BLS Fake Job Reports; Excess Liquidity Boosted U.S. Economy in 2023

By Victor Sperandeo with the Curmudgeon

No Hard Landing for U.S. Economy:

"Yellen claims economy is in 'soft landing' thanks to jobs report, gas prices.”  U.S. Treasury Secretary Janet Yellen appeared on CNN News Central on Friday to boast about lowering gas prices and the most recent jobs report, which included 216,000 added jobs. According to the Queen Yellen, any fears of a recession are "unwarranted." 

"Well, there has been a lot of pessimism about the economy; it's really proven unwarranted. A year ago, most forecasters believed we would fall into a recession. Obviously, that hasn’t happened. We have a good, strong labor market," Yellen said. "What we’re seeing now, I think we can describe as a soft landing. And my hope is that it will, it will continue," she added.

Yellen’s remarks were stimulated by Friday’s headline non-farm payroll number of +216,000 jobs added in December, as reported by the BLS.  That easily topped the estimated payroll number which was +170,000. 

The unemployment rate was unchanged at 3.7%, but it would’ve been higher if not for the sharp drop of 676,000 in the labor force. Importantly, the labor force participation rate declined to 62.5%, which was down from 62.8% from the previous month.  That is lower than the long-term average of 62.84%.  The employment-population ratio at 60.1%, also decreased by 0.3% in December.  Check out these charts from the BLS:

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What Yellen did not mention was that the change in total nonfarm payroll employment for October was revised down by 45,000 (from +150,000 to +105,000) and the change for November was also revised down by 26,000 (from +199,000 to +173,000). With these revisions, employment in October and November combined is 71,000 lower than previously reported.  Taken together, the 165,000 average monthly increase in payrolls for October and November was roughly half the pace of mid-2022.  So, was Friday’s jobs report really that great?

Victor’s Analysis of BLS Job Reports:

At year end, the “seasonal adjustments (SA)” should match the “non-seasonal adjustments (NSA).”  For 2023, there were +2,532,000 SA new jobs created versus +2,427,000 NSA jobs added. That’s a difference of 105,000 jobs. The December SA number was +216,000, but NSA was -167,000!  Yet there’s a more important employment statistic.

What is the standout statistic is the BIRTH/DEATH MODEL (BDM) was reported as 50% of the new jobs added in 2023 or +1,266,000 phantom jobs created.  BDM jobs are not surveyed or counted. Instead, they are estimated via an historic algorithm that was originally created in the Reagan administration but altered since then.

The BLS changes the BDM criteria over time to show what it wants (???). For example, here were the changes made during the COVID-19 pandemic:

“The labor market experienced widespread disruption at the onset of the pandemic, leading to a breakdown in the historical relationship between business openings (births) and closings (deaths). To better reflect the net effect of the contribution of business births and deaths to the estimates during the pandemic, BLS implemented special procedures to the net birth-death model in March 2020. Effective with the release of October 2021 preliminary estimates, BLS determined that adjustments to its birth-death methodology were no longer necessary. Therefore, the birth-death contribution to establishment survey estimates beginning with October 2021 are forecast using the methodology used prior to the onset of the of the COVID-19 pandemic.”

-->In reality, the BDM is a guess and has little to do with reality.

Victor believes that BDM jobs could have DECLINED in 2023, instead of adding 1.266 million new jobs. The model takes estimated businesses that closed (died) versus new ones that are opening (birth).

With business bankruptcies running at the highest rate since 2009-2011, he asks how can the 2023 BDM numbers be correct?  How can new companies be formed in this environment and at a very high rate? If you tried raising capital last year you would understand that Venture Capitalists and Private Equity investors don’t want to even look at most deals as they’ve become very risk averse.

To add to the BLS report skepticism, the headline number of jobs added in 10 of 11 months last year were adjusted lower by in the following months. Evidently, the BLS playbook is that headline numbers are better than estimates, then the next month the former is adjusted lower. We’ve already cited October and November 2023 downward revisions as examples of this BLS chicanery.

The higher reported number is important, in that all eyes are on it, especially the Fed, who believes it shows strength in the U.S. economy. Yet no one seems to care about downward revisions as they do not affect policy.  In fact, the FED NEVER retracted their projections due to an adjusted jobs number.

-->Bottom line is that economic numbers put out by U.S. government agencies like the BLS and BEA should be carefully analyzed rather than believed at face value.

Reverse Repos and BTFP Added Liquidity to U.S. Economy:

The New York Fed [1.] conducts repo and reverse repo operations each day as a means to help keep the federal funds rate in the target range set by the Federal Open Market Committee (FOMC).  Repos drain money from the financial system while Reverse Repos put it back in.  We explained Reverse Repos in depth in this post-- “RRP’s: Wall Street Newcomers Need a Monetary Education!

Note 1. The NY Fed, along with all 12 Fed regional banks and the FOMC, are said to be an "independent/quasi" government agency that sets monetary policy. It is NOT supposed to be influenced by the Executive, Legislative or Judicial branches of the U.S. Federal government.  However, many cynics (including Victor and the Curmudgeon) suspect the Fed’s December projection of three rate cuts this year has to do with 2024 being an election year, where politicians strive to make the economy look good.  Other skeptics note that lower Fed Funds rates would help the Treasury’s massive financing, which relies heavily on short-term T-bills.  In fact, it’s been suggested that U.S. Treasury Secretary Yellen requested the “Fed pivot” last month to lower U.S. government debt service costs at future Treasury auctions.


The Reverse Repo Facility is currently $694,478 billion, down from its high on January 3, 2023 of $2,188 trillion. The difference of $1.494 trillion is now in the real economy.


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Meanwhile, the Bank Term Funding Program (BTFP), was set up in March 2023 to bail out U.S. regional banks. It had $71.837 billion on April 12,2023, but now has $141,202 billion (as of January 3, 2024.  So, it has virtually doubled in the last eight months, as per this chart:

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The Bank Term Funding Program (BTFP) was set up in March 2023 to bail out U.S. regional banks via loans of up to one year. It had $71.837 billion on April 12, 2023, but as of January 3, 2024, it reached a record high of $141,202 billion. That compares to the previous all-time high of $136 billion, reached in the week ended Dec. 27.

So, in just eight months BTFP loans outstanding have virtually doubled!

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Assets: Liquidity and Credit Facilities: Loans: Bank Term Funding
Program (BTFP), Net: Wednesday Level

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In conclusion and independent of the Fed’s “higher for longer” rhetoric, it was excess liquidity -not higher interest rates - that caused U.S. real GDP growth to remain above trend, at an estimated 2.5% annual rate in 2023.  We noted in last week’s column that annualized real GDP was +2.05% from 2000 to 2023.

Curmudgeon – Excess Liquidity is Disappearing:

Recently, there’s been a reduction in excess liquidity which has pushed up U.S. Treasury dealer financing costs. “Excess liquidity parked at the Fed in RRPs by money-market funds has been switched to buying T-bills being auctioned,” Bespoke Investment Group wrote in a client note this past week. The reduction in excess liquidity also has pushed up dealer financing costs, such that a Treasury position yields about 1.45% less than what dealers pay to finance it, according to Randall W. Forsyth in the January 8, 2024 issue of Barron’s. 

Along with rising dealer financing costs, quantitative tightening (QT) continues to drain liquidity from the financial system.  Minutes of the FOMC’s December policy meeting, released this past week, showed several Fed officials thought it was appropriate to discuss slowing the pace of the runoff of maturing securities (QT) and to provide advance guidance to the markets.

Deutsche Bank strategists see the Fed beginning to phase out QT in June as it starts to cut rates in response to a “material” rise in unemployment, they wrote in a client note this past week.

Also, the BFTP program is scheduled to end in March, which will reduce liquidity if it is not extended. As noted above, a total of $141.2 billion of BFTP loans were outstanding as of January 3rd, a record for the facility.

Incredibly, the stated U.S. federal debt is now $34 trillion, an increase of $1 trillion just since mid-September! The total is 120% of the size of the U.S. economy. That’s at a time of full employment and no declared war, circumstances that would suggest a balanced budget, or even a surplus, something last seen in the early 2000s. 

Can you imagine the increase in the national debt, due to trillion dollar+ budget deficits, if there was a real recession?

Curmudgeon on the Markets:

Mr. Forsyth wrote that “the 4th-quarter rallies in bonds and stocks were helped by adjusting the mix of the Treasury’s borrowing to short-term bills. These were scooped up by money-market funds, whose assets have swelled to a record just shy of $6 trillion as savers and investors have taken advantage of 5%-plus yields, the highest since 2007, while large banks continue to pay next to nothing on deposits.”

However, with increased Treasury borrowing in 2024, and excess liquidity evaporating, tailwinds for financial markets in 2023 may turn into headwinds in 2024.

Victor’s Conclusions:

The U.S. economy is much weaker than reported. This is not necessarily bearish for stocks as it gives the Fed a reason to lower rates, especially in an election year. 

Moreover, the key strength in the economy, which is not talked about in the media, is the bulk of the 70+ million retired boomers who have been spending their savings (401k, IRA’s and pension checks) and enjoying life before they die.  With a lot of pent-up demand from the COVID lock down, they are spending big time on entertainment, restaurant meals and travel. Also, income disability recipients went from 8 million before COVID to 40+ million now.

That is why U.S. GDP is outpacing GDI (gross domestic income) and the U.S. service sector is doing well while manufacturing is not.

End Quote: “Beware of ignorance when in motion; look out for inexperience when in action and beware of the majority when mentally poisoned with misinformation, for collective ignorance does not become wisdom.”

by William J. H. Boetcker (1873–1962) who was an American religious leader and influential public speaker. An outspoken political conservative, Rev. Boetcker is perhaps best remembered for his authorship of a pamphlet entitled The Ten Cannots, originally published in 1916, that emphasizes freedom and responsibility of the individual to himself.

The Ten Cannots are as follows:


Best of luck, good health, and success in the new year.  Till next time………….  

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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