Welcome back to cheddar News is closing bell this morning
the Labor Department released its jobs report for the month
of april the US adding 428,000 jobs in april beating
expectations, wages are up but still below that of
red hot inflation. Worker productivity is down, there's
a big mismatch in job openings and unemployed people help
us break down this report. We're joined by Jeffrey
Cleveland principal and chief economist at investment management firm Payden
and Rygel Jeffrey. Welcome to the show. Let's
talk about the overall job growth. Is this a
good sign for the US economy? Absolutely adding 500,000
jobs in the three month moving average. That's pretty
close to the 12-month moving average of job growth?
Very strong job growth. Job growth by the way
is in my opinion, the best real time indicator
of the economy. So I know that Q1 GDP
was negative and people are concerned about that, concerned
about recession. But in real time I put my
money on the payroll data and that continues to look
very very strong. So the U. S.
Economy has very good momentum in my opinion. Okay
. Which sectors saw the biggest gains in april.
What do those numbers tell us about how the economy
looks like moving forward at least for the next couple
of months? Well, I don't think it's any
surprise to say we see big bounce back in leisure
and hospitality transport. So you know the the economy
moving things around. That's been good and then getting
people back out there. Um enjoying life again after
lockdown. So those have been big, big drivers
, big factors, I think also tellingly labor demand
looks very strong. So when I talked to all
of our clients, uh that ranges from small businesses
all the way up to big multinational corporations. They
have a huge demand for labor. Their main struggle
is finding people to fill those positions. And we've
seen the data that we saw for the month of
March, 12 million, almost 12 million unfilled job
openings. There's roughly 5.9 million unemployed people. So
there's roughly two job openings for every unemployed person out
there. This is a historic level of labor demand
. So again, it's telling you the labor market
is very, very strong. We saw productivity falling
about 7.5% in the first quarter. That marks the
biggest drop in about 75 years. That as you
well know, send the cost of labor skyrocketing.
What do you think these numbers tell us about the
job market at least currently? Well, tricky.
I love productivity. I want to be more productive
. I want the economy to be more productive,
but product tv is a residual. So in the
first quarter, GDP did fall and it fell for
reasons that I think are a bit quirky. So
we imported a lot, you know, that was
a drag on our overall growth figures. That is
more of a consequence of I think the state of
the global economy. So we imported more than we
than than we exported. That's a global story.
Us demand. Domestic demand remained very, very strong
. So I think probably for most investors probably should
ignore some of the productivity data effort for the first
quarter because of the noise around output, Jeffrey.
I want to go back to something you said a
moment ago. So there are 11.5 million job openings
, about 5.9 million unemployed people. How problematic is
this mismatch when it comes to labor supply and demand
? Well, problematic. If you are a business
and you're looking to, you know, fill positions
to create output to meet that demand or you're in
short order, you're having to pay more to entice
people to those positions. So we're seeing a lot
of people also quit jobs. The number of people
quitting as at a record high as of the march
data and they're quitting because they're getting better wages at
other places. So, so that's problematic if you're
a business owner, I don't think it's problematic at
all as as an employee. I think this is
great. So for the average consumer and some consumers
keep in mind, haven't seen very strong wage growth
in a couple of decades. So it's not bad
for a consumer. I think it's great. The
3rd category to Consider Central Bankers you put on your
central banker. Hat how do they think about the
demand for labor the pickup in wages? They don't
like that because they think that higher faster wage growth
could feed through into two sustained inflation. So that
is actually at the heart of everything the Fed is
doing here. They're trying to restrain demand a little
bit to bring down that demand for labor to bring
down wage costs to keep inflation in check whether or
not they can achieve that. That's a separate question
. So to answer your question, you have to
have three different groups and they all have different views
on how much of a problem wage growth is Wages
grew 5.5% from last year. Well behind the inflation
rate as I don't have to tell you this Geoffrey
of 8.5%. Is there a sense that the Fed's
decision to raise interest rates might help balance things out
? That's the hope that is the hope. I
, I just, if you've ever been boating,
you know behind the, at the helm alone on
a boat, you know, that's the challenge.
It doesn't respond precisely to your movements like a car
does. So that's what the central bank is doing
. They're turning the wheel, they're tightening policy,
it's going to be a lag before it actually Has
an impact on, on the economy. So yeah
, I think keep, keep that in mind.
Um again, I would, I guess one thing
I would point to the 8.5 is the headline CPI
I write so consumers are looking at that because they're
saying, oh my paycheck, 5.5% wage growth,
but 8.5% inflation. The caution there is, that's
probably not the best gauge of inflation. I would
point everyone, you know, go into google or
whatever you have available. Look at. I think
the trimmed mean PC inflation rate that is closer to
3.7%- 4%. I think that's where prices will
settle in After a year's time. So you think
about where inflation will be in a year's time?
I think it will be closer to that 4% rate
and if that's true then 5% 5.5% 6% average hourly
earnings is good. You're going to be beating inflation
. It's just in the short run we've had a
lot of problems with global supply chains, obviously the
price of oil that's feeding through into gasoline, that's
pushing up that headline number that you're referring to.
So you've made me very optimistic, Jeffrey, thank
you so much and thank you for the insight.
Yes, absolutely. Jeffrey Cleveland, principal and chief
economist at investment management firm Payden and Rygel, Thank
you again for your time