WEBVTT - Benchmark Special: Five Questions From the August Jobs Report

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<v Speaker 1>Hello, and welcome back to the Bloomberg Benchmark podcast, the

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<v Speaker 1>show about the global economy. I'm Scott Landman and economics

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<v Speaker 1>editor for Bloomberg News in Washington. I'm Daniel Moss, executive

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<v Speaker 1>editor for Global Economics in New York, and this is

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<v Speaker 1>a bonus episode joining us as Gina Smellick, who covers

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<v Speaker 1>economics in our Washington bureau, talking about the August jobs

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<v Speaker 1>report released Friday. Gina, thanks for taking the time out. Yeah,

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<v Speaker 1>thanks for having me. So, payrolls gained a hundred and

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<v Speaker 1>fifty one thousand in August, slightly less than forecast, while

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<v Speaker 1>wage growth moderated and other measures of slack held set.

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<v Speaker 1>We thought we'd talked about five questions that this report

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<v Speaker 1>raises for the economy and the federal reserve. Dan, do

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<v Speaker 1>you want to go with number one? Gina? This number

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<v Speaker 1>keeps alive expectations for a federal reserve rate increase this year.

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<v Speaker 1>But what does it due to the September versus December

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<v Speaker 1>guessing going? I think really at its core, what this

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<v Speaker 1>number does is it doesn't pass their hurdle rate for September.

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<v Speaker 1>So I was talking to Rebert Apparely, who's an economist

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<v Speaker 1>Tier in Washington earlier today, and he summed it up

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<v Speaker 1>pretty well. He said, you know, for a dove, this

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<v Speaker 1>doesn't change your mind. For hawk, this doesn't change your mind.

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<v Speaker 1>If you wanted to go in September, you still want

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<v Speaker 1>to go in September. If you didn't want to go

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<v Speaker 1>in September, you still don't. But what we've seen so

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<v Speaker 1>far this year is the doves have been carrying it.

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<v Speaker 1>So it could be the case that, you know, this

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<v Speaker 1>means that in September they're going to carry it again

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<v Speaker 1>and we're not going to see a rate increase. And

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<v Speaker 1>Roberto Pearly used to work at the federal so yes,

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<v Speaker 1>he did, so he has some definite insight. Some people

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<v Speaker 1>are saying that on the margins, this could it goes

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<v Speaker 1>both ways. It could cut stronger both ways. Some people

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<v Speaker 1>are saying this cements the idea that they don't move

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<v Speaker 1>in September and that they wait till September if they

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<v Speaker 1>have enough ammunition for that. And then, you know, it's

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<v Speaker 1>kind of surprised to see Goldman Sachs economist John Hatzi

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<v Speaker 1>is talking about how this actually raises the chances of

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<v Speaker 1>a September increase. They've said it's probability now up from

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<v Speaker 1>you know, the report was good enough, and as Janet

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<v Speaker 1>Yellen said last week, they're just really looking for data

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<v Speaker 1>that continue to confirm their outlook rather than change it. Yeah,

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<v Speaker 1>and I think it's an important point, Scott, Like you said,

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<v Speaker 1>you know, Jan's projection is for chance of a rate increase.

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<v Speaker 1>I think what we've seen across the board is none

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<v Speaker 1>of our economists are moving September who originally thought September

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<v Speaker 1>are moving September off of their charts in a really

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<v Speaker 1>significant way. You know. The ones who are shifting to

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<v Speaker 1>December are saying, you know, it's still a pretty narrow

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<v Speaker 1>confidence range. You know, we we still think that there's

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<v Speaker 1>like a good chance they go in September, but we

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<v Speaker 1>think this slightly shifts things towards December. Gina helped me

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<v Speaker 1>with an issue I'm wrestling with. If they hauld in September,

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<v Speaker 1>but the projections released simultaneously continue to show at least

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<v Speaker 1>one dot for twenties sixteen that can only leave December.

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<v Speaker 1>So haven't they pre announced without doing it? Do they

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<v Speaker 1>get the worst of both worlds? It does kind of

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<v Speaker 1>mean they pre announced. I mean, theoretically they have one

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<v Speaker 1>more meeting in between September and December, and they could

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<v Speaker 1>hike then. But we know that a lot of people

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<v Speaker 1>speculate that they would never want to hike during a

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<v Speaker 1>meeting when they don't have a press conference following it,

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<v Speaker 1>um just because that might Royal markets. But yeah, it does.

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<v Speaker 1>It does kind of equate to pre announcing. The question

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<v Speaker 1>there though, I think, is, you know, does it actually

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<v Speaker 1>matter for the FT if they pre announced, Like are

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<v Speaker 1>they going to be really really hesitant to do that?

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<v Speaker 1>And I don't know if it does so much because

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<v Speaker 1>they we what we know about the FT is they

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<v Speaker 1>really take advantage of the speeches they give the public

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<v Speaker 1>to communicate with markets. They know that people watch them.

