1 00:00:07,000 --> 00:00:10,360 Speaker 1: Hello, and welcome back to the Bloomberg Benchmark podcast, the 2 00:00:10,440 --> 00:00:14,160 Speaker 1: show about the global economy. I'm Scott Landman and economics 3 00:00:14,280 --> 00:00:18,280 Speaker 1: editor for Bloomberg News in Washington. I'm Daniel Moss, executive 4 00:00:18,400 --> 00:00:21,160 Speaker 1: editor for Global Economics in New York, and this is 5 00:00:21,200 --> 00:00:25,439 Speaker 1: a bonus episode joining us as Gina Smellick, who covers 6 00:00:25,480 --> 00:00:29,880 Speaker 1: economics in our Washington bureau, talking about the August jobs 7 00:00:29,920 --> 00:00:33,840 Speaker 1: report released Friday. Gina, thanks for taking the time out. Yeah, 8 00:00:33,880 --> 00:00:36,839 Speaker 1: thanks for having me. So, payrolls gained a hundred and 9 00:00:36,840 --> 00:00:40,280 Speaker 1: fifty one thousand in August, slightly less than forecast, while 10 00:00:40,360 --> 00:00:43,520 Speaker 1: wage growth moderated and other measures of slack held set. 11 00:00:43,920 --> 00:00:46,879 Speaker 1: We thought we'd talked about five questions that this report 12 00:00:47,040 --> 00:00:50,760 Speaker 1: raises for the economy and the federal reserve. Dan, do 13 00:00:50,760 --> 00:00:54,000 Speaker 1: you want to go with number one? Gina? This number 14 00:00:54,160 --> 00:00:58,840 Speaker 1: keeps alive expectations for a federal reserve rate increase this year. 15 00:00:59,160 --> 00:01:03,200 Speaker 1: But what does it due to the September versus December 16 00:01:03,240 --> 00:01:06,520 Speaker 1: guessing going? I think really at its core, what this 17 00:01:06,640 --> 00:01:10,240 Speaker 1: number does is it doesn't pass their hurdle rate for September. 18 00:01:10,680 --> 00:01:13,520 Speaker 1: So I was talking to Rebert Apparely, who's an economist 19 00:01:13,520 --> 00:01:15,600 Speaker 1: Tier in Washington earlier today, and he summed it up 20 00:01:15,640 --> 00:01:18,000 Speaker 1: pretty well. He said, you know, for a dove, this 21 00:01:18,040 --> 00:01:20,440 Speaker 1: doesn't change your mind. For hawk, this doesn't change your mind. 22 00:01:20,440 --> 00:01:21,960 Speaker 1: If you wanted to go in September, you still want 23 00:01:22,000 --> 00:01:23,520 Speaker 1: to go in September. If you didn't want to go 24 00:01:23,520 --> 00:01:26,319 Speaker 1: in September, you still don't. But what we've seen so 25 00:01:26,400 --> 00:01:28,200 Speaker 1: far this year is the doves have been carrying it. 26 00:01:28,560 --> 00:01:30,960 Speaker 1: So it could be the case that, you know, this 27 00:01:31,000 --> 00:01:32,920 Speaker 1: means that in September they're going to carry it again 28 00:01:32,959 --> 00:01:34,520 Speaker 1: and we're not going to see a rate increase. And 29 00:01:34,600 --> 00:01:37,600 Speaker 1: Roberto Pearly used to work at the federal so yes, 30 00:01:37,640 --> 00:01:39,959 Speaker 1: he did, so he has some definite insight. Some people 31 00:01:39,959 --> 00:01:43,600 Speaker 1: are saying that on the margins, this could it goes 32 00:01:43,720 --> 00:01:46,639 Speaker 1: both ways. It could cut stronger both ways. Some people 33 00:01:46,680 --> 00:01:50,400 Speaker 1: are saying this cements the idea that they don't move 34 00:01:50,400 --> 00:01:52,680 Speaker 1: in September and that they wait till September if they 35 00:01:52,720 --> 00:01:55,720 Speaker 1: have enough ammunition for that. And then, you know, it's 36 00:01:55,800 --> 00:01:59,200 Speaker 1: kind of surprised to see Goldman Sachs economist John Hatzi 37 00:01:59,320 --> 00:02:02,920 Speaker 1: is talking