Bloomberg Surveillance TV: June 7, 2024

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.

Let's get to the panel.

Joining Usnaws Mohammad al Erin of Queen's College, Cambridge, alongside Black Rocks Jeff Rosenberg. Gent's great to catch up with you both, Muhammed.

First to you.

You've had a bit of time to pour over this one. What's the big one for you?

So I'd like to look at this in four ways.

One the very narrow sense, this is a really strong report on the demand side, not on the supply side, on the demand side, but strong in terms of the for h employees, strong in terms of wages paid, et cetera.

It does close the door on a July weight cut. I think that is it.

We almost regardless of what the CPI number says next week. But then step back and ask the question of reconciliation with other data, and then the story gets a lot more interesting. We have this situation where the backward looking

Yeah, Jeff, this is really difficult.

It's a question we both asked my mckaid, can you reconcile this data this morning with the data we've had or week, First of all, your view on this morning's number, And second of all, to Muhammed's point, can you reckon saw this with what we're looking at elsewhere?

Yeah, a couple of things.

I mean, the big market reaction is not only because this is a strong report on its own, but it is stronger than what people were expecting going in. And there were two things that were kind of undermined relative to those expectations.

Number one, as Mike was.

Talking about the seasonal flows expected to push down, we overwhelmed those. And then there was a pull forward argument around warm weather and the construction number that Mike just mentioned was very strong. So you didn't see either of those things.

Muhammad mentioned closing.

The door on July, opening the door or reopening the door a little bit wider on the debate about whether or not policy is indeed as restrictive as the FED thinks it is. And this is a little more evidence to bring that debate back into the fore that you have the big financial conditions easing that's offsetting the tightening, and we may not be as tight as we think we are.

Mohammed, I'd love your thoughts on that.

At a time where your framework does expect some more significant weakening.

Does this data change that to you?

Does slamming the door in a July rate cut seem reasonable to you? Or are you concerned that this is basically the wrong signal at a time where what comes next looks different than what came before.

Look, it's reasonable for a FED that is over the data dependent, There's no way that can cut or signal a cut in July with this data, they would have to change their reaction function and be public about it. And I don't see the FED doing this. So that's why the door is shut. Now should it be shut is a much more interesting debate. You know, my view, we are in a weakening economy. There are no spad

There are no spad tires in this economy.

So if you get it wrong and you weaken too quickly, it's going to be a very difficult mistake to correct. The problem is which is the other bit of my view that you know, is we are living in a secularly inflationary world. Secularly inflation is going to be higher because of all the transitions going on. Domestically, we no longer talk about liberalization, deregulation, fiscal prudence, We talk about trade restriction, we talk about industrial policy, we talk about

Well, we'll get to Jeff for one second, but Mohammed, just to follow up on that, are you basically saying that the chance of a harder landing increases the longer the FED does not cut rates even if it appears strong on the surface.

I do because I focus a lot on the forward looking data and that is weakening significantly. So yes, that's where I am. But I understand that if you're data dependent, there's no way you're going to come anywhere near my view because you would have to completely change your paradigm.

Jeff, would you agree with that?

Well, I think there's a little bit of a segmentation going on in terms of where is interest rate policy biting, and it is in the lower end of the consumer side. The flip side of that is the wealth effect.

Right.

This is a FED that is basically said, if inflation is stronger, if growth is stronger, we'll just wait. They've given us a very asymmetric outlook with regards to their reaction to their data dependence.

What that has done is basically.

Given the green light for financial market conditions to be very easy, and the transmission of that into the economy is a very strong wealth effect for the predominant sources of where most of consumption comes from. So you do see the weakening that Muhammad's talking about, but the waiting of that weakening I think is less. And so yes, growth is slowing, but it's slowing to a level that is still well above trend, and so you don't get as much of the constraint and the push down on inflation.

If you want just joining us, welcome to the program. Fourteen minutes ago, a blowout jumps report a big monster upside surprise to seventy two is the number one eighty was the estimate. Two standouts here not just the headline number, also wage growth coming in hotter than expected at zero point four percent versus the estimate in our survey of

You know, I think that the conversation that we've been having with both Mohammed really the way he's talking about the idea that the weaker data really does point to something that is more sustainable that can't be offset from these numbers, and then Jeff saying, well, this reintroduces the debate really about are we restrictive? This is the seesaw, and frankly, the markets are kind of tipping it in

That's where we're are right now.

We shape the events, we anticipate that kind of thing. Can just imagine Kashgari walking into the two day meeting next week sort of banging the table, told you so, how we need to have this conversation right now?

