September 4, 2025 • 24 mins
We've been in a strange labor market for a while now. The unemployment rate is still nice and low at 4.2%. But the pace of job creation has been slowing markedly. And furthermore, not only has the pace of job creation been slowing, it seems almost every monthly Non-Farm Payrolls number ends up getting revised lower. Of course, this comes at a time of some big transitions in the workforce — whether we're talking immigration changes, aging demographics, or AI. As such, just understanding the monthly data has never been more difficult. And because it's so difficult, it's also challenging to get a read-through from data to policy. On this episode we speak with Steven Englander, global head of G10 FX research and North America strategy at Standard Chartered Bank. In addition to talking about the state of the labor market, we also discuss the goings-on in bond markets, and why the stress is particularly acute in Europe.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
Joe, I have an embarrassing confession. Go on, you know
the birth death adjustment.
Speaker 1 (00:13):
I have the same confession.
Speaker 2 (00:15):
I used to think it was something about like the
population of people and the labor supply, but it's not.
It's about business formation.
Speaker 1 (00:22):
Yes, that's right.
Speaker 3 (00:23):
Oh my.
Speaker 1 (00:23):
My confession is even more embarrassing, which is that I
literally always forget what it is. I did a deadlist.
Speaker 2 (00:31):
I'm both the most popular trader and most successful trader
at Citadel.
Speaker 1 (00:36):
That is going viral.
Speaker 2 (00:37):
Uh barges.
Speaker 1 (00:38):
This is an after school special, except.
Speaker 2 (00:40):
I've decided I'm going to base my entire personality going
forward on campaigning for a strategic pork reserve in the US.
Speaker 1 (00:46):
Black goals.
Speaker 2 (00:46):
These are the important questions that robots taking over the world.
Speaker 1 (00:50):
No, I think that like in a couple of years,
the AI will do a really good job of making
the odd Launch podcast. One day that person will have
the mandate of Heaven.
Speaker 2 (00:59):
How do I get more popular and successful?
Speaker 3 (01:02):
We do have.
Speaker 2 (01:05):
You're listening to lots more where we catch up with
friends about what's going on right now, Because.
Speaker 1 (01:10):
Even when the Odd Lots is over, there's always lots more.
Speaker 2 (01:13):
And we really do have the perfect guest.
Speaker 1 (01:19):
When people are listening to this, it is jobs Day.
We're recording the September fourth, Jobs Day, September fifth. The
important thing to note right now is that, to some extent,
that monthly non farm payrolls report that everyone depends on
and relies on has never felt to me like more
of a moving target in terms of what I'm supposed
to be looking at. For many years. It's like, Okay,
how many jobs are created this month? Yeah, it's going
to get revised a little bit, but that tells you something.
(01:41):
Now between seasonality, post COVID sort of normalization that's still processing,
and then of course this sort of changes in immigration policy,
which have swung dramatically in the year. These numbers, it's
not clear that you actually have to put it in
some work to understand these, no totally.
Speaker 2 (01:59):
And also, I mean the BLS itself seems to have
some difficulty with the numbers, because the trend that we've
seen is they put out a non farm payroll like
an initial estimate on a Friday, and then a few
weeks later you got the revisions, and the revisions always
seem to be downwards lately.
Speaker 1 (02:17):
Lately they've been mostly downwards. And then there's annual revisions
and those are coming up, I believe next week. And
you know, we were at a time when setting aside
the collection and of course setting it aside the fact
that the BLS chief has been fired and there's going
to be a new one at some point. Sitting outside
all of these things, we're also at a time when
there are significant questions about just the macro state of
(02:38):
the economy and whether the sort of low hiring, low
firing mode which is characterized for a while now is
at risk of deteriorating further. I don't know, it's a
tough read.
Speaker 2 (02:49):
You know who we should ask Steve Englander.
Speaker 3 (02:51):
Okay, but let me start with a broader question. Actually
may be excellent. And the thing is that the question
has changed. Like in the past, we used to say, okay,
last month or you know, last twelve months, NFP growth
was two hundred thousand, looks like one hundred thousand. Now
things have slowed down. That's all we had to know
this time around. Because supply is so important, everyone is
(03:14):
making an estimate and kind of saying, well, native born workers,
you know, maybe seventy thousand. If you're pessimistic, if you
think we have net immigration from foreign born workers, you
have a view of fifty. And if you think that
there's still some legal immigration coming in, maybe you're at
one hundred. And that means that getting the level right
is really important. And the problem with the NFP numbers
(03:37):
that actually has two components, one of which is the
one that we all think about. They survey about one
hundred and sixty thousand businesses maybe six hundred thousand establishments,
and basically say, okay, how many workers did you have
last month? How many did you have this month, And
through their statistical analysis they say, okay, this is a change.
So that's for firms that are in continual operation, gives
(04:00):
them that number. The problem is that they have no
handle on firms that have just opened and very little
handle on firms that have just closed. So they use
something called the birth death adjustment to adjust for employment
by those latter two categories of firms, you know, net
job creation from new firms minus closing firms. And the
(04:22):
problem is that they have a very simple model. And
it was fine in the past when all you cared
about was the direction, but now when you're saying it
really matters if NFP gross is fifty. Having a bias
in that number really affects things. And what you see
is that that number has through thickened sin has stayed
(04:44):
about one hundred thousand jobs. You know when you seasonally
adjust it, because they publish a not seasonal adjustment, but
you can do a rough and ready seasonal adjustment very
stable at about every month. One hundred thousand jobs or
almost one hundred thousand jobs are coming from that birth
death adjustment. In terms of what we see on Bloomberg
page Friday morning at eight thirty, we have another source
of information on that which lags but which is far
(05:08):
more accurate. This is something called the Business Employment Dynamics.
