This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify, and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.
Joining us now from Washington is Judy Sue, the acting US Secretary of Labor, responding to the labor market report from about an hour and fifteen minutes ago. Secretary Sue, fantastic to catch up with you. Just your first reaction to the payrolls report from earlier this morning and whether we're seeing broad based strength in this economy or something that's showing us things are slimming down.
Good morning, Jonathan, Thank you very much. This is a good job report. It represents steady and stable growth, which is what we want. It shows that the president's policies bid nomice is working. It's combined with a three point six percent unemployment rate. Many predictions were that it would not get below four percent right after the pandemic induced economic crisis for a long time, and these policies have
defied that. And in fact, we've seen less than four percent unemployment for seventeen consecutive months now, which is the longest duration since the nineteen sixties.
We know we've got a bit of tension out there in the labor market at the moment, and you've been involved in some of that, so I want to build on some of it with you. We have a tentative agreement covering West Coast Port workers that's been an issue for a while. I know you've had some involvement, so congratulations for that. We now have a new issue, so let's talk about that one, the potential for three hundred
thousand UPS workers to go on strike. How involved are you in those discussions with the union and UPS?
Yeah, thank you, Johnathan. Thanks for mentioning the port because those parties worked very hard for over a year and did reach a tentative agreement recently. It still has to be ratified, so the process is not over, but it demonstrates that collective bargaining were and that you can reach agreements that are as the President often says, good for workers where companies can profit, and that's good for the economy as a whole, and there remain other negotiations that are going on.
Right.
That's what it means to be in an economy where workers have some power, where unions are at the table and we are monitoring the negotiations, but trust that the parties are going to do what they.
Need to do. Have you spoken to ups? Have you spoken to the union involved this week?
Yeah, I've been in touch with both parties. I've also just in my role as Acting Secretary, talked to parties to these negotiations as well as unions and employers across the economy. And so again I'm hopeful and know that that they're going to continue to do what they need to do and that a fair contract is something that everybody hopes that there's there can be win wins, as we saw at the Port Cercaly.
So I've heard that word thrown around quite a lot by this administration. This word fair and language is important, it's meaningful.
What would fair be.
Right?
So this president has been very clear that fairness and equity is very important and that we can build an economy to this fair and equitable meaning from the bottom up in the middle out right where nobody gets left behind where we invest in the middle class. You know, Bidenomics is all about investing in America and in particular industries like semiconductors and manufacturing and infrastructure, but also investing in American workers and also increasing competition to decrease prices.
All those things are part of what President Biden believes is fair and what we believe. This jobs report demonstrates that a strong and fair economy can be.
That's so great, But we have to define what it means for ups specifically, and this agreement they're going to try and strike with this union, what would a fair white increase be? Can you put a number on it?
Well, I will say the same thing that I said when I was out the ports talking to the parties. A fair contract is one that the members are going to ratify. So a fair contract is something that workers choose at the end of the day.
And again that process.
Is important for the parties to be able to negotiate, to be able to stay at the bargaining table, and to be able to resolve issues. And I do believe, and as has been shown time and time again, there are win win solutions.
There, don't We have to be careful there though, if we start saying things like fair is whatever the union wants, right.
So I mean at the bargaining table, right, there's all kinds of issues that we have seen throughout history that when workers can bargain alongside employers who are committed to you know, employers who understand that the best investment they can make as an investment in their workers. There's all kinds of things that can happen when it comes to wages and working conditions and benefits. And those are the kinds of things we want for every American worker, right.
We want stable work, we want a path to the middle class. We want security and retirement, we want health benefits, we want leave. Those are all things that the President has prioritized, and I think those are all elements of what it means to have a good job.
There are issues you're working on, Secretary, So I know that your nomination hasn't been progressing. So that take you from Acting Secretary of Labor to Secretary of Labor. What's going on with that? Can you give us some information on the timeline you're hoping that this gets out with?
So the President has expressed great confidence in me. He's nominated me to serve as US Labor Secretary. I am doing that job. The confirmation question is certainly one for the Senate, but I've also appreciated the broad support I've had from a number of Senators, and we remain hopeful about confirmation. And meanwhile, I am here to do the job and do what the President asks, which has helped
him finish the job. And we're again seeing progress and continued growth, and we know we have more work to do, and I'm all in to help get that done.
