Jobs Day: U.S. Hiring Slows Amid Delta Concerns

at Bloomberg dot com slash podcast. Phil Orlando joins US chief Equity Market Strategies, also head of Client Portfolio Management that federated Hermi's Phil, what's your take on this job's miss? It was a huge miss. Uh, you know at uh two thirty five thousand versus the seven thirty three consensus. But I gotta tell you our number at Federated, we were forecasting four hundred and ninety thousand, so the number we thought was going to be a huge miss. Okay.

Your follow up question is, well, how do we need got to be closest? Without going over Phil, that's the rule. There are there are three key model inputs in our labor model. Two of them are weak. The ADP report for August missed by two hundred and fifty thousand jobs. The Philly said was very soft. It missed by four points. The third model input is the claims dad and frankly that's been pretty good. But when you when you and there was also a seasonal adjustment that was negative by

seventy seven thousand in this report. So when you work back the seasonal adjustment plus the upside revisions in June and July, that comes to UH and UH sort of a clean number, if you will, A four hundred and forty six thousand. We're forecasting four nine, So basically we were there. UM. I think that the myths that we saw today will be reversed in September. That number is going to be reported on Friday, October eight, and and the key factor there is the roll off of the

three federal unemployment bonus. Folks are going to be coming back to work in our view, uh, and particularly in that leisure and hospitality category that showed bagel in the month of August, which was very surprising that well. And we know, of course that those benefits, that extra three hundred dollar week expire September six. I believe that that is Monday, Phil. What this means for the markets, though, I'm wondering, is this September taper by the federal reserve

off the table. Well, in our view, it was always off the table because we were expecting this number to miss. We think the September number to be reported in early October will be very strong, north of a million jobs. So we expect the Fed to announce that taper at their f O m C meeting on November three. That's been our forecast. We're we're holding to that right now. What when we see text docs sort of holding us back from bigger losses and a sell off in bonds,

what does that say to you? Well, is probably strong word bonds in our view tells us that the market is reading through the hiccup on this number and that we're going to get the labor market back on pace later in the year. The Fed will announced the taper later in the year, we think in November, not in September, and so the bond market I think is looking ahead

and sort of pricing that end. But clearly you've you've had to slow down in in growth here, uh in the fact that technology stocks are doing well tells us that the market is saying, Okay, I've got to look for a place where I'm going to get growth, regardless of how good or how bad the underlying economy is, and and and tech has been a place where that's

been reliable over the last eighteen months. Phil or is it rates are going to be somewhat anchored because they're the Fed has made a point in a distinction between a taper and a rate hike. Correct is out what you also see moving tech. We we absolutely see that, but we we eventually the FED. If if we're right that the FED starts the paper before the end of

this year, let's say they started in November. We think it's gonna be a relatively short taper that by the middle of calendar two, the hundred and forty billion dollars QUEI will have been tapered down to zero. That sets the FED up to begin to increase interest rates. In calendar three. We're looking for two quarter point rate hikes take the funds right up by fifty basis points. So you've got to be able to sort of read the cycle.

That's the way we think this is playing out. And I think the technology sector is saying, Okay, if for whatever reason, delta variant economic policy, FED policy, whatever, the economy takes a tick down here, um, we're still going to get some good growth out of the technology names. How far can we get off the ground? I mean, what do you see as a terminal rate film in terms of interest rates? How I mean to two hikes bringing us to fifty basis points. That's still basically you know,

zerp right, So when when can we see real rises? Well, so our our forecast on on benchmark Ken's we think we get maybe back to one seventy five this year, two percent next year, maybe two and a half percent in calendar three. You know, that seems like a big number, knowing we're at fifty basis points a year ago, But in the overall scheme of life, two and a half percent on benchmark ten year treasury yields two years from

now is not death. That ought to continue to support a strong equity market, And in fact, our s and P five hundred forecast by the end of next year is still up at the fifty three hundred level, and we're sitting here at you know, let's call it. So you've still got some good growth in stocks, not the hundred and seven percent we've seen over the last eighteen months, but the equity market to continue to do well, certainly