It lags by about eight months, but it's based on
the quarterly census of employment and wages. And what that
shows is that in twenty twenty four, like Q four,
twenty twenty four stay to four quarters, both the employment
growth coming from continuing firms and continuing operation and the
(05:29):
employment growth from newly open firms let's just closed firms
they've tanked. So you're sort of looking at a reliable
source because it's not even a sample. This is the
entire population. They know what opened and what's closed, saying, hey,
there just isn't any significant jobs creation from newly formed firms,
(05:50):
and the and the p number keeps telling you that
there's one hundred thousand jobs coming from that.
Speaker 1 (05:56):
This is already excellent. Next week we are getting yet
another one of these QC quarterly.
Speaker 3 (06:03):
Q what do you call it? I call it what
I call QCW.
Speaker 1 (06:09):
Okay, we get a new qce W. That's the ninth,
September ninth, We get that, right, tell us what this is.
Let's walk through this part again in terms of what
is it that's high quality about this data, why we
expect it to show further downward revisions, and why there
continues to be the sort of downward bias in this
initial snapshot vers letter better insight.
Speaker 3 (06:30):
Oh okay, First, NFP has a big sample, but it's
a sample. They're sampling errors and people who don't report,
and you don't know if there's a bias and who's
reporting who's not reporting, so there's always some inherent error there.
Qc W is basically the universe. It's not a sample.
They get administrative data from the Labor Department saying how
(06:50):
many people paid in the unemployment insurance and that's basically everybody,
because everybody does everybody who's working does pay unemployment insurance.
And and so when they come up with a number,
there's a bit of revision because there's sometimes some firms
don't report in time, but there's not much and that
it's very authoritative. And so if you sort of say, oh,
(07:11):
QCW and the Business Employment Dynamics tell us that in
twenty twenty four there was almost no job creation from
newly opened let's just close firms, you believe it because
there's you're not going to get a better source. There's
no other source to that, and so that's why it's
used for the benchmark. It probably should be used to
re benchmark employment more frequently in the year because they
(07:34):
do publish it quarterly. But you know, when it comes out,
it's a big deal. And we think it's likely to
tell us that somewhere between seven hundred and fifty and
maybe one point one million jobs that's the overstatement between
Q one twenty twenty four and Q one twenty twenty five,
and that will knock off a lot in terms of
(07:55):
headline employment growth. The key point is that there's no
reason to believe that the bias is really shifted.
Speaker 2 (08:01):
One of the other unusual things that's going on at
the moment is we have this new head of the
BLS installed by the Trump administration, and that new head
suggested initially that the BLS could just stop publishing jobs
numbers altogether, or maybe they could publish them less frequently,
like on a quarterly basis or something. Is the quarterly idea.
(08:24):
Maybe that's reasonable given the lag with the QCW data.
Speaker 3 (08:31):
I think that they can do things that are far
less dramatic to improve the quality of the monthly numbers
because we do have some information that's relevant for jobs
creation by newly opened firms. Going back to business employment dynamics,
if you look at how job creation from existing firms,
continuing firms, and job creation from new firms move, they
tend to move together. The amplitude is different, but the
(08:53):
direction is very much the same. They can use the
sample data that they get from the one hundred and
sixty thousand firms six hundred thousand plus establishments that they
sample and say, look, if continuing firms are telling us
the job creation is twenty thousand a month, it's very
unlikely that job creation from new firms is going to
(09:15):
be one hundred. We can use a variety of statistical
methods to sort of make a guesstimth. It won't be perfect,
they will be a luck better.
Speaker 2 (09:35):
Speaking of the new BLS person, Joe, I saw the
most worrying sentence in an analyst note.
Speaker 1 (09:42):
Yesay, so.
Speaker 2 (09:43):
The sentence was, I have it on my screen. The
sentence is because Trump has his own BLS person. Now
I don't necessarily see a bad number on Friday.
Speaker 1 (09:54):
I don't know that pessimistic. I think, I don't know,
but I don't know. I don't have a view of
I don't have a view on this. But who said this?
Speaker 2 (10:02):
I don't want to say, because I'm not sure it's
public or not.
Speaker 1 (10:05):
But this is a notable person.
Speaker 2 (10:07):
Yes, it's someone you know?
Speaker 1 (10:09):
Actually okay? Fine? And not me okay, and not Steve,
not Stephen, let's talk about the conversation has focused on
these levels and pace of job creation and so forth.
We recently did an episode with Austin Goilsby, the Chicago
Fed President, and he was like, so much as a flux,
I'm not really looking at levels, And he called what
he's like he use this term very dramatic, the four
horseman of truth. He's interested in rates. He's interested in
(10:31):
the unemployment rate, which is still at four point two percent.
He's interested at the hiring rate, which we had the
Jolt support come out this week, it's at three point
three percent. He's interested in the firing rate, which I
think has still been fairly low. Maybe he's looking at
like the rate of wage growth. I don't remember what
the fourth horseman was in a time of volatility. What
do you think about this idea, like, let's just forget
(10:52):
about levels and just focus on rates because they don't
get revised as much. You go out and you ask
thousands of people are you employed or onmployed right now?
And if four point two percent say they're unemployed, that
is probably a reasonable proxy for whether people are employed
or not.
Speaker 3 (11:07):
Right But Joe, if you turned out to be the
next person named to the flumc to board and you
see payroll number, it comes out at seventy five thousand,
like tomorrow's consensus. Is that a strong number or a
week number?
Speaker 1 (11:20):
Well, there's some siting. I just look at the I
don't know, I mean, I don't know let's say so
right now, just for what it's worth, the unemployment rate
is at four point two percent. Economists expected to tick
up to four point three percent. Let's say it comes
in four point two percent. Let's say we have a
week NFP number, but the unemployment rate stays at four
point two percent. Why don't I say, okay, things are
still more or less fine?
