Foggy Data, Clear Consequences | Market Updates | August 4, 2025

Jim (: 00:16

Welcome to Optimal Insights, I'm your host, Jim Glennon, Vice President of Hedging and Trading Client Services at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary, and these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode.

Hey, welcome everybody. Welcome back. is August, August 4th.

You know, summer's kind of winding down here a little bit, I'm excited to be back. I missed the episode last week, but big thanks to Jeff, Vimi, Alex and Mike for just a great episode on non-QM. I was listening to that on a little vacation last week. So hope everybody caught that. If you didn't, you should definitely go back and check that out. A good primer even gets a little bit in depth about where, you know, the non-QM non-conforming jumbo market is today.

We've got another great show for you this week. We'll do a market update, of course, and then we'll go further in depth on what's going on right now. There's been some pretty recent developments in econ numbers, the tariff discussion and other policy items from the administration. So looking forward to talking with James and Alex and Jeff about that here in just a minute. a little bit of data. As all of you probably know, if you're in

the industry and if you're not welcome and I hope you're curious about what's going on in rates right now. We had a huge rally on Friday on a dismal job report that had some revisions in it. had just a very low jobs build number in general. We'll get way into that here in a little bit. Some nuances around it, a little bit education as well. to unpack with that than it was just a poor report.

The OB-MMI is down to 6.65 and dropping this morning. So a big part of that is the jobs report and some of the news around that from last week. know, lock volume still looks very good. Probably get a little bit of an improvement this week with rates getting closer to 6.5%. So that's something to keep an eye on. Let's transition over and talk a little bit about the market.

Jim (: 02:24

Okay, welcome James, Alex, Jeff. We're gonna talk a little bit about a lot of things right now. We wanna start off with just a lot of the news that came out throughout the week last week. We had the Fed meeting, had PCE, we had some GDP data. wanna chew into that a little bit, want to then cover Friday's of Labor Statistics jobs report. We're gonna dig quite a bit into that as well and tie it back to some of the other numbers.

that we saw last week and then tied even further back to some numbers that were revised, you know, throughout this earlier this year. So why we kick it off there, Alex? What did we see last week in the way of numbers?

Alex Hebner (: 03:02

Yeah, we can jump into it. wouldn't say, let's not jump into it in chronological order. Maybe we jump into it by order of dramatic the impact was on the market. I guess we can begin with the FOMC meeting, was really just kind of business as usual. was very much expected there wasn't going to be a cut. There wasn't a cut. I think any drama surrounding the FOMC came out after the fact, late Thursday, early Friday, I believe it was. Kugler, who's currently a...

voting member of the board, she posted her resignation. She's headed back to the world of academia. Didn't really give a reason beyond that she was going to be teaching at Georgetown University. opens up a spot for Trump to nominate someone else to join the board. addition to, he will get to nominate a new chair next year when Powell's term is up. As we can fully expect, whoever the nomination ends up being, it'll be a very, very dovish individual.

give Trump an additional on the rate cut front.

Jeff (: 03:53

While the Coogler, just back to the Coogler, while that sounds

dramatic, think I saw, she was already up in January already, so it's just pushing forward just a couple of months, so maybe not quite as it may appear at first glance, right? Trump was already gonna get that nomination in the relatively near future, so it just speeds up that timeline a couple of months, a couple of announcements.

Alex Hebner (: 04:13

Right. Yeah. We'll have to see if that potential filling, you know, you know, is the, is the tie vote or that pushes across for a cut, sometime between now and the end of the year. ⁓ we are expecting a cut now, as we'll get into based on some, some sense release data since Thursday, we are expecting a cut now in September.

James Cahill (: 04:31

Yeah, if we want to step into it. So on Friday, the jobs report came out initial expectation was that we would pick up about 100,000 jobs. We only picked up 73. So it was a downside surprise. the real kicker was that the Bureau of Labor Statistics revised the previous two months. They revised them both down from about 147,000 to 14,000 jobs per month, meaning, you know, effectively we've picked up

30,000 jobs in total for this quarter. It's pretty slow and low compared to what we've been definitely rocked the market. There was a lot of movement there, into the media as well. There was a lot of conversation about why these numbers were revised, how we were kind of getting this. We want to take a chance to kind of touch on that.

The Bureau of Labor Statistics, of course, within the government, the Department of Labor, does a good job of sending thousands of individuals out to interview different businesses, stores, Walmart, and look at all these different products. They have list of thousands of products and what is the inflation on this? What is, ⁓ like, who are you hiring? How is this developing?

