Last week, unexpected employment figures sent ripples through the US equity and bond markets, stirring concerns among financial institutions that the Federal Reserve might interpret this data as a sign of economic strengthening and thus delay rate cuts furtherHowever, the credibility of the employment data coming out of the United States has been under substantial scrutiny over the past two years, causing skepticism surrounding the optimistic outlook for the country's economic prospects.

On January 10th, the US Department of Labor released data indicating that in December 2024, the non-farm sector saw an addition of 256,000 jobs, significantly surpassing the anticipated 165,000. During the last monetary policy meeting, Federal Reserve officials suggested that the time to slow down the pace of interest rate cuts was either upon them or very nearThis newly published data only further strengthened their position

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Consequently, stakeholders estimated that there was over a 97% chance the Fed would opt to maintain interest rates at their January meetingThis reaction led to a simultaneous drop across all three major US stock indexes, while yields on 10-year and 30-year US Treasury bonds surged to their highest point in 14 monthsMoreover, the discussion around the possibility of the new government declaring a state of emergency for the economy to implement tariff policies escalated concerns regarding inflationThis has fueled opinions suggesting that the employment figures indicate a persistent strength in the US economy, shifting the Federal Reserve’s focus solely towards managing inflation.

Yet, the frequent revisions of employment data over the last couple of years, coupled with instances of leaked information, cast serious doubt on the validity of these figures as a reflection of America’s economic growth

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Relying on such contentious data to support claims of robust economic performance is questionable at best.

Back in March 2024, the Federal Reserve Bank of Philadelphia released a report stating that the employment data published by the Bureau of Labor Statistics was severely distorted, indicating that the actual job growth had been markedly overestimatedThe report claimed that from March to June 2022, the non-farm employment data was inflated by about 1.1 million, while the overestimation for the year 2023 stood at approximately 800,000. In August 2024, preliminary estimates from BLS, based on revisions for the non-farm employment statistics for the period from April 2023 to March 2024, revealed a reduction of 818,000 job additions compared to prior estimatesThis revision shifted the total employment growth for the 12-month period (excluding farm employment) from around 2.9 million to about 2.1 million, resulting in an average monthly net job addition that dropped by roughly 68,000. Furthermore, the BLS noted that during the period from April to November 2024, five months exhibited downward adjustments in the non-farm job additions, with cumulative downward corrections exceeding 110,000.

If the frequent and dramatic revisions of the employment data could be attributed to mere technical glitches, the delays and leaks surrounding data releases have only compounded external skepticism

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In August 2024, the BLS acknowledged a technological error that caused a delay in the publication of the revised non-farm employment dataInterestingly, as other organizations awaited the information, at least three banks reached out directly to the BLS and were able to obtain the data in advance, prompting questions regarding the transparency and integrity of the data release processAdditionally, the methods employed by the BLS in creating the non-farm employment report—utilizing both business surveys and household surveys—have raised doubts due to the significant differences in their statistical bases and approaches, leading to inconsistencies in results.

The Federal Reserve places a high value on employment data, often using it as a critical reference point in policy guidanceYet, with such frequent revisions, it becomes increasingly challenging to accurately reflect the actual conditions of the labor market, and the data results may be misaligned with reality

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Should the Federal Reserve rely on this flawed data as a basis for decision-making, unintended consequences may arise.

The inflation issue, which the Fed has recently prioritized, has become a longstanding challenge for the US economy, a “catch-22” situation where neither control nor neglect seems viableOn one hand, interest rates have remained elevated in recent years, resulting in interest expenditures that exceeded the nation’s defense spending in the previous fiscal yearThe Federal Reserve's commitment to refrain from cutting interest rates is only intensifying, with debt risks increasingly looming over the US economy, tightening their gripOn the other hand, the national debt surpassed a staggering $36 trillion in 2024, continuing to rise at an alarming rateAny policies the new government implements will likely contribute to inflationary pressuresShould the situation continue unchecked, the excessive monetary supply will inevitably push the inflation rate back up.

Appearances notwithstanding, the unexpectedly high employment figures temporarily uphold the dignity of the US economy