about how this actually raises the chances of 38 00:02:02,960 --> 00:02:09,480 Speaker 1: a September increase. They've said it's probability now up from 39 00:02:09,639 --> 00:02:12,520 Speaker 1: you know, the report was good enough, and as Janet 40 00:02:12,560 --> 00:02:14,920 Speaker 1: Yellen said last week, they're just really looking for data 41 00:02:14,960 --> 00:02:18,880 Speaker 1: that continue to confirm their outlook rather than change it. Yeah, 42 00:02:18,919 --> 00:02:21,280 Speaker 1: and I think it's an important point, Scott, Like you said, 43 00:02:21,320 --> 00:02:25,160 Speaker 1: you know, Jan's projection is for chance of a rate increase. 44 00:02:25,520 --> 00:02:27,799 Speaker 1: I think what we've seen across the board is none 45 00:02:27,800 --> 00:02:31,400 Speaker 1: of our economists are moving September who originally thought September 46 00:02:31,400 --> 00:02:34,639 Speaker 1: are moving September off of their charts in a really 47 00:02:34,680 --> 00:02:36,600 Speaker 1: significant way. You know. The ones who are shifting to 48 00:02:37,280 --> 00:02:39,799 Speaker 1: December are saying, you know, it's still a pretty narrow 49 00:02:39,800 --> 00:02:42,359 Speaker 1: confidence range. You know, we we still think that there's 50 00:02:42,400 --> 00:02:44,760 Speaker 1: like a good chance they go in September, but we 51 00:02:44,800 --> 00:02:48,160 Speaker 1: think this slightly shifts things towards December. Gina helped me 52 00:02:48,200 --> 00:02:52,720 Speaker 1: with an issue I'm wrestling with. If they hauld in September, 53 00:02:52,720 --> 00:02:57,639 Speaker 1: but the projections released simultaneously continue to show at least 54 00:02:57,800 --> 00:03:02,000 Speaker 1: one dot for twenties sixteen that can only leave December. 55 00:03:02,120 --> 00:03:05,359 Speaker 1: So haven't they pre announced without doing it? Do they 56 00:03:05,360 --> 00:03:08,080 Speaker 1: get the worst of both worlds? It does kind of 57 00:03:08,080 --> 00:03:10,079 Speaker 1: mean they pre announced. I mean, theoretically they have one 58 00:03:10,080 --> 00:03:12,720 Speaker 1: more meeting in between September and December, and they could 59 00:03:12,760 --> 00:03:14,800 Speaker 1: hike then. But we know that a lot of people 60 00:03:14,800 --> 00:03:17,320 Speaker 1: speculate that they would never want to hike during a 61 00:03:17,320 --> 00:03:19,320 Speaker 1: meeting when they don't have a press conference following it, 62 00:03:19,560 --> 00:03:23,040 Speaker 1: um just because that might Royal markets. But yeah, it does. 63 00:03:23,120 --> 00:03:26,640 Speaker 1: It does kind of equate to pre announcing. The question 64 00:03:26,720 --> 00:03:29,000 Speaker 1: there though, I think, is, you know, does it actually 65 00:03:29,040 --> 00:03:31,239 Speaker 1: matter for the FT if they pre announced, Like are 66 00:03:31,280 --> 00:03:34,240 Speaker 1: they going to be really really hesitant to do that? 67 00:03:34,600 --> 00:03:36,280 Speaker 1: And I don't know if it does so much because 68 00:03:36,320 --> 00:03:38,000 Speaker 1: they we what we know about the FT is they 69 00:03:38,040 --> 00:03:41,280 Speaker 1: really take advantage of the speeches they give the public 70 00:03:41,360 --> 00:03:44,200 Speaker 1: to communicate with markets. They know that people watch them. 71 00:03:44,320 --> 00:03:46,600 Speaker 1: They're a where that they're constantly in the limelight, and 72 00:03:46,640 --> 00:03:48,440 Speaker 1: so I think that they feel like even if they 73 00:03:48,480 --> 00:03:51,560 Speaker 1: pre announced, if the situation dramatically changes, they can use 74 00:03:51,600 --> 00:03:54,320 Speaker 1: the chair speeches, the vice chair speeches, the president's speeches 75 00:03:54,520 --> 00:03:57,200 Speaker 1: to communicate that the situation is changed. All right, we 76 00:03:57,280 --> 00:04:01,840 Speaker 1: shall see now. Number two, what about this pace of payrolls. 