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The One Caveat Hanging Over Jobs in America · Trumponomics

• 0:01
  Speaker 1: The US labor market looked pretty strong in June. Pay
• 0:04
  Speaker 1: Rolls were up two two thousand, more than expected. The
• 0:07
  Speaker 1: unemployment rate was four point four percent, still close to
• 0:10
  Speaker 1: a sixteen year low, and people are coming off the
• 0:13
  Speaker 1: sidelines and finding work. It's all strong except for one thing.
• 0:17
  Speaker 1: Wages just aren't rising any faster than they have been
• 0:20
  Speaker 1: for eighteen months now. The question is why we're going
• 0:23
  Speaker 1: to break it all down for you with one of
• 0:25
  Speaker 1: Bloomberg's crack economists today on Benchmark. I'm Scott Lanman, an
• 0:39
  Speaker 1: economics editor with Bloomberg in Washington, and I'm Daniel Moss
• 0:43
  Speaker 1: from Bloomberg View in New York. Wait. Dan, that's actually
• 0:46
  Speaker 1: a new role for you. Tell tell us a little
• 0:48
  Speaker 1: bit more about it. It is a new role. I'm
• 0:50
  Speaker 1: moving from behind the scenes to a little bit more
• 0:54
  Speaker 1: of a consumer facing role. I'll be rotting some columns
• 0:59
  Speaker 1: about the global economy, and I will be helping generally
• 1:04
  Speaker 1: deepen our coverage of the wonderful world of economics from
• 1:08
  Speaker 1: Bloomberg View, our commentary and analysis section. And the good
• 1:12
  Speaker 1: news is you're still going to be continuing to be
• 1:14
  Speaker 1: my co host on Bloomberg Benchmark. Right from my perspective,
• 1:17
  Speaker 1: it's great news. We'll have to ask the listeners how
• 1:20
  Speaker 1: they feel. Excellent. Well, joining us now in our New
• 1:23
  Speaker 1: York studio with dan Is Elena shuliettiv, a senior US
• 1:27
  Speaker 1: economist with Bloomberg Intelligence. Elena, thanks for spending time with
• 1:30
  Speaker 1: us today. It's my pleasure, all right. So Yelena, it's
• 1:35
  Speaker 1: another first Friday of the month, another disappointing wage figure.
• 1:40
  Speaker 1: What is going on here and why can't the average
• 1:43
  Speaker 1: American catch a break with seeing a little bit more
• 1:46
  Speaker 1: money in their wallet? Well, you're right, job gains are ongoing,
• 1:51
  Speaker 1: but we don't see that much of a pickup in wages.
• 1:56
  Speaker 1: So every hourly earnings rising, but only slowly. And that
• 2:02
  Speaker 1: is not particularly great news for the consumer because you
• 2:07
  Speaker 1: really need to see your wages grow to be able to, uh,
• 2:12
  Speaker 1: you know, go there and spend it. Also, the economy
• 2:16
  Speaker 1: is greatly dependent on the consumer, and the consumer are
• 2:20
  Speaker 1: not getting as much of an income growth as they
• 2:25
  Speaker 1: would like. Let's drill down there a little bit. The
• 2:28
  Speaker 1: US economy has been growing for eight years, though it
• 2:31
  Speaker 1: may sometimes not seem like it. The unemployment rate is
• 2:36
  Speaker 1: low by historical standards at this point in previous episodes
• 2:41
  Speaker 1: in history. Wages are starting to go through the roof
• 2:44
  Speaker 1: what's happening? Why is that broken? Uh? It is happening
• 2:48
  Speaker 1: because there is so much slack in the labor markets still,
• 2:52
  Speaker 1: even with four point four unemployment. Absolutely, because some people
• 2:56
  Speaker 1: are working part time, but they really want to work
• 2:59
  Speaker 1: full time, and that is creating an extra slack in
• 3:03
  Speaker 1: the labor market. Some people are looking for a job,
• 3:06
  Speaker 1: but maybe they're not looking as hard as they used to,
• 3:10
  Speaker 1: and there are really good reasons for that. So there's
• 3:14
  Speaker 1: still a lot of people who really want to work
• 3:17
  Speaker 1: more but they can't. Let's not get too downbeat, folks,
• 3:21
  Speaker 1: I mean, you still have some really good numbers here
• 3:23
  Speaker 1: that show something in the labor market is clicking, even
• 3:27
  Speaker 1: if the wages aren't going up so much. Uh, some
• 3:29
  Speaker 1: of the figures that we found show people are coming
• 3:32
  Speaker 1: off the sidelines. People who who were not looking for
• 3:35
  Speaker 1: work are suddenly getting jobs. Uh. Isn't that good also
• 3:40
  Speaker 1: for consumer spending, even if you're not getting as much
• 3:42
  Speaker 1: of a fast gain in people's wallets. Absolutely, and today's
• 3:48
  Speaker 1: report actually indicated an increase in aggregate hours worked, so
• 3:53
  Speaker 1: people work more hours even though they were not getting
• 3:57
  Speaker 1: paid too much more. They're still working a little bit
• 4:02
  Speaker 1: more around more jobs out there, So in aggregate, that
• 4:06
  Speaker 1: means growth in income in personal income is slightly moving higher.
• 4:13
  Speaker 1: So again this will suggest that consumer spending in turn
• 4:18
  Speaker 1: will also move higher this year. So it's positive for
• 4:21
  Speaker 1: the consumer and it is positive for the economy overall. Look,
• 4:25
  Speaker 1: I don't want to sound like a wet blanket and Scott,
• 4:27
  Speaker 1: you're absolutely right, there was plenty of good news in
• 4:31
  Speaker 1: this job's report, but I want to get back to
• 4:33
  Speaker 1: the wages thing, because for modern policy making history, let's
• 4:39
  Speaker 1: say post nine, Okay, at least, there's been this idea,
• 4:45
  Speaker 1: this prevailing wisdom that once the unemployment rate gets this low,
• 4:50
  Speaker 1: things are supposed to start happening. Wages are supposed to
• 4:55
  Speaker 1: be starting to, if not explode, definitely get moving. And
• 4:59
  Speaker 1: you know, you could argue around the margins there's a
• 5:02
  Speaker 1: movement there, but the numbers today certainly don't look like it. Again,
• 5:08
  Speaker 1: is this model broken? So without getting into the weeds
• 5:12
  Speaker 1: of the Phillips curve and a lot of other economist jargon, uh,
• 5:18
  Speaker 1: what it really means is that this business cycle is
• 5:22
  Speaker 1: different from the previous business cycles. And yes, indeed, the
• 5:27
  Speaker 1: declines in the unemployment rate don't translate in uh wage
• 5:32
  Speaker 1: pressures that are really rising. So what it means for
• 5:37
  Speaker 1: the consumer for a regular American is that actually it
• 5:41
  Speaker 1: raises questions about job insecurity. So think about it this way.
• 5:46
  Speaker 1: So if the employer lets somebody go, they can easily
• 5:51
  Speaker 1: replace this person with somebody else, and they don't need
• 5:55
  Speaker 1: to pay an extra buck to uh actually hire this
• 6:00
  Speaker 1: other person. So you can easily replace people, and you
• 6:04
  Speaker 1: can easily fire people. So that actually means a little
• 6:09
  Speaker 1: bit more job insecurity for a regular American. All Right,
• 6:13
  Speaker 1: hold that thought, Elena. When we come back after a
• 6:16
  Speaker 1: quick message from our sponsor, I'd like to ask what
• 6:19
  Speaker 1: this means for President Trump, Elena. President Trump has talked
• 6:25
  Speaker 1: a lot about the tony unemployment rate, even though he
• 6:29
  Speaker 1: seems to have walked that back a little bit. The
• 6:32
  Speaker 1: fact that there are billions and millions of people who
• 6:36
  Speaker 1: are on the sidelines and still want a job but
• 6:40
  Speaker 1: haven't been able to get it in this environment, is
• 6:43
  Speaker 1: he going to see this latest report as a success
• 6:47
  Speaker 1: or in some other way? Well, the message from the
• 6:49
  Speaker 1: U S. Economy to President Trump and to well any
• 6:54
  Speaker 1: policymaker is that the economy is doing great, and probably
• 6:59
  Speaker 1: now is the best time to do something in terms
• 7:02
  Speaker 1: of potential economic growth, so you can easily work on
• 7:08
  Speaker 1: things like infrastructure spending, UH, comprehensive text reform, things that
• 7:13
  Speaker 1: were discussed quite substantially on the campaign trail, but we
• 7:18
  Speaker 1: still lack any progress on that front. So now it's
• 7:21
  Speaker 1: the perfect time to to work on those initiatives, because again,
• 7:26
  Speaker 1: the economy is doing great in a sense, even though
• 7:30
  Speaker 1: we don't see that much of a wage pressures, but
• 7:35
  Speaker 1: overall we are in a very sweet spot. So just
• 7:39
  Speaker 1: do something about the potential growth of the economy so
• 7:43
  Speaker 1: that in future years we can continue to grow solidly. Now,
• 7:49
  Speaker 1: earlier in this conversation, you twice referred to regular Americans.
• 7:54
  Speaker 1: I want to pull the lands back just a little bit.
• 7:58
  Speaker 1: The full employment versus low wage growth phenomenon is not
• 8:03
  Speaker 1: unique to this country. If you look pretty much across
• 8:06
  Speaker 1: the G seven, and in some countries that are not
• 8:10
  Speaker 1: part of the G seven, same phenomenon as being observed.
• 8:14
  Speaker 1: So again I'm just thinking about this model. Look at Germany,
• 8:19
  Speaker 1: look at the United Kingdom with Japan, what is going
• 8:23
  Speaker 1: on here? Still no wages? So it's not just here
• 8:26
  Speaker 1: I don't think the model is broken. It just probably
• 8:30
  Speaker 1: takes longer for wage pressures to emerge. So maybe the
• 8:36
  Speaker 1: natural rate of unemployment is lower than many economists think,
• 8:41
  Speaker 1: so it's not directly observable. So we know that in
• 8:45
  Speaker 1: the US in the latest summer of economic projections, policymakers
• 8:51
  Speaker 1: revised the natural rate of unemployment. So that means maybe
• 8:56
  Speaker 1: we need to go even further down in terms of
• 8:58
  Speaker 1: the unemployment rate to see a meaningful pickup in wages.
• 9:03
  Speaker 1: I don't think the model is broken. It's probably bent,
• 9:08
  Speaker 1: but and it will just take a little bit more
• 9:11
  Speaker 1: time for which pressures to pick up. So you don't
• 9:15
  Speaker 1: think we should go looking for it the way we're
• 9:17
  Speaker 1: looking for Jimmy Hoffer's grave. I mean, it's there somewhere,
• 9:20
  Speaker 1: right somewhere, but I don't think. I don't think we
• 9:25
  Speaker 1: need to just say that's it yet. At least I
• 9:30
  Speaker 1: think we can wait a couple of quarters maybe to
• 9:36
  Speaker 1: see some pickup. In fact, the modest, but it is
• 9:41
  Speaker 1: still a pickup in wages. And UH income growth is rising,
• 9:45
  Speaker 1: it's trending higher. So for example, income is growing at
• 9:50
  Speaker 1: for a half percent now versus below four percent in
• 9:54
  Speaker 1: the beginning of the year. It's a modest pickup, but
• 9:57
  Speaker 1: it's still a pickup. So we'll have to wait a
• 10:00
  Speaker 1: little bit longer and be a little bit more patient
• 10:03
  Speaker 1: to see wage precious Helena. The policymakers who pull the
• 10:08
  Speaker 1: levers of the economy at the Federal Reserve have been
• 10:11
  Speaker 1: talking about raising interest rates further later this year and
• 10:15
  Speaker 1: next year they're going to start rolling off their balance sheet.
• 10:18
  Speaker 1: All these things are going to probably make it more
• 10:21
  Speaker 1: expensive for average Americans to buy a car or buy
• 10:25
  Speaker 1: a house. Now, when they look at this report, do
• 10:28
  Speaker 1: they see everything as hunky dory or are they going
• 10:31
  Speaker 1: to say, well, wait a minute, wages still aren't going up,
• 10:35
  Speaker 1: maybe we should put on the brakes on our plans here. Well, uh, fair,
• 10:39
  Speaker 1: the fit is worried about financial conditions, so, uh, financial
• 10:45
  Speaker 1: conditions have become much much easier. So you see a
• 10:50
  Speaker 1: pickup in stock prices, and uh that is making them
• 10:55
  Speaker 1: a little bit uncomfortable, so they want to tighten policy,
• 11:00
  Speaker 1: and uh, the employment goal that they have is telling them, yes,
• 11:05
  Speaker 1: go ahead and do it. They are missing on their
• 11:09
  Speaker 1: inflation target, so inflation is still not picking up. It's
• 11:14
  Speaker 1: still below two percent, and that is really a big
• 11:18
  Speaker 1: puzzle because, uh, this has to pick up with unemployment
• 11:23
  Speaker 1: rate going down. So what they're telling us is that
• 11:27
  Speaker 1: it is just a temporary thing, and uh that the
• 11:30
  Speaker 1: slowdown inflation is transitory, to use their language. So, uh,
• 11:36
  Speaker 1: we think that it is transitory indeed, but more in
• 11:40
  Speaker 1: a medium term. So we will see wage pressures and
• 11:43
  Speaker 1: we will see inflation pressures, but it's just gonna take
• 11:47
  Speaker 1: a little bit more time than policymakers and uh like
• 11:52
  Speaker 1: usual models, usual economic models are telling us. So policymakers
• 11:57
  Speaker 1: will continue to tighten policy, but only a dually. Bloomberg
• 12:01
  Speaker 1: Intelligence is expecting another retail Yes, that's us economist at
• 12:06
  Speaker 1: Bloomberg Intelligence here. We are expecting another rate hike, probably
• 12:11
  Speaker 1: by the end of the year. But before that, we
• 12:15
  Speaker 1: think that the Fed will start unwinding their balance sheet.
• 12:19
  Speaker 1: They really want to start the process before Chair Yellin's
• 12:23
  Speaker 1: term expires in February of next year, lest we get
• 12:27
  Speaker 1: too lost in the weeds. I just want to come
• 12:29
  Speaker 1: back to this wages issue again. Our colleagues Patricia Lair
• 12:33
  Speaker 1: and David Flatley published a story this week saying that
• 12:38
  Speaker 1: actually recruitment firms are having a bumper year and people
• 12:42
  Speaker 1: are prepared to pay up to get people. So is
• 12:45
  Speaker 1: it a case of people in their existing jobs basically
• 12:49
  Speaker 1: just need to demand more or maybe the workers arise.
• 12:53
  Speaker 1: I know you grew up in Russia. Dust off your lenin, right,
• 12:56
  Speaker 1: workers arise? What more do you have to lo is
• 13:00
  Speaker 1: but your chains? Could it be as simple as that.
• 13:02
  Speaker 1: It could be a chicken and net problem, you know,
• 13:04
  Speaker 1: like the more people see wage increases, the more they
• 13:08
  Speaker 1: feel comfortable about leaving, sticking their ex out and demanding
• 13:13
  Speaker 1: a higher job pay. Right, So we need to see
• 13:17
  Speaker 1: a little bit more of an increase in wages and
• 13:20
  Speaker 1: UH participation will also increase. So people who are on
• 13:25
  Speaker 1: the sidelines right now, they might again, they might come
• 13:29
  Speaker 1: out and say, Okay, maybe I should be looking for
• 13:32
  Speaker 1: a job, and that will continuing a spiral. It's a
• 13:36
  Speaker 1: bit more inflation would be a good problem to have.
• 13:39
  Speaker 1: And the key word here is a bit more. So
• 13:42
  Speaker 1: that's that's what the Fed wants. Definitely an issue that
• 13:46
  Speaker 1: we can come back to again and again. Elena, thank
• 13:49
  Speaker 1: you so much for joining us and sharing your wisdom today.
• 13:52
  Speaker 1: Thank you. Benchmark will be back next week and until
• 13:57
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• 14:00
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• 14:11
  Speaker 1: You can follow me on Twitter at at scott Landman
• 14:15
  Speaker 1: Dan you are at Moss Underscore. Echo Benchmark is produced
• 14:19
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• 14:22
  Speaker 1: Thanks for listening, See you next time.