Surveillance: U.S. Jobs Report with Walsh

for yesterday or I was preparing for overnight. Can we just recall what you said earlier this week going into this number. Let's listen into that together. We're living in very interesting, unique times. This is unlike anything that that any White House has ever experienced before, well maybe a hundred years ago. Uh So, you know, we're going to continue to follow the President as he continues to put plans out there to move our economy forward and moving

people forward. You were preparing us for a soft secondary what which we got a Mega one, a fantastic one, and sixty seven thousand. It's some interesting details beneath the service. Just give me your take first of all, place, well, first and foremost, just from the clip to just to stay in line here, we are still living in very unique, interesting times in the first in a in a in a century pandemic. But you know, we look at these reports.

Let me just touch on this two ways. Number One, the report for the month of January was was a very good report, a very solid report, UH. And I think underlying what it's telling us is that we're in a very different position than we were in March, April, May, June. We're seeing people in economies and workplaces and workers and employers really learning to live with a pandemic and adjust. So we are in a different place there. Number one, UH.

The adjustments, UH, certainly is great to see. Two b ls UH is the gold standard when it comes to taking in numbers. We all know that in this country, UM. And they're very transparent. And when when I saw that number today, that was actually more surprising to me a little bit than than the month of January. And I asked them, you know, how did we revise seven hundred plus thousand jobs? And what was explained to me was over the last ten years, we've had about the same

revisions over that same period of time. So we're excited. I'm excited today, but you know something, we still have work to do. And you know, this celebration can last for a little bit, a couple of hours while I do these TV hits and then we got to go back to work. But let's talk about what we've got to work on. The consumer at the moment, Secondary Wolves just doesn't fail it. I can go through the data.

I can talk about where unemployment is, where wages are, they feel the seven percent inflation, they feel crude prices where they are crude through the nineties, at ninety two. You saw consumer sentiment last week decade low. What's the disconnect there at the moment for you, Secondary Walsh, And how do you in the administration fix that? How you say things are and how they look and how people fail at the moment. Yeah, I don't know. I don't

know if it's necessarily disconnect. I think it really is about how people people feel at the moment. You know, the American people and and and folks in this world have gone through a lot in the last two years with the pandemic, and I think there's a lot of concern about their family, a lot of concern about the virus, a lot of concern about if you if you if you've been vaccinated the people that are vaccinated. If you're not vaccinated, you don't want to get vaccinated. So there's

a lot of concern there. But all I know is that the President laid out a plan the beginning of last year to get people back to work. Uh six point seven million Americans got back to work. The President laid out a plan to deal with inflation a little bit into one. We're working on those supply chain issues and other things. So we just need to continue to our job. I think that you worry about the poll numbers later on, but right now, you worry about doing

a job. And as a former elected official, you know obviously you want to see the great numbers and you feel good about it. But at the end of the day, you still have to do your job. And the President is very focused on making sure he does everything for the American people, including not just bringing down inflation, but also bringing out wages. Let's talk about the inflation side of it. Sneake pay can next week for you seven point three to meet an estimate, the high seven point six,

the low seven. Going through some of the estimates, Lloyd's Bank at seven point six credit Sweets at seven point four, Morgan Stanley at seven and point three. Caught it with an in cetera of Morgan Stanley. They're looking for a punchy number next week. Secondly, Welsh, what's the message going to be from the administration as we just keep seeing inflation kick higher? And from where I sit, my job is to make sure that we continue to get people back to work. Uh. And you know, I had a

meeting with Secretary Yellen earlier this week. We talked a little bit about inflation. We talked about the job market, we talked about creating opportunities for people. We talked about the infrastructural law that was passed and the investments are gonna be made there. So I'm going to continue to do my job in in different parts of the administration are gonna be working on the inflation side. I'm part

of that as well with the supply chain. But but you know, again, we're taking this day at the time. What does that mean when you say we're going to help people get back to work, What specifically are you and in the administration doing to try and achieve that. Well, certainly, we'll work. I'm working with governors and mayors across the country. We're making investments in job training programs. We're making looking at the way we do job training and workforce development

in the infrastructural law. We're making sure that we're gonna be working on pre apprenticeship programs and apprenticeship programs to get more people into the building trades. We're gonna be working working on the supply chain. We're working on the on the trucking industry to get more people on the trucking side of supply chain demands that are happening our country now last mile UH. You know, a lot of the concerns we have is not just bringing ships in

