Surveillance: US May Jobs Report (Podcast)

US Labor Secretary, Mighty Wold secondly Welsh. First of all, sir, I know you've been on one of the last couple of days. Can you tell us if you're okay. I'm doing all right, Yeah, if I feel a lot better. It's a it's a thank goud and vax and boosted because this thing it text share your immune system. But I feel good, So thank you for that. We're a good man for giving us some of your time. I've agreed to shorten up the interview just so you don't have to do much today. So let's start with this

one here. The Jobs Report, your assessments, the view from the White House at the moment. Certainly it's a good jobs report, three ninety thousand jobs. We're seeing good games there. One thing that we looked at from when the president took over. We are ten million people out of work in America. It's down a four and fifty five thousand. That's a good number. We're seeing steady and stable growth here in the job reports. But we know, as they

say every month, we have more works to do. This, this, this, uh what outpaced what the expectations were. But certainly we know this work to do. We know we're still dealing with inflation. We know we're still dealing with an economy that people are concerned about, and the presidents laid out a plan for it. You know the numbers, well, one point nine jobs for every unemployed person in America right now, the quits rate is elevated. That's a sign of confidence.

The unemployment rate didn't move over today, but still a decent level of three point six percent. The worker, most people are concluding, has a fair bit of bargaining power here. So secondly, Welsh, with that in mind, what kind of approach would you like to see. In the talks with unions representing the workers on the ports on the West Coast, we talked about this a few times over the last few months. Watch your view now. Yeah, I think that

those conversations are going steady. I've been staying in contact with the with the folks out on the West coast. Right now, I think it's it's on a good pace and they just need to continue to have those negotiations. Obviously, anytime you have a negotiations like the ports, whether it's on the west and East coast, but in this case on the West coast, we want to keep a close side because we know the impacts that that if if

it doesn't go well, what what will have? But I feel pretty good about I feel confident where they're headed on those conversations. Can you give us some idea of why you're confident based on the conversations of the last month, what the developments actually are specifically. Yeah, I think I've spoken to both the companies and the unions and neither one I've really said that that that there's any obstacles

that they're really concerned about right now. What they're doing is they're having the negotiations that they have every few years, and uh, you know, and certainly I think they've all of the all the parties know what what with what the American people have gone through over the last couple of years with supply chain issues and what's happened in the ports. So I think they also understand the importance of getting a contract done. Secondly, wells just finally, because

I know you have to run. We've had some things this week from some big players. Jamie Diamond talked about a hurricane coming to the economy. We heard from Elon mask of Tesla Royster's reporting that he sent an internal email pausing hiring potentially cunning temper cent of the workforce. Are you seeing much more of that in the conversations you say you have with corporations week to week, day

to day. No, I have really never really brought that up to me, but I'll tell you you know, the President has been very, very focused on making sure that we continue to to to tackle all the inflationary challenges and the challenge of the economy. I mean, this is a in all hands on deck approach that includes government incorporations working collectively together. I think that we're kind of like we're in a marathon here. This isn't a friend, that's a marathon, and we have to just continue to

move forward. One day at a time. Secondly, Walsh, we appreciate your time and I hope you get better soon and we'll get your back in person hopefully. Thank you, sir, thank you very much. Secondly, Money Welsh there random crosser with it for some observations here of course with the both schools Chicago, the former FED governor Ready, I want to talk about what the FED actually does around the table at the Echoes Building with this report. Do they

value an analysis of the inflation adjusted wage? Does the real wage matter? S It does, because they're looking both at the inflation to see where expectations are, what what has happened in the labor market, and then they look at adjusting for inflation. Um, are real wages exploding? They're certainly not exploding. We've got inflation that's much higher than than the the five roughly five and a half percent

growth of wages. And so I think, as you were saying, the FED is going to take this as this is kind of what we were anticipating, uh, that we're not seeing an explosion on the wage side. We're not seeing a collapse of the economy either. I mean, these are still very strong numbers. The unemployment rate, at three point six percent is still an extremely strong number. Is very rare that the the US economy has a sustained unemployment rate below four percent UM, and so I think it's

very much consistent with the fed's forecasts. And so that means there's nothing that's going to stop them from continuing this march of fifty basis point increases. And as my my former colleague from from graduate school, Lele Brainard said, they're going to be marching through at least September in those fifty phases point rate increases. So that's exactly where

I wanted to go. Randy, does this job report give credence to the idea that they could go fifty basis points three meetings in a row and then follow it on with another fifty basis point rate hike, even though last week some including Raphael Bostick, we're talking about a pause. So I mean, um, you know, as they always say, their data dependent, you know, we have to see how

the data did to come. But if you get reports like this, it's going to give FED the confidence that they are doing the right thing, that they're starting to have a little bit of an impact on inflation, and hopefully once they get in the two and a half three percent range, they'll have more of an impact. Inflation

expectations have not gotten out of control. Um. The short term expectations are super high, but that that makes a lot of sense, But the intermediate to longer run expectations are really not much out of the range where they've been over the last decade. And this is why the FED needs to act now. And this is why I think Lale was out there saying, you know, we're gonna be be tough on inflation because they have an opportunity.

The opportunity is to raise those rates now when the uemployment rate is low without inflation expectations getting out of control. As long as they stay well anchored, um, they can move into let's say around three percent or so that and then hopefully we'll start to see some of the the inflations start to come down, and then they'll be be sitting pretty because they won't have to raise rates those double digit levels, which is where we were forty

years ago when inflation was this high. Trying to catch out and Randy, get your thoughts on this running cross in the University Chicago bas School. The conclusion for him the work has the FETE has got more work to do. Right now, joining us Jeffrey Rosenberg with black Rock and

Jeff perfect time to talk to you. I want to know how the bond market responds to one of the themes we've seen and maybe we see in this job's report, which is we're gonna move from eight percent to five percent inflation or four percent inflation and then there's a massive Then what how do you position in bonds given

a by part move in in inflation and presumably in yield. Yeah, and you know, a week from now we're gonna have that conversation again with maybe a little bit more relevant information focused on you know, the CPI report, but the inflationary data that we get out of today, as you guys have covered, it's a little bit of you know, avoiding the worst case scenario. You get a little bit of improvement on the labor force participation rate. I would

agree with whoever said that earlier. That's probably you know, for the inflation story. The biggest important number that we get out of the payroll report. Obviously there's an average howity of the earnings as well, and and that you know, avoided a negative disappointment in terms of you know, fast print. You know that I think the market this morning is maybe reacting on the headline. You know, there's a pretty

big drag to that headline number from retail. Uh. You know, so if you if you if you discount that this was actually a little bit stronger report, you know, perhaps that's what we're seeing in terms of the market. And as Randy just said, you know, take a step backand this is this is still a very very strong and too strong labor markets. So we need to see that slow and you know that's in the expectations and you're getting a little bit of that, maybe a little bit

of disappointment in terms of the slowing. I would read too much into it. And to your question, Tom, you know that the jury is still out in terms of the inflationary tragic actory. We're we're projecting it. We have expectations that we're going to see that decline. But you can't get the FED really out of the business of focusing on the number one priority, which is getting inflation down, until you start to really see definitively that show up.

And until that happens, it's going to be a very tough time to be thinking about you know, bonds in the portfolio as a as a as an equity hedge bonds as you know, stable source so of income and preservation of principle, because they've got to adjust. Now. The good news is there's been a lot of adjustments, so I think the pain that we've seen in the first quarter unlikely to be repeated. But too early here on

this report to to say it's all clear. As trade has passed through the numbers, you are seeing a bit more of a lift to yields priced down on bonds to your point, Jeff, And you're also seeing stocks get hit a little bit more, perhaps because it is still too hot for the FED. I wonder though, how much, Jeff, this market continues to be faith based in terms of pick your data point, pick your narrative, confirm it and move on. How much is that sort of what you're

feeling right now? Yeah, I mean, look, we all are going to have various interpretations on the data, and so will the so will the FED. But eventually the data will show up and it's not just one data point or two from which we extrapolate, and we have to be a little bit of patient. We have to be a little bit patient to see that trajectory play out.

The market may not be patient, you know, one comment from from Bostick, and everybody says, oh, it's it's okay, you know, they're gonna pause, and then brainerd you know, tries to put that back in the bottle. So really we got to focus not on you know, being sort of yanked around by various comments, but understand that the priority here is inflation and that means a consecutive set of inflation prints monthly, you know, So we've we've got to really follow this over the course of the summer

into the fall. But where we can really, uh, definitively claim that the projections, the faith based projections, and the consensus expectations are actually being realized. Jeff, it's a chart that we have tattooed to our brains, and certainly you do with all your work at Carnegie mellon the tenure real yield, the inflation adjusted tenure yield, however you want to measure it. We're nowhere near back to normal our way. What is your measurement of normal given these uncertain times

that the real yield has to get back to. Yeah, it's a it's a great question Tom, because it really is kind of the north star for thinking about FED policy. You know, the FED wants to get back to neutral. You know what is neutral? What? Well, first of all, neutral in real terms is a lot closer to zero, probably between zero and a half a percent. But to get there you need, you know, both an increase in

in nominal yields and a decrease in inflation. And if in lation doesn't do its part to decrease, then you need more increases in nominal yields. So when when people kind of think about the three percent that the Fed is going to very quickly get to, you know, by the end of this year early part of next year, the presumption there is that the inflation is also going to decline and do its part, and that's gonna bring

real yields back to something that's closer to neutral. So if you don't get that contribution from inflation, then you are gonna need to see more on the nominal rate hikes to to get closer to neutral. So there's two parts to that nominal rate forecast that's kind of embedded in bond prices, and a big part of that is a is a steady decline in the inflation rate, Jeff.

In about two hours, President Biden is going to come out and talk about how the strength of this labor market is going to allow the nation to navigate through a difficult period of time. You will talk about how it's one of the strongest labor markets in history. How do you look at that and then confirm the sort of barish tilt of the market that's looking to recession, that's looking to a slowdown, and looking to an increase in the unemployment rate. Well, it's about kind of setting expectations.

I think some of the things we've seen from the administration is trying to get out ahead of labor market slow down, but but also slow down here is a good thing. And that's a little bit tricky of a message for them to say, because it's all been about these great job numbers and how good that is. Now they've got a pivot to talk about the sustainability of the economy and that too much of a good thing is actually a bad thing because of its impact on inflation.

And so seeing the steady decline in payroll figures is actually something that we should look forward to and would be a good outcome. So I think it's it's kind of turning their narrative. It's what the market is looking for as well. Uh and and and that's where this kind of good bad news is good news in some sense, is in the market expectations. Jeff Frozenberg, thank you so much with black Rocket. Jerome Schneider, most patient man on

the planet joins us now with PIMCO. Jerome seriously, thank you with your valuable time for staying with us here to the end of this hour. Does the yield market game the FED? Or is the FED watching the Jerome Schneider's space. Yeah, the FED is watching both spaces, quite honestly, eyes firmly fixated on both ends of the spectrum, quite honestly.

On one side, they're probably a little bit relieved this morning that early signs of economic you know, transition or perhaps that even inflection is coming along um and they they're sort of seeing that, you know, the market is becoming a little bit the jobs market, the labor market

is becoming a little bit more tentative. And and maybe there's some you know, if on hand one the other meaning retail numbers were down, as you noted, uh, pret viously, and hospitality was higher, so some of that is the pivot from goods to you know, goods to services, and that probably is a good thing in the fed's mind and the FEDS construct so they're probably continuing and will continue to be fixated on those longer term inflation expectations and that they look at where the data is today

and more importantly, the next three jobs reports that we have before the September jobs report. You know, that's actually pretty data dependent. It makes them a little bit data dependent, but it actually goes into the calculus that perhaps this this this inflection point does give them a little bit of ability to be less hawkish potentially. And again it's

all in the data. And so I sort of point to that because you know, inevitably the next meetings in June and July or fifty and and you probably have Jackson Hole and then you have September. It get does give me a little bit of time to at least be uh be be putting some bets on the optionality that they ever so love well Jackson Ho. I'm glad you reminded me that I have to put in a request for the surveillance jet to get out the Jackson Hole.

But Jerale we've got the balance sheet, the FED beginning to roll off this you know, close to nine you know, trillion dollar balance sheet. What does that mean for the short term end of the market. What should we be looking for? Yeah, as I said previously, I think that there's two things. One is that you know, this cycle's runoff is going to be substantively larger and ramp up

faster than the previous one. So the this tool, which obviously mini fed UM governors don't want to readily admit to, but this tool is one which actually has a little bit less precision, and so we might be able to deduct what's going on from the previous time we tried to tighten the balance sheet to this one. But it's not going to be the exact same science at all.

It's going to be very much an art And so while we were ramping up here pretty quickly over the next three months to that arrogant number UM, the reality is that it's going to be a pretty defensive situation whereby access reserves are drained pretty quickly. Now that's one

aspect of it. The second aspect is we still have a tremendous amount of excess reserves, so the inflection point again to be thinking in use that term um further out for liquidity may not necessarily be anything in the near term over the next three months or so, but it's going to be longer term as those excess reserves get depleted and more importantly get placed in the proper locations away from the reversary fo facility that has two troyon in it. So for investors, and what does that mean?

It ultimately means focus on liquidity conditions. These are reasons probably still to be defensive and PIMCO parlance, you know, our view of the anti Goldilocks outcome, which relies upon higher liquidity conditions and being a little bit more defensive with risk and credit assets at least at least a nearer term is something that probably still holds fast. One final question, Joe, we got to go to some breaking news. Does this mean that we just extend the X axis.

Does this mean in our in our media analysis, if we want everything to be short term and everything is going to be stretched out longer, Well, I think it's the other way around, actually, Tom, I think the reality is,

has we spent years making X access. I think that it's shorter than it really was bringing forward expectations of earnings, funding revisions, things like that, and so all we're doing is reverting to an x access which is normalized, meaning that where we need to be thinking about how things can evolve over the next year, which can be pretty drastic different than they were in the past. The assumptions for long term assumptions are frankly what what people can't

be relying upon as they were in the past. JOm Schneider, thank you so much again Yeoman's duty here helping us before and after the conversation with Secretary Wassh. Mr Schneider with Pimple, 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 Bloomer