outpacing the bond market. Phil You've talked about cycles a little bit, and I want to hit on this point. I'm trying to nail down some of our market participants on where we are in the cycle. If it's early phase, are you thinking that there's more room to run in the smaller caps? When is the transition to mid too late? And are we there yet? So so small caps, value stocks and international stocks are still the three areas that we're focused on here because we think there's still some

outsize games coming. But when you when you take a step back and look at the bigger cycle, the economic growth that we're going to enjoy this year, we think will slow into calendar twenty two, and we'll slow again into calendar twenty three, not to recessionary levels, but we

think more to sort of more trend line levels. Our early guests on calendar twenty three is GDP growth, you know in that sort of two to three percent neighborhood now all under twenty four and beyond is going to be a function of how draconian it's fed policy over

the next year or two. Fiscal policy with with Congress and the Biden administration, and might know those are question marks we don't know what's going to happen there um, but based upon what we think we know right now, the economy does decelerate back to trend line over the next couple of years, but not into recession. So that's not so bad. Let me take this in a slightly different direction. We had an op ed by Joe Mansion.

Was it just last night? It feels like days ago, but just yesterday, I think, um saying, you know, twenty eight trillion dollars is too much and we can't be adding to that deficit. He's concerned about all kinds of issues, are you We're we're we're absolutely on board with Senator Mansion that that if I could fill in some of the blanks, we now know definitively, based upon the n b e R the National Bureau of Economic Research, that the law the shortest and deep this recession in history

ended April a year ago. We had this powerful v bottom economic recovery that started last summer. We we know definitively that we have closed the output gap in g d P with the second quarter g P report this year, So we don't need another five and a half trillion dollars of stimulus to sort of prop up the economy. We're back to where we need to be. Now, what I think Senator Mansion said is the question here is

not propping up the economy. It's it's sort of reordering the social contract between the federal government and the American people. That's a completely different argument, and it's one that I guess the Biden administration Congress is going to have to make that argument to the American people. But but from an economic standpoint, we don't need five and a half trillion dollars of additional debt, higher taxes, et cetera to

resuscitate the economy because the economy is doing five. Are your clients asking you though about higher taxes and the impact on the markets? Yes? Absolutely. I just did two client meetings question Connecticut earlier this week, and that was that was those are the questions, higher debt levels, higher taxes, higher servicing of the debt, What does that mean to us as investors? And what should we be doing to protect ourselves buying bitcoin, water and building and building yourself

a fallout shelter. That was not my answer, but one client did jump out and talked about, you know, ammunition and can goods in the basement. You know, I'm not going there either, but but I almost went there, but I didn't say it out loud. It is it is an uncertain time for for clients and investors who are

out there trying to figure out what all of this means. Yeah, especially since you can't be in the basement if you live in the northeast, right, it's completely flooded too soon, mad And you also missed n f T s in there. N f T s are also this new thing after f n f T s are a little crazy. I'm I'm just talking about what you need in case armageddon comes. You could throw gold in there for bitcoin, but you

you have to have more and more people. Even though we don't see it Phil getting bearished, right at least at least hedging hedging bearish. Do you have a lot of people hedging well, I'll put myself in that category that that yes, we've got a forty eight hundred target on the SMP five this year at the end of this year, but we're also acknowledging the fact that that

we're sitting here at record highs now. I think we hit our fifty four record high the other day and We've got all of these fiscal and monetary policy head winds ahead of us, the depth ceiling, questions about the jobs report, economic growth, the delta area, et cetera. Could we see a five or ten percent air pocket over the next couple of months, you know, back to let's call it a two hundred day moving average. I mean,

that's very possible. Now, we would look at that as a as a potential buying opportunity if we can get some of these issues resolved. But but I'm not going to suggest that the market is going to go straight up, you know, to fifty next year without any consolidation in between now and that. How do you compete with a wall of cash that's flooding anytime you get a little bit of a dip, And we could fold this over

