Former Chase Chief Economist Anthony Chan and J.P. Morgan Asset Management Global Market Strategist Jordan Jackson join Yahoo Finance Live to discuss the August jobs report and how the Fed and some companies may react to the payroll data.
- Well, let's stay on the Fed and jobs here, Brian. We still have Anthony Chan and Jordan Jackson with us on all things jobs and Fed. Anthony, I want to go back to you, because I think Jordan brought up a very good point on the Fed now likely to move into restrictive policy. Do you think that's where we're headed?
ANTHONY CHAN: Oh, I have no doubt that they're going to be striving to move into restrictive policy. But that term, restrictive policy, is sort of a relative term, because if they are raising the Fed funds rate but the inflation rate is much higher, it's hard to argue that you're going to move into restrictive policy or territory any time soon. Now, one way you can measure restrictive policy is by looking at inflation expectations. And inflation expectations have been coming down.
So some people on the Street are not looking at the underlying CPI or the underlying core personal consumption deflator, but they're looking at inflation expectations. So by that metric you can say that they're closer towards being restrictive. But again, the end goal here, Brian, is to lower inflation. And so you're going to have to continue to put restrictive policies in place until you start to see that inflation pressures are coming down. And we're just not there yet.
I recently completed some research in a Substack article under "The People's Economist" by Anthony Chan. And I found that one thing the Federal Reserve is going to be looking very closely is the number of job switchers and their salaries. And that gap between what average hourly earnings are and what job switchers are getting on a year-over-year basis is very wide.
And as long as that stays wide, guess what happens, Brian? Still the Federal Reserve has to worry about these upward price pressures, which is exactly why Jordan is correct, that the Federal Reserve will be under a lot of pressure to raise rates another 75 basis points at the September meeting.
- Something that the Fed may be waiting to see as well is the impact of the number of people that may have come back into the workforce because of this annual cyclical phenomenon, which is really just BTS, back to school, particularly here. And so, Jordan, as this report really doesn't pick up for at least an entirety the number of jobs that may be reassumed once kids, family members transition back to school and some of those jobs might get entered back into after the summer. What do you believe the Fed may watch for in even the next report, given that this is a midmonth to midmonth reading.
JORDAN JACKSON: I would argue, probably to your point, that the labor supply, if you've got finally parents can get their kids back to school and then get themselves back to work, you're probably going to see an uptick in prime age and in particular prime age working women with this, which is a metric that the Fed has been looking for and have mentioned in meetings during the past. And so I do think this certainly reaffirms this call that I mentioned earlier about the unemployment rate may be bouncing around between 3 and 1/2% and 4% as you get that additional labor supply with folks coming and finally coming back to join the labor force.
I think it is, it continues to be a tight labor market. You've got an excess of job openings. You still have nominal wages that are running well above the average that we've seen over the last, call it 30 years or so. And so this is attracting folks back to work.
You've also seen a little bit of stock market volatility. And so with that you may have some of those earlier retirees that might have retired a little bit early and are now feeling their portfolios being a little bit being pinched because of the market volatility, but also because of higher inflation. And so they feel like their retirement dollars maybe aren't going as long as they would like. They may also be coming back into the labor force as well.
And so I think we could very well see a string of months in which labor supply actually increases. And this is a dynamic that doesn't keep the Fed on the sidelines. This is a dynamic that actually keeps the Fed potentially recognizing that they can kill inflation and not dip the economy into recession because you still have demand for labor finally now being met with some additional supply coming online.
- Anthony, I like that. You are the people's economist. We are the people's network. I really dig that. And to that end, are you tracking quiet quitting? Is that impacting productivity? Is that a real thing? What are your thoughts on that?
ANTHONY CHAN: I think the quiet quitting is impacting productivity, because if you're not giving it your all at your job, then, obviously, that's a negative contributor to productivity. And that's one of the reasons perhaps, among many, why productivity was much weaker in the first six months of the year. But there's another reason why productivity was also weaker, Brian. And that is that if you look at the number of jobs being created, I think the number of jobs being created were even greater.
There's an exciting company out there called Bright Query that doesn't get enough attention because instead of using a subsample of the labor force, like the household survey uses or the establishment survey uses, they actually have access to tax data for all public and private companies, over 40 million companies out there. And what they're finding is that job creation has actually been even greater, jobs greater than either the establishment survey or the household survey are telling you. And so if you got more jobs out there being created and economic growth is slowing down, Brian, guess what's going to happen? You're going to have slower productivity growth.
That's another article I wrote on Substack. And that data, I think, is exciting, and is more accurate, because it's not a subsample of the economy like these conventional surveys. It's the whole economy. And it's telling you more jobs were created. That's another reason, Brian, why productivity was a lot slower than the market was expecting in the first six months of the year. And the Fed wants jobs to slow down a little bit to take some of those price pressures for the entire economy. That's not happening yet.
- Anthony, staying with you for a hot second here, if you're a company this morning, publicly traded, got a report on a quarterly basis, and you're reading through this report and you zero in on wages particularly, and you've cited wages within some of the macroeconomic headwinds that you may be facing, what do you initially think on the reading of this report, given that you've already seen that impact and the higher wages impact so much of the operational expenses, some of your earnings as well? And what changes do you feel necessary to make? And does that further impact the either private payroll side of the equation or even some of the nonfarm public payrolls that we're tracking?
ANTHONY CHAN: Oh, absolutely. What this report gives these companies is another data point. And there's a slight sigh of relief, because even though these wage pressures are still intolerable for many companies, it is not getting worse. And, in fact, it eased just a slight bit in this report.
And so companies are on the edge of their seats and hoping that it's going to continue to ease. And another piece of this report is that because the labor force is getting a little bit better, maybe it's not going to be as challenging to fill those positions moving forward. And on top of that, you may not need as many jobs because productivity is not increasing.
So in short, this is kind of good news for a lot of these companies that tells them that they may not get as-- they may not face as many challenges on the labor front moving forward, in part because more people are coming in, but also in part because the economy is slowing down. And the weakness in productivity, all those factors are a small positive for companies looking at this report.
- Former Chase Chief Economist Anthony Chan and JP Morgan Asset Management Global Market Strategist Jordan Jackson, thank you both for joining us this morning and the excellent breakdown and analysis of this jobs report.