Speaker 3 (11:42):
Well, let me say this. I like grates, but I
like the employment the population ratio. Okay, because we know
that participation rate is cyclical, and if you look to
the employment the population ratio, all these comments that unemployment
rate is stable and it looks in balance nothing's changed,
they don't hold up very well. We've had pretty consistent drop,
(12:04):
not a two thousand and eight type of drop, but
you know, it's like over sixty a year ago, now
it's fifty nine point six. It's telling us that there's
kind of increased softening. I think you can't be choosy
about which rates you look at, but I think in
cyclical periods, probably employment to population is telling you more.
In this time, it is more on Waller's side than
(12:26):
it is on Powell side.
Speaker 2 (12:27):
I know we've been talking about weaknesses in the NFP estimates,
But what's your expectation for the official number?
Speaker 3 (12:35):
Well, I wrote, we're a little bit split brained on
this left brain, right brain, because we live in a
world where we have to get the market reaction right.
So our forecast is seventy five thousands, very close to consensus.
You know, nothing dramatic. I'd just say this that you've
got to realize there's so much randomness in the number.
It could be one hundred and twenty five thousand and
not be meaningful. But it's just the way it goes.
(12:58):
You know what. We've argued. If you get the range
of forecasts, almost everybody is between like forty thousand and
one hundred thousand, one hundred and five thousand. So you
get a number like thirty, I think that will be
a very dramatic number in.
Speaker 2 (13:11):
Terms of outside the range of expectation.
Speaker 3 (13:13):
Yeah, I mean, because this range is really tight in
terms of market expectation. And I think it would put
fifty on the table for the FED, because I think
the argument would be that if you get a number
that's so low, you probably should have cut in June
or July, and so you're not saying, oh my god,
the world's coming to an end. Everything's falling apart. But
you're saying, yeah, well, we kind of missed it. The
(13:34):
data weren't there at the time. In retrospect, had we
had those data, we probably would have cutt in June
or July. So we're just doing catch up now. Now.
For us, the real issue is how to interpret like
one hundred thousand, because we would say, okay, one hundred
thousand less, our bias of seventy thousand means real job
creation of thirty thousand, so you should be talking about fifty.
(13:55):
I don't think we've convinced the market yet that that's
the way you should look at it.
Speaker 1 (13:59):
By the way, just before going on so on the
ECO page consensus is seventy five K. Consensus is for
the unemployment rate to tick up to four point three percent.
Also average our early earnings of point three percent month
of a month growth, so that's sort of like what
we're looking at this week. We've had some sort of
soft data. We had initial claims today come in at
to thirty seven k. That was ahead of the estimate
(14:20):
of to thirty k. ADP employment take it or leave
it fifty four k versus estimates of sixty eight k,
down significantly from the one hundred and six k revised
last month. I had some services employment forty six point
five that was a little bit shy of expectations, so soft,
and there's this risk of softening. I just think it's
really interesting the range of possibilities for September, because you know,
(14:42):
we were just in Jackson Hole and you're talking about, oh,
maybe there's a case for fifty. But there's also still
a lot of residual concern about inflation, and the inflation
dragon has yet to fully be slayd.
Speaker 3 (14:54):
The reason I would focus on the labor market is
because if it's as weak as we think it is,
in correctly measure the slack in the labor market what
they care of inflation. Okay, that the again I'm serve
more on Waller's side, that you're not going to have
any kind of power on the labor side. If I
can make one comment, I mean, some people get their
pleasure from banging their head against the wall. The walle
(15:14):
I bang my head against once or twice a year
is taking all of these incoming data on labor market
indicators and trying to predict nonfarm payrolls.
Speaker 2 (15:23):
You've got to have a hobby.
Speaker 3 (15:25):
You got to have a hobby, and this one might
be the definition of insanity. And none, none of them
work a bucket of spit.
Speaker 1 (15:32):
I'm looking at the band daid on your forehead. When
you talk about head against the wall for pleasure, you're
actually talking literally.
Speaker 3 (15:39):
It would appear, well, you should see the wall.
Speaker 2 (15:41):
Okay, okay. We would be remiss if when we have
you in the studio, if we did not ask about
what's going on with bonds. So one of the things
that's happening today is because of that softening jobs data
that Joe just laid out, we are seeing a little
bit of a recovery in bond because there's more expectation
(16:02):
that the Fed might cut. But the big story in
recent days has been this huge sell off in bonds,
particularly at the long end. And it doesn't particularly in Europe,
particularly in Europe, but also in the US. It does
seem kind of weird that we're talking about the economy
is slowing and meanwhile the long end of the curve
(16:24):
just keeps going up. What's going on.
Speaker 3 (16:27):
Market's attention span is maybe not as long as you
give it credit for. And I think the problem is
this that you look at fiscal situations that are deteriorating
globally and likely to deteriorate in the US, especially if
anything happens with the tariffs to pull them back, and
markets are kind of saying, look, in the long term,
this doesn't look good. It looks like there's a lot
(16:48):
of borrowing out there. But the long term in market terms,
can be six weeks and it can be six years.
You don't know when those forces are going to matter,
so absent anything else, the market pays attention to it.
Then you sort of come in this week and every
number seems to be soft. You say, oh my god,
if Fed's going to cut, and all of a sudden,
this sort of selling of bonds, especially because the market
(17:10):
probably got reasonably short worrying itself about the fiscal situation,
they say, oh my god, maybe not so short, and
people are buying back the bonds that they've sold, and
you get the kind of dramatic movement we've seen this week.
We've argued in the short term, both facts and bonds
are going to be driven by the FED and the
US economy, and by short term I mean the next month.
