Mohamed El-Erian on US Jobs Data Revisions and Market Reactions

Integrity of US Economic Data

• 📉 US economic data faces long-standing issues, including declining survey response rates and reliance on estimations that require subsequent revisions.
• ⚠️ These problems have been worsening, and the data collection tools have not evolved sufficiently to keep pace.
• 🚫 There is little evidence to suggest these issues are politically motivated; they stem from the nature of the data collection process itself.

Improving Data Collection and Revisions

• 💡 During COVID-19, innovative methods like using credit card data and traffic indicators provided high-frequency insights, which official data collection has not fully leveraged.
• 📊 The lack of integration of high-frequency data means that revisions to official data can be substantial, leading to significant shifts in economic outlook.
• 🧩 Private sector sources, such as the ADP report, offer comparable data that can be used to triangulate and cross-check official figures.

Impact of Data Revisions on Markets

• ⚡ A recent example showed revisions so large that the three-month average of new jobs dropped to the lowest number since 2021, drastically altering the view of the labor market.
• 📈 Markets reacted significantly to these downward revisions, with the two-year note yield dropping sharply, indicating that market participants consider the revised data to be the best available snapshot of the economy.
• 🗣️ The market's reaction is also influenced by other factors, such as hawkish commentary from the Federal Reserve, which had already increased yields prior to the jobs data release.

Labor Market Hesitancy

• ⚠️ Concerns about the underlying strength of the labor market, previously based on employer feedback, are now appearing in the official data.
• 💬 Employers have become more hesitant to hire, a trend that is beginning to be reflected in the revised jobs numbers and unemployment rate.