into high yield spreads. The minute it goes above three hundred basis points of where treasuries a wall of cash comes in. You wake up, you have a million emails from Japan. They can't wait to buy bonds that aren't negative interest rates. How do you compete with that? Well, it's very hard to compete with and and that's not to suggest that we're on the precipe of a bear market. We're not. But when I talk about an air pocket,

these things are relatively short lived. And and maybe it's because, for example, the debt ceiling issue becomes a near term hot potato or uh, suddenly it seems that this five and a half trillion dollar package in Congress is going to get the votes and we're gonna double capital gains tax rates something like that. Um. So when you're talking about an air pocket, you're talking about the market moving lower for you know, a couple of days, a couple

of weeks. But I think by the time we get back into the end of October beginning of November sort of work through. You know, the Fed is going to make that announcement. We think on November three, Uh, Speaker Pelosi has established a September seven vote date for a couple of these pieces of legislation. By the time we get into early November, we're hoping that we'll have some

answers to some of these questions. Remember when TARP seemed like an insanely large amount of money, like just unbelievable that they could spend eight hundred billion dollars, And now he said drop in the bucket. I want to ask you about a point that Crety Goopta made earlier, said she doesn't talk to a lot of investors who are really long term putting money down long term, you know, uh, for more like five to ten years or ten to twenty years. It's more of a near term to medium

term UM investment horizon. Do you see that as well? No, I don't. I there are certainly investors who are nervous about navigating the near term uh, you know, challenges. But I think if you're going to invest in the market for for college savings, retirement savings, whatever, you've got to be thinking longer term. And and the reality is that that America is the greatest nation in the world and the greatest financial markets in the world. We're investing throughout

the entire world. Companies produce positive earning. Stock prices follow those earnings. Eventually we're gonna stabilize with with better fiscal and monetary policies that will be able to project out into the future. And and as you're looking out, you know, over the decades um, you know, at eight to twelve normalize positive return out of stocks on a total return basis is a reasonable assumption, UM, and and so again as you're thinking retirement, college savings, those sort of good

longer term goals. Um. The equity market is the place where you need to be alright, great to get some insight with you, Phil. Always love hearing from you, Phil Orlando, Chief equity market strategists and head of Client portfolio Management that Federated Hermes. They've got a total of I think about six d fifty billion under management, but hundred and a hundred billion and change in equities alone. So great

to hear from Federate Hermes and Phil Orlando. Let's get over right now to talk about the aftermath of I saw described as ex Hurricane Ida. You know, hurricane or storm um, doesn't really matter because it did so much damage traveling up from New Orleans and hitting the New York, New Jersey connectic, the tri state area really hard. Um. What what are we seeing in terms of damage? What

are we seeing in terms of the aftermath here? For that, I want to bring in a Bloomberg reporter on this to give us late to Skylar Woodhouse joins us Um and Skylar. I heard a factoid today, not sure if it's true. I heard that more rain was dropped in an hour than ever had been recorded in that area before. Is that the case, Yeah, No, that is the case, definitely. I mean, you know, I was in my apartment and I could hear the rain outside, and I'm thinking to myself,

my goodness, it's really coming down. But no, the rain it came through and it really ran back the city, and it left a lot of people confused and just an utter shock really to what has happened and really such a short amount of time, and it was something that you know, no one could have expected to really cause such such great damage and to see the but what the storm did to the city, it just left so many people in complete shock and confusion as well.

People are just really confused as to what just happened. Skyler. That is of hints it my next question. This isn't our first rodeo with aftermaths of hurricanes. Why were we so caught off guard? Yeah, you know, I think after you know, I think the city did a lot of repairs after Hurricane Sandy years ago. But I think you know,

time is moving, thinks they're quickly changing. You know, climate change is presenting a whole set of new challenges, and I think this this range just came completely out of nowhere and just left everyone just so at loss as to why weren't we prepared and you know, what could have been done different to prevent such a catastrophe that we really saw. And it just raised a lot of questions as to what will the city and Albany do

