SKEPTIC’S GUIDE TO INVESTING

Labor Statistics in Political Crosshairs

• Steve Davenport, Clement Miller

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When politics collides with economic data, investors face a troubling dilemma: can we trust the numbers that drive markets? The unprecedented firing of the Bureau of Labor Statistics head by President Trump signals a concerning shift in how government economic data might be manipulated for political gain.

The BLS produces critical labor and inflation statistics that power Federal Reserve decisions and investment strategies worldwide. Now, this foundational data source carries an asterisk. As Clem Miller pointedly observes, "Don't trust the BLS data going forward because it's subject to a potentially high degree of manipulation." This isn't merely political theater—it represents a fundamental challenge to economic transparency.

Fortunately, we're entering an era where alternatives exist. Private sector solutions like ADP's employment data, sophisticated web scraping, and AI-powered analytics offer potentially more accurate and timely economic indicators. Major financial institutions possess unprecedented visibility into consumer spending and wage patterns through anonymized data. The future may belong to investment firms willing to embrace these alternative data streams rather than relying on potentially compromised government statistics.

For skeptical investors, this represents both challenge and opportunity. Those who recognize this shift early can gain an information advantage by questioning traditional sources and diversifying their data inputs. Whether you're managing a portfolio or simply trying to understand market movements, adapting to this new data landscape might prove essential for navigating today's politically charged economic environment.

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Steve Davenport:

Hello everyone and welcome to Skeptic's Guide to Investing. Today, clem Miller and I will investigate the firing of the Labor Statistics Board and we'll talk about a political appointment and the Department of Labor and how the data and how the sausage gets made, and then we'll also just try to figure out if there is any real legitimacy to the need to reform the way we get data and the way we understand data as far as investors. So, clem, what do you think about the firing of the head of the Labor Statistics Board?

Clem Miller:

Well, I think it was purely a political reaction on the part of President Trump to the fact that she delivered a negative report on jobs and revised the prior couple of months reports as well, in a negative direction.

Steve Davenport:

But isn't it going to benefit Trump if they have a lot of negative data? Because then the Fed will lower rates. So I don't understand how this is Like. If you wanted good data, you would never get lower rates, so I don't understand.

Clem Miller:

But a politician doesn't think that way. A politician thinks oh, this is bad news and so it's bad. No matter what, you know, a politician will not accept bad news as a way to get, as a way to get something else that that they want, as a way to get something else that they want. So he wants his cake and he wants to be able to eat it too. He wants good economic news to show that his tariffs are working and aren't causing a lot of problems with the economy, and he wants to be able to eventually get the Fed to lower rates. So there's a. You know, obviously there's an inconsistency there which you've picked up on right, but it's you know. He wants to have his cake and eat it too. So it's a simple thing. I mean, is this?

Steve Davenport:

the first time this has happened.

Clem Miller:

I'm not aware of other events where this has happened before, but I will say that, as far as I know he had, trump has the ability to fire this person because this person in charge of the agency is a political appointee and and the BLS is a part of the Labor Department. So you know there's none of those issues around. You know independent agencies, like you had with the National Labor Relations Board or the Consumer Finance Protection Board. There's none of those issues around whether Trump has the ability to fire heads or board members. None of those issues exist. So he has. Or the Fed, for example. You know the Fed. There are lots of issues around whether he can fire board members. None of those issues applies here. He's quite free to remove the head of this agency.

Steve Davenport:

But let me just try to throw out an idea here. I know it could be a little crazy, but isn't there somebody who is the head of the Labor Department? Isn't there usually a secretary?

Clem Miller:

Yeah, there is.

Steve Davenport:

There is, and so if there is a secretary of labor, isn't it their job to hire and fire the people that they need for the Labor Department, like it feels like for the president to reach over the Secretary of Labor and fire this person on social media. It's an overreach in that I don't know if there's any due process in this, but let's just say why leave it to the Secretary of Labor.

Clem Miller:

Well, he could have, except for the fact that, you know, he responded rather impetuously to what he saw as what he perceived to be negative data. And so he, you know, he did what he frequently does, which is he fires people by tweet when he doesn't like what they do. Okay, so, steve, let me just get into a couple of things here which I think are important for our listeners to understand. First of all, why is this important to begin with? Right, and it's important to begin with, bls does labor data and it does inflation data, and we know that labor data and inflation data is what drives Federal Reserve decisions. It's what drives other economic decisions, it influences what investors do.

Clem Miller:

Practically every significant investment firm of any size really has an economist who will produce nice tables and graphs showing inflation and jobs, and at the very bottom it'll say source BLS. And so all of that data going forward is going to at least have to have an asterisk which says we don't necessarily trust this data, or they're going to have to find alternative sources, which is my second point. There are some alternative sources of data, and by alternative I don't mean alternative facts, steve, I mean private sector efforts to provide inflation.

Steve Davenport:

There's no way the private sector could compete with the government in terms of effectiveness of data. Is there?

Clem Miller:

Why not? Okay, because if you think about it, you know when I think of, when I think of government statistics, I think of lots of people doing surveys, I think of lots of people, you know, green eye shades right, I'm exaggerating a little bit you know, sitting over, hunched over the data, doing all this. We're not, you know, we're in a different world now. Not only do we have, you know, the, the BLS is, I'm sure, still in the computer processing age. They've probably moved beyond punch cards, uh, but uh, they're still in that age and they haven't, I'm sure, moved into the data web scraping or AI stage of the information processing revolution. So the private sector certainly has the ability to do AI web scraping. I know that there are investment firms who, for years, have been doing this. I remember there were some firms that were using satellite data to count the number of cars in mall parking lots, which may not work anymore since malls have been declining.

Steve Davenport:

Yeah, if everybody buys things online, I'm not sure that's going to help.

Clem Miller:

But that's the other point is that there's lots of statistics about online purchases Right, and let me just continue with that. So there's already Carlyle, which actually puts together alternative statistics, and that's for prices, right, and I believe there are some other firms that are looking into it right now. You already have on the labor front. You've got ADP, you know, which I think we all know does payroll, and while ADP doesn't cover the public sector, it covers all the private sector, and arguably that's more important from an investment standpoint and an economic standpoint, and so I don't know why investment firms wouldn't just put more of their reliance on the ADP data rather than on the BLS.

Clem Miller:

I mean, I know historically historically, they've used ADP as a precursor to the BLS and said hey, the ADP says this, the BLS is likely to say that. I think going forward it'll be more like well, the BLS is less relevant, we'll just rely on the ADP data.

Steve Davenport:

Right. I mean, from what I understand, the government represents. When you take local government and state governments, it represents 30% of the overall labor force, right, so I understand why they'd want something with 100% versus 70%. But can I just go back to this releasing of data and whether it's wrong? Help me understand. When this is a survey data and this is the initial result, they give you a number and it says 100,000 jobs. Then three months or three weeks later, they say this is now, I don't know, not final, but here's more data. Because simply, I mean, is this a mail-in that we mail in the survey and then they mail it and they open the letters? I hope this is more automatic and easy to do, because I don't understand why they can't get the survey results back or why we don't just wait until the survey results are more complete, like having incomplete data and saying, oh, we got it early, though Well shit if it's 60% of the respondents.

Steve Davenport:

I don't know if getting it two weeks earlier.

Clem Miller:

I mean, is it better data? Here's the problem. It used to not matter that final results, that is, after several months have gone by of data collection, it used to not be a problem that final results uh took a long time, because we were in a different economy. Uh, we were, uh, you know, investors didn't demand, uh, you know, such real-time data. But now we're in an environment where, where investors react, you know, to hourly data, minute by minute data, right, even monthly, seems like it's uh forever. And so the BLS in issuing monthly data and then, and then revising it after a month and then after two months, it's just not good enough. And on top of that, that data is backward looking.

Steve Davenport:

Was this woman set up for failure? Like was her data? Like? I fail to see why it's all on her versus the process is broken and needs to be improved. So it's really on the head of Secretary of Labor to figure out how to make the data better. It's not, I guess. I'm saying is this personally like, do we have her? You know? Was she in the library with the knife? Have her it has you know? Was she in the library?

Clem Miller:

with the with the knife at the moment. You know like I'm trying to decipher the clues. Here is what she did wrong. It has nothing to do with her what do you mean?

Steve Davenport:

she just got fired it has to.

Clem Miller:

It has to do with the, it has to do with the whole system of relying on government for data. Okay, that's, that's the point I'm trying to make. Point I'm trying to make is that we're in a different world now, steve. We're in a different world where investors and others have to rely, have to use private sector data, have to look at markets. You know, we get millions of pieces of data every day about what's going on with commodity prices, what's going on with interest rates, what's going on with stock market prices, bond prices, credit prices. We have lots and lots of data that can inform what markets do, have lots and lots of data that can inform what markets do and month old, two month old, three month old inflation data is. I mean, how relevant is that anymore when we have all these alternative sources of data that are available?

Steve Davenport:

We just I guess what I'm getting at is as an investor. Where do I put this firing on my, you know, list of important things to consider for the second half of 25? Does this, does this, is this worthy of a full podcast or is this worthy of an investor? Absolutely, investors, be worried about this?

Clem Miller:

yes, because to the extent that investment firms and I know many of our listeners will follow investment firms will watch CNBC and so on to the extent that they're still using BLS data in the future, I would say don't trust it. Don't trust the BLS data going forward because it's subject to a potentially high degree of manipulation going forward. So just don't trust that data.

Steve Davenport:

I guess I'm saying, if we look at our typical investor and we tell them be longer term, be patient, don't be moved by noise. On your windshield there's a couple of drops of rain, but it's not enough to put the wipers on. I mean, this seems like an event that well, it might affect certain firms and it might affect people who use this data in their economic models, but for the average investor, this feels to me like a mild event, not a major event. Is that fair?