They have an army of people that they send to look at the numbers. And kind of two things over the past year is that the Department of Labor has seen a large cut in their jobs due to Doge Republican efforts in Congress, the big, beautiful bill to back off government employees. So their army has shrunk, kind of slows the amount of data they're able to get and process.

Something that I thought was interesting while looking into this was that if the Bureau of Labor Statistics doesn't have data on an item, so what is a bag of chips in Washington, DC? If they can't really get that number, they do something called imputation. So instead of this is the number for the bag of chips in DC, they go, this is the number for the East Coast. And they plug that in. If they don't have a good number for the East Coast, they go, well, this is like the Northern Atlantic. And they kind of build up from there. you go back to...

about March of this year, you'll see imputation on the Bureau Labor Statistics website was about 10%. It's now about 35%. So nearly a third of the numbers are being estimated effectively. And that might be a little scarier than it is. Again, if you don't have DC and, instead you have to go with Virginia, you're probably getting a similar number, but it is a foggier number.

And so with those foggier numbers, it's harder to see exactly what's going looking at employment, if we have these foggier numbers, as months go by, we're more able to see what was really going on. We're going to have these revisions that are somewhat more surprising.

Jim (: 07:26

Right. And these were huge ones this time around, they were all to the downside. So it shows a much bleaker picture, not just today, but looking back at least several months, which I, I mean, I think a lot of people have known this, right? You can kind of feel it in almost every industry, except for a select few where jobs are actually being created, which is things like healthcare, ⁓ certain types of government jobs, like education. in the meantime, we've all kind of felt it.

Yeah, that's a good, that's a good nuance, right? A third are being imputed. And then if you go over a long enough period of time, you're to get enough revisions to the downside. And meanwhile, there's a lot more going on, creating a bit of a perfect storm too, that is creating these numbers that seem to contradict each other too, right? You've got very small job creation number, right? That's the number we saw on Friday around 70,000, much lower than what we see in a very

healthy economy, 200, 300, 400,000 new jobs added in a month, right? But the unemployment rates is still low. So where are the jobs going? think what you can read in the stats lately, which creates a little bit of this storm is you born workers as a, as a body of people has dropped significantly, like by about 1.6 million. Right. I was reading that's kind of a staggering number. That's just since the beginning of the year.

And then, but meanwhile, you do have more workers coming in either graduating from school or just getting to that age where they want to get jobs. And the number of US born laborers has gone up by about two and a half million in that same period of time. Where are those people going? Where are they getting jobs? Not every, not every one of those people wants to be a teacher or a nurse or a doctor or whatever, right? Or working in hospital. So you're, you're having this tale of two different stories that's being debated with this, this jobs.

report felt like the time when it finally looked like those cracks that everybody says had been forming, you could actually see them now and they've been around for six months.

James Cahill (: 09:25

the data has been a little slow, harder to collect, right? Cause they just don't have as many people doing it. They're perhaps a little understaffed there, you, you know, if you have a son or a daughter, a nephew, niece, brother, someone who's graduating college and you ask them, Hey, what do you think the job market looks like out there? You're going to be hearing responses. You're not hearing like, Oh, they can't stop hiring. Like, I'm going to have a job day one, right? That's not what you're going to hear. So these really

Jim (: 09:44

huh.

James Cahill (: 09:51

job numbers that we've been getting for the past few months, they haven't really jived right. And this revision fits the puzzle a lot better. And, know, it's not that there was anything off with the numbers at the time. It's just that we're more able to see what was really happening. And it fits a lot more assessment. I was kind of joking about this that, you know,

Jim (: 09:56

Mm-hmm.

James Cahill (: 10:13

The tech industry has been doing a lot of layoffs. There's been about 80,000 layoffs in the tech industry so far this year. And like all those guys walked out of Microsoft on Tuesday and they were like, well, you know, I guess I'm just going to go Europe for a couple of months, soul searching or hey, they need me on the avocado farm picking. Like that's a good job for me, right? It's kind of curious that they could possibly be picking up these jobs so quickly. It makes a lot of sense that it's, it just hasn't been that smooth.

Jim (: 10:22

Mm-hmm.

Hmm

Yeah, it's like you said, it's survey data, which makes it difficult to get exactly right, even with some of the revisions. We're not seeing it in weekly jobless claims haven't been showing a big spike either, which made it even more confusing. But some of that could be, again, you have foreign born workers leaving the labor force, typically are not filing for unemployment benefits. Then you have some of who wants jobs are new workers.

who have never had a job, so they haven't paid into social security. They may not be able to get benefits. So a lot of these folks are not showing up in the numbers, but they're there and they're finding it brutal to find work right now in 98 % of industries.

