Surveillance: US Jobs Data Gives Mixed Signals

certainly his Democrat party. He's a twenty ninth United States Secretary of Labor and always in forever will be the former mayor of Boston. Marty Walsh is served President Biden as they go to election day and as we do on Jobs Day. A conversation John Farrow with Marty Walsh. Let's listen in from New York and place the site that joining us now is a US labor sectary. Marty Walsh on TV and on radio, he joins us in Washington.

Mighty fantastic to have you with us on the program sir, First, on this show to respond to this payrolls report, the big question for many of us right now. Secondly, Walsh is how much do you think this labor market needs to cool to help get inflation lower. Well, I think that. I think what we're seeing here is obviously saw good games this month, lower unemployment, and that's really strong. I think what we're sat in to see now is as transition to a slower and steady economy as we move

forward here. I mean, we're seeing there's still jobs available out there. We're seeing the wages have gone up a little bit a little less than last month, and what we are seeing gains in the in those sectors that's still a hiring people that need people to work on them. The question many people are asking is whether higher unemployment is a price worth paying to get inflation down. Secondary Walsh,

you and I have talked about that. That question has taken on renewed importance this week after some of your Democratic colleagues down in d C have sent a letter to Chairman Pou. Do you think higher unemployment is a price worth pag to get inflation lower? Certainly? I don't want to see high unemployment because I think too many people in this count we need to go to work.

Uh the seeing opportunities where where workers across the board average of higher wages right now for four point seven percent. I think this a month. UH. The wages are at UH in the hospitality and they're higher. I think there's an opportunity for us to bring inflation down UH and as well as having employment going on the country. We're living in a very and I've said this many many times now, but in a very different economic times, and I certainly don't want to see our n employment rate

go high three point seven percent. We've been averaging between three point five and three point seven percent over the last I think pretty much the last year, and that's a good place to be. What's the mechanism for that to happen? As far as you assume what to get inflation down without unemployment going up? Well, I think you know, the feed is raised. Rates were seeing a little bit of a little bit of steadiness now a little bit

of cooling off. We're also seeing opportunities, as I mentioned, we're seeing we're sat in there to see signs of a slow and steady economy. I think we're getting back to UH pre pandemic where we were. We're not going to continue to see these gains of hundreds of dollars of jobs every month in our economy because eventually, you know, we're gonna run out of people to fill those jobs.

We're seeing the supply chain. You I didn't see that here your whole segment right before this, But as China opens up, we're gonna start to see more supplies coming across the ocean. We're seeing pressure on gas prices coming down a bit. We need to continue to stay focused on on our on our gas prices and natural gas. We need to continue to bring carts down at the kitchen table every every past of the way we can, uh, and we're just gonna continue to do it month over month.

There's not just one quick fix to it, as you know, and you know you guys talk about it all day long. There's lots of different things that have to happen here. Well, the Federals earves talking about causing pain. Chairman Power talked about that in Jackson whole way and Making said well, higher interest rates and slower growth and softer labor market conditions will bring down inflation. They will also bring some

pain to households and businesses. These are the unfortunate cost of reducing inflation, but a failure to restore price stability would mean far greater pain. Secondly, well, what would you say to those that may say to you that you're not being up front about the pain that we need to go through to get inflation down, Well, I could say this, people went through a lot of pain in this country in the last two and a half years

with the pandemic. People lost their job, people were concerned about what the future is and we're living in a very interesting time coming out of a pandemic. UH, and I think that people are feeling pain. They feeling pain at the kitchen table, and we have to do everything we can as an administration. The President's passed legislation UH Inflation Reduction Act that long term will help us bring down inflationary pressures. We're working on supply chain issues to

bring down to play story pressures. UH. The FED doing what they have to do to bring down pressures, and we have to continue to work an all government approach, if you will, UH and do everything we can to bring those pressures down at the kitchen table, I think by having having unemployment rates around seven percent, that that's a lot a lot of unnecessary pain that people in America don't need right now, and working people that are working won't need that pain either. You can see that

has to go higher. Though no I'm not there yet. I'm one of the people that that hold out saying that I would like to see the unemployment rate continue to to stay where we are, even go lower if we can uh and and work out the ways through this inflationary pressures that people are failing. I've got to put you on the spot their second Welsh how does unemployment got lower and inflation comes down to? How do

you think that happens over the next twelve months. I think that people are trying to compare this economy to what we've had previous economies, and we've heard people talk about on on shows all across America and people in boardrooms talking about recessions and comparing this time moment in time to pass times where we had recessions. It's very different.

