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Podcasts from Confluence Investment Management LLC, featuring the periodic Confluence of Ideas series, two bi-weekly series: the Asset Allocation Bi-Weekly and the Bi-Weekly Geopolitical Report (new episodes posted on alternating Mondays), and a new monthly Q&A format called the Confluence Mailbag.
Welcome to the Confluence Investment Management Biweekly Asset Allocation Report for 08/18/2025. I'm Phil Adler. Can we rely on government statistics to help guide our investment decisions? Confluence associate market strategist and certified business economist Thomas Wash joins us today to discuss the recent revisions to Bureau of Labor Statistics data that raised doubts about the economy and prompted the president to fire a top official. Thomas, the revisions downward in the jobs data we're talking about, August 1, appeared to be quite sharp.
Phil Adler:Is this type of movement unusual?
Thomas Wash:That's a great question and thank you for having me. The recent downward revisions were indeed substantial, in fact the largest ever since 1968. But here's the key context. While the numbers look dramatic, they still fell within the Bureau of Labor Statistics confidence interval, meaning they weren't statistical outliers either. What's really interesting is that this isn't a one -off.
Thomas Wash:Since the pandemic, we've seen a clear trend of initial job numbers being revised downward. Take 2023, for example. Payroll figures were adjusted down by a staggering 818,000 jobs over the year. That's an average of about 70,000 jobs per month. So, while the revisions may seem shocking at first glance, they fit into a broader pattern of overestimation in the early reports.
Phil Adler:What can explain this downward revision?
Thomas Wash:This is where we kind of get into the nitty gritty of how the BLS collects data. The main issue? Timeliness. Small businesses, especially newer ones, often lag in reporting their payroll data. And with the post pandemic surge in new business formations, that delay has only gotten worse.
Thomas Wash:You know, this is how it works. The BLS starts with modeled estimates for missing data, but as actual numbers trickle in, those estimates often get revised and sometimes downwards. Think of it like filling in a puzzle. The early picture is blurry and the details sharpen over time. Unfortunately, lately, those details have been pointing to weaker jobs growth than initially thought.
Phil Adler:Thomas, even before this report was released, there have been doubts about the accuracy of this particular set of data. Why?
Thomas Wash:There were already doubts about the accuracy of the report stemming from a few key factors. The general economic uncertainty created by new tariffs and shifting policies have made the business landscape harder to read, naturally leading to skepticism. Additionally, there were agency shakeups at the Bureau of Labor Statistics. In March, for example, two key advisory panels responsible for refining statistical methods were disbanded. While there's no evidence that the reports have been compromised by this, this move fueled concerns about the integrity and reliability of the data.
Thomas Wash:The situation serves as a reminder that even when the BLS strives for accuracy, external pressure and structural changes can lead to doubts, even if the numbers were themselves sound.
Phil Adler:Well, something I was wondering about. Do you think employers might avoid or not tell the full truth in response to government labor surveys just to escape attention as the government remains focused on identifying foreign workers?
Thomas Wash:Well, I think that's a valid concern, but the impact is likely limited and depends on the specific survey. It's improbable that the crackdown on undocumented workers would significantly affect Establishment Survey, which tracks non farm payrolls. This survey focuses on official payrolls and workers paid under the table aren't typically included. Therefore, a decline in their numbers wouldn't show up here. The effects are more likely to be seen in the household survey which gets this data directly from individuals.
Thomas Wash:A drop in the labor force participation rate or a decline in the share of foreign workers could be a result of undocumented individuals being unwilling to report their work status. This reluctance can lead to an artificially low unemployment rate as people who aren't actively seeking work or reporting employment are not necessarily counted as unemployed.
Phil Adler:Thomas, do you expect high volatility and similar revisions in these Bureau of Labor Statistics numbers in the months ahead?
Thomas Wash:You know, yes. I expect we'll continue to see delays and revisions. The BLS doesn't have the authority to force firms to submit the reports earlier. This issue could be made worse by a smaller BLS workforce as remaining employees might have a heavier workload and less time to handle these reporting responsibilities.
Phil Adler:But what do other reports, those that are not government sponsored, tell us about the strength of the labor market?
Thomas Wash:I think they paint a more nuanced picture. Right now, employers seem stuck in a holding pattern, hesitant to hire aggressively but also avoiding layoffs. It's like everyone's waiting to see how tariffs and tax changes play out. On the worker side, there's less confidence in job hopping, which aligns with the downward payroll revisions. The takeaway?
Thomas Wash:Demand for labor is cooling, but it's not a free fall, more of a cautious slowdown.
Phil Adler:Are there reasons generally not to place full trust in non government economic reports?
Thomas Wash:Well, you know, no data source is perfect and private reports have their own set of flaws. For example, sentiment surveys can be influenced by political and temporal biases which can add a lot of noise to the data. We also monitor economic bellwethers, companies used as proxies for the business cycle. The weakness here is that these firms have an incentive to protect their share prices, which might lead them to present a more optimistic outlook than is truly warranted. Additionally, there's a time lag since these companies typically report only once a quarter.
Phil Adler:Well, as you try to gauge the economy in the months ahead, are you going to be trusting government data a little bit less?
Thomas Wash:Well, it's probably not going to affect my judgment. You know, I don't think it's fair to place the blame on the agency itself. You know, we operate on an assumption that everyone is doing their best. Regarding the staffing reductions at the BLS, we believe the agency will likely use new efficiencies, possibly including AI, to handle the workload with fewer people. We expect the new leadership to present the data fairly.
Thomas Wash:That said, we always use a variety of tools and sources to evaluate the economy. So, we've never been solely reliant on government data anyway.
Phil Adler:But is uncertainty about these numbers another reason perhaps to be extra cautious right now about investment strategy?
Thomas Wash:Well, the way I see it is that the uncertainty stems from the economy's ongoing transition from one system to another. While the data suggests we'll encounter some bumps, it also showed the economy's resilience. Our investment strategy has always prioritized protecting our clients. While that remains our top priority, we are more optimistic than we were a few months ago and our increased willingness to take on risks reflects this shift in sentiment.
Phil Adler:Now, here's a question I can't avoid asking. Can these Bureau of Labor Statistics numbers be easily manipulated as President Trump is suggesting with his firing of the top official there?
Thomas Wash:You know, any data can be manipulated if someone is determined enough, which is precisely why we always evaluate the economy using multiple sources. While we view the firing as an extreme reaction, we don't believe it will lead to a decline in data quality. We think the president still wants to maintain the trust of financial markets, and reliable government data is crucial for that trust. Therefore, we don't expect government officials to manipulate the data. However, the situation could prompt the department to make more deliberate efforts to reach out to these smaller companies which could help reduce the size of the data revisions for the future.
Phil Adler:Finally, taking all the available reports into account, are you worried at all about the current state of the labor market?
Thomas Wash:You know, not yet. The low unemployment claims suggest layoffs aren't spiking and businesses seem to be absorbing the tariff impacts without much panic. You know, to me, that's a sign of underlying strength. So, while we're watching closely, the message is clear. The labor market isn't booming, but it's not breaking either.
Thomas Wash:And that's a space where prudent risk taking makes sense.
Phil Adler:Thank you, Thomas. The title of this week's report is "Navigating the Waves of BLS Revisions." You can find a link to the written report on the Confluence webpage, confluenceinvestment.com. Our discussion today is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice.
Phil Adler:Also, this information does not constitute a solicitation or an offer to buy or sell any security. Our audio engineer is Dane Stole. I'm Phil Adler.