Surveillance: U.S. Jobs Report

let's get straight to it, sir. You'll response to your reaction. Yeah, I think the focus here is that the headline, while a miss, is expected to be revised higher. We've had a pattern for for a number of years now with this calendar setup that December gets revised higher. You had the revisions earlier adding to it. So I think the

market's looking past the disappointment on the headline. And as you guys have highlighted, you know, the unemployment rate, the labor force participation rate, and the average hourly earnings, you know, are all about the lookthrough from the payroll report to the outlook on inflation. And that's really the more important

story here for for payrolls. You know, we saw in the Minutes earlier this week, the discussion about you know, reaching maximum employment, full employment, and lift off, I think that has been decided. So the kind of the wage count is pretty clear. And we've had a lot of evidence for a long time now that labor markets are are are very strong. I think the issue is are they too strong? And are they a contributor contributor to

the inflation story? And I think there's a little bit of that in this report, and I think that's more the takeaway for the market. Can you frame not the certain nous of it, but Jeff Rosenberg, can you begin to frame in your mind that we're heading for an inverted twos tends spread? I mean, are we is this the first discussion with particularly the regular household survey showing

six fifty job girls. Are we finally at a point where we really have to begin to discuss potential curve and vision with a two year yield up up up. You know, Tom, it's a it's a very big question. It's a question we we spent a lot of time talking about. But the difference this time is the role of the balance sheet, and and you know, when you see how much the balance sheet has contributed to financial

conditions easing. Right, You look at that time series of the balance sheet and it makes what was and you were there with with me, you know, what we thought in in uh in two thousand and eight was historic, unprecedented balance sheet expansion, and what we see in this balance sheet is it makes that period look tiny by comparison. And so I think the difference in the kind of traditional yield curve in version the bond market predicting the FED overdes it yet again, and you're seeing some of

that in the bond market already. Is the the tool and the uncertainty around how much will they use the balance sheet to try to take some of that accommodation out. You saw a lot of discussion of that in both speeches and a bit in the minutes about you know, trying to avoid that that very strong curve inversion and using the balance sheet to try to tighten financial conditions

without the same kind of yield curb in version. So I think it remains to be seen, and we still have a lot of information to come from the FED about the balance sheet normalization policy. Jeff, it's hard to believe that we're just a fewer than two weeks into the new year. It has been an exhausting period of

time in the first week of two. Has anything changed your outlook given the fact that we've gotten the meeting minutes, given the fact that we seem to see some support for a very tight labor market in today's data, that really you're going to actually adjust tweak your view for the year ahead. Well, I think going into this year, we had already had the view that this was a significant set of turning points, right you. We knew that from the meeting. We discussed it when I was on

a month ago, from the from the dots plot. What we got out of the minutes was the narrative to that change. And that narrative really laid out that the FED recognizes they have a significant inflation problem on their hands. And and now it's really about the market and the FED figuring out how much intestinal fortitude does the Fed have to tighten financial conditions, Because tightening financial conditions means tighter financial conditions, i e. Lower stock prices, higher interest rates,

wider credit spreads. Uh. And what we've seen is very little tolerance for financial conditions over tightening. And that's the tricky part that the FED is gonna try to have to wee here between wanting to take some of this incredible post COVID crisis accommodation out of the market, take some of the froth out of asset prices without overdoing it. Uh. We don't have a really good experience for the ability of of markets to to kind of calmly go through

a tightening cycle. And so I think what we've seen in the first two weeks is a little bit of a validation that is a very different market backdrop environment than what we've had in the post COVID environment. Uh. And so I think you have to go into portfolio portfolio risk taking with that understood. Jeff thank you so much for joining us today. Generous of you to be with this. Jeffrey Rosenberg is with Black Rocks. This is a joy. She is out of the combine at Washington

University of St. Louis. I think the Laura Douglas North among others, Lawrence Meyer as well, Terrace Singlair Sinclair joins us now from George Washington University or she is expert in counting the data Tera, do you have any idea how to count the data amid a pandemic. Is the data that you see it, indeed, is the data that we see on Bloomberg's surveilance every day. Is it truly believable? Well,

I mean, obviously there's a lot of complexity here. And you know, when we're thinking about using data for modeling or for forecasting, we're typically relying on the historical patterns being applicable to today, and so it's really hard to find historical patterns that makes sense when we're seeing such novel events happening day to day and where we keep using the word unprecedented over and over and over again.

