1 00:00:01,080 --> 00:00:04,040 Speaker 1: The US labor market looked pretty strong in June. Pay 2 00:00:04,120 --> 00:00:07,240 Speaker 1: Rolls were up two two thousand, more than expected. The 3 00:00:07,320 --> 00:00:10,520 Speaker 1: unemployment rate was four point four percent, still close to 4 00:00:10,520 --> 00:00:13,000 Speaker 1: a sixteen year low, and people are coming off the 5 00:00:13,039 --> 00:00:16,640 Speaker 1: sidelines and finding work. It's all strong except for one thing. 6 00:00:17,120 --> 00:00:20,000 Speaker 1: Wages just aren't rising any faster than they have been 7 00:00:20,040 --> 00:00:23,760 Speaker 1: for eighteen months now. The question is why we're going 8 00:00:23,800 --> 00:00:25,400 Speaker 1: to break it all down for you with one of 9 00:00:25,440 --> 00:00:39,320 Speaker 1: Bloomberg's crack economists today on Benchmark. I'm Scott Lanman, an 10 00:00:39,360 --> 00:00:42,960 Speaker 1: economics editor with Bloomberg in Washington, and I'm Daniel Moss 11 00:00:43,040 --> 00:00:46,600 Speaker 1: from Bloomberg View in New York. Wait. Dan, that's actually 12 00:00:46,640 --> 00:00:48,240 Speaker 1: a new role for you. Tell tell us a little 13 00:00:48,240 --> 00:00:50,840 Speaker 1: bit more about it. It is a new role. I'm 14 00:00:50,920 --> 00:00:54,800 Speaker 1: moving from behind the scenes to a little bit more 15 00:00:54,840 --> 00:00:58,200 Speaker 1: of a consumer facing role. I'll be rotting some columns 16 00:00:59,120 --> 00:01:03,600 Speaker 1: about the global economy, and I will be helping generally 17 00:01:04,560 --> 00:01:08,360 Speaker 1: deepen our coverage of the wonderful world of economics from 18 00:01:08,400 --> 00:01:12,120 Speaker 1: Bloomberg View, our commentary and analysis section. And the good 19 00:01:12,120 --> 00:01:14,120 Speaker 1: news is you're still going to be continuing to be 20 00:01:14,200 --> 00:01:17,520 Speaker 1: my co host on Bloomberg Benchmark. Right from my perspective, 21 00:01:17,680 --> 00:01:20,119 Speaker 1: it's great news. We'll have to ask the listeners how 22 00:01:20,120 --> 00:01:23,720 Speaker 1: they feel. Excellent. Well, joining us now in our New 23 00:01:23,760 --> 00:01:26,959 Speaker 1: York studio with dan Is Elena shuliettiv, a senior US 24 00:01:27,000 --> 00:01:30,880 Speaker 1: economist with Bloomberg Intelligence. Elena, thanks for spending time with 25 00:01:30,959 --> 00:01:35,720 Speaker 1: us today. It's my pleasure, all right. So Yelena, it's 26 00:01:35,760 --> 00:01:39,600 Speaker 1: another first Friday of the month, another disappointing wage figure. 27 00:01:40,400 --> 00:01:43,920 Speaker 1: What is going on here and why can't the average 28 00:01:43,920 --> 00:01:46,600 Speaker 1: American catch a break with seeing a little bit more 29 00:01:46,600 --> 00:01:51,120 Speaker 1: money in their wallet? Well, you're right, job gains are ongoing, 30 00:01:51,680 --> 00:01:56,360 Speaker 1: but we don't see that much of a pickup in wages. 31 00:01:56,920 --> 00:02:02,280 Speaker 1: So every hourly earnings rising, but only slowly. And that 32 00:02:02,400 --> 00:02:07,320 Speaker 1: is not particularly great news for the consumer because you 33 00:02:07,440 --> 00:02:12,680 Speaker 1: really need to see your wages grow to be able to, uh, 34 00:02:12,760 --> 00:02:16,200 Speaker 1: you know, go there and spend it. Also, the economy 35 00:02:16,639 --> 00:02:20,919 Speaker 1: is greatly dependent on the consumer, and the consumer are 36 00:02:20,960 --> 00:02:25,239 Speaker 1: not getting as