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<v Speaker 1>They're a where that they're constantly in the limelight, and

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<v Speaker 1>so I think that they feel like even if they

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<v Speaker 1>pre announced, if the situation dramatically changes, they can use

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<v Speaker 1>the chair speeches, the vice chair speeches, the president's speeches

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<v Speaker 1>to communicate that the situation is changed. All right, we

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<v Speaker 1>shall see now. Number two, what about this pace of payrolls.

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<v Speaker 1>You had a hundred and fifty one thousand being at it.

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<v Speaker 1>That was down from the average pace of the previous

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<v Speaker 1>two months. Of two hundred and seventy three thousand seems

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<v Speaker 1>like quite a drop, but there's there's a sense that

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<v Speaker 1>a hundred and fifty or so is still a pretty

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<v Speaker 1>good pace for the economy. Does this mean that we're

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<v Speaker 1>settling into a good groove here or that things are

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<v Speaker 1>falling further into a rut. This seems like the biggest

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<v Speaker 1>question out of this Peril's report to me, at least

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<v Speaker 1>um It is a downshift from what we saw the

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<v Speaker 1>prior to months, and it might signal that those two

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<v Speaker 1>months weren't a sustainable pace of growth for the labor market.

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<v Speaker 1>What we've seen from a lot of economists is a

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<v Speaker 1>speculation that as we near full employment, we're going to

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<v Speaker 1>settle into something more like one hundred thousand, one hifty thousand,

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<v Speaker 1>you know, path for employment games going forward. So the

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<v Speaker 1>real question is is this the beginning of that? Is

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<v Speaker 1>it's the leading edge of this full employment job gains

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<v Speaker 1>slow down? Jane. For all that the headline number disappointed

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<v Speaker 1>some economists, when you take a step, isn't it remarkable

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<v Speaker 1>how steady job creation the United States has been since

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<v Speaker 1>this expansion began in two thousand and nine, Compared with

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<v Speaker 1>other major economies. Yeah, you know, that is a good point. Um.

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<v Speaker 1>We we've had some blips, obviously, you can look at

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<v Speaker 1>me and see that, but overall we've seen a really

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<v Speaker 1>solid pace of job gains. And one fifty thousand is

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<v Speaker 1>by no means a bad number. You know. John Williams

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<v Speaker 1>at the San Francisco Fed estimates that anywhere between eighty

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<v Speaker 1>and a hundred thousand jobs at it a month would

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<v Speaker 1>keep unemployment pretty much stable or even declining. Um. And

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<v Speaker 1>so I think you need to do need to take

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<v Speaker 1>these numbers into context. You know, on fifty thousand might

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<v Speaker 1>not be what the Bloomberg consensus was looking for, but

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<v Speaker 1>it's it's by no means a bad number. Yeah. And

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<v Speaker 1>when you hear yeah, when you hear people saying that

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<v Speaker 1>e D is okay, you know, the only question is

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<v Speaker 1>if it goes down more and keeps going down, it

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<v Speaker 1>could be a problem. But right now that kind of

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<v Speaker 1>level probably doesn't concern the FED or people in the

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<v Speaker 1>broader economy at all. Okay, let's go to number three. White.

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<v Speaker 1>So one of the things that I think definitely hook

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<v Speaker 1>some shine off of what's not actually a terrible headline

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<v Speaker 1>number is the fact that we didn't see wages pick up,

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<v Speaker 1>and we actually saw them sort of backtread a little bit. Um.

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<v Speaker 1>We saw some pretty soft both month over month and

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<v Speaker 1>year over year readings, and that's bad news for the

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<v Speaker 1>FED because they've been hoping that as the labor market

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<v Speaker 1>titans and a seles eaten up, what we're going to

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<v Speaker 1>see is that come through two wages, like stronger wage gains.

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<v Speaker 1>Employers are working harder to find people and so their

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<v Speaker 1>hiking pay um because that can be a sort of

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<v Speaker 1>a leading edge for inflation, which is what the FED

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<v Speaker 1>really needs to see at this point. So I think

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<v Speaker 1>if there's one most negative thing about this report, it

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<v Speaker 1>is probably that wage number. Yeah, and it was a

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<v Speaker 1>pretty significant drop. You had it going from a two

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<v Speaker 1>point seven year over year increase in July to a

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<v Speaker 1>two point four percent increase in in August, and we

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<v Speaker 1>haven't seen a decrease of that magnitude in more than

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<v Speaker 1>a year. The number of hours people work during the

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<v Speaker 1>week also unexpectedly fell to the lowest level in more

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<v Speaker 1>than two years. And you know, there could be some

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<v Speaker 1>seasonal issues like this, but but this is definitely not

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<v Speaker 1>the direction that people at the FED or wherever or

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<v Speaker 1>anywhere I want to see wages going in because the

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<v Speaker 1>whole idea is, as the perils get stronger than the

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<v Speaker 1>wages should be picking up at a faster pace exactly.

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<v Speaker 1>And the really worrying thing about this is, you know,

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<v Speaker 1>there could have been some sort of seasonal effects, especially

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<v Speaker 1>because a lot of automakers retool in July and we

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<v Speaker 1>didn't see the kind of layoffs they normally have, so

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<v Speaker 1>that might have affected the hours numbers. They might have

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<v Speaker 1>looked stronger in July because of that, and then the

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<v Speaker 1>seasonal adjustment may have made them look weaker in August.

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<v Speaker 1>But the issue here is that that dropping hours and

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<v Speaker 1>the dropping wages was really broad based. So if you

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<v Speaker 1>look across industries, we saw it everywhere, um and that

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<v Speaker 1>sort of counters this whole seasonal adjustment or data cork idea.

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<v Speaker 1>So one thing to keep in mind. As our colleague

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<v Speaker 1>Michelle jam Risco spoke with the economists Stephen Stanley about

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<v Speaker 1>he likes to flag the idea that you know, everybody's

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<v Speaker 1>marked down their estimates of what the the economy can

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<v Speaker 1>grow at, you know, and where the federal funds rate

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<v Speaker 1>should be. Why don't they just mark down their estimates

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<v Speaker 1>of how fast wage growth is going to be. People

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<v Speaker 1>have it in their minds that wages should be able

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<v Speaker 1>to grow three percent in this kind of economy, and

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<v Speaker 1>we're only seeing gains a little a little over two percent.

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<v Speaker 1>So are we really in a new normal that people

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<v Speaker 1>should be aware of. Yeah, And I think one thing

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<v Speaker 1>to keep in mind is we're seeing really really tepid

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<v Speaker 1>productivity growth. It's hard to support wage growth if you

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<v Speaker 1>don't have to productivity growth. All right, Well, let's go

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<v Speaker 1>on to number four. The labor force participation rate that

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<v Speaker 1>actually held at sixty two point eight percent in August,

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<v Speaker 1>still seems to be plateau ing at a much lower

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<v Speaker 1>level than it was before the financial crisis. What's going

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<v Speaker 1>on here, Gina? Yeah, So it's it's interesting that the

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<v Speaker 1>participation rate isn't moving up, it's not moving down. It

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<v Speaker 1>seems to be holding pretty steady. I think that's actually

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<v Speaker 1>probably the best case scenario for if you're hoping for

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<v Speaker 1>a FED rate hike sometimes soon, because what it basically

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<v Speaker 1>says is, you know, the labor might strong enough to

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<v Speaker 1>keep this measure of slack steady. You know, we're not

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<v Speaker 1>having people get discouraged and just drop out entirely. But

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<v Speaker 1>at the same time, people who are sitting on the

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<v Speaker 1>test sidelines aren't coming back in anymore. You know, they're

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<v Speaker 1>probably out for some other sort of reason aside from slack,

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<v Speaker 1>maybe demographics, maybe something structural, like their skills are completely outdated,

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<v Speaker 1>but can't you know, can't be pulled back in. But regardless,

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<v Speaker 1>what it means is they're not a source of slack

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<v Speaker 1>to be absorbed anymore. So I think I think for

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<v Speaker 1>a rate hike, that's a pretty pretty clear signal and lastly,

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<v Speaker 1>broader economic implications. This was not the only major number

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<v Speaker 1>reported in the United States this week. We had disappointing

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<v Speaker 1>manufacturing numbers the day before. Now, look, Gina, why does

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<v Speaker 1>this matter? Manufacturing has been a ever retreating portion of

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<v Speaker 1>the world's largest economy, and manufacturing jobs didn't do well

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<v Speaker 1>in this report. Why do we care? We care because

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<v Speaker 1>manufacturing can be sort of a bell weather indicator for

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<v Speaker 1>the rest of the economy. It's a good gauge of

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<v Speaker 1>whether there's demand, whether there's corporate investment, um just sort

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<v Speaker 1>of a good broad based game indication that things are

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<v Speaker 1>about to pick up or things are about to slow down.

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<v Speaker 1>And what we're seeing is you know, I s M.

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<v Speaker 1>The manufacturing index slowed down quite a bit, and we

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<v Speaker 1>weren't sure whether that was a one off. We weren't

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<v Speaker 1>sure whether that's something that's going to be sustained or

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<v Speaker 1>you know, it was just a data quirk. And what

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<v Speaker 1>this report today showed us is that manufacturing definitely slowed

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<v Speaker 1>down in payrolls as well. So it sort of confirms

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<v Speaker 1>that crummy I s M number. Um. So again, it's

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<v Speaker 1>only a couple of data points. We're gonna have to

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<v Speaker 1>wait to see if this is a trend, but it's

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<v Speaker 1>something to be worried about. Gina. Let's have you back

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<v Speaker 1>next time we do a bonus economic episode. Thank you well, Thanks,

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<v Speaker 1>thanks a lot, thanks to Dan, thanks to Gina. Benchmark

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<v Speaker 1>will be back with our regular episode this weekend. Until then,

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<v Speaker 1>you can find us on the Bloomberg Terminal and Bloomberg

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<v Speaker 1>dot com. This l us on iTunes, pocket casts, and Stitcher.

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<v Speaker 1>You can talk to us and follow us on Twitter.

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<v Speaker 1>Gina is at at Gina Smile Like, and I'm at

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<v Speaker 1>at Scott Landman, and I'm at at Daniel Moss d C.

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<v Speaker 1>See you next time.