But it is still the case that our statistical agencies, you know, for today, the Bureau Labor Statistics, the numbers that they're putting out, they're working very very hard to put out the cleanest, clearest numbers that they can, and it's still important to look at this information in order to be able to have some site as to what's going on terra The key question continues to be the

participation right. The fact that the participation rate did not increase even as we saw the jobless rate fall to the lowest going back to February of raises some alarm Bells. Why is it that people are not going back into the labor market and what could prop possibly bring them in. What's your experience, both on the ground as well as

from an academic setting. Yeah, well, I mean, I think we really have to think carefully about what the incentives are for people to participate in the labor force right now. And we still have a pandemic going on and that is definitely holding back participation, both directly from concerns about

the virus, but also from other challenges. You're trying to figure out childcare situation when you don't know when your your child might test positive for the virus, you have to care for others in your household in other ways.

That's also an additional constraint on labor force participation. And we also have to remember we still have those long demographic trends that are drawing down that overall lea reforce participation, so we may never get back to leave beforce participation rates we saw pre pandemic, because we've got the retirement of the baby that was happening at the same time.

So this raises an issue of is this as good as it gets and are we going to see for example, wages increase much more than people are expecting because that participation rate may not go up that much higher. As you said, it may not ever get back to where we saw a pre pandemic. What's your view on that. Well, I still see this as a temporary maximum employment where we are right now, where we may be close to

as far as we can get. But at the same time, we may still see additional improvement once we get more clarity about the long term UH situation with the virus. Tara, thank you so much. Terris Sinclaire with George Washington University today on some of the data nuances of this. Tiffany Wilde is expert at time began she joins us now from PIMCO. What a shock to get the rico Dona. Note Tiffany that before holiday, before seasonal, before this, before that,

this was a very strong report. How strong was it? Yeah? Well, good morning Tom and Paul. Um, you know, so, although the headline number was a bit disappointing. Um, you know, I just keep in mind that there are two surveys underlying any payroll report, and the household survey, which isn't given as the headline number. Um, you know, it was actually quite strong, you know, and I think that really is what the FOMC, for example, is going to be

focusing on. So they're going to be looking at the six approximately six and fifty job genes um, which pushed the unemployment rate down to three nine percent below their estimates for kind of that long run level a proxy for maximum employee it so you know, by by this measure, we're sort of at maximum employment. Of course, inflation has you know, um, you know, met their standard for hiking

interest rates, you know. So to me, this report just solidifies after the minutes UM earlier this week, which which I would argue that showed the Fed very focused on upside risk to inflation UM and in a labor market that's rapidly recovering that this just solidifies the March rate hike that the market was already pricing in. Yeah, that's kind of where I wanted to go, Tiffany. I mean, you know, how do you think the FED will interpret

the data here today? Because even though the headline a little bit disappointing relative to Consett, there's a lot of positives underneath. Yeah, I mean so, so I think you know, again, you always have to be really careful because UM, you know, there can be statistical noise around any report, and I think the establishment survey UM had a little bit of

that going on. So what what we kind of thought also that was going to happen was that you had establishments businesses right that kind of pulled full word hiring UM. And I think that happened across a gain and that what we saw was a pretty big surgeon hiring in October, and that's been followed by UM, you know, a weaker kind of weaker prince if you will, although two hundred UM thousand jobs is still pretty strong, but weaker than

