Instant Reaction: Employers Unexpectedly Shed Jobs; Unemployment Rate Falls

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1:26We'll be right back. Bank of America and a member FDIC. Bloomberg Audio Studios. Podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. And the July jobs report crossing the Bloomberg terminal right now, and it shows that the U.S. economy actually lost 23 ,000 jobs in the month of July. This is a lot less than the 80 ,000 we were expecting to be added. We added 57 ,000 in the month of June. Moving to the unemployment rate, it dipped to 4.1 percent versus the prior month's 4.2 percent. The expectation was for 4.2 percent.

2:15Labor force participation rate coming in at 61.4%. The month before it was 61.5%, and that's a bit lower than the expectation. Want to move over to the wage component here, which provides more clues on inflation. Average hourly earnings month over month up just a tenth of a percent, a scant tenth of a percent. Average hourly earnings year over year up 3.2%. The expectation was for 3.5%. So again, a big surprise Guys, to the downside, the economy losing 23 ,000 jobs in the month of July. The expectation was for an addition of 80 ,000. I want to take a quick look at how the market is reacting here.

2:55Looks like futures, guys, at least for the moment, hanging on to those earlier gains. Back over to you. Alexis, thank you so much. The markets move, as you can imagine. Equities lift here, thinking free money will be out there in a lower rate environment. The yield space is the most elastic, and you see it in the two-year yield in a solid nine basis points, 4.16%, basically halfway back to that coveted 3.99. 30-year bond doesn't come in as much as you'd expect, but nevertheless, from a 5.22 into 5.19%. Damien, your thoughts on the set of numbers here, the revisions, extraordinary. Yeah, yeah, no, I mean, exactly.

3:36We have a revised down for the last print to$20 ,000 from$57 ,000. And this negative$23 ,000 print, you would think, would get some people's attention. But to Alexis's point, it looks like equities are kind of looking through it for the minute. And I don't want to call this a nothing burger by any stretch. I mean, Claudia, I mean, you know, I wonder if there's going to move markets. Well, we'll have to see here. Claudia Sam, we're letting her digest the data here a little bit. I do want to, with the ECO screen that we have at Bloomberg, the change in non-farm payrolls was negative 23 versus a survey of 80.

4:09Some people were there. But the two-month payroll adjustment and negative 103, that's combined negative 126. I think we've given her enough time. Claudia Sam joins us here. to provide perspective. Claudia, this must change the debate at the Fed. So first, does this remind you of anything? I mean, a year ago, exactly this employment report was when we had the very large downward revision, the downside surprise, the downward revisions, and the BLS commissioner lost her job. Right. So now just looking quickly, and I can't do all the details of this government education, government education was a big decline.

4:51And one of the things that happens in the summer, it can be really tough with like the school calendars. And if things slip a little bit with the seasonal adjustment, you can get some kind of squirrely numbers in terms of the education. That certainly is at play for the downside miss today. That was something that was very clear in last year's numbers as well. So I don't want to dismiss this. And of course, that was a shift from we'd had a strong labor market to like, whoa, maybe it's not so strong. So I do think there is signal here. There's probably a fair bit of noise and some seasonal issues that'll look through.

5:23The unemployment rate did tick down. I think the one thing for the Fed that's maybe of most interest is wages coming in soft. I'm getting out my HP-12C calculator because Constance Hunter, I wouldn't do this for Claudia, but Constance Hunter jumped in. Here's what we're going to do. Can we do this in the control room? Can we rip up the script and have Claudia and Constance together? Did you check with their people? Yes, we're allowed to do this. And they say it's okay. I said it's okay. The constant sun are getting wired up right now. Again, folks, futures up 32. They advance. NASDAQ lifts double up eight-tenths of a percent here.