Alex Hebner (: 11:24

Yeah, it's definitely a white collar recession of sorts. I saw some data on new grad employment rates and for the first time recent history, and by recent history, I mean, over the course of decades since the seventies or eighties, this is the first time that college graduates in that age bracket of college graduation age, I think it's, you know, 21 to 29, you know, just your twenties, their unemployment rate is currently higher than those who didn't go to college. the argument that I saw for that was it's largely driven by AI as AI is able to.

Jeff (: 11:24

Yep.

Alex Hebner (: 11:52

fulfill a lot of the roles that these often cover. But yeah, I think it's a big hole in the economy right now. And if it remains this way, it's going to affect us way down the line as well. if people aren't able to get into the labor force, else are they supposed to get in?

Jim (: 12:10

All

Jeff (: 12:10

Yeah, it's the phrase I like that we've talked about here on this podcast is we're in this low hiring, still kind of low firing state. mean, James talked about there are some layoffs going on in tech, but it's not, you know, across the board, the entire industry, like you said, you know, unemployment claims are not significantly up across the board. companies just aren't hiring, right? They're not necessarily firing. Consider really they're putting their CapEx into AI instead of hiring more employees.

So it's kind of a good time for them to obviously invest in other things besides hiring new grads or it's a hot time to do that. I'm not sure if it's a good time. Time will tell, see if it's a good time.

You know, the thing is, yeah, more cracks in the labor market than we have seen. much are those gonna add up? How does this start to offset what we're seeing on the other side? Now, it's a good time to transition to, you know, the other factor in the equation here for the Fed and talk about what's going on with prices and inflation.

Alex Hebner (: 13:06

Yeah, we got PC numbers last week as well. Again, it was very heavy data week. Uh, PCE ticked up ever so slightly, you know, we were, we were floating in the call it two and a quarter, 2.3 range, throughout the spring. It popped up to 2.6%. Um, I don't think that is really what's on the feds radar as we spent so much time here talking about employment, uh, inflation popping up to 2.6 % when they're comfortable with two and a half. I, do think they're going to backburner that for the time but again, not moving in.

the direction we would see it move. So just have to keep an eye on that. going to need to see a trend evolve there over the coming months for them to prioritize inflation again, I believe.

James Cahill (: 13:45

It would be a little early for the Fed, you know, to jump in and with the jobs report, there's probably something a little bit more important they want to look at. It does feel more likely that that rate cut is coming. Trump will get his wish in September. like that 2.6 is the top line number, but if you strip out energy and food, which, you know, why would you do that? Well, both are made at home. The U S produces our own. So if you were looking at goods that we kind of take from abroad or

produced other places, the inflation is closer to 3%. So there is an uptick in items we are importing, which is consistent with what you would think, which also means that there's, it's a ticking up inflation and a slowing job market. You know, a little early to jump on what that means, but it's definitely what the Fed has kind of been fearing. Why we kept the rates higher for longer was

we need to put this inflation to bed before we can ⁓ really start worrying about the job market too much. And maybe it's with the lagging data, maybe there's some tough calls coming.

Jim (: 14:51

Yeah. I mean, in the perfect storm we were just talking about, you may be able to keep labor market with an economy that's barely growing, which is kind of what's happening right now, right? That may not be good. It isn't good. It isn't good for things like innovation and just having a generally dynamic dominant economy. But for now, we're likely to be able to keep people employed to some extent.

You need a little bit of that slower growth to keep inflation from heating up again. But then it's you get into the blame game or whatever you want to call it. Is it the tariffs that are causing prices to go up? it the hot economic activity that needs the brakes put on it by the Fed continuously? There's still that debate that does seem to be turning a little bit with this recent jobs report. Most economists after the report on Friday are going to say it's all doubt, like it's going to get worse from here.

And that seems like a thesis that's pretty easy to believe at this point. In that case, then the Fed really does need to step in. If the unemployment rate goes up, which it went up a tenth of a percent, but it's not near where it needs to be for the Fed to be, on paper to be compelled to act to where you're going to have all, you know, at least seven of the voters call for ⁓ a cut.

Alex Hebner (: 16:10

I think ⁓ we're quick to forget how much air time in the spring when the employment picture looks rosy, how much time is I know I was talking about it. Let's not forget about inflation. I remember myself saying that over and over again. James is apt to point out, foreign imports are ticking up. And I think that's absolutely something to keep an eye on as well.

