Surveillance: US Jobs Report with Walsh

Jonathan Farrell. I'm pleased to say that joining us now from Washington is the US Labor Secretary Mary World Secondary worldsh fantasticy. Catch up with you, sir. Another strong jobs report. As you know, this has been a very very strong labor market in America and labor is meant to have the leverage in this world. And secondly, Welsh, we've got to go to the union question. Should unions have the right to strike? That's all, you have the right to strike.

I think that unions have the right to strike UH in almost every collector bagging agreement. UH, in this particular caation. Next question will probably about the rail so I want to anticipate it. UH. The National Railway Act has a provision in it that allows the president to get involved in the negotiation when asked and the unions asked him to get involved in this, he put together a Presidential Emergency Board. They came back with some recommendations. I had

that twenty hour negotiation of my office. We added some more benefits to the contract. It went in front of the members. Uh, state of the union's voted for it. For the unions vote against it. I tried to get both sides to stay at the table and negotiate over sick time, and there's some work condition rules as well. Uh. They weren't able to get to an agreement. And the next step in the Railway Act is is Congress to

take action, and that's what they did yesterday. Well in place you anticipate today because you said, well, at once for us, on the one hand, you think they should have the right to strike, and on the other hand, you take away the right to strike. Can you make sense of that for us? Yeah? Well, I mean it's it's the way that the law is, the Railway Act is. And you know, when I look at this contract, we spent a lot of time. I spent a lot of

time myself. But the unions in particular, it's been a lot of time at the negotiating table and and and there's some very good provisions in the contract. It wasn't like it was a bad contract. Increase split on healthcare, which they preserved. They were able to get some work rules changes, they were able to get three unpaid days off. The issue of sick time needs to be content. The companies need to sit down with the unions now and

have a serious conversation about two issues. One is sick days, paid sick days, and the second issue is manpower and and power on on the work on on the rails. They were down about over the last several years. And that's a big issue when it comes to the safety and health of the workers on the job. So I'm going to encourage both sides now to to get right back at it uh and and have those conversations now

and and move forward in a positive ways. Wolves there is a key distinction, an important distinction to nightcare, and it's the way the law can work. It's not necessarily the way the law has to work. You've chosen to make this decision. Happened to you, this was a choice. Well, I know, I don't necessarily. I think there was a

lot the factors there too. You're talking about the economy and you're talking about supply chain, and we've had challenges in our country with with shortage of baby formula, formula. We've gone through a pandemic where we had shortage supplies coming in. And what this would have done to the American people, Uh, never mind the American economy. It would have crippled a lot of people because we wouldn't have food. It would have shortened food on the shelves. UH, supplies

coming in. Uh. This is also as much of making sure that our economy and the American people move forward than anything else too. So again, I'm very sympathetic to to the to the workers out there, and that's why the President, when he, at their request, put the Presidential Emergency Board together, came back with a very good recommendations on behalf not everything. But in negotiations, I'm negotiated contracts

where I've gotten good, good contracts. I've negotiated contracts where i haven't gotten everything I've wanted either height, sickly, it's something you have, is something that I have? How can those rail work way work has ever secure the benefits that you claim to support without the credible threat to strike. I hope you have the companies on this show and ask them that same question and not ask me today after the Congress took actually yesday, because I think that's

a very important question. You need to ask the companies why why that's not offered to their employees across the board. But in saying that, I intend on sitting down with the companies and talking to them about a couple of things that during the negotiations that that I heard from the unions about the concerns that they had about their workers have uh, And I intend on bringing that up

and talking to them about it. And in the next contract, this contract expires, so we've already they're already working three years without a contract. So as they head into the next negotiation, this should be the top priority. And you don't have the way for a negotiation. The companies can

offer up paid sick time anytime they want. You've just made it even easier in the next negotiations stuff, haven't you, Because we know the endgame here if you're on the other side of that deal that negotiations secretly wolves one Earth with a company sign up to any of that stuff. Well, we know what's going to happen here. Ultimately they can just say no, and then it comes to the president. The President says, okay, we'll impost this deal on you. Now,

you how negotiations work. That's not how it works. I mean they just played out so in the last couple of months. What do you mean, That's not how it works. That's how it's played out. That's that's how it works. That the Congress has interacted over eighteen times where the PEB recommendation recommended the PEB, Congress enforced a PB that

was not pro worker at all. It didn't have wage increases, didn't have preservation of healthcare premiums, it didn't have work conditions, that didn't have unpaid days off, it didn't have any of that. And Congress came in and again, this stuff hasn't happened at the bargaining table. And that's why the companies need to come to the bargaining table out earlier.

In this particular case, they didn't come to the table till till I think eighteen months after the contract expired, and they would have had now that they're gonna have to. I think that they they You know, a lot of the CEOs have made comments already about the need to better relations with their workers in the in the unions on their jobs. It's likely, well, she wan, I can

go back and forth on this a lot. The President of being not his States, intended to be quite what he said his words, the most pro union president leading to the most pro union administration in American history. Right. The fact of the matter is what it came down to. It your forced union members to take a contract they didn't vote for. How do you explain this in any other wide, shapeful form. I just understand it. The President of the United States America is very pro union, There's

no question about it. He talks about it very publicly, and he's very proud of that. He's also the president United States of America. And when you look at what with the devastation a national rail strike would cause America, uh, that far outweighs that the cost of moving forward. The President put together a p EB. There's a lot of benefits in that PEB. Good good provisions in that PEB that are going to benefit these union workers out there. And there's no question about that. I'm a union worker,

union member myself. I understand that, and at the end of the day, the President got a very good deal on the table for the workers. However, the workers wanted one more in that deal, and I could understand and sympathize with the workers. But what we'll do is we're going to continue to work now as an administration to make sure that we helped them achieve their ultimate goal. What message do you think this sends to the ongoing light the contract talks with West coastalk Workers Secondary Welsh,

I mean the West Coast Dark Workers. They're in current negotiation, and that they have their own bargaining issues that they're working on and then moving forward on that issue, having those conversations, those dialogues, the differences the companies in the Dark Workers came to the table the beginning of the negotiation, not halfway through it. You've been quite constructive on how

these talks will go on the West Coast. What are the lessons to learn Secondary World from the last couple of months with the railroad workers, where you were also equally constructive on how this would turn out. What are the lessons learned for you personally over the last several months. Unfortunately for the rail unions. I didn't really get involved until pretty much they were through negotiations, meaning they were not able to get deals done. I got involved a

little bit there. Then the unions came and asked asked the President to put the PTB on the board, and they were able to negotiate stuff and on. On the port negotiation, I've been in it from the beginning, meaning I've had conversations with the companies. I'm in regular contact with the companies on the on the West Coast. I'm in regular contact with the unions on the West Coast,

just to make sure that they're moving forward. And I think that the relationships are a little different than than between the rail the rail construction, the rail companies and the rail workers unions. Secondly, Welsh, and now you have to go out, said, because there's a bill to sign with the President of the United States, attend fifteen bastant time you've got to run. We always appreciate your time.

Thanks for the AMUS. This Friday morning, Labor Secondary Mary Welsh, following what was a tremendous jobs report, John Ferrell with the Secretary of Labor Randa Crossing with his professor Crosser in the booth School Chicago as well. Ready you and I can talk about the algebra standard there forget about it. Do we have any understanding of the veracity of our statistics given the new America, the new technology out there. Are we making this up as we go or can

we really get estimate forward? Was some good faith? I think we have reasonable, um uh reasonable insight into that. But of course, as you said, there are a lot of changes things are now. We're bouncing out of a very unusual period with COVID shutdowns. Of course there's uncertainty that that's there. But I think as we were talking about before, and as I had said before, the FED is going to keep at it until the labor market cracks.

The labor market has not cracked. Wages are still going up at a very rapid clip, and the FED can't stop until the labor market starts to slow down because otherwise, um, you're gonna see wage inflation continues strong, You're going to see services um services prices continue to go up. And

so they're going to keep at it. And as I said, I think they're gonna keep at it until they get at least into the mid mid fives in UM in the next year, and Jay is hoping and he talked about this what I call it an immaculate disinflation, that is, could we bring the inflation can rate down without having a significant rise the unemployment rate. The only way they can do that is if wages start to come down, if more people come into the labor market, if demand

starts to come down. We haven't seen that yet, so it doesn't look like an immaculate disinflation. Interests are gonna have to continue to rise. Fetch your j Powell pointing to accelerated or brought forward retirements is a big driver of why we are not seeing the participation rate go back while people are not coming back into the labor market. What did you make of his comments around that that

this week. Well, I think you know that was his hope that maybe if if there's more supply coming into the labor market, that will help to take some of the heat out of out of wages. Well, we're not seeing a lot of evidence of that now, and he was sort of hinting at I was hoping for that, don't really seem to see it. So the only way that we can do this is to have slow down in demand that will slow down the demand for workers and slow down those those wage increases. He's still hoping,

but we've never had an immaculate disinflation before. I don't want to say it's impossible, but but it's uh. I think it's not very likely. Randy Crossing, whether it's the course of the Boos School of Chicago and moments Jeffrey Rosenberg will join us as well from Black Rock. We welcome all of you on radio and television of the shock of this job to day futures. The negative sixty one is John Farrell mentions two year yield exploding out John and a cup of coffee, a sip of tang.

We've gone from fourteen basis points out to seventeen basis points higher two year years a full faulty still bellow the highs of the week, but back to full faulty and with the old up at the front end. So how much you can imagine Equity's down features by one point five percent on the SMP and that doll a stronger by about seven tenths of one percent on the x Y. To see this, folks, we're all wired in,

but none of us is wired in. Like Michael McKee he's looking there at the BLS data I'm looking over just because I got a test. I'm going like, what I'm looking at? What do you what is the single day? Do you see in the pages that you go through? Well, I'm just trying to do the math here. The interesting thing about the hiring here is you might not be surprised that there were twenty construction jobs added. Uh, We've got a lot of rebuilding to do down in Florida.

But what month is it? It's November and we lost jobs in retailing. Thirty thousand jobs lost in retailing. That just seems very odd to me that we don't have as many people doing the retail work at at Hollis Amazon. It could be I can go back and look here. One of the things you want to look at is the uh UM under transportation warehousing and UH and and couriers and that couriers and warehousing. We're down uh twelve point four thousand. So at this point it's kind of

hard to see. My son made a lot of highs in that world. But the last couple of years, yeah, I mean, but they don't seem to have added a lot of people. And that's kind of kind of a little strange. You have to dig into that a little bit further. We'll do that in about twenty minutes time. Becase is going to break down the jobs numbers for us as we out towards the up and about. Then we're gonna hear from this line up, fantastic lineup going into the open, Muhammad Erin of Bloomberg Opinion and a

whole lot more and Rick Raider black Rock. Then we're here from Anna Stagia Amarosa of my Capital, Mike Collinto, Phim and you hear from Secondary Welsh. Tom responded, these numbers at about eastern time, maybe our most important conversation with the Secretary of Labor given the railroad, theatrics of America, harkening back to eighteen seventies seven. Thank you so much Randa Crossing for being with. We bring in really at a telling point given bond market movement. Jeffrey Rosenberg joins

us now from black Rock. Jeff Rosenberg, I look at the volatility and I don't want to quite it over to the news on Bridgewater and they're challenging fourth quarter. How do you run fixed income money right now? I don't have a clue. Well, you know, one of the biggest challenges is what we're seeing in the in the reaction to this surprise the upside, and particularly as you guys have highlighted, it's the wage data that that's driving it.

But what you see is stocks are down and bond yields are up, and and that's the kind of uh correlation, a positive correlation UH in in terms of both going down at the same time. That is that is so challenging for investors, and I think it's a reminder. You know, what we learned from Chair Powell in the speech earlier this week is that the most important determinant for inflation going forward is going to be the services component. And

what drives that services component is wages. And so what we might be starting to to get a hint of here, and it was in a little bit of the earlier conversation. Yeah, yeah, wages are not wages. Sorry. Inflation is coming down because of all those underlying components, the supply side, the goods picture, the discussion around the lagged impact of housing. None of that matters. What matters is a wage price spiral and

so upside here you bring that out today, Jeff. What matters is is this is this wage price, uh, and what we're seeing in the wages, and so I think that's the most important takeaway. And the challenge to get back to your questions is that inflation really undermines the relationship between stock bond correlation. But can't get back to that until we settle it busted. Jeff Rosenberg chops, this is what happens when you study with Meltzer and good

friend at Carnegie Mellon you start talking about it. He has a point, though, Tom, let me jump in here quickly and tell you I did the calculations. Private service industry jobs. Wages were up eight tenths of a percent. Will goods producing jobs were up four tenths. So what j Pal said about service industry jobs driving wages higher because they can't find employees is definitely showing up in

the wage data, it appears. Which composition really raises a question as well, And Randy Krasner, I'd love you weighing in on that. Whether there's a compositional aspect where people on the higher ends are getting hired and there's a shortage, especially with the retirees, and on the lower ends, perhaps it's a different picture. What's your sense of how much that's contributing to the unexpectedly high rise in wage inflation.

Jeff Rosenberg, what's your sense of that? Excuse me, sorry, I thought Randy might have been might have been off, But I'll take that. Yeah, you always have to look at the compositional effects here, and certainly, uh, there may be some of that as as Mike highlighted with the with the retail numbers down and the warehouse numbers down and and like, some of that can be seasonals. So

that's something we'll have to look in. So there is definitely when you look at the high frequency data on a month a month basis, you can get a mixed shift and that may be pushing up this number, this point by five number. Nevertheless, you know, the bigger takeaway if you abstract, if you smooth out from the monthly variations, is that the twelve month run weight a run rate of wage inflation is still above five percent. And so

this is really the challenge. And so we're gonna get away at some point from this debate about fifty or seventy five or really the pace and the issue is, is the level of rates restrictive enough that's really going to be the debate because right now in the bond curve, the market is expecting rates to be cut by the

second half of two thousand twenty three. So there's a real disconnect between an expectation that we can see the Fed have success on inflation so much so that they can turn and start cutting rates, versus what we're seeing in the data today, which is none of the impact. Now there's long and variable lax here, so that's gonna

make it challenging. But the reality is, and that's what you're seeing in the reaction the front end of the curve is that we still have a significant inflation problem in the most important driver of inflation, which is in wages. And Jeff, I got a ways to go here and I'm gonna do this and particularly with your heritage at Tuppern and Karnie Melon. And the bottom line is we've

been year before. There's a belief out there by a lot of people that are financial world and maybe even our social world is going to fall apart with higher real rates, higher nominal rates, etcetera. That we've lived this before, we've been here before. What do you presume will we

will we look like financially with a five percent federate. Well, we're seeing that right now in terms of some of the implications of a withdrawal of liquidity, which you've seen in the tech sector, what you're seeing in terms of some of the early stage venture and the impacts that has had and seen from a withdrawal of liquidity, and certainly in my markets in the bond markets, the repricing from zero to a positive real interest rate or certainly

a positive nominal interest rate with inflation staying sticky, it's hard to see the positive real interest rate, you know, is significant negative returns and fixed income. Now, the good news going forward is that a just and from zero to the four basis point increases that we've seen this year is a one time effect, and so the negative returns and fixed income are hard to repeat a second year going because you start with a lot a lot

higher incomes. So one of the positive aspects here away from the significant challenges everywhere else in financial markets, is

that cash has a yield associated with it. Whether that's a real heeld after inflation depends on the outlook for inflation, but certainly there's a much better opportunity set in cash in the front end of the yield curve and then helps to give a little bit of a place to hide while we see a lot of the implications of your question, a much higher nominal interest rate across financial markets play out as they as it continues to play out, Jeff, I'm just looking at the market movements here and just

a whip saw that we've seen in the benchmark instruments like rates like two year yields up now fourteen basis points. Now suddenly people gaming back out that five peak fed funds rate. If we haven't seen a liquidity issis yet, if we haven't seen a financial system accident, what's going to trigger it? Given that we have seen such incredible volatility on the backs of some of these numbers. Yeah, you know, we we've seen sort of a rolling sequencing

of kind of smaller fires. Uh. It's sort of like the analogy small fires, small fires, small forest fires prevent large forest fires. Uh. So I think some of that is helping to ease some of the broader concerns. I think the other thing is that there's an anchoring to the global financial crisis as sort of the metric of

what what does a liquidity crisis look like? And that was a very particular one, and we've done a lot of things to mitigate that type of event from happening again, so the centerpiece of a liquidity crisis doesn't necessarily flow through the regulated financial markets. What we saw in the UK with the l d I crisis earlier this year, earlier this fall is exactly this this point, um, So you have seen some of those implications and and you know, I think we'll continue to see these kind of smaller

forest fires as opposed to the big fire. Jeff Rosenberg, thank you so much of black Park, really really appreciate it. Just a really exceptionally interesting and nuanced report to summarize not only the job statistic better than good, better job formation, but the revision the same way as well. Fall Street and I were talking folks about, you know where we were on the jobs report, and the whisper number was quieter and got it out, it out and boom, seven

people got it right. And one of them it was Tiffany Welding. It's one of those days where Tiffany can lean back and go, I think I'll take the rest of the day off, she joins us. Right now, Tiffany, what did the gloom crew get wrong? What did they get wrong about wage growth? And what did they get

wrong about a two month buoyant American job formation? Well, and I'm gonna I'm gonna be I guess maybe a little bit counterintuitive here because the headline numbers were certainly very strong, But once I kind of popped the hood and looked under the details, I actually kind of got a little bit more worried. Um. So one of the key things I think with this report that's that's kind of being missed is that the response rates were actually very low. They were the lowest that we've seen since

the nineties. And that's what's the response rate that it roads college when you do economics, this is what you do the response rate. Just figure you can float right over what's the response rate? You you care about the survey response rates, right because, um, you know, when people aren't responding to the survey, you're never really sure why is it because they're you know, their establishment closed it because it is because they're away for the holidays? You

know what is exactly the reason. But what we found historically is that like when you see big drops and response rates, it can actually be an indicator of um, you know, turning points within the economy. Um. And so I think that's what we're concerned about. This was the biggest drop in response rates I think that we've seen, you know, almost ever in the survey, and we are

back down to levels. So, you know, although the headline number was really strong, you know, I think we are you know, we're we're we're holding our breath a little bit, uh, you know, to understand how the revisions really work out when you see higher response rates. So I think that probably was increasing the UH wage data. We saw wages

that grew much faster than expected. You know, it looked like there's some noise and the transportation sector in particular, there are other industry indicators within that sector that suggests that it's weakening quite a bit. Um. You know. So although we were encouraged by the headline numbers, you know, we're certainly um, I think we're cautious still, um. You know.

And on top of all of that, you know, there's two surveys within the UH, within the report and the household survey, UH, it was it was also notably weaker. So you know, again I think we're seeing kind of mixed signals from this one unfortunately so. But despite the mix mixed signals, Tiffany, how does you know a print like this impact your I guess just economic outlook in general, what whether you have a recession call or not. It seems I kind of feel like it's difficult to really

talk about a deep recession when you've got strong jobs numbers. Yeah, that's that is absolutely for sure. Um, the labor market, it does, and the especially the payroll games that we've seen, um, they have been incredibly resilient. Um, you know. But I would say the one thing here is that you know, obviously the labor market in terms of just the lags with which monetary policy works, the labor market is one

of the the later stages that you see it. You obviously see it in the interest rate sensitive sectors first, which we're seeing, um, you know, in housing and other you know, business investment in structures and things like that, you know, and then it just takes time to get