(17:30):
They're six weeks I think once you get past that,
we don't think inflation is going to disappear. And even
outside of the tariff induced inflation, there's non tariff goods
and services seem to be at best stays steady and
maybe even edging up a bit. There's a bit of
fysical stimulus in Trump's fiscal package. Tickets possible that the
(17:53):
economy is not as bad as it might look based
on the employment numbers that we're getting, especially if there
is a productivity pickup in the data that's not really recognized.
So we see a possibility, or we actually see more
than a possibility. We expect dollar weakness in the next
couple of weeks, but by the time we get to
(18:13):
the end of the year, we could see the dollar strengthening.
Positioning is kind of short dollars in our view, and
same with the bond market. You know, while the market
served saying, oh my god, last week was debating zero
on twenty five, this week, I suspect they'll be debating
twenty five and fifty. While the market's debating that bond
yields are going to come down. Once that's kind of
settled in terms of market expectations, I think they'll look
(18:35):
at the fiscal picture and kind of say, you know,
low four is maybe not.
Speaker 1 (18:40):
It's interesting it occurs to me when you say, how
when we talk about how bad the economy is, that
there's actually two different ways of what bad could mean.
So one is bad could just mean a sort of
where you are on the cycle. We're in a deceleration cycle.
We're not creating as many jobs. Therefore we have to
have a lower rate of interest to get the going again.
(19:01):
But then bad could also mean more sort of qualitatively,
where what's really bad is slackening growth and also a
firm inflation picture, such that traditional measures of policy stimulus
or de stimulus don't work as well they'd like because
there is some sort of deeper rot. And it sounds
like what you're saying, if I can put all of
this together, is that cyclically there's a slowdown. There may
(19:24):
be a case for fifty basis point cut very soon,
a case for lower rates, but not so bad in
the case of the US economy is broken and therefore
policy measures won't work to get it revived again.
Speaker 3 (19:37):
Yeah, I think that's right. We actually don't think they'll
do much more than fifty. They'll say, okay, we've caught
up pint to weight and see and our baseline because
we're not yet sure about what the employment number is
is twenty five and stop. But you know we've been
talking about the choice being between twenty five and.
Speaker 1 (19:53):
Fifty, just adding around one more. It really is just
on the Europe situation. We mostly talk about the US.
Like France has also so their ten year year old
has been shooting higher.
Speaker 2 (20:03):
Yeah, this is the crazy thing. I think if we
didn't have everything that was going on in the US
at the moment, the France story would be huge in
the market.
Speaker 1 (20:11):
Yeah, so give us your talk to us about Europe
for a minute.
Speaker 3 (20:13):
Yeah, look, there's a France story. I'm actually scheduled to
go to France, but it looks like they might be
on strike next week, so I'm not sure how that's
going to play out. The structural problems that they face
are kind of enormous. I mean, the French deficits about
as large as the US deficit, and their interest rates
are way lower than US interest rates. They have a
very fragile government. They're trying to do some sort of
(20:36):
fiscal consolidation because it's like it's not just a minority.
It's like a tiny government. The opposition parties are kind
of saying no way. And so that's setting the US
aside the French, and broadly speaking, the European situation isn't
that good. And in some cases you're seeing sterling trade
like an emerging markets economy in that the correlation of
(20:59):
interest rates in the currentrency it is not the normal
g TN one where higher rates lead to a stronger
currency because people look at the return, the higher rates
are viewed as risk premium and they're associated with a
weaker currency.
Speaker 1 (21:11):
I mean, yeah, you can look at levels sorry just
to go. You can look at levels of debt to
GDP or ratios, et cetera. But it sounds like the
common thread here, at least to me. And this is
the bias or this is my legs. When you talk
about what's going on in French, maybe you won't even
be able to visit there because of strike. When you
talk about we had Liz Trust on the podcast recently. Politically,
these are not well functioning polities right now, are they?
Speaker 3 (21:35):
Yes? And I'd say that the ability, particularly to get
through unpopular measures like fiscal consolidation is very limited and
That's why they're all sort of have their backs against
the wall, and the markets are looking at this and
kind of saying, you don't really have a source of
growth and you have to do austerity, but you're not.
So we're looking at these ratios and where they're going
(21:55):
to go. I think the one advantage the US has
is that here you know, at least you can ask
tell the story where you say, look, some of the
productivity numbers look pretty good on the ground, the sense
that AI is making inroads. We don't know when it's
going to matter in terms of actual realized productivity, but
it could. You can tell the story that's somewhat optimistic,
(22:17):
Whereas if you look at Europe, they kind of have
They have high energy costs, their capital markets aren't as
well developed for financing these kind of innovative firms, and
they're kind of lagging on the technology side. So the
battle seems to be between the US and China and
other countries sort of really lagging, which doesn't mean the
US outcome is going to be great, but at least
(22:38):
you can tell the story, whereas it's much harder to
tell the story a European story of say private sector
induced growth.
Speaker 2 (22:46):
What's that line again, Joe. It's like the US innovates,
China iterates, and Europe writes the regulation. Can you remember that?
Speaker 3 (22:54):
Yeah?
Speaker 1 (22:55):
And they also get tons of vacation and they have
this amazing life.
Speaker 2 (22:58):
And put out think piece.
Speaker 1 (23:00):
Yeah, but which sounds great. So many people would kill
for a job writing.
Speaker 3 (23:05):
I lived in France for a number of years, and
I'd say the quality of life of the median French
workers well above that of the media and US worker.
Speaker 1 (23:13):
That's what I'm saying. We need to have some This
is an important point.
Speaker 3 (23:17):
You observe that, yeah, Yeah, and the question is whether
it's sustainable. It's like living on your credit card.
Speaker 1 (23:23):
But need to regulate more. We need to instead of innovating,
let's try regulatet.
Speaker 2 (23:27):
No, we should go we should go drink some wine
for lunch.
Speaker 3 (23:30):
Yeah, sounds great, great suggestion.
