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