The Data's Suspicions Deepen: A Closer Look at September’s NFP Numbers

As I reflected on the dramatic rise in the September 2024 Non-Farm Payroll (NFP) data, which added a surprising 254,000 jobs, I couldn’t help but dig deeper into what now appears to be an even more questionable report. Just when we thought the narrative around the U.S. labor market might stabilize, a critical fact has emerged: only 65% of companies responded to the survey that forms the basis of these numbers. This revelation, paired with analysts' overwhelming consensus, casts doubt on the initial optimism and points towards a high probability of downward revisions in the future.

Analysts Weigh In: Downward Revisions on the Horizon?
The low participation rate of companies in the payroll survey has set off alarm bells. Historically, first releases of NFP data have always been subject to revisions, but this time around, the low response rate makes those revisions almost inevitable. Most analysts are already predicting that the reported job gains are likely to be adjusted downward in the coming months, possibly significantly. The reasoning is clear: when only 65% of businesses report, the BLS relies heavily on models and extrapolation, which leaves room for error. Revisions, in this case, are not just possible—they’re expected.

However, it's worth noting that a minority of analysts believe the numbers could still be revised upward, albeit with cautious optimism. These analysts point out that seasonal adjustments and the rebound from weak summer months could mean the labor market is stronger than it seems. Personally, I find this stance overly optimistic given the evidence at hand, but it’s worth noting as part of the broader market discourse.

A Seasonal Boost, But Is It Sustainable?
One aspect that we can’t ignore is the historical trend: September often sees an uptick in job growth due to seasonal factors like the ramp-up in preparation for the holiday season. This isn’t unusual, but the scale of this month's jump—far exceeding expectations—is what has raised eyebrows. In fact, the July and August NFP numbers were revised upward, but only slightly, with July revised from 89,000 to 144,000 and August from 142,000 to 159,000. These are modest adjustments compared to the magnitude of the September surprise.

Given the seasonal context, I would caution against reading too much into this single month's data. As history has shown, sharp increases like these often undergo significant downward revisions, particularly when such a large portion of the sample is missing. We should be prepared for the likelihood that this 254,000 figure will shrink once the remaining companies' data is factored in.

What This Means for My Investment Strategy
As bond prices tumbled following the NFP report, I saw an opportunity to dollar-cost average (DCA) into long-term bond ETFs, which I’ve been doing over the past week. In particular, I’ve allocated S$15,300 from my SRS account into an ETF portfolio similar to TLT, but more tax-efficient. This portfolio is IDTL (based in Ireland), allowing me to enjoy a 15% withholding tax on dividends, much lower than the 30% tax on U.S. ETFs like TLT. This is why I prefer to invest via this route instead of directly into TLT.

This investment approach is low-risk and focused on steady returns—not about chasing high gains or timing the market. I’m not expecting this portfolio to surge like the Chinese or Hong Kong stocks that have shot “to the moon” recently. Rather, this portion of my portfolio is built for stability and offers returns better than a fixed deposit (FD) in the bank. It’s about earning tax relief from my SRS contributions, dividends, and slow capital appreciation over time.

The most important factor here is diversification. I’ve allocated different portions of my portfolio to value stocks, growth assets, and bonds. This bond investment is meant to give me better returns than FD, with the added bonus of tax relief (worth S$1,759 for my SRS contribution). I also benefit from the dividend payouts and gradual capital appreciation due to the rate-cut cycle, regardless of how much the Fed cuts rates in the short term. The beauty of this strategy is that I’ll keep collecting dividends along the way, and any capital gains are just a bonus—far better than parking the money in an FD.

I plan to repeat this investment strategy come January 2025, when I’ll allocate another S$15,300 to this portfolio for the next tax relief cycle. This approach, in my view, is the best way to maximize returns while minimizing risk in today’s volatile market environment.

Wrapping It Up
As we watch the NFP numbers closely for future revisions, the key takeaway is to remain cautious and not be swayed by sudden market moves. I prefer to stick to a steady, tax-efficient investment approach that delivers consistent returns over time, rather than taking on unnecessary risks.

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