Lies, Damn Lies, Payroll Data
Robert Barone

Contributor

Great Speculations

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The big spike in the Payroll data (+517K) was out of kilter with what has been occurring in the rest of the economy and in other labor market data. Financial markets always shoot first and ask questions later, so, on Friday, equity markets fell and bond yields rose on the fear that the Fed would now have a great excuse to raise interest rates even further than what was already priced in. The far-right hand sides of the above charts show the violent up spikes in the yields of the 10-Yr. and 2-Yr. T-Notes on Friday (February 3).

As reported by various reliable sources with deep research capabilities, most or all of the +517K job gains wasn’t due to new job creation, but to benchmark revisions, seasonal adjustments, and population controls, all keywords for what we can only describe as statistical magic. Morgan StanleyMS +0.2% concluded that without the population adjustments, the Household Survey (which was up an even larger +894K), only rose +84K, while Rosenberg Research concluded the real Payroll number was only +44K.

Last Wednesday (February 1), ADP’s private payroll number was +106K. Over time, there is a 98% correlation between the ADP and Payroll employment reports. So, this divergence is quite unusual and it appears that one of these reports is misleading. ADP’s numbers have been below BLS’s for 7 months in a row (by -642K over that time period) and by more than -1.2 million over the past year. Given the state of the economy, with little to sluggish growth throughout 2022, it would appear that ADP’s numbers are more accurate. One advantage of the ADP report is that it sorts its data by firm size giving us better insights. For example, small business, which feels changes in the economy much more quickly than large businesses, shed -75,000 jobs in January. And, over the last four months, -260,000.

Here are some examples of the inconsistencies between the Payroll data and other well recognized economic observations:

• Payroll Report: Retail +30K —- retail sales have fallen in November, December and likely January – why would they be adding jobs?
• Payroll Report: Construction added +25K —- Housing starts, building permits, and construction expenditures are down double digits. New jobs in that industry just doesn’t make sense.
• Payroll Report: Transportation/Warehousing +23K —- AmazonAMZN -8.4% laying off -18K and Fed Ex laying off management staff. Again, the Payroll Report is at odds with reality.
• Payroll Report: Manufacturing +19K. Every Regional Fed survey showed weakening manufacturing. And the Industrial Production Index itself has been negative for three months in a row.

The State of the Union Address is Tuesday (February 7). It is 100% certain that the President will refer to the Payroll data as a sign of strength in the economy. Lies, Damn Lies…