Speaker 1 (23:36):
Lots More is produced by Carmen Rodriguez and dash Ol Bennett,
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Our sound engineer is Blake Maples. Sage Bauman is the
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Speaker 2 (00:08):
Joe, I have an embarrassing confession. Go on, you know
the birth death adjustment.
Speaker 1 (00:13):
I have the same confession.
Speaker 2 (00:15):
I used to think it was something about like the
population of people and the labor supply, but it's not.
It's about business formation.
Speaker 1 (00:22):
Yes, that's right.
Speaker 3 (00:23):
Oh my.
Speaker 1 (00:23):
My confession is even more embarrassing, which is that I
literally always forget what it is. I did a deadlist.
Speaker 2 (00:31):
I'm both the most popular trader and most successful trader
at Citadel.
Speaker 1 (00:36):
That is going viral.
Speaker 2 (00:37):
Uh barges.
Speaker 1 (00:38):
This is an after school special, except.
Speaker 2 (00:40):
I've decided I'm going to base my entire personality going
forward on campaigning for a strategic pork reserve in the US.
Speaker 1 (00:46):
Black goals.
Speaker 2 (00:46):
These are the important questions that robots taking over the world.
Speaker 1 (00:50):
No, I think that like in a couple of years,
the AI will do a really good job of making
the odd Launch podcast. One day that person will have
the mandate of Heaven.
Speaker 2 (00:59):
How do I get more popular and successful?
Speaker 3 (01:02):
We do have.
Speaker 2 (01:05):
You're listening to lots more where we catch up with
friends about what's going on right now, Because.
Speaker 1 (01:10):
Even when the Odd Lots is over, there's always lots more.
Speaker 2 (01:13):
And we really do have the perfect guest.
Speaker 1 (01:19):
When people are listening to this, it is jobs Day.
We're recording the September fourth, Jobs Day, September fifth. The
important thing to note right now is that, to some extent,
that monthly non farm payrolls report that everyone depends on
and relies on has never felt to me like more
of a moving target in terms of what I'm supposed
to be looking at. For many years. It's like, Okay,
how many jobs are created this month? Yeah, it's going
to get revised a little bit, but that tells you something.
(01:41):
Now between seasonality, post COVID sort of normalization that's still processing,
and then of course this sort of changes in immigration policy,
which have swung dramatically in the year. These numbers, it's
not clear that you actually have to put it in
some work to understand these, no totally.
Speaker 2 (01:59):
And also, I mean the BLS itself seems to have
some difficulty with the numbers, because the trend that we've
seen is they put out a non farm payroll like
an initial estimate on a Friday, and then a few
weeks later you got the revisions, and the revisions always
seem to be downwards lately.
Speaker 1 (02:17):
Lately they've been mostly downwards. And then there's annual revisions
and those are coming up, I believe next week. And
you know, we were at a time when setting aside
the collection and of course setting it aside the fact
that the BLS chief has been fired and there's going
to be a new one at some point. Sitting outside
all of these things, we're also at a time when
there are significant questions about just the macro state of
(02:38):
the economy and whether the sort of low hiring, low
firing mode which is characterized for a while now is
at risk of deteriorating further. I don't know, it's a
tough read.
Speaker 2 (02:49):
You know who we should ask Steve Englander.
Speaker 3 (02:51):
Okay, but let me start with a broader question. Actually
may be excellent. And the thing is that the question
has changed. Like in the past, we used to say, okay,
last month or you know, last twelve months, NFP growth
was two hundred thousand, looks like one hundred thousand. Now
things have slowed down. That's all we had to know
this time around. Because supply is so important, everyone is
(03:14):
making an estimate and kind of saying, well, native born workers,
you know, maybe seventy thousand. If you're pessimistic, if you
think we have net immigration from foreign born workers, you
have a view of fifty. And if you think that
there's still some legal immigration coming in, maybe you're at
one hundred. And that means that getting the level right
is really important. And the problem with the NFP numbers
(03:37):
that actually has two components, one of which is the
one that we all think about. They survey about one
hundred and sixty thousand businesses maybe six hundred thousand establishments,
and basically say, okay, how many workers did you have
last month? How many did you have this month, And
through their statistical analysis they say, okay, this is a change.
So that's for firms that are in continual operation, gives
(04:00):
them that number. The problem is that they have no
handle on firms that have just opened and very little
handle on firms that have just closed. So they use
something called the birth death adjustment to adjust for employment
by those latter two categories of firms, you know, net
job creation from new firms minus closing firms. And the
(04:22):
problem is that they have a very simple model. And
it was fine in the past when all you cared
about was the direction, but now when you're saying it
really matters if NFP gross is fifty. Having a bias
in that number really affects things. And what you see
is that that number has through thickened sin has stayed
(04:44):
about one hundred thousand jobs. You know when you seasonally
adjust it, because they publish a not seasonal adjustment, but
you can do a rough and ready seasonal adjustment very
stable at about every month. One hundred thousand jobs or
almost one hundred thousand jobs are coming from that birth
death adjustment. In terms of what we see on Bloomberg
page Friday morning at eight thirty, we have another source
of information on that which lags but which is far
(05:08):
more accurate. This is something called the Business Employment Dynamics.
It lags by about eight months, but it's based on
the quarterly census of employment and wages. And what that
shows is that in twenty twenty four, like Q four,
twenty twenty four stay to four quarters, both the employment
growth coming from continuing firms and continuing operation and the
(05:29):
employment growth from newly open firms let's just closed firms
they've tanked. So you're sort of looking at a reliable
source because it's not even a sample. This is the
entire population. They know what opened and what's closed, saying, hey,
there just isn't any significant jobs creation from newly formed firms,
(05:50):
and the and the p number keeps telling you that
there's one hundred thousand jobs coming from that.
Speaker 1 (05:56):
This is already excellent. Next week we are getting yet
another one of these QC quarterly.
Speaker 3 (06:03):
Q what do you call it? I call it what
I call QCW.
Speaker 1 (06:09):
Okay, we get a new qce W. That's the ninth,
September ninth, We get that, right, tell us what this is.
Let's walk through this part again in terms of what
is it that's high quality about this data, why we
expect it to show further downward revisions, and why there
continues to be the sort of downward bias in this
initial snapshot vers letter better insight.
Speaker 3 (06:30):
Oh okay, First, NFP has a big sample, but it's
a sample. They're sampling errors and people who don't report,
and you don't know if there's a bias and who's
reporting who's not reporting, so there's always some inherent error there.
Qc W is basically the universe. It's not a sample.
They get administrative data from the Labor Department saying how
(06:50):
many people paid in the unemployment insurance and that's basically everybody,
because everybody does everybody who's working does pay unemployment insurance.
And and so when they come up with a number,
there's a bit of revision because there's sometimes some firms
don't report in time, but there's not much and that
it's very authoritative. And so if you sort of say, oh,
(07:11):
QCW and the Business Employment Dynamics tell us that in
twenty twenty four there was almost no job creation from
newly opened let's just close firms, you believe it because
there's you're not going to get a better source. There's
no other source to that, and so that's why it's
used for the benchmark. It probably should be used to
re benchmark employment more frequently in the year because they
(07:34):
do publish it quarterly. But you know, when it comes out,
it's a big deal. And we think it's likely to
tell us that somewhere between seven hundred and fifty and
maybe one point one million jobs that's the overstatement between
Q one twenty twenty four and Q one twenty twenty five,
and that will knock off a lot in terms of
(07:55):
headline employment growth. The key point is that there's no
reason to believe that the bias is really shifted.
Speaker 2 (08:01):
One of the other unusual things that's going on at
the moment is we have this new head of the
BLS installed by the Trump administration, and that new head
suggested initially that the BLS could just stop publishing jobs
numbers altogether, or maybe they could publish them less frequently,
like on a quarterly basis or something. Is the quarterly idea.
(08:24):
Maybe that's reasonable given the lag with the QCW data.
Speaker 3 (08:31):
I think that they can do things that are far
less dramatic to improve the quality of the monthly numbers
because we do have some information that's relevant for jobs
creation by newly opened firms. Going back to business employment dynamics,
if you look at how job creation from existing firms,
continuing firms, and job creation from new firms move, they
tend to move together. The amplitude is different, but the
(08:53):
direction is very much the same. They can use the
sample data that they get from the one hundred and
sixty thousand firms six hundred thousand plus establishments that they
sample and say, look, if continuing firms are telling us
the job creation is twenty thousand a month, it's very
unlikely that job creation from new firms is going to
(09:15):
be one hundred. We can use a variety of statistical
methods to sort of make a guesstimth. It won't be perfect,
they will be a luck better.
Speaker 2 (09:35):
Speaking of the new BLS person, Joe, I saw the
most worrying sentence in an analyst note.
Speaker 1 (09:42):
Yesay, so.
Speaker 2 (09:43):
The sentence was, I have it on my screen. The
sentence is because Trump has his own BLS person. Now
I don't necessarily see a bad number on Friday.
Speaker 1 (09:54):
I don't know that pessimistic. I think, I don't know,
but I don't know. I don't have a view of
I don't have a view on this. But who said this?
Speaker 2 (10:02):
I don't want to say, because I'm not sure it's
public or not.
Speaker 1 (10:05):
But this is a notable person.
Speaker 2 (10:07):
Yes, it's someone you know?
Speaker 1 (10:09):
Actually okay? Fine? And not me okay, and not Steve,
not Stephen, let's talk about the conversation has focused on
these levels and pace of job creation and so forth.
We recently did an episode with Austin Goilsby, the Chicago
Fed President, and he was like, so much as a flux,
I'm not really looking at levels, And he called what
he's like he use this term very dramatic, the four
horseman of truth. He's interested in rates. He's interested in
(10:31):
the unemployment rate, which is still at four point two percent.
He's interested at the hiring rate, which we had the
Jolt support come out this week, it's at three point
three percent. He's interested in the firing rate, which I
think has still been fairly low. Maybe he's looking at
like the rate of wage growth. I don't remember what
the fourth horseman was in a time of volatility. What
do you think about this idea, like, let's just forget
(10:52):
about levels and just focus on rates because they don't
get revised as much. You go out and you ask
thousands of people are you employed or onmployed right now?
And if four point two percent say they're unemployed, that
is probably a reasonable proxy for whether people are employed
or not.
Speaker 3 (11:07):
Right But Joe, if you turned out to be the
next person named to the flumc to board and you
see payroll number, it comes out at seventy five thousand,
like tomorrow's consensus. Is that a strong number or a
week number?
Speaker 1 (11:20):
Well, there's some siting. I just look at the I
don't know, I mean, I don't know let's say so
right now, just for what it's worth, the unemployment rate
is at four point two percent. Economists expected to tick
up to four point three percent. Let's say it comes
in four point two percent. Let's say we have a
week NFP number, but the unemployment rate stays at four
point two percent. Why don't I say, okay, things are
still more or less fine?
Speaker 3 (11:42):
Well, let me say this. I like grates, but I
like the employment the population ratio. Okay, because we know
that participation rate is cyclical, and if you look to
the employment the population ratio, all these comments that unemployment
rate is stable and it looks in balance nothing's changed,
they don't hold up very well. We've had pretty consistent drop,
(12:04):
not a two thousand and eight type of drop, but
you know, it's like over sixty a year ago, now
it's fifty nine point six. It's telling us that there's
kind of increased softening. I think you can't be choosy
about which rates you look at, but I think in
cyclical periods, probably employment to population is telling you more.