Well, he would be right at that moment.

And then they're going to be the people who believe what Muhammad Lariat is saying, which is, if you look at the data, there is weakening coming down the pike, and you can't ignore that.

It is a fraught moment.

I actually think it's going to be a very difficult debate next.

Week Mohammed, we know what you think they should do. Let's talk about what they will do. How is Sham and Powell going to navigate this news conference given the information we just received this morning.

I think he's going to maintain maximum optionality, He's going to retain his data dependency mantra, and he's going to say, you know, we need more confidence. He's going to use the word confidence and patients. I suspect, and I said, you know, John, I find it fascinating. Two things I find it fascinating. First, I think it's a shame that we've broken the record of I think twenty eight straight months of the uninformed rate below four percent. That was

The downce side surprises.

We had moved yields in a massive way, moved moved the commodity complex in a massive way, had where did a little.

Impact on equity, and we're seeing the reverse today. And I find this absolutely fascinating.

And I would be very curious to hear what Jeff has to say about you know this, this difference in actual volatility between these two segments.

Jeff, what do you make of that?

Yeah, it's a great point, and I think it's explained by this other big topic that in other contexts, it would be the only thing we're talking about, and that's the AI boom. And so you look at technology as a share of the S and P five hundred, it's forty three percent market cap.

This is a different story.

I think where you want to see or where you see or where you want to look for to see the interest rate impact is in small caps, and I think we'll see that this morning and a much bigger outcome. And so it's numerator versus denominator. The numerator effect of technology, these incredible amounts of cap X and cash flows is just overwhelming the denominator for that index. And you see that particularly in growth. You see it in the S

You also see it in kind of macro.

Look at the move index, look at interest rate volatility relative to VIX volatility, and the VIX volatility is compressed because you have the text store. It's also compressed because you have a very low degree of cross market correlation going on in equities right now.

So there are some really important differences.

Going on in the translation of macro data into these indices, and the micro stories going on in equities are as powerful or overwhelming the macro story of the variability that Lisa just mentioned. You know, are we too hot?

Are we too cold? That you see reflected in the bond markets. Every data print and.

Certainly the macro environment is whipside, and we have been talking about the frustration of where to get conviction. Jeff, you where you really raise this point about this really questions how restrictive we actually are from your vantage point. Does this print of two hundred and seventy two thousand new jobs being created in the month of may change your view about the balance of risks of both the FED as well.

As for rates, Well, it's not my view that really matters. I think will the FED change its view and I really don't think they will. This asymmetric response that if ination slows, if growth slows, and I think the growth picture is going to be as important, the FED will increase its probabilities it will want to cut rates for the reasons that Mohammad said, They're more worried about.

Now losing the war.

They won the battle on inflation, they don't want to lose the war on the soft landing. And so because of the asymmetry, I think that eases some of the market reaction, the broader market reaction, obviously not from the day reaction to today.

So I don't think much has changed there.

I think if they were to start talking a little bit more about the concerns about maybe we're not restrictive, if you had more growth data, they'll get the question eventually again, you know what about hiking rates.

He'll dismiss it.

And I think that asymmetry is still with us, and I think that's supportive to the financial market outlook.

And so I don't think there's a huge change there.

Jeff just at a record We care what you think. We care a lot about what you think. I think this story written yesterday by Rich Miller ally care at Bloomberg. Got to share this with you because there will be some of you out there asking do these numbers this morning overstate the strength of this economy? Are we measuring

Yeah, it's interesting.

You're going to have a lot of debate over this because Steve Stanley from Zen Tandeer points out that we had basically the same situation at this time last year, and then the QCW numbers, the ones you're referring to, were revised down and we basically didn't have much of a significant change in payrolls overall. They don't give us the number until August, so we'll be waiting for that.

It race is the question, Lisa, we having the right conversation. Something we have to think about.

Well, here's the thing you got to worry about is the FED has to deal with.

The numbers that it has, and so if.

These numbers come in much weaker when they're revised later on, everybody's going to say, well, the FED missed it, but they don't know.

Well, this is a reason why, and it's actually wonderful to have muhammadan this is a reason why. He says, this is one of the fatal flaws of data dependency, especially.

When the data is messy. And that is the moment that.

We are clearly in, Mohammad, Let's get to it. Do you think we are having the right conversation? Obviously, based on what you've told us over the last few weeks, you don't think we are.