Do you concern it's holding up the Department's agenda at all?
No, So the work the Department continues full steam. We are you know, we have enforcement work to do to ensure that every worker gets the wages that they're owed and comes home healthy and safe at the end of the day. We are laser focused on connecting employers who need workers to the good jobs that are being created in the economy to people who are looking for those jobs.
So that's another big party for us, and those are very important and we will continue to do them and I'm proud to lead the Department in these efforts.
Secretly say, we're happy to catch up with you this morning. Following the Piro Report. Thanks for being with us.
Uncertainty is an order and that is a good place to start with. Randall Krassner, Randy, the Bloomberg interns have invaded the building. I was speaking to a whip smart intern yesterday, newly admitted after reading Krosner out of Babson College, the Pride of Wellesley, Massachusetts, and that intern he said, what should I read? And I said, You've got to read Peter Bernstein. It's required at Chicago on risk and uncertainty.
Tell me right now how uncertain you are about the American economy, the American labor economy, this jobs report pandemic.
I think the uncertainty is pretty high because, you know, as you guys were discussing before, it seems like the labor markets should have started to slow down a bit, but we haven't seen much evidence of that. Certainly, the ADP numbers yesterday and other data suggest that the lave market's still pretty hot.
Yeah.
The long and variable lags is my you know, great predecessor at University of Chicago, Treatman, had talked about. But man, these are really getting to be very long on lags. You start to think, you start to see something by Now that's the uncertainty. How high is the FED going to have to go? Because the fen's not going to quit into the labor market if.
The FED in the mystery is how high do they have to go? Are these normal meetings forward or the PhDs the people that worship your financial economics? Do they have to amend every discussion? Is they get out to November one meets.
Well?
I think what they've got to do is try to see are there some structural changes in the economy, and I think there have been at least some changes, whether they're permanent structural or not so sure about probably something structural. For the labor market, we certainly see lower labor force participation. A lot of older workers have said, there's no way I'm going back into the labor market. I don't care that wages are high. I know too many people who
didn't make it through COVID. I want to see my kids, my grandkids. We also have seen with the very low interest rates during during the pandemic and just coming out of it, that everybody refinanced. So normally you have the transmission mechanism of monetary policy having an impact on interest rates and so having an impact on people's payments and houses, et cetera. But so many people refinance into very low
fixed thirty year mortgages. It doesn't matter as much to the economy that interest rates are going up.
Because people aren't.
People's income is not being affected by that, or at least a smaller fraction of people's income is affected by that than normal.
So, Randy, with that in mind, what's the appropriate role of the feder Reserve with that as your backdrop, is it to just keep pushing or acknowledge everything you just acknowledged.
Well, it might mean that they need to go further than in the past. Now, I don't think they're going to have to go as far as in the late seventies early nineteen eighties, because fortunately they started before inflation expectations got out of control, because that's what happened back then.
Inflation was in the load double digits.
And they had to bring in astrates to fifteen twenty percent because the feathered lost credibility. Inflation expectation expectations went out, but really not that much.
So that's a positive.
But it may need mean that they need to do more work in raising rates to get the same impact on the economy of sort of slowing taking some of the heat, particularly out of the wage demands.
So, Randy, this debate often comes down to one or two hikes. Now twenty five to fifty basis points is it's nothing. What kind of numbers are you talking about thinking about?
Well, I certainly I think we'll see what the data say about the labor market. Maybe the labor market's about to crack. Certainly that they don't suggest it. But if it doesn't, they're going to keep at it. And you know, I think they're going to.
End the year.
Those are the sticks and they will to five.
Okay, Randy, this is great. We're gonna get a jobs report, we're going to talk about all the knobabbel and that. But I want to bring it over to finance. I want to bring it over to what you actually teach at the Booth school. Can you tell the students at Booth entering last week of August, whenever it is they get through their eight week orientation, can you tell them that we've reached financial stability.
We're not sure.
So it gets back to the uncertainty that you had talked about before, because obviously, with the very rapid increase in interest rates. We've had an impact on banks like Silicon Valley banks. They thought they were geniuses by buying long dated securities. That was fine until just rates went up so much that the valuable securities plummeted. And uh, You've got some other other institutions that also have a lot of effectively long term fixed rate things in their
talent sheet. Long term is commercial real estate, particularly commercial real estate. That's I think going to be a challenge. And so we're going to see how that that plays out. And I think when we start getting the next round of bank earning reports right there may be a little bit of tumult around that.