77 00:04:01,840 --> 00:04:04,040 Speaker 1: You had a hundred and fifty one thousand being at it. 78 00:04:04,120 --> 00:04:07,240 Speaker 1: That was down from the average pace of the previous 79 00:04:07,320 --> 00:04:10,800 Speaker 1: two months. Of two hundred and seventy three thousand seems 80 00:04:10,840 --> 00:04:12,760 Speaker 1: like quite a drop, but there's there's a sense that 81 00:04:12,800 --> 00:04:15,160 Speaker 1: a hundred and fifty or so is still a pretty 82 00:04:15,160 --> 00:04:18,360 Speaker 1: good pace for the economy. Does this mean that we're 83 00:04:18,360 --> 00:04:20,720 Speaker 1: settling into a good groove here or that things are 84 00:04:20,720 --> 00:04:24,040 Speaker 1: falling further into a rut. This seems like the biggest 85 00:04:24,160 --> 00:04:26,640 Speaker 1: question out of this Peril's report to me, at least 86 00:04:27,120 --> 00:04:29,960 Speaker 1: um It is a downshift from what we saw the 87 00:04:30,000 --> 00:04:32,599 Speaker 1: prior to months, and it might signal that those two 88 00:04:32,600 --> 00:04:35,760 Speaker 1: months weren't a sustainable pace of growth for the labor market. 89 00:04:36,200 --> 00:04:38,279 Speaker 1: What we've seen from a lot of economists is a 90 00:04:38,320 --> 00:04:41,080 Speaker 1: speculation that as we near full employment, we're going to 91 00:04:41,080 --> 00:04:44,520 Speaker 1: settle into something more like one hundred thousand, one hifty thousand, 92 00:04:45,200 --> 00:04:48,120 Speaker 1: you know, path for employment games going forward. So the 93 00:04:48,160 --> 00:04:50,200 Speaker 1: real question is is this the beginning of that? Is 94 00:04:50,200 --> 00:04:53,360 Speaker 1: it's the leading edge of this full employment job gains 95 00:04:53,360 --> 00:04:57,360 Speaker 1: slow down? Jane. For all that the headline number disappointed 96 00:04:57,440 --> 00:05:01,880 Speaker 1: some economists, when you take a step, isn't it remarkable 97 00:05:01,960 --> 00:05:06,440 Speaker 1: how steady job creation the United States has been since 98 00:05:06,440 --> 00:05:10,000 Speaker 1: this expansion began in two thousand and nine, Compared with 99 00:05:10,080 --> 00:05:14,400 Speaker 1: other major economies. Yeah, you know, that is a good point. Um. 100 00:05:14,480 --> 00:05:16,880 Speaker 1: We we've had some blips, obviously, you can look at 101 00:05:16,920 --> 00:05:19,760 Speaker 1: me and see that, but overall we've seen a really 102 00:05:19,760 --> 00:05:22,560 Speaker 1: solid pace of job gains. And one fifty thousand is 103 00:05:22,600 --> 00:05:25,080 Speaker 1: by no means a bad number. You know. John Williams 104 00:05:25,080 --> 00:05:27,920 Speaker 1: at the San Francisco Fed estimates that anywhere between eighty 105 00:05:27,960 --> 00:05:30,560 Speaker 1: and a hundred thousand jobs at it a month would 106 00:05:30,600 --> 00:05:34,159 Speaker 1: keep unemployment pretty much stable or even declining. Um. And 107 00:05:34,240 --> 00:05:35,600 Speaker 1: so I think you need to do need to take 108 00:05:35,600 --> 00:05:38,280 Speaker 1: these numbers into context. You know, on fifty thousand might 109 00:05:38,320 --> 00:05:40,520 Speaker 1: not be what the Bloomberg consensus was looking for, but 110 00:05:40,600 --> 00:05:43,000 Speaker 1: it's it's by no means a bad number. Yeah. And 111 00:05:43,000 --> 00:05:44,760 Speaker 1: when you hear yeah, when you hear people saying that 112 00:05:44,800 --> 00:05:47,200 Speaker 1: e D is okay, you know, the only question is 113 00:05:47,560 --> 00:05:50,320 Speaker 1: if it goes down more and keeps going down, it 114 00:05:50,320 --> 00:05:52,279 Speaker 1: could be a problem. But right now that kind of 115 00:05:52,360 --> 00:05:55,640 Speaker 1: level probably doesn't concern the FED or people in the 116 00:05:55,680 --> 00:06:00,440 Speaker 1: broader economy at all. Okay, let's go to number three. White. 117 00:06:00,960 --> 00:06:04,440 Speaker 1: So one of the things that I think definitely hook 118 00:06:04,520 --> 00:06:07,280 Speaker 1: some shine off of what's not actually a terrible headline 119 00:06:07,360 --> 00:06:09,800 Speaker 1: number is the fact that we didn't see wages pick up, 120 00:06:09,800 --> 00:06:13,120 Speaker 1: and we actually saw them sort of backtread a little bit. Um. 121 00:06:13,200 --> 00:06:15,080 Speaker 1: We saw some pretty soft both month over month and 122 00:06:15,120 --> 00:06:16,880 Speaker 1: year over year readings, and that's bad news for the 123 00:06:16,880 --> 00:06:19,159 Speaker 1: FED because they've been hoping that as the labor market 124 00:06:19,160 --> 00:06:22,159 Speaker 1: titans and a seles eaten up, what we're going to 125 00:06:22,200 --> 00:06:24,840 Speaker 1: see is that come through two wages, like stronger wage gains. 126 00:06:24,839 --> 00:06:27,760 Speaker 1: Employers are working harder to find people and so their 127 00:06:27,800 --> 00:06:30,440 Speaker 1: hiking pay um because that can be a sort of 128 00:06:30,440 --> 00:06:32,240 Speaker 1: a leading edge for inflation, which is what the FED 129 00:06:32,320 --> 00:06:34,200 Speaker 1: really needs to see at this point. So I think 130 00:06:34,200 --> 00:06:36,800 Speaker 1: if there's one most negative thing about this report, it 131 00:06:36,880 --> 00:06:39,640 Speaker 1: is probably that wage number. Yeah, and it was a 132 00:06:39,640 --> 00:06:42,560 Speaker 1: pretty significant drop. You had it going from a two 133 00:06:42,560 --> 00:06:45,839 Speaker 1: point seven year over year increase in July to a 134 00:06:45,880 --> 00:06:50,839 Speaker 1: two point four percent increase in in August, and we 135 00:06:50,839 --> 00:06:54,560 Speaker 1: haven't seen a decrease of that magnitude in more than 136 00:06:54,600 --> 00:06:57,839 Speaker 1: a year. The number of hours people work during the 137 00:06:57,880 --> 00:07:01,719 Speaker 1: week also unexpectedly fell to the lowest level in more 138 00:07:01,720 --> 00:07:04,280 Speaker 1: than two years. And you know, there could be some 139 00:07:04,360 --> 00:07:07,800 Speaker 1: seasonal issues like this, but but this is definitely not 140 00:07:07,920 --> 00:07:11,480 Speaker 1: the direction that people at the FED or wherever or 141 00:07:11,480 --> 00:07:14,840 Speaker 1: anywhere I want to see wages going in because the 142 00:07:14,840 --> 00:07:17,400 Speaker 1: whole idea is, as the perils get stronger than the 143 00:07:17,440 --> 00:07:20,920 Speaker 1: wages should be picking up at a faster pace exactly. 144 00:07:20,920 --> 00:07:23,040 Speaker 1: And the really worrying thing about this is, you know, 145 00:07:23,080 --> 00:07:25,360 Speaker 1: there could have been some sort of seasonal effects, especially 146 00:07:25,360 --> 00:07:27,920 Speaker 1: because a lot of automakers retool in July and we 147 00:07:27,920 --> 00:07:29,960 Speaker 1: didn't see the kind of layoffs they normally have, so 148 00:07:30,040 --> 00:07:32,720 Speaker 1: that might have affected the hours numbers. They might have 149 00:07:32,720 --> 00:07:34,360 Speaker 1: looked stronger in July because of that, and then the 150 00:07:34,360 --> 00:07:36,640 Speaker 1: seasonal adjustment may have made them look weaker in August. 