DoubleLine Capital Flags Concerns Over US Economic Data Quality, Turns to Alternative Sources

DoubleLine Capital Expresses Skepticism Over Accuracy of US Labor Data

DoubleLine Capital, founded by renowned bond market expert Jeffrey Gundlach, has voiced concerns regarding the quality of data released by the US Bureau of Labor Statistics (BLS). As a result, the firm is increasingly utilizing a variety of official and private sources to gauge the overall health of the American economy.

This shift in strategy comes after the BLS issued substantial downward revisions to previously reported employment data in August, sending shockwaves through the markets. This raised investor concerns that the Federal Reserve may have been making monetary policy decisions with incomplete or inaccurate information, potentially necessitating interest rate cuts to correct course. At the time, anxieties about the integrity of US economic data were further heightened when then-President Donald Trump, without providing evidence, alleged manipulation of the July jobs report figures and subsequently dismissed the BLS Commissioner.

DoubleLine's Strategy for Economic Assessment

Ryan Kimmel, fixed income allocation strategist at DoubleLine Capital, stated in a report, "At DoubleLine Capital, we take a holistic approach to monitoring the health of the economy." Kimmel elaborated that the firm monitors official data, including reports from the BLS, but supplements them with proprietary datasets, corporate earnings calls, and internal expert opinions on corporate debt, consumer loans, commercial real estate, and mortgages.

Kimmel emphasized that "in the face of challenges regarding the accuracy and reliability of BLS data… having a robust, multi-faceted approach to economic analysis is more important than ever before."

Declining Survey Response Rates and Their Impact

Kimmel pointed to a decline in the participation rate for the employer survey used by the BLS to produce its monthly employment report, from 60% in the 2010s to around 40% in recent years. With fewer responses to employment surveys, the BLS has increasingly relied on statistical imputation techniques, i.e., using models to estimate missing data based on historical trends or trends in certain industries. "The more data that is inferred rather than collected, the greater the risk of measurement error," Kimmel explained.

BLS Response

In a statement, the BLS stated that while response rates for most federal surveys have been declining over the years, it remains committed to providing accurate and timely data. The statement mentioned that in addition to outreach efforts to encourage households and businesses to participate in its surveys, it is exploring ways to overcome response rate challenges, such as expanding reporting options or extending participation periods. "We will continue to research other ways to use a mix of survey, administrative, private, and other data sources to provide high-quality estimates," the statement concluded.

Implications for Monetary Policy

Following the Federal Reserve's interest rate cut last week, recent data showed that the US unemployment rate had climbed to 4.3% in August, and job growth was far below expectations. More recently, significant downward revisions to annual employment data through March also support the notion that the labor market is losing momentum, providing a stronger rationale for multiple future interest rate cuts.

"The deterioration in the quality of BLS data undermines the reliability of economic analysis, putting businesses, policymakers, and markets at risk," Kimmel concluded. "If this trend continues, it could lead to increased uncertainty and diminished confidence in the economy as a whole."