Private jobs report ‘distorted’ due to COVID-19 absenteeism: White House CEA member
White House Council of Economic Advisers member Jared Bernstein joins Yahoo Finance Live to discuss what to expect in the labor market, inflation, the national debt, and the Fed's plans to tighten policy.
Video Transcript
- So obviously, we have that ADP number this morning that was disappointing. We've got some estimates, not all of them, certainly, but some estimates that the number on Friday is going to be a negative one as well. What do you think? Should we be bracing ourselves for a negative read in January?
JARED BERNSTEIN: A couple of points here. First of all, the correlation between the ADP and the BLS payroll numbers has been uniquely low. I actually looked at it this morning. It's about zero. But that said, the most important thing we know about Friday, without knowing the number yet of course, is that the survey was taken at the very same time, the payroll survey for the BLS was taken at the very same time that Omicron caseloads were peaking. So that's point one.
Point two is that, if you're absent from work because of illness, and you're not paid, so you're on unpaid leave, in the payroll survey you're counted as not being on the payroll. You know, which is accurate, because you're not being paid. And therefore, you're not in the job count for Friday.
Now, that doesn't mean you lost your job. It means your home on unpaid leave. So if you're back in February, you're counted again there. So the important point is that this month is likely to be distorted by the fact that lots of people, probably hundreds of thousands, given where the caseloads were, could be on unpaid leave, and therefore, not counted in the BLS payroll count.
- And so what should we take away from the numbers? How should we read the numbers that we get on Friday?
JARED BERNSTEIN: That's the important question. One of the things we've tried to do with the White House has been very careful-- even on a month when we get a big upside surprise-- to look not just at one month, but to look at the underlying trend. The underlying trend in the labor market is extremely strong. Unemployment fell faster than any year on record with data back to 1948 last year.
Employment was up by over 6 million, another historical record. We have almost 11 million job openings. That is near a historical record as well. So there is absolutely no question that not just is this a tight labor market, but it is an historically and a uniquely tight labor market. At the same time, as you know-- you've reported, because I think we talked about it-- GDP grew at a breakneck pace last year, 5.7%.
So look, unless there's a strong, lasting shock, economies don't go from that kind of speed down to zero in a month, or a few weeks. This is very much-- if this job report comes in low or negative, it's going to be very much a function of this measurement issue around absentees not counted in payrolls. The underlying trend is still very strong.
- Jared, the hottest topic on Wall Street right now is, where we might be going in terms of interest rates. Interest rates are likely headed higher. How concerned are you that that causes a stall in the economic recovery here in the country?
JARED BERNSTEIN: Well look, as recoveries proceed, and especially recoveries that are quite strong, historically, we tend to see interest rates rise. Interest rates, especially real interest rates, which of course, is the nominal minus inflation, remain quite low. And so there is still-- I mean, this is an interesting point that's somewhat underappreciated. If you look at the Fed's plans to raise interest rates this year, and you throw in whatever number of rate hikes you like, you still see quite an accommodative monetary policy. And you still see at least projections for say, the 10 year Treasury Yield to be historically quite accommodative as well.
So I think you have to distinguish between the direction and the level. We expect interest rates to pick up when you have an economy posting the kinds of figures that I just cited, both in terms of labor market and GDP as a recovery gets underway. And look, I'm a veteran of this. So I've been around for a lot of recoveries that were jobless, that were wageless, where GDP was growing, but at a pretty pathetically slow pace. We have in those variables, in those variables that I cited, we have much more of a V than it's usually the case.
- Well, you have been around, Jared. We've talked to you a good number of times through the years. And now, there's some folks on the street calling for seven rate hikes this year. That is a very aggressive potential path of Fed policy. How concerned are you that that would stall out the economy, if we get seven hikes instead of four?
JARED BERNSTEIN: I think there's a borderline, which I used to not face, where as a White House economist, I'm not going to lean into Fed policy the way I used to. What I can do is, tell you what the president said. He said, and if I'm not quoting, I'm close to it, that it's appropriate for the Fed to take the steps they've outlined to recalibrate the support that is now necessary for the economy.
You heard Chair Powell himself say, as I cited just a minute ago, the labor market is very, very strong. We have a strong above trend underlying GDP growth. So the Fed's pivot makes sense to me on macroeconomic grounds. I'm certainly not going to get into calling numbers of hikes.
- Jared, I want to turn to the matter of stimulus, and what that has done to the gross national debt, which we just got the latest update on yesterday, $30 trillion. Part of the sort of partly Democratic, mostly Republican intransigence on passing another stimulus bill has to do with talking about the debt at least, and pointing the finger at the debt. What do you think? I mean, are you concerned about that number, and how do you sort of overcome that obstacle?
