The Government's Performing a Magic Trick at Your Expense

by Andrew Zatlin June 06, 2023 2:00 pm ET

The most recent payroll data suggests a strong economy.

That's great news. Except for one thing – you're being lied to.

The data you're seeing is being manipulated. Let me show you what I mean...

And then I'll start to reveal what you can do about it.

The Government's Performing a Magic Trick at Your Expense

May payroll numbers just came out. And they were hot!

Nearly 340,000 new jobs were added. To put that into context, we typically see about 180,000 jobs added each month.

Strong jobs data is almost always associated with a strong economy. So, everything is great, right?

Not so fast. You see, the payroll data is being grossly manipulated. In other words, you're being lied to. And I've got proof.

I'm Mr. Labor

Hearing my accusation, your first thought might be, "Why should we trust you, Zatlin?"

Well, when it comes to U.S. labor data, I'm "Mr. Labor." And I'm not just saying that... Bloomberg has ranked me No. 1 for both payroll forecasting and jobless claims forecasting.

So when we're talking about labor and payrolls, I'm the guy you should be listening to.

Meanwhile, the U.S. government appears to be playing the role of a magician. Because it's performing magic tricks with key economic data. Let me explain...

Two Types of Data

In economics, there are two types of data: raw data, and data that's been massaged.

Raw data is information that hasn't been seasonally adjusted – in other words, hasn't been changed to account for seasonal-related expectations when it comes to hirings and firings. Once data has been adjusted, it's been massaged.

You see, when it comes to payrolls, a lot of companies ebb and flow based on seasonal patterns. Take ice cream maker Baskin Robbins, for example.

This company ramps up hiring as warm weather approaches. That's when it sells more ice cream. Then, during the winter months, hiring drops off and firings increase – makes sense.

Seasonally adjusted data helps put hiring for a company like Baskin Robbins into perspective. That way, investors don't see a dramatic drop in hiring for a single month and think the sky is falling.

Let me detail this adjustment a bit further...

The Magic Trick

Let's say that each May, Baskin Robbins typically hires 100,000 workers to get ready for its busy season. That's what the historical data tells us.

Well, what if this year, Baskin Robbins hired 120,000 workers in May? Payroll data would say the company added 20,000 jobs.

But here's where it gets tricky: The decision maker behind an appropriate seasonal adjustment is none other than the U.S. government!

And this past month, the government was so afraid of poor payroll data that it significantly adjusted it, creating a distorted number. Let me show you...

Three Examples

This is seasonally adjusted data from May for the information sector:

Notice the dramatic adjustment this year. Suddenly, we're seeing way more jobs appearing in this sector, simply because of this adjustment. The thing is, these jobs aren't actually there!

It's a similar situation in the non-durable goods sector: