Something’s Not Working Out

Night whispers…. Friday morning. You hear that? That’s right. Nothing. Just quiet. Or maybe it’s the silence brought on by my inability to hear almost anything. Man in the darkened window, do you have anything to say? Oh, he certainly does. He wants us to know that though this week seemingly lasted forever, that Friday, August “Jobs Day” has arrived. He wants us to know that despite this week dragging on, that the month and in fact, the summer (and even 2026 for that matter) have gone by like lightning.

The man in the darkened window is watching very closely what the Bureau of Labor Statistics will publish at 08:30 ET this morning. Will job creation for August, as reflected by the results of the two BLS labor market situation surveys done every month, reveal an economy that has returned to net negative growth?

For July, the Bureau’s non-farm payroll headcount, after an abundance of salting, peppering, extrapolation and a touch of hot sauce, showed a loss of 23,000 jobs across the U.S. At that point, non-farm payroll growth for June was revised down from 57,000 jobs to 20,000. It was also at that point that non-farm payroll growth for May was revised down from 129,000 jobs to 63,000. That was after may had already been revised down from growth of 172,000 non-farm payrolls to that 129,000. Ugly.

Should we turn to the BLS household survey? That survey showed a national contraction of 87,000 employed persons in July that came after a stunning loss of 507,000 employed persons for June. yeah, this stuff is ugly kids. This is also why the man in that black window agrees more with Fed Gov. Christopher Waller than he does with Fed Chair Kevin Warsh.

Interestingly, the BLS conducts its establishment survey by calling a rough 120,000 businesses / employers every month over the phone and collecting responses via a web-based reporting system. The household survey is conducted by the Census Bureau for the Bureau of Labor Statistics. About 60,000 households are poled every month. The data is collected via telephone and through in-person visits.

For the record, I ran a chunk of trading-focused hiring at a major global investment bank in New York City for 13 years, headed economics departments at broker-dealers another eight and have been CEO of small businesses for another twelve. Not once have I ever been asked about my headcount by the BLS.

It gets better. I have been part of America’s labor force for 51 years now, without ever leaving that force. In addition, somehow, despite having a fairly high profile on Wall Street, my household has never been polled, and I have never known anyone whose household has been polled. Kooky, ain’t it?

Every week, people claiming to represent major global and national investment banks and economic think tanks reach out to take my temperature. My response is always the same. At this age it would take more dough than they would pay to get me to work for someone else. Been there, done that. Still the BLS can’t find me.

On Thursday…

On Wednesday, ADP reported U.S. private sector job creation for August at 38,000 new positions. That’s a positive 38,000. This came after ADP posted creation of 46,000 new private sector jobs for July, in contrast to those grotesquely negative growth numbers published by the Bureau of Labor Statistics.

Do we trust ADP more than the BLS? Almost certainly. ADP uses data obtained from 26 million workers. They are not calling businesses over the phone or ringing doorbells and hoping that people actually respond, like the BLS and its surrogate, the Census Bureau are doing.

The ADP employment report has averaged 68,000 new hires a month for 2026 to date. The last two months have totaled just 84,000 new jobs, so hiring has slowed, but at least according to ADP, has not gone negative for any month this year. Still, the margin between contraction and expansion is too narrow to play games with, which is why I have spent most of this week laying out my case in this column for why the Federal Open Market Committee probably should not now increase short-term interest rates.

On Thursday, Fed Gov. Christopher Waller spoke from a virtual discussion on rates, inflation and economic growth run by Reuters. Waller, who was considered for the chair and is considered influential, backed up a lot of what we have been trying to express here. Waller said that inflation is “meaningfully above” target, but recent trends “suggest we are finally seeing some signs of disinflation. If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting.”

Waller was not done. He went on…

“I’m going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting. What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%.”

Waller said that the underlying trends are actually “better than the core numbers suggest. ” He said that the annual numbers “are not the best guide for where inflation is today.” He also noted that the three-month inflation rate as measured by the Fed’s preferred gauge has slipped from 4.76% in February to 3.05% currently. Finally, Waller capped his sentiment with this… “That is a considerable improvement, and the speed of this downward trajectory is encouraging.”

Now, I ask a simple question. Given that the state of employment in the U.S. (ahead of this morning’s data) has been weakening rapidly, at least according to two of out three metrics, is this really the time to focus on the inflation mandate at the expense of the Fed’s other and I argue, even more important metric? Maybe the August surveys will paint a rosy picture.

We do know that there will be revisions regardless and those revisions are often large. Inflation is not running away from us. I know several Fed officials still read this column. Gang, protect the workers as long as inflation is the result of a supply shock more than the result of demand overwhelming supply at available price points. Is that not common sense?

This Gave Markets a Boost

Treasury debt securities only experienced minor relief in response to Waller’s comments. The U.S. Ten-Year Note paid 4.76% at day’s end (-1 basis point) and has not dropped from that level overnight. U.S. Two-Year paper pays 4.35% this morning up from 4.33% last night which was down from 4.36% the night prior. Equities, however, were a different story. The keyword-reading algorithms that control the various points of sale across US equity markets latched onto Waller’s words and did not let go.

On Thursday, the S&P 500 gained 1.06% while the Nasdaq Composite added 1.4%. These indexes somehow managed to outperform the Dow Transports, the Philly Semiconductors and all of the small to midcap indexes. So, who was hot? The banks, oh… and the autos on Tesla (TSLA) strength and software in the wake of Snowflake’s (SNOW) enormous rally. This does suggest some broadening of positive breadth that had not been there earlier this week.

Eight of the 11 S&P sector SPDR ETFs closed out the Thursday session in the green, led by the financials (XLF), discretionaries (XLY) and tech (XLK) as discussed above. The losers were led by energy (XLE) and materials (XLB). Growth and cyclicals beat out defensive sectors for the day.

Winners beat losers by a rough five-to-three margin at both of New York’s (Really New Jersey’s, that’s where the computers that consummate the trades for both the NYSE and Nasdaq really are now) major exchanges. (With the actual trading done in New Jersey and the decision makers now either in Miami or Austin or Dallas, who is actually left in NY?)

Advancing volume took a 64.1% share of composite NYSE-listed trade and a 67.3% share of composite Nasdaq-listed activity. Aggregate trading volume was a little lower on a day over day basis across the NYSE and a little higher across the Nasdaq. We do have a two-day rally intact going into Friday. We don’t yet have a “Day One” bullish reversal or a confirmation of any trend.

August Employment Situation (08:30 a.m. ET)

Non-Farm Payrolls: Expecting 52K, Last -23K.
Unemployment Rate: Expecting 4.2%, Last 4.1%.
Underemployment Rate: Expecting 8.0%, Last 7.9%.
Participation Rate: Expecting 61.4%, Last 61.4%.
Average Hourly Earnings: Expecting 3.3% y/y, Last 3.2% y/y.
Average Weekly Hours: Expecting 34.3, last 34.3 hours.

Economics (All Times Eastern)

1:00 p.m. – Baker Hughes Total Rig Count (Weekly): Last 588.
1:00 – Baker Hughes Oil Rig Count (Weekly): Last 447.

The Fed (All Times Eastern)

No public appearances scheduled.

Today’s Earnings Highlights (Consensus EPS Expectations)

No significant quarterly earnings scheduled.

At the time of publication, Guilfoyle was long SNOW equity.