Mixed Jobs Numbers Hard for Markets to Digest

New Vene. And Andrews, I want to first get your take on the jobs report. Um, it was pretty fascinating. It was a miss, of course, but still an ad of more than half a million jobs in the US economy. Now, John John said, always very interesting, a lot of focus on the markets, and at the core, I would say it's it's more of the same year we had, okay, not grade numbers once again, some some mixed messages for

the market to kind of digest. And I think he just kind of seeing that on the ten year today and you partly given bats in the yield move post to strong DP numbers and generally the market is expecting strong job numbers and we haven't quite been getting that, so so we're seeing a little bit less progress in the labor market. Um, that means less pressure for the said to remove accommodation, and that means a lower tenure.

So continue to have these mixed numbers. That makes it quite tough ultimately for the markets to digest what's going on here, and this debate around growth versus inflation really continues. Anders I have to say, I don't envy you fixed income guys. I don't know where you go to get yield. Where do I go to get some yield here in the fixed income markets? How much risk do I have to take to get a reasonably decent return? I know, it's it's certainly a dilemma for all of us, and

something investors are constantly asking us around. And you know, at the core, we we maintain its vally const aft to view and we're comfortable keeping you know, a modest risk overweight stands here and continue to focus on credit and spread sectors. Um. You know, with the backdrop of this slowly improving economic kind of environment, fundamental still improving nicely. We still have, you know, in my mind, nice support from the Fed and the central banks, are being delvish

and patient and not look into race rates to too early. UM. That combined with UH stretched but still okay evaluations, we kind of call it we're priced for reality, nice class for perfection. So we're kind of expecting spreads to have more of a range found kind of type being there for a bit longer, so so that really offers up an attractive terror trade or a cowpund clipping kind of cup environment, so that we're kind of seeing that playing out for the next several months and throughout the rest

of the year. So so to answer your question, we're comfortable kind of keeping more of a US overweight and going down into the rating spectrum UH and really liked asset classes to offer this a little more of the reads for yielding and so a couple of areas that we've been focused on, our leverage loans and preferreds loverage loans, you know, are definitely benefiting from all of these trans Fundamentally, the pictures improving lower defaults are happening or or kind

of seeing. Given the economic rebound and the loans, you have a nice feel pick up spread profile, particularly when you compare to other fixed income sectors and and a key aspect for us right now is as well as that, um you know, loans and preferred generally have floating rate aspects of it. So historically fliving rate, uh, you know, performance very well in the writing rate environments. Um So, that's that's a key area that we're we're finding value.

And then finally on the loan side in particular, we're seeing strong technical support. We've seen roughly twenty one straight weeks of inflows, been coming up to about twenty three billion dollars of inflows for for the low space, so very nice momentum. We expect that to continue for the rest of the year. Um So, loans in particulars and expected to be a solid perform in this kind of environment. All right, Anders, thank you so much for joining us.

Really appreciate getting your perspective on those fixed income markets. Anders Parson. He is the chief investment Officer of Global fixed Income at Nouvene. Well, Matt, A couple of years ago, our next guest showed me an app called flight Radar twenty four kind of tracks airlines, air flights kind of all around the world. So now you can offer round your house. Yeah, you can just find me looking up at the sky, then down at the app seeing where

this plane is going. George Ferguson, senior aerospace, defense and airlines analysts. He's responsible for that, He's for Blueberg Intelligence. He's been covering the airline business for decades. Absolutely an expert on Wall Street. George, it seems like they're a lot more plane in the air. Um, give us a sense of where we are in terms of overall air traffic as we head into the busy summer season and

how are things progressing? Hey, so thanks for having me. Yet, Um, what we're starting to see is that the level of capacities that the airlines are flying is approaching, if not exceeding l So that's a that's a great thing. Um. The load factors, from what we're hearing, are are quite good. I think they're I Frank, I think there's you know, sort of eighties and nineties and on their airlines, probably creating a little bit of stress with the flying public.

What we still see is it's a very leisure oriented bounce, right, and so that's keeping says depressed at bit. So even as we see this increasing capacity, increasing load factor, the revenue numbers aren't coming up as strongly. I think we really need to see the business traveler come back can And to me, it looks a bit like things have spread out on the bounds right. So we originally thought that you would get answered a really heavy bounce in

the core summer season July August. You know, it looks to me like people are getting a vaccination and going a vacation right away. You know, they all have thirty days a vacation built up, so they get they get vaccinated, they get comfortable and desought. Hey, we're gonna go in May or in June on a vacation and disappear for a week or two and get on an airplane. But that's what I's looking to us right now. Absolutely on a vacation front, for sure. On the business front, I

