This content is from: Portfolio
Locked-Up Journalists. Espionage Investigations. Constitutional Challenges. The Government’s Release of Economic Data Was Arcane and Complex — Until Now.
Inside the world’s most important data room.
In 1988 the U.S. Department of Labor built a windowless, cinderblock room in the bowels of its limestone headquarters in Washington, designed for one purpose: to lock up journalists.
The room — which now sits silent and unoccupied — is minimalist and penal, with industrial-grade carpeting, government-issued chairs, rows of homogeneous computer workstations, a single door, and a metal detector outside. The one indulgence is a large, atomic clock on the wall, set to the military time of the U.S. Naval Observatory.
“As I recall, it was always too hot or too cold in there,” says Carl Fillichio, who held senior roles in public affairs at the Labor Department for a combined 13 years under both the Clinton and Obama administrations. “It’s painted a horrible, nondescript beige. And on jobs day there is an armed guard outside. You know what it really looks like? It looks like the room where prisoners go to talk to their families.”
The name given to the facility by members of both the press and the government: “lockup.”
For decades about two dozen journalists have reported to the first-floor lockup shortly after sunrise on the first Friday of each month to receive a sneak peek at U.S. jobs data — more nerdily known as U.S. nonfarm payrolls and arguably the most sensitive, market-moving economic indicator on the planet.
Just after 7:30 a.m. ET, the doors open and the press files through a rigid, TSA-like security detail that X-rays their belongings and confiscates their mobile phones, other electronics, keys, purses and wallets, pocket change, and even fountain pens, which are kept in secure lockers, so journalists cannot communicate with the outside world. To be allowed to preview the jobs data before anyone else, they must also sign an eight-page contract forbidding them to take cameras, flash drives, or any kind of storage device into the room. Only then may they enter lockup, where, at precisely 8 a.m., staff and economists from the Department of Labor’s nonpartisan, number-crunching arm — the Bureau of Labor Statistics — hand out paper copies of what they call the “Employment Situation” and give briefings. Journalists may not leave lockup for any reason, barring an extreme emergency, and usually spend the next 30 minutes racing to type up their reports while Labor staffers count down the seconds to the data’s release. At exactly 8:30 a.m., a master switch is thrown, connecting the journalists to the internet, and they publish the data, en masse, to the world.
If only the system had worked. The practice of locking up journalists began before email, high-speed trading, and social media, and the ease of connectivity and the temptation to cross lines have led to a multitude of unnatural skirmishes. The excess of access has also raised concerns at the Labor Department, as accidental data leaks and security breaches, presidential scandals and federal investigations have dogged the agency for even longer than lockup has existed. “There’s no such thing as a totally secure situation,” notes Bureau of Labor Statistics commissioner William Beach. “But these data can move markets and make money for people in very, very large ways, if they have advance notice.”
Though Labor’s problems trace back to the days before the internet, the current White House has not helped matters. In 2018, at 7:21 a.m. on the day of a data release, President Donald Trump jovially tweeted, “Looking forward to seeing the employment numbers at 8:30 this morning,” breaking the jobs data embargo and sending bond yields and the dollar lurching higher.
“I literally threw up on the first Friday of every month, because if there was a screw-up or a breach of the data, it was going to be my fault,” recalls Fillichio. “We never stopped being concerned about the security of lockup, because the journalists were using their own computers and phone lines. We couldn’t fix the problem unless there was an obvious breach, and if there was an obvious breach, that would have meant I failed. It was such a catch-22.”
As a result of Labor’s increasing wariness about leaks and the potential misuse of data — admittedly, sometimes coming from within — this Friday will mark not only what likely will be one of the most devastating jobs reports in American history, but also the first time in 35 years that Labor will officially, and permanently, end its tradition of lockup.
The windup to the death of lockup has been coming for years.
According to Beach, the planning for Friday’s move predates his arrival at the agency in March 2019. “We’ve had, at the department, an objective of modifying or closing the lockup for quite some time,” he tells Institutional Investor, characterizing “security issues” with lockup and the handling of sensitive data as “the overwhelming reason” for Labor’s decision. Indeed, many at Labor speak about doing away with lockup as if ending it were the holy grail. “In the seven years I ran public affairs over there under President Obama, the options were: Leave it alone, fix it, or abolish it. I tried all three, and I couldn’t accomplish any of them. It was a maddening, fascinating problem,” Fillichio says.
Even so, killing lockup on the eve of what is shaping up to be the worst jobs data America has ever seen is completely unintentional.
