increase” was calculated and that, if you don’t seasonally adjust the number, we actually lost more than 2,000,000 jobs.

Thank you for reading FI Knowledge! I hope you found this informative and please let me know if there is anything else you would like to see as it relates to fixed income!


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