to prevent something like this from happening again. Now, the Tri State area is not exactly a red Tri State area, so I don't know if it swings any voters, but um, how do you think people feel about the the Infrastructure Bill now considering what we just saw happen. I mean, I think people's eyes have I think people have definitely you know, maybe perked up a bit and or you know, maybe paying a little bit more attention now after what

we saw in the Tri State area. I mean you could say up here, you know it's it definitely leans, you know, it's definitely more blue. But you know, so I think it's leaving people that just definitely pay way more attention to um, you know, climate change in how the Infrastructure Bill could possibly um improve some of the downfalls that we saw were impacted from the hurricane through this bill and It's definitely made people realize that this

is something that needs to be taken seriously. All Right, Skyler, thanks so much for joining us. Skylar Woodhouse, Bloomberg News reporter on the aftermath of Hurricane Ida and New York City is worsening weather patterns. Let's uh, let's get back to the corporate world right now. We've got a great guest for you, Tom Bone, as the president CEO of

the Association for Corporate Growth. They have a huge network d mid market corporate executives all um running companies that are between ten million in market cap and a billion or ten million and I guess revenue per year and and a billion in revenue uh per year. And it's just a great place to get a picture of what's happening in the return to work. They have about thirty million jobs that they control, Tom, what do you think here as we as we round out what are we

now nineteen months, twenty months through the pandemic? Um? Are we getting back to work or is there going to be something new ahead of us? A great to talk to you both, Thanks for having me. We get a survey of about a middle market companies on what they thought the future would look like. And what's interesting about this survey is it happened it coincided just before we started to get to the peak of what delta was

looking like. So probably I think that if there was all to happened a little bit later, they'd even be more significant. But what we heard back loud and clear was that seventy percent of the respondent said that they were going to come back to a work environment that was very different, and they said it would probably be hybrid. Which hybrid model looks at, you know, coming into the office two or three days a week and then having much more flexible opportunities to work from home or god

knows where where people are working from today. But it was interesting though because this was prior to the to the very insurgeon, we had at least, you know, two thirds things it's going to be different. We're not going back to the way things used to be. Interesting, if you go back, at least in some portion to the office, what does that look like. Are you hearing that more of these companies are either doing testing or asking for

vaccination status. Well, it's a great question. And what we're finding in our data is that they're the vaccine mandates are actually very much aligned with kind of the political geography of the country. So in the southeast we're not seeing very many political mandates. In the northeast and out towards parts of the Midwest, and certainly on the on the far west coast, we're seeing a much more willingness

and likelihood to have vaccine mandates in place. And barring that, UM the flexibility comes in and they have to be tested, you know, a minimum of one, sometimes multiple times a week, which can become very very onerous. But it's definitely different than it was prior to all this happening. Beyond UM the virus, beyond the pandemic, what are your member executives most concerned about? What are the biggest challenges that they're facing.

Number One right now is labor. Labor lay. We're getting the right employees and getting them on time, you know, to to build the positions that they need. I keep hearing from everyone they just simply cannot hire. We just saw the jobs report come out today and I think it was two thousand new jobs when they were expecting seven hundreds something thousand. In the delta. UH they're talking about is simply the lack of people entering or re entering the labor force, and you know, we're seeing it,

certainly from our organization. Our members are saying over and over is that trying to get quality people in every type of position right now is incredibly difficult. And but the hope is, and I think you know, if you look at the survey that we put out there, is that employees want the flexibility to work from home. They're saying loud and clear, we cannot go back to the way things used to be, right, that is their strong hope.

So the hope is that with some of this cultural change now, with this hybrid and the selectible environment, that they're able to attract more employees. Well, I look at a CG. We have our completely distributed organization over fifty six employees. But what's amazing is that we are all over the US, so we can hire in any community across the country, and that's given us a significant advantage. Just about thirty seconds here, is there a skills mismatch? I you know, I don't know that it's much of

a as a skill mitch mismatches. It is a simply a lack of willing and able bodies to jump into the to the fray. I mean, it's it's a lot of the jobs before we used to have a problem hiring when the tech sector or technical type skills either generally across the board, middle management and other types of managerial jobs that people simply marketing jobs, social media jobs having a really tough time finding uh, finding the folks to take those positions. All right. Interesting. I wish we