“I think the most important thing to realize is that this is not a brand-new effort,” Beach says. “It’s been going on for a long time, and wasn’t successful until now.” According to a report out this week from Goldman Sachs, the real-time unemployment rate is estimated at 21.5 percent on the back of more than 2 million jobless claims a week and in excess of 40 million since mid-March, reflecting the decimation of the U.S. economy amid the coronavirus pandemic. Some economists are projecting that the U.S. unemployment figure could be as high as 30 percent. In the previous month’s release, the rate came in at 14.7 percent for April.
“Our real-time numbers suggest that the peak might already have occurred in May, and we continue to expect a fairly rapid decline in the second half,” according to Goldman’s Jan Hatzius. Anticipating enormous traffic on Friday, Labor has beefed up its website to ensure that the jobs data will be beamed out less than one second after 8:30 a.m.
“It’s ironic that the first jobs day officially without a lockup is going to be this extraordinary number,” says Fillichio.
The problem of lockup and whether journalists should be allowed to see the jobs data in advance stems from the fact that the jobs report nearly always moves the needle on national — and global — markets in highly dramatic fashion.
“All data obviously have value,” notes Betsey Stevenson, professor of public policy and economics at the University of Michigan and formerly Labor’s chief economist and a White House economic adviser. “But the jobs report is one of the best indicators of the overall health of the U.S. economy.” As a result, Wall Street spares no expense in attempting to predict monthly jobs numbers and, with the advent of high-speed trading, gain access to data feeds that might give traders an edge over the investing public.
Throughout its history, Labor has dealt with a wide range of breaches, scandals, and interference, from bizarre tensions with President Richard Nixon over rising unemployment rates to journalists reportedly providing data in the 1970s to Wall Street brokerage firms in exchange for kickbacks to, more recently, a probe into department breaches by the Federal Bureau of Investigation — which, according to sources familiar with the situation, may be ongoing. Along the way the Office of Management and Budget placed increasingly heavy restrictions on those who handled the jobs data, or were in a position to influence it, such as prohibiting high-ranking officials — including the nation’s president — from issuing policy statements until at least an hour after the data’s release, and forbidding Trump-like leaks on Twitter.
Stevenson, who worked as a senior adviser to President Barack Obama from 2013 to 2015 as a member of the Council of Economic Advisers, says they took extra precautions. “Our rule was that the president would not get to see the jobs data until he was done for the day, even if it was very late,” she says. “We didn’t want anyone overinterpreting his statements, his facial expressions, tone, or attitude, if he was going to give a speech at 8:00 p.m.”
In 1992, Labor required that all computers in lockup be connected to an on-off switch that had to be unplugged from the wall outlet until the 8:30 a.m. release time, and, by 2002, the agency had installed a master wall switch to ensure that Labor staff would have centralized control over the transmission of data. Surveillance cameras also were used to monitor activity both inside and outside the lockup. But even with these measures, reports of premature leaks causing market movements trickled in.
Sometime in the first half of 2011, Fillichio says, his assistant “came into my office to tell me there were FBI agents waiting outside to see me about an investigation involving the Labor Department. When I spoke with them, they asked me not to tell anyone about it, but it was clear there needed to be some real changes.” Fillichio, within days of meeting with the FBI, hired Sandia National Laboratories, which oversees the nation’s nuclear weapons systems, to analyze the security of the lockup space.
In a project dubbed CleanSweep, Sandia closely monitored Labor’s lockup process during the release of the July 2011 jobs data, conducting exterior and interior surveys of the radio frequency spectrum in and around the lockup room, both when it was in use and when it wasn’t. Sandia found there were numerous opportunities for the infiltration of “stealthy surveillance equipment” by technically sophisticated players. Following the sweep, it strongly urged Labor to replace all media-owned computers and IT equipment in the lockup facility with government equipment, and to remove all private data lines used by media organizations, stating that the presence of non-Labor IT equipment “creates opportunities for adversaries to compromise critical communications and data infrastructure.”
Taking a look inside the lockup utility closet, Fillichio says, he realized Labor did not have the IT know-how to untangle the mass of wires he found. “I saw it just once and — I’m Italian — it looked like a giant, modern homage to spaghetti. I thought, What is this? Who knows what’s what? Post-it notes everywhere, and God-knows-whose wire is going to what. It was fantastic to me that they let this happen. I had friends and colleagues say, Leave this alone. But I felt I had to do something.”