Jeff (: 16:31

But if we stay, part of this inflation story is that we've gotten inflation down, it's just kind of been, hasn't gotten below that 2.5 % barrier, right? We've been stuck in that 2.5, 3 % barrier. I guess the ultimate question is, can the Fed justify that we're okay with just slightly higher, stubbornly high, can't quite get to this next floor go address a weakening employment situation?

Alex Hebner (: 16:57

I think it was explainable in the economy of 2024. What was widely considered to be a very strong economy. People are okay paying a little bit more when they're employed and they're seeing decent raises each year. Chicken or an egg, the wages is driving that inflation. But again, folks are employed and seeing consistently.

rising paycheck, okay discounting that half percent extra.

can see that turned on its head very quickly though if we see unemployment continue to rise.

Jim (: 17:28

Yes.

Yeah, we haven't seemed to get to the point yet where we're all accepting that two and a half is the new two. And I thought it was interesting too. had forgotten Kevin Foley pointed this out on LinkedIn the other day. I'm not sure you all saw it, that two percent has only been on paper, the target for about the last 20 years. Before that, was just, it was more vague than that. was basically keeping whatever it is, sustainable inflation or low inflation. So two percent was actually implemented by Ben Bernanke, at least I'm taking

Jeff (: 17:51

All Bernacchi.

Jim (: 18:03

Kevin's word for it, I assume he did his due diligence on that. But, and since then that's been what everybody talks about and we rarely ever get below 2%. I mean, it's two and a half, just where we have to stay at this point. I think if we see another employment report, you know, my prediction would be that we almost certainly see a cut in September and probably cuts from there. If the unemployment doesn't, if the unemployment reports don't continue to improve.

James Cahill (: 18:30

Jim, to piggyback off something you had said earlier. So all these numbers and this shift in the economy, as long as it's kind of growing, we're in a good spot. Something that earlier this year was a really big story was that GDP in the first quarter was negative. And when people started peeling back the onion a little bit, hey, all these companies knew the tariffs were coming. They front loaded these imports to try and get ahead of it.

And in the GDP equation, if you have imports really high, it drives it negative. So it was kind of, you know, once you normalize it, it's not that bad. few weeks ago, we got the advanced GDP numbers for Q2 and they look pretty good. It's three points up. So, hey, we're like growing. That's a good number. But our imports are down about 20%. So now you take the exact same logic, you know, if you take

the equation, you dump it down on one side, you're raising the other. And something that I think we all kind of knew would come, but the pendulum was swung pretty far out when the tariffs were first announced, everyone front loaded, and it made our GDP look bad. Now it's swinging back the other direction. We maybe look better growth wise than we actually are. And I think that, again, that lines up with, this lower hiring is just not so quick.

people are not necessarily being laid off, but it's not hiring season. Companies are investing their CapEx more in assets. We're kind of hitting perhaps the peak if you're going back to your college economics, but that GDP is of celebrated a few weeks ago, but if you peel that onion back, again, it's not normalized. Our economy has not really grown so far this year.

which is pretty consistent with what we would see in these jobs numbers.

Jim (: 20:18

Mm-hmm.

Right? Yeah, it's maybe not as invincible as we thought earlier this year through some of the turmoil of the tariff discussions and all that we've talked about on here every week, but it all goes back. It does kind of fit the narrative that the administration laid out many months ago, that there would be some pain, that there would be a shift from foreign born workers.

to US workers, which that does seem to be panning out. At least the numbers are there. The jobs are kind of being handed over from foreign born workers to US workers, at least on paper, versus being created, which is not, maybe not exactly what you want to see. You want to see jobs being created in an economy that's growing. Right? That means businesses are investing. That means there's innovation happening. know, from...

The perspective of the new administration, all of this may be playing out exactly to plan minus I think they'd like to see the Fed obviously lower rates. That's been made extremely clear out in the social media. also like to fire the head of the BLS. I thought that was an interesting timing on that. I know I get frustrated when I see all of these revisions and why are the revisions so big? Why can't we get it right the first time?

I've etched about that for years, but what you mentioned earlier, James, explained a lot of that. And there's been articles written about it over the weekend where, especially again, in this perfect storm, so I'm kind of getting off on a tangent here, but I was reading something interesting about why this time around there's more of these imputed numbers. And it's that a lot of the largest corporations in the country are very reliable at reporting because they have a hold part of the business that reports the labor statistics every month.