off off the coast to to unload them. We also need to make them sure that the products that are on those ships get to stores, get to warehouses, get to main street America. So we're working to increase other jobs. We also saw one of the participation rates that we saw in UH that's growing as younger people sixteen twenty

one people getting into the workforce. We need to make sure that as those folks get into the workforce that we're training and not just for the job today, but making sure they have really pathways into the middle class, so that that's what I mean by that. The secondly, well was just a final question from me, and allow

me to go here. The Bank of England Governor Mr Bailey yesterday faced a lot of backlash from what he said about pay rises and workers, and he effectively said that the people in the UK shouldn't demand a big pay rise this year because it might cause more problems. I just wonder, as a union guy yourself, how you'd respond to a line like that, what your position would be on that debate At the moment, I think any time that we see increase increases in wages for people,

that's a good thing. We saw a thirteen thirty orroughly thirteen and fift percent wage increase in hospitality and what do we see. We saw more participation of workers in that industry. I think it's important to pay workers more, it's important to respect our workers, uh and it's important to keep our corny moving forward. Money Welsh, the u S Secretary of Labor Money, thank you. I know you're super busy trying to explain this one to a lot

of people. After setting us up maybe for seft print, we've got a really really good print secondly, Welsh there, thank you very much. John. I want you to bring in Jeffrey Rosenberg is the markets movie here, but I really want to rip up the script John in the next thirty minutes of Little McKee here to give us further study and the most stunning miss I've ever seen,

and that sounds perfect. This is a monster upside surprise for sixty seven is the number one was the estimate, but the range was huge to fifty at the top end, negative four k at the bottom, and you just look fantastic the two years responding, you'll tie there by nine

basis points. We approach one thirty on a US two year John, Jeff, sure you want to jump in mind, I just want to jump in with one number here because we didn't even notice this that seven nine thousand you're talking about December was revised up from the There's a note in here that suggests that the seasonal factors have been updated to better distinguish what was COVID and what was seasonal. And so it's not just that there was a huge game this month. There was a huge

game last month as well. Let's get to Jeff now from blank Rock. Jeff, we've been told to ignore this one. We're not ignoring it now, Jeff hy, Well, you can't ignore this one. It's got a lot of moving pieces as as we're dissecting here real time. You know, I think Mike's got it right in terms of the you know, the revisions is really important. You don't see the expected on macron impact. A lot of that can be due

to the difficulty of seasonal adjustments. But the other pieces of this report are also very strong in terms of the wage piece and the labor force participation rates. So you know, taken in total, you talked about the market reaction and Neil's comment, you know, this really is not the kind of little bit of we can look past this one, but much more about both what it tells us in terms of those revisions as well as what it's saying today. This is the labor market really screeching,

uh screaming, I should say, uh. And that's going to continue to keep the pressure on the FED. And that's why you're seeing the move in the front end, because the market is pricing this acceleration in near term tightening. Uh And and I think that will remain the theme here for a while. This report does a lot to continue to accelerate that theme of upfronting the pace of

of FED hikes. Maybe you know, I don't know if that's necessarily fifty, but it's really about how many, how quickly do they get it in uh this year, and a very rapid change from you know, expecting a quarterly pace to now you know it's going to be every meeting to Niel's common about now they need to throw in a fifty in there. But definitely here the surprises that this is just again telling us how overheated this

labor market is. Can you put this report together with what we heard from the Bank of England European Central Bank, the shift that we have seen this week in market as globally there is a feeling that the labor market, that in general inflation is getting too hot. And have you shifted your your investment perspective at all. Well, there's still this distinction, you know, between the US, the Bank of England and the ECB were heard we heard a

lot about that yesterday from from Leguard. But but overall, in terms of particularly the outlook both for all three, you know, the labor market will very much sit at the center of that debate. I think for Europe that's still,

you know, to be seen. I think what you're seeing here in today's report for the US as well as for the Bank of England is that the strength in the labor markets is is really the risk of a more persistent inflationary outcome, because that's strong of a labor market is about the fears of wage price spiral, and so it shifts from the supply side COVID disruption narrative to something that's much more difficult for policy makers to reign in, which is which is which is a waste