Steve Davenport:

It depends on what you consider to be other minor and major events, but I consider I don't know, I consider it to be, you know, if we have peace in the Ukraine or we have peace in Gaza. I consider those to be more major.

Clem Miller:

Well, they're more major, for if you live in that area, right?

Steve Davenport:

More major for the movement of oil. They're more relevant for the movement of natural gas. I think they have more economic.

Clem Miller:

We have investment markets that are very reliant on BLS data. Okay, and if you can't rely on that data anymore, then there's a problem, and I'm saying here it's an eminently fixable problem. It's just that there has to be less reliance on government data. There's got to be a lot more reliance on data.

Steve Davenport:

You're not really calling for a correction of the data process at BLS. You're saying I want to privatize this.

Clem Miller:

I'm saying ignore it, ok. I'm saying or, or give it much less credence in your decision-making, and honestly I mean investment. Firms should be looking for companies, institutes, whatever that are collecting billions and billions of prices, and in fact there is a $1 billion price project out there that collects all this data. There are tremendous opportunities for firms to get into this area to do web scraping of prices of labor. You got the ADP. Somebody could improve on the ADP data. There are lots of opportunities to step in here and do a better job than what the government is able to do. So no, I just I mean it's.

Steve Davenport:

I always wondered Clem, and this could be. Maybe it's not legal, but I look at an Intuit that has all this personal data that people are downloading into their spreadsheets and their Intuit software to track their expenses and I wonder, can they take the data of individual people and aggregate it and say, hey, aggregated wise these consumers. 15% goes to retail and now I see 18%.

Clem Miller:

So Steve, there's this whole process where it's called anonymization hard to pronounce, but it's to make data anonymous by aggregating it and taking out identifying information, and this information is sold to the data brokers I know that sounds like a real shadowy kind of concept, but to data brokers and the data brokers then sell it to businesses, so all sorts of data is sold. So there's an immense amount of data that's out there that can be used to generate investment, useful data, and I'm sure that there are firms out there I mentioned Carlyle was doing it. There are investment firms that actually use this data already in order to, you know, renaissance, for example. They do it right. So I think there are lots of firms out there that could benefit from this, and it could create a sort of a dichotomy among firms, where you've got firms that have advanced the furthest in terms of using AI resources to develop good data and those that are still stuck in the kind of BLS world.

Steve Davenport:

So we looked at the major banks, like let's just take Bank of America. I mean, they can tell when an individual gets paid, they can tell what their you know their largest expenses from real estate or apartment, or I mean, don't you think that they classify some of these items and therefore they could provide some interesting data in terms of, you know, I don't know which bank represents a truly national footprint. I think that probably, you know, Wells and Bank of America would be the two that I would guess have the most households, and so if you have those households and they represent a pretty good cross-section, except for the portion of the society that's unbanked, would that be the data that you would want to look at for increases in expenses and decreases in wages?

Clem Miller:

I mean, if we start to notice, yeah, that's certainly a good source of information. The banks for labor data, for price data, it's a good source. If you could take all the major retailers and aggregate their data, anonymize it and aggregate their data, that would be good too.

Steve Davenport:

Yeah, I don't know if I would want to share my data if I was CarMax and all of a sudden, you know, I think that if you're a company that's being it's having trouble with their sales or trouble they might, they might drop out of that participation in that survey. You know what I mean.

Clem Miller:

Yeah you could, you could, but if if you have, you know the benefit, don't know you're picking carmax out of the air, I know, but the benefit for a carmax would be they have access to all the other data too, that's uh aggregated and uh anonymized. So they would. You know you, you play, you know you what is it you play to know you pay to play, right?

Steve Davenport:

So they would have to submit data and then they would get a broader set of anonymized data back to get involved in something that really is a Department of Labor issue and, if the data hasn't been correct, it feels a little bit like you said, that it's a political decision and not a decision based on her ability or her performance. I feel like this is more of a distraction than it is a real economic event, and I agree with you that the data could be more suspect, but I think we'd have to wait a few months before we can definitely certify that. I mean, once they vary too much from ADP. As we mentioned, ADP is about 70% of the market and then the BLS is 100%. It includes all government and local. So I like to get from 100% source versus an 80% or 70%. But what do you think, Clem, in terms of closing this out? What should investors think about?

Clem Miller:

They should be thinking about. They should be writing their investment managers and saying what are you going to do about getting better data?

Steve Davenport:

Okay, so maybe we'll put the address of that in our comments so that people can mail letters to different people and ask I do believe that it's a piece of information and the more information the better. I'm a big believer in transparency and if this data could be organized better and presented better, I think we all benefit. So I appreciate everybody listening and this is kind of a short term item that we put together and in all things, we're trying to improve your financial wellness IQ and we hope we're doing that, and so please, text, share with your friends and let us know how we can make skeptics guide to investing better. Thanks, everybody, and have a good day.

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Clem Miller, CFA

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Steve Davenport, CFA

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