Surveillance: Walsh Says US Still Moving Forward on Jobs

to catch up with your sir. Really decent payroll support in the view of so many people your perspective, police, sir. First of all, no, it was a good report. I think the couple of things that that I'm very happy to see. In the private sector. We're seeing UH employment back to pre pandemic levels in the manufacturing sector. The same thing in the childcare sector for the first time.

Quite honest, in a little bit we've seen some gains, which means that our childcare facilities are getting a little bit back to I wouldn't call them back to what they were pandemic, but we're seeing some growth there. Warehousing and obviously manufacturing we've seen some great growth there as well. So we're seeing our job economy moving float forward. The wage growth we're seeing the biggest well some of the

biggest gain and the lowest income earners, which is good. Obviously, we're still dealing with inflation and and the wage growth isn't quite keeping up inflation. But I think what we want to do is actually bring inflation down. Uh So we have to continue to move forward. But this is this shows that where the country is quite with President Biden laying out the plans when he took office, is

still moving forward on the job side. But as you just mentioned, there's still a lot of unanswered questions about the economy. It's still the kind of in a very you know, interesting place. Secondly, well, Chelf for light on you over the last few months to give me updates on what's happening on the West Coast. I understand the contract with the West Coast Port Union expired and talks around going. You've said a few times on this program

that you're not concerned. You concern Now, No, I'm not gonnacern because both sides, both parties put a statement out to Wite two statements now letting people know that they're going to continue negotiations when the contract expired July. First, I've spoken I didn't speak to them this week. I spoke to both sides last week. They both said it's moving in the right direction. Both sides, I should say,

the unions and the companies. Uh. And obviously we haven't had that issue yet that might pop up that will cause little indigestion for for both sides. But I like that where it's going. You know, the interesting thing about this negotiation, it doesn't start until six weeks prior to the expiration of contract. And that's one of the things that you know, a little different than most contracts. Some contracts you can start negotiation at six months prior to expiring.

But but I feel good with were going. I know there's a lot at steak. Clearly we don't want to have any issues like we did last holiday season and last fall with with with boats out in the with with ships out in the harbor and not getting supplies, and so I do feel good where we are. Today's during today the second well shod You know, this is a really important topic. And I can take your word for the youth feel good, but other members of the

audience might not. Can you help them understand what's at stake here and the details of the nego seations. What's stopping this one from closing, what's the gap, how bigs the gap, and what's it over? Yeah, and so just so everyone understands, when you when they do the negotiations on the port UH, they generally go on for a long periods of time. And historically, UH under the two thousand and fourteen UH it went on for a long time.

There was no strikes or slowdowns or lockouts. But what we want to do right now in the time that we're living and making sure that people's pressures, they feel the pressure price pressures at home, they're paying for goods and services where they're seeing inflation obviously impacting their families. We want to make I want to make sure the President Fine wants to make sure that we don't have a breakdown negotiation at the point to add additionally to inflation,

additionally to cost. And that's that's what's at stay, quite honestly. And what the contract that they negotiating is everything from wages, to working conditions to everything that you can imagine. So it's a massive contract. There are tens of thousands of workers. There are nine shipping companies involved in this in this negotiation, so it is. It's a very long negotiation. Let's just say long. It's a very very challenging negotiation at the table.

But when when I hear from both sides the same exact thing that it's moving along, I'm pleased with that. I'm not concerned about the contract expiring last on the first of this month. Certainly next month I come on this show. If we don't have a contract, and we're not close to a contract, then you and I might be having a very different conversation. But right now I feel good. Well, let's talk about that. As you know, you can't take their word for it either. Are you

preparing for the possibility of a strike? Can you continue talk to me about what those preparations look like. Yeah, I'm really honestly, I'm really not concerned about strike. The last time there was a strike of the ports of l A and Long Beach it was in nineteen seventy two, I believe, so we haven't had a strike there in

quite some time. And the way I look at this, these workers and these shipping companies and these suppliers and everyone work at the point, particularly the workers, they've lived through and work through a pandemic like a lot of us have. They want to work every day, they were still unloading ships. The supply chain issues or the shortages at the at the ports weren't necessarily because they weren't unloading the ships. It was because the manufacturing stopped in China.

They shut down manufacturing, just like they did earlier this year. So workers want to go to work. If workers don't work, they don't get paid. They're not a salary bunch of people. If they don't work the hours, they don't get paid the hourly workers. And that's why for them, there's an interest for the for the people that work on the ports to make sure this contract gets resolved and they

continue to work. A secondly was just quickly and briefly, and I respect your time, and I just want to squeeze, they say, And you mentioned China. The President, we understand, will be meeting with advices today to consider removing tariffs on China. We've been told many times over the last few years from the previous administration on this one that a lot of this is about fairness and also protecting American jobs. Do you have a seat at the table

in that conversation. No, I'm not necessary at the table. I've been involved in some conversations and I think that, you know, I'm not sure exactly what's gonna happen today at the White what's your view want it? What if you sent back to them? I mean, I think I think you know, it's it's about my paid grade as

far as where I am right now. But I think that, you know, I think having this conversation is really important because we're thinking about the pressures of of of inflation, but we're also going to keep an eye on the jobs that are here in the United States. And the President has certainly laid out in the beginning of his presidency a big opportunity to create more opportunities in manufacturing

United States of America. One thing that's indirectly related the Bipartisan Innovation Act that's in front of Congress right now. That's an important piece of legislation to pass because that would allow us the opportunity to build more in America and have more products built America. Somewhat we're seeing right now in America is the computer chips that are in all of our phones and our doorbells, and and we're doing it right now on tv UM. We should be

making those United States of America. That's an opportunity for us to help leave long term inflationary pressures down the road. Next time we're in Washington day, say Tom Kate and I would love to catch up with these secretaries. Great to catch up with you now, Secondary Wolfs there from outside the White House, we moved to the government's former governor of the Federal Reserve and Boost School, Randall Crossing, for brief comments. You're as well, Randy. We had gradualism

and a measure moment with green Span. Is that history now with this art economy, that's history that is long long behind us. You can see that the FIT now is trying to move expeditiously exactly as she said. This is completely consistent with their their desire to move fast, and I think they are very likely to go seventy five basis points at the next meeting. Obviously we'll get

some inflation data between now and then. They're also going to get a GDP report because they'll know the numbers before we know them when they make their decision on Wednesday. Will find out on Thursday and at the end of the month. But I think they're gonna go seventy five and I think there's nothing in this report that would slow them down from that. Randy, that's just a question I have. I don't want to make too much of a big Databa. It's just something that keeps jumping out

to me. We keep churning out really robust jobs growth, payrolls three seventy two, unemployment's really stabilized at three point six percent. I'd love your thoughts on what you make of that. Well, I mean, this is exactly as Mike said. You've got two different surveys, uh, and different ways of gathering the data, so they're not always exactly the same. And uh, we don't always know months a month why one is going one direction one's going in another direction.

But I think both of them point to pretty robust, robust job job market right now. But I do see that weakening by the fall. And what do you make of a lower participation rate sixty two percent? Randy, Well, it's sort of been bouncing around sixty two point two, sixty two point three. I think you know that's it's small enough to and and it's only months a month movements to that. It's too difficult to make too much

of that. But I think what it says, is that there's a large number of people who I think are just not going to come back into the labor market. I think especially older workers that had come in really, really robustly before the before the pandemic struck. I've just said this is just too risky. There's really no need for me to be in the in the job market

and being exposed. I want to be spending time with my kids, I want to be spending time traveling with my my loved ones, and and I think we're just not going to see the labor force participation rate move up to where it was pre pandemic. Randy, great to have you with us run across that of the investitis. You kind of both skill responding to that upside supprime. Jeffrey Rosenberg now leads us forward. Here's with black Rock. He's co lead portfolio manager of the Systematic multi Strategy

fun Jeff, that's a mouthful. Let's cut to the chase. How do devolve this odd economy and the new volatility you're living in the bond market down to a systematic strategy. Well, Tom, it's an odd economy as you as you point out, but it's it's a it's a payroll report, as Jonathan nailed right at the beginning, that solidifies seventy five basis points. You know, going into this, the market is expecting a slowdown in in payrolls. You heard, uh, Randy talked about

that into the fall. That's still the case, but it's it's not slowing fast enough, and so you know that the Fed is going to have to do more. And when you see the lack of labor force participation, and I agree with Randy, we don't want to over interpret you know point one, yes, yes here there, but you haven't really seen that, uh, and that's a real problem

on the wage inflation front. So you know, the the lack of payroll slowing here and the lack of an increase in participation is just again highlighting the pressures on the FED here that you have an overheating economy and they need to really push on the demand side. And so you're seeing the reaction in the front end. Uh. You know, reflective of that, Jeff, I want to go to the wheelhouse of what you do, which is Lincoln full faith and credit into trying to not lose money here.

Pria misera over TV securities talks about a very serious inversion, perhaps even a greater inversion than we saw within two thousand folks. This is where the two year yield is substantially higher than the ten year yield. What does each basis point mean of larger inversion going forward? What does that mean the real world of not trying to lose

money and fixed income? Yeah, well, the first part of that of what it means, and you're seeing a bit of that movement in reaction to today's print, where bigger increases in the short end, lower increases in the long end, and the flattening of the curve. Is really the market expecting the Fed to tighten into a recession. And this isn't a new expectation, but it's certainly the reaction again to today's data, where you know, as I just said, the economy is labor markets are very hot. The Fed

has to do more. And if you look at kind of what's priced into the market in a forward basis, it has the one year or the FED funds rate two years out from now lower than where it's expected in one year. So what is that saying. It's saying that the market is expecting the Fed to push us

into a recession. And that's the same message that you see when you talk about an inverted yield curve, that front end interest rates are going to reflect FED policy, the longer end interest rates are going to reflect that future expectation of recession. And and you've heard Powell, you know, basically admit and and and really in the minutes that they're willing to take that risk because the bigger risk is letting inflation become entrenched. And I think that's right, Kayley.

It's so important here and I'll have the chart for Monday. Folks will do it in the five am hour if they let me in the building. Kayley. I look at curve inversion, and we forget how rare this is. I've really got to go back thirty years to get out to a half a percentage point inversion the curve. That's how rare what some of these strategists are talking about. Yeah, we're talking nineteen eighties, the last time we saw yield curve inverted by fifty basis points. And yet that is

what we heard from Priamiser earlier. She basically echoed the sentiment that the FED is going to be focused on inflation. They're going to continue to be aggressive even if we do see that softening in the economy. Therefore, you continue to see the short end a lot higher than than the long end. So, Jeff, do you agree with that that we could ultimately end up at half a percentage

point inverted with the Fed tolerate that? Well, you know, it's really about the broader question of how will as we get into the fall and you start to see the impact of a slowing economy, how will the Fed balance? It's two objectives between inflation fighting, which is front and center.

What they're saying is the number one objected. Kind of easy to do that when the labor markets are red hot, and the Secretary Walsh, as you're gonna have later on the program, takes a victory lap, it's gonna be a lot harder for the Fed, and therefore for the market to still talk about inflation is the only objective when we're looking at an environment when inflation the year of a year basis is coming down, but unemployment UH is potentially going up, or at least these payroll figures are

going down. So you know, pre as call on the inversion is really a statement that they're gonna maintain into a slowing economy, this very aggressive stance on FED tightening. They may or may not do that. I think it's an open question as we get into data that is a little bit more mixed in terms of the growth inflation trade off. But clearly, if they maintain this degree of inflation fighting focus into an environment that is clearly slowing, than yes, you could see that degree of inversion in

the curve. Okay, So the operative word there being if the question of whether or not that the Fed is going to blink It used to be a conversation of September that clearly has shifted with some people still looking for fifty basis points in September. How long, Jeff, do you think it will take the data to deteriorate enough that there is a potential that the Fed thinks twice? Yeah, you know, I think we're looking at a slowdown in

the jobs market into the fall. I think that sets up September, October, November periods where we see need that kind of tradeoff really starting to show up, and these reports become a lot more important. Um, the FED meetings are going to get a lot more interesting when you have that tension and they're starting to think about and and talk about slowing the pace. A lot of that's going to depend on the pace of slowdown in the inflation side, and there's an expectation that you get that

slow down. And so that's this kind of movement in two sides here. Falling inflation and rising unemployment is going to make a very difficult period for the FED. It's not where they are today. So I think later this month it's gonna be seventy five basis points and and you know, a more clear path. But I think as we get into the fall and the impact of the tightening and financial conditions shows up in the labor markets, then we're gonna see this tradeoff manifest in the Fed's

decisions on radio and television. If it's joining us Jeffrey Rosenberg, where US is black rock after a buoyant jobs report, two year react sharply where they higher two year yield out eleven basis points three point one two, with some substantial negative four basis points curve and version as well. Equities on the chin ever so slightly not done. A lot of futures down twenty six down, futures down one or three. The vix comes up point three six points

twenty six point four four. Jeff, you're living a Bloomberg total return all in index of a negative twelve percent. I'm going to chart it out from two thousand twenty is negative six percent an annualized in bonds. How do you hide? Do you hide by going short duration? Well, on the on the rates side, you know so much of that is the combination of two extraordinary things. Tom. First, we came into this bond market with very low inflation expectations.

You know, this transitory was priced into the bond market, and so when you have low coupon and you have a reset in inflation expectations, uh, that that's the impact. So bond markets do a really bad job of placing unexpected inflation, and that's what we got. The good news, if there is some going forward, is we've priced a lot more inflation here into into bonds, and so you've seen increases across the curve in yields, a lot of

increases in the short end. And yes, shortening duration here makes a lot of sense because duration has been a tough environment and an absolute return environment, and so the yields are getting to a better place. Now. We need to see the inflation forecast validated for that to manifest, there's still, you know, a risk there, but certainly we've

priced in a better inflation expectation trajectory. If we start to realize these forecasts and inflation coming down, some of that yield increase is going to be a little bit more protective in the front end of Kelly, what I'm hearing here from Mr Rosenberg is the immense amount of uncertainty going forward, and let's already sell it here up to the inflation report of next week. Yeah, an inflation report that could hear a nine handle on cp I tom on Wednesday. So that's going to be something that

this bond market is watching carefully. And talking of the uncertainty that's out there, the amount of volatility we have seen and continue to see, we've almost gotten used to the idea that we see double digit basis point moves on yields, the two year yield right now doing the exact same thing today up whopping eleven basis points on the back of this data. It is remarkable the extent to which we see the bond market moving and the

uncertainty that is out there. Jeff, I'm wondering when you think we will get a clear enough read that the bond market can make a decision either way. Yeah, you know, look at the consensus forecasts. Uh, you can find them on Bloomberg ecst. Uh. Sorry for the product plug there for you guys, but the consensus forecasts have inflation on the year of the year basis, you know, coming down.

So we need to see that. And as you point out, you know, the CPI reports are as important now than these payroll reports, arguably even more important as inflation is really the central issue for the outlook for financial markets. So that's what we need to see. That's what the bond market needs to see in these monthly figures. Uh, you know, coming down into the forecast range uh and seeing the broadening of inflation story start to start to

to to pull back. It's been a bad set to sce in a row where it's been the opposite, and that's why we've gotten this this change from the Fed. As Jonathan pointed out, expecting fifty and getting seventy, that's because you've had inflation really show up on the surprise to the upside. So we will be able to have a little more confidence that we're not getting these persistent UH inflation surprises when you see it in those CPI reports.

Jeff Frozenberg, thank you so much. I mean political moment, folks. It is important at Bloomberg Savella's to speak truly to those steep in experience. I think of Robert Feldman at Morgan Stanley or David pilling X of the f T with his wonderful blending adversity, bending adversity. But also on that list is Tobias Harris. To say, he's senior Fellow for Asia at the Center for American Progress, barely describes the study from Brandeis to Cambridge to his book The Econoclast.

Mr Abe, We're thrilled that Tobias could join us UH this morning. Tobias, this is someone who took what Kazumi did, which was drag rural Japan into a modern urban history. That's what Kazuomi did, a modern immediacy of the urban landscape. And then Abe said we have to go further, we have to go beyond the legacy of World War Two. Was he successful? I think in a very broad sense.

I think there's certainly no going back to what Japan was like before Abe returned to the premiership in and so in that sense, I think you very much a success. And you know that that Abe was very fond of of Mrs Thatcher's line there is no alternative when he talked about his own policies, and I think that is what Japan has now. You have uh An economic policy, in foreign policy. He laid a blueprint for his successors,

and no one really has thought of anything better. You wrote in Foreign Affairs magazine of the arch moment of Japan, which is malaise. Their voter turnout is appallingly low compared to recent history. How did he and how does anybody new in Japan bring a new spirit to political Japan? It seems to be gone. I think there's gonna be a lot of questions about Japanese democracy after today's events,

and and um, you know, it's it's shocking. I think everyone is is think trying to think through what it means. Um And in some ways obvious assassination is a reflection of one of the one of the best things about Japanese democracy, which is how accessible it's elected officials are

to the public. You know, Japanese election campaign, yes, they you know, they use the internet more than they used to uh their tv ads, but they're still based largely on politicians getting out there on their feet and interacting with voters directly. And you know, I think there's some concern does this mean the end of that? Is there going to be you know, security court on this, you know, are you not going to have that accessibility? And I

certainly hope not. I think it was a strength of Japanese democracy that voters had as much access to their representative to this day. He was an arched conservative and also there was great liberality on social policy. I'm going to suggest he tried to drag his LDP to the center. Is there a political center in Japan in two thousand twenty three. I don't know if it's so much the

center as it was. You know, you know, fundamentally, he was someone who wanted his country to be strong, and basically he would do what it what it would take,

whatever it would take to do that. And if that meant globalizing Japan, if it meant opening Japan to the world, if it meant welcoming investment and tourism, and you know, opening Japan to trade through something like a tv P, he was going to do that even if you know instinctively, you know, you look at traditional conservatives and you talked about uh former Prime Minister Koizumi's war with oral japan Um.

You know, even if it meant taking on those core LDP interest to bring uh, you know, to open Japan to the world, Abe was willing to do that. I don't think he was a reformer quite the way that that Koizumi was, but he did recognize that that Japan had to open to foreign influences more than it had been in the past. Tobias, please explain to us how the response will be from the emperor and his family. It is such a unique, original relationship. How will Emperor

Aruhito respond to this assassination? What a what a fascinating question, because, of course, I mean, there were plenty of moments with uh the current emperor's father, some moments of tension between Uh miss Rabe and the former Emperor Um. But you know what it comes down to it in moments like this that are you're just genuinely shocking, tragic moment for

the entire nation. The imperial household has generally stepped up and served as basically given voice to those feelings of the entire nation, and I would expect as much from from emperor. And I don't think this is gonna be a moment of political tension. I think this will be a moment, uh, you know where where uh the Emperor speaks on behalf of public sorrow. Just quickly to Bias,

we only have about a minute left. But you were talking about how Abe looked globally, and I've heard from many people this morning that he was a unique figure in Japanese politics in that he did have that global recognition. I mean, people knew who Shinzo Abe was. Where does Japan stand in terms of global politics in his absence, Well, certainly, you know, he was probably the most powerful figure in

Japanese politics right up until the moment he died. I mean, even more powerful in somebodys than then Prime Minister Kishida. And he was pushing, uh, you know, for more defense spending, pushing for a more sort of defense posture. And it's hard to see who's gonna fill his shoes in terms of making that case. And so I think it introduces maybe just a little uncertainty what we're gonna get out

of the policy making process. I think there's gonna be a lot of pressure on Kishida to maybe continue his agenda UH and to fulfill Abbe's mission. But there's still work to do, and Kishida is going to really have to step up in the moment UH and continue to live up to the blueprint that Abbe outlined when he was Prime Minister. Thank you for bam of this this morning, Savice House that the sense of for American progress. We're Helene Becker owns the high Ground and Counting Company and

joins us UH this morning. Helena. I want to look forward into earnings as well. With all this chaos and with the airlines full, are they actually bringing anything down the income statement to make what we call airline profit? Yes, yes, Actually we think that most of the airlines will be profitable.

A couple will report losses in the quarter um but in our earnings preview which we published yesterday, we think there are some positive surprises ahead even with the flight cancelations and delays that they experienced a Memorial Day weekend and over Father's Day weekend. And I will just point out that the delays last weekend we're smaller than the number of delays we saw those two weekends. So the airlines are cutting capacity, which obviously has the effect given

that demand is still very very strong. UM, it has the effect of raising ticket prices, and we think that they're recovering between sev and a d pent of the rise and the cost of fuel UM. As we go through the year, we're getting a little more concerned with wage inflation UM. The contract that United Pilots may vote on later this month UM provided for and almost fifteen percent increase. American offered their pilots seventeen percent increase. So

we're definitely seeing significant wage inflation UM. And and that won't that won't be UM, not not for the foreseeable future, and and so UM with demand still strong, although we're a little worried what happens after after somes What I want to talk about, Helene, as you know, the price tolerance in this industry right now for the consumer just seems to be unlimited. It's immense. I'm just wondering whether it's there in the back half of this year. How

do you gauge that? Yeah, I don't think it will be Frankly, UM, we're worried about that because consumers you guys talk about it on the show all the time. Consumers have a lot of financial pressure right now. They've got higher UM prices when they fill up their car when they went to get to work, and then they have UM cooling their home is going up. Eventually heating their homeless is going to go up. And I think there are a lot of people who really wanted to

travel this summer. They haven't traveled for a couple of years, um, and they just wanted to get out and about. And as you go through the year, I think that after after people start returning to the office again. I noticed when I'm in the city it's so much more crowded than it was just you know, three months ago, two months ago, um. And And so I think we're gonna we're gonna see pressure on on on traffic growth as as we head into the holiday season. So how does

an airline make longer term decisions? Then? Because I think about the retailers which struggled for so long to get adequate supply and now they're left with too much inventory. Is demand is waning? Are we're going to see a situation where airlines try to get more pilots, they try to get more flight attendants, just labor in general, and as soon as they get all of that, the demand's gone and they're overstaffed. Yeah, that's of course we worry

about that too. I think the pilot issue is is going to be with us for at least another two years, So I'm not so worried about them, UM, and I'm not really that worried about the flight attendants. To your point, though, I think focus on the capacity and the number of aircraft in the air. During the pandemic, the industry retired about eight hundred plants at the u S system and those are never coming back. And then there are still delivery delays from Airbus and Boeing on the especially the

narrow body aircraft. I was reading an article earlier this morning that the manufacturers can't get enough engines. The engine manufacturers are having trouble keeping up with the supply, so you're not delivering as many aircraft and UM as you reported. Uh last week you saw that the airlines cut capacity UM for the summer months and that will probably continue, and that's that's their big weapon, right, It's just keeping

a lid on how much capacity can go up. UM. And then we also published yesterday the number of employees as of April. We're back to two nineteen levels. It's just they're in the wrong places there there right, everybody went, um, I mean think about pre pandemic. Everybody was going to Chicago, New York, San Francisco, Boston business centers. And now everybody's going to leisure destination's Miami, California, Southern California, Sona. And so you're you're seeing that chip. So people are people

are just misplaced, Elaine Thomas. So jealousy hasn't on a vacation yet. Your own decision the fetish front. Remember you went to Paris Etiam in the year Yeah, back to that of Cowen. 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 e