Surveillance: US Jobs Report with Walsh

with the Secretary of Labor. Here is John Farrell u S. Labor Secretary Monty wolf Seconredy wolf St right to catch up with you, sir? Does this make your job a little bit easier going into the long weekend? It's certainly going to Labor Day weekend having fifteen thousand jobs, add the economy and the labor participation for what's number going up as well, So that's that's a good way to enter the Labor Day weekend. I been planning to ask you this question since I went to Jackson Holle and

caught up with feedeficials last week. Love your reaction to this. Do you think how our unemployment is a price worth paying to get inflation lower? Say again, sorry, say it one mo time. Do you think higher unemployment is a price worth paying to get inflation lower. Uh No, I don't think so, And I don't think that with the case here. I think that. And again I don't want to contradict what what the folks in the fet are saying.

But when you look at the job openings in America right now, I think we're going to be consistently strong as we move forward here. I think when to continue to people be going back to work, having the unemployment, having the labor participation rate getting bigger, I think that's important. I think what's going to reduce the inflation is obviously the inflation Reduction Acts will help us on that. The gas prices continue to come down will help us on that.

And and then you know, I think the biggest unknown is going to be what's happening with Russia and Ukraine. This is what Chairman Pal said last week. He said higher interest rates, slower growth, and a softer labor market condition will bring down inflation. They will also bring some pain to households and businesses. He said this a failure to restore price stability would make far greater pain. You

say you disagree with that. Secondly, Wolf, so you know I think I think that the Chairman certainly has has has has a lot more knowledge on this than I do. But what I my concern is, what I don't want to see is is people being laid off. I want to see continuou, seeing people go back to work, people being able to earn good wages. I think that you know, overall, and again, we're at a very interesting time when it

comes to our economy. Nothing that's been predicted or no indicators that we've talked about in the last two years is like any other time in the history of our country. So I think that you know, as we think about inflation coming down, there's lots of reasons for why inflation went up, and it's not the same old pressures of the past. Well, this is what sentence Warren had to

site to see an end over the weekend. Of response to some of this, she said, you know what's worse than high prices and a strong economy, it's high prices and millions of people out of work. I'm very worried that the FED is going to tip the economy into recession. Do you worry about the same thing. No, I think the Feds are going to be very careful and what they're doing. I think they're taking a very uh consistent,

unique approach to what's happening here. And I think that, you know, again, as we were already seeing some of the inflationary pressures not come down enough, but we're starting to see those numbers go down in the right direction. Clearly, we have we have a ways to go before before we get to where we want to be in our economy when it comes to inflation and prices. But again, all of this wasn't all of those clouds for different reasons. And I think that, you know, we just need to

continue to work on supply chain. We need to continue to get goods and service into our country and lawn term, we need to produce more here in the United States of America. Just for Americans looking down to DAYC at the moment Secredy Walsh, I think they're hearing the Chairman of the FEDS say one thing, and they're hearing another thing from the White House. The Chairman of the Fed is preparing the American people for pain, pain that we

have to go through to get inflation lower. And I know other people out there think we can get a soft landing, but I'm not hearing that same concern about the future from from you, sir. Secondly, wish why are you a little bit more optimistic than say this Federal Reserve, because we have a star economy and the President is laid down some really good foundation here for the future of what we're doing here in America. The infrastructure billity, I take a different approach to this as as a former,

as a former mayor of the city. I think about how do I grow my city. It's by investing an infrastructure. It's about creating more housing. The housing obviously is a little slow right now in the United States being built, but I think there's different reasons for that. Uh and and companies are still looking for people we have. You know, we had a meeting a couple of weeks ago at the White House that people were looking at for seven hundred thousand people working in SAP security. We have an

ability to hire more nurses, We need more teachers. We have lots of jobs in our country that we need for the future of our country to stay open. So so I think that when we think about bringing down inflationary pressures, I think it's going to be looked very different than it has in the past. I think a lot of people that you're right, and some other people are round on that front. Secondly, Welsh, thank you sir. As always, we appreciate your time, especially ahead of a

long weekend. Thank you very much. John Farrell was the Secretary of Labor there talking about it better than good Jobs report Randall Crossner. He's a former governor of the Federal Reserve System math from Brown and at Booth School,

economics professor at the University of Chicago. Randy, I want to talk here about America's labor economy is being a homogeneous where we talk about an all in say three point unemployment rate, or is it about the halves doing well and a good part of America flat on their back. There is a lot of diversity in the and the labor market outcomes. I think you're exactly right, So this is not something that's even but as you were describing, this is really what the FIT is hoping for. More

