Why BLS Report Errors Cost You Thousands on Your Mortgage

Each month, the Bureau of Labor Statistics (BLS) releases two crucial economic reports that influence everything from financial markets to your mortgage rate.  These reports are the Employment Situation Summary—commonly known as the “jobs report”—and the Consumer Price Index (CPI).  The jobs report is typically released on the first Friday of each month, while the CPI follows a few days later, between the 10th and the 15th.

 

Although these reports may seem like dry government documents, their influence is profound.  Bond traders, economists, and most importantly, the Federal Reserve, rely heavily on this data to guide monetary policy.  The prices investors are willing to pay for bonds—and the yield they demand in return—are closely linked to this data, which means that mortgage rates are too.

 

The jobs report gives a snapshot of how many jobs were added in the previous month and reports the national unemployment rate.

 

The CPI, on the other hand, serves as one of the government's two major measures of inflation, reflecting price changes across a broad range of consumer goods and services.

 

Both reports help the Federal Reserve assess whether the economy is overheating or cooling down.  The Fed is tasked with a dual mandate: to keep inflation under control and to maximize employment.  To balance these goals, it adjusts the federal funds rate—the interest rate at which banks lend reserves to one another overnight.  This rate indirectly influences borrowing costs for everyone.  When the Fed lowers the rate, it makes money cheaper for banks to borrow, which means lower interest rates for businesses and consumers.  When rates are low, businesses can expand more affordably, hire more workers, and drive economic growth.  Consumers also benefit through lower rates on credit cards, car loans, and mortgages.

 

But there’s a flip side.  When inflation becomes a concern, the Fed will raise the rate to slow borrowing and spending.  This tightens the economy, curbs inflation, and can even cause hiring to stall.  Whether the Fed is being accommodative or restrictive has real, measurable consequences for all of us.

 

Currently, the federal funds rate is set in a range of 4.25% to 4.50%.  You may wonder why it's a range and not a fixed rate.  The truth is that the Fed doesn't set the exact rate.  Instead, it influences it through the rates it offers on loans to banks and the interest it pays on reserves.  It also participates in open market operations—buying and selling government debt—to keep the actual overnight rate within the desired range.  This technical framework ensures that private banks don't stray too far from the target.

 

The Fed uses reports like the jobs report and the CPI to decide whether to raise or lower the federal funds rate.  If the data suggests that inflation is rising or that the economy is overheating, the Fed may raise rates to slow things down.  If the data indicates the economy is weak or that inflation is under control, it may lower rates to stimulate growth.

 

This is where the accuracy of the data becomes crucial.  The BLS initially reported that 291,000 jobs had been created in May and June combined.  That figure was later revised to just 33,000.  This wasn’t a minor oversight - it was a massive correction.  Yet, monetary policy decisions were made based on the original, incorrect data.

 

The BLS's methodology in calculating job growth is deeply flawed.  It relies heavily on surveys and estimates rather than hard payroll data.  While revisions are eventually made, they come too late to influence critical decisions made by the Fed in real time.

 

The CPI report is not immune to problems either.  Approximately 41% of the CPI is based on housing costs, and about one-third of that number comes from a survey question known as Owner’s Equivalent Rent (OER).  Survey respondents are asked: "If you were to rent your home unfurnished this month, how much do you think it would rent for?"  This is a highly subjective question.  Most homeowners don’t actively track rental prices in their neighborhoods and are ill-equipped to answer accurately.  Now image getting the same call the next month from the survey people.  Do you report the same rent, a slight increase, or a drop in your estimate.  Do you think you could accurately assess the amount of rent you could get for your home?  It is crazy to think this is now government reports are generated and the impact it has on monetary policy.

 

Despite its questionable accuracy, the OER metric makes up about 14% of the entire CPI figure.  That means a significant chunk of our official inflation metric is based not on real market data, but on homeowners’ best guesses.  It’s hard to justify why such a large and important part of our inflation calculation is derived this way.

 

These data flaws have real-world consequences.  Many economists believe the current federal funds rate is about 1% higher than necessary for a neutral monetary stance.  While the Fed’s rate doesn’t directly determine mortgage rates, the two are closely linked.  If the federal funds rate were reduced by 1%, mortgage rates would likely fall by around 0.75%.

 

Consider the following: A borrower who took out a $500,000 mortgage six months ago at 7.00% is now paying roughly $248 more each month than they would have if rates had been at 6.25%.  If rates were closer to 5.875%, a reasonable estimate if better data had guided policy - today’s housing market could look very different.  More homeowners would be willing to sell, knowing they wouldn't have to give up a 3.5% mortgage for a 7% one.  That would help unlock housing inventory and ease affordability issues for buyers.

 

All of this underscores a single, undeniable truth: inaccurate data costs us all.  Flawed jobs numbers and faulty inflation estimates don’t just skew policy - they make life more expensive for ordinary people.  While there's no indication that the BLS intentionally misreports data for political purposes, its methodologies are outdated and in serious need of reform.  No one has taken responsibility for these repeated errors, and the lack of accountability is troubling.

 

In the private sector, a CEO who repeatedly fails to meet performance expectations is replaced.  In sports, a coach with a losing record doesn’t keep their job forever.  Yet at the BLS, critical errors seem to go unacknowledged and unaddressed.

 

At the end of the day, we deserve better from our public institutions.  Because when they get it wrong, we pay the price - month after month, mortgage payment after mortgage payment.

 

 

 

 

And now the week’s economic news…….

 

Quiet Week

It was a very light week for economic reports with few market moving events.  As a result, mortgage rates ended the week with little change.

 

Two significant economic reports released by the Institute of Supply Management were a bit weaker than expected.  The ISM national services sector index fell to 50.1, and the national manufacturing index dropped to 48.0.  Readings above 50 indicate an expansion in the sectors and below 50 a contraction.  Service firms continue to outperform manufacturers, but higher tariffs on foreign goods may help domestic manufacturing companies narrow the gap over time.

 

The Department of Labor releases the total number of new claims for unemployment insurance each week.  The latest reading was 226,000, up from 218,000 last week and slightly above the consensus forecast.  Weekly jobless claims are important because they are one of the timeliest indicators of labor market trends.  While other recent economic reports suggest that companies may be scaling back on hiring new employees, this report indicates that they remain reluctant to lay off workers.

 

More important, the number of those with continuing claims – those already laid off but have still not found employment, stands at over 1.9-million people.  That figure of almost 2 million unemployed is growing slightly each month.  It has also been 11 straight months of over 1.9 million unemployed.  That number is staggering, as those that have used up all their benefits are dropped from being counted.  No one knows the true number of Americans unemployed and can’t find work.

 

The U.S. trade deficit surged to a record high of around $140 billion in March, as companies and consumers rushed to purchase ahead of potentially higher prices due to increased tariffs.  With the easing of trade tensions, however, more typical levels have returned over the last few months.  In June, the deficit was down to just $60 billion, which was below the consensus forecast.

 

 

 

 

Next Week

Looking ahead, investors will continue to look for additional information about tariffs and monitor comments from Fed officials for hints about monetary policy later in the year.  For economic reports, the Consumer Price Index (CPI) – the report I discussed in the first article today, a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will come out on Tuesday.  The Producer Price Index (PPI), another monthly inflation indicator, will be released on Thursday.  Retail Sales and Import Prices will be released on Friday.  Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

Reviews From Our Past Clients

With every client, we promise to provide you with a comprehensive analysis of your mortgage needs, the best service possible, and the best rates we can find.  We make it our mission to have every transaction close with our clients happy with the service we provided.  Browse through the hundreds of reviews we’ve received from our clients posted on both Google and Zillow.com, and read what they thought of their experience using Hawaii Mortgage Company.

 

 

Google Link:

Hawaii Mortgage Company Review on Google.com

 

 

Zillow.com Link:

Hawaii Mortgage Company Reviews on Zillow.com

 

 

 

Our Rate Quote System is Available to You

Our automated rate quoting system is live.  Now you can check rates and try different scenarios 24-hours a day.  Remember, it’s just a computer.  For non-standard rate quotes, such as construction, vacant land, and other specialty programs, you’ll still need to give a call.

 

Here’s the link:      https://www.hawaiimortgage.net/todays-rates/

 

 

Do you think all lenders are the same?

There is a difference when you use Hawaii Mortgage Company for your financing.  Here’s a short video telling you why:

 

https://youtu.be/c7AKQ5wa2_U

 

 

 

Broker vs. Banker?

Click the link below to get a quick lesson on why working with a Mortgage Broker will benefit you on your next transaction.

 

https://youtu.be/iH3igW5v2jE