Now, Look, I think we're having the right conversation on based on the data we have. It's very difficult to have a conversation on contrafactual data. But what we are being reminded over and over again is how difficult this economy has become to understand, you know, John, go back to August twenty twenty, twenty twenty two, the famous eight minute speech with pain. Go back to the Bloomberg headline of October twenty twenty two, one hundred percent of probability.

It just gives you a sense of if.

You become two data dependent and don't take longer term views, you end up risking real mistakes.

And that's what I'm really worried about. John.

There are some very clear secular trends going on. Jeff mentioned what's going on in AI. That's one of several secular trends that are going to be with us for a while that we've got to incorporate and stop looking simply at the view mirror. You have to both look at the wave from mirror and through the windscreen.

Jeff.

Final word, your big takeaway.

Well, it's just clearly a big surprise, down big downside surprise relative to expectations. July's door is closed, opening the door on a debate about how restrictive FED policy really is.

Can I just ask you both your best guest for the doubt plum next week to a one to a one on that doubt plot.

It cuts this year Hammed first to you one, Jeff.

Just for contrast, I'll go with two, okay, Jeff Rosen fact black rop, Mohammad Larian Jens appreciate it. I know you would as you trouble, Muhammad. We know that Jeff is too appreciate it.

Gents, thank you.

Welcome to our TV and radio audiences worldwide. Welcome to the Labor Department today. We are here with the acting Labor Secretary, Julie Sue At Secretary is great to see you this morning. Thank you for joining us on another job's day. We've got a bit of a mixed signal here in this job's report. More payrolls than expected and a higher unemployment rate than expected, which survey household or establishment is reflecting reality.

Well, this is another very strong jobs report.

I'm not going to get tired of coming here and telling you that we are continuing to experience very strong, stable and steady growth. So it's two hundred and seventy two thousand jobs created last month. The unemployment rate has remained at or below four percent for thirty months straight. That's still the longest since the nineteen sixties. And at the same time, real wages you know, over the year are up four point one percent, So.

Workers are doing better in.

An economy in which the President has said, when we focus on workers and worker well being, we're going.

To do what's right for the economy and for the country.

When you look under the hood, do you find that four hundred thousand, even more than four hundred.

Thousand people left the labor force in May.

The participation rate is not back where it was before COVID right now, how do you explain that?

Well, so let's say, you know, the prime.

Age labor force participation rate remains very, very strong, and it's worth noting that again women's labor force participation rate hit.

Another historic high.

So last month we said it was the highest since nineteen forty eight when this data was begun to be collected.

It's now a little bit higher than that.

Even so, women continue to power our economic recovery. At the same time, you know, we are seeing again strong participation. People are in the job market. People have come off the sidelines. People are looking for jobs and they're finding them. Where there has been a little bit of you know, of a very small uptick in the unemployment rate again still out or below four percent for the longest stretch in decades, but has to do with young people ages

Of us parents with kids who graduate and maybe.

Move and you are looking for different jobs during that time.

You can tell a great story and put a great headline number on that unemployment.

Story as you are right now.

But when you look under the hood, you do see some elements of weakness compared to the payroll Survey, And I wonder, while you're happy where it is now, if you worry about where we're going to be six months from now, if this is a slowing job market.

Well, the payroll survey really is the gold standard when it comes to the unemployment rate, right, this is the you know, it's the largest by far of any data set, including the household survey.

That is used. And so again, I don't think there's.

Any way to paint this as other than continued strong, stable and steady growth under President Biden's leadership and proof of his theory that if we invest in America, we can create good jobs in communities and crowd in private investment in order to do that. And you know, as I travel the country, I'm seeing the benefits of that.

We've talked a lot about the impacts that immigration has on our job market, can be for better or worse, depending on the trend that you're looking at. And there's an analysis from Steve England Standard Chartered Bank that we looked at this week that estimates about half of the job growth since October can be attributed to undocumented migrants. That it's somewhere in the area of one hundred and

I mean, I haven't.

Seen that study. I would actually question those numbers based on.

What we see.

This is a situation where one we're not talking about dividing a small pie into smaller pieces.

We're talking about a much bigger pie overall.

So more jobs, more people in the labor market, more opportunity for all. Since the President came into office, again, we've talked about this, you know, fifteen million jobs created. That is a fifteen million families, fifteen million individuals who are having the benefits of a good job that might

But the majority of this job.

Growth that we're talking about has gone to native born workers.

We'll talk to me about the other side of this story, and that's immigration reform H one B, H two B. We spend all day talking about border security in Washington. What does our job market need in terms of attracting talent from other countries legally?