that prince UM in the months to follow. Now, I think that will kind of wash out of the data UM in January, but well, of course we'll have to see what happened with oh Macron. I think the more

important thing here, though, is the household survey. You know, it's very strong and and it it's been lagging over the last year, but it's recently caught up, and I think that reflects the fact that we've seen actually a lot of establishments of of proprietors UM, you know, people that you know aren't working in the more traditional UM you know, kind of corporate establishment jobs and the household

survey picks that up, whereas establishment survey doesn't. You know. So, I think that the household survey being very strong is something that the fomc IS is really going to focus on here, especially in the unemployment rate. Why don't we focus on that? What is the history where media is fixed aided by non farm payrolls traditionally two D thousand, MG, we're gonna go to one fifty as a run, right, we all got that wrong? And then you know, we

focus on that. Why don't we focus on the other survey? David mal Passed when he was at bear Stearns focused on that. Yeah, Well, I mean, I think traditionally, you know, well, obviously most of the higher percentage of jobs in general in the United States are through large corporates and and and larger establishments UM. And so that survey, you know,

I think is a very good proxy UM. And in addition, the household survey can be noisy, can suffer from you know, kind of more statistical noise from months a month, but that the pandemic, it does seem, has changed a lot of how people are are working UM or not or not working quite frankly. And one of the things I think that has changed pandemic people prefer to have soldier triatorships. Right. So, So, Tiffany, is I look at that average hourly earnings year on

your growth of four point seven? Is that wage inflation? Is wage inflation is something that investors, maybe the Federal Reserve needs to think about. Yeah, I mean I certainly they cannot. I think they can't ignore the wage inflation statistics that are they're coming out of this survey. UM. And and although you know it's well known that it UM, you know, there are some compositional effects that that have you know that that sort of distort can distort these numbers.

You know. I think the bottom line is is that wage inflation UM. You know, it's clearly strong for low wage jobs UM. And I think it's potentially broadening out. And that's really what the Fed cares about, UM, you know, and in terms of of looking at longer term inflation expectations and how they're filtering into the way people bargain for jobs. UM, it's really they're they're really concerned with, you know, is wage inflation really broadening out across sectors?

And and our businesses passing on, you know, further passing that on to consumers. You know what, I think there is some there is some evidence, right that we're getting the broad out there. That's right, We're wanting to go here. You're thinking, it's like, I am, Tiffany, what is the evidence right now that we're actually seeing wage inflation besides big press headlines from people like Amazon and warehouse workers

in that is it really out there? Well? Yeah, I mean so, I think the Atlanta Fed measure is UM is really helpful in that regard. And and and again it shows that UM, you know, it's lower, lower wage, lower skilled service jobs that are really seeing the brunt of the wage inflation UM. But I think that a lot of other jobs, UM, they get contract contract renegotiations happen

at the end of the year UM. And of course the December report maybe doesn't pick this up, but in January it's going to be very important to see are people, you know, in broader sectors of the economy, are they actually getting cost of living adjustments UM? And is that

broadening out? And and can people sort of bargain for that? So, you know, again, I think there's some small indications that that's starting to happen um now UM, and of course this is this will be something that will be a focused on them in the beginning of the year, getting indications of that. All right, So, Tiffany, given the labor data that we got today, what is the PIMPCO g DP outlook and kind of what are the levers there

that could move it one way or the other? Yeah, I mean so so overall, I mean, our forecasts, like many other forecasters, are uh, you know, we're looking for kind of a goldilocks environment of you will, of of still strong GDP growth, but but something that's moderating, you know, because the fiscal stimulus that we've gotten over the last

couple of years, of course is also moderating UM. But in the midst of that, we're also, like many forecasters, looking for inflation to to also moderate back, you know, more towards levels consistent with with UM in central bank targets. Now. You know, I again, I call that a goldilocks environment, UM, And I think that's there's reasons to believe that's still the base case, but there's a lot of risks underlying that, and I think those risks have increased lately. You know.