wage price spiral source of inflation. Jeff Frozenberg the tenuere inflation adjusted yield as a measurement of a negative zero point five four This on a day where we really consider finally a positive rate regime across most, if not all, of Europe. I'm going to assume the path from here to a flat or positive tenure real yield has non linearities in it. What's going to be the impact to the overall financial system and to the overall economy is

that tenure real yield migrates up towards zero. Well, you know, it's it's a question in your question is it a slow migration or is it a nonlinearity. The FED doesn't like nonlinearities because the market doesn't deal well with nonlinearities. That's too rapid of a tightening on financial conditions. The FED wants to tighten financial conditions, but it doesn't want to crash confidence and overtighten. So it's a very tough

uh path for the Fed to try to take. That's the argument against the fifty basis point shock because it is a bigger shock. It risks sort of a narrative getting away from the FED that that they're way behind the curve and that inflation is accelerating out of control, whereas in their forecasts and the market consensus forecast is that inflation will start to come down. So you don't

want to over tighten and overshocked the market. Yet the path towards real interest rates here globally, and I think that's the message for the week is that we're going to exit this era of persistent negative real interest rates. The challenges can you exit that era without a bigger financial tightening, a bigger financial accident. Clearly that's what the policymakers are going to be aiming for, and so the guidance around that is going to be to try to

tighten without overtightening. Jeff, just as an investor PM at the moment, are you having fun in this market? Is this fun or is this brutal? Well, you know, it depends on your investment process and and what you have for levers. If if if you have a diversified portfolio across both directional which is you know, are we are we betting on interest it's going up, our interest rates going down? That's a very difficult uh set of tools.

But the other thing that happening here that is quite advantageous to a different toolkit, That is a toolkit that exploits differences across interest rates, differences in dispersion in both micro and macro markets. It's actually starting to become a much better environment for those types of strategies. And so while it's difficult in terms of kind of direction, will

markets go up? Will markets go down? As the Fed and global central banks pulled back from this era of incredible liquidity and policy accommodation, that is compressed differences that reduces opportunity, you actually see opportunities arise in the calling the cross section and differences across countries and different companies. So a little bit of glass half empty, glass half full. There.

For those of you who think they've been living in the real world for the last two months, you haven't been a Macron did not happen for sixty seven is the number for January? The previous rate five ten at least. This stuff is just unbelievable. Just to get your teeth into we've been told to pay to do this morning. Ignore the payrolls number big on Macron impact and then bang, you'd explode in up eight or nine basis points. I'll

discuss this with Jeffs colleague a little bit later. Rick Reader of Black Rock talk to him about how on earth he's handling this situation. Just the cash allocation. I wonder how large that is at the moment, and a stage Ramarosa will join in Mike Collins to PGIM two and then later all catch up of the White House. I imagine Lisa the interview that secondary Welsh thought he was going to do yesterday. It's very different. It's a different one than the one he's about to do now.

I think it was about town with all the differences between the household, surf and the other survey and why this number was so bad and this is going to be a different one. Yeah, it's about an hour. It's gonna be one about inflation. It's going to be one about a labor market that looks increasingly tight. I keep going back to this idea that the European market right now is really in shock style from the e CPS pivot yesterday. Why has the US market not reacted? It

looks like the reaction is coming today, Jeff. Do you think that there is more to come in terms of this recalibration of as what you said is we're moving to a new regime or negative real rates are no longer. Yeah. I look, I think there's a lot of room to go there, and I think there's a big debate growing around the pace of how quickly the c B has to move. You know, there's still a lot more, as