people are coming back into the labor market. That helps to reduce the tightness of that market. And you saw that manifest in slightly lower wage growth, which is exactly what the FIT is hoping for. That more people will come in leave some of the pressures in the market and take some of the pressure off some of the wage increases, so that will make it easier for the head to to try to bring inflation down to its two percent goal without pushing the economy too far too

far down. Brandy, we've got at the participation rate to that point at sixty two point four percent, then how high can the Fed hope and wish and will that number to get? Well, they'd like to get a lot higher. Maybe we'll get a little bit higher. I think it's

it's surprising how much it hopped up. My guess is that, um, it may not stay that high, or it might come down a little bit, but it's going in the right direction, which is exactly what we what we want to see see happening to reduce some of the labor shortages, to

reduce some of the pressures of the labor market. Because it's been a bit surprising, given how strong the labor market is, that a lot of people haven't been bothering to even look Randy Crowsner, based on some of the takeaways, I think you're going to hear that word goldilocks a lot this morning. Would you push back against that characterization of this report given what you're expecting in the months to come. Well, it's just one number, so we wouldn't

want to go go too far. But I think it's it's consistent with with with the FED wants to go. I think it has made the market says somewhat happy that because I think they were worried that there could have been a blowout report here. And unfortunately, good news in the labor market can be bad news because the

FED will have to respond more. And so I think it's it's on a good path, but the FED is still going to be debating fifty or seventy five basis points, and I think it would end up but you know, very close to four by the end of the year, if not at four, and then be you know, hold with a four handle through much of Randy, Thank you, Randy Chryston there at the University Chicago, whether gloom or optimism.

We speak with Jeffrey Rosenberg and black Rock portfolio manager for their systematic multi strategy fund thrilled he can join us each job day. Jeff, we need to recalibrate in the next year, or as John Farrell mentions, we need more data. But this seems to be one side relief

equities up. How does the bond market have a sigh of relief, Well, it's a sigh of relief, Tom, because you had a lot of expectations really following the Jackson Hole presentations, speeches both by Powell and Schnabel that were very hawkish with regards to central banks, definitively stating that

they were focused on inflation. And so the setup going into today was a little bit skewed to the downside that if it was a stronger report, that would have only solidified expectations for the seventy basis points in September, And if it was a significantly weak report, then the market might have looked through that as opposed to what we've seen, you know, in the last couple of payroll reports,

particularly over this summer rally. Uh, it had been a market that, hey, if we got bad news, bad news is good news, and it may no longer be the case that bad economic news and slowdown is really going to push the Fed off of its tightening cycle, because they've been so clear to tell us it's really about inflation. So I think the look through for today, Tom, is really about what does the report signal about any kind of inflation look through, and I think the labor force

participation rate number is really the key, uh takeaway? That is the most interesting pieces as you discussed a minute ago and Randy, which is you know, a little bit better than expected news. They're a little bit weaker than expected on the wage front, you know, modestly that's good news from the bond market perspective of not having to see the FED really react to inflation maybe as a strong again one data point, we're not going to overread that.

But that's the one takeaway I would have from this report that I think is important is the look through to inflation. Okay, so I'll be in danger of over interpting one day to point then, Jeff, with that participation right, we've seen FED sports showing a pairing of bets on rate increases. Does it make sense then to expect less hiking from the Fed? And in what in what sense? Less hiking in the natum or less hiking overall, less less hiking next year? What do we think? Yeah, it's

it's definitely about the near term trajectory. I think what you're seeing in the markets today is is about you know, the seventy five versus fifty debate. Today's number, you know, maybe pushes back a bit, and that's why you're seeing

the rally in the front end of interest rates. But that's not over interpret again one data point, Um, this isn't really going to significantly change the trajectory of the FED, and the terminal rate debate is still very much unsettled, and today's labor market report isn't really going to settle that debate. We're going to focus a lot more on the inflation and the inflation trajectory. You know, a minute ago Mike McKee mentioned the you know, some of the

housing numbers. Um, you know, this is one of the big challenges here that we're seeing is a huge transition from homeownership to home renting, and and you know that rental prices is a huge component of that inflation outlook.

So those things are not really being addressed here on this labor market report, and that still faces the market still faces, John Farrell, what's so important here, and you brought this up before, it's a key insight is what do we really learn about where the terminal rate is for the Fed? The answers this doesn't help us well, look, at the end of the day, I think if it's been pretty clear they want time to financial conditions and to some degree that's going to cap the upside over

the next few months. Tim if they're not satisfied, and ultimately the FEDS in control. And we've said it a million times over the last week, we've gone from a FED put to a FED call the good news. I think for a lot of people, just for now, if you publish the secondary market, this is a relief. When it's sticked. By the end of the day, we'll sit features robbing overage just a little bit positive, behalf of

one percent. I'll continue this conversation with Jeff's colleague Rick Reader will do that at the top of the looking forward to that conversation. Also catching up with Victoria Finanti's a cross mark, Michael Capin of Bank America, Jim Bianco, Pianco Research too, and Secondary Welsh at the White House, Tom All coming up Secondary Welsh about Eastern time. Very good. John Ferrell with the Secretary of Labor. We will look for that on radio and television. Joining us now excuse me,

Jeff Rosenberg still with us as well. We've got a great team lined up here to get you out over the next seventeen minutes of this jobs report. Jeff, what are you seeing in flows? What's the fear level out there? I don't want to know inside black Rock baseball, But are are people selling bonds as money flowing out of debt? Yeah? Tom, as you can imagine. You know, the flows are highly

reactive to the returns. And this has been a historic UH negative return year for all categories that fixed income and and we've seen that in the past week as well in terms of acceleration in terms of rates, higher, spreads, wider. This is a very challenging and ironment for fixed income because we've come we came into this year really pricing the old inflationary regime, and obviously the inflationary regime has surprised the Fed, it's surprised the bond market, uh and

and we continue to see those surprises. And so until we get a sufficient inflation risk premium priced into the bond market, returns are are going to be challenged. Now, the good news is you're starting to get more of that priced in, more of it priced into the front end of the curve. You talked a minute ago about the terminal rate. It's the back end of the curve where you still see a lot of confidence in the bond market that inflation will fall back through the two

UH target. And so this is this is a bond market that gives the Fed an incredible amount of credibility uh that remains uh you know, to be seen, and that's a vulnerability to future fixed income returns. Jeff Rosenberg, thank you so much, Really appreciate the O your time here on jobs day before a holiday weekend. Michael Purvis joins us from Todd Back and Capital, always writing really intelligent notes. Michael, let me cut to the chase. What is the why and the how we get the standard

of pores. Well, Tom, you know one thing that's been um, kind of working in the market's favorite broadly, you know, putting aside positioning and relief rallies and and so forth, is that, you know, the corporate earnings machine has been really performing here. UM. Now, obviously there's a lot of questions about how whether that trajectory can be maintained into the end of the year, and in particular to teth

has in twenty three UM. But look, you know, nominal GDP is very high it's the components of nominal GDP in terms of the waitings of inflation versus real growth are not what we want them to be. But we're still seeing seeing you know, nominal high nominal GDP drive drives nominal earnings right there, and so we were we are seeing you know, continued strength. If you look at Q two s reports they came in the surprise levels were better than they were in a Q on there um.

And on the other side, on the valuation side, look, you know we have had, you know, you go through this massive FED pivot over the last twelve months. It's been pretty remarkable, but it's also really well priced, and PE multiples are and the equity risk premium by by

my measures, have really calibrated appropriately here. So look, if we wake up and you know, next week the ten years had four percent, which which is which I won't be but but you know, if A were to do that, then obviously we're probably going to see some further the contraction and so forth there. But I think right now the markets are going along and so I think, you know, we need to get through this uh September FED meeting. We need to get through some uh you know, look,

economic data is good. UM. Unemployment data, UM, you know it's still really Rebut the I s M. We just got maybe and maybe, Michael. What we're seeing here is markets responding or coming around to that view because US ten year yields, thirty year yields resume their rise. Ten year yields up to three points to seven percent. Right now.

You talk quite positively about stalks and about the earnings story, but others say that the earnings need to catch up with reality, and that means that we need to see cuts to expectations around corporate profits. Why do you not see that? Well, look, I think part of this is simply comes back to nominal GDP being being high this year and probably pretty high next year as well. My

biggest risk to earnings next year. I mean, of course, if we get a big recession, yes that's gonna there's no question that will be a big hit to earnings here. But you know what are the other real risk for earnings next year? Simply inflation coming down a lot. If that were to happen, a lot of the earnings will come in and some companies will certainly see some some margin depression there. I want to give you a victory

lab Michael Purvis. We had pre amsra on earlier with the call of the summer on curve inversion, and every once in a while Purvis absolutely nails it, folks. A few years ago, Michael, you nailed a d X Y the blended Pacific RIM currency regime X Japan. We now have a yen through a new level moments ago one forty point eight zero on Japanese yen. Many talking one weaker yen. Michael Purvis right now on what it means to see such currency weakness and strong dollar on the