had more time with you, Tom. I hope we can get you back on the program because your network. I just love to tap you for more insight. Uh, there's so much we can learn. And we didn't even get to talk about cybersecurity, which which is something that we think about a lot as well. Tom Bone there is the CEO and president of the Association for Corporate Growth. All right, and it is kind of a special episode, a little bit of a special day because of the

big non farm payroll jobs miss we had again. UM just got I think two hundred and thirty five is it? Two hundred thirty five thousand is what we added. Um, I gotta pull up my eco US screen again. Yeah, we added two hundred thirty five thousand jobs. We were looking for seven thirty three thousands, So Um, a huge miss, and compared to the previous month. You know, the original number we got was nine forty three thousand, that was revived revised up to more than a million, one spot

zero five three. So UM really apparent that the delta variant UM really crept into the economy since the last report. Let's bring in Tom Gimle is the founder and CEO of the Sound Network in Chicago to we're the leading staffing and recruiting firms in the country. And Tom, was this a surprise to you? I thought it was gonna be a little bit higher. I didn't think it was gonna be seven thousand. I thought it would be about four fifty or five. You know, I think we have

to look at this. We have the delta variant, we have the situation with school districts fighting with state governments UM, and we have the dispute over booster shots and and initial vaccines, and we still added almost a quarter of a million jobs. This is it's not it might not be a grand slam, but it's sure as heck isn't a strikeout. I think one thing that really hit people is that the leisure and hospitality sector didn't add any jobs.

How are you thinking about a sector by sector who's asking for staffing and who was saying they're asking for it, but the supply is the real issue. Well, I think the supplies the real issue around every industry. What we're seeing right now is that, and I know you guys talk about it all the time, is that the number of jobs versus a number of available workers for the first time ever outpacing one another. So I think you

have that issue you have in the restaurant space. I was having uh lunch the other day with the CEO of a major restaurant group in Chicago, and he was saying he could hire three hundred people if he could find them. So what you've got is this transition. And we still haven't had the the influx of people who are on federal unemployment, and we should see that in the September job in the October report on the September

jobs numbers. So I just think I really believe that the jobs numbers in the economy overall is more like a race track. You have the straightaways where you're getting really fast, and then you have you go slow down around the corners. And we've got changes seasons, the delta variant. We added a quarter of a million jobs. This isn't a bad thing because you can't go, you know, two hundred miles an hour all the time, and we're getting used to new things. We saw the education sector drop

and not adding jobs, and the seasonal aspect is real. Yeah, and it's a flag to flag race also with this um virus invariants forcing us to pitt and drop the slicks, add some rain tires. What what uh? When do we when do we get back up to speed again on dry tarmac? Well, my my guess is is that we're going to get through the end of the year and

we're going to see the delta variant level off. Is when I'm talking to two people like you guys, aren't everybody else's And what it seems like is we've got a rehash of of the most vulnerable are the ones getting hospitalized, and that might be people who aren't vaccinated and people who are older and or have chronic illnesses or obesity. And that's not overall and overall arching, but that seems to be where the numbers are going. And then it's gonna level off. What I haven't seen it all.

I'm talking to CEOs and heads of HR every single day is that companies are still hiring in mass they can't find people for certain areas. And I think what we're also starting to see is, and not that other countries aren't having are having problems with it, but you're seeing a lot a lot of companies go to offshore because if they can't find the workers here, they're going to find them someplace else, and that doesn't get reported

in the statistics. I gotta tell you that we have so the state of Saxony has so few workers that not only are they writing letters to Polish immigrants that couldn't stay in the UK after Brexit to please move to Saxony, but they are preparing refugee programs that will get refugees straight into trainee positions for like electro mechanical jobs. They need desperately to have new workers in these sort of engineering, electrical mechanic and then anything anything like plumbing,

