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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot Com and of course on the Bloomberg Terminal. Now

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Speaker 1: with the Secretary of Labor here on a job stay

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Speaker 1: in the shock of good employment are John Farrell bun

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Speaker 1: Jonathan Farrell. I'm pleased to say that joining us now

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Speaker 1: from Washington is the US Labor Secretary Mary World Secondary

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Speaker 1: worldsh fantasticy. Catch up with you, sir. Another strong jobs report.

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Speaker 1: As you know, this has been a very very strong

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Speaker 1: labor market in America and labor is meant to have

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Speaker 1: the leverage in this world. And secondly, Welsh, we've got

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Speaker 1: to go to the union question. Should unions have the

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Speaker 1: right to strike? That's all, you have the right to strike.

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Speaker 1: I think that unions have the right to strike UH

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Speaker 1: in almost every collector bagging agreement. UH, in this particular caation.

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Speaker 1: Next question will probably about the rail so I want

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Speaker 1: to anticipate it. UH. The National Railway Act has a

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Speaker 1: provision in it that allows the president to get involved

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Speaker 1: in the negotiation when asked and the unions asked him

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Speaker 1: to get involved in this, he put together a Presidential

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Speaker 1: Emergency Board. They came back with some recommendations. I had

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Speaker 1: that twenty hour negotiation of my office. We added some

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Speaker 1: more benefits to the contract. It went in front of

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Speaker 1: the members. Uh, state of the union's voted for it.

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Speaker 1: For the unions vote against it. I tried to get

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Speaker 1: both sides to stay at the table and negotiate over

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Speaker 1: sick time, and there's some work condition rules as well. Uh.

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Speaker 1: They weren't able to get to an agreement. And the

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Speaker 1: next step in the Railway Act is is Congress to

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Speaker 1: take action, and that's what they did yesterday. Well in

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Speaker 1: place you anticipate today because you said, well, at once

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Speaker 1: for us, on the one hand, you think they should

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Speaker 1: have the right to strike, and on the other hand,

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Speaker 1: you take away the right to strike. Can you make

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Speaker 1: sense of that for us? Yeah? Well, I mean it's

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Speaker 1: it's the way that the law is, the Railway Act is.

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Speaker 1: And you know, when I look at this contract, we

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Speaker 1: spent a lot of time. I spent a lot of

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Speaker 1: time myself. But the unions in particular, it's been a

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Speaker 1: lot of time at the negotiating table and and and

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Speaker 1: there's some very good provisions in the contract. It wasn't

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Speaker 1: like it was a bad contract. Increase split on healthcare,

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Speaker 1: which they preserved. They were able to get some work

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Speaker 1: rules changes, they were able to get three unpaid days off.

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Speaker 1: The issue of sick time needs to be content. The

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Speaker 1: companies need to sit down with the unions now and

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Speaker 1: have a serious conversation about two issues. One is sick days,

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Speaker 1: paid sick days, and the second issue is manpower and

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Speaker 1: and power on on the work on on the rails.

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Speaker 1: They were down about over the last several years. And

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Speaker 1: that's a big issue when it comes to the safety

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Speaker 1: and health of the workers on the job. So I'm

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Speaker 1: going to encourage both sides now to to get right

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Speaker 1: back at it uh and and have those conversations now

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Speaker 1: and and move forward in a positive ways. Wolves there

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Speaker 1: is a key distinction, an important distinction to nightcare, and

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Speaker 1: it's the way the law can work. It's not necessarily

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Speaker 1: the way the law has to work. You've chosen to

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Speaker 1: make this decision. Happened to you, this was a choice. Well,

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Speaker 1: I know, I don't necessarily. I think there was a

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Speaker 1: lot the factors there too. You're talking about the economy

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Speaker 1: and you're talking about supply chain, and we've had challenges

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Speaker 1: in our country with with shortage of baby formula, formula.

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Speaker 1: We've gone through a pandemic where we had shortage supplies

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Speaker 1: coming in. And what this would have done to the

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Speaker 1: American people, Uh, never mind the American economy. It would

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Speaker 1: have crippled a lot of people because we wouldn't have food.

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Speaker 1: It would have shortened food on the shelves. UH, supplies

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Speaker 1: coming in. Uh. This is also as much of making

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Speaker 1: sure that our economy and the American people move forward

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Speaker 1: than anything else too. So again, I'm very sympathetic to

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Speaker 1: to the to the workers out there, and that's why

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Speaker 1: the President, when he, at their request, put the Presidential

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Speaker 1: Emergency Board together, came back with a very good recommendations

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Speaker 1: on behalf not everything. But in negotiations, I'm negotiated contracts

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Speaker 1: where I've gotten good, good contracts. I've negotiated contracts where

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Speaker 1: i haven't gotten everything I've wanted either height, sickly, it's

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Speaker 1: something you have, is something that I have? How can

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Speaker 1: those rail work way work has ever secure the benefits

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Speaker 1: that you claim to support without the credible threat to strike.

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Speaker 1: I hope you have the companies on this show and

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Speaker 1: ask them that same question and not ask me today

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Speaker 1: after the Congress took actually yesday, because I think that's

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Speaker 1: a very important question. You need to ask the companies

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Speaker 1: why why that's not offered to their employees across the board.

