Instant Reaction: Employers Unexpectedly Shed Jobs; Unemployment Rate Falls

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1:17Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. 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.

2:06The expectation was for 4.2 percent. Labor force participation rate coming in at 61.4 percent. The month before, it was 61.5 percent. 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 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.

2:48Looks like futures, guys, at least for the moment, hanging on to those earlier gains. Back over to you. Alexis, thank you so much. The market's moved, 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%, 6%, 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.

3:29We have a revised down for the last print to 20 ,000 from 57, and this negative 23 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 wonder if he'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. Some people were there.

4:03But 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 was a big decline. And one of the things that happens in the summer, it can be really tough with the school calendars.

4:49And 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 will look through. The unemployment rate did tick down. Right. I think the one thing for the Fed that may be of most interest is wages coming in soft.

5:23I'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. Constance Hunter getting wired up right now. Again, folks, futures up 32. They advance. NASDAQ lifts double up eight-tenths of a percent here. And the yield, again, the two-year yield is the most elastic in it of 4.16%. Damien, ask a smart question to Dr.

5:58Sam. Well, I figure out the three months 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? That 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 is not good news. I mean, paychecks are such a key driver of consumer spending.

6:28I'm not the only driver, but this is a soft reading. I think the one where the implications maybe come out the strongest for this is on the Fed side. 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. We are so advantaged. Claudia Somnus, 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.

7:14Christina 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. It 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. Please take it.

7:53OK, I'm echoing in there. Oh, you're echoing. I'll put him back on to here, Claudia. OK. But in any case, you know, 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 with jobs, with payroll numbers increasing monthly, but the unemployment really not coming down significantly is that, well, maybe it's higher this year. This 20 ,000 over the last three months and then that fall in the unemployment rate, that is not a good look for the president. You're right.

8:31And 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 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 certainly can be a reason to move a little more slowly until you get a decisive signal.

9:17I mean, 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. Did you see how she did that? Yeah, 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.

9:50Reds 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 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. I think Claudia's 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.

10:19One piece of concern, right, is you saw the unemployment rate fall on for bad reasons, not good reasons. Discuss that. Because participation fell. 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.

11:04And if you look at the Fed's financial conditions index, they are it suggests it suggests that we have tailwinds. Now, those tailwinds are diminishing, but it says suggests that monetary policy is loose here. And if we have loose monetary policy in a budget deficit of six percent 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.

11:39And so, you know, shifting to you, I mean, Claudia, just talk to us a little bit more about what's the problem. I 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. 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.

12:11Right. 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. And 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.

12:42Claudius 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. One percent on the Nasdaq futures. Even Bitcoin vaults up$700. Constance demanded that I quote Bitcoin. Yeah, a big Bitcoin. 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 phenomenal GDP.

13:28John writing 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? So 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.

14:16It'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. So 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.

14:55Sure, 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. We 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.

15:30And 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? organization does ai help or hinder that these are as existential questions i think that all economists central bankers are 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 that for so long, at what time do things at least start to flash amber to you constantly?

16:13So 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 what is fiscal space? What constitutes fiscal space? When does it get tricky, 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.

16:50You 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 of division in the labor market. I mean, And the division I like to focus on is this low hire, low fire economy, right?

17:29For 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. This is how we do it. Connor, 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.

18:03We have also, I love it when world-class talent calls in and says, me, me, me, me, me. Can I get on? 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. He picks right up. Stephanie Roth, you've 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?

18:37Creative Planning's integrated team of specialists coordinates all of it so everything fits together. Creative Planning. Where wealth works together. CreativePlanning.com slash BSP. Amazon Health AI presents. It's painful thoughts. Why did I search the internet for answers to my cold sore problem? Now I'm stuck down a rabbit hole filled with images of alarmingly graphic sores in various stages of ooze. I can clear my search history, but I can never unsee that. Don't go down the rabbit hole. Amazon Health AI gets you the right care fast. Health care just got less painful. Everyone's talking about how AI is transforming work, especially in sales.

19:23While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. Joining us right now, Christina, thank you for being patient off the shock economics.

19:56How does this economics play into a two-year full faith and credit market? Look, I mean, the market is sitting here, and we've been all trying to understand what is the new reaction function 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, I mean, I know you guys are short duration over there at Invesco.

20:32I know you like steepeners. Talk to us about how does this change 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.

21:08And 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.

21:40I mean, it's not going to go away, right? I mean, they just roll this over, add to it. I mean, 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 FX. 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.

22:10And I think it's been supported by this appetite for all in yield just given levels. But like you have to take a step back and say, hey, you have this change in regimes, which should mean higher even government bonds. You are it's not the end of the 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.

22:44You 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? So 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, of 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.

23:17But 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. So 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 payrolls zero, 25, 50. So, yes, this is a big reset from where we were running the first three months of the year.

23:53But 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 Silicon Center, Christina Katmany, who looks at yield with their global reach. And 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 here. I've got too many economists lined up. We've got to get some real conversation in with Christina Katmany as well. Do you have an underlying disinflation and real GDP growth vectors that are lower that will support a lower yield environment?

24:30Look, 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. Housing 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.