It's a very different period of time. And we've never seen inflation at such a high rate and unemployment at such a low rate in the history of our country. So we have to just continue to do everything we can use all the all the all the tools, all the mechanism we have to bring those costs down a lot. Some of this was due cause because of a pandemic, because the supply chain issues in the very beginning. Part

of this is because of gas prices. You know, this is a worldwide crisis that that people are failing with inflation and and things that we're doing here in the United States we are bringing you know, I think we're being a little more successful here in the United States and other parts of the world. You talked about the mechanism. Forgive me for calling that a lot of words sounded because it felt that way on my side of it listening to its. Secondly, Welsh, you talked about the mechanism

for this to happen. Yes, unemployment is very low and inflation is very high, and that's why most people assume the unemployment will have to go up for inflation to come down. You still haven't really told me how you think that's going to happen. What are you to make that happen? Because understand that's the world you want, that's not the world we have. How's that going to work? I'm not I'm not an economist, number one, and I

think that it has to be very clear. And number two, when you think about where we are at this moment in time, what I'm gonna do as my job as Secretary of Labors were an iken is to make sure that Americans have opportunities to do good paying jobs, whether it's to workforce development, apprentice programs, working with states and cities all across America. That's my role and responsibility right now.

My role and responsibility when it comes to inflation was making sure the supply chains and moving forward, making sure we didn't have seven hundred ships off the coast of California in Seattle and Portland and in the West US where we did have it, making sure that those those goods and services came into our country, making sure that we don't have disruption in our supply chain, whether it's

through negotiations and ports or negotiations on rails. Those are things that I'm focused on right now forward looking to make sure that we're doing everything we can that we don't add to the inflationary pressures that people are filling in America. Other folks are working. Secretary Yelling, Secretary Mundo, and the Chairman Chairman, all those folks are also working collectively on making sure of bringing down inflationary pressures. You've

been pound of the negotiations with the rail union. She mentioned that just there why haven't I signed the agreement. We have six of the twelve agreed upon. We have four contracts still out, and we have two contracts that were voted down by the members that we're currently I'm encouraging both sides, the rail and the companies to stay at the table and get another opportunity to get another vote on before we hit our deadline in November and December.

Are you actively involved in the negotiation again, I'm not actively involved in persue the negotiation as far as what's what's in and out of the contract, but I am very active in making sure and talking to I talked to the representatives of the companies on a daily basis, and I talked to union different unions almost on a daily basis well, UH, to make sure, particularly the two unions that that didn't ratify the contract. UH. Six unions

have ratified. There's another one going to come in the next couple of days, and then we'll have three left out there. So hopefully by by hopefully, by this time next week, we will have many of these contracts ratified. And we were down to the last two. What if we don't get that? What preparations you've done just in case this falls apart, Well, there's a process that goes in place and the worst case scenario. I'll play worst

case scenario a minute. If we don't get to an agreement, Congress will have to take action, and that is by design and the and the Railway Act. Uh. The President has the ability authority to put together an emergency board, which he did. Uh. They came back at recommendations. The unions have to ratify. There's twelve different unions. And if the unions don't ratify, if we have two right now not ratified, Uh, Congress is the last stop that would

have to take action. It's likely. Well, thank you, sir for your time against We appreciate it. The life of Secretary that Monty Walsh. Tiffany Wilding with this with Pimco. Tiffany, I want to go back to black and tackle here, which is you've got to figure out real g d P, inflation in nominal GDP, the animal spirit, current economy, economic growth, etcetera. And I don't even know, not to be rude, how

far out you should go? Can you get out just like the end of second quarter two thousand twenty three, Dare I say, Tiffany, can you go out to the end of next year. Dare I say you can be like Governor Bailey in England and call for a two year recession. I fell off my chair, Tiffany, when I saw that, how far out can you guess? Estimate real g d P. I mean, I think you're you're picking

up on a really important point here. Is just there's a lot of uncertainty, um, you know, and we do try to model these things right, but models aren't perfect. They're stylized, and you know, you have to understand that it's never going to capture everything. And I think there is a lot of uncertainty. I thought that to your point on the Bank of England projections, I don't think that we've ever seen a two year a recession lasting two years. Those are quite dramatic, um, you know, quite

dramatic forecast that they that they came out. But of course they're also using market pricing um in order to um, you know, to help bake that forecast. So you know, I think I think overall, you know, we are focused on how the data looks and the economic momentum that

we're seeing. You know, we do think the US economy and others across the developed markets will flip into recessions, you know, going in you know to the first quarter, you know, the last into the second um and and the reason for that is is that you were already seeing of you know, what we call final domestic demand, but just real demanding the growth, and that that was already slowing this year. So last year is about five percent on a real basis. This year it was less

than one. And on top of that, we've seen you know, pretty dramatic negative shocks to the economy, obviously what the Fed is done with raising interest rates broader financial conditions, you know, but also you have this you know war in Ukraine, which has been basically a global energy supply shock.

So the combination of those two things, you know, in our minds will probably you know, what was already kind of a weaker economy in the US, we'll we'll, we'll push it into a recession, you know, in the first part of next year. Tiffany tom is talking about perhaps a two year rise in let's go even longer than that. Is it fair for the Federal Reserve to shoot for a two percent long term inflation target when you were seeing a wage price spiral in the works. Yeah, I mean,

I don't know that we are. I wouldn't maybe be as strong as to say a wage price spiral in the works, but I think that there is evidence, certainly, um, when you look at at various things, that there's a very high risk of that happening, and the FED definitely needs to, you know, to rein that in as best as it can using very blunt tools. And when I say evidence of that happening, obviously you're seeing it in

the wage data um. You know. Marty Walsh also mentioned the negotiations that are happening, you know, with the rail unions. You clearly have more bargaining power by employer um you know, by workers, you know, as a result of just the broader you know, the tightness of the labor market you know. But you know, the other thing is is that you know, it's all it's it's also all about how much UM our company is able to defend their margins. That's the other key piece of a wage price spiral, you know.

And I would say there it's not great news either because it does look like you're getting some companies are able to defend their margins. So there is evidence of it. UM. You know, but the FED is doing something about it. Tiffity.

We're in an extraordinary week, and particularly coming from the bizarre FED meeting and press conference in an extraordinary year into an election, and folks will be surveillance will be in Washington Tuesday and Wednesday mornings for the election, along with David Weston's wonderful work Election Night and Tiffany Welding the great thrust I get from all the fan mail, emails, tweets.

Whatever is the divide? I mean, someone like you is down at No Boo Newport Beach with Bob de Niro and you're having some fancy Japanese meals, you know, and the rest of them. That's the perception, Tiffany, that it's the West Coast and the East Coast booming and everybody else is flat on their back. How polarized is the American labor economy? Now? Yeah, I mean, well they're clearly, you know, they're obviously clearly big political divides. Um. You know,

in that polarization is not a new thing. Um. You know, that's been happening over the you know, over a number of decades. You know, obviously, you know, I think in terms of you know, how it impacts our outlook, you know, That's what I mean. I'm not a political Um, I'm not a political analyst. You can be. You got these seconds continue. I'm not a political analyst, but I do think that, um, you know, in terms of our outlook

and how growth evolves. I think the big takeaway from the likely midterm elections is that you're probably going to have a divided government and you're not going to get a lot done. You're not going to see fiscal stimulus. So even though we're calling for a recession, there's not going to be the usual response you know from the Fed or from the government, you know, to help and

so and so. That's going to result in not only a recession, but probably when the economy comes out of recession, it's going to come to some sluggish growth level that's really not that great either until inflation comes down to for you next time, you know, but you gotta try the whitefish shashimi with dry mesa. It is just to die for, you know. Here, silence with that, every well, and thank you so much, greatly appreciated. Randall Crasser knows

these are abrupt moves. He mentioned that earlier. He's at the boost school the former FED governor as well. Randy, you are a student of economic history. Let's say we get a terminal rate of five point x percent. Let's say we go back to c D rates of a of a time twenty thirty forty years ago. Is it the same this time? Are we reverting back to a financial structure that we know? Are we in new territory?

I don't think we're gonna be going back to UH interest rates at double digit levels, which is where we were with when inflation was this high forty years ago. So I don't think the FED is going to need to go that high. But I think, as you can see with the two year moving up, the markets are saying, hey, this is a pretty strong employment report. We're not seeing

cracks in the labor market yet. And so the FIT is going to have to continue on its path and will um its terminal rate will be a bit higher than we thought. What do corporations do? How do they adapt as we see the nominal yield and the real

yield come up. So that's you know, one of the things that the Fed's toolboxes to try to make findacial conditions tighter, make it less attractive for firms to hire and less attractive to to invest as hurdle rates go up, because both real anominal rates would be would be going up, and that's their main tool for trying to slow the economy down. And tried to take some of the uh, the excitement out of demand and and so supply and

demands can come together without as much price pressure. I said, let it breathe, and we have done for a couple of minutes, and equities have raised the losses post pay roles so S and P five back up Hart by eight tensive one percent. That move at the front end has faded back to basically where it was going into the print at four seventy six. You're time by four basis points or so. I don't think this is the

game change or at all for anyone out there. And by the time we get to CPO November tenth next week, we won't even be talking about what's just happened here in the labor market time. We're still waiting to see real cracks in our labor market to get a better understanding that the dual man date at the Federal Reserve, it's in conflict and right now for the Fed it's not. I'm gonna have this conversation with Rick Reader over a

black rock in just a moment. Anastasia Amarosa vi Capital, Mike comins PGIM and we will catch up with secondary market. Marty Walsh, Tom of the Labor Department at this administration, looking forward to that a little bit later in the next hour. Very good. We'll continue the features up thirty the VIX. The VIX comes in twenty four point nine eight.

Lisa gets my attention of a more buoyant market. Yeah, and also the Fed funds rate was now praising in a peak of perhaps five point to five in June of next year, although that's fading a little bit as we start to go on. Randy Krasner, I'm looking at some of the details here, and this is actually a very confusing report to me. The unemployment rate now getting people's attention, perhaps, but the wage picture very confusing to

me as well. What can you glean from the composition of jobs that perhaps are getting added or cut and how that might be affecting the wage dynamic more than per se an entire inflation picture that the Fed can take away. True, there's always one of the issues that you have to be careful about is exactly what you're pointing out, the so called composition effect. What what areas are seeing job increases more than others. Are those in

general high wage or low wage low wage areas. I haven't had a chance to dig into the details of the report, but that's obviously something one needs to look at. The FED will be heartened that the that we're not seeing in an acceleration in the UH in the wage in wage growth, that it's still around four point seven percent where it had been, but it is hoping that that that is not going to rise, and it's hoping that it may come down a bit as they try

to bring inflation down. Yeah, I look at this, Mike McKee. I wanted to jump in here if you would right now you I'm watching, Mike. Folks look at the real report, which is ten pages law. I've given another number there

for us in Professor Krassner. What matters to you, well, unemployment is what's been the interesting number today because it went up and it's largely because of what we in the past would have said is bad news, but uh, this time it is kind of what the FED wants to see in the household survey, the number of people employed falls by three hundred and twenty eight thousand, while the number of people unemployed rises by three hundred and six thousands, So a real difference between that and the

Establishment survey, which is not unusual, but it does tell you why the unemployment rate went up. We also had uh two thousand people leave the labor force after fifty seven thousand left the labor force the month prior, and so it's kind of interesting. It maybe because kids have gone back to school and mothers have decided to stay home or something like that, but we're not seeing people drawn back in by the fact that they so many

jobs available. Well, and Randy, that's where I wanted to really finish up here and just get your impression of why the participation rate is going down, why it is moving in the opposite direction despite the wage gains and despite the the job openings that we see in the Jewels survey. This is one of the great front frustrations that the FED has and j Pal has been talking about this for a long time of trying to get you know, why aren't we seeing more people come back

into the labor market. And I think it's it's a variety of factors. Um, there are many of the older workers and more experienced workers are saying, hey, I know a lot of people who didn't make it through Corona. I want to make sure to have I'm with my kids, my my grandkids. So you've seen a much lower labor force participation by older workers, and a lot of younger

workers are sent. You know, unless I can get a job where I can sit at home and kind of picked the hours that I want, I'm not about to come in and so, um, it's hard and despite all these openings, it's not enough so far to be able to draw people. In. Part of that is because even the wages have been growing nominally fast that they have in the past, the real wages, the inflation of justice wages haven't been growing that strongly. Randy Crosser, thank you

so much for joining us. It's just a joy to have you with us on jobs that he is at Booth School London and now back at Chicago as well. Right now we go to Jeff Rosenberg, who was just wonderful line fed day, giving us the dynamics of a dynamic press conference as well. Maybe Jeff with black Rock maybe not as exciting as that press conference, but nevertheless, a job report of the fully employed America. From where you and your team sit, is this job's report old news,

present news, or indicative buoyant future? Yeah? Great, great question, Toma. You know, I think it invalidates what we think we know about out this labor market, and that is is that it is very very slowly starting to show some effects of an economic slowdown of the FEDS tightening. But go back to our conversation on the post Fed day, it's all about the long and variable lags here, and so we're seeing, you know, just the glimmers of what the Fed hopes to see in terms of the impact

of their tightening this year. But it's it's gonna take some time and and and going back to what Lisa ended with Randy on you know, the most salient point I think here and Powell mentioned it in the press conference is the lack of labor force participation responding to this historic levels and openings. That's a huge disappointment. That's a problem because the economy is not responding to the FEDS tightening, and so they've got a lot more work

to do. They're gonna slow that pace. Fine, but we really are not seeing the economic slowdown that's necessary for the Fed to get to that inflation slow down. So this is a real challenge for the Fed and for the market. Jeff, since you walked up to your TV set a black rocket, we say good morning on Bloomberg Radio as well, the two year yield gave us a rounded up four point seven six percent. How does a grizzled pro like you adapt to yield nominal yield real

moving so fast and furious? Yeah, you know, you take what the market gives you. And and in this market, it's been a dramatic increase and restoration of yield for safe assets. You think back to the zero interest rate policy environment, the negative interest rate policy environment that gave us, Tina, there is no alternative. Now there is an alternative, and

so it's adjusting to where the opportunities are. The opportunity these are in the very front end of the yield curve where we're pricing in is Lisa talked about a minute ago, you know, five five point to five cent peak FED funds rate. Whether or not that turns out to be the peak depends on inflation. But the Fed signaled earlier this week to expect an increase in that terminal rate. The markets already there, so there's not a

huge surprise when we get to the SEP. There may be more of a surprise on the inflation next week, but there's a lot of opportunity there because we've done a tremendous amount of work pricing in the normalization, the tightening, the movement to restrictive policy that the Fed wants to be at and are getting much closer to being at.

Do you think that the balance of likely outcomes, Jeff, is more likely they were going to see a higher than five and a quarter percent Fed funds rate versus one that is below that in terms of where we end up at the peak. You know, Lisa, it's it's very tough to make that call because it's dependent on the inflation call, and what do we oh so far

about the inflation call. Everybody's gotten it wrong. Every time we get a surprise to the upside to the cp I, what happens to the inflation peak expectation and therefore the peak of the Fed funds expectation? We continually move it out, so very hard to see whether or not that's the peak. If the inflation forecast finally show up. If we get that point three in course cp I next week, you know, then I think five five and a quarter will be the peak. But there is a possibility here, and you're

seeing it a little bit in the data. The lack of the data today in in in in the payroll report, the lack of an expanding labor force, very strong wages. Is the risk of this alternative view that we are already in a wage price spiral. And if that's the case, and the Fed may have to do actually much more than that five five and a quarter that's currently priced in the market, What does that do to risk assets? Jeff Well, I think it's a challenging environment for risk assets.

We saw this in the in the in the post press conference equity market reaction that the Fed doesn't want to see financial conditions easing prematurely. They need financial conditions. Remember, the transmission mechanism is tighten financial conditions, then it affects the real economy, slows the real economy, and then the slowdown in the real economy slows down inflation. If the equity market gets ahead of that and eases financial conditions before the economy has a time to slow down, and

slow down inflation. Then the Fed has to do even more. And that's why he pushed so aggressively back against that. You know, oh, the market is up. What do you think about that? And then he gave you the greatest hawk ish hits to push back down the market. So in that environment, it's going to be challenging for risk assets. Jeff Ian Lincoln just publishes a bemo capital Markets always wonderful and fixed income, and he makes clear that this

report gives Chairman Powell room to wait. He can now comfortably wait for these inflation reports that we see before the December meeting. Do you agree that it's not that it gives him degrees of freedom, but that this report

gives him the room to really wait and analyze price change. Yeah, I would agree that this report is not changing anything that we already have in the expectations for the Fed to begin a step down in the pace of the increases, but not necessarily um ending that pace of increase until they start to see the development in inflation of a slowdown, so they can slow the pace because they want to

incorporate the Brainerd perspective long and variable lags. That important change to the statement that we got earlier this week. That's about the FED acknowledging. We don't want to go at seventy five forever. We don't want to overdo it. We want to give time for the data to show up. And I think today's report is in line with that

market expectation doesn't really change it ramatically. Are we going to go back to an era that was familiar over the past decade or so where we finally grind through whatever this post pandemic reality is an inflation gets back down to around two percent or even below that, and then we struggle with the same types of disinflationary forces. Or is this a materially different decade coming up. Well, this is the premise of your question, is do we

go back to the pre COVID secular stagnation environment. And if you look at market consensus expectations for interest rates, for inflation rates, there is that expectation built into market consensus. We would be highly skeptical of that outcome. We get at frozen there on Jeffrey Rosenberg, I guess we'll exit there. We're gonna exit thirty seconds later, and we'll do it now. Thank you for that. In a Frosannical Moment with Jeffrey

Rosenberg Glack. It's a Frosennical moment. 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