WEBVTT - Shepherdson: U.S. jobless rate will fall

0:00:03.040 --> 0:00:07.600
<v Speaker 1>Broadcasting Live to New York, Gloomberg to Washington, d C,

0:00:07.840 --> 0:00:13.080
<v Speaker 1>Bloomber to Boston, Bloomberg twelve Honors, to San Francisco, Bloomberg

0:00:13.960 --> 0:00:17.000
<v Speaker 1>to the country. Shoe is Exam Channel one ninety and

0:00:17.120 --> 0:00:21.160
<v Speaker 1>around the globe the Bloomberg Radio Bus, Bloomberg dot Com.

0:00:21.200 --> 0:00:25.520
<v Speaker 1>This is Bloomberg Surveillance. Good morning, a thorny on Wall

0:00:25.560 --> 0:00:28.560
<v Speaker 1>Street at Michael McKee along with Tom Keene and our

0:00:28.720 --> 0:00:32.120
<v Speaker 1>economic indicators are brought to you by Commonwealth Financial Network.

0:00:32.400 --> 0:00:34.360
<v Speaker 1>When it's time to change the conversation, talk with a

0:00:34.400 --> 0:00:36.839
<v Speaker 1>broker dealer? Are I a that's ready to listen? Callee

0:00:36.920 --> 0:00:39.320
<v Speaker 1>six six four six two three six three eight or

0:00:39.440 --> 0:00:43.120
<v Speaker 1>visit Commonwealth dot com to learn more. A slow week

0:00:43.320 --> 0:00:46.159
<v Speaker 1>ahead jobs week. The first week is about always very

0:00:46.159 --> 0:00:49.479
<v Speaker 1>big for indicators, Uh, this week not so much today.

0:00:49.800 --> 0:00:52.400
<v Speaker 1>The other thing we really have are the FEDS Labor

0:00:52.440 --> 0:00:57.240
<v Speaker 1>Market Conditions Index. A lot of labor market numbers, especially

0:00:57.240 --> 0:01:00.320
<v Speaker 1>out of the jobs report mushed together. Suppose come in

0:01:00.360 --> 0:01:04.759
<v Speaker 1>at one from zero point for be surprised it didn't rise,

0:01:05.000 --> 0:01:07.280
<v Speaker 1>and then consumer credit later this afternoon. We'll see if

0:01:07.520 --> 0:01:10.680
<v Speaker 1>we get any kind of indication of whether Americans still

0:01:10.760 --> 0:01:15.520
<v Speaker 1>feel you know, happy enough to borrow. Mushed came out

0:01:15.520 --> 0:01:19.720
<v Speaker 1>of econometrics after World War Two. Yeah, I took a

0:01:19.800 --> 0:01:22.759
<v Speaker 1>Mushed class the Jolts. You make a big deal about

0:01:22.760 --> 0:01:26.920
<v Speaker 1>the Jolts survey. Yes, it's delayed data, but it does

0:01:27.400 --> 0:01:30.120
<v Speaker 1>tell us a lot about um, the state of the

0:01:30.160 --> 0:01:34.240
<v Speaker 1>labor market, how many jobs available, et cetera. The of course,

0:01:34.280 --> 0:01:37.920
<v Speaker 1>everybody's still reacting to Friday's jobs report better than forecast

0:01:37.959 --> 0:01:40.160
<v Speaker 1>in terms of headline numbers. But the big question was

0:01:40.959 --> 0:01:46.520
<v Speaker 1>why did we see hours worked and particularly compensation go down?

0:01:46.640 --> 0:01:51.960
<v Speaker 1>Wages fell after a big jump the month before. Uh

0:01:52.000 --> 0:01:57.200
<v Speaker 1>Ian Shepherdson from Pantheon Macroeconomics had a unique explanation. We

0:01:57.200 --> 0:01:59.200
<v Speaker 1>wanted to get that from him, He joins us. Now

0:01:59.600 --> 0:02:02.360
<v Speaker 1>in you were the first out of gate to note

0:02:02.400 --> 0:02:08.200
<v Speaker 1>that even before the report you were expecting a disappointing

0:02:08.280 --> 0:02:13.600
<v Speaker 1>wage number. What have you found. Well, this is a technicality,

0:02:13.760 --> 0:02:17.359
<v Speaker 1>like it's a calendar quirk um. So the Peril survey

0:02:17.440 --> 0:02:20.560
<v Speaker 1>is the week of the twelveth um and when the

0:02:21.600 --> 0:02:24.560
<v Speaker 1>fifteen falls on the following Monday or Tuesday. People who

0:02:24.600 --> 0:02:28.239
<v Speaker 1>are paid semi monthly, some of them get missed out

0:02:28.280 --> 0:02:31.120
<v Speaker 1>of the wedge numbers, and this isn't supposed to happen.

0:02:31.480 --> 0:02:34.520
<v Speaker 1>Um employers are supposed to recognize when those people are

0:02:34.520 --> 0:02:37.280
<v Speaker 1>being paid outside the survey period and count them anyway

0:02:37.360 --> 0:02:39.520
<v Speaker 1>when they report their WEDGE data into the Bureau of

0:02:39.600 --> 0:02:42.639
<v Speaker 1>Labor Statistics, but some of them clearly don't. And so

0:02:42.760 --> 0:02:45.280
<v Speaker 1>there's a very very consistent pattern going back over the

0:02:45.320 --> 0:02:47.720
<v Speaker 1>past decade when when with the data first started to

0:02:47.760 --> 0:02:51.320
<v Speaker 1>appear in their current form, showing that nine times out

0:02:51.360 --> 0:02:54.200
<v Speaker 1>of ten, when theft is a Monday or Tuesday, the

0:02:54.320 --> 0:02:57.280
<v Speaker 1>WEDGE numbers come in way below their previous trend, and

0:02:57.320 --> 0:02:59.160
<v Speaker 1>then they tend to rebound a month or two later.

0:02:59.200 --> 0:03:01.480
<v Speaker 1>So we do not lose any thing permanently, but we

0:03:01.560 --> 0:03:04.760
<v Speaker 1>do suffer what appears to be these sort of substantially

0:03:04.840 --> 0:03:08.679
<v Speaker 1>volatile monthly swings in numbers which really ought to be

0:03:08.760 --> 0:03:11.520
<v Speaker 1>quite smooth, but they're not. And it turns out that

0:03:11.560 --> 0:03:13.600
<v Speaker 1>a huge amount of that variation is because of this

0:03:13.680 --> 0:03:16.280
<v Speaker 1>calendar quirk. December was one of those months, and we

0:03:16.320 --> 0:03:19.480
<v Speaker 1>came in with a zero and expectedly big rebound in January.

0:03:19.760 --> 0:03:21.679
<v Speaker 1>Then February another one of these crazy months, and we

0:03:21.760 --> 0:03:25.680
<v Speaker 1>get a minus zero point one. So it's pretty consistent

0:03:25.919 --> 0:03:31.160
<v Speaker 1>and absent any other substantive explanation for the February weakness.

0:03:31.440 --> 0:03:33.880
<v Speaker 1>That's what I'm going for. Well, you'd be looking for, then,

0:03:34.320 --> 0:03:38.840
<v Speaker 1>a big rebound. What is the underlying state of wage

0:03:38.840 --> 0:03:42.920
<v Speaker 1>growth once you've smoothed all this stuff out, Well, it's accelerating,

0:03:43.480 --> 0:03:47.120
<v Speaker 1>certainly accelerating. The trend is stripping out. The calendar quirks

0:03:47.240 --> 0:03:49.600
<v Speaker 1>is probably now at about two point five two point

0:03:49.640 --> 0:03:51.680
<v Speaker 1>six year of the year. This time last year it

0:03:51.680 --> 0:03:53.880
<v Speaker 1>was two zero. The year before it was two point zero,

0:03:53.960 --> 0:03:56.000
<v Speaker 1>the year before it was two point zero. So this

0:03:56.040 --> 0:03:58.720
<v Speaker 1>has been quite a marked acceleration after our a long

0:03:58.840 --> 0:04:01.720
<v Speaker 1>time a very little action going on. Because the funny

0:04:01.720 --> 0:04:03.320
<v Speaker 1>thing is if you look at the wage numbers in

0:04:03.520 --> 0:04:06.640
<v Speaker 1>real terms rather than in nominal terms, you'll find that

0:04:06.640 --> 0:04:08.640
<v Speaker 1>they've been accelerating for quite a while, and they've been

0:04:08.800 --> 0:04:11.920
<v Speaker 1>picking up in line with the tightening of the labor

0:04:11.920 --> 0:04:13.520
<v Speaker 1>market that you can see in a whole bunch of

0:04:13.560 --> 0:04:18.279
<v Speaker 1>surveys NSIB and others um and that tightening is continuing,

0:04:18.320 --> 0:04:20.120
<v Speaker 1>it has continued for some time, and is signaling that

0:04:20.160 --> 0:04:23.640
<v Speaker 1>real wage growth has to pick up further. What makes

0:04:23.680 --> 0:04:26.640
<v Speaker 1>us difficult or interesting is that given that inflation has

0:04:26.640 --> 0:04:28.479
<v Speaker 1>now bottomed out, and I think everybody agrees with that.

0:04:28.520 --> 0:04:30.320
<v Speaker 1>Now that we've we've we had the downward pressure on

0:04:30.360 --> 0:04:32.920
<v Speaker 1>inflation starting to move a little bit to the upside um.

0:04:32.960 --> 0:04:35.200
<v Speaker 1>The only way you can get real wage growth accelerating

0:04:35.320 --> 0:04:38.760
<v Speaker 1>is phenomenal wages to pick up faster. And this is

0:04:38.760 --> 0:04:40.880
<v Speaker 1>where things get interesting, because I think this is the

0:04:40.960 --> 0:04:43.119
<v Speaker 1>year when we hit the sort of rates of wage

0:04:43.120 --> 0:04:46.760
<v Speaker 1>growth at the fed path begins to dislike, we don't

0:04:46.800 --> 0:04:49.080
<v Speaker 1>know what that is. But Stan Fisher said about a

0:04:49.080 --> 0:04:51.440
<v Speaker 1>month ago that he'd be comfortable to see wage growth

0:04:51.480 --> 0:04:53.839
<v Speaker 1>at about three. Well, we're not there yet, but I

0:04:53.839 --> 0:04:55.200
<v Speaker 1>think by the end of the summer we will be,

0:04:55.240 --> 0:04:56.600
<v Speaker 1>and by the end of the year will be more

0:04:56.680 --> 0:04:58.600
<v Speaker 1>like three and a half. And that's when things get

0:04:58.720 --> 0:05:01.680
<v Speaker 1>very tricky for the sur agree that nicely explained on

0:05:01.720 --> 0:05:04.160
<v Speaker 1>these dynamics and whether you're an optim mr a pessimist

0:05:04.160 --> 0:05:09.280
<v Speaker 1>in the economy, the backdraft of wages, animal spirit, inenomenal

0:05:10.640 --> 0:05:14.760
<v Speaker 1>is sustained real GDP growth. Are you suggesting ian that

0:05:15.560 --> 0:05:17.960
<v Speaker 1>real GDP could be two point eight or dare I

0:05:18.000 --> 0:05:21.920
<v Speaker 1>say three is a run rate? Three is going to

0:05:22.000 --> 0:05:24.000
<v Speaker 1>be difficult for the full year because we've got a

0:05:24.040 --> 0:05:26.560
<v Speaker 1>horrible base effect at the end of last year because

0:05:26.600 --> 0:05:28.880
<v Speaker 1>the Q four so weak. But that but in terms

0:05:28.920 --> 0:05:32.200
<v Speaker 1>of the quarterly run rate, I think three is is plausible,

0:05:32.279 --> 0:05:34.760
<v Speaker 1>probably off for the first quarter, but for the second, third, fourth,

0:05:34.920 --> 0:05:37.320
<v Speaker 1>three is is kind of my base case. And if

0:05:37.320 --> 0:05:39.320
<v Speaker 1>we get that, then of course that means to the

0:05:39.360 --> 0:05:42.320
<v Speaker 1>further decline in the unemployment rate is more or less inevitable.

0:05:42.480 --> 0:05:43.839
<v Speaker 1>You know, we've seen a big pick up in the

0:05:43.880 --> 0:05:45.400
<v Speaker 1>labor force in the last few months, but it's not

0:05:45.440 --> 0:05:48.320
<v Speaker 1>sustainable at this rate. So I think unemployment drops further

0:05:48.360 --> 0:05:50.919
<v Speaker 1>puts greater pressure on on real wage growth. And again

0:05:50.960 --> 0:05:54.400
<v Speaker 1>because inflation isn't going down anymore, that means that to

0:05:54.440 --> 0:05:56.000
<v Speaker 1>get that real wage growth, you've got to get the

0:05:56.040 --> 0:05:58.560
<v Speaker 1>nominal and the said you know, looking back over the

0:05:58.600 --> 0:06:01.280
<v Speaker 1>last thirty years, there's a pretty consistent patent of behavior

0:06:01.320 --> 0:06:04.600
<v Speaker 1>on that part that when wage growth accelerates substantially, they

0:06:04.600 --> 0:06:08.080
<v Speaker 1>tend to panicum and this happens quite quickly, you know.

0:06:08.560 --> 0:06:10.960
<v Speaker 1>The very last cycle. Yeah, you know that we went

0:06:11.000 --> 0:06:12.760
<v Speaker 1>from two percent away two and a half where we

0:06:12.760 --> 0:06:15.039
<v Speaker 1>are now to four percent in just over a year.

0:06:15.720 --> 0:06:17.520
<v Speaker 1>And during that year, the FED, the FED went from

0:06:17.560 --> 0:06:19.640
<v Speaker 1>being quite relaxed about everything to being in you know,

0:06:20.000 --> 0:06:22.080
<v Speaker 1>we've really got to slow this down mode and right

0:06:22.120 --> 0:06:24.960
<v Speaker 1>throws very substantially. We've got to continue this discussion because

0:06:24.960 --> 0:06:26.880
<v Speaker 1>the heart of the matter is if you assume of

0:06:26.960 --> 0:06:31.520
<v Speaker 1>FED do nothing in March, where are they the next

0:06:31.560 --> 0:06:34.120
<v Speaker 1>FED meeting after that? In terms of getting back the

0:06:34.200 --> 0:06:39.960
<v Speaker 1>framework that Ian Shepherdson structures, They're way behind. It's even

0:06:40.240 --> 0:06:42.320
<v Speaker 1>worse than that because they gotta wait till June. Really,

0:06:42.360 --> 0:06:46.200
<v Speaker 1>if nobody thinks they would move in the APE meeting

0:06:46.240 --> 0:06:48.560
<v Speaker 1>because there's no press efforts so that you know, they

0:06:48.600 --> 0:06:51.720
<v Speaker 1>got waited several more months. I don't know. I find

0:06:51.720 --> 0:06:54.800
<v Speaker 1>it fastening. What you just heard their folks was very important. Again,

0:06:55.200 --> 0:06:58.160
<v Speaker 1>Ian Shepherdson looked for that across the Bloomberg terminal. Will

0:06:58.200 --> 0:07:01.400
<v Speaker 1>continue with dr show presented here, but I also want

0:07:01.400 --> 0:07:03.800
<v Speaker 1>to point out all of our interviews Jeff Gardener and

0:07:03.839 --> 0:07:07.520
<v Speaker 1>Shepherdson and the rest out on iTunes and podcasts here.

0:07:08.080 --> 0:07:11.360
<v Speaker 1>Uh in a bit negative eight on the SMP The

0:07:11.440 --> 0:07:18.560
<v Speaker 1>Dow Future is a negative two check in with Michael

0:07:18.560 --> 0:07:21.120
<v Speaker 1>Barr Now get the latest world in national headlines like

0:07:21.520 --> 0:07:24.400
<v Speaker 1>night time, Thank you very much. The two Democratic candidates

0:07:24.400 --> 0:07:27.360
<v Speaker 1>squared off in the debate in Flint, Michigan, last night.

0:07:27.760 --> 0:07:29.840
<v Speaker 1>The state has a hundred forty seven delegates up for

0:07:29.920 --> 0:07:34.760
<v Speaker 1>grabs for tomorrow's presidential primary. Senator Bernie Sanders continuing his

0:07:34.920 --> 0:07:39.160
<v Speaker 1>argument to invest in municipal projects and the wealthiest country

0:07:39.240 --> 0:07:41.440
<v Speaker 1>in the history of the world, we have got to

0:07:41.480 --> 0:07:46.000
<v Speaker 1>rebuild our crumbling infrastructure, our water systems. I've got a

0:07:46.080 --> 0:07:52.760
<v Speaker 1>build for a trillion dollars. Greg's thirteen million jobs rebuilding Flint, Michigan. Clinton,

0:07:52.880 --> 0:07:55.840
<v Speaker 1>during the presidential debate on CNN, agreed with Sanders that

0:07:55.920 --> 0:07:59.960
<v Speaker 1>Michigan's governor should resign after lead contaminated water in Flint

0:08:00.160 --> 0:08:04.440
<v Speaker 1>drinking water. People should be held accountable wherever that leads.

0:08:04.480 --> 0:08:07.560
<v Speaker 1>If it leads to resignation or recall if you're in

0:08:07.640 --> 0:08:12.800
<v Speaker 1>political office, if it leads to civil penalties, if it

0:08:12.920 --> 0:08:17.360
<v Speaker 1>leads to criminal responsibility. Nancy Reagan will be buried next

0:08:17.360 --> 0:08:20.440
<v Speaker 1>to her husband at the Reagan Presidential Library. The former

0:08:20.480 --> 0:08:23.640
<v Speaker 1>First Lady died yesterday at age ninety four. Spokeswoman for

0:08:23.680 --> 0:08:26.480
<v Speaker 1>Jimmy Carter says the former president does not need further

0:08:26.600 --> 0:08:30.440
<v Speaker 1>treatment for cancer. Global News twenty four hours a day,

0:08:30.440 --> 0:08:34.080
<v Speaker 1>powered by our two hundred journalists more than a hundred

0:08:34.080 --> 0:08:37.920
<v Speaker 1>fifty news bureaus from around the world. Michael Bark, Mi Tom,

0:08:37.920 --> 0:08:41.080
<v Speaker 1>thank you, Michael. Time now for the Bloomberg NBC Sports

0:08:41.120 --> 0:08:44.000
<v Speaker 1>Update with John stash Our. John, thanks Mike. Rangers and

0:08:44.080 --> 0:08:46.800
<v Speaker 1>Islanders longtime rivals, but now when they play it is

0:08:46.840 --> 0:08:49.319
<v Speaker 1>truly a battle of New York City teams, and this

0:08:49.400 --> 0:08:51.440
<v Speaker 1>year it's been all Islanders. They've won all three meetings.

0:08:51.480 --> 0:08:53.559
<v Speaker 1>At the Guard they led three, not being five minutes in.

0:08:54.000 --> 0:08:56.320
<v Speaker 1>They led four to three third period when the Rangers

0:08:56.320 --> 0:08:58.200
<v Speaker 1>tied it with a minute a half to go, cal

0:08:58.360 --> 0:09:01.719
<v Speaker 1>Quarterbuck scared off a face off Isisles one six to four,

0:09:01.760 --> 0:09:04.719
<v Speaker 1>two goals for Johnny Boychack. Islanders go six and one.

0:09:04.760 --> 0:09:06.959
<v Speaker 1>On the road trip in Newark, all Penguins. They beat

0:09:07.000 --> 0:09:10.040
<v Speaker 1>the slumping Devils six to one, Gold State Warriors an

0:09:10.040 --> 0:09:12.880
<v Speaker 1>amazing fifty five and six. But when they have lost,

0:09:13.200 --> 0:09:15.960
<v Speaker 1>it's always been on the road, mostly by wide margins

0:09:15.960 --> 0:09:19.480
<v Speaker 1>and mostly the bad teams routed by the lowly Lakers

0:09:19.480 --> 0:09:21.880
<v Speaker 1>one twelve to ninety five is Steph Curry and Clay

0:09:21.920 --> 0:09:25.760
<v Speaker 1>Thompson together shot one for eighteen on three pointers. There

0:09:25.800 --> 0:09:28.080
<v Speaker 1>could be several local teams in the upcoming n C Double,

0:09:28.080 --> 0:09:31.079
<v Speaker 1>a tournament assured of one coming out of the Metro Atlantic,

0:09:31.440 --> 0:09:34.480
<v Speaker 1>as Monmouth will play Iona in tonight's final, and Albanning

0:09:34.480 --> 0:09:38.040
<v Speaker 1>at the Colonial in Baltimore, Hofstro will play North Carolina

0:09:38.080 --> 0:09:40.600
<v Speaker 1>Wilmington for the right to go to the n C Double.

0:09:40.640 --> 0:09:43.160
<v Speaker 1>As encouraging news for the Yankees, Massa Heiro Tanaka to

0:09:43.280 --> 0:09:46.600
<v Speaker 1>scoreless sittings in his first outing since elbow surgery last year.

0:09:46.960 --> 0:09:49.240
<v Speaker 1>Not many of the all time greats end their careers

0:09:49.240 --> 0:09:52.480
<v Speaker 1>with a championship victory. Peyton Manning did. He had already

0:09:52.559 --> 0:09:55.040
<v Speaker 1>hinted this could be his last rodeo, as he says,

0:09:55.120 --> 0:09:58.120
<v Speaker 1>and it was. He retires with five m vps, two

0:09:58.120 --> 0:10:00.720
<v Speaker 1>Super Bowl wins, almost all the career path seed records.

0:10:00.880 --> 0:10:03.960
<v Speaker 1>He'll meet the media in Denver today, Wait at Bloomberg

0:10:04.040 --> 0:10:07.400
<v Speaker 1>NBC Sports Update. I'm John st John. Thanks so much.

0:10:07.440 --> 0:10:10.920
<v Speaker 1>Appreciate that on a Monday, because we moved forward through

0:10:10.960 --> 0:10:15.840
<v Speaker 1>the week. We always do it looking at equities, bonds, currencies, commodities.

0:10:15.960 --> 0:10:20.040
<v Speaker 1>Quiet on a Monday, always, it seems after a job report.

0:10:20.080 --> 0:10:23.040
<v Speaker 1>We did see adjustment yields higher off the jobs report,

0:10:23.440 --> 0:10:26.640
<v Speaker 1>but the curve really didn't steep and all that much.

0:10:26.640 --> 0:10:29.360
<v Speaker 1>It did a little one d one basis points right

0:10:29.400 --> 0:10:32.760
<v Speaker 1>now one point zero one percentage points between the ten

0:10:32.840 --> 0:10:35.280
<v Speaker 1>year and the two year. That's a little bit steeper

0:10:35.960 --> 0:10:38.320
<v Speaker 1>over the last number of days of tenure one point

0:10:38.400 --> 0:10:41.520
<v Speaker 1>nine zero percent to two year point eight nine percent

0:10:41.640 --> 0:10:44.840
<v Speaker 1>even three months t bill lofty at a zero point

0:10:44.840 --> 0:10:50.240
<v Speaker 1>to seven SMB, futures of negativeate down futures negative forty eight.

0:10:50.760 --> 0:10:55.080
<v Speaker 1>And the end is that global barometer churning one fifty four.

0:10:55.720 --> 0:11:04.400
<v Speaker 1>This is Bloomberg surveillance earnings for US corporations up one

0:11:04.440 --> 0:11:06.640
<v Speaker 1>and a half percent if you leave out energy. Is

0:11:06.679 --> 0:11:10.120
<v Speaker 1>that enough to keep wages growing? Will continue our conversation

0:11:10.200 --> 0:11:14.400
<v Speaker 1>with Pantheon Macroeconomics ian Shepherdson here on surveillance