151 00:07:37,040 --> 00:07:39,440 Speaker 1: But the issue here is that that dropping hours and 152 00:07:39,480 --> 00:07:41,560 Speaker 1: the dropping wages was really broad based. So if you 153 00:07:41,600 --> 00:07:44,640 Speaker 1: look across industries, we saw it everywhere, um and that 154 00:07:44,720 --> 00:07:49,080 Speaker 1: sort of counters this whole seasonal adjustment or data cork idea. 155 00:07:49,360 --> 00:07:52,280 Speaker 1: So one thing to keep in mind. As our colleague 156 00:07:52,280 --> 00:07:55,440 Speaker 1: Michelle jam Risco spoke with the economists Stephen Stanley about 157 00:07:55,480 --> 00:07:58,320 Speaker 1: he likes to flag the idea that you know, everybody's 158 00:07:58,320 --> 00:08:01,040 Speaker 1: marked down their estimates of what the the economy can 159 00:08:01,160 --> 00:08:04,040 Speaker 1: grow at, you know, and where the federal funds rate 160 00:08:04,400 --> 00:08:07,240 Speaker 1: should be. Why don't they just mark down their estimates 161 00:08:07,240 --> 00:08:09,559 Speaker 1: of how fast wage growth is going to be. People 162 00:08:09,560 --> 00:08:12,040 Speaker 1: have it in their minds that wages should be able 163 00:08:12,040 --> 00:08:14,200 Speaker 1: to grow three percent in this kind of economy, and 164 00:08:14,240 --> 00:08:17,080 Speaker 1: we're only seeing gains a little a little over two percent. 165 00:08:17,480 --> 00:08:20,800 Speaker 1: So are we really in a new normal that people 166 00:08:20,800 --> 00:08:23,400 Speaker 1: should be aware of. Yeah, And I think one thing 167 00:08:23,440 --> 00:08:25,840 Speaker 1: to keep in mind is we're seeing really really tepid 168 00:08:25,920 --> 00:08:28,240 Speaker 1: productivity growth. It's hard to support wage growth if you 169 00:08:28,280 --> 00:08:31,160 Speaker 1: don't have to productivity growth. All right, Well, let's go 170 00:08:31,200 --> 00:08:36,360 Speaker 1: on to number four. The labor force participation rate that 171 00:08:36,520 --> 00:08:41,119 Speaker 1: actually held at sixty two point eight percent in August, 172 00:08:41,720 --> 00:08:45,360 Speaker 1: still seems to be plateau ing at a much lower 173 00:08:45,440 --> 00:08:48,920 Speaker 1: level than it was before the financial crisis. What's going 174 00:08:48,960 --> 00:08:52,480 Speaker 1: on here, Gina? Yeah, So it's it's interesting that the 175 00:08:52,800 --> 00:08:55,240 Speaker 1: participation rate isn't moving up, it's not moving down. It 176 00:08:55,240 --> 00:08:57,920 Speaker 1: seems to be holding pretty steady. I think that's actually 177 00:08:57,920 --> 00:09:01,160 Speaker 1: probably the best case scenario for if you're hoping for 178 00:09:01,200 --> 00:09:03,920 Speaker 1: a FED rate hike sometimes soon, because what it basically 179 00:09:03,920 --> 00:09:06,400 Speaker 1: says is, you know, the labor might strong enough to 180 00:09:06,480 --> 00:09:08,960 Speaker 1: keep this measure of slack steady. You know, we're not 181 00:09:09,040 --> 00:09:12,360 Speaker 1: having people get discouraged and just drop out entirely. But 182 00:09:12,400 --> 00:09:14,720 Speaker 1: at the same time, people who are sitting on the 183 00:09:14,760 --> 00:09:17,360 Speaker 1: test sidelines aren't coming back in anymore. You know, they're 184 00:09:17,360 --> 00:09:20,200 Speaker 1: probably out for some other sort of reason aside from slack, 185 00:09:20,520 --> 00:09:24,760 Speaker 1: maybe demographics, maybe something structural, like their skills are completely outdated, 186 00:09:24,800 --> 00:09:28,000 Speaker 1: but can't you know, can't be pulled back in. But regardless, 187 00:09:28,040 --> 00:09:29,960 Speaker 1: what it means is they're not a source of slack 188 00:09:30,040 --> 00:09:32,120 Speaker 1: to be absorbed anymore. So I think I think for 189 00:09:32,160 --> 00:09:35,439 Speaker 1: a rate hike, that's a pretty pretty clear signal and lastly, 190 00:09:37,040 --> 00:09:41,400 Speaker 1: broader economic implications. This was not the only major number 191 00:09:41,600 --> 00:09:45,000 Speaker 1: reported in the United States this week. We had disappointing 192 00:09:45,040 --> 00:09:50,319 Speaker 1: manufacturing numbers the day before. Now, look, Gina, why does 193 00:09:50,360 --> 00:09:56,280 Speaker 1: this matter? Manufacturing has been a ever retreating portion of 194 00:09:56,320 --> 00:10:00,440 Speaker 1: the world's largest economy, and manufacturing jobs didn't do well 195 00:10:00,480 --> 00:10:03,960 Speaker 1: in this report. Why do we care? We care because 196 00:10:04,040 --> 00:10:07,360 Speaker 1: manufacturing can be sort of a bell weather indicator for 197 00:10:07,400 --> 00:10:10,520 Speaker 1: the rest of the economy. It's a good gauge of 198 00:10:10,520 --> 00:10:13,880 Speaker 1: whether there's demand, whether there's corporate investment, um just sort 199 00:10:13,920 --> 00:10:16,960 Speaker 1: of a good broad based game indication that things are 200 00:10:16,960 --> 00:10:18,680 Speaker 1: about to pick up or things are about to slow down. 201 00:10:18,840 --> 00:10:20,599 Speaker 1: And what we're seeing is you know, I s M. 202 00:10:20,880 --> 00:10:23,720 Speaker 1: The manufacturing index slowed down quite a bit, and we 203 00:10:23,720 --> 00:10:25,440 Speaker 1: weren't sure whether that was a one off. We weren't 204 00:10:25,440 --> 00:10:27,439 Speaker 1: sure whether that's something that's going to be sustained or 205 00:10:27,640 --> 00:10:29,840 Speaker 1: you know, it was just a data quirk. And what 206 00:10:29,960 --> 00:10:33,959 Speaker 1: this report today showed us is that manufacturing definitely slowed 207 00:10:33,960 --> 00:10:36,479 Speaker 1: down in payrolls as well. So it sort of confirms 208 00:10:36,559 --> 00:10:40,240 Speaker 1: that crummy I s M number. Um. So again, it's 209 00:10:40,240 --> 00:10:41,679 Speaker 1: only a couple of data points. We're gonna have to 210 00:10:41,720 --> 00:10:43,280 Speaker 1: wait to see if this is a trend, but it's 211 00:10:43,320 --> 00:10:46,040 Speaker 1: something to be worried about. Gina. Let's have you back 212 00:10:46,080 --> 00:10:50,520 Speaker 1: next time we do a bonus economic episode. Thank you well, Thanks, 213 00:10:50,640 --> 00:10:53,439 Speaker 1: thanks a lot, thanks to Dan, thanks to Gina. Benchmark 214 00:10:53,480 --> 00:10:56,440 Speaker 1: will be back with our regular episode this weekend. Until then, 215 00:10:56,520 --> 00:10:58,960 Speaker 1: you can find us on the Bloomberg Terminal and Bloomberg 216 00:10:59,000 --> 00:11:02,480 Speaker 1: dot com. This l us on iTunes, pocket casts, and Stitcher. 217 00:11:02,880 --> 00:11:04,880 Speaker 1: You can talk to us and follow us on Twitter. 218 00:11:05,360 --> 00:11:08,080 Speaker 1: Gina is at at Gina Smile Like, and I'm at 219 00:11:08,120 --> 00:11:11,679 Speaker 1: at Scott Landman, and I'm at at Daniel Moss d C. 220 00:11:12,320 --> 00:11:13,120 Speaker 1: See you next time.