After weeks of market gains driven by optimism around trade policy and earnings strength, last week’s jobs report served as a sharp reminder that resilience isn’t the same as resolution — a theme we explored in last week’s blog post. Now, with significant labor data revisions and growing divergence within the Federal Reserve, markets are being forced to reconsider whether the economic foundation is as solid as it once seemed.
Fragile Foundations: What Jobs Data Tell Us
Last Friday, the Bureau of Labor Statistics (BLS) reported that the U.S. economy added just 73,000 jobs in July — well below expectations of 100,000. The unemployment rate climbed to 4.2%, a sign the labor market is losing steam (Source: Bureau of Labor Statistics, Aug. 1, 2025).
But the real surprise came from revisions: May’s job gains were slashed from 144,000 to 19,000. June’s were revised from 147,000 down to 14,000. Together, that’s a downward revision of 258,000 jobs — a jarring shift that redefines the story of the past several months.
This pattern of revisions isn’t new. Since the pandemic, the BLS has struggled with low survey response rates, misclassification of workers and seasonal models that don’t fully reflect today’s labor force. As a result, initial data often gets reshaped in hindsight, complicating everything from policy to portfolio decisions (Sources: BLS, Federal Reserve Bank of St. Louis, Wall Street Journal, 2020–2023).
In the wake of April’s “Liberation Day,” markets had hoped the worst of the tariff disruption was behind us. But now we see that businesses were already pulling back on hiring amid rising input costs — signs that only became visible in revision (Source: CNBC, Aug. 1, 2025). The old truism on Wall Street concerning the presence of economic strain, “Jobs are the last shoe to drop,” seems to be playing out in real time.
Fed Unity Frays: Conformity Bias and Decision-making Risk
The Federal Reserve held rates steady at 4.25% to 4.5% last week, emphasizing a wait-and-see approach to assess tariff-driven inflation. But for the first time in nearly two decades, dissent emerged.
Fed Governors Michelle Bowman and Christopher Waller broke ranks, calling for a rate cut to cushion the labor market. Their dissent reopens questions about conformity bias and the Fed’s longstanding preference for consensus over confrontation.
This cultural tendency has been criticized for slowing the Fed’s response to inflation in 2021–2022 and could again delay necessary action. Economist Larry Kudlow called it a “bureaucratic disease” that stifles diverse viewpoints — particularly concerning tariffs’ historically limited impact on inflation (Sources: Bloomberg, National Review, WSJ, 2023).
When decision-making depends on lagging and/or frequently revised data, conformity bias can deepen delays — just when flexibility is most needed.
Market Reaction: Confidence Check
Friday’s market reaction was swift and sharp. The S&P 500 fell 2.4%, its worst weekly loss in months, as investors digested weaker jobs data alongside newly announced tariffs of 10% to 41% on imported goods (Source: CNBC, Aug. 1, 2025).
While recent rallies were fueled by optimism around trade deals and corporate earnings, these new signals serve as a reminder: Confidence can shift quickly when assumptions are challenged.
What We’re Watching This Week
As markets recalibrate, several upcoming data points will shape investor sentiment:
Earnings season continues
More than 40% of S&P 500 companies report second quarter results this week. With 80% of reporting companies beating estimates, forward guidance on tariffs and cost management will be key (Source: FactSet, July 31, 2025).
Consumer sentiment & retail sales
Preliminary sentiment data for August and July’s retail sales report will offer insights into how inflation and trade policy may be influencing consumer behavior (Source: Bloomberg, August 2025).
Inflation expectations
June’s core PCE (Personal Consumption Expenditures, focusing on broad price pressures across the entire economy, including third-parties like employer-provided insurance and Medicare, rose 0.3% month-over-month and 2.8% year-over-year. This week’s CPI release (Consumer Price Index; measuring “out-of-pocket” expenses paid directly by consumers) will help clarify whether inflation is accelerating under new pricing pressures (Source: BEA, July 31, 2025).
Final thoughts
Recent market gains have been impressive — but as we noted last week, momentum doesn’t guarantee stability. The revised labor data and Fed developments are reminders that economic narratives can shift quickly and decisively. That’s why the advisory team at Elevage Partners remains alert, informed, and — always in service of your goals — prepared to make adjustments when circumstances warrant it.
You’ve heard us say this many times before: We don’t chase headlines or short-term trends. Rather, we stay actively engaged and thoughtful in our approach. That’s what it means to act as a fiduciary, and it’s a responsibility we take seriously.
You can count on your Elevage team to stay closely attuned as the tariff and employment data stories continue to unfold.
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