Leguard said yesterday, a lot more data dependence. And so you saw the first crack in European inflation data, right, So that's really what has kind of changed the narrative and forced the ECB off of the you know, somewhat conditional promises of no rate hikes. They've been kind of mugged by the data, mugged by the reality, uh that inflation there is is rolling now, they again have a different underlying fundamentals between wages than what we're seeing here

in the US. And that's partly Lisa, I think you saw, you know, less of a reaction in the US relative to a very strong reaction. But also look again in that cross section, where was the biggest reaction. Uh. Jonathan mentioned it earlier, the spectacular increases in Italian yields, because in the cross section of European Central Bank support, it's compressed, it's it's muted the fundamental differences in where yields should

trade across the European complex. And so as you pull back not only on the level of that interest rate support, you're gonna see a lot more in the cross section. That's going to be a challenge to the ECB. But it is very much part of what I think we're gonna see re emerge as the CBS forced to pull back on this tremendous era of policy accommodation. Jeff Frozen Worg, thank you so much. The Black Rock. What a busy day you're gonna have at your shop. Tiffany Wilder here

to translate. Boy, do we need Tiffany Wilding today with Pimco, their chief US economists. Tiffany, I'm gonna cut to the chase with an open question. I never do this, but it's so chaotic. What are you going to write about this weekend? Give us a I want to frontload. I want to frontload Jerome Schneider. Tell me before you tell Jerome Schneider what you're going to write about. Good morning, Tom and Paul. I mean, so, first of all, I think this the headlines on this report were a little

bit tough to interpret just because of the revisions. Benchmark revisions were incorporated, and they also revised the seasonal factors, so that actually contributed um to some of the big month over month jumps in in like the labor force participation rate, in the EPOP employment to population ratio um and some of the big monthly revisions. But I think just you have so you have to take a broader look, and I think once you do that, what you still see is that this was a very solid report on

a number of fronts. First and foremost, I think is on the labor force participation rate. So this has been a bit of a conundrum. All year. UM, we like many forecasters, had expected, you know, some recovery in the labor force participation rate and it just wasn't happening. The data today basically change that. I think, change that narrative, and it looks like the labor force participation rate is

actually UM accelerating in quite a big way. And it lines up with some of the expirations of the you know, government income subsidies, you know, like enhanced unemployment benefits. UH that was last September or obviously did the December expiration of the child tax credit. So it looks like people are coming back and that's ultimately good. Nevertheless, you had UM,

you had wages that were also very strong. So in terms of the Federal Reserve, to me, this argues more for UM, you know, a sequential pace of rate hikes maybe in the UM you know, March May June of this year. Maybe doesn't still yet argue for a fifty basis point rate hike in March. I mean, the FETE is not going to want to squash out this labor force participation gain, but you're gonna want to They are going to want to ease off of wages. So I

think that's really the balance here. Paul from New Jersey emails in he says, Tom, do log rhythms. Let's do it on a Friday, folks. I did Tiffany a log extrapolation of the trend of average hourly earnings before the pandemic, and that statistic is roughly three point nine percent up. We're not up three point nine percent, We're up five point seven percent, a big, big lift induced by all this is wage inflation entrenched. Well, if I think you also have to keep in mind that UM inflation headline

CPI inflation is still seven percent. So even though we are getting a nice adjustment in wages, wages on a real basis are still negative. So people the economy as a whole, in aggregate are not fully getting cost of living adjustments UM. And I think that's important. Obviously, that's important for welfare, but it's also important in this whole debate about UM. You know, are we on the precipice

of a wage price spiral? And really the first kind of step in that wage price spiral is that you do actually get people that are able to bargain for full cost of living adjustments or if not more you know, and companies are then able to pass that on to consumers again and that sort of starts off the spiral. You know, this data obviously we're strong average, I really, earnings also obviously strong, but we're still not at that level where you are getting a full cost of living

adjustment and wages UM. You know. So I think as I kind of look at the evidence, you know, it still seems to me that we're you know, we're not on the precipice of that. You know. Nevertheless, though, you know, as a result of an underlying strong economy, you are getting some some wage pressures and ultimately that's a that's

a good thing for workers. So, Tiffany, you know, coming up at the top of the hour, Jonathan Farer from Bloomberg Television is going to sit down with you as Secretary of Labor, Marty Walsh, what do you expect the Secretary of Labor? How do you think he will put these numbers into context? Does do you think we are at full employment here in a post pandemic world? Well, I mean, I think I think we're certainly getting close if we're not there, right, and the reason is because

