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May jobs report shows a ‘Goldilocks economy’: economist

Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman break down the May jobs report with Anthony Chan, Former Chase Chief Economist.

Video Transcript

MYLES UDLAND: Anthony Chan joins us now. He's the former chief economist over at Chase. And Anthony, let's just start with what this report says to you about the state of the recovery. Jared just described it as a Goldilocks-type report. Does that seem appropriate to you?

ANTHONY CHAN: Well, I think what I see here is it's somewhat of a Goldilocks overall economy. I see that employment is increasing. I'm a little disappointed that we didn't see a bigger jump in the leisure and hospitality, which may explain why that average hourly earnings number came in just a little hotter.

Because remember, those are lower cost type of jobs. And if you don't see as much there-- remember, last month we had a weaker employment report, and leisure and hospitality was a little stronger so-- on a relative basis. So given that weakness there, that may explain that.

With regard to the reason why the market is excited, it's because it's telling us that the economy is not blistering hot. That it's actually going to be opening up pretty gradually. And I think that's important.

Some research I recently completed shows that even though the economy is running hot-- you see the Atlanta Fed telling us that we're going to have double digit growth in the second quarter-- if somehow you have manufacturing also doing quite well relative to the service sector, because they get more productivity growth than the service sector, that may dampen some inflationary pressures. All those things-- we got a 23,000 increase in the manufacturing sector-- would in fact, explain why the market is sort of more relaxed and looks like the market took a Valium here after seeing this number.

BRIAN SOZZI: You know, having said that, Anthony, do you think the inflation fears in the market are simply overblown here?

ANTHONY CHAN: I think that we are definitely seeing inflation. All you have to do is look at housing prices, that Case-Shiller Index. Look at the PPI, the CPI, or even looking at Core PCE. I don't think anybody can debate with a straight face and say we're not going to see inflationary pressures over the next three to six months. The big question is, what are we going to see in 2022?

And if we see a more evenly spread growth in the overall economy and the reopening, we can debate until the cows come home that somehow labor market supply pressures are there because of the enhanced unemployment benefits. But that program ends in September. And in fact, close to half of the states have already eliminated it.

So this is a short run phenomena. We're definitely seeing inflationary pressures over the next three to six months. But I really think that the evidence is starting to suggest that as we go into 2022, those inflation pressures are going to be dampened. And I think that that's going to be a big relief to investors as we go into next year.

Remember, the stock market doesn't care so much as to where we are. The market cares about where we're going to be in the next 12 to 18 months.

JULIE HYMAN: Anthony, I want to get back squarely to the jobs report here. Because what it seems to indicate is really what we've been hearing anecdotally and what seemed to be shown in the last jobs report, which is that the problem is not that there aren't jobs out there. The problem is that there are not enough people to fill them. At least that's what is suggested to me by that headline miss and by hourly earnings ticking up.

So what it doesn't tell us is what's going to get people back to work and in those jobs? In your opinion, what is that going to be? Or what are those things going to be?

ANTHONY CHAN: Julie, you've just described everything that's going on perfectly. You're spot on. And what it's going to take to get people back to work is an improvement in child care opportunities, more relaxation with respect to the fear of catching COVID. Of course, the vaccination rate picking up this early getting us in that direction. And of course, the elimination of those enhanced unemployment benefits.

Remember when they say that no good deed goes unpunished. When we were at the heat of the pandemic, that's exactly what you wanted to do. You want to create incentives so people stay home. Now that it's becoming safer to get back to work, we want to reduce those incentives or eliminate them.

And they're going to be eliminated in September, that's certainly going to help. And the fact that some states-- more than half of the states or close to half of the states have eliminated it-- that's going to help. That's what we're seeing more employment. So as we go into the next two to three months, all those factors that are inhibiting employment growth-- guess what? They're going to simply disappear into thin air.

Not because I'm predicting it, but because the handwriting is on the wall. And that's what it's going to take to get people back to work.

MYLES UDLAND: You know, Anthony, as we're talking about this, you realize the best part about this environment right now is everybody gets to be a little bit right, at least for the time being. It certainly keeps all of our arguments--