I mean, I'm not going to miss words, Professor Krausner. I look at the stress Trust. The stress tests is a comedy. I mean, I just I just don't think they had any value at all. But after SVB from where you sit, have we seen a new enhanced financial supervision? Is there something new in the religion of looking at the banks after what we saw a number of weeks ago.
I think one thing that they are now focusing on is interest rate risk. So other signatories to the so called Basil three regulations the capital standards that came out from from the financial crisis. Virtually everybody has an important rule related to interest rates and interest rate risk. We didn't have that in the US, and so I think
that's going to be the key thing that changes. And my hunches at my former colleagues at the FED and the other regulators are keenly focused on that issue now and they weren't before.
Randy Steiklaus jobs repul seven minutes to why we'll catch up with Randy christ went just a moment to get his reaction to that.
We're going to see some bond market movement. Here is we digest this data? Joining us on Lindsay Pigs, a chief economist at Stefel as well, and to me, it's a hallmark announcement. Lindsay, with the revisions, let me go through the math again, it's simple to Eldra can handle this, Lindsay. I can't do the differentuential equations like you, and that is two hundred and nine thousand, take away one hundred and ten thousand. Can you frame this out with the revisions?
Is a sub one hundred thousand report?
Well, I do think it fell well short of expectations, but that being said, it's still a solid headline number, and for the FED, the focus is not that top line non farm pail WORL report. They're looking at the details. They're looking at the inflationary components, and with the unemployment rate declining, wage growth gaining momentum. This is the exact
opposite of what the FED wanted to see. This keeps the FED on the path for an additional rate increase later this month, and depending on what we see from the inflation data next week, we could see another rate increase shortly thereafter.
Our audiences on radio and television are saying, wait, wage growth four point four percent, take away five or six percent inflation, depending on whether I'm buying stake this weekend, And the answer is they're not getting ahead. Which nominal wage growth does a FED need to see? Three point five percent? Dare I say two point nine percent? How low do we have to bring down wage growth?
I think? I think if we saw a two handle, the FED would be very comfortable with that. I think that would give the FED confidence that we're on a sustainable downward trajectory. That's what the FED wants to see. It's not about getting inflation under control from eight down to six. It's continuing that trajectory back to that two percent time, giving.
The access that on a two point nine percent nominal wage growth, we're distant from that.
Aren't we?
Absolutely? Absolutely, And one of the biggest fears for the FED is that wages are continuing to rise. Growth is continuing to accelerate without any improvements in productivity, and so there we start to see this wage price spiral leaving the economy behind. Growth is slowing, we know that, but if underlying wage components continue to increase, what is the economy gaining from that? It goes back to the old adage of we could hire a million workers to make windows,
a million workers to break windows. If the supply of labor falls short of that, wages go up, but we're not adding anything to the economy.
Want to make clear, we've really got of flightiness on the data screen as well. Right now red and green in the screen features a negative eight Nasdaq barely to the green side.
As well.
In the yield space, there is some movement four point ninety six percent of the two year the ten year yield four point zero four percent. These are all new numbers for me. They're really a shock to see in this high four point zero one percent as well, how many quarters of you know, as you say, two oh nine is still a substantial non firm payrolls number. But if we developed a three month moving average of one hundred and ninety thousand, my reading is that doesn't get it done for the FED.
Well, there's still.
Got to sustain where wages. At that point, we.
Have to see inge everything on wages.
Well, inflation wages, that's one component of inflation, but we need to get that under control. We need to see some of that tight labor market conditions ease so that the FED feels more confident that wages will begin to ease. Now that doesn't mean that they're going to tackle overall inflation then, just by getting the labor market to to become less tight. There's other components of inflation, but that's the component that the Fed mean control. That will determine
the terminal level. The other components of inflation will determine how long the FED is forced to maintain that elevated level of rating.
Give us a steephul granularity of what mister McKee talked about, which is a racial makeup of jobs. You saw some higher unemployment, some jumps in unemployment among minorities, and also on the education basis as well. The stereotype within financial media is we have a lot of service sector bartenders and waitresses still being employed. Biat s are a different story here.