UM and full employment. By the way, is a bit of a moving target. So that's why you always get, you know, wishy wash she answers from economists. It's kind of depend on the people and how many come back to the labor market. Um. You know, obviously there's been a lot of people that retired as a result of this pandemic. Many of those retired people were probably you know, they could have had underlying health conditions, etcetera. They were

worried about coming back to work. So we would think, as you know, as those health anxieties really start to fade, you do get more labor force participation. So although we might be you know, very close to maximum employment, now with that additional labor supply, it kind of gives you a little bit more runway moving forward. So this is something that's going to be very important to watch. Was that a wish you actually answered, Paul? Should we let

her go? I gotta go? That's pretty solid solid answer, Okay, Tifferty Wilding, thank you for none wishy wash answers. This morning, pimco's chief US economists on short notice with oil einty three dollars of barrel have a blast joint that Withee Bloomberg opinion, but far More has a claim book on hydrocarbons the World for Sale have a Are the Saudis and the Russians on the same page. I think that they are. They think that they're very happy what they

see at the moment on the market. They are producing a lot of oil. The market is about ninety dollars heading towards a hundred dollars. They're gonna make a ton of money. I don't think that there is much disagreement. And there is any disagreement, you could think that the Saudi is perhaps um sorry, the Russians perhaps are more worried about the response five jail. But at the moment

Russia is really struggling to increase production. So I don't see Russia put in any pressure whatsoever in Saudi Arabia to rush more bottles into the market five dollar a gall and guess when we get there, soon will be something to behold. Can America turn on the supply effort? Yes, America is actually drilling a lot, and I think that shale may surprise to the upside is the air, but potentially it's not gonna be enough because the main problem on the oil market, it is not on the second

half of two. It is now now, it's when we are beginning to see the sortage. Now is when we are seeing the refiners paying huge premiums over the futures market to secure oil on the physical market, the American oil, the shale production is going to calm, but it may be choo late to stop this rally. There. A lot of people say that once the Ukraine Russia conflict gets resolved, oil prices will come back down and come back down quickly.

Do you agree? I think that there is a geopolitical premium, and certainly European refiners are buying precautionary other grades non Russian oil just in case that there is trouble with Russia and Ukraine. But I think that physically the market is tied, and while there may be a premium there for the for the potential of war in Ukraine, I don't think that it's as large as some people saying.

Can we go down five dollars if everything gets resolved? Sure, but that brings out to the high eighties and that's not cheap all right? So what's the upside surprise? Where is it going to come from? They can push oil to the hundred a hundred and five dollars. The surprise to the upside for me has been, and you know that I have been talking about this for a while.

Is the financial side is the options market. We have huge layers of call options about nine hundred and hundred and five and then going all the way to a hundred and fifty. We may be on a situation where the Greeks of the market gamma. We have seen that on the stock market also at other times. But the financial flows may take over and those options may use

poush prices uh well above a hundred dollars. If we move significally significantly higher than a hundred dollars, I think it's going to be mostly on water street financial flows. Just quickly and we can sit on this if you like. Typically, when you get up to these levels, especially after the last twenty years or so, something break, Something gives white. Last time around, it was the Saturdays just in terms of market share war that they started at the back end.

You've talked to me about why that could be different this time around because Shell is so less responsive at the moment. Have you I just wanted from your perspective then, where you're focused, what you would expect to break as crew starts to shift out higher. Is it a demand story?

What would you say it is? I think that the White House breaks and makes the phone call by then gets into the into the phone with Saudi Arabia Crown Prince Muhammad bin Salman, so one that he has refused to talk on the phone or mid face to face, and he asked for more oil. I think that the White House breaks and then we get this healthy response

and we get more salthy barrol have it? Are you saying that at the moment what we're saying in the Old Market, Not all of it, but some of it is a blinking contest between this White House and react the fact that this president does not want to deal with the Crown Prince. Absolutely, Biden is refusing to make the phone call. The South is one that phone call. They want to be the recognition that they think they deserve,

and the Americans they think that they don't. And I think that this is a bit of um, yeah, it's okay, chorl we'll see who pooblings, firbs have you? What's the power of Mr Putin? Then? Right now? Oh? Mr Puttin says a lot of power it just produced eleven million barrels a day. So he has a very significant geopolitical

tool in his oil sports and his gas sports. But I don't think that Puttin is going to use that political tool, because for him it's more valuable to use threatening to use that actually going ahead with the use. Have you a blast Bloomberg opinion now having a fantastic lucky to have him with us. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekday is

from seven to ten AMI Eastern. I'm Bloomberg Radio and Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomer