Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Neil Data joins us. And now, Neil, what does this
Speaker 2: signal for Chairman.
Speaker 3: Paul get Going.
Speaker 4: That's what it says, go fifty with a promise to
Speaker 4: do as much as necessary to stabilize labor market conditions.
Speaker 5: So again, Neil, I mean, and you think about these
Speaker 5: numbers and the revisions. As Tom was just summarizing here,
Speaker 5: the labor market, I guess it kind of falls into
Speaker 5: what we were just saying many minutes ago, not nearly
Speaker 5: as strong as people think it is.
Speaker 4: No, I mean, the three month trend on non farm
Speaker 4: private perils is running below one hundred thousand. I mean,
Speaker 4: that's not a good number, you know, that's barely break even.
Speaker 4: And I think it's arguably actually worse than that because
Speaker 4: one of the reasons why the number even looked as
Speaker 4: good as it did is because we saw an uptake
Speaker 4: in construction employment among I think civil engineer contractors. And
Speaker 4: so that's not going to last because everything we know
Speaker 4: about construction right now is that units under constructure are
Speaker 4: under construction collapsing. So why are we hiring all these
Speaker 4: people to build one exactly? That's that implies a margin
Speaker 4: squeeze for builders, which I don't think they can tolerate
Speaker 4: right now. So I think it's the goods producing side.
Speaker 4: I mean Tom mentioned manufacturing. I think that's notable because
Speaker 4: a lot of people were thinking maybe you'd see some
Speaker 4: uptake and manufacturing because of the unwind of the retooling.
Speaker 4: It just didn't happen. Right on the good side of
Speaker 4: the economy's week, cyclically sensitive industries are sluggish, and you
Speaker 4: know this is all about the FED trying to create
Speaker 4: a handoff from income le growth to credit led growth.
Speaker 4: That's what this is about. So they need to keep
Speaker 4: cutting until the credit sensitive areas of the economy.
Speaker 2: Term joining us worldwide, Neil Dotta, we are commercial free
Speaker 2: to the nine o'clock hour. Claudia sam Mark Zandi will
Speaker 2: join in a moment. Ben Ladler will join us on
Speaker 2: the equity market reaction in the view forward here later
Speaker 2: in these twenty minutes. Futures at negative seventeen, the vixers
Speaker 2: A twenty two level comes in nicely twenty point seven
Speaker 2: six major bond market adjustments, making eight basis points two
Speaker 2: year yield three point sixty six thirty year bond well
Speaker 2: under four percent three point nine eight percent ten year
Speaker 2: yield three point sixty seven percent, Neil, I want you
Speaker 2: to frame out for us what inflation will do given
Speaker 2: a depressed GDP in the job market, moving the second
Speaker 2: derivative here is moving to a worser space. What does
Speaker 2: inflation then do further disinflation?
Speaker 4: I mean absolutely, I think so. I mean, if you
Speaker 4: look at core goods, non housing services, and housing rents,
Speaker 4: I mean, those are those are the three ways to
Speaker 4: slice the inflation data. The entire shortfall relative to the
Speaker 4: FEDS target is in housing rents, which we know will
Speaker 4: continue to normalize give the lagged you know, sort of
Speaker 4: nature of that indicator relative to market based rents. Everything
Speaker 4: else is basically normalized. So you know, again, I mean,
Speaker 4: what's the upside risk for inflation if growth is running
Speaker 4: below potential and the momentum under the unemployment rate is higher.
Speaker 4: I mean that's kind of it's kind of I mean,
Speaker 4: unit labor costs are running basically flat for the last year,
Speaker 4: so there's no more of an inflationary impulse coming out
Speaker 4: of the job market. That story is completely over, and
Speaker 4: the FED continues to run a very very restrictive policy stance.
Speaker 5: Paul get one more in here, and Neil just and
Speaker 5: you know, the unemployment rate, just for those that are
Speaker 5: going to be watching the headlines, stay steady at four
Speaker 5: point two percent here, right in line with expectations. What
Speaker 5: does the FED think about an unemployment rate of four
Speaker 5: point two percent?
Speaker 2: Do you think?
Speaker 4: I don't think they should think about an unemployment rate
Speaker 4: of four point two percent. I think they should think
Speaker 4: about what's gone on over the last six months here,
Speaker 4: which is what's gone out.
Speaker 5: It's absolutely Neil dudd.
Speaker 2: I know you got a publish, will feature that out
Speaker 2: on Twitter. Neil Douta with Ren Mack will publish and
Speaker 2: we thank him for careful market economic analysis. We now
Speaker 2: bringing Claudia Sam chief economists New Century Advisors, and doctor
Speaker 2: Mark Zandi, chief economists at Moody's. We had them on here,
Speaker 2: oh thirty or sixty days ago, can't remember. It was
Speaker 2: just lights out, great, great analysis, Claudia. I want to
Speaker 2: get this out of the way so we can move
Speaker 2: on to the real Claudia Sam, I'm sick of the
Speaker 2: Palm recession. Pinata, Can you just give us an update
Speaker 2: without tire and feathering your reputation? Are we close to
Speaker 2: a recession?
Speaker 1: Doctor Sam so the increase unemployment rate is in a
Speaker 1: range where we have historically been in recessions, right, But
Speaker 1: that's a history, that's a past. We're not in a
Speaker 1: recession right now, but we do have a weakening labor market, right,
Speaker 1: So that's the important takeaway. But like, not a recession
Speaker 1: right now, but a risk, always risk.
Speaker 2: And what I remember from two thousand and eight is
Speaker 2: a Zandy rule. There's a Psalm rule, but there's also
Speaker 2: the Zandy rule, which is to be optimistic about America,
Speaker 2: Mark Sandy. If we get the decor cards I hear
Speaker 2: from Neil and others in you frankly at Moodies as well.
Speaker 2: Can corporations adjust and sustain off of a lower nominal
Speaker 2: GDP decent revenue and decent earnings or do you just
Speaker 2: suggest everything goes down?
Speaker 6: Tom, I think they're doing just fine. I mean, looking
Speaker 6: at corporate earnings, I feel pretty good. I mean, through
Speaker 6: Q two of twenty twenty four, double digit ear ear growth,
Speaker 6: and you know, expectations of analysts always are on the
Speaker 6: high side, but they're still pretty good as well. So
Speaker 6: I think the economy's doing fine and producing enough enough
Speaker 6: revenue growth to keep profitability going strong.
Speaker 3: So yeah, I'm not worried about that.
Speaker 6: And you know, just broadly, you know, I'm all on
Speaker 6: board with the view that the BET you be cutting
Speaker 6: rates and normalizing them very quickly. But today's report I
Speaker 6: thought pretty much down the strike zone. I mean, you know,
Speaker 6: the kind of right underlying job growth is one hundred
Speaker 6: hundred and fifty k that's kind of where you want it.
Speaker 6: Four point two percent unemployment, that's kind of where you
Speaker 6: want it. You saw a tick up an hour's work
Speaker 6: per week. That's, you know, feels pretty good. Wage growth
Speaker 6: is almost exactly where you want it. I mean, yeah,
Speaker 6: you can just put airs. But come on, what are
Speaker 6: we going to say this is this is a good report,
Speaker 6: This was a This felt like a really good report
Speaker 6: to me.
Speaker 5: Is it to the point there mark where the FED
Speaker 5: can stay at twenty five basis points or is this
Speaker 5: something that some are suggesting may push them to a
Speaker 5: fifty basis point cut in September?
Speaker 6: Yeah, I think it's twenty five. I mean, I would
Speaker 6: expect the FED to cut fifty only in emergency, if
Speaker 6: you know, markets are really evaporating or there really was
Speaker 6: some serious deterioration in the economy job market.
Speaker 3: But I don't see any of that, So I think
Speaker 3: it's a cooler point.
Speaker 6: And there's you know, I think there's good arguments to
Speaker 6: cut and cut in a consistent way, but I don't
Speaker 6: think we need to dramatically cut all at once, because
Speaker 6: there's a lot of uncertainty as to reasonable and certainty
Speaker 6: as to you know, where the FED should be going here.
Speaker 6: What is the so called equilibrium federal funds rate? What's
Speaker 6: the rate where policy is either supporting or restraining growth?
Speaker 6: That is very uncertain and I think given that, I'd
Speaker 6: go cautiously unless push to do otherwise.
Speaker 3: And in this report, I don't see any reason to
Speaker 3: feel like they have to move very quickly.
Speaker 5: Here, Claudia. Over the weekend, you'll be at some fancy
Speaker 5: cocktail party and somebodys can come up to you and say, hey, Claudia,
Speaker 5: how's the US labor market. What's your response?
Speaker 1: It's not headed in the right direction. This is the
Speaker 1: thing I am most concerned about. Again, just you know,
Speaker 1: the numbers, like the numbers themselves. Okay, fine, it's just
Speaker 1: things have been slowing and we can and not because
Speaker 1: I am you know, hair on fire. That are recessions
Speaker 1: around the corner I'm really concerned that we're losing a
Speaker 1: slipping away of a really good labor market and we
Speaker 1: need this as good as it gets and there should
Speaker 1: be nothing weaker than what it takes to get inflation down.
Speaker 1: And we are like the t is still moving and
Speaker 1: is not in the right direction.
Speaker 2: I mean to both of you, and then folks, we've
Speaker 2: got huge academic caliber here. Mark, I'm gonna go to
Speaker 2: you first, and then Claudia the same question the ECB
Speaker 2: is trying to teach us about being non measured? Are
Speaker 2: we slaves Mark Sandy to a green spanny and measured approach? Careful, careful, careful?
Speaker 2: Why can't we go X beeps or why beeps or
Speaker 2: Z beeps and see what happens? Why can't we do that?
Speaker 2: Mark Sandy?
Speaker 3: Well, I don't know Tom that you need to.
Speaker 6: I mean, if the you know, the labor market was
Speaker 6: falling apart, yeah, absolutely, If you financial system was in turmoil, yeah,
Speaker 6: i'd move quit more quickly. But you know the economy
Speaker 6: is it's throttling back. But that's exactly what you'd want
Speaker 6: to see, to throttle back for, to throttle back here.
Speaker 6: It's been growing too strongly and it's kind of coming
Speaker 6: right into where you want it and no reason to
Speaker 6: to move quickly otherwise. And again I keep going back
Speaker 6: to I don't think anyone knows reasonably, so where we're
Speaker 6: headed here. You know, it feels like it feels like
Speaker 6: the equilibrium rate is higher than it has been typically
Speaker 6: and it's moving, so you know, why not go cautiously
Speaker 6: And you know, if things start to really deteriorate, if
Speaker 6: you know, we do, you start to see really significant
Speaker 6: job loss or even very weak job growth.
Speaker 3: Hey, one other quick point I wanted to make you know.
Speaker 3: The August data is always weak.
Speaker 6: You know, we get very low response rates, initial response
Speaker 6: rates in the month of August, I think for obvious reasons,
Speaker 6: people are on vacation, and we always get an initial
Speaker 6: print that's on the sauce side. And almost invariably, if
Speaker 6: you cast me back a year from now, we're going
Speaker 6: to be talking about upward efficients to the data. So
Speaker 6: you know, you just have to take that into consideration.
Speaker 2: Claudia, I got a s free month moving average of
Speaker 2: one hundred and sixteen thousand, three hundred and thirty three
Speaker 2: one one six three three three. I'm sorry, but that's
Speaker 2: way below anything I've seen as a normal rate of
Speaker 2: unemployment if you take this three month moving average. Jason
Speaker 2: furmanal help out on this at Harvard. I'm sorry, Claudia
Speaker 2: is measured in place? Or is this a FED that's
Speaker 2: got to go and hoc forward.
Speaker 1: Well, I think again, it's like looking at how the
Speaker 1: variables are changing. The unemployment rate has been rising. Yes,
Speaker 1: it is still relatively low historically. We also have an
Speaker 1: older workforce. Four point three percent is not that far
Speaker 1: from and experienced and esteemed right, And so there's no
Speaker 1: magic number with the unemployment rate. It's watching the dynamics.
Speaker 1: It's watching the change and knowing that once that changes
Speaker 1: in place. The FED has been trying for two years
Speaker 1: to cool off the labor market. That's why the funds
Speaker 1: rate is at five percent and other types of demand. Right, So, yes,
Speaker 1: things are cooling off, and now it's like, okay, now
Speaker 1: we need to we need to turn that around. Take
Speaker 1: we don't need that slow wing. I think that changes everything.
Speaker 2: Wander will Zamon Sandy with us right now? They move
Speaker 2: the market higher. Futures negative thirty now negative twelve, deterioration
Speaker 2: and the Sweeney yield two year yield from negative seven
Speaker 2: basis points down to negative nine those levels three sixty five,
Speaker 2: two year, three sixty eight, ten year, thirty year bond
Speaker 2: hun or four percent. Paul you home shopping this weekend.
Speaker 5: I might be absolutely red headline crossing the Bloomberg terminal.
Speaker 5: Traders pricing fifty percent chance of half point fed cut
Speaker 5: this month, crossing the Bloomberg terminal Mark Sandy. Given the
Speaker 5: labor outlook here in some of the data we got today,
Speaker 5: as it relates to total payrolls and wages, what's your
Speaker 5: view of the US consumer here? How healthy or how
Speaker 5: at risk is the US consumer?
Speaker 6: I think and aggregate, you know, looking across all Americans,
Speaker 6: they're continue to do their part.
Speaker 3: They're hanging tough.
Speaker 6: I mean, the train is being driven by folks in
Speaker 6: the top part of the income distribution. And you know,
Speaker 6: I don't know, I don't think it's hyperperctly, but their
Speaker 6: financial situation is probably as good as it's ever been.
Speaker 3: And you know, got a.
Speaker 6: Job, strong, real wage gains, They own stocks, stocks or
Speaker 6: near record high zone home home vows or near record highs.
Speaker 6: If they've got any debt at all, it's a thirty
Speaker 6: or fifteen year or fixed rate mortgage locked in. And
Speaker 6: it seems like everyone I talked to us mortgage is
Speaker 6: a two and a half or three percent kind of
Speaker 6: locked in. So I and they get and in my
Speaker 6: by my calculation, they still have some excess cash that
Speaker 6: they build up during the pandemic when they couldn't spend
Speaker 6: that they're spending down now. So I think they're fine.
Speaker 6: I do think the soft spot, obviously is lower income households.
Speaker 6: They clearly are struggling. You know, they got nailed by
Speaker 6: the high inflation. They took on a lot of debt
Speaker 6: to supplement their income to maintain their purchasing power. And
Speaker 6: it's one thing when rates are low, but when rates
Speaker 6: are really high. They mean, the credit card rate is
Speaker 6: twenty two percent, a record high.
Speaker 3: That's very painful.
Speaker 6: They don't own stocks, they don't own a home, they rent, so,
Speaker 6: you know, very different kind of perspectives. But you know,
Speaker 6: at the end of the day, it's the folks in
Speaker 6: the top middle parts of the distribution that here we
Speaker 6: are critical here.
Speaker 2: I mean, I can't keep up. Did I tried to
Speaker 2: get John Williams on the show Claudius Mark Sandy, John Williams.
Speaker 2: That would have been good New York FED President John
Speaker 2: Williams says, now appropriate to lower FED funds rate. Claudia,
Speaker 2: when you were studying this at Michigan, this this this
Speaker 2: ex post lag. Is this unusual the way our FED
Speaker 2: is acting.
Speaker 1: Yes, particularly in the way monetary policy is quote unquote
Speaker 1: supposed to be done like in the theories, right, but
Speaker 1: that's a very clean, not realistic state. I understand why
Speaker 1: the FED. When tools start breaking down and data don't
Speaker 1: make as much sense, then you kind of you, you know,
Speaker 1: crawl your way along and you want evidence. I think
Speaker 1: this FED did lean into a very FED like tendency
Speaker 1: of being super super cautious, and they have been kind
Speaker 1: of greedy in terms of how much data they wanted
Speaker 1: on inflation. And if I had to hear so many times.
Speaker 1: We have the luxury of time because the labor market
Speaker 1: is so strong, it's like, well, guess what, it actually
Speaker 1: wasn't as strong, and so there's a cost that they
Speaker 1: took time to get comfortable with inflation. But that probably
Speaker 1: means they do not have time to get right. Is
Speaker 1: the lever market really weak and like they may need
Speaker 1: to recalibrate some and get going I think would be
Speaker 1: the appropriate But this this is really outside of their playbook.
Speaker 1: So I understand why this is a hard case to make.
Speaker 2: Doctor Xandy your opiniata for the Gloom Crew. I mean
Speaker 2: seven eight oh nine, you said, everybody shut up, We're
Speaker 2: going to fix this Zandy pandemic. Everybody shut up, We're
Speaker 2: going to fix this. Give us an optimistic touch here
Speaker 2: on how America will clear these traumas post pandemic. China
Speaker 2: is slowing down, Claudia Sam's cats are miserable. Mark Zandy,
Speaker 2: just as directly as you can give us. I need
Speaker 2: some Xandy optimism now, or I can't get through the
Speaker 2: weekend early.
Speaker 3: I've got that reputation.
Speaker 6: I didn't know that I'm that optimistic. Well look, uh,
Speaker 6: I just look at a number. I mean, top four
Speaker 6: point two percent unemployment. I mean, okay, maybe be nicer
Speaker 6: if it were four. I'm I'm on board with that.
Speaker 6: I mean, it's maybe on the soft side of one
Speaker 6: point four point two percent unemployment. We're creating a lot
Speaker 6: of jobs across lots of different industries and have been
Speaker 6: for you know, quite some time. Inflation that's back in
Speaker 6: the bottle almost no matter how you measure it, So
Speaker 6: you know, we're growing at a potential. And by the way,
Speaker 6: here's the thing that's really you know, makes me encouraged.
Speaker 6: The economy's potential is very strong. I mean, we're seeing
Speaker 6: a lot of labor force growth. That's one of the
Speaker 6: that's the key reason why unemployment is not tired here
Speaker 6: over the past year. That goes to immigration, and you know,
Speaker 6: there's a lot of costs there. But the benefit, obviously
Speaker 6: is the strong libor force growth. And look at those
Speaker 6: productivity growth numbers, and you know, I mean it's hard
Speaker 6: to argue that whether it's sustainable or not, but it
Speaker 6: feels like there's a lot of good things happening underneath
Speaker 6: all the business formation we beginning since the pandemic hit.
Speaker 6: It's probably reaping benefit. And this is all before AI
Speaker 6: kind of kicks in. So you add up all the
Speaker 6: productivity gains, you add in the labor force growth, and
Speaker 6: that's a strong growing economy and the FED. The trick
Speaker 6: for the FED here is, you know, let the economy
Speaker 6: take the foot off the breaks sufficiently to allow the
Speaker 6: economy to grow at its higher potential. That's a very
Speaker 6: different issue or problem. If demand we're evaporating, that's not
Speaker 6: what's going on here. So you know, objectively, take a
Speaker 6: step back and take a look around.
Speaker 3: This economy is good.
Speaker 2: Paul. One quick question to Claudia sim because futures just
Speaker 2: went green, which is a signal. Go Ben Ladler, so
Speaker 2: quickly here go to Claudia. And then we got to
Speaker 2: drag Ben Laidler.
Speaker 5: An here Claudia Sam, I mean again, how do you
Speaker 5: just when you sit back, you've had a few minutes
Speaker 5: of the digestis how's the FED? How do you think
Speaker 5: they're going to digest these numbers today?
Speaker 1: I think the payroll numbers are going to be the concern.
Speaker 1: And frankly, the piece of it that I found most
Speaker 1: is concerning you are the July revision, the earlier revisions. Right,
Speaker 1: that's the hiring rate has gotten to too low of
Speaker 1: a place, and we're seeing it in the job and
Speaker 1: then to see it, you know, July was actually even
Speaker 1: a little worse than we thought on the job's number,
Speaker 1: and so that I think that takes some pause.
Speaker 2: She said, So I'm supposed to have dinner with Claudia
Speaker 2: and Jackson hole. You know what they served elk and
Speaker 2: the health's food was venison. I mean there's no fish
Speaker 2: or nothing. Claudia Sam we gotta go. Thank you so much,
Speaker 2: Claudia Sam just nailing these revisions. I want to want
Speaker 2: to mention Anna Wong as well at Bloomberg and Mark Zandi,
Speaker 2: thank you so much for being with us. Really appreciate
Speaker 2: from Moody's his optimism on the American economic experiment.