I mean, it's such an important question, right, This is why since day one, President Biden has called for the kinds of comprehensive immigration reform that would address some of the challenges that our system has created.

Job market look like with that help, what what our job market.

Look like with you got that reform?

Right? Well, so we do adminster.

You know, we have in this administration increased the number of H two B workers that have come in. We recently did a rule around H two A workers making sure that when migrant workers come to this country through legal means, that they're also protected right, that they are protected for their own good, but also so that they're being here doesn't take away from you know, the good wages in those industries, so you know, but the bigger picture is that there does need to be comprehensive reform.

To do its job.

There's something that I don't want to get too deep in the weeds called the birth death model that our analysts set Bloomberg Economics, are looking at that would suggest some of the companies that we've seen closing might not be reflected yet in the numbers that we saw in this monthly survey based on layoff announcements corporate closures. Where do we look in the middle of summer when these numbers start to emerge.

Well, you know, we will come out every month to report the data that we have.

But everything that we.

Have seen this past month, this past year, as well as you know the last year since President Biden came to office, is historic job growth, more jobs created during the same time period than any president in our history, and continued low levels of unemployment again historic lows, and more opportunity to come right. The investments in the President's Investing in America agenda, many of them are still coming

Job does for you, Job principles.

Summer tour.

You're like Beyonce, You're launching a national tour and it's not a mistake. I see some of the states are going through, like Pennsylvania and Michigan.

What is your message to voters in those states.

Well, my message to working people is that we see you, We have your back. We know that you have talent and desire, and we want to create the kinds of opportunities that will allow working people to have a good job where they can be paid a living wage and live a secure life.

And our message generally is that when.

You build a workforce that is ready, that is trained, that is skilled, that pulls the full talent of the American people, it's good for employers, it's good for economy. And we see that time and time again in these job numbers.

Getting back to the household survey, which is important to us and our viewers and listeners. The fact that it reflects agriculture, the fact that it reflects what's happening in people's households.

Does that not raise.

The level of importance of the household survey at this point. When we look at that against payrolls, they get a sense of not even as much where we are now, but where we're going.

I mean, I think the bigger you know, the answer is the payroll survey is the survey that tells us how many jobs have been created, what industries they'd be created in. And again, this the growth we're talking about is not just single industry, right, it has been for the entire time, but certainly this last month is no different,

Against, well, I haven't even mentioned that yet.

It's my job to ask you if we're in the soft landing. I haven't heard words like goldilocks this morning. What's your broader thirty thousand foot view on that. You're looking at your slice of the economy, that's the labor market is a soft landing intact.

I think so.

I mean, again, it's the kind of thing where we're always vigilant about where the economy is going, but based on where we were.

Remember in twenty twenty one, right the.

President came into office, COVID was raging, there was no national strategy to address it.

Unemployment was very, very high.

People didn't know if they were going to get toilet paper if they went to the supermarket. And now we have historic job growth, low levels of unemployment. I think it is the very definition of a soft landing.

You mentioned COVID. It's not the first time we've brought.

This up as a barometer or maybe a baseline for where we are now versus where we were before the pandemic.

It's still impossible to forecast, isn't it.

You see these payroll numbers blowing off the charts based on estimates not just by the government but by Wall Street and economists who are a lot smarter than I am. When will we be able to get a handle on what comes next?

Well, I mean, I think you know the reality is, that's why we don't look.

At any one month's numbers, as you know, over relying on them to tell a story.

But The story of this economy from January twenty twenty one until now is of steady, stable growth, shared prosperity, and more investments to come.

We know that, you know that there's more work to do.

We're also seeing the lowest levels of like black white unemployment in a very long time. So it's equitable growth too, and that matters a lot.

What would a second Biden term mean for the job market.

I think we continue to deliver, right, We continue to build a strong economy. We continue to invest in American industry in.

A way that hasn't been done in decades. So building you.

Know, restoring roads and bridges, making sure that every family who turns on the FOSSi gets clean drinking water, making sure that everybody breathes clean air, and has access to high speed, reliable internet.

Those are the kind of infrastructure investments you.

Know, we're you know, we want to build the things that we invented, right, So bringing manufacturing back to the United States, I think it means, you know, continued opportunity for the American people.

Will you still be in this building if there's a second term.

Well, you know, I don't want to many predictions about that. I do serve as the pleasure of the president, but it has been an honor to help to deliver on that vision.

Well, I'm glad you can join us on another job's day, and we'd love to meet you back here in a month.

Thank you, thanks for the time.

As always, the Acting Secretary of Labor, Julie Sue.

This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.