Latest / Trumponomics / Benchmark Special: Five Questions From the August Jobs Report

Transcript

Benchmark Special: Five Questions From the August Jobs Report · Trumponomics

• 0:07
  Speaker 1: Hello, and welcome back to the Bloomberg Benchmark podcast, the
• 0:10
  Speaker 1: show about the global economy. I'm Scott Landman and economics
• 0:14
  Speaker 1: editor for Bloomberg News in Washington. I'm Daniel Moss, executive
• 0:18
  Speaker 1: editor for Global Economics in New York, and this is
• 0:21
  Speaker 1: a bonus episode joining us as Gina Smellick, who covers
• 0:25
  Speaker 1: economics in our Washington bureau, talking about the August jobs
• 0:29
  Speaker 1: report released Friday. Gina, thanks for taking the time out. Yeah,
• 0:33
  Speaker 1: thanks for having me. So, payrolls gained a hundred and
• 0:36
  Speaker 1: fifty one thousand in August, slightly less than forecast, while
• 0:40
  Speaker 1: wage growth moderated and other measures of slack held set.
• 0:43
  Speaker 1: We thought we'd talked about five questions that this report
• 0:47
  Speaker 1: raises for the economy and the federal reserve. Dan, do
• 0:50
  Speaker 1: you want to go with number one? Gina? This number
• 0:54
  Speaker 1: keeps alive expectations for a federal reserve rate increase this year.
• 0:59
  Speaker 1: But what does it due to the September versus December
• 1:03
  Speaker 1: guessing going? I think really at its core, what this
• 1:06
  Speaker 1: number does is it doesn't pass their hurdle rate for September.
• 1:10
  Speaker 1: So I was talking to Rebert Apparely, who's an economist
• 1:13
  Speaker 1: Tier in Washington earlier today, and he summed it up
• 1:15
  Speaker 1: pretty well. He said, you know, for a dove, this
• 1:18
  Speaker 1: doesn't change your mind. For hawk, this doesn't change your mind.
• 1:20
  Speaker 1: If you wanted to go in September, you still want
• 1:22
  Speaker 1: to go in September. If you didn't want to go
• 1:23
  Speaker 1: in September, you still don't. But what we've seen so
• 1:26
  Speaker 1: far this year is the doves have been carrying it.
• 1:28
  Speaker 1: So it could be the case that, you know, this
• 1:31
  Speaker 1: means that in September they're going to carry it again
• 1:32
  Speaker 1: and we're not going to see a rate increase. And
• 1:34
  Speaker 1: Roberto Pearly used to work at the federal so yes,
• 1:37
  Speaker 1: he did, so he has some definite insight. Some people
• 1:39
  Speaker 1: are saying that on the margins, this could it goes
• 1:43
  Speaker 1: both ways. It could cut stronger both ways. Some people
• 1:46
  Speaker 1: are saying this cements the idea that they don't move
• 1:50
  Speaker 1: in September and that they wait till September if they
• 1:52
  Speaker 1: have enough ammunition for that. And then, you know, it's
• 1:55
  Speaker 1: kind of surprised to see Goldman Sachs economist John Hatzi
• 1:59
  Speaker 1: is talking about how this actually raises the chances of
• 2:02
  Speaker 1: a September increase. They've said it's probability now up from
• 2:09
  Speaker 1: you know, the report was good enough, and as Janet
• 2:12
  Speaker 1: Yellen said last week, they're just really looking for data
• 2:14
  Speaker 1: that continue to confirm their outlook rather than change it. Yeah,
• 2:18
  Speaker 1: and I think it's an important point, Scott, Like you said,
• 2:21
  Speaker 1: you know, Jan's projection is for chance of a rate increase.
• 2:25
  Speaker 1: I think what we've seen across the board is none
• 2:27
  Speaker 1: of our economists are moving September who originally thought September
• 2:31
  Speaker 1: are moving September off of their charts in a really
• 2:34
  Speaker 1: significant way. You know. The ones who are shifting to
• 2:37
  Speaker 1: December are saying, you know, it's still a pretty narrow
• 2:39
  Speaker 1: confidence range. You know, we we still think that there's
• 2:42
  Speaker 1: like a good chance they go in September, but we
• 2:44
  Speaker 1: think this slightly shifts things towards December. Gina helped me
• 2:48
  Speaker 1: with an issue I'm wrestling with. If they hauld in September,
• 2:52
  Speaker 1: but the projections released simultaneously continue to show at least
• 2:57
  Speaker 1: one dot for twenties sixteen that can only leave December.
• 3:02
  Speaker 1: So haven't they pre announced without doing it? Do they
• 3:05
  Speaker 1: get the worst of both worlds? It does kind of
• 3:08
  Speaker 1: mean they pre announced. I mean, theoretically they have one
• 3:10
  Speaker 1: more meeting in between September and December, and they could
• 3:12
  Speaker 1: hike then. But we know that a lot of people
• 3:14
  Speaker 1: speculate that they would never want to hike during a
• 3:17
  Speaker 1: meeting when they don't have a press conference following it,
• 3:19
  Speaker 1: um just because that might Royal markets. But yeah, it does.
• 3:23
  Speaker 1: It does kind of equate to pre announcing. The question
• 3:26
  Speaker 1: there though, I think, is, you know, does it actually
• 3:29
  Speaker 1: matter for the FT if they pre announced, Like are
• 3:31
  Speaker 1: they going to be really really hesitant to do that?
• 3:34
  Speaker 1: And I don't know if it does so much because
• 3:36
  Speaker 1: they we what we know about the FT is they
• 3:38
  Speaker 1: really take advantage of the speeches they give the public
• 3:41
  Speaker 1: to communicate with markets. They know that people watch them.
• 3:44
  Speaker 1: They're a where that they're constantly in the limelight, and
• 3:46
  Speaker 1: so I think that they feel like even if they
• 3:48
  Speaker 1: pre announced, if the situation dramatically changes, they can use
• 3:51
  Speaker 1: the chair speeches, the vice chair speeches, the president's speeches
• 3:54
  Speaker 1: to communicate that the situation is changed. All right, we
• 3:57
  Speaker 1: shall see now. Number two, what about this pace of payrolls.
• 4:01
  Speaker 1: You had a hundred and fifty one thousand being at it.
• 4:04
  Speaker 1: That was down from the average pace of the previous
• 4:07
  Speaker 1: two months. Of two hundred and seventy three thousand seems
• 4:10
  Speaker 1: like quite a drop, but there's there's a sense that
• 4:12
  Speaker 1: a hundred and fifty or so is still a pretty
• 4:15
  Speaker 1: good pace for the economy. Does this mean that we're
• 4:18
  Speaker 1: settling into a good groove here or that things are
• 4:20
  Speaker 1: falling further into a rut. This seems like the biggest
• 4:24
  Speaker 1: question out of this Peril's report to me, at least
• 4:27
  Speaker 1: um It is a downshift from what we saw the
• 4:30
  Speaker 1: prior to months, and it might signal that those two
• 4:32
  Speaker 1: months weren't a sustainable pace of growth for the labor market.
• 4:36
  Speaker 1: What we've seen from a lot of economists is a
• 4:38
  Speaker 1: speculation that as we near full employment, we're going to
• 4:41
  Speaker 1: settle into something more like one hundred thousand, one hifty thousand,
• 4:45
  Speaker 1: you know, path for employment games going forward. So the
• 4:48
  Speaker 1: real question is is this the beginning of that? Is
• 4:50
  Speaker 1: it's the leading edge of this full employment job gains
• 4:53
  Speaker 1: slow down? Jane. For all that the headline number disappointed
• 4:57
  Speaker 1: some economists, when you take a step, isn't it remarkable
• 5:01
  Speaker 1: how steady job creation the United States has been since
• 5:06
  Speaker 1: this expansion began in two thousand and nine, Compared with
• 5:10
  Speaker 1: other major economies. Yeah, you know, that is a good point. Um.
• 5:14
  Speaker 1: We we've had some blips, obviously, you can look at
• 5:16
  Speaker 1: me and see that, but overall we've seen a really
• 5:19
  Speaker 1: solid pace of job gains. And one fifty thousand is
• 5:22
  Speaker 1: by no means a bad number. You know. John Williams
• 5:25
  Speaker 1: at the San Francisco Fed estimates that anywhere between eighty
• 5:27
  Speaker 1: and a hundred thousand jobs at it a month would
• 5:30
  Speaker 1: keep unemployment pretty much stable or even declining. Um. And
• 5:34
  Speaker 1: so I think you need to do need to take
• 5:35
  Speaker 1: these numbers into context. You know, on fifty thousand might
• 5:38
  Speaker 1: not be what the Bloomberg consensus was looking for, but
• 5:40
  Speaker 1: it's it's by no means a bad number. Yeah. And
• 5:43
  Speaker 1: when you hear yeah, when you hear people saying that
• 5:44
  Speaker 1: e D is okay, you know, the only question is
• 5:47
  Speaker 1: if it goes down more and keeps going down, it
• 5:50
  Speaker 1: could be a problem. But right now that kind of
• 5:52
  Speaker 1: level probably doesn't concern the FED or people in the
• 5:55
  Speaker 1: broader economy at all. Okay, let's go to number three. White.