you know, or any trades. They need people beyond belief. And the other thing you have to realize is we're also hitting maybe hopefully a climax, but but of where immigration is south of the border. For the past five years, four and a half years, it's been stopped. The influx of immigrants from the border, and whether illegal or legal, slow it down, and and and so guess what happens all of a sudden you don't have people to do the work that a lot of people would would normally

do who were coming in. So you've got the pandemic, and you've got seasonality, and you've got immigration issues, and you've got federal unemployment at the highest has ever been right, So all of those things at the same time with the delta variant, and we've just got a little bit of people saying, hold on, I'm not sure where I

want to work or what I could do. And I also think the other thing is that six months ago, eight months ago, employees thought I'm gonna be able to work from home and work remote and work from the beach for the rest of my life. And with UH, with the vaccine becoming readily available, corporations are saying, hold on here, we're not gonna go a pent back, but we are going to be hybrid and we're gonna want people to be close to the office. So you just had a lot of people figuring out what the new

normal is gonna be. Can you quickly talk to us about what you're hearing about wages. What are companies telling you. I was going to ask the exact same thing, and we saw, well, no, because I'm looking at the ECO page here, looking at the numbers. Average hourly earnings were up four point three percent. That's more than the street was looking for. And that's year over year, the month over month zero point six percent. That's double what the street was looking for. Tom. Yeah, So so on the

hourly side, it's a big bump. Of what we're seeing is uh number one municipality Chicago being one, San Francisco being another, that are now up to fifteen dollars an hour, and the surrounding counties around those cities had to up it as well to make sure that they could match what the cities are doing. So you're finally getting a

catch up right there. Number one. Number two, when you have the summer open up, you have more people going into the service industries, even though the numbers don't show an ad there, but you do have more people doing hourly work at an increased minimum wage. And then you have the search for for people in a in a very desolate market right now, So companies are paying more that can afford it, and they're paying instead of fifteen

seventeen nineteen dollars. So that's on the hourly side, on the salary side, on the white collar aspect, you're seeing companies that need to get people and and technology is driving it. So when you see technology and even accounting and finance which now has a technology element, marketing which now has a technology element with Google Analytics and different software packages, even sales positions, they expect you to have a software knowledge and an analytical brain more than ever

before to do that. So we're seeing companies start to pay more. However, I don't think that will increase at a rapid rate and at all level off towards the end of the year, because when there's a supply and demand issue, what you have is companies reverting to hiring three level people, and when you do that, salaries don't increase in well, while we have more and more UH

companies that are offering higher wages. In fact, I saw we have a newsletter, the Daybreak newsletter that I read usually first thing in the morning, and there's a chart in there from the n f I B today. UM, I actually have the chart I had the chart produced on the Bloomberg terminal. So if you have a terminal, you can type type g hashtag b t V space four three to one. You got that tailor. I actually like the number because it's a countdown G hashtag b

TV four three to one. And what this chart shows you as two panels, um, the top one shows you that there are more job openings. Well, more firms have job openings than ever before. The chart goes back to the seventies, so small businesses need workers and um, more firms are offering pay raises to get people through the door than ever before, at least since the seventies or

eighties when the charts started. So tom it looks like not only do a lot more firms need people, but a lot more firms are willing to pay more at this point now to bring him through the door. Well, they're also paying more to their existing staff and that also doesn't get projected in the data. And this has been a problem that iPad with the BLS statistics for forever is that it only tracked new hires and salary wages.

Where we have employees that get promotions internally, they may not go into effect for a quarter, they may not go into effect. It maybe bonus driven and incentified that way. So salaries are increasing, and we're focusing with more and more of our clients to say, you've got to start re recruiting your existing staff so they don't leave and paying those people more, and that also affects the market. Matt, it's interesting we await Um. Of course, we know that

we're waiting the President to come speak about this job's report. Tom, I am curious if you you know, could hear one thing? What would it be? Uh, Matt, Although I think the President is walking out now. Well, then we're gonna have to thank Tom. Really great talking to you, Tom. Always always good to get your take. Tom Gimble, founder and CEO of Last Down Network, Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews

with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Put on Ball Sweeney. I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio