Is the Fed Really "Too Late?"

Welcome to the Skeptical Investor weekly ariticle, on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

This week, we’re talkin’ crazy revisions/corrections in the jobs numbers…what the hell is going on? Is Jerome Powell now really “too late” to cut rates as the President has been saying?

Let’s get into it.

Today’s Interest Rate: 6.57%

(👇.24% from this time last week, 30-yr mortgage)

The Weekly 3 in News:

1-No, Wall Street investors are not buying up a bunch of homes. A year ago, a stat circulated that Wall Street investors had bought “44% of all homes in America.” This kind of sensational story can easily lead to misconceptions about housing economics. Historically, institutional buyers were less than 5% of the market, and this year we’re about half that (HousingWire).

1. And…

2. 2- More Home Supply = Slower Rent Growth. Nearly every City that saw housing supply growth under 4% is seeing continued rent increases while cities that saw supply growth exceed 4% (Sunbelt) is seeing rents decrease (Parsons).

3. 3- From Australia: The number of government urban planners has grown 9x in 40 years, but that is not resulting in more houses being approved. It is a similar trend in the US. The number of approved home permits per planner used to be 50 /yr. Now it’s 9. In fact, the more planners there are, the fewer houses are being built. Now, this is in Australia, I wonder what the stats are for US cities and their building and codes divisions? (ABC.AU News).

The Job Numbers Were Wrong. Really Wrong. Again. What the Hell is Going On?

Last week, I generated this image. It depicts a public reeling from restrictive interest rate cuts, literally putting up the Bat Signal for help. And Federal Reserve Chair Jerome Powell, a “Batman” just staring, unwilling to act.

And after the Bureau of Labor Statistics (BLS) revised months of jobs data this past Friday, hundreds of thousands of job gains we thought we had vanished. At the same time, the Fed decided not to cut rates in July. The tone and tenor of the economy just shifted, with the labor market signaling a potentially faltering economy. Will the Fed act? Or will Jerome Powell be too late to the rescue?

I’ll explain.

BLS Dropped a Bomb on Jobs Data This Week

This week, the Bureau of Labor Statistics (BLS) released its jobs numbers showing payrolls rose by only +73,000, well below expectations of ~150,000-175,000 (they also reported the unemployment rate, which held at 4.2%).

Problematic, but that was not the big issue. One month, a trend does not make.

The shocking revelation was that the BLS also dramatically revised down the job gains we thought we had for two prior months, by -258,000! (down -125,000, from +144,000 to +19,000 in May, and the change for June was revised down -133,000, from +147,000 to +14,000). This erased most of the previously reported job gains, signaling a sharp market slowdown instead of strong job growth.

And now, all of a sudden, we have a 3+ month negative trend. Not good.

Why So Dramatic? The revisions stemmed from additional business responses revealing weaker hiring, plus ‘recalculated seasonal factors."‘ Economic uncertainty (e.g., potential recession signals, high interest rates) likely amplified errors in the initial sample and birth-death model, which may have overestimated job creation during a cooling period.

So What Gives?

First, a quick primer on the BLS. The BLS produces monthly estimates of nonfarm payroll employment, hours worked, and earnings through the Current Employment Statistics (CES) program, aka the "establishment survey" or "payroll survey." Fun fact, they often snail mail this survey out and back to them…. WTF?

This data is a key indicator of labor market health and is released on the first Friday of each month (e.g., the August 1, 2025, release covered July 2025 data). This data is extreamly important in the real world, businesses and the government agencies alike rely on this data to take action in the economy.

The Jobs Numbers We Thought We Had

So, the labor market has apparently been worse for months, and the data they were publishing was just plain wrong. It get’s worse, this was the second time in as many years (keep reading).

CNBC’s Jim Cramer said the quiet part out loud: the Bureau of Labor Statistics’ ability to provide accurate data has “been a joke for ages.” Politics aside, and under multiple administrations.

This labor data is critical for businesses to know, and it is shameful that it’s apparently been knowingly inaccurate for…years? Decades?

So, on Friday the Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer. Many viewed this as political on his part, and the President claimed her actions were political. But, revisions are routine and nonpartisan, and firing the head of the job statistics agency because you don’t like the result is one thing. That would be political. And so this looks political on his part. But is also true that this data was highly inaccurate. Really bad. Historically bad. And it wasn’t the first time for McEntarfer: she was the Lead Economist for Labor Markets at BLS, at the time.