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Speaker 1: But in saying that, I intend on sitting down with

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Speaker 1: the companies and talking to them about a couple of

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Speaker 1: things that during the negotiations that that I heard from

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Speaker 1: the unions about the concerns that they had about their

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Speaker 1: workers have uh, And I intend on bringing that up

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Speaker 1: and talking to them about it. And in the next contract,

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Speaker 1: this contract expires, so we've already they're already working three

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Speaker 1: years without a contract. So as they head into the

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Speaker 1: next negotiation, this should be the top priority. And you

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Speaker 1: don't have the way for a negotiation. The companies can

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Speaker 1: offer up paid sick time anytime they want. You've just

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Speaker 1: made it even easier in the next negotiations stuff, haven't you,

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Speaker 1: Because we know the endgame here if you're on the

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Speaker 1: other side of that deal that negotiations secretly wolves one

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Speaker 1: Earth with a company sign up to any of that stuff. Well,

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Speaker 1: we know what's going to happen here. Ultimately they can

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Speaker 1: just say no, and then it comes to the president.

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Speaker 1: The President says, okay, we'll impost this deal on you. Now,

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Speaker 1: you how negotiations work. That's not how it works. I

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Speaker 1: mean they just played out so in the last couple

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Speaker 1: of months. What do you mean, That's not how it works.

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Speaker 1: That's how it's played out. That's that's how it works.

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Speaker 1: That the Congress has interacted over eighteen times where the

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Speaker 1: PEB recommendation recommended the PEB, Congress enforced a PB that

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Speaker 1: was not pro worker at all. It didn't have wage increases,

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Speaker 1: didn't have preservation of healthcare premiums, it didn't have work conditions,

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Speaker 1: that didn't have unpaid days off, it didn't have any

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Speaker 1: of that. And Congress came in and again, this stuff

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Speaker 1: hasn't happened at the bargaining table. And that's why the

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Speaker 1: companies need to come to the bargaining table out earlier.

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Speaker 1: In this particular case, they didn't come to the table

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Speaker 1: till till I think eighteen months after the contract expired,

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Speaker 1: and they would have had now that they're gonna have to.

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Speaker 1: I think that they they You know, a lot of

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Speaker 1: the CEOs have made comments already about the need to

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Speaker 1: better relations with their workers in the in the unions

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Speaker 1: on their jobs. It's likely, well, she wan, I can

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Speaker 1: go back and forth on this a lot. The President

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Speaker 1: of being not his States, intended to be quite what

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Speaker 1: he said his words, the most pro union president leading

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Speaker 1: to the most pro union administration in American history. Right.

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Speaker 1: The fact of the matter is what it came down to.

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Speaker 1: It your forced union members to take a contract they

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Speaker 1: didn't vote for. How do you explain this in any

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Speaker 1: other wide, shapeful form. I just understand it. The President

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Speaker 1: of the United States America is very pro union, There's

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Speaker 1: no question about it. He talks about it very publicly,

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Speaker 1: and he's very proud of that. He's also the president

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Speaker 1: United States of America. And when you look at what

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Speaker 1: with the devastation a national rail strike would cause America, uh,

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Speaker 1: that far outweighs that the cost of moving forward. The

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Speaker 1: President put together a p EB. There's a lot of

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Speaker 1: benefits in that PEB. Good good provisions in that PEB

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Speaker 1: that are going to benefit these union workers out there.

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Speaker 1: And there's no question about that. I'm a union worker,

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Speaker 1: union member myself. I understand that, and at the end

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Speaker 1: of the day, the President got a very good deal

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Speaker 1: on the table for the workers. However, the workers wanted

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Speaker 1: one more in that deal, and I could understand and

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Speaker 1: sympathize with the workers. But what we'll do is we're

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Speaker 1: going to continue to work now as an administration to

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Speaker 1: make sure that we helped them achieve their ultimate goal.

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Speaker 1: What message do you think this sends to the ongoing

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Speaker 1: light the contract talks with West coastalk Workers Secondary Welsh,

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Speaker 1: I mean the West Coast Dark Workers. They're in current negotiation,

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Speaker 1: and that they have their own bargaining issues that they're

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Speaker 1: working on and then moving forward on that issue, having

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Speaker 1: those conversations, those dialogues, the differences the companies in the

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Speaker 1: Dark Workers came to the table the beginning of the negotiation,

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Speaker 1: not halfway through it. You've been quite constructive on how

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Speaker 1: these talks will go on the West Coast. What are

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Speaker 1: the lessons to learn Secondary World from the last couple

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Speaker 1: of months with the railroad workers, where you were also

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Speaker 1: equally constructive on how this would turn out. What are

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Speaker 1: the lessons learned for you personally over the last several months.

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Speaker 1: Unfortunately for the rail unions. I didn't really get involved

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Speaker 1: until pretty much they were through negotiations, meaning they were

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Speaker 1: not able to get deals done. I got involved a

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Speaker 1: little bit there. Then the unions came and asked asked

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Speaker 1: the President to put the PTB on the board, and

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Speaker 1: they were able to negotiate stuff and on. On the

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Speaker 1: port negotiation, I've been in it from the beginning, meaning

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Speaker 1: I've had conversations with the companies. I'm in regular contact

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Speaker 1: with the companies on the on the West Coast. I'm

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Speaker 1: in regular contact with the unions on the West Coast,

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Speaker 1: just to make sure that they're moving forward. And I

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Speaker 1: think that the relationships are a little different than than

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Speaker 1: between the rail the rail construction, the rail companies and

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Speaker 1: the rail workers unions. Secondly, Welsh, and now you have

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Speaker 1: to go out, said, because there's a bill to sign

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Speaker 1: with the President of the United States, attend fifteen bastant

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Speaker 1: time you've got to run. We always appreciate your time.

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Speaker 1: Thanks for the AMUS. This Friday morning, Labor Secondary Mary Welsh,

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Speaker 1: following what was a tremendous jobs report, John Ferrell with

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Speaker 1: the Secretary of Labor Randa Crossing with his professor Crosser

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Speaker 1: in the booth School Chicago as well. Ready you and

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Speaker 1: I can talk about the algebra standard there forget about it.

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Speaker 1: Do we have any understanding of the veracity of our

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Speaker 1: statistics given the new America, the new technology out there.

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Speaker 1: Are we making this up as we go or can

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Speaker 1: we really get estimate forward? Was some good faith? I

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Speaker 1: think we have reasonable, um uh reasonable insight into that.

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Speaker 1: But of course, as you said, there are a lot

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Speaker 1: of changes things are now. We're bouncing out of a

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Speaker 1: very unusual period with COVID shutdowns. Of course there's uncertainty

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Speaker 1: that that's there. But I think as we were talking

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Speaker 1: about before, and as I had said before, the FED

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Speaker 1: is going to keep at it until the labor market cracks.

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Speaker 1: The labor market has not cracked. Wages are still going

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Speaker 1: up at a very rapid clip, and the FED can't

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Speaker 1: stop until the labor market starts to slow down because otherwise, um,

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Speaker 1: you're gonna see wage inflation continues strong, You're going to

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Speaker 1: see services um services prices continue to go up. And

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Speaker 1: so they're going to keep at it. And as I said,

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Speaker 1: I think they're gonna keep at it until they get

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Speaker 1: at least into the mid mid fives in UM in

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Speaker 1: the next year, and Jay is hoping and he talked

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Speaker 1: about this what I call it an immaculate disinflation, that is,

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Speaker 1: could we bring the inflation can rate down without having

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Speaker 1: a significant rise the unemployment rate. The only way they

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Speaker 1: can do that is if wages start to come down,

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Speaker 1: if more people come into the labor market, if demand

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Speaker 1: starts to come down. We haven't seen that yet, so

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Speaker 1: it doesn't look like an immaculate disinflation. Interests are gonna

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Speaker 1: have to continue to rise. Fetch your j Powell pointing

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Speaker 1: to accelerated or brought forward retirements is a big driver

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Speaker 1: of why we are not seeing the participation rate go

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Speaker 1: back while people are not coming back into the labor market.

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Speaker 1: What did you make of his comments around that that

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Speaker 1: this week. Well, I think you know that was his

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Speaker 1: hope that maybe if if there's more supply coming into

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Speaker 1: the labor market, that will help to take some of

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Speaker 1: the heat out of out of wages. Well, we're not

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Speaker 1: seeing a lot of evidence of that now, and he

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Speaker 1: was sort of hinting at I was hoping for that,

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Speaker 1: don't really seem to see it. So the only way

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Speaker 1: that we can do this is to have slow down

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Speaker 1: in demand that will slow down the demand for workers

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Speaker 1: and slow down those those wage increases. He's still hoping,

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Speaker 1: but we've never had an immaculate disinflation before. I don't

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Speaker 1: want to say it's impossible, but but it's uh. I

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Speaker 1: think it's not very likely. Randy Crossing, whether it's the

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Speaker 1: course of the Boos School of Chicago and moments Jeffrey

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Speaker 1: Rosenberg will join us as well from Black Rock. We

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Speaker 1: welcome all of you on radio and television of the

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Speaker 1: shock of this job to day futures. The negative sixty

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Speaker 1: one is John Farrell mentions two year yield exploding out

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Speaker 1: John and a cup of coffee, a sip of tang.

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Speaker 1: We've gone from fourteen basis points out to seventeen basis

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Speaker 1: points higher two year years a full faulty still bellow

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Speaker 1: the highs of the week, but back to full faulty

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Speaker 1: and with the old up at the front end. So

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Speaker 1: how much you can imagine Equity's down features by one

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Speaker 1: point five percent on the SMP and that doll a

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Speaker 1: stronger by about seven tenths of one percent on the

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Speaker 1: x Y. To see this, folks, we're all wired in,

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Speaker 1: but none of us is wired in. Like Michael McKee

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Speaker 1: he's looking there at the BLS data I'm looking over

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Speaker 1: just because I got a test. I'm going like, what

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Speaker 1: I'm looking at? What do you what is the single day?

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Speaker 1: Do you see in the pages that you go through? Well,

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Speaker 1: I'm just trying to do the math here. The interesting

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Speaker 1: thing about the hiring here is you might not be

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Speaker 1: surprised that there were twenty construction jobs added. Uh, We've

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Speaker 1: got a lot of rebuilding to do down in Florida.

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Speaker 1: But what month is it? It's November and we lost

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Speaker 1: jobs in retailing. Thirty thousand jobs lost in retailing. That

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Speaker 1: just seems very odd to me that we don't have

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Speaker 1: as many people doing the retail work at at Hollis Amazon.

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Speaker 1: It could be I can go back and look here.

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Speaker 1: One of the things you want to look at is

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Speaker 1: the uh UM under transportation warehousing and UH and and

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Speaker 1: couriers and that couriers and warehousing. We're down uh twelve

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Speaker 1: point four thousand. So at this point it's kind of

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Speaker 1: hard to see. My son made a lot of highs

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Speaker 1: in that world. But the last couple of years, yeah,

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Speaker 1: I mean, but they don't seem to have added a

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Speaker 1: lot of people. And that's kind of kind of a

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Speaker 1: little strange. You have to dig into that a little

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Speaker 1: bit further. We'll do that in about twenty minutes time.