In this time, it is more on Waller's side than
(12:26):
it is on Powell side.
Speaker 2 (12:27):
I know we've been talking about weaknesses in the NFP estimates,
But what's your expectation for the official number?
Speaker 3 (12:35):
Well, I wrote, we're a little bit split brained on
this left brain, right brain, because we live in a
world where we have to get the market reaction right.
So our forecast is seventy five thousands, very close to consensus.
You know, nothing dramatic. I'd just say this that you've
got to realize there's so much randomness in the number.
It could be one hundred and twenty five thousand and
not be meaningful. But it's just the way it goes.
(12:58):
You know what. We've argued. If you get the range
of forecasts, almost everybody is between like forty thousand and
one hundred thousand, one hundred and five thousand. So you
get a number like thirty, I think that will be
a very dramatic number in.
Speaker 2 (13:11):
Terms of outside the range of expectation.
Speaker 3 (13:13):
Yeah, I mean, because this range is really tight in
terms of market expectation. And I think it would put
fifty on the table for the FED, because I think
the argument would be that if you get a number
that's so low, you probably should have cut in June
or July, and so you're not saying, oh my god,
the world's coming to an end. Everything's falling apart. But
you're saying, yeah, well, we kind of missed it. The
(13:34):
data weren't there at the time. In retrospect, had we
had those data, we probably would have cutt in June
or July. So we're just doing catch up now. Now.
For us, the real issue is how to interpret like
one hundred thousand, because we would say, okay, one hundred
thousand less, our bias of seventy thousand means real job
creation of thirty thousand, so you should be talking about fifty.
(13:55):
I don't think we've convinced the market yet that that's
the way you should look at it.
Speaker 1 (13:59):
By the way, just before going on so on the
ECO page consensus is seventy five K. Consensus is for
the unemployment rate to tick up to four point three percent.
Also average our early earnings of point three percent month
of a month growth, so that's sort of like what
we're looking at this week. We've had some sort of
soft data. We had initial claims today come in at
to thirty seven k. That was ahead of the estimate
(14:20):
of to thirty k. ADP employment take it or leave
it fifty four k versus estimates of sixty eight k,
down significantly from the one hundred and six k revised
last month. I had some services employment forty six point
five that was a little bit shy of expectations, so soft,
and there's this risk of softening. I just think it's
really interesting the range of possibilities for September, because you know,
(14:42):
we were just in Jackson Hole and you're talking about, oh,
maybe there's a case for fifty. But there's also still
a lot of residual concern about inflation, and the inflation
dragon has yet to fully be slayd.
Speaker 3 (14:54):
The reason I would focus on the labor market is
because if it's as weak as we think it is,
in correctly measure the slack in the labor market what
they care of inflation. Okay, that the again I'm serve
more on Waller's side, that you're not going to have
any kind of power on the labor side. If I
can make one comment, I mean, some people get their
pleasure from banging their head against the wall. The walle
(15:14):
I bang my head against once or twice a year
is taking all of these incoming data on labor market
indicators and trying to predict nonfarm payrolls.
Speaker 2 (15:23):
You've got to have a hobby.
Speaker 3 (15:25):
You got to have a hobby, and this one might
be the definition of insanity. And none, none of them
work a bucket of spit.
Speaker 1 (15:32):
I'm looking at the band daid on your forehead. When
you talk about head against the wall for pleasure, you're
actually talking literally.
Speaker 3 (15:39):
It would appear, well, you should see the wall.
Speaker 2 (15:41):
Okay, okay. We would be remiss if when we have
you in the studio, if we did not ask about
what's going on with bonds. So one of the things
that's happening today is because of that softening jobs data
that Joe just laid out, we are seeing a little
bit of a recovery in bond because there's more expectation
(16:02):
that the Fed might cut. But the big story in
recent days has been this huge sell off in bonds,
particularly at the long end. And it doesn't particularly in Europe,
particularly in Europe, but also in the US. It does
seem kind of weird that we're talking about the economy
is slowing and meanwhile the long end of the curve
(16:24):
just keeps going up. What's going on.
Speaker 3 (16:27):
Market's attention span is maybe not as long as you
give it credit for. And I think the problem is
this that you look at fiscal situations that are deteriorating
globally and likely to deteriorate in the US, especially if
anything happens with the tariffs to pull them back, and
markets are kind of saying, look, in the long term,
this doesn't look good. It looks like there's a lot
(16:48):
of borrowing out there. But the long term in market terms,
can be six weeks and it can be six years.
You don't know when those forces are going to matter,
so absent anything else, the market pays attention to it.
Then you sort of come in this week and every
number seems to be soft. You say, oh my god,
if Fed's going to cut, and all of a sudden,
this sort of selling of bonds, especially because the market
(17:10):
probably got reasonably short worrying itself about the fiscal situation,
they say, oh my god, maybe not so short, and
people are buying back the bonds that they've sold, and
you get the kind of dramatic movement we've seen this week.
We've argued in the short term, both facts and bonds
are going to be driven by the FED and the
US economy, and by short term I mean the next month.
(17:30):
They're six weeks I think once you get past that,
we don't think inflation is going to disappear. And even
outside of the tariff induced inflation, there's non tariff goods
and services seem to be at best stays steady and
maybe even edging up a bit. There's a bit of
fysical stimulus in Trump's fiscal package. Tickets possible that the
(17:53):
economy is not as bad as it might look based
on the employment numbers that we're getting, especially if there
is a productivity pickup in the data that's not really recognized.
So we see a possibility, or we actually see more
than a possibility. We expect dollar weakness in the next
couple of weeks, but by the time we get to
(18:13):
the end of the year, we could see the dollar strengthening.