This Was the Second Historically Large Revision in the Past 2 Years.

Back at the end of 2024, BLS admitted that jobs had been overstated by -818,000 jobs overstated for the year. Remember this? (of course you do, you read this newsletter :)

This was the largest negative revision to payrolls since the global financial crisis.

This was right after the election, which is why the President feels the BLS has been political now and in the past and/or biased against him. But it was likely just a bad coincidence.

Holy hell!

But it gets worse.

Then they changed their numbers again, updating the number to -668,000 in December, before finally finalizing it at -598,000 in February 2025. Whew, that’s a lot of big revisions, and it implied that average monthly gains last year were ~174,000, not the initial 242,000.

Why such big revisions? Some say that the post-COVID volatility played a big role—rapid recovery led to errors in estimating business births/deaths and industry shifts (e.g., reclassifications in manufacturing and offices). The QCEW revealed the CES sample overstated growth during uneven recovery, with factors like immigration, supply chain issues, and sector-specific changes (e.g., tech layoffs) not fully captured initially.

But this is their job. The BLS employs more than 2300 people whose job it is to do this and only this. Provide data to the public so that businesses and financial services can operate. So, in my view, she deserved to get fired. Hell, if a business analyst / economist had this massively incorrect prediction, for the second time no less, they would be fired in a heartbeat.

Do I think the BLS was acting politically? No. They've been wrong many times in previous administrations. But do I think they’re not performing to a high enough standard?

Absolutely.

A not-so-fun fact: Since January 2020, the BLS has revised its initial employment estimates a total of 134 times.

Just wow. I was shocked when I discovered this.

Is Jerome Powell now really “too late” as the President has been saying?

So, with this new information and soft labor data, will the Fed be “too late” as the President has been saying?

It now appears quite possibly, yes.

Would the Fed have cut interest rates in July if they had this data just 48 hours before?

Perhaps, and there would have likely been further dissenting views.

And at the Fed’s meeting last week, 2 Fed Governors dissented. That hasn’t happened in 20 years.

Is Powell being too stubborn on interest rates?

I think so. And if you read this newsletter often, you know I have been calling for a cut for months, based on inflation subsiding, labor market softening and a housing market that has been in an activity recession for 3 years, due to high rates.

The labor market has been softening and we now have a negative job growth trend with all these revisions to previous months. It’s not volatility, it’s a clear negative trend.

What Powell Said Last Week on Rates

Powell himself looks to be a little perplexed about what to do, almost fumbling with his words at the last press meeting, trying to remain appearing apolitical.

Just listen to this rambling answer from Powell, attempting to explain to reporters why they haven’t cut interest rates…

“We will, through our tools, make sure that this does not move from being a one-time price increase to serious inflation. We want to do that efficiently, though—efficiently—and that means you want to do it. If you move too soon, you wind up maybe not getting inflation all the way fixed and you have to come back. That's inefficient. If you move too late, you might do unnecessary damage to the labor market. So there won't be in the end a big inflationary problem."

"What we're trying to do is accomplish that in a way that is efficient, but in the end, there should be no doubt that we will do what we need to do to keep inflation control. Ideally, we do it efficiently."

So this is about…efficiency? Huh?

That’s a word salad the likes of which would even make Caesar jealous (fun fact, Caesar salad is a Mexican dish from Tijuana, and has nothing to do with Rome/Italy folks).

A Great Rant on the Fed

If you want a great rant on this and why the Fed is now too slow to act, given the labor market softness, I give you Logan Mohtashami. He has a great, entertaining take here.

“You would be fired as an analyst if you said that!…What are you people looking at!?”

Classic.

Importantly, Powell is the Chair of the Fed, but not its king. It is a board - The Federal Open Market Committee - which consists of 12 voting members who make decisions on monetary policy. And one of the Fed Governors just resigned. The President will now appoint a replacement, to his liking. Again, 2 of them dissented at the July meeting, voting to cut interest rates.

All eyes will now be on Jerome Powerll and their next meeting in September. Will we get a rate cut? With current market data, absent another historical swing to the upside, yes the Fed should cut rates in September by .25%. And they will follow with 2 more cuts at the following 2 meetings. In my opinion.

Is the BLS Data Collection Flawed?

One reason the data may be less accurate today than in previous economic cycles is that “Before the pandemic, the response rate to the BLS survey that's used to create the monthly nonfarm payroll figure (in the jobs report) was 60% but has fallen to ~42% while JOLTS is down to about one-third (Antoni).”