wonder what kind of developments you're seeing. Yes, still like I said that there were still being business is coming back slowly. You know, even me and my business gets very, very driven by air travel. Most of the people in my business should be willing to take meetings and ready to go to competences because we're the we're the believers in air travel. And you know, I'm starting to see

physical competences. Uh, you know, late to Q early three q they're getting some some decent numbers of people there. But I think we're on the early side of it. As the aerospace aviation people, we don't think business travel is really gonna come back well into sort of probably

deep into week q UH. And you know, we really think we still see it sort of being you know, maybe it gets back to sixt ish of last year UM in sort of three Q four q UM, but we don't think it's sort of surging back to of twenty nineteen levels until we get into into we think it's going to be slow. George, can I ask you

as one of the believers. Everyone who's connected to the airline industry swears by UM the ventilation system says you're unlikely to get sick in an aircraft, But all normal people know that when you go on a long haul flight, you're gonna get sick. Why is that? Why is there that discrepancy? You know, I think that of course, whenever you're stuck in in tight spaces and a whole bunch of other people, I think, you know, human beings immediately

get concerned about transfer of cold and whatever else. But look, I'll tell you you probably don't know anything about the HVAC system in in the office you're going to every day, the restaurant you go to, and taking nothing in your house. All right, and I'll do you. The airplane HVAC system is looked at more frequently than all those places and has a bunch of fresh air coming through it. So

I'm believing that one, to be honest, George. How about international trouble, that's that's a part of the business as really profitable for airlines, But it just seems like that's I mean, given how different parts of the world are dealing with the pandemic, that might be the last thing that comes along. It's a mess, I mean, and that's the other challenge we really see, sort of getting everything moving again, getting that high that high margin international chapel back. Yeah.

I mean, you know, I was looking today Australia doesn't want anybody to travel into also early it's still you know right now, uh, you know there's issues in the UK. Was with the people traveling in India. Looks good for a while, went bad and now you know you don't

want to be traveling to India. There's varying regulations or not between the US and Europe and back with US, but has been our Europeans that has been It's a mess, and different countries had sort of different views on the violence, different risk asiances, different willingness to require people to disclose vaccines. We don't think you see a really good international travel scene until mid next year. We think it's the earliest. We think it will be a week one this year.

And what we're seeing is the countries that have been more open, you know, for the US, Latin America, South America, that's where that's where we're seeing the flights go to. That's a very leisure market, So that's a challenge. It's a mess. Which I were in the States, I would go to South America on vacation instead of trying to figure out which European country will let me in even if I'm fully vaccinated. It truly is a mess. George,

thanks so much for joining us. George ferguson their senior Aerospace, Defense and Airlines analyst at Bloomberg Intelligence. Now let's get over to Lena Chelius Eva. She is Bloomberg Intelligence senior US economists and she can tell us what happened with this job's report. So Elena, let's start with the overall number here. It wasn't um it wasn't just a miss. It was a big miss. If you look at the whisper number on the other hand, it's on the right

side of zero. And we were about consensus and we missed even more. I would say true Bloomberg intelligence a right, Bloomberg economics. Yes, I think it's just uh, just showing us that it's the inertia on the board of potential workers who remain inhibited to rejoin the ranks of employment. So whether it's unwillingness to lose those expended unemployment fenessy, or it's some sort of inability to find proper childcare um or just you know, simply being comfortable well with

living on a smaller income. All these factors contribute to limiting people rejoining the labor force. And we saw a declining labor force participation and uh, that was the MAZE report. I think we will continue some inertia going forward in June and July, but maybe we will see some acceleration. Nevertheless, because the augmented unemployment benefits expired in the middle of this month, in half of the U S states that could help motivate more people to get back into the

labor force. I think it will just take some time for um job gains to accelerate to uh, you know, really help close that huge gap in employment in the big eating of the crisis. All right, So Elena, a couple of months in a row where we the job numbers came in below forecast. So is this a problem potentially with the labor market or is it simply a function of economists really don't know how are having a tough time forecasting an economy that's reopening from essentially a standstill. Well,

it depends on what you put a new model. If you look at driver us of demand, they are shoulge in. Look at the job splentiful of for example, indexes from the Conference Board Servy, look at claims. These things are telling us that labor market growth should accelerate at a very high rate. But you also need to look at things that limits that kept that job growth and unfortunately the really very um few precedents in the past that

help us forecast those things. But just based on demand, you know, job gains should be higher than a million Look at the previous year for example, like at this period of time. Just a year ago, we saw gains in two millions, like exceeding two millions five million jobs coming out of the initial UH wave of UH the virus. So you would think, Okay, the economy is in a much better shape at this point, so we should see

