Misleading BLS Jobs Report, Labor, Fiscal, and Market
Outlook
By Victor Sperandeo with the
Curmudgeon
Introduction:
The BLS July 2026 Non-Farm Payroll report was the weeks principal
macroeconomic development. From an investment perspective, the core issue is
whether headline labor data accurately captures the underlying direction of
household income, consumption, and economic growth.
Curmudgeon Note: Coordinated U.S. - Japan government intervention in
foreign-exchange markets propped up the Yen this week, which is discussed near
the end of this blog post.
Consumer spending
represents roughly 70% of U.S. GDP. Consequently, sustained deterioration in
employment and labor-force income would have direct implications for
consumption, corporate revenues, credit performance, and nominal GDP growth.
While policymakers and much of the financial media continue to characterize the
labor market as resilient, the non-seasonally adjusted employment data,
revisions, and estimated components of the payroll series warrant tell another
story.
Analysis of the (Misleading) Jobs Report:
The BLS reported July
payroll figure was a decline of -23,000 jobs, versus consensus expectations
that ranged from gains of approximately 65,000 to 140,000. In addition, May and
June payrolls were revised lower by 66,000 and 37,000 jobs, respectively. These
downward revisions materially weaken the apparent momentum in U.S. employment
creation.
For the first seven months
of 2026, seasonally adjusted payrolls increased by 426,000. However, the
corresponding non-seasonally adjusted total reportedly declined by 709,000.
Further, the Birth-Death Model (BDM)which imputes employment from business formation
and closuresaccounted for an estimated 774,000 jobs during the same period. If
correct, that BDM estimate exceeds the
entire seasonally adjusted payroll gain, underscoring the extent to which
reported employment growth may depend on statistical modeling rather than
directly observed payroll expansion.
The inescapable conclusion
is that U.S. employment conditions are materially weaker than the headline
figures suggest. Victor opines that the
U.S. employment market is in shambles! Of course, the U.S. government wont say
that as they claim, the U.S. has a strong jobs market. Yet the non-seasonally adjusted jobs data and
the BDM show a totally different picture as noted above.
This dichotomy is
reminiscent of the George Orwell 1984
quote, The Party told you to reject the evidence of your eyes and ears. It
was their final, most essential command.
Meaning: The Party
(government) aims to eliminate objective truth, replacing it with whatever
narrative the state dictates at any given moment. It demands total control over reality. They
want citizens to believe whatever the government says, even if it directly
contradicts what people can see and hear (and feel) for themselves.
The reported 4.1%
unemployment rate should also be interpreted cautiously. A declining labor-force participation rate (now at a multi-year low
of 61.4%) can reduce the measured unemployment rate because individuals who
stop actively seeking work are no longer counted as unemployed. Broader
measures of labor underutilization and participation may therefore offer a more
complete view of economic slack than the headline unemployment rate alone.
ΰMarkets
should focus less on the reported unemployment rate and more on payroll
revisions, labor-force participation, hours worked, real wage growth,
consumer-credit trends, and the composition of employment gains.
Consumption and U.S. Fiscal Support:
The economy currently
appears to be supported disproportionately by three forces:
1.
Astronomical
capital expenditure (capex) associated with the
buildout of AI infrastructure, data centers, GPU/CPU semiconductors, and
especially high bandwidth memory chips.
2.
Continued
large-scale U.S. government deficit spending.
3.
Consumption
by higher-income households with substantial financial-asset exposure.
The broader consumer
appears increasingly constrained. Household spending growth is concentrated in necessities, while revolving consumer credit has become a
more important financing mechanism for discretionary spending. With credit-card
interest rates near historically elevated levels, additional debt-financed
consumption is unlikely to be a durable foundation for economic expansion.
This creates an
increasingly bifurcated economy:
higher-income households benefit from equity appreciation and asset ownership,
while lower- and middle-income households face higher borrowing costs, limited
real-income growth, and reduced capacity to absorb additional expenses. A
meaningful equity-market decline could therefore produce a disproportionately
negative economic (reverse wealth) effect by weakening the spending capacity of
the top decile of the population, which has become an important marginal source
of consumption.
Fiscal Risk:
Employment weakness has
important fiscal consequences. Slower job creation reduces wage income,
consumer spending, and tax receipts, while increasing the probability of higher
transfer payments and further fiscal support. At the same time, federal
spending continues to exceed revenue collection by a substantial daily margin,
reinforcing the longer-term trajectory of rising public debt.
The essential
macroeconomic concern is that the U.S. heavily relies on deficit spending and
capital-intensive AI investment to offset weakness in labor-driven consumption.
This can sustain reported GDP in the near term, but it does not create
broad-based household income growth or a self-sustaining expansion.
Without durable employment
growth, the medium-term outlook for consumer services, corporate earnings, and
tax receipts becomes increasingly vulnerable. The central financial-market
question is not whether deficits can support nominal growth today, but whether
debt issuance, rising interest expense, and slowing private-sector job creation
can coexist without eventually impairing confidence in U.S. fiscal policy and
the Treasury market.
Gold, Currency, and Interest Rates:
Victors previously recommended
5%10% long allocation to Gold received an additional catalyst beginning around
June 25th. U.S. Dollar weakness and yen appreciation contributed to
renewed demand for Gold and Silver. If intervention-related currency
transactions (more below) involve selling U.S. dollarsdirectly or indirectly
through cross-currency transactionsthe result can reinforce concerns about
dollar purchasing power and increase demand for monetary hedges. Indeed, Gold
and Silver rallied as the dollar declined on four of five trading days during
the week.
The relatively muted
response in long-dated bonds is notable. It may indicate that fixed-income
investors remain uncertain whether fiscal deterioration will produce higher
inflation, weaker growth, further monetary accommodation, or some combination
of all three.
In fact, the yield on both
the 10-year and 30-year U.S. Treasurys have been trending higher over the last
52 weeks (YoY): the 10-year T-Note went from 3.92% to 4.66%, while the 30-year
T-Bond from 4.65% to 5.21%. That has
resulted in paper losses for investors who bought those securities (or the
equivalent ETFs) during the past year.
U.S. Stocks vs Bonds:
Over the past five years,
the performance disparity between U.S. equities and long-duration Treasury
securities has been extremely severe as per this table:
|
Asset proxy |
Approximate price return |
Investment implication |
|
SPDR S&P 500 ETF Trust (SPY) |
+73.41% |
Equity investors were rewarded for owning
risk assets |
|
iShares 20+ Year Treasury Bond ETF (TLT) |
-44.29% |
Long-duration Treasury holders experienced
large capital losses |
|
Vanguard Extended Duration Treasury ETF
(EDV) |
-60.35% |
The longest-duration exposure was
particularly damaging |
This incredible stock/bond
return divergence has encouraged investors to favor equities and hard assets
over nominal long-duration debt. That is a potentially destabilizing
development because the modern
fiat-credit system depends on sustained demand for sovereign bonds. If
investors increasingly reject duration risk, Treasury financing costs may rise
even if economic growth slows.
Also, the stock markets
increasing dependence on big bets on A.I., running on data centers built with
borrowed money, makes that market especially vulnerable. If the cost of
borrowing keeps rising along with bond yields, the A.I. trade will become more obviously
problematic for most companies relying on debt to finance the buildouts.
Investors might become disenchanted with big tech stocks committed to massive
AI spending.
Coordinated Intervention to Prop up the Japanese Yen:
The yens price action illustrates the potential for rapid
currency reversals. The currency reportedly declined about 4.1% over roughly
seven months, then recovered approximately 4.4% in only four trading days with
coordinated U.S.-Japanese government support.
ΰCurrently, Yen/Dollar=
157.94 vs. 163.73 to 164.00 before the U.S.- Japan intervention. The mechanism used for this currency
intervention is beyond the scope of this article, but it raises the Feds
balance sheet and adds significant liquidity for financial markets.
Victor sees a
similar trajectory reversal for U.S. T-Notes. A comparable repricing in Treasury notes would
have significant implications for yields, duration-sensitive assets, mortgage rates,
equity valuations, and federal interest expense.
Inflation Expectations and Investment View:
The Treasury market does
not yet appear to be pricing a major inflation acceleration. Using 10-year
Treasury Inflation-Protected Securities as a guide, a 10-year TIPS yield near
2.4% and a nominal 10-year Treasury yield near 4.65% imply roughly 2.25% average
annual inflation expectations over the coming decade.
That pricing may prove too
complacent if fiscal deficits remain elevated, dollar weakness persists, and
bond investors demand greater compensation for duration and sovereign-credit
risk. Conversely, if employment and consumption deteriorate sharply,
disinflationary growth weakness could initially support Treasuries before
fiscal and supply concerns reassert themselves.
Conclusions:
For investors, the
principal risks are clear: weakening employment, heavily indebted consumers,
persistent fiscal deficits, long-duration bond vulnerability, and equity-market
dependence on AI capital expenditure and high-income household spending. Gold
and selected real assets remain useful portfolio hedges against currency
debasement and fiscal instability, while exposure to long-duration nominal
bonds should be evaluated carefully in light of their
asymmetric risk profile.
End Quote:
I weep for the liberty of
my country when I see at this early day of its successful experiment that
corruption has been imputed to many members of the House of Representatives,
and the rights of the people have been bartered for promises of office.
U.S. President Andrew Jackson (from 1829-1837) 
ΰJacksons
quote, from ~190 years ago, shows why REPUBLICS always fail, mostly due to
corruption of the Representatives and Senators who are (most of the time)
bribed for their votes.
.
Stay healthy and calm. Wishing you success and good luck.
Till next time
The Curmudgeon
ajwdct@gmail.com
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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