One of them obviously is the you know, just inflation remains per distantly elevated. UM. I think another risk, though maybe underappreciated by markets, I'm not sure, is that you could actually get a more abrupt tightening of financial conditions

related to that as well. Right, And because I think the Fed you know, so far has been very um, you know, they've been very successful in moving market expectations for earlier timing of rate hikes, but miraculously broader financial conditions to cross you know, equities, currencies, etcetera hadn't really tightened, you know. So I think that raises the risk that you get a more um, you know, a faster, more

uh you know, more volatile adjustment um you know. And of course I think that's what something the FED does want to avoid, you know. And then I think the third risk obviously is just is just the virus itself. UM. You know. It seems like the FED was pretty unconcerned about the economic effects of O Macron, more concerned about the inflationary effects. UM. But I think it just it goes to highlight just the uncertainty in general of the virus and and what it could bring in the in

the New Year, Tiffany, Thank you so much. Tiffany World with with Pimcoast some really good inside Younger Andrew Peckash is on Eastern Standard Time at the Johns Hopkins University and gives us an i'm acron brief today into the weekend. Andrew, even a dummy like me is figured out i'm acron is not delta, but it's something, well, there's some mystery to it. What's the biggest mystery with a'm acron into this weekend? I think really it circles around the issue

of why this virus seems to be so much more transmissible. Certainly, you know, it has mutations that can invade some of the immune responses that vaccines give you, but it really does seem like this virus is spreading better than other variants for other reasons, and right now we don't really understand what that is, but certainly it seems like people are getting infected in on conditions that previously we're highly unlikely uh to mediate infection, and that's fueling this massive

surge of cases. Transmission is something that's really difficult to study a laboratory, but it really is one of the things that a macron is doing fantastically better than any previous variant we've seen. Is there a row or is zeta after amacron? I mean I I frankly like the geography designations that we used to do in the old days. But do you just assume there's another variant after this one?

There absolutely will be um. This virus has already shown the ability to evolve, change and respond to its new host humans, and it's now showing the ability to try to evade some of the immune responses that are coming

down the line. I do firmly feel we're on a path to make this disease caused by this virus much more mild, much work contained, because we will have population immunity, we will have vaccines that are effectively knocking down severe disease, and will eventually have antiviral that are distributed to help limit that. So there are ways that we can control

this disease. But this virus will be around for a long time, and it's looking more and more like we're gonna have to deal with this like we deal with seasonal influenza. Andy, When do we get to that point where we have enough whether it's herd immunity or just immunity in the general population with also the remedies, the anti virals and the vaccines where we can basically go back to life as it is, basically treat this like

the common cold or the flu. Well. I really do feel like this surge of all macron cases is really going to be the tipping point because with the massive number of cases, and let's be clear, some of the official counts are probably underestimates of the true number of cases that are out there right now because of a

number of reasons. But this surge of all macron cases maybe what really pushes us over that border to enough immunity in the population so that transmission is limited and therefore, you know, the likelihood of getting infected will be a little bit lower going forward from here, How do people avoid getting sick? Well, it really comes down to those basic principles we've been talking about, perhaps boost it up

a little bit. I'm a big believer now that people should be really thinking about wearing K and nine masks um or double masking with a surgical mask and a facial covering on top of that. I think that this increased transmission of a macron requires people to take an even greater UM effort to try to limit their exposures.

And again, masking is one thing. The other social distancing issues that we've talked about UM are important to continue to do, UH, do as much work as you can remotely, but when you're going into situations where you're going to be exposed to people, realize that you need to up your game in terms of the things you do to protect yourself and be wary of of getting infected. Andie pekash there andie thank you sir as always that John's

Helpin splim By School of Public calf On. Yes three, Tom entering, Yes three of all of this, and it feels like a lifetime for so many people. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on 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 and this is Bloomberg