Written by Cormac Nevin
Equity markets had a relatively quiet week, with the MSCI All Country World Index up +0.4%. Fixed Income markets rallied strongly, however, after Friday’s release of the US non-farm payrolls (NFP) report showed that, according to the Bureau of Labor Statistics (BLS), the US economy added only +22,000 jobs in the month of August (vs +75,000 anticipated).
This caused a sharp rally in Fixed Income markets as government bond yields moved lower. The Bloomberg Global Aggregate Index of global bonds finished the week up +0.5% while the ETF tracking long-dated US government bonds (which is very sensitive to interest rates) was up +2.6%, both in GBP Hedged terms.
Strong initial NFP reports in recent years have created a narrative that the US jobs market has been in surprisingly good health following the interest rate increases in 2022, which many feared might cause a recession. However, revisions to the initial prints for May and June of this year showed the largest two-month downward revision since 1968, as 258,000 jobs which were never actually created were revised away.
While Donald Trump et al have used the existence of these regular revisions as evidence of conspiracy against him at the Bureau of Labor Statistics (causing him to fire the Commissioner in August and replace them with his preferred candidate), the reason for these revisions is more nuanced. They are necessary due the fact that the initial NFP print is a survey-based measurement which is then extrapolated to the economy as a whole.
This can be skewed by low response rates, seasonal factors and late responses among other factors. Another interesting adjustment made to the numbers is drawing increasing market attention. This is called the “birth-death adjustment” which is a statistical adjustment used by the BLS to estimate how many jobs come from new businesses starting up (“births”) and how many disappear because old businesses close down (“deaths”).
The challenge with using mathematical models too extensively, or taking their estimates too literally, is that the world often evolves in ways they struggle to adapt to. This specific adjustment struggles at economic turning points; it may assume lots of new businesses are popping up when in fact many are closing, which can make job growth look stronger than it really is until revisions catch up. The rise of “businesses” created by sole traders operating in the gig economy (eg Uber), which are never going to employ more than one person, is also a challenge for this model.
On Tuesday of this week, the Quarterly Census of Employment and Wages is released for Q1 2025 with a six month lag. This is based on actual unemployment insurance records from nearly every business in America, so it’s much closer to the “truth”. This is expected to further revise the NFP numbers by 500-800,000 as jobs which only ever existed on a spreadsheet at the BLS are revised away. The cloudiness of economic data at the moment, borne out of overreliance on statistics rather than conspiracy, is a strong reason why we maintain healthy allocations to high quality Fixed Income exposures with interest rate sensitivity, as well as globally diverse exposures which likely stand to benefit from a weaker US Dollar.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 8th September 2025.
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