Well, I think there's two different storylines. Certainly when we look at where the most unemployment is gaining momentum, that's at the lower skills level. We're starting to see technology replace those lower skills. This was something that was happening before the pandemic, but this is a trend that has certainly been exacerbated more recently. But I also think that we haven't yet seen that cyclical component suggesting that weakness
is lurking around the corner just yet. As we heard about leisure and hospitality still posting a sizable increase this month, that would be assumed to be the one area where we would start to see that weakness gain credibility gain evidence, but we haven't seen that quite yet.
Is it still a pandemic tinged report?
I don't know if we can necessarily say that the pandemic is influencing this report, but I think the aftermath of the pandemic, the change in psychology is impacting this report because we're still seeing millions of workers sitting on the sideline, not actively participating as we would expect in the traditional manner in the labor force. So we do need to still think about providing an incentive to pull some of those sideline workers in. That may help to
expand the labor supply and then organically reduce wages. But we're not going to see that downward pressure unless we see demand for labor precipitous decline or the supply of workers dramatically increased.
We do you, Thank you so much, Lindsay from Steford.
We can catch up with Christian Horner, the team principal for Red Bull Racing. Christian, wonderful to catch up with you, sir. Going into race weekend in Silverston. Can we start there? As my colleague Tom pointed out, just how special is this race, this circuit for you and the team.
Well, look, it's one of the best circuits on the tour.
It's fast, it's demanding, it's source of men out from the boys, it's a big challenge, and it's it's old school.
I mean, this track goes back.
To just after the Second World War, so an old airfield with a brims of road converted into a racing circuit that has developed over the years, but.
It's one of the big tests for the drivers and the teams.
Max was absolutely dominant last weekend. There was this amazing moment at the end of the with a couple of laps to go, he came in for a pit stop just to get the quickest lap. Christin, can you describe the guy that you're working with every single day? How special is Max Verstappen.
I think what we're.
Witnessing at the moment is a sportsman that's just a really at the top of his game, and you know, he's a joy to work with, and he continues to surprise us with the levels that he's that he's reaching, and you know the hype that he's hitting.
So yeah, as I.
Say, nothing is, nothing is, he continues just to continue to surprise us at the moment.
But he's in the form of his life and I think there's more to come.
Christian, I think Americans are fascinated by this. I look at the wonderful coverage Sky Sports is doing and basically they forget about vers step and five minutes into the race, to look at all the Netflix sub races and all that baloney. We have an America, a guy for the Los Angeles Angels in baseball name O Tony, who's once in a generation, is for stepping like that.
I think, Look, we're in a healthy period of Formula one.
We've got Lewis Hamilton, the most successful driver of all time out there. We've got Fernando Orlonzo that's doing it for the old guys. And you know, we've got this emergence of Max the staff, and I think only in time will history judge just how good he is. But what we're seeing at the moment is certainly something pretty special, particularly with the rot results that he's ratcheting up.
Christian, talk to me about how, from a manager's perspective, you maintain harmony within the team. When he took that point for the quickest lap last weekend, that was taken away from Checko, his teammate within Red Bull, Christian, can you tell me as a manager how you're maintaining the harmony when you have to provide the resources for someone who's dominant Max and maintain the confidence of his teammate.
Well, I think he's just.
Dealing with openness and honesty, and I think got Max uh deserved or urged himself the opportunity to have a go at that fastest lab.
He created a pitstof for himself.
He was going to have a go at it on the on al tars and for us it's actually less risk to put him on a set of newer tars and.
Take the PIDs stop. So yeah, he earns himself that right.
And I think the relationship between the two guys is is strong and the most important thing is that they talk to each other. They communicate. When there's an issue, they talk about it. We get it on the table and and get it addressed.
Can we expect check Out to be racing for red Bull next year?
Then Christian, Yeah, he's got a contract.
He's with us till you know, till the end of twenty four so and we're happy other than atother contract, we're happy with you know, the overall performance of him. He's had some difficult Saturdays recently, but his racing has been great and hopefully the confidence from that podium in Austria is going to put him, you know, back on the pace here on Saturday.