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Speaker 1: Becase is going to break down the jobs numbers for

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Speaker 1: us as we out towards the up and about. Then

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Speaker 1: we're gonna hear from this line up, fantastic lineup going

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Speaker 1: into the open, Muhammad Erin of Bloomberg Opinion and a

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Speaker 1: whole lot more and Rick Raider black Rock. Then we're

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Speaker 1: here from Anna Stagia Amarosa of my Capital, Mike Collinto,

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Speaker 1: Phim and you hear from Secondary Welsh. Tom responded, these

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Speaker 1: numbers at about eastern time, maybe our most important conversation

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Speaker 1: with the Secretary of Labor given the railroad, theatrics of America,

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Speaker 1: harkening back to eighteen seventies seven. Thank you so much

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Speaker 1: Randa Crossing for being with. We bring in really at

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Speaker 1: a telling point given bond market movement. Jeffrey Rosenberg joins

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Speaker 1: us now from black Rock. Jeff Rosenberg, I look at

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Speaker 1: the volatility and I don't want to quite it over

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Speaker 1: to the news on Bridgewater and they're challenging fourth quarter.

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Speaker 1: How do you run fixed income money right now? I

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Speaker 1: don't have a clue. Well, you know, one of the

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Speaker 1: biggest challenges is what we're seeing in the in the

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Speaker 1: reaction to this surprise the upside, and particularly as you

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Speaker 1: guys have highlighted, it's the wage data that that's driving it.

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Speaker 1: But what you see is stocks are down and bond

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Speaker 1: yields are up, and and that's the kind of uh correlation,

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Speaker 1: a positive correlation UH in in terms of both going

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Speaker 1: down at the same time. That is that is so

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Speaker 1: challenging for investors, and I think it's a reminder. You know,

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Speaker 1: what we learned from Chair Powell in the speech earlier

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Speaker 1: this week is that the most important determinant for inflation

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Speaker 1: going forward is going to be the services component. And

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Speaker 1: what drives that services component is wages. And so what

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Speaker 1: we might be starting to to get a hint of here,

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Speaker 1: and it was in a little bit of the earlier conversation. Yeah, yeah,

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Speaker 1: wages are not wages. Sorry. Inflation is coming down because

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Speaker 1: of all those underlying components, the supply side, the goods picture,

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Speaker 1: the discussion around the lagged impact of housing. None of

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Speaker 1: that matters. What matters is a wage price spiral and

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Speaker 1: so upside here you bring that out today, Jeff. What

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Speaker 1: matters is is this is this wage price, uh, and

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Speaker 1: what we're seeing in the wages, and so I think

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Speaker 1: that's the most important takeaway. And the challenge to get

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Speaker 1: back to your questions is that inflation really undermines the

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Speaker 1: relationship between stock bond correlation. But can't get back to

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Speaker 1: that until we settle it busted. Jeff Rosenberg chops, this

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Speaker 1: is what happens when you study with Meltzer and good

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Speaker 1: friend at Carnegie Mellon you start talking about it. He

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Speaker 1: has a point, though, Tom, let me jump in here

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Speaker 1: quickly and tell you I did the calculations. Private service

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Speaker 1: industry jobs. Wages were up eight tenths of a percent.

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Speaker 1: Will goods producing jobs were up four tenths. So what

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Speaker 1: j Pal said about service industry jobs driving wages higher

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Speaker 1: because they can't find employees is definitely showing up in

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Speaker 1: the wage data, it appears. Which composition really raises a

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Speaker 1: question as well, And Randy Krasner, I'd love you weighing

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Speaker 1: in on that. Whether there's a compositional aspect where people

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Speaker 1: on the higher ends are getting hired and there's a shortage,

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Speaker 1: especially with the retirees, and on the lower ends, perhaps

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Speaker 1: it's a different picture. What's your sense of how much

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Speaker 1: that's contributing to the unexpectedly high rise in wage inflation.

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Speaker 1: Jeff Rosenberg, what's your sense of that? Excuse me, sorry,

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Speaker 1: I thought Randy might have been might have been off,

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Speaker 1: But I'll take that. Yeah, you always have to look

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Speaker 1: at the compositional effects here, and certainly, uh, there may

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Speaker 1: be some of that as as Mike highlighted with the

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Speaker 1: with the retail numbers down and the warehouse numbers down

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Speaker 1: and and like, some of that can be seasonals. So

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Speaker 1: that's something we'll have to look in. So there is

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Speaker 1: definitely when you look at the high frequency data on

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Speaker 1: a month a month basis, you can get a mixed

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Speaker 1: shift and that may be pushing up this number, this

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Speaker 1: point by five number. Nevertheless, you know, the bigger takeaway

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Speaker 1: if you abstract, if you smooth out from the monthly variations,

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Speaker 1: is that the twelve month run weight a run rate

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Speaker 1: of wage inflation is still above five percent. And so

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Speaker 1: this is really the challenge. And so we're gonna get

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Speaker 1: away at some point from this debate about fifty or

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Speaker 1: seventy five or really the pace and the issue is,

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Speaker 1: is the level of rates restrictive enough that's really going

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Speaker 1: to be the debate because right now in the bond curve,

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Speaker 1: the market is expecting rates to be cut by the

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Speaker 1: second half of two thousand twenty three. So there's a

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Speaker 1: real disconnect between an expectation that we can see the

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Speaker 1: Fed have success on inflation so much so that they

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Speaker 1: can turn and start cutting rates, versus what we're seeing

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Speaker 1: in the data today, which is none of the impact.

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Speaker 1: Now there's long and variable lax here, so that's gonna

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Speaker 1: make it challenging. But the reality is, and that's what

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Speaker 1: you're seeing in the reaction the front end of the

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Speaker 1: curve is that we still have a significant inflation problem

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Speaker 1: in the most important driver of inflation, which is in wages.

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Speaker 1: And Jeff, I got a ways to go here and

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Speaker 1: I'm gonna do this and particularly with your heritage at

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Speaker 1: Tuppern and Karnie Melon. And the bottom line is we've

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Speaker 1: been year before. There's a belief out there by a

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Speaker 1: lot of people that are financial world and maybe even

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Speaker 1: our social world is going to fall apart with higher

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Speaker 1: real rates, higher nominal rates, etcetera. That we've lived this before,

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Speaker 1: we've been here before. What do you presume will we

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Speaker 1: will we look like financially with a five percent federate. Well,

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Speaker 1: we're seeing that right now in terms of some of

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Speaker 1: the implications of a withdrawal of liquidity, which you've seen

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Speaker 1: in the tech sector, what you're seeing in terms of

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Speaker 1: some of the early stage venture and the impacts that

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Speaker 1: has had and seen from a withdrawal of liquidity, and

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Speaker 1: certainly in my markets in the bond markets, the repricing

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Speaker 1: from zero to a positive real interest rate or certainly

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Speaker 1: a positive nominal interest rate with inflation staying sticky, it's

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Speaker 1: hard to see the positive real interest rate, you know,

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Speaker 1: is significant negative returns and fixed income. Now, the good

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Speaker 1: news going forward is that a just and from zero

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Speaker 1: to the four basis point increases that we've seen this

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Speaker 1: year is a one time effect, and so the negative

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Speaker 1: returns and fixed income are hard to repeat a second

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Speaker 1: year going because you start with a lot a lot

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Speaker 1: higher incomes. So one of the positive aspects here away

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Speaker 1: from the significant challenges everywhere else in financial markets, is

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Speaker 1: that cash has a yield associated with it. Whether that's

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Speaker 1: a real heeld after inflation depends on the outlook for inflation,

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Speaker 1: but certainly there's a much better opportunity set in cash

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Speaker 1: in the front end of the yield curve and then

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Speaker 1: helps to give a little bit of a place to

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Speaker 1: hide while we see a lot of the implications of

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Speaker 1: your question, a much higher nominal interest rate across financial

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Speaker 1: markets play out as they as it continues to play out, Jeff,

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Speaker 1: I'm just looking at the market movements here and just

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Speaker 1: a whip saw that we've seen in the benchmark instruments

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Speaker 1: like rates like two year yields up now fourteen basis points.

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Speaker 1: Now suddenly people gaming back out that five peak fed

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Speaker 1: funds rate. If we haven't seen a liquidity issis yet,

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Speaker 1: if we haven't seen a financial system accident, what's going

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Speaker 1: to trigger it? Given that we have seen such incredible

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Speaker 1: volatility on the backs of some of these numbers. Yeah,

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Speaker 1: you know, we we've seen sort of a rolling sequencing

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Speaker 1: of kind of smaller fires. Uh. It's sort of like

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Speaker 1: the analogy small fires, small fires, small forest fires prevent

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Speaker 1: large forest fires. Uh. So I think some of that

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Speaker 1: is helping to ease some of the broader concerns. I

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Speaker 1: think the other thing is that there's an anchoring to

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Speaker 1: the global financial crisis as sort of the metric of

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Speaker 1: what what does a liquidity crisis look like? And that

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Speaker 1: was a very particular one, and we've done a lot

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Speaker 1: of things to mitigate that type of event from happening again,

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Speaker 1: so the centerpiece of a liquidity crisis doesn't necessarily flow

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Speaker 1: through the regulated financial markets. What we saw in the

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Speaker 1: UK with the l d I crisis earlier this year,

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Speaker 1: earlier this fall is exactly this this point, um, So

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Speaker 1: you have seen some of those implications and and you know,

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Speaker 1: I think we'll continue to see these kind of smaller

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Speaker 1: forest fires as opposed to the big fire. Jeff Rosenberg,

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Speaker 1: thank you so much of black Park, really really appreciate it.

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Speaker 1: Just a really exceptionally interesting and nuanced report to summarize

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Speaker 1: not only the job statistic better than good, better job formation,

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Speaker 1: but the revision the same way as well. Fall Street

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Speaker 1: and I were talking folks about, you know where we

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Speaker 1: were on the jobs report, and the whisper number was

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Speaker 1: quieter and got it out, it out and boom, seven

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Speaker 1: people got it right. And one of them it was

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Speaker 1: Tiffany Welding. It's one of those days where Tiffany can

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Speaker 1: lean back and go, I think I'll take the rest

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Speaker 1: of the day off, she joins us. Right now, Tiffany,

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Speaker 1: what did the gloom crew get wrong? What did they

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Speaker 1: get wrong about wage growth? And what did they get

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Speaker 1: wrong about a two month buoyant American job formation? Well,

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Speaker 1: and I'm gonna I'm gonna be I guess maybe a

430
00:22:11,880 --> 00:22:15,600
Speaker 1: little bit counterintuitive here because the headline numbers were certainly

431
00:22:15,760 --> 00:22:18,080
Speaker 1: very strong, But once I kind of popped the hood

432
00:22:18,080 --> 00:22:20,199
Speaker 1: and looked under the details, I actually kind of got

433
00:22:20,240 --> 00:22:22,560
Speaker 1: a little bit more worried. Um. So one of the

434
00:22:22,640 --> 00:22:24,680
Speaker 1: key things I think with this report that's that's kind

435
00:22:24,680 --> 00:22:28,159
Speaker 1: of being missed is that the response rates were actually

436
00:22:28,280 --> 00:22:30,760
Speaker 1: very low. They were the lowest that we've seen since

437
00:22:30,800 --> 00:22:36,080
Speaker 1: the nineties. And that's what's the response rate that it

438
00:22:36,240 --> 00:22:38,600
Speaker 1: roads college when you do economics, this is what you

439
00:22:38,680 --> 00:22:41,280
Speaker 1: do the response rate. Just figure you can float right

440
00:22:41,320 --> 00:22:44,080
Speaker 1: over what's the response rate? You you care about the

441
00:22:44,160 --> 00:22:47,720
Speaker 1: survey response rates, right because, um, you know, when people

442
00:22:47,760 --> 00:22:51,040
Speaker 1: aren't responding to the survey, you're never really sure why

443
00:22:51,200 --> 00:22:54,119
Speaker 1: is it because they're you know, their establishment closed it

444
00:22:54,200 --> 00:22:56,600
Speaker 1: because it is because they're away for the holidays? You

445
00:22:56,680 --> 00:22:58,800
Speaker 1: know what is exactly the reason. But what we found

446
00:22:58,880 --> 00:23:01,119
Speaker 1: historically is that like when you see big drops and

447
00:23:01,240 --> 00:23:05,600
Speaker 1: response rates, it can actually be an indicator of um,

448
00:23:05,760 --> 00:23:08,600
Speaker 1: you know, turning points within the economy. Um. And so

449
00:23:08,640 --> 00:23:10,560
Speaker 1: I think that's what we're concerned about. This was the

450
00:23:10,640 --> 00:23:13,040
Speaker 1: biggest drop in response rates I think that we've seen,

451
00:23:13,520 --> 00:23:15,919
Speaker 1: you know, almost ever in the survey, and we are

452
00:23:16,000 --> 00:23:20,360
Speaker 1: back down to levels. So, you know, although the headline

453
00:23:20,440 --> 00:23:22,800
Speaker 1: number was really strong, you know, I think we are

454
00:23:23,440 --> 00:23:26,480
Speaker 1: you know, we're we're we're holding our breath a little bit, uh,

455
00:23:26,560 --> 00:23:29,040
Speaker 1: you know, to understand how the revisions really work out

456
00:23:29,119 --> 00:23:31,000
Speaker 1: when you see higher response rates. So I think that

457
00:23:31,160 --> 00:23:35,399
Speaker 1: probably was increasing the UH wage data. We saw wages

458
00:23:35,480 --> 00:23:38,040
Speaker 1: that grew much faster than expected. You know, it looked

459
00:23:38,040 --> 00:23:40,960
Speaker 1: like there's some noise and the transportation sector in particular,

460
00:23:41,440 --> 00:23:44,640
Speaker 1: there are other industry indicators within that sector that suggests

461
00:23:44,680 --> 00:23:47,000
Speaker 1: that it's weakening quite a bit. Um. You know. So

462
00:23:47,080 --> 00:23:49,399
Speaker 1: although we were encouraged by the headline numbers, you know,

463
00:23:49,520 --> 00:23:52,600
Speaker 1: we're certainly um, I think we're cautious still, um. You know.

464
00:23:52,680 --> 00:23:54,400
Speaker 1: And on top of all of that, you know, there's

465
00:23:54,440 --> 00:23:58,240
Speaker 1: two surveys within the UH, within the report and the

466
00:23:58,320 --> 00:24:01,879
Speaker 1: household survey, UH, it was it was also notably weaker.

467
00:24:02,080 --> 00:24:03,760
Speaker 1: So you know, again I think we're seeing kind of

468
00:24:03,840 --> 00:24:07,480
Speaker 1: mixed signals from this one unfortunately so. But despite the

469
00:24:07,560 --> 00:24:11,399
Speaker 1: mix mixed signals, Tiffany, how does you know a print

470
00:24:11,520 --> 00:24:16,480
Speaker 1: like this impact your I guess just economic outlook in general,

471
00:24:16,520 --> 00:24:18,800
Speaker 1: what whether you have a recession call or not. It

472
00:24:18,880 --> 00:24:21,480
Speaker 1: seems I kind of feel like it's difficult to really

473
00:24:21,560 --> 00:24:25,280
Speaker 1: talk about a deep recession when you've got strong jobs numbers. Yeah,

474
00:24:25,400 --> 00:24:28,320
Speaker 1: that's that is absolutely for sure. Um, the labor market,

475
00:24:28,440 --> 00:24:32,159
Speaker 1: it does, and the especially the payroll games that we've seen, um,

476
00:24:32,440 --> 00:24:35,399
Speaker 1: they have been incredibly resilient. Um, you know. But I

477
00:24:35,560 --> 00:24:37,359
Speaker 1: would say the one thing here is that you know,

478
00:24:37,400 --> 00:24:39,840
Speaker 1: obviously the labor market in terms of just the lags

479
00:24:39,920 --> 00:24:42,679
Speaker 1: with which monetary policy works, the labor market is one

480
00:24:42,760 --> 00:24:45,359
Speaker 1: of the the later stages that you see it. You

481
00:24:45,440 --> 00:24:48,200
Speaker 1: obviously see it in the interest rate sensitive sectors first,

482
00:24:48,320 --> 00:24:51,640
Speaker 1: which we're seeing, um, you know, in housing and other

483
00:24:51,840 --> 00:24:53,920
Speaker 1: you know, business investment in structures and things like that,

484
00:24:54,080 --> 00:24:55,439
Speaker 1: you know, and then it just takes time to get

485
00:24:55,480 --> 00:24:57,520
Speaker 1: to the labor market. The other thing I would just

486
00:24:57,640 --> 00:24:59,520
Speaker 1: note is, you know, historically, if you look when you

487
00:24:59,640 --> 00:25:05,280
Speaker 1: have payroll peaks before prior recessions, you know, for calling

488
00:25:05,320 --> 00:25:08,080
Speaker 1: about twelve months, you have this kind of linear deceleration.

489
00:25:08,119 --> 00:25:11,239
Speaker 1: You have a slow deceleration and payrolls and then at

490
00:25:11,280 --> 00:25:13,639
Speaker 1: some point payrolls just kind of drop, you know, in

491
00:25:13,720 --> 00:25:17,080
Speaker 1: a nonlinear fashion, and that tends to happen in every recession. So,

492
00:25:17,240 --> 00:25:20,040
Speaker 1: I you know, although we're very encouraged by the fact

493
00:25:20,119 --> 00:25:22,359
Speaker 1: that payrolls are very strong, you know, I think the

494
00:25:22,520 --> 00:25:25,399
Speaker 1: historical lessons that you take is that you know, you

495
00:25:25,680 --> 00:25:28,040
Speaker 1: you that doesn't mean that there can't be a nonlinear

496
00:25:28,160 --> 00:25:29,840
Speaker 1: drop off in the future. And again, I think you

497
00:25:29,840 --> 00:25:32,960
Speaker 1: have to be cautious. Jeffrey Rosenberg shock means so wonderful.

498
00:25:33,000 --> 00:25:34,560
Speaker 1: He helps us in the FED day and of course

499
00:25:34,600 --> 00:25:37,240
Speaker 1: on job stay. He's a black rock folks. And jeff

500
00:25:37,320 --> 00:25:41,400
Speaker 1: Rosenberg used a dreaded spiral word, the wage price spiral.

501
00:25:42,040 --> 00:25:45,320
Speaker 1: Did you see a spiral in the wage statistics today

502
00:25:45,760 --> 00:25:50,520
Speaker 1: where this month and last month average hourly earnings year

503
00:25:50,560 --> 00:25:54,520
Speaker 1: over year were revised to a higher wage growth. Are

504
00:25:54,560 --> 00:25:58,399
Speaker 1: we spiral ish this morning? Yeah? I mean I do

505
00:25:58,600 --> 00:26:02,480
Speaker 1: think there are increase seeing indications right that inflation is

506
00:26:02,560 --> 00:26:05,040
Speaker 1: becoming more entrenched. That that is for sure. And I

507
00:26:05,119 --> 00:26:08,120
Speaker 1: think you know that you could see it a Christmas

508
00:26:08,160 --> 00:26:12,119
Speaker 1: tree this week. Yeah, yeah, absolutely, I mean, you know,

509
00:26:12,200 --> 00:26:14,560
Speaker 1: you're seeing it everywhere, right, um and and so I

510
00:26:14,640 --> 00:26:17,600
Speaker 1: think that obviously is is a really big concern from

511
00:26:17,600 --> 00:26:19,520
Speaker 1: the Fed, and that's why we've seen such a rapid

512
00:26:19,560 --> 00:26:22,280
Speaker 1: pace of Fed hikes, you know, and that you know,

513
00:26:22,359 --> 00:26:24,440
Speaker 1: economists kind of call it the hockey stick, you know,

514
00:26:24,520 --> 00:26:27,920
Speaker 1: Inflation kind of move sideways until you get to this

515
00:26:28,040 --> 00:26:30,280
Speaker 1: point where it really starts to accelerate. And we're in

516
00:26:30,400 --> 00:26:33,520
Speaker 1: that kind of acceleration. Um And and the Federal Reserve,

517
00:26:33,560 --> 00:26:35,640
Speaker 1: you know, they need to tighten financial conditions. They need

518
00:26:35,680 --> 00:26:37,960
Speaker 1: to really push on the economy, push it down in

519
00:26:38,119 --> 00:26:40,000
Speaker 1: order it push demand down, in order to get that

520
00:26:40,080 --> 00:26:42,160
Speaker 1: under control. You know, we think that they are doing

521
00:26:42,240 --> 00:26:43,879
Speaker 1: you know, obviously we've seen them doing that, and we

522
00:26:44,000 --> 00:26:46,440
Speaker 1: think that the moves that they've done so far, you know,

523
00:26:46,560 --> 00:26:49,480
Speaker 1: will will help to moderate wage inflation. But again, the

524
00:26:49,520 --> 00:26:51,000
Speaker 1: first thing you need to see is a labor market

525
00:26:51,080 --> 00:26:54,760
Speaker 1: cooling off. Wage inflation is the last thing to come down, um.

526
00:26:54,920 --> 00:26:57,840
Speaker 1: You know, after you've come into recession. So uh, you know,

527
00:26:57,920 --> 00:27:00,240
Speaker 1: I think we're you know, I think we're still stre

528
00:27:00,240 --> 00:27:02,480
Speaker 1: monitoring the data and trying to understand how things are going.

529
00:27:02,600 --> 00:27:04,720
Speaker 1: But I still think it's reasonable to think of recessions

530
00:27:04,800 --> 00:27:08,800
Speaker 1: probably needed to get you know, inflation, you know, back

531
00:27:09,040 --> 00:27:12,480
Speaker 1: back towards target. Here have we said that before? You know,

532
00:27:13,160 --> 00:27:15,359
Speaker 1: is that like a new did we used to like

533
00:27:15,560 --> 00:27:19,280
Speaker 1: did we used to pray for recessions? Tiffany, No, hope, No.