And those businesses haven't had, they're not as cautious about hiring right now as some smaller businesses that are having difficulty growing or that may be more affected by tariffs or more uncertain about tariffs. they're slowing down their operations much more quickly. They were not reporting because they were focused on these other things, these other changes, this other volatility in the environment right now. But once they caught up, they were starting to see those smaller businesses were

we're not doing nearly as well in terms of hiring. We're not hiring people and may in fact have been laying people off or allowing them resign without backfilling. So just another sort of symptom of where all these things come together, right? The tariffs and the unknowns kind of cause these businesses to be cautious, but also cause them not to report their labor statistics for four months. And now we're playing a little bit of catch up and seeing what was really going on.

Alex Hebner (: 22:57

Yeah, I think I really just want to highlight the risks involved with the, and why it's caught so much attention in the media of this firing of the leader, the BLS, and just the, what is appearing to markets to be very partisan in nature. the one hand, Trump says she was inflating numbers up into the election to make the economy look really good in an effort to aid Biden. then.

There were revisions just after the election and now there were these revisions now, I would actually argue with Trump that, you know, it's actually helping him by having a lower jobs number. he doesn't like seeing a lower job number because a lower job number does show a weakening economy. you know, if there was partisan influence, you know, that is something that we would want to cut down on. would agree with him there. But I think that the manner in which it has been already made partisan,

Jim (: 23:45

Mm-hmm.

Alex Hebner (: 23:45

They need

to be very careful there because a lot of, you know, lot of the changes that have occurred this year have called into question some of the assumptions about the U S economy, the credibility of the economy. this firing, I think it's kind of a cherry on top in regards to how independent our data is decades. We've been known as independent nonpartisan data. the, the, the other hand, you know, a lot of people say, the Chinese, they inflate their numbers. They, they, they.

You know, they don't give us full numbers. and we just need to be careful not to into the same issues, because it makes these countries harder to invest in. at end of the day, businesses want clarity. and if, even, even if they have, ⁓ got rid of, got rid of partisan influences, if the market is under the impression that it was not in fact partisan, and that the move to fire was partisan,

that's gonna call into question a lot of the legitimacy that our economy benefits from.

Jeff (: 24:38

was a good comment from I forget who made the comment. It was a pundit on CNBC on Friday, but just talking about at least in the medium term, you know, I think the concerns you brought up in the long term, we've got to be very careful. How much do we degrade the confidence of the US economy in the long term, but at least in the medium know, we have the largest, complex, also most transparent market that there's ever been in the history of time, right? So, you know, businesses,

don't really care, at some level they don't care about the politics, they just care what the hard numbers are and they're gonna figure that Whether it takes some time to figure out what's going on in the economy or their own readings, they understand what's going on in the economy at some level. And so it doesn't matter too much in the medium term whether the numbers get inflated in one direction or the other. Businesses understand what's going on because again, we have this

we have such transparent, strong markets overall that we will be able to figure out that. So hopefully we can ride this out and not cause too much damage in the long term to the credibility of the overall economy.

Jim (: 25:36

All right. Man, heavy discussion once again today, everybody. Good stuff. Yeah. Keep your eye on it. What's on the docket this week? This is a very slow week in terms of, yeah, nothing to really speak of, nothing that I would call a big market mover, but a lot of the, think the fallout from the unemployment report is what a lot of folks will be continuing to talk about this week. What's going to move rates, what's going to move the stock market, even though we're up today, there was a big.

Alex Hebner (: 25:47

It's quite quiet, yes.

Jim (: 26:03

hammering of equities on Friday, starting to, you know, this, the stock market does seem to be very resilient and that's where the money is. So as you said, Jeff, people are going to figure out what's going on and dig through some of the, you know, push away some of the politics and figure out where the money's going. And there's still apparently a lot of opportunity out there, even though we're kind of in the summer, used to be the summer doldrums right now until about labor day, but that doesn't happen anymore.

Jeff (: 26:28

Yeah, we didn't have time to touch

on all the tariff that have happened the past week or two, right? With the August 1st deadline and all that came along with that, to talk about there that I'm sure we'll get to next week.

James Cahill (: 26:32

You

Jim (: 26:37

All right, thanks a lot everybody. Really good discussion.

Jeff (: 26:41

Thanks.

James Cahill (: 26:42

Thanks

for having us.

Alex Hebner (: 26:42

Thank you.

Jim (: 26:43

All right, let's wrap this thing up. Big thanks to Jeff, James, Alex. Great discussion. talk a little bit more next week about some of the additional tariff news coming up this week and just what the fallout looks like this week from the unemployment report and see some of you next week as well at the Western Secondary out in California. you're headed out there, let me know. I'd love to meet up. That's it for today.

Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thank you for tuning in to Optimal Insights.