much of an income growth as they 37 00:02:25,320 --> 00:02:28,600 Speaker 1: would like. Let's drill down there a little bit. The 38 00:02:28,720 --> 00:02:31,840 Speaker 1: US economy has been growing for eight years, though it 39 00:02:31,880 --> 00:02:35,920 Speaker 1: may sometimes not seem like it. The unemployment rate is 40 00:02:36,040 --> 00:02:41,600 Speaker 1: low by historical standards at this point in previous episodes 41 00:02:41,600 --> 00:02:44,240 Speaker 1: in history. Wages are starting to go through the roof 42 00:02:44,720 --> 00:02:48,320 Speaker 1: what's happening? Why is that broken? Uh? It is happening 43 00:02:48,400 --> 00:02:52,320 Speaker 1: because there is so much slack in the labor markets still, 44 00:02:52,560 --> 00:02:56,520 Speaker 1: even with four point four unemployment. Absolutely, because some people 45 00:02:56,800 --> 00:02:59,400 Speaker 1: are working part time, but they really want to work 46 00:02:59,400 --> 00:03:03,280 Speaker 1: full time, and that is creating an extra slack in 47 00:03:03,280 --> 00:03:06,280 Speaker 1: the labor market. Some people are looking for a job, 48 00:03:06,520 --> 00:03:09,960 Speaker 1: but maybe they're not looking as hard as they used to, 49 00:03:10,400 --> 00:03:14,640 Speaker 1: and there are really good reasons for that. So there's 50 00:03:14,680 --> 00:03:17,520 Speaker 1: still a lot of people who really want to work 51 00:03:17,600 --> 00:03:20,959 Speaker 1: more but they can't. Let's not get too downbeat, folks, 52 00:03:21,680 --> 00:03:23,560 Speaker 1: I mean, you still have some really good numbers here 53 00:03:23,600 --> 00:03:27,000 Speaker 1: that show something in the labor market is clicking, even 54 00:03:27,080 --> 00:03:29,720 Speaker 1: if the wages aren't going up so much. Uh, some 55 00:03:29,800 --> 00:03:32,639 Speaker 1: of the figures that we found show people are coming 56 00:03:32,639 --> 00:03:35,680 Speaker 1: off the sidelines. People who who were not looking for 57 00:03:35,760 --> 00:03:40,120 Speaker 1: work are suddenly getting jobs. Uh. Isn't that good also 58 00:03:40,280 --> 00:03:42,800 Speaker 1: for consumer spending, even if you're not getting as much 59 00:03:42,840 --> 00:03:48,480 Speaker 1: of a fast gain in people's wallets. Absolutely, and today's 60 00:03:48,520 --> 00:03:53,320 Speaker 1: report actually indicated an increase in aggregate hours worked, so 61 00:03:53,640 --> 00:03:57,160 Speaker 1: people work more hours even though they were not getting 62 00:03:57,240 --> 00:04:02,040 Speaker 1: paid too much more. They're still working a little bit 63 00:04:02,080 --> 00:04:06,040 Speaker 1: more around more jobs out there, So in aggregate, that 64 00:04:06,160 --> 00:04:13,160 Speaker 1: means growth in income in personal income is slightly moving higher. 65 00:04:13,480 --> 00:04:18,080 Speaker 1: So again this will suggest that consumer spending in turn 66 00:04:18,360 --> 00:04:21,640 Speaker 1: will also move higher this year. So it's positive for 67 00:04:21,680 --> 00:04:25,440 Speaker 1: the consumer and it is positive for the economy overall. Look, 68 00:04:25,480 --> 00:04:27,880 Speaker 1: I don't want to sound like a wet blanket and Scott, 69 00:04:27,920 --> 00:04:31,680 Speaker 1: you're absolutely right, there was plenty of good news in 70 00:04:31,680 --> 00:04:33,880 Speaker 1: this job's report, but I want to get back to 71 00:04:33,960 --> 00:04:39,320 Speaker 1: the wages thing, because for modern policy making history, let's 72 00:04:39,320 --> 00:04:45,480 Speaker 1: say post nine, Okay, at least, there's been this idea, 73 00:04:45,640 --> 00:04:49,680 Speaker 1: this prevailing wisdom that once the unemployment rate gets this low, 74 00:04:50,400 --> 00:04:55,000 Speaker 1: things are supposed to start happening. Wages are supposed to 75 00:04:55,040 --> 00:04:59,560 Speaker 1: be starting to, if not explode, definitely get moving. And 76 00:04:59,640 --> 00:05:02,240 Speaker 1: you know, you could argue around the margins there's a 77 00:05:02,360 --> 00:05:07,719 Speaker 1: movement there, but the numbers today certainly don't look like it. Again, 78 00:05:08,440 --> 00:05:12,359 Speaker 1: is this model broken? So without getting into the weeds 79 00:05:12,400 --> 00:05:18,400 Speaker 1: of the Phillips curve and a lot of other economist jargon, uh, 80 00:05:18,520 --> 00:05:22,800 Speaker 1: what it really means is that this business cycle is 81 00:05:22,880 --> 00:05:27,599 Speaker 1: different from the previous business cycles. And yes, indeed, the 82 00:05:27,680 --> 00:05:32,880 Speaker 1: declines in the unemployment rate don't translate in uh wage 83 00:05:32,880 --> 00:05:36,960 Speaker 1: pressures that are really rising. So what it means for 84 00:05:37,440 --> 00:05:41,040 Speaker 1: the consumer for a regular American is that actually it 85 00:05:41,120 --> 00:05:46,159 Speaker 1: raises questions about job insecurity. So think about it this way. 86 00:05:46,440 --> 00:05:51,520 Speaker 1: So if the employer lets somebody go, they can easily 87 00:05:51,560 --> 00:05:55,760 Speaker 1: replace this person with somebody else, and they don't need 88 00:05:55,800 --> 00:05:59,680 Speaker 1: to pay an extra buck to uh actually hire this 89 00:06:00,320 --> 00:06:04,960 Speaker 1: other person. So you can easily replace people, and you 90 00:06:04,960 --> 00:06:09,119 Speaker 1: can easily fire people. So that actually means a little 91 00:06:09,120 --> 00:06:13,600 Speaker 1: bit more job insecurity for a regular American. All Right, 92 00:06:13,680 --> 00:06:16,120 Speaker 1: hold that thought, Elena. When we come back after a 93 00:06:16,200 --> 00:06:18,839 Speaker 1: quick message from our sponsor, I'd like to ask what 94 00:06:19,040 --> 00:06:25,640 Speaker 1: this means for President Trump, Elena. President Trump has talked 95 00:06:25,640 --> 00:06:29,240 Speaker 1: a lot about the tony unemployment rate, even though he 96 00:06:29,279 --> 00:06:32,000 Speaker 1: seems to have walked that back a little bit. The 97 00:06:32,040 --> 00:06:35,920 Speaker 1: fact that there are billions and millions of people who 98 00:06:36,600 --> 00:06:39,640 Speaker 1: are on the sidelines and still want a job but 99 00:06:40,120 --> 00:06:43,000 Speaker 1: haven't been able to get it in this environment, is 100 00:06:43,040 --> 00:06:47,280 Speaker 1: he going to see this latest report as a success 101 00:06:47,400 --> 00:06:49,880 Speaker 1: or in some other way? Well, the message from the 102 00:06:49,960 --> 00:06:54,599 Speaker 1: U S. Economy to President Trump and to well any 103 00:06:54,720 --> 00:06:59,280 Speaker 1: policymaker is that the economy is doing great, and probably 104 00:06:59,400 --> 00:07:02,760 Speaker 1: now is the best time to do something in terms 105 00:07:02,839 --> 00:07:08,120 Speaker 1: of potential economic growth, so you can easily work on 106 00:07:08,200 --> 00:07:13,760 Speaker 1: things like infrastructure spending, UH, comprehensive text reform, things that 107 00:07:13,840 --> 00:07:18,120 Speaker 1: were discussed quite substantially on the campaign trail, but we 108 00:07:18,200 --> 00:07:21,920 Speaker 1: still lack any progress on that front. So now it's 109 00:07:21,960 --> 00:07:26,680 Speaker 1: the perfect time to to work on those initiatives, because again, 110 00:07:26,720 --> 00:07:30,840 Speaker 1: the economy is doing great in a sense, even though 111 00:07:30,880 --> 00:07:34,440 Speaker 1: we don't see that much of a wage pressures, but 112 00:07:35,160 --> 00:07:39,640 Speaker 1: overall we are in a very sweet spot. So just 113 00:07:39,680 --> 00:07:43,560 Speaker 1: do something about the potential growth of the economy so 114 00:07:43,600 --> 00:07:49,440 Speaker 1: that in future years we can continue to grow solidly. Now, 115 00:07:49,480 --> 00:07:54,000 Speaker 1: earlier in this conversation, you twice referred to regular Americans. 116 00:07:54,280 --> 00:07:57,560 Speaker 1: I want to pull the lands back just a little bit. 117 00:07:58,240 --> 00:08:03,040 Speaker 1: The full employment versus low wage growth phenomenon is not 118 00:08:03,200 --> 00:08:06,640 Speaker 1: unique to this country. If you look pretty much across 119 00:08:06,720 --> 00:08:10,160 Speaker 1: the G seven, and in some countries that are not 120 00:08:10,280 --> 00:08:13,840 Speaker 1: part of the G seven, same phenomenon as being observed. 121 00:08:14,360 --> 00:08:18,920 Speaker 1: So again I'm just thinking about this model. Look at Germany, 122 00:08:19,040 --> 00:08:23,040 Speaker 1: look at the United Kingdom with Japan, what is going 123 00:08:23,080 --> 00:08:26,280 Speaker 1: on here? Still no wages? So it's not just here 124 00:08:26,800 --> 00:08:30,320 Speaker 1: I don't think the model is broken. It just probably 125 00:08:30,400 --> 00:08:35,920 Speaker 1: takes longer for wage pressures to emerge. So maybe the 126 00:08:36,040 --> 00:08:40,720 Speaker 1: natural rate of unemployment is lower than many economists think, 127 00:08:41,040 --> 00:08:45,320 Speaker 1: so it's not directly observable. So we know that in 128 00:08:45,400 --> 00:08:50,920 Speaker 1: the US in the latest summer of economic projections, policymakers 129 00:08:51,160 --> 00:08:56,360 Speaker 1: revised the natural rate of unemployment. So that means maybe 130 00:08:56,400 --> 00:08:58,920 Speaker 1: we need to go even further down in terms of 131 00:08:58,920 --> 00:09:02,880 Speaker 1: the unemployment rate to see a meaningful pickup in wages. 132 00:09:03,960 --> 00:09:07,959 Speaker 1: I don't think the model is broken. It's probably bent, 133 00:09:08,360 --> 00:09:11,600 Speaker 1: but and it will just take a little bit more 134 00:09:11,679 --> 00:09:15,720 Speaker 1: time for which pressures to pick up. So you don't 135 00:09:15,720 --> 00:09:17,480 Speaker 1: think we should go looking for it the way we're 136 00:09:17,480 --> 00:09:20,679 Speaker 1: looking for Jimmy Hoffer's grave. I mean, it's there somewhere, 137 00:09:20,760 --> 00:09:25,240 Speaker 1: right somewhere, but I don't think. I don't think we 138 00:09:25,320 --> 00:09:30,600 Speaker 1: need to just say that's it yet. At least I 139 00:09:30,640 --> 00:09:35,959 Speaker 1: think we can wait a couple of quarters maybe to 140 00:09:36,160 --> 00:09:41,120 Speaker 1: see some pickup. In fact, the modest, but it is 141 00:09:41,160 --> 00:09:45,440 Speaker 1: still a pickup in wages. And UH income growth is rising, 142 00:09:45,640 --> 00:09:50,600 Speaker 1: it's trending higher. So for example, income is growing at 143 00:09:50,880 --> 00:09:54,720 Speaker 1: for a half percent now versus below four percent in 144 00:09:54,760 --> 00:09:57,480 Speaker 1: the beginning of the year. It's a modest pickup, but 145 00:09:57,520 --> 00:10:00,120 Speaker 1: it's still a pickup. So we'll have to wait a 146 00:10:00,120 --> 00:10:02,920 Speaker 1: little bit longer and be a little bit more patient 147 00:10:03,280 --> 00:10:08,160 Speaker 1: to see wage precious Helena. The policymakers who pull the 148 00:10:08,240 --> 00:10:11,520 Speaker 1: levers of the economy at the Federal Reserve have been 149 00:10:11,520 --> 00:10:15,160 Speaker 1: talking about raising interest rates further later this year and 150 00:10:15,240 --> 00:10:18,600 Speaker 1: next year they're going to start rolling off their balance sheet. 151 00:10:18,920 --> 00:10:21,120 Speaker 1: All these things are going to probably make it more 152 00:10:21,160 --> 00:10:25,560 Speaker 1: expensive for average Americans to buy a car or buy 153 00:10:25,679 --> 00:10:28,280 Speaker 1: a house. Now, when they look at this report, do 154 00:10:28,360 --> 00:10:31,600 Speaker 1: they see everything as hunky dory or are they going 155 00:10:31,640 --> 00:10:34,720 Speaker 1: to say, well, wait a minute, wages still aren't going up, 156 00:10:35,080 --> 00:10:39,480 Speaker 1: maybe we should put on the brakes on our plans here. Well, uh, fair, 157 00:10:39,880 --> 00:10:45,920 Speaker 1: the fit is worried about financial conditions, so, uh, financial 158 00:10:45,960 --> 00:10:50,640 Speaker 1: conditions have become much much easier. So you see a 159 00:10:50,720 --> 00:10:55,800 Speaker 1: pickup in stock prices, and uh that is making them 160 00:10:55,840 --> 00:10:59,840 Speaker 1: a little bit uncomfortable, so they want to tighten policy, 161 00:11:00,400 --> 00:11:05,800 Speaker 1: and uh, the employment goal that they have is telling them, yes, 162 00:11:05,960 --> 00:11:09,400 Speaker 1: go ahead and do it. They are missing on their 163 00:11:09,440 --> 00:11:14,160 Speaker 1: inflation target, so inflation is still not picking up. It's 164 00:11:14,200 --> 00:11:18,320 Speaker 1: still below two percent, and that is really a big 165 00:11:18,360 --> 00:11:23,520 Speaker 1: puzzle because, uh, this has to pick up with unemployment 166 00:11:23,600 --> 00:11:27,000 Speaker 1: rate going down. So what they're telling us is that 167 00:11:27,080 --> 00:11:30,760 Speaker 1: it is just a temporary thing, and uh that the 168 00:11:30,800 --> 00:11:36,360 Speaker 1: slowdown inflation is transitory, to use their language. So, uh, 169 00:11:36,520 --> 00:11:40,160 Speaker 1: we think that it is transitory indeed, but more in 170 00:11:40,160 --> 00:11:43,679 Speaker 1: a medium term. So we will see wage pressures and 171 00:11:43,720 --> 00:11:47,200 Speaker 1: we will see inflation pressures, but it's just gonna take 172 00:11:47,240 --> 00:11:52,160 Speaker 1: a little bit more time than policymakers and uh like 173 00:11:52,280 --> 00:11:57,360 Speaker 1: usual models, usual economic models are telling us. So policymakers 174 00:11:57,400 --> 00:12:01,480 Speaker 1: will continue to tighten policy, but only a dually. Bloomberg 175 00:12:01,520 --> 00:12:06,640 Speaker 1: Intelligence is expecting another retail Yes, that's us economist at 176 00:12:06,840 --> 00:12:11,880 Speaker 1: Bloomberg Intelligence here. We are expecting another rate hike, probably 177 00:12:11,920 --> 00:12:15,800 Speaker 1: by the end of the year. But before that, we 178 00:12:15,920 --> 00:12:18,720 Speaker 1: think that the Fed will start unwinding their balance sheet. 179 00:12:19,080 --> 00:12:22,880 Speaker 1: They really want to start the process before Chair Yellin's 180 00:12:23,040 --> 00:12:27,080 Speaker 1: term expires in February of next year, lest we get 181 00:12:27,080 --> 00:12:29,480 Speaker 1: too lost in the weeds. I just want to come 182 00:12:29,480 --> 00:12:33,679 Speaker 1: back to this wages issue again. Our colleagues Patricia Lair 183 00:12:33,760 --> 00:12:37,920 Speaker 1: and David Flatley published a story this week saying that 184 00:12:38,080 --> 00:12:42,000 Speaker 1: actually recruitment firms are having a bumper year and people 185 00:12:42,040 --> 00:12:45,640 Speaker 1: are prepared to pay up to get people. So is 186 00:12:45,679 --> 00:12:48,959 Speaker 1: it a case of people in their existing jobs basically 187 00:12:49,000 --> 00:12:52,920 Speaker 1: just need to demand more or maybe the workers arise. 188 00:12:53,160 --> 00:12:56,360 Speaker 1: I know you grew up in Russia. Dust off your lenin, right, 189 00:12:56,920 --> 00:13:00,199 Speaker 1: workers arise? What more do you have to lo is 190 00:13:00,240 --> 00:13:02,320 Speaker 1: but your chains? Could it be as simple as that. 191 00:13:02,480 --> 00:13:04,400 Speaker 1: It could be a chicken and net problem, you know, 192 00:13:04,559 --> 00:13:08,120 Speaker 1: like the more people see wage increases, the more they 193 00:13:08,160 --> 00:13:13,400 Speaker 1: feel comfortable about leaving, sticking their ex out and demanding 194 00:13:13,520 --> 00:13:17,880 Speaker 1: a higher job pay. Right, So we need to see 195 00:13:17,920 --> 00:13:20,560 Speaker 1: a little bit more of an increase in wages and 196 00:13:20,760 --> 00:13:25,160 Speaker 1: UH participation will also increase. So people who are on 197 00:13:25,200 --> 00:13:29,680 Speaker 1: the sidelines right now, they might again, they might come 198 00:13:29,679 --> 00:13:32,160 Speaker 1: out and say, Okay, maybe I should be looking for 199 00:13:32,200 --> 00:13:36,800 Speaker 1: a job, and that will continuing a spiral. It's a 200 00:13:36,840 --> 00:13:39,160 Speaker 1: bit more inflation would be a good problem to have. 201 00:13:39,800 --> 00:13:42,480 Speaker 1: And the key word here is a bit more. So 202 00:13:42,920 --> 00:13:46,040 Speaker 1: that's that's what the Fed wants. Definitely an issue that 203 00:13:46,200 --> 00:13:49,400 Speaker 1: we can come back to again and again. Elena, thank 204 00:13:49,440 --> 00:13:52,520 Speaker 1: you so much for joining us and sharing your wisdom today. 205 00:13:52,559 --> 00:13:57,600 Speaker 1: Thank you. Benchmark will be back next week and until 206 00:13:57,679 --> 00:14:00,440 Speaker 1: then you can find us on the Bloomberg Terminal, Bloomberg 207 00:14:00,480 --> 00:14:04,640 Speaker 1: dot com, or Bloomberg App, as well as on Apple podcast, pocketcasts, 208 00:14:04,679 --> 00:14:07,160 Speaker 1: and Stitcher. While you're there, take a minute to rate 209 00:14:07,200 --> 00:14:09,520 Speaker 1: and review the show so more listeners can find us 210 00:14:09,800 --> 00:14:11,280 Speaker 1: and let us know what you thought of the show. 211 00:14:11,440 --> 00:14:14,600 Speaker 1: You can follow me on Twitter at at scott Landman 212 00:14:15,000 --> 00:14:19,160 Speaker 1: Dan you are at Moss Underscore. Echo Benchmark is produced 213 00:14:19,160 --> 00:14:22,640 Speaker 1: by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe. 214 00:14:22,960 --> 00:14:24,600 Speaker 1: Thanks for listening, See you next time.