5:57And the yield, again, the two-year yield is the most elastic in it of 4.16%. Damien, ask a smart question to Dr. Sam. Will I figure out the three-month moving average on my HP 12C? Well, Dr. Sam, I mean, average hourly earnings down 0.1 % month over month. I mean, you know, you mentioned the Beige Book before the break, right? And, you know, what did the Beige Book show us? The consumers are adjusting by taking on more debt, buying less, but shopping more frequently, trading down to cheaper alternatives. Is this really wearing on them now? I mean, what does this all mean for the consumer? So certainly on the consumer side, this this is not good news.

6:32I mean, paychecks are such a key driver of consumer spending. I'm not the only driver, but this this is a soft, a soft reading. I think the one where, you know, the implications maybe come out the strongest for this is on the Fed side. You know, the thing that would get the Fed moving towards rate hikes the fastest were if there was any sign of overheating in the labor market. This is exactly the opposite of overheating. We hadn't seen wage growth really picking up, but we really hadn't seen it slowing down much. And so this really takes like the labor market isn't pushing up inflation. And frankly, if it softens, it might help hold down some of that inflation.

7:10We are so advantaged. Claudia Somner, Century Advisors, and joining us now, Constance Hunter, Chief Economist, EIU, the two of them together, commercial-free across America in this half hour on yield. Christina Katman, who of Invesco, will join us here in a bit. Constance Hunter, you're over there working on the terminal, looking at the numbers. I got a 90-day average, a three-month moving average, subject to revision of$20 ,000 per month on jobs. You can give me all your academics, Claudia Sommack, I don't care. Politically in America, in defense of the president, that's an unacceptable statistic for America to see a three-month moving average of 20 ,000 jobs per month.

7:53It doesn't get it done. Well, we don't think it gets it done. I'm going to take off my headphones. Please take it. I'm echoing in there. Oh, you're echoing. I'll put it back on to hear Claudia. But in any case, last year when we had changes to immigration, when we were deporting a number of people, there was widespread speculation that actually the monthly requirement had fallen. This year, what we saw with jobs, with payroll numbers increasing monthly, but the unemployment really not coming down significantly is that, well, maybe it's higher this year. These this 20 ,000 over the last three months and then that fall in the unemployment rate, that is not that is not a good look for the president.

8:38You're right. And it bolsters his case to cut rates. He's going to keep beating that drum. I think this bolsters our call for a hold. This is this is definitely a warrant to hold. Does this study that we're seeing right now, can government officials in the Fed get out front or are they colossally ex post where they just have to wait for the data before they go flat or cut rates? So, I mean, policymakers never have a full picture of the economy when they make a decision. It just it takes too long. And there's always we always want one more piece of data, one more piece of information. But when you have enough questions or you have enough tension, that can that certainly can be a reason to move a little more slowly until you get a decisive signal.

9:24I mean, I don't I don't think today's data are decisive in reshaping that we've had a largely balanced labor market so far this year. But they raise some concerns and we'll get more on inflation. We'll see if the disinflation is sticking or not. So you get what you have and you have to make a decision. She did that. She did. She's such a pro. Today's data wasn't decisive. Is there ever an economist who's ever said that today's data is decided? Damien Sassauer with Constance Hunter and Claudia Sander. Well, Constance, I mean, I'm just looking at SoFer Futures here. I mean, I see whites up a tick to a tick and a half.

9:57Reds are up two and a half, three ticks. I mean, so, you know, obviously what we're seeing here yields down price up. And is that the right, you know, is that the right reaction to this? And just how much do you think the market's going to rush to price September out of the equation? Is that what we're looking at here? I think the market will begin to price September out of the equation. And I think Claudia is right. Tom, I was almost going to say to you, you never look at just one number. And of course you don't. But you preface your question on the three month moving average. Right. And I think that's what we're talking about here.

10:26One piece of concern, right, is you saw the unemployment rate fall on for bad reasons, not good reasons. Discuss that. People flunk exams. Who would that be, folks, because of that, where the unemployment rates goes down for bad reasons? Discuss, Dr. Hunter. Well, certainly if you see that participation rate decline, it's only one tenth, but it's enough that we saw this low growth of jobs and we saw the unemployment rate fall. It suggests to you that either there's low supply along with low demand. That is not a robust labor market situation. And, you know, I was looking before I came on last night, I was I got buried in data as I as I sometimes do.