Let's talk about someone else on the grid who's unhappy. Lewis Hamilton unhappy with the dominance of Red Bull. Unsurprisingly Christian, he's had some recommendations on what they can do about that. Maybe we can set a time limit for when we start to plan for next year's race. Car Chris, and what's your response to people who were fed up with the dominance of your team.
Well, look, it's flat threading in many respects. The sport goes in cycles. I mean Mercedes, I mean how many years did they dominate and nobody got.
Anywhere near seeing them for about seven years.
So we're we're performing at an incredibly high level.
The team is doing his job and.
The others you know, will be putting a target on us and they'll be trying to catch.
And I think.
With stability of the rules that the field is going to converge. It's onny a matter of times. So and so yeah, I think trying to get everybody to start to design their car at you know, a start, they would would just be impossible to manage and police.
Christian, our producer, are the guy that tells us what to do every day. Grew up in Western Australia. So he says, we're not doing the interview, if we don't talk about your third driver, Daniel Riccardo. I think the people looking at Daniel Riccardo in America are saying, what does this guy do? Do you do you want to retain a third driver like Daniel Ricardo or is it a good feeling for Red Bull if he goes off to someone else's is rumored.
Well, I gave him that chance because I I thought Formula one still needed Daniel and I think that he's.
Still got more to give. We know how talented he is.
He just needs to rediscover his form and his mojo, which he seems to be doing certainly in a virtual world.
And he's testing our car in the real world.
On Tuesday and Wednesday of next week, and you know, we'll start to see where he's at in relation to the race drivers.
So it'd be great to.
See Daniel back on the grid next year, even if he's not in a repel car.
Christian a sensitive issue which we see in the danger of Formula one and all the safety efforts that are made. There have been two really difficult deaths in Formula one, including a tragedy recently, I believe in Belgium. What do you do day to day, tick by tick to make the sports safer. What's the next thing to make it safer?
Well, look, I think the FIA do a great job in terms of the safety of these cars.
It's just you know, compared to where they were just even a few years ago.
If you look at Roman Grossan's accident in Bahrain, thing that a human could actually survive that.
Is is beyond belief. But you know, you can always do more, and.
The FIA are constantly pushing us, you know, with the cars, but also now the circuits. I think they you know, there's circuits that we need to look at because we can only take the car so far. But you know, I think still more that we can do as a collective with the FIA.
On certain circuits there seem to be I mean I was barefoled last week watching every minute of it and and really, you know what your team did, and I look at I guess it's called the stewards where the track isn't working out and people are going off the track and there's twelve hundred violations. I mean, we don't see that in American sport. Are we going to see that again? It's Ulverstone where the quality of the driving is so good that the track doesn't fit the excellence of the drivers.
Yeah, hopefully not.
I mean I think that was something that needs to be addressed moving forward. I think the problem is is and it was, you know, two corners that are inviting the drivers to go out there, and of course they can't see the lines.
They're driving by feeling. I think that if there.
Was a piece of gravel strip there or you know, something like that, they wouldn't.
Go near it. If there was a wall where they certainly wouldn't go.
So yeah, I think that there's things that can be done to, you know, to improve the situation. Hopefully it won't be an issue here, but you've got to stay in the lines.
I do want to finish on safety and the track. Christian, there are some worries that maybe we have some protests, the climate change protesters that we've seen protests various sports in the UK over the last few years. You're concerned about that over the weekend. What have your conversations been with the FIA over the last couple of days and your own drivers going into the weekends with regards to that, Well, look, it is a.
Big concern because you run on a cricket page, sure.
At tennis court, you know there's only a there's only a batner ball out there. You run on a Formula one track, you know there's twenty cars going around, the speeds are closer to two hundred miles an hour, and from a safety point of view, it is unimaginable or unthinkable that people would put themselves into and the drivers at such risk. So I really hope that you know,
nobody does anything stupid this weekend. You know, Formula One is taking sustainability and is pushing that message and driving with fully sustainable fuels that we have coming from twenty twenty six. We're doing more than any other industry to champion that, and I'd be really disappointed to see, you know, somebody try.
And upset what is going to be probably one.
Of the biggest events sporting events on the British calendar this year.
Christian, I've loved our conversations. We've loved our conversations. Let's continue them. Luck for the race weekend. As a Ferrari fan, you know that I don't quite mean that, but good.
Luck, good luck, I mean it. This weekend of Red Bull Racing.
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