00:00:02 Speaker 1: Bloomberg Audio Studios. 00:00:04 Speaker 2: Podcasts. 00:00:05 Speaker 3: Radio. 00:00:06 Speaker 4: News. 00:00:12 Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. 00:00:27 Speaker 3: Always restart strong. With Claudia Assam, to say she's chief economist at New Century Advisors, barely describes the accolade. She is at the University of Minnesota in Duluth, where men are men and play hockey 12 months of the year, giving a speech and being honored, of course, as she should be, by all of their economists. Claudia Assam, the two Americas of Duluth and, say, New York City, are a median house price of $ 250, 000. versus something like 710,000 in New York City. The job economies that we're going to see in four minutes. How does the Fed treat Duluth's job economy versus New York City's job economies? 00:01:14 Speaker 4: Well, the Fed has a difficult position in that they have one tool, the federal funds rate, the interest rate. So they really have to look at the U.S. labor market as a whole. They can't look at. 00:01:26 Speaker 5: Duluth versus New York City differently. 00:01:28 Speaker 4: And honestly, a lot of the things that we see in local labor markets that distinguish them They aren't the business cycle. They aren't what the Fed really tries to stabilize. They're much longer run trends. There's big shifts in demographics, shifts in industry, some of which happened decades ago. Like the closing of U.S. steel, which is far in the rear view mirror, still has real implications in the Duluth local economy. 00:01:53 Speaker 2: Claudia, is this U.S. labor market, can it still be characterized as a low hire, low fire environment? 00:02:01 Speaker 5: Absolutely. 00:02:02 Speaker 4: And we got more confirmation this week on the good side of it, the low fire. We saw initial jobless claims go below 200,000 again last week, and that is very low, close to the lows of this year. The jolts, the job openings, the labor turnover survey also showed very low layoff rates. 00:02:20 Speaker 5: That's a good thing. You got a job. You like your job. This is a good labor market. 00:02:24 Speaker 4: If you are looking for a job, or yesterday when I was speaking to a bunch of college students who will soon be looking for jobs, this is tough. The hiring rate is still really low. We got a good number last month in August with 162,000 payrolls net created. We need to see more of that before I'm convinced that we're really on an uptrend in the labor market. I think we've had a lot of stability. But again, stability is not good if you're on the outside looking in. 00:02:50 Speaker 3: Yep. 00:02:51 Speaker 2: How can... this economy grow on a nominal basis north of 6% if really not creating that many new jobs? Is it better productivity? 00:03:02 Speaker 4: Well, it's hard to see this being sustainable, particularly, I mean, we have such low labor force growth right now with the sharp reduction in immigration and aging of the workforce, people getting into retirement. It's just we're not growing a lot of workers. And typically, that's a big piece of supporting growth. So right now, if labor force. 00:03:23 Speaker 5: Is not growing... And the economy, the activity is growing. It's got to come from productivity. 00:03:29 Speaker 4: But, like, you know, AI adoption is not widespread enough to explain all this. 00:03:33 Speaker 5: So it's curious. It really is. 00:03:35 Speaker 3: Claudia, 114% of my audience is certain the real wage is declining. When we look at wage data and take out real inflation, not some fancy Claudia Somm inflation, Are our paychecks going up? I don't buy it. Yeah, you know, it is. 00:03:52 Speaker 5: It's so hard. 00:03:53 Speaker 4: And I think this is one where for people, you know, looking at the statistics, it's hard often to see themselves in it. Wages are really difficult to measure, you know, how they change over time. There's a lot of composition that the aggregate numbers try to take into effect. And then, of course, what you need to buy. I mean, are you someone who needs to drive to work or not? Like, that can make a big difference in how hard you've been hit this year in terms of higher costs. So it's not a clear slam dunk that real wages are just growing really fast. This is not a labor market where people have a lot of options to move to better jobs either. 00:04:25 Speaker 3: We triangulate our research, as we always do, with the noted economist Claudia Summ. And filling up at the Wawa, John Tucker. How is that driving commute going, Mr. 00:04:34 Speaker 6: Tucker? I mean, it's been down a little for 35 gallon. Diesel still, you know, elevated. I think it was about 640. Down a little, but still very much elevated. 00:04:45 Speaker 3: We thank you for the piercing digital, I should say, report there from John Tucker. We're going to come back with Dr. Sam again in honor from the University of Minnesota at Duluth. We'll continue with Claudia Sam and then on to other good news. conversations. We welcome all of you commercial free across America, Paul Sweeney and Tom Keene on a job. Paul, way more blinking on the screen than normally I would see into the report. The red and green blinky blinky is tangible. Features up 40. The Sweeney yield is what I focus on and right now I've got that at 4.77%. 4.77% in America. 00:05:28 Speaker 6: All right, let's get right to it. Big changes here, change in non-farm payrolls. We're expecting 90,000 jobs. 00:05:33 Speaker 3: We're only getting 29,000. 00:05:33 Speaker 6: The prior month also revised downward from 162 to 133,000. The unemployment rate rising to 4.2%. The expectation was 4.1%. Average hourly earnings on a month-over-month basis coming in much less than expected, just a tenth of a percent. The expectation was for three-tenths of a percent. You mentioned that two-year yield down eight basis points right now, 4.7 percent. We check the markets for you all day long right here on Bloomberg Radio. I'm John Tucker. That's your... unemployment report, the jobs report for this Friday. Paul and Tom. 00:06:19 Speaker 3: John Tucker, thanks so much. 4.2% on the unemployment rate. There's a lot of noise in there. I got a C minus on this. Dr. Sam marked me down years ago. 00:06:28 Speaker 2: Yeah, understandable. 00:06:29 Speaker 3: On this 4.2% here. And everything, folks, as I said, it was a real stasis survey. And the answer is the numbers are not. $ 29, 000 and the two-month payroll revision is negative $ 60, 000. I'm going to nail this. That's a negative $ 29, 000. Okay. Negative over, you know, a summation here as well. The hourly earnings come in light, light, light, 0.3. And they came in substantially below that, 0.1. Average hourly earnings below. You know, annualized down a tick, 3.1 down to 3.0. Equities lift up 61 on futures, up 30, double up 60. NASDAQ up a full stick, 1%. The VIX, as Paul mentioned, It's 16, comes in at 15. Paul, to let Dr. Sam massage the data, what do you see here, Paul, right now? 00:07:28 Speaker 2: I'm just going to the bond market right here, Tom. The two years down nine basis points. It was down two basis points before this report. So we're now at 469 on the two-year. The 10-year, off about 8.5 basis points. The 10-year is now at 5.15%, Tom. So yields coming in, bonds prices higher. 00:07:46 Speaker 3: In Duluth, Minnesota, I think Gordon Lightfoot in Lake Superior, Claudia Somm is with us as she is honored by the University of Minnesota. 00:07:55 Speaker 2: Dr. 00:07:55 Speaker 3: Somm, this is a report that a select group of people said would happen, would come in light, what David Rosenberg called a catch-down. What do you do with one month's data? 00:08:09 Speaker 4: Well, I think this does undercut the story that had been coming in today that maybe we have some strengthening in the labor market, right? 00:08:16 Speaker 5: That maybe the hiring, picking up some. 00:08:18 Speaker 4: Like this just shows, no, we are... The labor market is much more stable. Like job creation has stabilized relative to last year when it was really sliding. But we are not in an uptrend. 00:08:29 Speaker 3: Right. 00:08:29 Speaker 4: So the August number, it was pop even with the downward revisions today. It's probably well above what it takes to keep the unemployment rate stable. 00:08:36 Speaker 3: Right. 00:08:36 Speaker 5: But we're not going to we didn't get another month of that. 00:08:39 Speaker 3: Right. 00:08:39 Speaker 4: It like popped back down. So I think we're just in this place of very low job creation in the U.S., which does fit with it. low growth in the labor force and the unemployment rate, it did tick up, but basically it's unchanged. 00:08:51 Speaker 5: I mean, four, two, four, one, those aren't big difference. 00:08:53 Speaker 3: I was talking to Veronica Clark about this. It's Citigroup and the GDP. And I guess it comes into Claudia. I'm thinking of the late laureate, Ned Phelps at Columbia, the dynamism of the American economy. Are we getting sclerotic in our non AI world? 00:09:15 Speaker 4: It is really frustrating to look at the labor market at a moment like this where there really isn't a lot of dynamism. One thing I watch so closely, in addition to the hiring rate, is the quit rate, because. 00:09:26 Speaker 5: That's the opportunity for people to go find better jobs, better pay, deal with higher prices. And that quit rate is also low. We are just not moving people around. So it really is. 00:09:36 Speaker 4: There's so much tension to have a labor market that feels kind of stuck. where we're talking about transformative technology like it's like things are out of sync in a way that just doesn't feel like it can keep going. And yet it has we are like you know at least three years into this low higher low fire labor market this is not normal. 00:09:55 Speaker 2: How do you think the Fed is going to view- this print here this morning. 00:10:01 Speaker 4: I don't think this gives the Fed a lot of information. I don't think it'll really change what their approach. 00:10:06 Speaker 5: To monetary policy. 00:10:07 Speaker 4: Right now, they're trying to contain supply-driven inflation, like keeping a bad situation from getting worse. Fed officials have talked about what's a pretty modest adjustment in interest rates. 00:10:18 Speaker 5: They've done a quarter point. Maybe they do another, maybe two more this year. 00:10:21 Speaker 4: That is not a hiking cycle like 2022 when the labor market's overheating. 00:10:26 Speaker 5: We have 9% inflation. We are not in that world. 00:10:29 Speaker 4: The labor market is it's pretty stable it's not in a great place it's not the feds focus right now and really given their mandate and their tools i think it's appropriate for them to be focused on the inflation side but again they've had a pretty modest approach to monetary policy the markets seem to think about something a little more aggressive and maybe they should tone it you know back a little today but i don't think it really shifts the feds thinking. 00:10:52 Speaker 2: That much so with a little bit of hindsight here um What is the changed, reduced, more limited immigration policy? How is that impacting? Do we have any real hard data how that's impacting the labor market? 00:11:08 Speaker 4: There have been, I think, first some measurement challenges, right, just in both the surveys and also with employers and reporting. 00:11:16 Speaker 5: And we've not just a reduction in immigration. 00:11:18 Speaker 4: We've had, you know, temporary visa status revoked. And that revoked some of the work status. And then how do employers handle that? And when does it get reported? 00:11:26 Speaker 5: So it depends. 00:11:27 Speaker 4: We have, with a pretty big time lag, got a sense of what's actually happening in terms of our immigrant workforce. 00:11:34 Speaker 5: So we don't have a good handle of it. 00:11:36 Speaker 4: I think you can go to a few immigrant-intensive industries, like maybe in construction, and you see some wage growth pick up, which could be labor shortages. But, oh, yeah, we're also building a bunch of data centers. So that's pushing up construction. So it's really hard to pull it out. But it is clear the labor force growth is slowing, not just immigration, but that is a piece of the sharp change. 00:11:56 Speaker 3: Claudia Somm, safe travels. Thank you so much for joining us today. It's a woman's duty here from the University of Minnesota at Duluth. We are ever stronger here with futures up 69, the VIX 15.60, the 10-year yield in a solid seven basis points, 30-year bond even comes in as well. I guess a sigh of relief on worries of an overheating economy. She is an expert at this, Rebecca Patterson. joins us now, the Council on Foreign Relations. Let me go right to your work. I was at the Greenspan Memorial, just a fabulous effort by Jane Harmon and, of course, Andrea here, with all of the people showing up in honor of Alan Greenspan, some really frank talk about the arc of his work. And I was greeted by Sebastian Malaby, who's booked The Man Who Knew the Life and Times of Alan Greenspan. You have the privilege of doing a podcast with Sebastian at CFR, And your recent newly minted podcast is on central banks. What kind of bind are they in, given the drama I just saw on the Bloomberg screen? 00:13:02 Speaker 7: I mean, let's put the payroll data aside for a second, because the Fed and other central banks are looking not just at one number, but at a dashboard of numbers when they're making their assessment on labor and inflation. I think the challenge for the Fed, the challenge for all these developed markets, and even a few emerging central banks today, is that a lot of the pressure coming in are supply shocks. And central bank policy changes can't create a barrel of oil. They can't create more chips, et cetera. So it's hard for them to know how to respond to that. Now, some of this is demand driven, as we know. And the way I'm starting to think about the economy today and AI in particular is it's too much of a good thing. We have too much CapEx, literally, going in the economy. Brookings put out a paper recently suggesting 3.6% of GDP for about a decade. I mean, that's an incredible, incredible statistic. 00:13:57 Speaker 3: That's real GDP, folks. 00:13:59 Speaker 8: Yes. 00:13:59 Speaker 3: Okay, folks, let me translate. Paul, Banana Republic. Continue. Not the clothing store. 00:14:05 Speaker 7: So you've got this boost to growth, but as we just saw, it's not necessarily translating into an equal number of jobs. We have this need for energy that's pushing up inflation at the margin. And as Claudia Somm just mentioned, love to see her before me, although it's a lot of pressure on me. It sucks away- from everything else. And when I say sucks away, I mean, you don't have enough construction workers because they're all building data centers. You have pressure higher on treasury yields because you are now competing with all that AI debt. 00:14:39 Speaker 3: Paul, let me give you this statistic here. I think it's really important. I have a huge affection for Duluth that actually has to do with Rome, Italy. The poverty rate in Minnesota is 9%. Booming Minneapolis, data centers, the Mayo Clinic, the Minnesota Wild, everything. I won't mention the Twins. Brian, I'm sorry. I won't mention the Vikings. Okay. In Duluth, the poverty rate is almost double, 16.8%. That's the part of America flat on their back. Absolutely. 00:15:06 Speaker 6: Absolutely. 00:15:07 Speaker 2: So, Rebecca, what a lot of people are trying to understand, there's a lot of people in this market that have never seen yields at these levels. It's been a long time since we've seen yields at these levels. Is it fair to tell them This is kind of the new normal. This is actually normal when you look at it historically. And you better get used to these levels. Is that how you think about it? 00:15:25 Speaker 7: Yes, I think we are in a higher for longer regime. I think government bond yields, again, across a number of markets are resetting higher structurally. It doesn't mean they won't go up and down with the economic cycle. But the era that we had for 20 some years after the financial crisis in 08, where we had zero interest rates and very low yields, that's not coming back. 00:15:47 Speaker 3: Rebecca, you know that when we make a correction here, we have to do it immediately because the markets are riveted to what we say here in equities, bonds, currencies, commodities. Surveillance correction. Brian Belsky, thank you so much for emailing in. The Vikings are 3-0, and they got a gimme this weekend with the lousy Miami Dolphins. They're going to be on the edge of Duke, 4-0 in that. Let us continue our conversation on the American economy. 00:16:13 Speaker 2: So should we go in and lock in some yield here in the treasury bond market? I mean, these are coupons we haven't seen before. What do you think here? Do I buy the coupon here? Do I try to take some credit risk beyond that? 00:16:26 Speaker 3: What would you be doing at Bessemer Trust today? 00:16:28 Speaker 7: If I were still chief investment officer managing your money, I would not be adding to treasuries here. Now, if you're a very long-term investor and you're going to buy it and hold it till maturity, Fine. But I still think yields have more upside from here. I would be looking at other ways to have diversification in my portfolio. The problem right now, both of you know this, is if you're looking for countries that have better fiscal situations, we're talking countries like Singapore and Norway. And because they have good fiscal situations, they don't issue a lot of debt. So their debt markets are not very deep. So where you want to own the bonds, there aren't enough bonds to own. 00:17:05 Speaker 3: So what do you do? As I mentioned to Chris Waller at CFR, A year ago, I can't remember. He was running for office at the time. It's almost a double-R-starred America. 00:17:15 Speaker 2: Ooh, I love that. 00:17:17 Speaker 3: He liked it, too. I love that. And, you know, Waller's game theory is like to die for at Washington State. But it's a double-R-starred America. What does the Federal Reserve Bank president in Cleveland, what does she do worried about runaway inflation and higher rates? What does Beth do? 00:17:37 Speaker 7: Yeah, you have to set policy for the whole country. So you might have big disparities between Minneapolis and Duluth, but you have to set policy for the headline, not for certain pockets. That was part of the trouble the Fed got into in recent years when they started focusing on full employment policies. 00:17:56 Speaker 3: Remember? 00:17:56 Speaker 7: And instead of just having a neutral employment rate, and they wanted to, there was a diversity element that came into it, and it was seen as the Fed getting out of their lane. I think right now, inflation, even though we had a benign report earlier in a few days ago on core PCE, I think inflation's sticky. 00:18:15 Speaker 2: It's still above- Core service. 00:18:17 Speaker 3: I don't have the number in front of me. Core service was outrageous, Paul. 00:18:20 Speaker 7: I think you still need to be raising rates right now. The economy is strong. Even taking this payroll number out, it's strong. 00:18:28 Speaker 3: Paul, get one more question in here because she is wearing Viking purple today. 00:18:33 Speaker 2: Exactly. Yields are higher, but stocks are still powering through. 00:18:36 Speaker 3: Right. 00:18:36 Speaker 2: Is this simply an earnings story driving this market? 00:18:39 Speaker 3: Well, look. 00:18:40 Speaker 7: At the margin, slightly lower yield. The market's relieved about that. But I think what's going on here, you say, well, yields are up. Why aren't stocks down? Because part of what's driving this is the it's too good to be true. It's the AI capex. It's the wealth effect. So for now, earnings are providing a nice offset, and that's keeping stocks supported. The question is, where is the tipping point? Where are yields so high that that discount rate, that borrowing rate overwhelms the earnings story? We don't know where that is. 00:19:11 Speaker 3: And I beg, with Sebastian Malaby's visceral understanding of the continent of Europe. Yes. As a kid, his father was ambassador to Germany in a very challenging time. I'm begging you guys to do a podcast on France, on the continent. Yes. And on the bizarreness of the United Kingdom. 00:19:31 Speaker 2: That sounds fun to me. 00:19:32 Speaker 7: We did one earlier this week with Adam Posen from Peterson, who's wonderful. And we played a game of would you rather. Would you rather be a central banker in the UK or France today? And we made Adam pick. 00:19:45 Speaker 3: Really? We do that with John Tucker. We go, John Tucker, would you rather? be Alexis Christophorus or Michael Barr? 00:19:53 Speaker 6: Yeah, that's a tough choice, isn't it? 00:19:55 Speaker 3: Rebecca, thank you so much. Thank you. Rebecca Patterson with the Council on Foreign Relations. I work at Bridgewater and Bessemer over the years. Patterson lifts the market. Futures up 64, the VIX 15.52. As Paul mentioned, yields critical right now. They come in six basis points, which is where we want to go. What a joy this is. Our team is just really the cadence of Jobs Day folks. It's such a privilege here at Bloomberg to go from Priya Misra early on, Veronica Clark, As well, Christina Katmanino with Invesco. 00:20:31 Speaker 2: Christina hops into the seat, immediately logs into the Bloomberg column. She's ready to go. 00:20:36 Speaker 5: I see everything. 00:20:37 Speaker 2: There's too many things moving. 00:20:40 Speaker 3: Everybody today, you can't see this on radio. The girls are all decked out in scarves. Should I have a silk scarf? Get dressed up for radio. 00:20:49 Speaker 5: I think you could. 00:20:50 Speaker 8: If you're both high, you're ready to go. 00:20:52 Speaker 3: John, I'd look like I was on Hollywood Squares. It'd be great. 00:20:56 Speaker 6: Yeah, right in the center, the old Paul Lynn Square. 00:20:59 Speaker 3: Is the bond market caught asunder by this jobs report? Was there a bet out there that needs to be covered? I don't think so, actually. 00:21:09 Speaker 8: I think the markets and for the Fed, it is still primarily about inflation. I think the labor market has been rather resilient all year. And then I guess two months ago, we had that first big negative print, but it just kind of brought us like level set us back down to kind of this. maybe actually the run rate of breakeven payrolls is the 25 to 50 that we started the year talking about and not this massive acceleration. 00:21:34 Speaker 3: So I think we're still in. 00:21:35 Speaker 8: This low hire, low fire environment that Claudia spoke about. And I think the bigger question here is this continued inflation. And I think for the bond market, it's about global yields everywhere being higher. And how much is that actually? I think over the year, we've talked about this individual Japan story and this US story. And How much is it the tide that rises all ships? And there's a lot of Europe, obviously, you spoke about today. There's pain there. There's pain in positioning because people have had a tough year. 00:22:06 Speaker 2: Yeah. And part of that has been so much new issuance into the fixed income market. We have the hyperscalers. 00:22:11 Speaker 5: Absolutely. 00:22:12 Speaker 2: This week was a big week, you know, Paramount and SoftBank. And how is your market digesting that stuff? 00:22:19 Speaker 8: So, again, I think when we look at global bond markets and treasury markets everywhere and some of this higher yields across the board, part of it is just the glut of supply that's hitting the market. And the hyperscaler issuance has been huge. 00:22:34 Speaker 3: Huge. 00:22:36 Speaker 8: And even at we finally, I know, I feel like we're like the broken record that we're not very constructive on credit, whereas like every credit investor is like all in yield. But we're finally seeing a little bit of widening. Like we've seen, I think, 50 basis points-ish in high grade spreads this week. But still, we're starting from such extremely tight levels, even same thing. You look at Italy, Germany has moved a lot in the last couple of weeks, but we're at 125. In the last two years crisis, you were at 250. You can get meaningfully wider in these spreads. 00:23:12 Speaker 3: What is the financial media most getting wrong about price down, yield up in global bonds? 00:23:20 Speaker 8: I don't know that anyone that we're like getting the story wrong. I think there is a much more global nature to it that just how not that it's coordinated, but like that the pressure points from one to the other are all feeding into each other. And I think if you zoom out and look back at the year, maybe originally we didn't give as much credence to that of how much the initial pressures in Japan was feeding everywhere else. I think for the U.S., we want to talk about bond vigilantes and inflation pressure and all of this. But all things considered, like post-COVID, you had an inflation period in the U.S. with 9% inflation. Break-evens really never did anything. This has been a real yield move here. And if you actually went to the market really questioning Fed credibility and inflation, bonds can be a lot higher than where they are now. You know, this was like a let's re-rate where is growth. 00:24:15 Speaker 9: U.S. 00:24:15 Speaker 8: Growth has been much stronger, right? 00:24:17 Speaker 3: I'm begging for you to come back next week if you're in town. I would kill to have you back next week. Let's make a note of that. Just too short a time today. Christina Katmany, thank you so much. on this job stay as well. Let me summarize here. The dollar was a DXY 102. It's come in a little bit weaker dollar, but it's just amazing to see where levels are. I'd really single out Sterling, a 132.24. It's up right now, but it's at a really difficult level. morning to say the least. Oil, under $ 100. Brent, West Texas Intermediate, under $ 90 as well. I still have a bid to the market. We're a ways from the opening. We'll see how that works out. But futures up 66 right now. NASDAQ up a large 1.2%. 2%. I just can't pull the trigger on triple leveraged all cash. 00:25:12 Speaker 2: I feel comfortable. I don't know. The two-year, 472, not too bad. 00:25:16 Speaker 3: In from a 477. Yep. Stay with us. More from Bloomberg Surveillance coming up after this. 00:25:31 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:25:43 Speaker 3: You know, we don't like if somebody's wrong. I mean, trust me, folks, I've been wrong a million times. Tucker keeps track of it. But the answer is when you nail the jobs report like Nicole Bouchard. Over at ZipRecruiter, you go, why? What does she see that the other fancy people don't see? Nicole, ZipRecruiter is so granular. How did you get a tepid report right? And how did you get wage growth a little bit weaker right? 00:26:12 Speaker 9: I'm following the economic data at the BLS level, as well as indicators that we see on ZipRecruiter to really understand the direction that this labor market is moving. Overall, this slower job growth is leading to much lower turnover in the market. There's less opportunities for people to move between positions. That's putting downward pressure on wages. Inflation and general input cost increases is also adding to business pressures to lower wage growth. And that's why we're seeing that number come in still below inflation, causing a lot of affordability concerns for the majority of the U.S. 00:26:51 Speaker 3: Workforce. 00:26:52 Speaker 2: So why do you think job growth is sluggish, not great, whatever you want to call it here? 00:27:00 Speaker 9: We saw this great report in August that has kind of turned into this one-off moment in the summer. And it's likely that we're going to see much slower job growth like the September report for the rest of the year. In the last month, we saw treasury yields hitting a 20-year high and the Fed increased interest rates. Both of those things make borrowing money more expensive. So employers looking to expand their workforce, expand their operations, are now facing higher costs. That's added on top of the stubborn inflation that we've been seeing for many months, particularly when it comes to gas and grocery prices, changing consumer demand, changing those input costs for employers again. All of that leads to more pressure on employers to kind of pull back rather than to expand and to move forward with hiring. That leads to slower job growth, those lower wage gains, and again, that affordability pressure that's really put onto those workers who are seeing this come from both sides, both in the labor force and as consumers who are paying the final price for these products. 00:27:59 Speaker 2: Well, nominal GDP, I'm not sure whose number we should be using here, but it's north of 6% any way you slice it here. With that kind of growth, I thought we would have seen more consistent job growth, maybe even some wage growth, but I think it's kind of stagnant out there a little bit. 00:28:17 Speaker 9: You know, when you look at where investment is going, there's this huge investment push for AI, particularly these big data centers and this build out for the infrastructure to support this new technology. And while we're seeing some local labor markets adding jobs for these data centers, they don't really take that many people to operate the facilities once they're up and running. So the overall job boost from AI is quite low from the physical side of the equation. And workplaces are still figuring out how to integrate the technology and what to actually do with that. While our surveys at ZipRecruiter show that employers are looking to hire more with AI, the actual implementation of those plans has yet to really fully materialize in the market. The other side of why we're not seeing wage growth increase when we have a really high GDP is We've seen GDP growth, productivity in general, and wages kind of going in different directions for the last 20 years. We're seeing more of the profits and revenues that businesses are making going towards capital, like investments and shareholders, and less of that going into the pockets of the workers who are actually building and doing the work. 00:29:28 Speaker 3: Nicobo showed we continue. Labor economist at ZipRecruiter, she nailed the jobs report. To say the least, Drew Mattis at MetLife just publishes, Labor markets look soft to keep Fed on hold. in October, strong enough to keep December in play. That from Drew Mattis. We'll get him in here. This time he has to wear a bow tie. 00:29:47 Speaker 1: Is that right? 00:29:47 Speaker 2: Okay. 00:29:48 Speaker 3: Nicole was going to wear a bow tie today, but then she, you know, whatever. Nicole, I look at this and what I hear day to day to day is digital, like ZipRecruiter, has changed our labor economy. There's a whole cohort of people out there, mostly younger, who are putting out 400 resumes into a digital blur. Is this any way to run a labor economy? 00:30:14 Speaker 9: You know, we're seeing both the job seeker experience, the candidate experience of, you know, it's really easy to put out an application now. But we're also seeing that it's really difficult to actually be heard and to land into an inbox where you're actually going to hear back from an employer directly. Employers are also facing this struggle where they're integrating more AI and technology to streamline the candidate review process as they're getting more applications per job opening. Both sides are seeing that this technology is making some things easier, but it's also creating a lot more noise. That's really where we see the biggest problem on both sides is, We have all this technology, but people are really missing that human connection of getting the candidate in front of the employer, which is really the end goal of the whole process. 00:30:58 Speaker 3: Like the way it used to be, Paul, is did you play lacrosse at, were you on Johns Hopkins? Did you play lacrosse at Maryland? I can't remember. 00:31:07 Speaker 2: No, I learned at Lawrenceville, and that's about as far as I went. We all learned at the same time. Nicole, so it's all about labor today, but of course, the other side of the remit for the Fed is the inflation, and that's really the focus of this Federal Reserve conversation. what's your call on just inflation here? Because again, we saw that the wage growth wasn't that great today. 00:31:28 Speaker 9: Yeah, inflation is really being driven right now by high energy prices. Those high energy prices when the Iran war started were maybe seen as a short-term blip, but it's really looking like a long-term pressure on prices that's working its way throughout the market. As it becomes more expensive to fill up a tank for a big truck transporting goods across the country, those goods are going to become more expensive as those energy and gas prices remain elevated. And we're starting to see that across the economy now. So prices are up, groceries especially. Anything that has to do with transportation, we're really seeing a lot of pressure there. And that's why inflation is becoming a lot stickier, a lot more challenging. Housing inflation is also going to be somewhat of an issue still. But because of the affordability concerns, especially with higher mortgage rates, that's coming down a little bit. 00:32:18 Speaker 3: Nicole killed it. Nicole Bouchard, labor economist, super recruiter, with a nice tone on this jobs report. Stay with us. More from Bloomberg Surveillance coming up after this. 00:32:37 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. 00:32:43 Speaker 2: Eastern. 00:32:43 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. 00:32:50 Speaker 3: With RBC, the Royal Bank of Canada, great synthesis. On the economy, Francis Donald joins us now, chief economist, RBC. Francis, do you have to make a lot of adjustments in Y equals C plus I plus G plus NX? Do you have to make a tweak here into the weekend after this jobs report? Oh, no way. 00:33:12 Speaker 10: We are trend watchers, Tom. We're looking at how are things moving over a three-month, six-month type of move. We are listening to Chair Warsh. It is not about month-to-month moves. But more importantly, we have been believers, we continue to be believers that this is a very strong job market. And yes, this number is not great. There's no industry that's meaningfully driving job creation. Healthcare, which has really been the main contributor, that slowed from about $ 33, 000 a month to $ 17, 000 a month. But an unemployment rate of 4.2, it's actually slightly less than 4.2, 4.175% is still very strong. And look at the underlying labor market here. The job finding rate is high for the second consecutive month. Separations are low. And the break-even rate for job creation in the United States, by our estimate, is is around 20,000. So if we're adding 29,000, this is just fine. So I'm looking at a labor market that is actually, for me, best of both worlds, Tom. It is showing us that the economy is not overheating. We don't need to worry about demand-side inflation, which is good news for the Fed, but it's still fundamentally strong. 00:34:36 Speaker 2: Does this data report that maybe the trend suggests that the Fed maybe doesn't have to be as aggressive in raising rates here? 00:34:48 Speaker 10: Well, the Fed is slash should be raising rates in our view to combat inflation. And whether or not they're going to be swayed by one month depends on whether Chair Warsh's uh reflecting the entire committee when he says it's not about one month to month moves and it's about five and a half years of above uh two percent inflation or not but clearly the markets are saying actually no this is a fed that is still very focused on the month to month and this does give them a bit of breathing room particularly they're going to be looking at hourly wages that's not my favorite measure i'd rather look at weekly wages That's how much money you get home at the end of the week. And they're going to say there's no urgency on the job side of the mandate to respond with higher hikes in October. Maybe we can wait till December. 00:35:38 Speaker 3: What's the contagion factor out there? Francis, as you write for Montreal and for all of Canada right now with a global view, how do you measure the contagion and angst that we see in select markets? 00:35:54 Speaker 10: There's a lot of concern about what the moves in the U.S. bond market mean globally. For our European clients, I was on the west coast of Canada this week, and this was all we were talking about is, is that long end of the curve driving up. 00:36:10 Speaker 3: Rates globally or And if. 00:36:12 Speaker 10: It is, how is that going to slow the economy? And frankly, what strikes me as most interesting is that most businesses are not asking, is the Fed going to hike at the next meeting? And even is the Bank of Canada going to hike? That's been pulled into the conversation as well. But what does this belly in the long end of the curve mean? And some of the conversations we've been having is that for the past 15 years or so, the story has been the bond market is watching the central banks. And now that's shifting entirely to the central bank's watching the bond market and businesses are having to respond not to incremental moves from Chair Warsh or Governor Macklem or ECB President Lagarde, but to how the global markets are pricing in what it should cost to borrow. And that's a tone shift from just the real economy compared to where we've been, frankly, without hyperbole for the past 15 years. 00:37:02 Speaker 2: So, Frances, I'm looking at average hourly earnings on an annual basis, 3.1 percent. I'm pretty sure Inflation's probably at or above that level here. How's that impacting the consumer out there? 00:37:16 Speaker 10: It's a great question. We're thinking a lot about wages because maybe I can lean into the two-handed economist trope for a second. On one side, wages matter way less to the broader economy than they have historically, in part because the population's getting a lot older. 00:37:33 Speaker 9: Wages are only 50%. 00:37:35 Speaker 10: 50% of income in America now. 20% of take-home pay, great, is government transfers. 20%, $ 1. 05 going into the pockets of Americans is government transfers. And a huge chunk of that, Social Security, guess what? It's inflation adjusted. If you're bringing home Social Security, you are going to get probably about a 3.5% raise next year because we already know the colas for next year. And so your segment of the economy that is going to be responsive to wage growth is actually shrinking much smaller. And yet, if you are actually bringing home a wage and that is your predominant form of income for low and middle income consumers, real wages have been negative since April. 00:38:19 Speaker 2: It matters deeply to them. 00:38:20 Speaker 3: Francis, don't move. Stay with us. This is classic Francis Donald. 00:38:24 Speaker 2: Yeah, of course. 00:38:26 Speaker 3: I had no idea the wage income was that low of a number. of our total income. What I know is the markets are open. We need to dash to John Tucker. John. All right. 00:38:37 Speaker 6: There you have it. Well, maybe they need to tune out the bell at the New York. 00:38:42 Speaker 3: There we go. 00:38:43 Speaker 6: There we go. Ding, ding, ding, ding, ding. 00:38:46 Speaker 3: The big, The big blue. 00:38:47 Speaker 6: Opening bell at the New York Stock Exchange. Yeah, how cool is that? Right out of the gate, the Dow up 341 points of seven-tenths of a percent. S & P 500 up 67 points of nine-tenths of a percent. The Nasdaq Composite Index up 335 points. That's a rise of one and a quarter percent. Some of the individual shares on the move, shares of Nike, 7.3% lower Tesla shares. After reporting those sales figures, the delivery figures up 2.4%. The New York Giants ringing the opening bell. Yeah, the 40th anniversary. 00:39:26 Speaker 3: Oh, my God. 00:39:27 Speaker 6: I feel old. So who do we see there? Phil Sim. Harry Carson, who's one of the nicest people in the world, and Carl Banks, the 1986 Super Bowl championship. 00:39:37 Speaker 2: I'd suit those guys up again. 00:39:39 Speaker 6: Yeah, I didn't see Odell Beckham Jr. 00:39:42 Speaker 3: Up there. 00:39:43 Speaker 6: We check the markets for you all day long, right here on Bloomberg Radio. I'm John Tucker. That's your opening bell report, Paul and Tom. 00:39:50 Speaker 3: John Tucker, thank you so much. Dow up 330 points. Pretty much equivalent, maybe not quite the lift we saw in futures. NASDAQ up 1%. Paul Sweeney with Francis Donald of RB6. 00:40:03 Speaker 2: Frances, what's your call on inflation these days? We're trying to just watching energy prices whip around on a daily basis. So what's the underlying inflation in your mind? 00:40:13 Speaker 10: It's probably mid twos and maybe even higher. I am concerned about inflation. It's moving in the wrong direction and it has a lot of breadth. And so you've got about 55% of items in the CPI basket that are growing above 3%. There's goods inflation, which we believe hasn't even seen the full impact of the tariffs and of course energy coming through. 00:40:38 Speaker 3: Wow. 00:40:39 Speaker 10: Services inflation is not going to see much relief either. And then you have this underlying AI inflation that's coming through the system. And we're not entirely convinced that's even interest rate sensitive. So when I think about sticky high inflation, my main concern is I don't see a pathway out of it. I can see a pathway to averaging 2%, and that's creating weakness in one segment of the economy. But this is, I think, a sort of semi-permanent state of this mid-twos drifting towards threes inflation for at least a year here. 00:41:16 Speaker 3: Francis, thank you so much. Really appreciate it. This morning, Frances Donald with us. She'll publish for RBC. And look for that from RBC Capital. Stay with us. More from Bloomberg Surveillance coming up after this. 00:41:38 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:41:51 Speaker 3: You get lucky. This is the interview of the day. I'm supposed to talk to Hugh von Steenis of Apollo about the wonderful giant of UK economics, Charles Goodhart. But we're going to rip up the script. Why are we going to do this? There's a point where you start out. People trot out Hugh von Steenis and they say, well, he did this. You know, he used to skate with Mark Carney. You know, if Carney would be in the goal and he would have to take shots at him and not embarrass him on the blocker side. The important thing is Hugh von Steenis cut his teeth for 14 years at Morgan Stanley in banking. And what's going on in my Bloomberg screen, we're ripping up the script this morning. with Hugh von Steenis, of course, his work, public service to the United Kingdom, and now to Apollo. Hugh, I look at this moment, it's modded by a sudden drop in euro, and finally Swiss franc moves to strength. What is the financial condition of the banks and the non-banks that you're expert on in Europe? 00:42:58 Speaker 11: Having me on, you know, I think it's fascinating. There was a financials conference here in London last week with 90 of the CEOs and CFOs. And actually the line from them was that European banks are probably in their best health for 30 years. They've got a reasonable yield curve. The credit conditions are benign. There's been a bit of a pickup in loan growth. And actually, they're starting to get investing in technology. And so, oddly enough, they were arguing this is actually a good environment in the last 30 years. And the benefit has been, despite all the shocks and the energy shock clearly today with diesel and gas, is that the economy has been pretty resilient. So what we're seeing is an economy which is fraying. There's definitely some stress in the system coming from the energy prices, but actually the economy and the banks still continue to be in very resilient health. 00:43:50 Speaker 3: What does France signal to you? And not just the simplistic idea of the French-German difference in yield, but the sophistication that Apollo looks at in swap markets, in private relationships. How fragile is France? 00:44:08 Speaker 11: Look, I think the issue here is thinking about the macro conditions and fiscal consolidation. And I think what we've seen across many European countries and also in the States is the pressure to continue to spend on entitlements is very strong. And therefore, with that pressure, the ability to consolidate the fiscal position is really quite difficult. So, you know, investors are posing the natural questions that you would also have, Tom. It's about how high can rates go? How rate sensitive is the economy? What does that mean for economic growth? But I come back to it when you talk to the leaders of the companies, when you talk to the financiers, they're trying to problem solve. And so for every stress and pressure on the system, there's a lot of problem solving going on. And I think in a way, post the pandemic, leaders have realized that they can pull levers. And therefore, I really would think that despite the obvious issues on the tape, the resilience and the ability of managers to pull levers, I think, is not to be understated. 00:45:06 Speaker 2: Hugh, one of the drivers for higher global rates has been the new issuance from corporate In that particularly investment grade market, a lot from the hyperscalers and AI developers here, even in Europe, I mean, 48 billion in bonds and European currencies this year. How has the European market digested that new issuance, which has been significantly higher than maybe last year? 00:45:30 Speaker 11: Oh, Paul, I think this is a really interesting issue and obviously one you know well from your prior life too. Look, so issuance of reverse Yankees, so the hyperscalers issuing Europe, has tripled this year or already on last year and probably will end up quadrupling. And so in some markets, so I think in the Eurozone, it's taken about 8% of the investment-grade bond market this year. Actually, in the Swiss franc, in Swissies, it's over 20% of investment-grade bond issuances by the hyperscalers this year. It's a really meaningful issue. change in the composition of European credit markets. Now, the good news is so far that's been digested quite well. Now, part of that is because the hyperscalers are issuing at longer duration than a typical European corporate is. But also, if I compare the non-hyperscalers, they've probably issued roughly the same amount this year in Europe as they did last year with comparable spreads. And the hyperscalers have been the additional which has been absorbed so far. But I think as Torsten and I debate regularly, hyperscaler issuance needs to be up another 25% next year, if you look at consensus numbers, and therefore they'll probably be coming back even in more size to Europe. And so I think for us, Apollo, that speaks to also the importance of both private and public markets, because the sheer scale of this issuance is meaning they need to dip into every pond. And actually, you know, Swissies and euros and pounds are very attractive to them. 00:46:52 Speaker 2: How about in the private market? Give us a sense of just in Europe, across Europe, how is the private market, the private debt market in particular, how is that developing and evolving? It's a good question. 00:47:04 Speaker 11: So I think, as you know, we think about both the private markets being both investment grade and the direct lending. Direct lending is a function really of sponsor activity. Private equity activity, as you know, is down a little bit this year. I think in M & A it's down about 9% year on year. So there's a little bit less on the sponsor side. But actually one of the biggest sources of growth has actually been this sort of investment grade, you know, corporates looking to borrow 3 billion here, 4 billion there for really major projects. And so in a way, the interesting new development in Europe is how project finance is increasingly coming to the private credit market rather than to the banks or to the bond markets. And that's something I think we're going to be seeing a lot more about in the future. 00:47:45 Speaker 3: You know, you should understand that Hugh von Steen, his kids are so damn expensive, he's like an FX trader. It's amazing. So we look at cable, the sterling versus the US dollar. I know over there it's about euro sterling. Francine Lacroix taught me that. You're well outside two standard deviations of a really fractured euro Versus, I guess, a sort of fractured sterling. Is sterling going to give way here? I mean, can you imagine a 129 weaker sterling on cable? 00:48:20 Speaker 11: Look, this is an interesting one. Remember, Tom, I still think about cable a lot as well. And I think about even when I first lived in New York in the early 90s, the dramatic change. Look, I think that what you're seeing here is that because of the fiscal position in the UK, our rates are going up. We're 6% at the long end. We're 5.4% at the 10-year. I think even your own colleagues at Bloomberg are thinking there's an extra 30 bips in the UK curve because of the history that we've had in the last few years. So we're needing to pay that little bit more to issue. And that's keeping the currency where it is. So I think it's something to watch. But I don't think I've got a strong call for you today. 00:48:57 Speaker 3: Hugh, thank you so much. Hugh Van Steenis, we were going to speak of Professor Goodhart, but with the events at hand, wonderful to get his banking expertise. Mr. Van Steenis is with Apollo. 00:49:08 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.