• 6:00
  Speaker 1: So one of the things that I think definitely hook
• 6:04
  Speaker 1: some shine off of what's not actually a terrible headline
• 6:07
  Speaker 1: number is the fact that we didn't see wages pick up,
• 6:09
  Speaker 1: and we actually saw them sort of backtread a little bit. Um.
• 6:13
  Speaker 1: We saw some pretty soft both month over month and
• 6:15
  Speaker 1: year over year readings, and that's bad news for the
• 6:16
  Speaker 1: FED because they've been hoping that as the labor market
• 6:19
  Speaker 1: titans and a seles eaten up, what we're going to
• 6:22
  Speaker 1: see is that come through two wages, like stronger wage gains.
• 6:24
  Speaker 1: Employers are working harder to find people and so their
• 6:27
  Speaker 1: hiking pay um because that can be a sort of
• 6:30
  Speaker 1: a leading edge for inflation, which is what the FED
• 6:32
  Speaker 1: really needs to see at this point. So I think
• 6:34
  Speaker 1: if there's one most negative thing about this report, it
• 6:36
  Speaker 1: is probably that wage number. Yeah, and it was a
• 6:39
  Speaker 1: pretty significant drop. You had it going from a two
• 6:42
  Speaker 1: point seven year over year increase in July to a
• 6:45
  Speaker 1: two point four percent increase in in August, and we
• 6:50
  Speaker 1: haven't seen a decrease of that magnitude in more than
• 6:54
  Speaker 1: a year. The number of hours people work during the
• 6:57
  Speaker 1: week also unexpectedly fell to the lowest level in more
• 7:01
  Speaker 1: than two years. And you know, there could be some
• 7:04
  Speaker 1: seasonal issues like this, but but this is definitely not
• 7:07
  Speaker 1: the direction that people at the FED or wherever or
• 7:11
  Speaker 1: anywhere I want to see wages going in because the
• 7:14
  Speaker 1: whole idea is, as the perils get stronger than the
• 7:17
  Speaker 1: wages should be picking up at a faster pace exactly.
• 7:20
  Speaker 1: And the really worrying thing about this is, you know,
• 7:23
  Speaker 1: there could have been some sort of seasonal effects, especially
• 7:25
  Speaker 1: because a lot of automakers retool in July and we
• 7:27
  Speaker 1: didn't see the kind of layoffs they normally have, so
• 7:30
  Speaker 1: that might have affected the hours numbers. They might have
• 7:32
  Speaker 1: looked stronger in July because of that, and then the
• 7:34
  Speaker 1: seasonal adjustment may have made them look weaker in August.
• 7:37
  Speaker 1: But the issue here is that that dropping hours and
• 7:39
  Speaker 1: the dropping wages was really broad based. So if you
• 7:41
  Speaker 1: look across industries, we saw it everywhere, um and that
• 7:44
  Speaker 1: sort of counters this whole seasonal adjustment or data cork idea.
• 7:49
  Speaker 1: So one thing to keep in mind. As our colleague
• 7:52
  Speaker 1: Michelle jam Risco spoke with the economists Stephen Stanley about
• 7:55
  Speaker 1: he likes to flag the idea that you know, everybody's
• 7:58
  Speaker 1: marked down their estimates of what the the economy can
• 8:01
  Speaker 1: grow at, you know, and where the federal funds rate
• 8:04
  Speaker 1: should be. Why don't they just mark down their estimates
• 8:07
  Speaker 1: of how fast wage growth is going to be. People
• 8:09
  Speaker 1: have it in their minds that wages should be able
• 8:12
  Speaker 1: to grow three percent in this kind of economy, and
• 8:14
  Speaker 1: we're only seeing gains a little a little over two percent.
• 8:17
  Speaker 1: So are we really in a new normal that people
• 8:20
  Speaker 1: should be aware of. Yeah, And I think one thing
• 8:23
  Speaker 1: to keep in mind is we're seeing really really tepid
• 8:25
  Speaker 1: productivity growth. It's hard to support wage growth if you
• 8:28
  Speaker 1: don't have to productivity growth. All right, Well, let's go
• 8:31
  Speaker 1: on to number four. The labor force participation rate that
• 8:36
  Speaker 1: actually held at sixty two point eight percent in August,
• 8:41
  Speaker 1: still seems to be plateau ing at a much lower
• 8:45
  Speaker 1: level than it was before the financial crisis. What's going
• 8:48
  Speaker 1: on here, Gina? Yeah, So it's it's interesting that the
• 8:52
  Speaker 1: participation rate isn't moving up, it's not moving down. It
• 8:55
  Speaker 1: seems to be holding pretty steady. I think that's actually
• 8:57
  Speaker 1: probably the best case scenario for if you're hoping for
• 9:01
  Speaker 1: a FED rate hike sometimes soon, because what it basically
• 9:03
  Speaker 1: says is, you know, the labor might strong enough to
• 9:06
  Speaker 1: keep this measure of slack steady. You know, we're not
• 9:09
  Speaker 1: having people get discouraged and just drop out entirely. But
• 9:12
  Speaker 1: at the same time, people who are sitting on the
• 9:14
  Speaker 1: test sidelines aren't coming back in anymore. You know, they're
• 9:17
  Speaker 1: probably out for some other sort of reason aside from slack,
• 9:20
  Speaker 1: maybe demographics, maybe something structural, like their skills are completely outdated,
• 9:24
  Speaker 1: but can't you know, can't be pulled back in. But regardless,
• 9:28
  Speaker 1: what it means is they're not a source of slack
• 9:30
  Speaker 1: to be absorbed anymore. So I think I think for
• 9:32
  Speaker 1: a rate hike, that's a pretty pretty clear signal and lastly,
• 9:37
  Speaker 1: broader economic implications. This was not the only major number
• 9:41
  Speaker 1: reported in the United States this week. We had disappointing
• 9:45
  Speaker 1: manufacturing numbers the day before. Now, look, Gina, why does
• 9:50
  Speaker 1: this matter? Manufacturing has been a ever retreating portion of
• 9:56
  Speaker 1: the world's largest economy, and manufacturing jobs didn't do well
• 10:00
  Speaker 1: in this report. Why do we care? We care because
• 10:04
  Speaker 1: manufacturing can be sort of a bell weather indicator for
• 10:07
  Speaker 1: the rest of the economy. It's a good gauge of
• 10:10
  Speaker 1: whether there's demand, whether there's corporate investment, um just sort
• 10:13
  Speaker 1: of a good broad based game indication that things are
• 10:16
  Speaker 1: about to pick up or things are about to slow down.
• 10:18
  Speaker 1: And what we're seeing is you know, I s M.
• 10:20
  Speaker 1: The manufacturing index slowed down quite a bit, and we
• 10:23
  Speaker 1: weren't sure whether that was a one off. We weren't
• 10:25
  Speaker 1: sure whether that's something that's going to be sustained or
• 10:27
  Speaker 1: you know, it was just a data quirk. And what
• 10:29
  Speaker 1: this report today showed us is that manufacturing definitely slowed
• 10:33
  Speaker 1: down in payrolls as well. So it sort of confirms
• 10:36
  Speaker 1: that crummy I s M number. Um. So again, it's
• 10:40
  Speaker 1: only a couple of data points. We're gonna have to
• 10:41
  Speaker 1: wait to see if this is a trend, but it's
• 10:43
  Speaker 1: something to be worried about. Gina. Let's have you back
• 10:46
  Speaker 1: next time we do a bonus economic episode. Thank you well, Thanks,
• 10:50
  Speaker 1: thanks a lot, thanks to Dan, thanks to Gina. Benchmark
• 10:53
  Speaker 1: will be back with our regular episode this weekend. Until then,
• 10:56
  Speaker 1: you can find us on the Bloomberg Terminal and Bloomberg
• 10:59
  Speaker 1: dot com. This l us on iTunes, pocket casts, and Stitcher.
• 11:02
  Speaker 1: You can talk to us and follow us on Twitter.
• 11:05
  Speaker 1: Gina is at at Gina Smile Like, and I'm at
• 11:08
  Speaker 1: at Scott Landman, and I'm at at Daniel Moss d C.
• 11:12
  Speaker 1: See you next time.