This process is antiquated, and far too important. We need to fix this.

But, importantly, deep in the BLS data are a few narratives that I want to highlight and that are worth our time.

Important Labor Data Anecdote #1 - Foreign Workers Down

It appears the immigration policy is having a direct effect on labor numbers. Since the President took office, foreign-born workers have declined 5 out of 6 months, while native-born workers have increased 5 out of 6 months.

This is not insignificant and likely had a measurable effect on the job number revision. But the BLS should have been able to calculate this.

Labor Data Anecdote #2 - Construction Job Signaling Recession

- As a result of the revisions, construction jobs are now trending down for multiple months, a very strong past signal for economic slowdown.

ATTENTION: THIS IS AN IMPORTANT NUMBER TO WATCH.

The long term chart below looks ok, for now. But it also appears, upon closer inspection, that construction job levels may have peaked and are now on the way down (credit to economist and housing analyst Logan Mohtashami for this consistent take).

Let’s zoom in.

We now have 4 straight months of construction job declines now, with the BLS revisions.

Why is this so important?

Well, historically, “when this data line breaks, the Fed ignores it, and a recession happens (Logan Mohtashami).”

Construction Jobs Declining Is a Big Deal

And it has my skeptical spider senses on high alert. In my opinion, economic growth is at risk, as is my bullish stance on the economy. IF the Fed does not cut rates in September and the bond market doesn’t continue to tighten (ie, lower rates on Treasuries), we may have a problem. The longer rates remain elevated, the more stress this places on the real estate sector. Construction jobs are the key. The BLS multi-month revision is a total game changer.

Jerome Powell and Fed Governors, are you seeing this?

The Silver Lining: The Economy is Still Strong. For Now.

We shouldn't forget that the economy is still humming… we think. Which is why having accurate data is so important. And there are now green shoots in the housing market as the bond market girds for a potential future growth slow down.

Here are 3 major positives in the economy:

1. 1- GDP is growing , we just announced a +3% GDP number for the last quarter! (which Ipredicted last week!)
2. 
   
3. 2- Interest Rates are down bigly! Now at 6.5%!!! This is why real estate is an incredible asset class. Remember, real estate can be countercyclical. If you are a property owner refinancing and lowering your debt cost is now within reach. If you are an investor, now your debt is much cheaper, and you can make the numbers work on that property you have been eyeing. Countercyclical debt cost is an extremely powerful attribute of investing, and why I choose real estate as my investment vehicle. Rates are lower this week because the bond market has started to do the Fed’s job for them. 6.5% puts us squarely in the rate range where housing activity has historically improved.

1. 
   
2. 3- Americans’ Earnings are growing faster than inflation, still. ~3.5% YoY growth. Don’t forget, so far, the earnings picture for businesses and individuals is quite strong.

So, for now, we're in good shape, especially in a highly restrictive monetary policy environment. This is the good news. The question is how long this strength can last without easing monetary policy.

It’s been ~3 years of this.

I’m now skeptical. The data for the next 3 months will be very important/telling.

If it’s accurate, that is….

My Skeptical Take:

The BLS isn’t so much conspiratorial as it is fundamentally inadequate in its methodology. Its reports are erratic, lacking in rigor, and are subject to constant revisions—upward and downward (but lately mostly downward). This is dangerous for an economy in a highly restrictive Federal Reserve Policy environment.

Our leaders don’t know which way is up.

The sampling techniques it relies on are fragile and poorly equipped to handle the scale and dynamism of the U.S. economy.

The President was justified in dismissing the BLS commissioner. (but not for the reasons he gave, listen to Treasury Secretary Scott Bessent, ignore the President, when it comes to this stuff).

Her agency performs a crucial economic function, and the facts show that she ran it in a manner that was unpredictable, disorganized, and sloppy. But what is most unfortunate is that this is how it has apparently been run for years.

Really, what we should be asking is, in 2025, is this really the best we can do?

The administration should embark on a technology-driven solution to improve the accuracy of all BLS data. It's time for a new, “oracle-like data provider” to deliver this vital data with precision and reliability (Chamath).

This would be highly beneficial for the economy and help prevent large volatility in markets. Better data will produce downstream effects and actually help prevent inflation, recessions and job loss, as companies are better postured toward true economic outcomes.

Get on it, government leaders.

Until next time. Stay Curious. Stay Skeptical.

Herzliche Grüße,

-The Skeptical Investor