Bureau of Labor Statistics dismissal presents opening for new leadership

President Donald Trump recently dismissed Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer in the aftermath of July's weak employment report, which featured downward revisions to previous months. The BLS had reported that July saw just 73,000 new nonfarm payroll jobs, while May and June’s numbers were sharply revised downward to 19,000 and 14,000 respectively, marking the largest revision since 1968. Many economists attributed the slowdown to trade tensions and policy uncertainty.

The revisions, though unusually large, were not without precedent and reflected a process rather than political bias, according to Hal Ratner, who is the head of research for Morningstar Investment Management. As Ratner noted in a recent report, the BLS releases preliminary job estimates based on incomplete survey data, supplemented by models, and then updates the figures when more surveys are returned.

"It’s essential to bear in mind that while some of the Bureau of Labor Statistics’ data may appear to exhibit bias or prove to be inaccurate after the fact, this is not due to political or ideological orientation," Ratner wrote in the report. "Rather, it’s the result of difficulties in collecting and processing huge amounts of data." In other words, Ratner argues, the revisions are a result of the process, rather than bias. 

But now McEntarfer has to be replaced. Ratner suggests leading candidates include Kevin Warsh, a former Federal Reserve governor with deep policy experience, and Kevin Hassett, a political strategist and former National Economic Council director.

"Since McEntarfer was fired for political reasons and Hassett is the more political choice - having been in Trump’s orbit for a while and not shy about 'defending' Trump - I thought he seemed more likely. I don’t know if [Wiatrowski] is 'in the running,' but as a career civil servant/technocrat, he’ll lend credibility to the numbers that may elude a more political appointee," Ratner told InvestmentNews today. "That said, it’s not out of the question that Hassett could establish credibility with the markets," Ratner said. 

While Warsh’s credentials may make him a contender for other economic posts, Hassett’s political background and media presence could position him as the likelier choice for BLS chief. A third option may be William Wiatrowski, deputy commissioner who serves as the interim head, according to Ratner's report. 

Ratner also pointed out in his report of the irony that McEntarfer was fired in part because of the poor employment report, but poor reports are what would support cutting interest rates, which Trump supports. Michhelle Bowman on Saturday made a call for three rate cuts over the course of the rest of the year, so there is a renewed sense of urgency.

"There’s little question that there’s momentum among market observers (as well as within the Fed) for some easing. One could argue that the market has already priced in at least a quarter point cut. The problem is that it’s extraordinarily difficult to forecast the impact of the Trump tariffs on inflation," Ratner told InvestmentNews. "The tariffs are really muddying the water. The employment numbers were really discouraging, however, and I do think some easing is likely," Ratner said.