Positioning is kind of short dollars in our view, and
same with the bond market. You know, while the market
served saying, oh my god, last week was debating zero
on twenty five, this week, I suspect they'll be debating
twenty five and fifty. While the market's debating that bond
yields are going to come down. Once that's kind of
settled in terms of market expectations, I think they'll look
(18:35):
at the fiscal picture and kind of say, you know,
low four is maybe not.
Speaker 1 (18:40):
It's interesting it occurs to me when you say, how
when we talk about how bad the economy is, that
there's actually two different ways of what bad could mean.
So one is bad could just mean a sort of
where you are on the cycle. We're in a deceleration cycle.
We're not creating as many jobs. Therefore we have to
have a lower rate of interest to get the going again.
(19:01):
But then bad could also mean more sort of qualitatively,
where what's really bad is slackening growth and also a
firm inflation picture, such that traditional measures of policy stimulus
or de stimulus don't work as well they'd like because
there is some sort of deeper rot. And it sounds
like what you're saying, if I can put all of
this together, is that cyclically there's a slowdown. There may
(19:24):
be a case for fifty basis point cut very soon,
a case for lower rates, but not so bad in
the case of the US economy is broken and therefore
policy measures won't work to get it revived again.
Speaker 3 (19:37):
Yeah, I think that's right. We actually don't think they'll
do much more than fifty. They'll say, okay, we've caught
up pint to weight and see and our baseline because
we're not yet sure about what the employment number is
is twenty five and stop. But you know we've been
talking about the choice being between twenty five and.
Speaker 1 (19:53):
Fifty, just adding around one more. It really is just
on the Europe situation. We mostly talk about the US.
Like France has also so their ten year year old
has been shooting higher.
Speaker 2 (20:03):
Yeah, this is the crazy thing. I think if we
didn't have everything that was going on in the US
at the moment, the France story would be huge in
the market.
Speaker 1 (20:11):
Yeah, so give us your talk to us about Europe
for a minute.
Speaker 3 (20:13):
Yeah, look, there's a France story. I'm actually scheduled to
go to France, but it looks like they might be
on strike next week, so I'm not sure how that's
going to play out. The structural problems that they face
are kind of enormous. I mean, the French deficits about
as large as the US deficit, and their interest rates
are way lower than US interest rates. They have a
very fragile government. They're trying to do some sort of
(20:36):
fiscal consolidation because it's like it's not just a minority.
It's like a tiny government. The opposition parties are kind
of saying no way. And so that's setting the US
aside the French, and broadly speaking, the European situation isn't
that good. And in some cases you're seeing sterling trade
like an emerging markets economy in that the correlation of
(20:59):
interest rates in the currentrency it is not the normal
g TN one where higher rates lead to a stronger
currency because people look at the return, the higher rates
are viewed as risk premium and they're associated with a
weaker currency.
Speaker 1 (21:11):
I mean, yeah, you can look at levels sorry just
to go. You can look at levels of debt to
GDP or ratios, et cetera. But it sounds like the
common thread here, at least to me. And this is
the bias or this is my legs. When you talk
about what's going on in French, maybe you won't even
be able to visit there because of strike. When you
talk about we had Liz Trust on the podcast recently. Politically,
these are not well functioning polities right now, are they?
Speaker 3 (21:35):
Yes? And I'd say that the ability, particularly to get
through unpopular measures like fiscal consolidation is very limited and
That's why they're all sort of have their backs against
the wall, and the markets are looking at this and
kind of saying, you don't really have a source of
growth and you have to do austerity, but you're not.
So we're looking at these ratios and where they're going
(21:55):
to go. I think the one advantage the US has
is that here you know, at least you can ask
tell the story where you say, look, some of the
productivity numbers look pretty good on the ground, the sense
that AI is making inroads. We don't know when it's
going to matter in terms of actual realized productivity, but
it could. You can tell the story that's somewhat optimistic,
(22:17):
Whereas if you look at Europe, they kind of have
They have high energy costs, their capital markets aren't as
well developed for financing these kind of innovative firms, and
they're kind of lagging on the technology side. So the
battle seems to be between the US and China and
other countries sort of really lagging, which doesn't mean the
US outcome is going to be great, but at least
(22:38):
you can tell the story, whereas it's much harder to
tell the story a European story of say private sector
induced growth.
Speaker 2 (22:46):
What's that line again, Joe. It's like the US innovates,
China iterates, and Europe writes the regulation. Can you remember that?
Speaker 3 (22:54):
Yeah?
Speaker 1 (22:55):
And they also get tons of vacation and they have
this amazing life.
Speaker 2 (22:58):
And put out think piece.
Speaker 1 (23:00):
Yeah, but which sounds great. So many people would kill
for a job writing.
Speaker 3 (23:05):
I lived in France for a number of years, and
I'd say the quality of life of the median French
workers well above that of the media and US worker.
Speaker 1 (23:13):
That's what I'm saying. We need to have some This
is an important point.
Speaker 3 (23:17):
You observe that, yeah, Yeah, and the question is whether
it's sustainable. It's like living on your credit card.
Speaker 1 (23:23):
But need to regulate more. We need to instead of innovating,
let's try regulatet.
Speaker 2 (23:27):
No, we should go we should go drink some wine
for lunch.
Speaker 3 (23:30):
Yeah, sounds great, great suggestion.
Speaker 1 (23:36):
Lots More is produced by Carmen Rodriguez and dash Ol Bennett,
with help from Moses Ondam and kil Brooks.
Speaker 2 (23:42):
Our sound engineer is Blake Maples. Sage Bauman is the
head of Bloomberg Podcasts.
Speaker 1 (23:47):
Please rate, review, and subscribe to Odd, Lots and lots
More on your favorite podcast platforms.
Speaker 2 (23:53):
And remember that Bloomberg subscribers can listen to all our
podcasts at free by connecting through Apple Podcasts. Thanks for listening.
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