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Speaker 1: Broadcasting Live to New York, Gloomberg to Washington, d C,

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Speaker 1: This is Bloomberg Surveillance. Good morning, a thorny on Wall

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Speaker 1: Street at Michael McKee along with Tom Keene and our

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Speaker 1: economic indicators are brought to you by Commonwealth Financial Network.

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Speaker 1: When it's time to change the conversation, talk with a

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Speaker 1: broker dealer? Are I a that's ready to listen? Callee

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Speaker 1: six six four six two three six three eight or

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Speaker 1: visit Commonwealth dot com to learn more. A slow week

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Speaker 1: ahead jobs week. The first week is about always very

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Speaker 1: big for indicators, Uh, this week not so much today.

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Speaker 1: The other thing we really have are the FEDS Labor

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Speaker 1: Market Conditions Index. A lot of labor market numbers, especially

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Speaker 1: out of the jobs report mushed together. Suppose come in

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Speaker 1: at one from zero point for be surprised it didn't rise,

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Speaker 1: and then consumer credit later this afternoon. We'll see if

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Speaker 1: we get any kind of indication of whether Americans still

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Speaker 1: feel you know, happy enough to borrow. Mushed came out

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Speaker 1: of econometrics after World War Two. Yeah, I took a

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Speaker 1: Mushed class the Jolts. You make a big deal about

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Speaker 1: the Jolts survey. Yes, it's delayed data, but it does

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Speaker 1: tell us a lot about um, the state of the

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Speaker 1: labor market, how many jobs available, et cetera. The of course,

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Speaker 1: everybody's still reacting to Friday's jobs report better than forecast

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Speaker 1: in terms of headline numbers. But the big question was

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Speaker 1: why did we see hours worked and particularly compensation go down?

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Speaker 1: Wages fell after a big jump the month before. Uh

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Speaker 1: Ian Shepherdson from Pantheon Macroeconomics had a unique explanation. We

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Speaker 1: wanted to get that from him, He joins us. Now

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Speaker 1: in you were the first out of gate to note

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Speaker 1: that even before the report you were expecting a disappointing

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Speaker 1: wage number. What have you found. Well, this is a technicality,

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Speaker 1: like it's a calendar quirk um. So the Peril survey

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Speaker 1: is the week of the twelveth um and when the

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Speaker 1: fifteen falls on the following Monday or Tuesday. People who

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Speaker 1: are paid semi monthly, some of them get missed out

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Speaker 1: of the wedge numbers, and this isn't supposed to happen.

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Speaker 1: Um employers are supposed to recognize when those people are

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Speaker 1: being paid outside the survey period and count them anyway

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Speaker 1: when they report their WEDGE data into the Bureau of

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Speaker 1: Labor Statistics, but some of them clearly don't. And so

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Speaker 1: there's a very very consistent pattern going back over the

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Speaker 1: past decade when when with the data first started to

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Speaker 1: appear in their current form, showing that nine times out

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Speaker 1: of ten, when theft is a Monday or Tuesday, the

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Speaker 1: WEDGE numbers come in way below their previous trend, and

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Speaker 1: then they tend to rebound a month or two later.

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Speaker 1: So we do not lose any thing permanently, but we

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Speaker 1: do suffer what appears to be these sort of substantially

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Speaker 1: volatile monthly swings in numbers which really ought to be

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Speaker 1: quite smooth, but they're not. And it turns out that

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Speaker 1: a huge amount of that variation is because of this

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Speaker 1: calendar quirk. December was one of those months, and we

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Speaker 1: came in with a zero and expectedly big rebound in January.

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Speaker 1: Then February another one of these crazy months, and we

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Speaker 1: get a minus zero point one. So it's pretty consistent

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Speaker 1: and absent any other substantive explanation for the February weakness.

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Speaker 1: That's what I'm going for. Well, you'd be looking for, then,

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Speaker 1: a big rebound. What is the underlying state of wage

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Speaker 1: growth once you've smoothed all this stuff out, Well, it's accelerating,

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Speaker 1: certainly accelerating. The trend is stripping out. The calendar quirks

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Speaker 1: is probably now at about two point five two point

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Speaker 1: six year of the year. This time last year it

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Speaker 1: was two zero. The year before it was two point zero,

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Speaker 1: the year before it was two point zero. So this

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Speaker 1: has been quite a marked acceleration after our a long

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Speaker 1: time a very little action going on. Because the funny

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Speaker 1: thing is if you look at the wage numbers in

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Speaker 1: real terms rather than in nominal terms, you'll find that

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Speaker 1: they've been accelerating for quite a while, and they've been

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Speaker 1: picking up in line with the tightening of the labor

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Speaker 1: market that you can see in a whole bunch of

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Speaker 1: surveys NSIB and others um and that tightening is continuing,

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Speaker 1: it has continued for some time, and is signaling that

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Speaker 1: real wage growth has to pick up further. What makes

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Speaker 1: us difficult or interesting is that given that inflation has

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Speaker 1: now bottomed out, and I think everybody agrees with that.

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Speaker 1: Now that we've we've we had the downward pressure on

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Speaker 1: inflation starting to move a little bit to the upside um.

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Speaker 1: The only way you can get real wage growth accelerating

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Speaker 1: is phenomenal wages to pick up faster. And this is

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Speaker 1: where things get interesting, because I think this is the

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Speaker 1: year when we hit the sort of rates of wage

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Speaker 1: growth at the fed path begins to dislike, we don't

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Speaker 1: know what that is. But Stan Fisher said about a

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Speaker 1: month ago that he'd be comfortable to see wage growth

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Speaker 1: at about three. Well, we're not there yet, but I

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Speaker 1: think by the end of the summer we will be,

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Speaker 1: and by the end of the year will be more

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Speaker 1: like three and a half. And that's when things get

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Speaker 1: very tricky for the sur agree that nicely explained on

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Speaker 1: these dynamics and whether you're an optim mr a pessimist

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Speaker 1: in the economy, the backdraft of wages, animal spirit, inenomenal

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Speaker 1: is sustained real GDP growth. Are you suggesting ian that

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Speaker 1: real GDP could be two point eight or dare I

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Speaker 1: say three is a run rate? Three is going to

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Speaker 1: be difficult for the full year because we've got a

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Speaker 1: horrible base effect at the end of last year because

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Speaker 1: the Q four so weak. But that but in terms

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Speaker 1: of the quarterly run rate, I think three is is plausible,

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Speaker 1: probably off for the first quarter, but for the second, third, fourth,

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Speaker 1: three is is kind of my base case. And if

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Speaker 1: we get that, then of course that means to the

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Speaker 1: further decline in the unemployment rate is more or less inevitable.

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Speaker 1: You know, we've seen a big pick up in the

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Speaker 1: labor force in the last few months, but it's not

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Speaker 1: sustainable at this rate. So I think unemployment drops further

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Speaker 1: puts greater pressure on on real wage growth. And again

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Speaker 1: because inflation isn't going down anymore, that means that to

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Speaker 1: get that real wage growth, you've got to get the

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Speaker 1: nominal and the said you know, looking back over the

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Speaker 1: last thirty years, there's a pretty consistent patent of behavior

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Speaker 1: on that part that when wage growth accelerates substantially, they

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Speaker 1: tend to panicum and this happens quite quickly, you know.

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Speaker 1: The very last cycle. Yeah, you know that we went

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Speaker 1: from two percent away two and a half where we

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Speaker 1: are now to four percent in just over a year.

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Speaker 1: And during that year, the FED, the FED went from

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Speaker 1: being quite relaxed about everything to being in you know,

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Speaker 1: we've really got to slow this down mode and right

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Speaker 1: throws very substantially. We've got to continue this discussion because

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Speaker 1: the heart of the matter is if you assume of

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Speaker 1: FED do nothing in March, where are they the next

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Speaker 1: FED meeting after that? In terms of getting back the

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Speaker 1: framework that Ian Shepherdson structures, They're way behind. It's even

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Speaker 1: worse than that because they gotta wait till June. Really,

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Speaker 1: if nobody thinks they would move in the APE meeting

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Speaker 1: because there's no press efforts so that you know, they

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Speaker 1: got waited several more months. I don't know. I find

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Speaker 1: it fastening. What you just heard their folks was very important. Again,

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Speaker 1: Ian Shepherdson looked for that across the Bloomberg terminal. Will

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Speaker 1: continue with dr show presented here, but I also want

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Speaker 1: to point out all of our interviews Jeff Gardener and

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Speaker 1: Shepherdson and the rest out on iTunes and podcasts here.

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Speaker 1: Uh in a bit negative eight on the SMP The

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Speaker 1: Dow Future is a negative two check in with Michael

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Speaker 1: Barr Now get the latest world in national headlines like

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Speaker 1: night time, Thank you very much. The two Democratic candidates

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Speaker 1: squared off in the debate in Flint, Michigan, last night.

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Speaker 1: The state has a hundred forty seven delegates up for

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Speaker 1: grabs for tomorrow's presidential primary. Senator Bernie Sanders continuing his

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Speaker 1: argument to invest in municipal projects and the wealthiest country

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Speaker 1: in the history of the world, we have got to

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Speaker 1: rebuild our crumbling infrastructure, our water systems. I've got a

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Speaker 1: build for a trillion dollars. Greg's thirteen million jobs rebuilding Flint, Michigan. Clinton,

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Speaker 1: during the presidential debate on CNN, agreed with Sanders that

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Speaker 1: Michigan's governor should resign after lead contaminated water in Flint

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Speaker 1: drinking water. People should be held accountable wherever that leads.

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Speaker 1: If it leads to resignation or recall if you're in

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Speaker 1: political office, if it leads to civil penalties, if it

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Speaker 1: leads to criminal responsibility. Nancy Reagan will be buried next

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Speaker 1: to her husband at the Reagan Presidential Library. The former

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Speaker 1: First Lady died yesterday at age ninety four. Spokeswoman for

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Speaker 1: Jimmy Carter says the former president does not need further

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Speaker 1: treatment for cancer. Global News twenty four hours a day,

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Speaker 1: powered by our two hundred journalists more than a hundred

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Speaker 1: fifty news bureaus from around the world. Michael Bark, Mi Tom,

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Speaker 1: thank you, Michael. Time now for the Bloomberg NBC Sports

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Speaker 1: Update with John stash Our. John, thanks Mike. Rangers and

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Speaker 1: Islanders longtime rivals, but now when they play it is

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Speaker 1: truly a battle of New York City teams, and this

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Speaker 1: year it's been all Islanders. They've won all three meetings.

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Speaker 1: At the Guard they led three, not being five minutes in.

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Speaker 1: They led four to three third period when the Rangers

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Speaker 1: tied it with a minute a half to go, cal

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Speaker 1: Quarterbuck scared off a face off Isisles one six to four,

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Speaker 1: two goals for Johnny Boychack. Islanders go six and one.

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Speaker 1: On the road trip in Newark, all Penguins. They beat

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Speaker 1: the slumping Devils six to one, Gold State Warriors an

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Speaker 1: amazing fifty five and six. But when they have lost,

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Speaker 1: it's always been on the road, mostly by wide margins

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Speaker 1: and mostly the bad teams routed by the lowly Lakers

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Speaker 1: one twelve to ninety five is Steph Curry and Clay

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Speaker 1: Thompson together shot one for eighteen on three pointers. There

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Speaker 1: could be several local teams in the upcoming n C Double,

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Speaker 1: a tournament assured of one coming out of the Metro Atlantic,

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Speaker 1: as Monmouth will play Iona in tonight's final, and Albanning

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Speaker 1: at the Colonial in Baltimore, Hofstro will play North Carolina

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Speaker 1: Wilmington for the right to go to the n C Double.

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Speaker 1: As encouraging news for the Yankees, Massa Heiro Tanaka to

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Speaker 1: scoreless sittings in his first outing since elbow surgery last year.

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Speaker 1: Not many of the all time greats end their careers

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Speaker 1: with a championship victory. Peyton Manning did. He had already

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Speaker 1: hinted this could be his last rodeo, as he says,

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Speaker 1: and it was. He retires with five m vps, two

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Speaker 1: Super Bowl wins, almost all the career path seed records.

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Speaker 1: He'll meet the media in Denver today, Wait at Bloomberg

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Speaker 1: NBC Sports Update. I'm John st John. Thanks so much.

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Speaker 1: Appreciate that on a Monday, because we moved forward through

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Speaker 1: the week. We always do it looking at equities, bonds, currencies, commodities.

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Speaker 1: Quiet on a Monday, always, it seems after a job report.

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Speaker 1: We did see adjustment yields higher off the jobs report,

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Speaker 1: but the curve really didn't steep and all that much.

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Speaker 1: It did a little one d one basis points right

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Speaker 1: now one point zero one percentage points between the ten

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Speaker 1: year and the two year. That's a little bit steeper

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Speaker 1: over the last number of days of tenure one point

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Speaker 1: nine zero percent to two year point eight nine percent

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Speaker 1: even three months t bill lofty at a zero point

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Speaker 1: to seven SMB, futures of negativeate down futures negative forty eight.

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Speaker 1: And the end is that global barometer churning one fifty four.

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Speaker 1: This is Bloomberg surveillance earnings for US corporations up one

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Speaker 1: and a half percent if you leave out energy. Is

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Speaker 1: that enough to keep wages growing? Will continue our conversation

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Speaker 1: with Pantheon Macroeconomics ian Shepherdson here on surveillance