11:12and if you look at the Fed's financial conditions index, it suggests that we have tailwinds. Now, those tailwinds are diminishing, but it suggests that monetary policy is loose here. And if we have loose monetary policy and a budget deficit of 6%, and this is the best we can do, I think it begs asking some questions about the underlying economy. Yeah, I mean, look, Constance, and the equity market agrees with you. I mean, it is rallying here. I mean, they see exactly what you see. This is an excuse for them to price out rate hikes, to basically get dovish. And that is great for risky assets. And so, you know, shifting to you, I mean, Claudia, just talk to us a little bit more about what's the problem.

11:51I mean, does this take some of the balance out of what next week's inflation print is going to look like? I mean, what are you looking for next? What's the next big figure that you're going to lean into data wise? Well, absolutely. The inflation data are front and center, right? And you want to see we got a very soft inflation read for June. We don't expect that to show up again in July exactly that way. But you want to see some softness or at least getting back to something that's consistent with target. Right. And so there'll be a lot of attention to the CPI, the PPI, the import prices. I mean, inflation is still front and center because inflation is still very far from the Fed's target.

12:27And if nothing else, you want to see it moving in the right direction. Today, we're seeing employment move in not the right direction. Maybe next week we'll get some better news on inflation. But I don't think this takes any pressure off of the CPI. And before the Fed meets again, we're going to get one more payroll, and we've got next week's CPI and another one. So there's a lot of data to come. Across America, a real treat together. Claudius with us today from New Century Advisors and Constance Hunter of EIU off the shock report. We're up futures up 39. Now Nasdaq is up a solid stick, 1 % on the Nasdaq futures.

13:03is even Bitcoin vaults up$700. Constance demanded that I quote. Oh, yeah. Yeah, I'm a big Bitcoiner. 81.57 on Brent crude right now. And the most elastic yield, the two-year, 4.15 % in a solid nine basis points. I'm going to call that a ginormous move in even the 10-year in seven basis points. I want to go to your two wheelhouses. Claudia, let me begin with you with all of your deserved acclaim over recession. We've had a pop of nominal GDP. John Riding over Breen notes consumption and investment, eight-ish percent like a banana republic. Do you just assume that if we have a tepid job economy and we don't cut rates fast enough, that nominal the animal spirit comes down to a more lower normal rate?

13:55So I am concerned if the labor market isn't firing on all cylinders, And certainly if it weakens, that that would be an issue. And we've seen we got recent data again. I mean, the labor share continues to drop, like the share of the income in the economy going to workers. That does not feel like a good situation. And I think to Constance's point, I worry more right now about the structure underpinning the economy than maybe the cyclical, the boom bust, the reset. It's like things are moving under the hood of the labor market. And I think that's the labor force growth, population aging, what's happening with AI.

14:31So there's some really big themes that I think we should pay attention to and maybe less to the boom-bust cycle, right? Because I'm not sure that's the biggest thing happening right now. I kind of sense the EIU remit is a wonderful global remit. What does this jobs report signal to other central banks? I mean, it simply takes away the effervescence, doesn't it? You know, I would say other central banks are going to look much more closely at CPI data next week than they are the jobs data. Sure, agreed. But of course, it does, to Claudia's point, right, it's what's going under the hood here. And we have an aging labor market.

15:11We have an aging population. We're seeing people age out of the labor market. That is not a unique problem to the United States, right? We see this around the world. This is a challenge for central banks. And one could argue that is the biggest challenge for Japan and one of the reasons why we have the situation in Japan where they have a very high budget deficit or debt to GDP ratio. Right. And there's concern about that fiscal situation. And it was getting expressed in the currency. And we had the intervention that we had last week. So this theme of, you know, what how do you grow an economy with an aging population?

15:46Does AI help or hinder that? These are existential questions, I think, that all economists, central bankers or not, are looking at when they're looking at economies right now. And yet there's a desire to keep financial conditions loose here in the U.S., like you rightly point out. I mean, talk to us about what you learned from yesterday's refunding announcement. I mean, they just, in my mind, kicked the can down the road again, right? I mean, like, so, you know, you're right to focus on fundamentals like debt to GDP here in the U.S., but the market has not paid attention to that for so long. You know, at what time, you know, the things at least start to flash amber to you constantly.

16:20So Warsh has his task forces. We have our task forces. So there's a few things we're looking at that we felt we had to really do a deep dive. And to your point, Tom, a cross country comparison right up there is is what is fiscal space? What constitutes fiscal space? When does it get tricky? Who who you know, obviously, we see it's not uniform across countries. And so I think one of the things we have to think about here is what is expected inflation and how does that feed into term premia? And then what's that feedback loop to funding the government? Christina Katmany on does. Her people are quite upset.

16:58You know, I mean, she needs more of her time. Claudia, last question to you with immense respect for your academics. And it's just simply you're launching forward, I guess, into end of August, Jackson Hole and into September as well. It's still two Americas. The political reality, Kevin Hassett with Bloomberg and the 10 o 'clock hour folks, Michael McKean and Danny Berger. I'm sorry, Claudia. And in economics on a jobs day, it's two distinct Americas, isn't it? There's a lot. There's a lot of division in the labor market. I mean, the division I like to focus on is this low hire, low fire economy, right?

17:36For workers who have a job, like their job, it's a good job. This still is a pretty good paper market. Today's numbers notwithstanding for people trying to get back in, trying to get in for the first time, this is tough. And this wage growth is not keeping up with the price growth. And that's a bigger problem. So, yeah, there's a lot of divisions here. I love the wage growth idea. This is why we do this. This is why we do this. This is good. But Constance Hunter, thank you so much. Thank you. Dr. Sam, thank you so much. New Century Advisor, both of them very active on LinkedIn. Look for their publishing out here today.

18:10We have also, I love it when world-class talent calls in and says, me, me, me, me, me. Can I get on? I love it when a plan comes together. We are tentative. Stephanie Roth scheduled to be with us. And from Citigroup, Andrew Hollenhorst, who nailed this call. We're trying to line them up right now. We have to go through a, I mean, Hollenhorst is like, great. You just call a cell phone. You're there. Yeah, he picks right up. Stephanie Roth, you got to go through like six layers of compliance. Salary. Bonus. 401k. Stock options. Investment accounts. If your wealth manager only sees one piece of the puzzle, who's connecting the rest?

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19:29How is this$47? All right, we're going to need a plan here. Just start simple with Bank of America Advantage Safe Balance Banking. No overdraft item fees, no monthly maintenance fee if you're under 25. Plus, as a new checking customer, you can earn$100 when you open an account and make qualifying Zeller debit transactions. Oh, that's actually really simple. Safe Balance Banking. One less thing to figure out. Learn more at bfa.com slash earn100. Terms and conditions apply. Bank of America and a member FDIC. Joining us right now, Christina, thank you for being patient off the shock economics. How does this economics play into a two year full faith and credit market?

20:07Look, I mean, the market is sitting here and we've been all trying to understand what is the new reaction function of the Fed chair of the Fed committee under wars. And he wants it to be data. I don't know if we know what he wants it to be quite yet. I think the jury is still out there and I think July was very different than June. So we'll see. But the market is grappling with all of these data prints and we've taken out certainly pricing for September and you're pricing now what just about one full hike only by December. So. So, I mean, I know you guys are short duration over there at Invesco.

20:38I know you like steepeners. Talk to us about how does this change the, you know, your outlook at all over the near term? Look, I think there are a few things. Again, if we go back to this new regime from the Fed and talking about letting the market do the work, I think that introduces a lot more volatility and especially in the back end of the curve. So I think that still means that you are looking for higher yields, higher yields out the curve and steeper curves. We haven't broadly this year. You've seen a lot of flattening of the curves. So I think that that still holds and the tremendous amount of AI and hyperscaler issuance weighs on that too.

21:14And I know you guys have been talking about that today and it's been a theme, but you have these companies that are issuing the size of government bond deals weighing on the market. So I think we are still warranting needing higher yields out the curve. So Christina, you know, I'm an emerging market fixed income guy. I look at EM credit. I look at the basis to investment grade spreads and I look at it and I say, wow, 10 basis points. Wow, that is as tight as I have ever, ever seen it. And I think you're absolutely right to hit on that. I think year to date, what, 300 billion in hyperscale or call it AI issuance going forward.

21:46I mean, it's not going to go away, right? I mean, they just roll this over, add to it. At what point do you see the crowding out effect that many strategists and analysts are calling for here? So we have been, again, when we look at our portfolios, we manage global portfolios. We have the three levers of rates, credit and effects. Credit is where we've leaned on the least just because of how tight spreads are. And I know that's kind of been unpopular opinion and corporates have continued to perform well and stay tight. But I think that's where there's the most kind of jump risk and concern. And I think it's been supported by this appetite for all in yields just given levels.

22:21But like you have to take a step back and say, hey, you have this changing regime, which should mean higher even government bonds. You are it's not the end of issuance out of these issuers. So there's more to come. And we've been at such compressed yield levels for so long. So talking about can a 10-year be at five and a quarter? Sure. Is that in the potential? So, you know, we talk about the different factors which drive total returns and fixed income. You've got duration. You've got spread. You've got coupon income. You have FX, right? So talk to us about, you know, exactly what you do. If you don't like duration and you don't like spreads, does that mean you're shifting and you're kind of leaning into currency risk here?

23:00So currency risk has definitely been kind of top of mind, I'd say, of the last two years. It's certainly, I know something Tom and I have been talking about, it's like Asia is so mispriced, Asia is so mispriced. And it's that kind of what has been most mispriced has been frustrating and obviously has gotten more play in the last week and a half with official yen intervention and the Korea move. But yeah, I think we are sitting in an environment where people, even coming out of the July meeting, say, okay, from an FX perspective, we're in this multipolar world. There are different things driving it.

23:33So can we lean into EM carry and at least until we get music to my kind of to the to the next Fed meeting? We have this holding period. We have a lot of data. This is obviously a shift. But like, let's take a step back to and say when we came to the beginning of the year, people were talking about is breaking from payrolls zero, 25, 50. So, yes, this is a big reset from where we were running the first three months of the year. But maybe that thesis actually hasn't changed. So it's not as robust, but this is not. This is just wonderful, folks. Claudia Samuels, the Constance Hunter, Christina Kampmeni, who looks at yield with their global reach.

24:12And we've got scheduled Stephanie Roth and Andrew Hollenhorst we're working on right now. It's Citigroup. I want you to take the yield shop. You've got too many economists lined up. We've got to get some real conversation in with Christina Kampmeni as well. Do you have an underlying disinflation and real GDP growth vectors that are lower that will support a lower yield environment? Look, I think that there are disinflationary trends that were in place at the beginning of the year. Again, if you zoom back to where we were in January before Middle East situation kind of became front and center, that was the thesis.

24:51Housing to come down, like a lot of these things to come down. Again, we're back in a world with a lot of uncertainty. We don't know what the situation in the Middle East is. We don't know where oil will end up. It has been choppy. It has come down. I think at crude sitting at 80 is something that the economy can sustain. At 120, that's very different. And I think what the Fed is trying to weed through and all of us in the markets and all the economists are, what is most concerning, most likely for the Fed, is the kind of COVID style rollover that you're seeing it into wages and into pricing power in the economy and that, which we haven't seen yet, but it's something that people are concerned about.