a much higher gains. But people adjust it to the new reality, and right now it is really the supply of workers that is holding a most significant progress in the labor market. Lenna, We've heard two very smart people, Gina Martin Adams and Tom Keane both talk about margin compression. What do they mean? What Why are employers having to reduce margins um in order to get employees back at work. Well, they have to raise wages to attract them, right, That's

that's the supply issue UH by itself. So you really need to attract workers who are just sitting on the sideline. I think that we may see some temporary pickup in compensation, but I don't really believe that it will start a new wave of wage acceleration at a fundamental level. I think, you know, still, the slack in the labor market is so big at seven points point six million people that at the end of the day, it will weigh on

wage growth. It's it may spike uh temporarily just informal temporarily bonuses or things like that to attract workers back into the labor force, but um fundamentally going forward, I

don't see a big increase in wages. So, Lena, I was kind of skeptical when the argument was raised last month that, you know, the reason that the number missed so much again two six or six thousand versus a consensus of you know, close to a million, that's because people weren't incentive to go back to the workforce because they were receiving such generous unappoyment benefits. But now we've got a couple of months of data points here, is

that a rational economic argument? You think that actually holds water. Well, it's one of the factors that is holding uh more growth back. I think we will find an answer to that in June and July because a lot of those are augmented unemployment benefits expiring, so at least we will clear that hurdle. But there are other things to look at, and I think, you know, being a model of a toddler, I can certainly see why a lot of women are not going back into the label force. You cannot simply

find the proper childcare. You're scared to send your child back uh to uh you know, to child care center or back to school for in person learning. So with more vaccinations and and even like if you can get your kids vaccinated by by stay September October, that will help a lot to in terms of acceleration and job growth. And another thing is just simple inertion on the part

of potential entrance into the labor force. We can probably by now figured out how to leave on one income instead of two, for example, and some people will just stay in that state. So it will be very hard to draw back all the people that were lost from the labor force. And as the Secretary of Labor said that just just now a few minutes ago, you cannot

slip a switch. So it will take some time to for people to get back, maybe at least three months, right, I mean we're going into summer and if you are receiving unemployment benefits, the kids are going to be out of school for the next three months. And you figured it out in terms of your um you know, in terms of the budget. Why even bother looking for a job until September other than to please you know, the

person at the work center. Well, that just tells you that maybe the summer will not be as hot as UH would be expected by all this surveys and increased reopening demand. So it may take some time for UH job growth to accelerate. So even though you know GDP growth will probably hit in the second quarter, in the third quarter of the years, it will take much longer

for employment growth to accelerate. And that is a key reason why the set is not going to rush into ending as it purchases that the pace that is at the current pea. I think tapering talks will probably commenced towards the end of the summer, but the actual tapering

process will not start until twenty two. Elena did that the data we're seeing here in the labor front to side impact your GDP forecast at Bloomerk Economics, not GDP forecast, because for GDP forecast and the implications from the the roll's report, we usually look at ours work and ours worked as quite strong, so UH and quite consistent with our forecast for the second quarter GDP growth in the vicinity of ten percent. I think that still holds what

about Carl's forecast at Bloomberg Intelligence. What is girl, folks, I don't know. I thought you guys worked together. I just I'm learning about this separation. I had no idea. Well, that is uh an interesting situation. And actually Carl was a little bit more pessimistic on on that, so I I really miss him. I really miss his judgment. All right, So Lena, what do you think we're going to hear

from that Sherman Powell over the coming weeks and months? Um, I guess this gives him some ammunition to kind of say, see, we know what we're doing. Well, so the fat I think really knows what they're doing. They they are being patient, and I think that will hold this status square and we will not see any uh you know, major updates in terms of tapering or of course no interest rate

increases talk for a very long time. So our forecast holds for tapering to start in twenty two and UH, for that, we do need to see a string of accelerating job games going into the late summer. So that chair, well, can um talk about uh, you know, some progress, some significant progress towards uh the FED schools and dual mandate and inflation. We're gonna get CPI A numbers again next week. Uh. Probably still acceleration in the pace of inflation. That will

not change their stance. That may push people back to work though, because we're seeing now you, Lena, that food prices are up to their highest level in a decade. Um. Housing obviously off the charts. Uh you know, car transportation costs rising with gasoline at the pump. So I guess if you're looking for a catalyst while we're still on these unemployment uh generous unemployment, relatively generous unemployment, um um, Uh, don't you get about don't forget about the savings, those

extra accumulated savings over them of the crisis. I think people will be is slightly indifferent to all this, uh way, well to all this price increases over the course of the summer. Well, they still have those savings and they still get some of those benefits, but a steams uh payments kind of fate into the end of the summer, we will see some deterioration in the purchasing power, and

then those price increases will stink. All right, Elena, thank you so much for joining us to really appreciate it. As always Elena Bloomberg, senior US Economists, giving her thoughts on the May jobs report. All right, let's check in right now with Bloomberg opinion columnist Tim O'Brien. He is writing about the success of Zoom. I mean, um, we all now zoom each other, regardless of whether we're actually using Zoom video communications technology. You just call it that,

like Kleenex or hampers, right. So, Um, like Google, we google things and we zoom people. Um. Tim, it's interesting you write in your column that we that we say this because the one of the biggest companies in the world, Microsoft has had technology to do this kind of thing Skype for much longer than Zoom has been around. And yet, as you put it, Zoom left Skype in its dust. How why Micro Microsoft had a product that was also a verb, right, we used to say skyped me instead

of I'll zoom with you. It just shows how dangerous it might be to have your your company's name put in the Oxford English Dictionary. Um. I think you know this is an example of I think not only Skype but also Internet Explore, which I addressed in the column as two products owned by a tech titan that was unable to either preserve the market share they had when it developed or bought them and and largely I think because it was out of sync with what it needed

to do to create a competitive product. And I think the technology industry is full of examples of this in which, you know, companies can't maintain leads for a long time because there's such a premiacy paste and utility, quality and innovation, and if you can't keep up, it doesn't matter if you've got micro Soft, deep pockets and expertise. In some cases, you can really get shunted into the what to the side of the road. And and we've seen this now

happen with Zoom obviously. Yeah, and we see this all the time and technology, and we hear about it from entrepreneurs founders of these companies. They're they're wary, you know, they want to take the big takeout deal, the big money, the big payday from you know, a Microsoft or Google, but they really are fearful of losing, you know, that edge that made them such a disruptor in the first place. And your column points out that's kind of what we

see here in a for examples from Microsoft, right. You know, if you think back to two about two thousand and one or so, Internet Explorer had at least a share of the Brown Cowser market and today that is a less than one and Google Google Chrome it has well over six of the global browser market. And Google developed a better product. It was lighter, loaded, faster. Developers preferred it, it played well on mobile. And some of this is

is a legacy of of Microsoft zone history. Microsoft was a world beater or when it introduced Windows as the leading PC desktop application, and everything Microsoft built was really, in a way tethered to the desktop, and the company got sideswiped by the web and then sideswiped by mobile, and it wasn't able, i think, to create consumer products that did as well on mobile as a company like Google. And you saw that more board out in the in

the Web Browser Awards. And and now with video conferencing, you know, Microsoft has a great product, Microsoft Team. Uh. It's a great video conferencing tool that's built up a big audience. But it's a corporate tool more than it's a consumer tool. And and Zoom obviously took the world by store during the pandemic. Had Microsoft stayed out its game, it paid over eight billion dollars to buy Skype, and I doubt they feel they've gotten the return on that investment,

to say the least. But had they done it right, they would have been beautifully positioned when the pandemic rolled around to have a product that consumers would have embraced on My is it maybe not possible to always create the best product? I mean, I think about this a lot in terms of music. Tim like more autos, right, you know auto the auto industry, like the back of your hand. Yes, But well, I you know there are examples there that are well, I guess it's all a

matter of taste. But if I listened to Derek and the Domino's Leila, it's great from start to finish. It's like an unbelievable record. And if you think, why doesn't another band come out with a record that's as good or better and they just can't write, I wonder why can't Internet Explorer be as good as Chrome? Um? Maybe Chrome just wrote that perfect song and you know they

got lucky. Well, I think luck is a factor. I mean, I think Google was positioned at the time to really be a present for for both the mobile and the web revolution in a way that Microsoft couldn't because of its own legacies. Has happened the companies in industry after industry, you know, we see it on the auto industry with electric vehicles, right, Tesla has been positioned to be a world leader in e V. Whether or not it consustained

that over time is one thing. But they also as a company or positioned to take advantage of a trend with the big the big two auto makers couldn't jump on a Tim, thanks so much for joining us a

fascinating column. Tim O'Brien, Senior Columns for Bloomberg Opinion has got a fascinating column out today, just kind of looking at Zoom, looking at Skype and Microsoft, word to Microsoft, kind of go wrong where they lost, uh that leading position in the video conference business to Zoom, which we've all become accustomed to, uh here over the last year

and a half. And you can read all of Tim's stuff and all the good stuff from Bloomberg Opinion at Bloomberg dot com, slash Opinion, or if you're sitting in front of one of those great Bloomberg terminals, just type in O, P, I N go and get some really great work from Bloomberg Opinion. This is bloombergon. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform

you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on Fall Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Great