JARED BERNSTEIN: Yeah, I mean, it's something I think about a lot. And no question, that the President has continuously leaned into the importance of paying for our longer term measures, and has elaborated very I think, granular plans to do exactly that. But there's three points I want to bring to this.
First of all, it's one thing to cite the level of the debt. The way public finance economists do it for a reason, is to look at it relative to some other stock or flow. And in this case, the debt to GDP is, of course, a very common reference point. And if you look at that, you'll actually see that's coming down in part because GDP, and in this case, we're talking nominal GDP, has been growing so quickly. So again, this backdrop of a very strong economy isn't something we can put to the side when we discuss these other variables.
Secondly, low real interest rates, something I said in my second comment, that means servicing this debt is historically quite low. And that's something that we actually highlighted in our last budget. And it will be in our next one as well. Third point, I guess, it's my most important one, I think it is a really substantive mistake to talk about the debt in this disembodied form that says, that pays no reference to what we got for it.
By investing in getting to the other side of this crisis, by getting shots in arms, by getting checks in pockets, by preserving the balance sheet of families, by helping businesses get over this chasm of COVID-19, some of that debt accumulation was essential to get us to where we are, the strongest GDP growth in 40 years with a labor market that's stronger than it's been in generations. To talk about the debt, and not talk about what we got for it, lower child poverty, better household balance sheets, families that are much more intact in terms of both their health and their balance sheet, I actually think that's a very substantive mistake that we should all try to avoid.
- Jared, let's stay on those household balance sheets. Before you came on, we were talking about a company like Starbucks out here, again, raising prices here on consumers because of high levels of inflation. And Starbucks is not alone. They're just company after company raising prices here because of inflation. What type of damage is this doing to middle income America, and low income America?
JARED BERNSTEIN: The President has answered that question every time he's asked. And he's talked about this as a very serious, very pressing challenge for American households who haven't seen these levels of inflation in many decades. And that is why he has dispatched his team and his supply side disruption task force, of which I am a card carrying member, to do everything we can to help ameliorate supply side pressures.
And I am here to tell you that those actions are having results. The bottom line is the inflation rate. So we're going to continue to track that carefully. And I'm not at all disowning my earlier comments of how much of that challenge is. But we have to look at how our actions on the supply chains, on the ports, on the trucks, on ship the shelf are going. Let's talk about inventory in Q4.
One data point-- so again, I don't want to overemphasize it-- we saw very strong inventory buildup. We saw very strong imports and exports. We saw some of our PMI indicators of the supply constraints somewhat loosening. All of these are not enough to make a trend yet. So I'm going to continue to be careful, and not overly rely on one data point. But there is some easing there.
Certainly, dwell times of containers on the ports are down 60% over the past few months. So there are things we can point to that suggests some of that unsnarling efforts that we in the private sector are engaged in are helping. But bottom line is, it's going to have to show up in the price index before we say we're really making the kind of progress the President wants to see.
- Well, and Jared, you know, this progress that is slowly being made is not necessarily being appreciated by consumers, and I would say, more broadly, the electorate, right, the people that the White House wants to reach. It seems as though this message is not necessarily getting out there. Consumer confidence slipped a little bit in January. It's still relatively strong, but people are worried about these higher prices.
JARED BERNSTEIN: All true. And as I said in my last comment, that worry is something that the President reflects every time he speaks about this. And I think it's because I worked for Joe Biden for a long time, sorry, President Biden for a long time. And he has always had this kind of a personal touch, personal connection with the middle class. And so when he talks about this, he's not talking about it like I am, like a macro-economist, he's talking about precisely what you're referring to.
And I think the thing that everyone who's sharing those concerns-- and I agree with you, they're very widely shared right now-- needs to hear this message, which is, that we are doing everything we can to help unsnarl supply chains, ease these inflationary pressures, increase more competition, pass legislation that lowers pressures on family budgets through lower drug prices, lower prices of child care, elder care, lower prices of costs of education. The forecast tell us that by the end of this year, inflation should be growing about half as fast as it was last year.
Now, those forecasts could be wrong. Therefore, we are not sitting on our hands, crossing our fingers hoping they're right. We're doing everything we can to ensure they're right. So while I understand, and you know, even personally share the concerns that you're reflecting, what I can assure you is that we are doing everything we can, and will continue to relentlessly do everything we can until these pressures ease.
- Jared, it's always great to get your perspective. Appreciate the message you're trying to put out there. And we'll talk to you again soon as maybe we see some of these pressures start to alleviate. We shall see. Jared Bernstein of the White House Council of Economic Advisors.
