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September jobs report altogether wasn’t a weak report: NatWest Co-Head Global Economics

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Michelle Girard, NatWest Co-Head Global Economics, joins Yahoo Finance to discuss the September jobs report, the supply chain, and outlook on inflation.

Video Transcript

[MUSIC PLAYING]

JARED BLIKRE: Welcome back to 'Yahoo Finance Live.' The headline payrolls number from this morning disappointed, disappointed the Street's expectations. And we want to continue the discussion here on that jobs report with Michelle Girard. She is the NatWest co-head of global economics. So Michelle, the headline number missed, we saw an uptick in wage growth, a downtick in not only labor force participation, also the unemployment rate. Putting it all together, what do you make of this?

MICHELLE GIRARD: All together I don't think it was a weak report. You know, you talk about it being a miss and certainly that headline gain of only 194,000, the weakest increase we've seen all year. It seems like it was a weak report, maybe by that measure but by that measure only.

Most other aspects to me signal ongoing strength and suggest to me still that the bigger issue holding back the improvement in the labor market is a lack of supply. You saw as-- well, you noted, the decline in the labor force participation rate, that was particularly true for women. We saw a lengthening of the workweek. So there was work to be done, they just had to have the workers they had on hand work longer hours.

And of course, as you noted, that outsized 0.6 of an increase in hourly earnings, that above trend gain I think, again underscoring-- and you heard it from the last two interviews that were done. I mean, companies are having to pay higher wages to attract workers. So I think as I said overall, it suggests very healthy demand and I think still a bigger focus or headwind coming from a lack of supply.

JARED BLIKRE: And we got to take a look at what the Fed is doing as well. We only have-- this is the final report before their November 2nd and 3rd meeting, and there's going to be other economic data released in the interim, including CPI next week. But what is the Fed making of this? Because nothing was so strong that I think takes away the taper intention, which markets are anticipating and the Fed has broadcast that it intends to do this in November. So I'm just wondering where you fall on this spectrum?

MICHELLE GIRARD: Yeah, Jared, I think you're right, Fed Chairman Powell when he last spoke really teed it up to suggest that unless there was something so disastrous or worrisome that happened between now and that meeting in November, they were very likely to begin tapering. Most of the committee or at least a number of members of the committee felt that the criteria for beginning to scale back on those asset purchases was met and it took a little bit of pressure then off the performance of this jobs number. I think importantly, as I said, for the Fed even though the number was weak, there isn't much here to suggest that it's because firms aren't looking to hire workers. And I think that would be what would give the Fed pause.

I think the Fed comes away looking at this suggesting there's still pretty healthy labor demand. Other data we've had over the last week also reaffirm this idea that the demand side of the economy is still quite healthy. What's holding us back and leading to the loss of growth or growth momentum is just the fact, we can't get labor, we can't get materials to make the goods that are being demanded. And I think that knowing that, it will, I think keep the Fed feeling comfortable enough to begin to scale back a little bit on the support it's been providing and cut back a bit on its-- begin to taper its asset purchases.

JARED BLIKRE: And you mentioned the supply chain just now. The issues that so many companies and industries are facing. What is the status here overall? I mean, it's affecting different industries in different ways but are we making incremental improvement here or are we still kind of regressing?

MICHELLE GIRARD: No, I have to say some of the data that we've been looking at suggests that some of these supply pressures or supply chains disruptions may be actually intensifying. We've done a lot of work trying to assess what is going on with the supply chains in the sense of is this a short-term phenomena or is this something that could be more persistent? Because ultimately, that will determine some of the higher inflation readings that we've seen, whether or not they're transitory.

And to be sure, we do see some more shorter-term COVID-related disruption. So as the case numbers went back up, you know, we did see some shutdowns or restrictions being put in place that temporarily aggravated the supply chain issues. But I do think we've got some longer-term structural issues, the labor market supply problems I don't think are going to be shortly or easily corrected. There's semiconductor shortages. I mean, it'll take a year or two to get semiconductor production, those chip production figures up. So I think there are some longer-lasting supply chain disruptions. And so I do worry that some of these headwinds could persist into well into early 2022.

JARED BLIKRE: And we're getting next week the latest CPI numbers and the Street's expecting 5.3% year over year on the headline number, and then taking out food and energy 4%. These are basically at 30-year highs already. And the transitory argument, while still being made by some Fed officials, I think that rhetoric has been dialed back a little bit, especially as we're seeing commodity prices now kind of surge again in certain places. And combined with the wage numbers that we're getting, can you paint a picture for us of inflation going into say next year midyear, maybe even to the end of next year?

MICHELLE GIRARD: Yeah, well, I can kind of talk about our, if you will, trajectory. First of all, you're absolutely right, next week's numbers are likely to be high again. I actually think those year over year numbers will rise. The headline numbers are going to be boosted by the big gains in energy prices that we've seen in recent weeks over the last month. So the headline numbers will be boosted.

On the excluding food and energy piece, it's very interesting to know we had high readings in the spring because of the rebound in many service categories that were COVID-related, airfares, and hotels. Over the summer, the high readings have come as a result of some of the supply shortages. So we've seen auto price increases, we've seen household good price increases, TV prices increases. Those supply chain numbers I think as I was alluding to earlier, will prove more persistent.

And so I do think that we will continue to say we have inflation continuing to move higher through the first quarter of 2022 before beginning to come up. We don't see that core rate, which you said is a little over 4%, we actually think that'll climb toward 4.5% over the first part of 2022 before easing back down but only still getting back to around 2.5% on the CPI. So still higher than it was pre-pandemic.

JARED BLIKRE: And Michelle, always great to see you. And I hope you get to enjoy that beautiful day I can see out of your window.

MICHELLE GIRARD: Yeah, thanks.

JARED BLIKRE: And I'm hoping for a nice weekend as well.

MICHELLE GIRARD: Take care.

JARED BLIKRE: You bet. Michelle Girard, NatWest co-head of global economics.