RSM Chief Economist Joe Brusuelas and John Hancock Investment Management Co-Chief Investment Strategist Emily Roland join Yahoo Finance Live to discuss March jobs report data, inflation, yield curve inversions, Fed policy, and the labor market.
JULIE HYMAN: Let's get some more perspective on all of this. Emily Roland is with us now, co-chief investment strategist at John Hancock Investment Management, and Joe Brusuelas, RSM chief economist. Joe, I want to start with you on these numbers, just to give us the big picture view of how we should be reading them, a lower than estimated number, but still showing this streak of growth. JOE BRUSUELAS: OK, we've got a labor market that is red hot. You know what I really like in this report? The labor force participation rate over the past six months has increased 7/10 of 1%. We have a full and healthy re-entry of individuals into the labor market. Indeed, the labor market-- the labor force increased by 418,000. We're just under 1.6 million jobs short of where we were prior to the pandemic. So this is very, very strong stuff. I mean, even if it wasn't for the unfortunate problem with inflation, you look at those wage gains, and this is a very, very strong jobs report. BRIAN SOZZI: Emily, as Julie mentioned, we did see a little bit more of a yield curve inversion instantly after this. What do you make of that move? EMILY ROLAND: Yeah, I agree with the comments that it was a strong report and clearly evidence that US economic growth continues to be the bright spot across global economies here. And the bond market is clearly reflecting that. We're seeing a backup across the yield curve this morning, the two-year Treasury moving up more than the 10-year Treasury, and now we've got another period here of inversion. Of course, the shorter end reflecting Fed rate hike estimates, and it looks like this report is potentially justifying or adding conviction in that 50 basis point rate hike call here for early May. So a strong report, but always a bit of a sort of good news is bad news piece here, as the Fed clearly has the green light here to go ahead here and continue along this path of aggressive rate hikes in 2022. JULIE HYMAN: Or I guess, good news is good news, if you want them to get a handle on inflation, and you think they've been behind the ball. Emily, maybe bad news if you've been-- you're upset about the punch bowl going away, which I know a lot of people on the Street are. Joe, so this doesn't seem to change the Fed's trajectory. Talk to me about what you think Jay Powell is thinking as he looks at these numbers. JOE BRUSUELAS: Well, I was sitting right in front of Jay Powell last Monday when he addressed the National Association of Business Economists. And he said the job market is, it's hot, it's healthy, maybe a little bit too healthy. But I think that the Fed is getting ready to hike by 50 basis points in May and then by 50 basis points in June. You know, they've got to get out in front of this. They've got to address the inflation problem. It's not going to go away. The twin shocks that the economy's still absorbing has now resulted in a situation where Americans are losing purchasing power, even though they're getting better jobs at higher wages. So that's something they just can't stand. The Fed has to put in place a policy to address that. Now, I think there's a little too much emphasis on the 210 spread. That's the yield curve for some fixed income traders. I would counsel everybody, take a look at the three-month, two-year, the three-month, 18-month. You get a very different story, and that's telling you that the economy is in pretty good shape and it can absorb what's going to be 100 basis points in rate hikes coming soon. BRIAN SOZZI: Emily, 50 basis point rate hike. We've got some folks on the Street looking for eight to nine rate hikes this year. Is the Fed going to cause a recession? EMILY ROLAND: Well, unfortunately, Brian, we have never had a period in which inflation's accelerated to this degree that wasn't followed by a recession. So the Fed's going to have a tough time here engineering a soft landing. We're not there yet. Economic growth continues to remain robust. I think today's report is continued evidence of that. But we have a really unusual situation right now, which is that the Fed is aggressively raising rates into an economic backdrop, frankly, that's decelerating. So our view is that the peak in economic growth was about a year ago when the economy was turbocharged by fiscal stimulus at the same time that it was already accelerating at a really resounding clip, coming out of the COVID driven recession. So now we're facing a fiscal drag. Those stimulus checks are fading. Consumer spending is still robust, as we talked about wage growth, as evidenced this morning, is picking up, but not enough to keep up with the remarkable amount of inflation. We're having highest levels here since the early 1980s. So the Fed's got to do something. Obviously, we know that they're moving forward with rate hikes. But we think that they'll not go as far as nine rate hikes. We're actually taking the under on that because we do think that economic growth, again, will fall short of expectations, and that the Fed will be able to sort of pump the brakes here as we move throughout the year. BRIAN SOZZI: Joe, over to you. Do you think this report that we got today is as good as it will get this year on the jobs front? JOE BRUSUELAS: Well, I think that we're going to see a slowing in the labor market later this year, probably around 200,000 to 250,000 a month, which in itself is very strong, so I think that's fair. I think it's important here that we don't fall into the 0, 1 trap and create a false dichotomy. The economy closed out 2002 growing at just under 7%, and the quarter and was up 5 and 1/2% for the year. We're likely to come in this year probably around 2 and 1/2%. Now, that's above the long-term trend. I think, yeah, the economy is decelerating to a more sustainable trend. It doesn't mean that we're going to go into recession this year. And I don't think recession's in the cards for 2022. However, you're going to continue to see very strong demand from the real economy. When I talk to our clients, they can't hire people fast enough. And I think that's really, when it gets right down to it, brass tacks. That's the problem. Hey, and by the way, look at the household portion of the survey-- 736,000. Want to know why that's good? Because those are largely men, usually middle-aged men, who are now coming back into the workforce. They work as construction contractors. Why is that important? We're not building enough homes in this economy. There's a lot of really good things as you begin to just decompose this report. It's not just about the top line number. Take a look at not just the labor force participation rate, but take a look at the prime age participation rate-- 75% for women, 88%-- almost 89% for men. It's been looking very strong here as I get a chance to look deeper into the data.