to the labor market. The other thing I would just note is, you know, historically, if you look when you have payroll peaks before prior recessions, you know, for calling about twelve months, you have this kind of linear deceleration. You have a slow deceleration and payrolls and then at some point payrolls just kind of drop, you know, in

a nonlinear fashion, and that tends to happen in every recession. So, I you know, although we're very encouraged by the fact that payrolls are very strong, you know, I think the historical lessons that you take is that you know, you you that doesn't mean that there can't be a nonlinear drop off in the future. And again, I think you have to be cautious. Jeffrey Rosenberg shock means so wonderful. He helps us in the FED day and of course

on job stay. He's a black rock folks. And jeff Rosenberg used a dreaded spiral word, the wage price spiral. Did you see a spiral in the wage statistics today where this month and last month average hourly earnings year over year were revised to a higher wage growth. Are we spiral ish this morning? Yeah? I mean I do think there are increase seeing indications right that inflation is becoming more entrenched. That that is for sure. And I think you know that you could see it a Christmas

tree this week. Yeah, yeah, absolutely, I mean, you know, you're seeing it everywhere, right, um and and so I think that obviously is is a really big concern from the Fed, and that's why we've seen such a rapid pace of Fed hikes, you know, and that you know, economists kind of call it the hockey stick, you know, Inflation kind of move sideways until you get to this point where it really starts to accelerate. And we're in that kind of acceleration. Um And and the Federal Reserve,

you know, they need to tighten financial conditions. They need to really push on the economy, push it down in order it push demand down, in order to get that under control. You know, we think that they are doing you know, obviously we've seen them doing that, and we think that the moves that they've done so far, you know, will will help to moderate wage inflation. But again, the first thing you need to see is a labor market cooling off. Wage inflation is the last thing to come down, um.

You know, after you've come into recession. So uh, you know, I think we're you know, I think we're still stre monitoring the data and trying to understand how things are going. But I still think it's reasonable to think of recessions probably needed to get you know, inflation, you know, back back towards target. Here have we said that before? You know, is that like a new did we used to like did we used to pray for recessions? Tiffany, No, hope, No.

And we called it um you know, obviously Arthur Oakin and the sixties called it, you know, the misery index right that England. It added unemployment and inflation because it's a very miserable situation that you have to be in as a central banker to push up unemployment in order

to get inflation back down. You know. But I think I guess the good news and all of this is, you know, if they if the central banks are successful in doing that, and I think the longer term outlook then is much better, right because you do, as they're saying, you know, you do need price stability in order to you know, have a well functioning economy in the long run.

So there's a thing, Tiffany. I'm in the camp of you know, economists that tell me it takes a while for these rad hikes to kind of really impact the economy. I'm kind of seeing that, you know, inflation is peaked, it's rolling over in a lot of areas. We're starting to see the impact of these rising rates. It feels like the FED can pause or at least slow down, but there's a data print like today's drops data maybe change that. Yeah, I mean, I definitely think that today's

data will um will increase like doubt in the Fed's minds. Um, you know, if they were on track, you know, I think they are on track to pausing still. You know, you don't want to overreact any one data point um, but if you look at you know, just six months or three months moving averages of payroll games right there,

they're pretty resilient. So, you know. I think the FED strategy here, though, is that we've done so much in so little amount of time, and you know, they were They're getting the FED funds rate up to five percent in a little over a year. I mean, that isn't an extremely large amount of financial conditions tightening. They've already done. So I think it is reasonable to say, let's just sit back and kind of see what happens to the economy,

because we know things work through lax you know. But I do think the risk is is that if the economy turns out to be more resilient, you know, they could pause for a little while and then maybe even have to do more at some point, you know. And of course that's that would be different from historical experience where they pause and usually the next move is down. Bloomberg Financial Conditions Index, folks, is sort of like where it was before the report. Um, I don't know, Tiffy,

my head is spinning on. This is Tiffany Weld and she will help us here with Couldn't Go. 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