Over the course of the next year, Fillichio tried to carry out the security recommendations presented by Sandia — specifically, the instruction to replace press-owned computers and IT equipment with government versions of the same. But he was met with enormous pushback from media organizations and lawmakers alike. He also could not mention the FBI investigation at the time, “so I was accused of offering a solution in search of a problem,” Fillichio says.
Journalists were none too happy with the Labor Department’s insistence that reporters use only government computers, hardware, software, and phone lines, charging this was a violation of First Amendment rights. “Unlike any other federal agency, the Department of Labor is requiring that reporters write news articles on government-owned and -operated computers on a regular basis, which would give the government unfettered access to reporters’ notes and drafts,” journalist Daniel Moss of Bloomberg News testified before the House Oversight and Government Reform Committee in 2012. “No administration anywhere should have access to a reporters’ thoughts, drafts, or notes as a condition for covering the news, let alone news of such importance.”
The Labor Department, he said, had even requested that the media be allowed to use only “government notebooks and government pens. The government would literally own the reporter’s notebook,” Moss told Congress.
In the end a compromise was reached, but the peace was temporary. In a series of reports from the department’s inspector general in 2014 and 2016, and in every semiannual report to Congress since, Labor made clear it believes that the lockup process “unintentionally creates an unfair and competitive advantage for certain news organizations and their clients.” More specifically, the IG highlighted how news organizations “are able to profit from their presence in the lockup by selling to traders high-speed data feeds of economic data formatted for computerized algorithmic trading,” noting that with the “prerelease access, they are able to preload the data.” One news organization in lockup, the inspector general said in a 2016 report, went so far as to use “data-queuing software that exploited the active internet connection and automatically transmitted data, without any human interaction, before the embargo ended.”
These kinds of breaches are incredibly vexing, the University of Michigan’s Stevenson says, “because when data is leaked prematurely like that, it’s a redistribution of a large amount of money. Many people are going to make and lose money because of that.”
In January, Labor’s Beach wrote a letter to the bureau chiefs of a number of media organizations, including Reuters, the Associated Press, Market News, Bloomberg, and Dow Jones, again raising the topic of removing all media-owned computers and electronics from the lockup facility. But this time, instead of suggesting that Labor replace them with government-owned computers, as Fillichio had tried to do, Beach offered the most secure alternative possible: the paper copies of the monthly jobs data and “a new pen and pad briefing.”
The media’s response was immediate: All of the news organizations, within just days, banded together to send the Labor Department a legal letter calling the move unconstitutional. Labor cautiously began negotiations with them and delayed the policy changes, which were scheduled to go into effect March 1 but were pushed back to March 9 and even past that date.
But then Covid-19 arrived and, rather than risk spreading the virus in lockup, Beach announced on March 20 that “out of an abundance of caution and to protect the health and well-being of both department staff and reporters,” Labor would temporarily suspend all data lockups, until further notice. This included lockups conducted by the Commerce Department, which has used Labor’s lockup room for the release of its own data. Over the past two months, Labor has released jobs data at exactly 8:30 a.m. on the first Friday without incident. In fact, Beach says, apart from the evident carnage in the jobs market, things have gone rather smoothly.
On May 19, Beach wrote once again to the media bureau chiefs. As of June 3, he said, Labor “will permanently discontinue media lockups for all releases, regardless of whether current restrictions in place as a result of the Covid-19 pandemic remain necessary.” The decision will also apply to Commerce Department data. The main reason for mothballing lockup, Beach tells Institutional Investor, is to prevent any further data breaches.
“It’s about securing our data,” he explains. “We have a baseline responsibility to make sure that our data are secure from any breaches. . . . I think it is impossible, in fact, to stay ahead of technology and yet to provide in a 30-minute window an advance release for the media. I’m not saying anyone would intentionally breach, but we just ran so many risks.”
Asked if the decision is final, even if the media continue to push back, Beach says, “Yes . . . this is a final move on our part.” Labor will soon be in touch with media organizations about retrieving their computers and other equipment gathering dust in lockup.
“I tried for years to end lockup, but Trump and the coronavirus did it,” says Fillichio. “That’s the cherry on top of this — that Trump finally did it.”
Fillichio still believes the lockup problem can be solved. “I think a lot of people are kicking themselves right now,” he says. “I think if we had the chance to go back and do it again, everyone would agree we could do it better. We may eventually learn that Labor cut off its nose to spite its face. But we tried to find a solution with the journalists, and they, from our perspective, were also cutting off their nose to spite their face. So there are a lot of noseless people having these conversations right now.”