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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.
Always we start strong with Claudia Sahm. 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 economics. Claudia Sahm, 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 4 minutes. How does the Fed treat Duluth's job economy versus New York City's job economy?
Right. Well, the Fed has a difficult position in that they have one tool, the federal funds rate, the interest rate, right? So, they really have to look at the US labor market as a whole. They can't look at Duluth versus New York City differently. 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 trends. There's big shifts in demographics, shifts in industry, some of which happened decades ago. Like the closing of US Steel, which is far in the rearview mirror, still has real implications in the Duluth local economy.
Claudia, is this US labor market, can it still be characterized as a low hire, low fire environment?
Absolutely. And we got more confirmation this week on the good side of it, the low fire, right? 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 and Labor Turnover Survey, also showed very low layoff rates. That's a good thing. You got a job, you like your job, this is a good labor market. 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. Like 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 are on the outside looking in.
Yep. How can this economy grow on a nominal basis north of 6% if really not creating that many new jobs? Is it better productivity?
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, you know, workers and typically that's a big piece of supporting growth. So right now if labor force is not growing and the economy, the activity is growing, it's got to come from productivity. But like, you know, AI adoption is not widespread enough to explain all of this. So, it's curious. It really is.
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 Sahm inflation, are our paychecks going up? I don't buy it.
Yeah. You know, it is. It's so hard. 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.
We triangulate our research as we always do with the noted economist Claudia Sahm and filling up at the Wawa, John Tucker. How is that driving commute going, Mr. Tucker?
I mean, it's been down a little. 4.35 a gallon diesel still, you know, elevated. I think it was about 6.40. Down a little, but still very much elevated.
We thank you for that piercing digital, I should say, report there from John Tucker. We're going to come back with Dr. Sahm again, in honor from the University of Minnesota at Duluth. We'll continue with Claudia Sahm and then on to other good conversations. We welcome all of you commercial free across America. Paul Sweeney and Tom Keen on a job. Say, Paul, I have 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%.
All right, let's get right to it. Big changes here. Change in non-farm payrolls. We're expecting 90,000 jobs. We're only getting 29,000. 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 2-year yield down eight basis points right now, 4.7%. 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.
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. Sahm marked me down years ago. Understandable on this 4.2% here. And you know, 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 -60,000. I'm going to nail this. That's a negative 29,000.
Negative over, you know, a summation here as well. The hourly earnings come in light, light 0.3 and they came in substantially below that, 0.1. Average hourly earnings, you know, annualized down a tick, 3.1 down to 3.0. Equities lift up 61 on futures, up 30. Dow up 60, NASDAQ up a full stick, 1%. The VIX, as Paul mentioned, at 16 comes in at Paul to let Dr. Sahm massage the data. What do you see here, Paul? Right now,
I'm just going to the bond market right here, Tom. The 2-year is down nine basis points. It was down two basis points before this report. So, we're now at 4.69 on the 2-year. The 10-year off about eight and a half basis points. The 10-year is now at 5.15%, Tom. So, yields coming in, bond prices higher.
In Duluth, Minnesota, think Gordon Lightfoot and Lake Superior. Claudia Sahm is with us as she is honored by the University of Minnesota. Dr. Sahm, this is a report that a select group of people said would happen, would come in light, what David Rosenberg called a catchdown. What do you do with one month data?
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? That maybe the hiring picking up some. 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, right? So the August number, it was a pop. Even with the downward revisions today, it's probably well above what it takes to keep the unemployment rate stable. But we're not going, we didn't get another month of that, right? It like popped back down. So I think we're just in this place of very low job creation in the US, which does fit with low growth in the labor force and the unemployment rate. It did tick up, but basically it's unchanged. I mean, 4.2, 4.1, those aren't big differences.
I was talking to Veronica Clark about this at Croup 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?
Well, 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 that's the opportunity for people to go find better jobs, better pay, deal with, you know, higher prices and that quit rate is also low. We are just not moving people around. So it really is, there's so much tension to have a labor market that feels kind of stuck and an economy where we're talking about transformative technology, 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 hire, low fire labor market. This is not normal.
How do you think the Fed is going to view this print here this morning?
I don't think this gives the Fed a lot of information. I don't think it'll really change what their approach to monetary policy right now. They're dealing, 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. They've done a quarter point, maybe they do another, maybe two more this year. That is not a hiking cycle like 2022 when the labor market's overheating. We have 9% inflation. Like we are not in that world. The labor market is pretty stable. It's not in a great place. It's not the Fed's 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 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 Fed's thinking that much.
So, with a little bit of hindsight here, what is the changed, reduced, more limited immigration policy? How does that impact? Do we have any real hard data how that's impacting the labor market there?
There have been, I think, first some measurement challenges, right, just in both the surveys and also with employers in reporting. And we've not just a reduction in immigration, we've had, you know, a 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? So we have, with a pretty big time lag, got a sense of what's actually happening in terms of our immigrant workforce. So we don't have a good handle of it. 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 like 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 like the sharp change.
Claudia, safe travels. Thank you so much for joining us today. 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 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 Mallaby, whose book, 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?
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, etc. 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.
Okay, folks. Let me translate. Paul, banana republic. Continue, not the clothing store.
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 Sahm 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.
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. 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, right? 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? Well, this is actually normal when you look at it historically and you better get used to these levels. Is that how you're thinking about it?
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.
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 Beltski, thank you so much for emailing in. The Vikings are 3 and 0 and they got a gimme this weekend with the lousy Miami Dolphins. Okay. All right. They're going to be on the edge of Duluth, 4-0 in that. Let's continue our conversation on the American economy. 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? What should you be doing in Bessemer Trust today?
If I were still chief investment officer managing your money, I would not be adding to treasuries here. Okay. 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.
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.
He liked it too. I was, I love that.
And you know, and Waller's game theory is like to die for at Washington State. But it's a double R-starred America. What is the Federal Reserve Bank president in Cleveland? What does she do worried about runaway inflation and higher rates? I mean,
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, remember? 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 a few days ago on core PCE, I think inflation's sticky. It's still above core services. Well, I don't have the number in front of me. Core services was outrageous, Paul. I think you still need to be raising rates right now. The economy is strong. Not even, you know, even taking this payroll number out. It's strong.
Get one more question in here because she is wearing Viking purple today. Exactly. Yields are higher but stocks are still powering through. Is this simply an earnings story driving this market?
Well, look, 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 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? And we don't know where that is.
And I beg with Sebastian Mallaby's visceral understanding of the continent of Europe. Yes. As a kid, his father was ambassador to Germany when 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.
That sounds fun to me. 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.
Really? We do that with John Tucker. We go, John Tucker, would you rather be Alexis Christodoulou or Michael Barr?
Yeah, that's a tough choice.
Rebecca Patterson with the Council on Foreign Relations. Her work at Bridgewater and Bessemer over the years. Futures, 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, is such a privilege here at Bloomberg to go from Pria Misra early on, Veronica Clark as well, Christina Kman now with Invesco. Christina hops into the seat, immediately goes into her logs into the Bloomberg. She's ready to, she's talking. She's talking. Should I, should I, everybody today, you can't see this on radio, the girls are all decked out in scarves. Yes. Like they got, like, you know, should I have a scarf? You know, like the, you know, I think you could. You have your bow tie here ready to go. John, I'd look like I was on, I'd look like I was on Hollywood Squares. It'd be great. Yeah. Right in the center. The old Paul Lynde square. Is the bond market caught unawares by this jobs report? Was there a bet out there that needs to be covered?