Pacific RIM, well, I think it's it's very significant. I mean, the fact is is that the United States dollar relative to so many currencies to Europe, but particularly the yen and and many e M currencies, is sort of effectively

a pectrocurrency um certainly on a relative basis here. So you know, if you're talking about the end, you have to consider high threw carbon vulnerabilities, and they're as as painful as oil prices are here, it's a lot less so than it is in places like Japan and the Eurozone. So I think I think there's there's that you know, if you tell me Tom that oil is going to one fifty. I'll you know, I I can't imagine how the end wouldn't get a lot cheaper or the euro

get substantially ship re religive to the dollar here. So I think that's one of the weird dynamics. It's that oil is leading, is a key thing that's driving, that's leading currencies around by the notes, Does that lead to a change in bo J policy? Michael, Is that where they well, well, I guess we've all been waiting for that for some time. I think there's a you know, there's certainly an interesting um sort of game of chicken the b o J has been playing here. We'll see

at what level of sensitivity they have. But I think there, you know, after like you know, three decades of very very considered deflation disinflation in Japan, you know, maybe that they feel this is what it's sort of needed, kind of wake up um the economy there. But it is a dangerous game I think they're playing at some point.

Michael Purvis, thank you so much greatly a previous We're appreciative there right now, Tiffany Wild with this uh PIMCO chief yours economists understanding that Paul Sweeney and I are not prime age, but Tiffany Wilding is prime age good prime ate statistics. Tiffany Wilding and that we're getting back to pre pandemic levels. Describe what prime ages please, morning,

Tom and Paul. Yeah, so prime age is and it is exactly what it suggests that, Um, you know, this is the prime working years as defined by I guess the Bureau of Labor Statistics. Now, now keep in mind, though that prior to the pandemic, you're actually seeing people participate in the labor market longer. Um, so you actually did see participation rates for that kind of fifty five to sixty five or even because you have an older increase, but that all changed after the pandemic. We have a

large wave of retirement. So now, um, you know, kind of the prime age participation rate is a really key focus here for um, you know, for broader participation rate trends. Well, okay, it's a key focus. Is the prime age. Is the rest of the economy getting back pre pandemic? I mean the compendium of statistics you look at, is that a unique idea or are we really getting back to what Paul January two thousand twenty that level. Well, so I think what's interesting and this came out I think in

the various papers that were presented at Jackson Hole. UM. You know that a lot of the statistic it's been a lot of the underlying structural trends in the US economy, uh, you know, like participation rates or um, other you know, labor market trends or or like the productivity reports and things like that. They all actually are kind of behaving in a way that you would expect. So they're getting back to where they were prior to the pandemics. They're

kind of normalizing, if you will. What looks to be a more structural change, UM is of course the inflation data. UM. And it's not just you know, the prices data obviously, but the wages data. All the wages came in maybe a little softer than expected this month. Overall, wages have been really strong and price have been really strong. So that you know, in terms of thinking about the scars post pandemic, it's really the inflation and data that looks

the most changed at this point. How do you think the Federal Reserve will look at this labor market given the data point that we had just today, Yeah, I mean, so I think I think clearly the question that markets will be grappling with is are they going to move fifty or seventy five basis points at this upcoming fl MC meeting. You know, I think I think today's report probably didn't change people's views tremendously on that, and it's really going to come down to the inflation report, the

CPI report, which will get next week. UM. You know, I think overall the data, you know, would UM, the data that we've seen since the last UM fl MC meeting, in particular the inflation expectations data. The FED cares a lot about a Philadelphia Fed survey of professional forecasters because they tend to be less moved by energy and food prices, which can be volatile, that they have moved up their longer term inflation expectations. UM, I think, more materially, and

so that's important for the Fed. UM, you know. And I think overall this employment report, you know, even though you know, maybe there was UM, it's it's I think it's it's consistent with an economy that's still quite resilient and in a labor market that's still quite resilient and not clearly slowing. So I mean that's something that the

Federal Reserve is going to be focused on. Not to give away at Vatican secrets, but Tiffany at PIMCO, surrounded by bond people, bond animals, I'm fascinated if you are advising them on an inflation function that gets their bond market back to seven percent or five percent or four percent or three point six away from the two percent required mantra of Fed officials. Are they modeling towards something

higher than two? Well, I mean, I think you bring up a really good point, and that's if you look at you know, Taylor rules, which is, you know, kind of where the Fed funds rate you know, should be kind of a normative rule given on you know, given the inflation that we're seeing, given the unemployment trends, etcetera. Um, then the Fed funds rate should be much higher, you

know than it is right now. You know. Now. Of course, explaining that difference is the fact that you do still have I think pandemic related thing, a pandemic related issue is that are impacting inflation. Um, and those things will uh, you know moderate so um, you know, the we've seen a moderation in logistics and shipping costs for example. Um, things from a global supply chain perspective look like they're getting back to normal. Of course, demand for goods was

was really outside as results of pandemic et cetera. Those things should calm down. Um. But ultimately, if you kind of look past those things, underlying inflation, uh, and the underlying trend, and inflation looks like it's it's increasing higher. So I do think that, you know, we're getting to a point, and the FED has said this as well, we do need to be restrictive. So that means rates above probably the terminal level that we were that we

saw in the last rate hiking cycle. Um, you know, and then those restrictive levels probably need to stay in place. And of course that's what the FED officials really kind of tried to hammer home at Jackson Hole, Um, that they're not going to be quick to sort of turn around. Um, you know, they're gonna they want to keep things restrictive to make sure inflation gets back to where they want to be. Tiffany, I try and get my head around

this recession call. I mean, Tom and I tried to go out for cocktail after work yesterday, but we could not find an empty barstool anywhere in midtown. People are out and they're for the ending sunning. It is stunning to coast. What do you make of the consumer? What do you make of the consumer's ability to maybe stave off a recession? Yeah, I mean, I think over all, the consumer looks really strong right now. UM. I think the areas that that don't look as strong are the

productivity statistics. Were basically our productivity recession. Usually you think about productivity is being very much linked to corporate profitability um. And there the data at least that the government provides has been maybe a little bit more mixed on that. So I think, you know what what we're looking for here in terms of a recession, UM, is that you have increasing costs of which can't be passed on to

consumers as easily anymore. So you get a you know, kind of more of a profits decline and that results in uh, you know, in in some labor uh you know, changes in labor and maybe even some firing that we're starting to see in some sectors like the tech sector for example, um, you know, and others maybe real estate type of sectors. Um. I mean, so we are starting to see that so, but I think overall the consumers still strong. But that's because the labor market is so strong.

Aggregate incomes are strong, um, but the labor market lags. Keep in mind, so when you have, you know, these shocks of the corporate sector, you know, that will filter through to labor markets and then to consumption with a little bit of a lag. Is this is this the Roaring twenties? My grandmother was that the ten twelve twelve years old in the pandemic of night and she would

always talk and we laughed at her. Of course she was nuts boom right, a lot of people died, but she talked Tiffany about the rebound before the depression crept in of the Roaring twenties. Is that the behavior you witness now in the consumer Paul Sweeney just described, Well, I mean, I think, you know, overall consumption is kind of back to levels that we saw pre pandemic. Um. You know, I guess I wouldn't you know, think of consumption right now. Is is anywhere close to like kind

of an irrational exuberance, you know? And I do think there are indicators that, um, you know, some consumers are actually struggling quite a bit here under the increases in prices that they've seen, so low income consumers, we've seen savings rates on those fault, increases in credit card debt and things like that. UM. So those consumers are struggling, you know, quite a bit here. But I think overall the consumer they're they're pretty pretty strong, um coming into

this and pretty strong balance. She's coming in this as a result of the fiscal stimulus that we saw, um and they're still pretty strong. So it really comes down to the labor market here, I think. And if you see a deterioration, now keep in mind, how does the futtle reserves slow down the economy and slow down inflation. Well, they have to put enough pressure, um, you know on the broader corporate sector that you do start to see some labor market week is um. So that's really the

key here, I think to the recession call. It's that you know, you have the FED that you know is

going to restrict the economy. You know, it doesn't kind of get away from them, you know, And I think history sort of suggests that when they do restrict the economy that you know, it's hard to start, you know, it's hard to control that and fine tune it um and what can you know, what can be a period of below trend growth can turn into a recession, you know, kind of stall speed, if you will, can start to contract very easily. So I think that's what the concern is. Tiffany,

Thank you so much. Tiffany. Welcome with him Cooke. 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 Key even This is Bloomer