Let’s talk about what happened on Friday. Because that was wild.
According to the Bureau of Labor Statistics (“BLS”), the U.S. economy added just 73,000 jobs in July. That’s a big difference from the 104,000 economists expected. Almost all of those jobs were in health care and social assistance, not ideal for an administration aiming to jumpstart American production and manufacturing.
But that’s not what freaked everybody out…
May’s figures were revised from 144,000 down to 19,000. And June’s went from 147,000 to an even more dismal 14,000.
It’s like the economy is crashing and burning. If you believe the reports, anyway.
President Donald Trump, for one, made it clear he doesn’t. He took to Truth Social immediately after the announcement with this heated announcement:
I was just informed that our Country’s “Jobs Numbers” are being produced by a Biden Appointee, Dr. Erika McEntarfer, the Commissioner of Labor Statistics, who faked the Jobs Numbers before the Election to try and boost Kamala’s chances of Victory. This is the same [BLS] that overstated the Jobs Growth in March 2024 by approximately 818,000 and, then again, right before the 2024 Presidential Election, in August and September, by 112,000. These were Records – No one can be that wrong?
… I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified. Important numbers like this must be fair and accurate. They can’t be manipulated for political purposes.
Trump then went on to claim that:
The Economy is BOOMING under “TRUMP” despite a [Federal Reserve] that also plays games, this time with Interest Rates, where they lowered them twice, and substantially, just before the Presidential Election, I assume in the hopes of getting “Kamala” elected… Jerome “Too Late” Powell should also be put “out to pasture.”
That’s a lot to get through, I know.
Today, we’ll ask two questions. Is the recent jobs data correct? And, perhaps more important, what does it mean for the Fed?
Making Sense of These Jobs Numbers
Are July’s jobs and the revised May and June numbers correct?
Everyone seems to have an opinion on it. The president has made his clear.
But you also have people like Senator Elizabeth Warren (D-MA). Upon hearing the news, she wrote, “Instead of helping people get good jobs, Donald Trump just fired the statistician who reported bad jobs data that the wanna-be king doesn’t like.”
Senator Amy Klobuchar (D-MI), meanwhile, said Trump was killing “the messenger.” And William Beach, McEntarfer’s predecessor and a Trump 1.0 appointee, called the firing “totally groundless.” It “sets a dangerous precedent and undermines the statistical mission of the Bureau.”
That’s all predictable. Politics usually is.
However, one of the most measured responses I’ve so far seen on the subject came from White House Council of Economic Advisers Chair Stephan Miran. As a featured guest on CNN News Central last Friday, he put it this way:
Look, this jobs report isn’t ideal. There’s no way around that. But, nevertheless, I think that the downward revisions reflect a couple of anomalous factors. First of all, about 60% of the downward revision is due to quirks of the seasonal adjustment process. Then, on top of that, there’s the fact that the president created – in the household survey, since the president took office – he created about 2.5 million jobs for Americans. Whereas… we’ve eliminated about a million jobs for foreign-born workers.
That’s a result of our strong immigration policy, of our strong border policy: keeping America safe. And eventually, the outflow of foreign workers in this data [was] bound to show up in the establishment survey, as they finally did this morning, too.
But as for the future, he’s confident that “the tariff uncertainty is fading away.” And with the Big Beautiful Bill now in play with its “strong, powerful incentives… it’s all going to get much, much better from here.”
On those points, I agree. I more or less made the same argument on Fox Business last week. There’s clarity on taxes and industrial policy. Trade is coming more and more in focus with each passing week. A lot of the overhangs for markets are getting resolved.
And whether Trump likes this jobs report or not – whether he believes it or not – he might be grateful for it in a few months. That’s because the president is going to get what he’s been wanting since the start of his administration – the Fed will have to cut now.
The Fed Will Cut
Fed Chair Jerome Powell is in an uncomfortable spot.
For the whole entire year, Powell has very calmly, very consistently steered the Fed to keep interest rates steady. President Trump has ranted and railed against him, demanding that he lower interest rates to better stimulate the economy…
But to no avail. Powell & Co. has maintained the Fed Funds rate at 4.25% to 4.5%.
One of the given reasons behind this continued decision has been the strong jobs market. Powell even said on July 30 that “the labor market is kind of still in balance.”
That’s why he has been fully focused instead on potential inflationary effects from Trump’s tariffs, telling reporters on Wednesday:
You have to think of this as still quite early days. And so, I think what we’re seeing now is substantial amounts of tariff revenue being collected. We know from surveys that companies feel that they have every intention of putting this through to the consumer. But truth is, they may not be able to in many cases. We’re just going to have to watch and learn empirically.
But then, not even 48 hours later, the jobs numbers came out. I have almost no doubt that – had the numbers come out ahead of the Fed’s meeting – the central bank would have cut rates instead of holding them steady as they did.
Powell will often talk about the Fed’s “dual mandate” – price stability (controlling inflation) and maximum employment. Since late 2021, the Fed has been focused almost exclusively on the former. Now, Powell’s going to be forced to look at the latter.
That’s why, as of this morning, the market is pricing in an 85% chance of a quarter-point cut in September, as measured by the CME FedWatch Tool.
Source: CME
Back in 2021, the Fed failed to realize inflation was a big and growing problem. As a result, it hiked rates in a hurry to play “catch up.”
If the Fed failed to notice the intense economic distress for three full months, then there’s a good chance the same thing will happen… but in reverse.
Anything can happen between now and mid-September, when the Fed meets next. But I think it’s safe to say Powell will buy the “weak economy” story hook, line, and sinker. Two of his governors already did, after all, even before Friday’s data was released.
In which case, it’s not a matter of whether the Fed will cut its key rate.
It’s only a question of how much lower it will go.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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