534
00:27:19,520 --> 00:27:22,320
Speaker 1: And we called it um you know, obviously Arthur Oakin

535
00:27:22,440 --> 00:27:24,880
Speaker 1: and the sixties called it, you know, the misery index

536
00:27:25,040 --> 00:27:28,479
Speaker 1: right that England. It added unemployment and inflation because it's

537
00:27:28,520 --> 00:27:30,720
Speaker 1: a very miserable situation that you have to be in

538
00:27:30,800 --> 00:27:33,560
Speaker 1: as a central banker to push up unemployment in order

539
00:27:33,600 --> 00:27:35,760
Speaker 1: to get inflation back down. You know. But I think

540
00:27:35,800 --> 00:27:37,159
Speaker 1: I guess the good news and all of this is,

541
00:27:37,240 --> 00:27:39,440
Speaker 1: you know, if they if the central banks are successful

542
00:27:39,480 --> 00:27:41,800
Speaker 1: in doing that, and I think the longer term outlook

543
00:27:41,840 --> 00:27:44,080
Speaker 1: then is much better, right because you do, as they're saying,

544
00:27:44,119 --> 00:27:46,040
Speaker 1: you know, you do need price stability in order to

545
00:27:46,560 --> 00:27:48,600
Speaker 1: you know, have a well functioning economy in the long run.

546
00:27:49,800 --> 00:27:52,119
Speaker 1: So there's a thing, Tiffany. I'm in the camp of

547
00:27:53,040 --> 00:27:55,240
Speaker 1: you know, economists that tell me it takes a while

548
00:27:55,320 --> 00:27:58,400
Speaker 1: for these rad hikes to kind of really impact the economy.

549
00:27:59,119 --> 00:28:01,080
Speaker 1: I'm kind of seeing that, you know, inflation is peaked,

550
00:28:01,400 --> 00:28:03,439
Speaker 1: it's rolling over in a lot of areas. We're starting

551
00:28:03,480 --> 00:28:06,560
Speaker 1: to see the impact of these rising rates. It feels

552
00:28:06,640 --> 00:28:09,600
Speaker 1: like the FED can pause or at least slow down,

553
00:28:09,720 --> 00:28:12,400
Speaker 1: but there's a data print like today's drops data maybe

554
00:28:12,480 --> 00:28:16,880
Speaker 1: change that. Yeah, I mean, I definitely think that today's

555
00:28:17,160 --> 00:28:21,679
Speaker 1: data will um will increase like doubt in the Fed's minds. Um,

556
00:28:21,720 --> 00:28:23,240
Speaker 1: you know, if they were on track, you know, I

557
00:28:23,320 --> 00:28:25,359
Speaker 1: think they are on track to pausing still. You know,

558
00:28:25,480 --> 00:28:28,240
Speaker 1: you don't want to overreact any one data point um,

559
00:28:28,320 --> 00:28:30,520
Speaker 1: but if you look at you know, just six months

560
00:28:30,600 --> 00:28:32,959
Speaker 1: or three months moving averages of payroll games right there,

561
00:28:33,040 --> 00:28:36,000
Speaker 1: they're pretty resilient. So, you know. I think the FED

562
00:28:36,080 --> 00:28:38,200
Speaker 1: strategy here, though, is that we've done so much in

563
00:28:38,280 --> 00:28:40,840
Speaker 1: so little amount of time, and you know, they were

564
00:28:40,840 --> 00:28:42,600
Speaker 1: They're getting the FED funds rate up to five percent

565
00:28:42,600 --> 00:28:44,440
Speaker 1: in a little over a year. I mean, that isn't

566
00:28:44,480 --> 00:28:48,200
Speaker 1: an extremely large amount of financial conditions tightening. They've already done.

567
00:28:48,520 --> 00:28:50,480
Speaker 1: So I think it is reasonable to say, let's just

568
00:28:50,560 --> 00:28:52,680
Speaker 1: sit back and kind of see what happens to the economy,

569
00:28:52,720 --> 00:28:54,720
Speaker 1: because we know things work through lax you know. But

570
00:28:54,760 --> 00:28:56,200
Speaker 1: I do think the risk is is that if the

571
00:28:56,280 --> 00:28:58,960
Speaker 1: economy turns out to be more resilient, you know, they

572
00:28:59,040 --> 00:29:00,960
Speaker 1: could pause for a little while and then maybe even

573
00:29:01,040 --> 00:29:03,120
Speaker 1: have to do more at some point, you know. And

574
00:29:03,240 --> 00:29:05,640
Speaker 1: of course that's that would be different from historical experience

575
00:29:05,640 --> 00:29:07,800
Speaker 1: where they pause and usually the next move is down.

576
00:29:08,080 --> 00:29:11,000
Speaker 1: Bloomberg Financial Conditions Index, folks, is sort of like where

577
00:29:11,080 --> 00:29:15,600
Speaker 1: it was before the report. Um, I don't know, Tiffy,

578
00:29:15,680 --> 00:29:19,080
Speaker 1: my head is spinning on. This is Tiffany Weld and

579
00:29:19,160 --> 00:29:21,280
Speaker 1: she will help us here with Couldn't Go. This is

580
00:29:21,320 --> 00:29:25,320
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live

581
00:29:25,480 --> 00:29:29,200
Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio

582
00:29:29,480 --> 00:29:33,080
Speaker 1: and on Bloomberg Television each day from six to nine

583
00:29:33,120 --> 00:29:37,520
Speaker 1: am for insight from the best in economics, finance, investment,

584
00:29:37,720 --> 00:29:42,680
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

585
00:29:42,800 --> 00:29:46,640
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

586
00:29:46,720 --> 00:29:50,840
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg