Jobs Day | Bloomberg Surveillance 01/06/2023
Now, what we're seeing is a very strong job market has dried up. The unemployment rate sufficiently to slow down the economy to generate slack in the labor market. We're likely to see is slower and slower and slower non-farm payrolls. It's important not to get distracted by
what's happening with the layoffs in the tech sector, industry by industry. And that is why this is such a difficult labor market. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It is payrolls Friday live from New York
City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz.
Some Jonathan Ferro equity features basically unchanged this morning. Two hundred and 2K T.K. is your number. That's the number today. And it's going to be really interesting. I think there's a mystery to this. I think it's a mystery report. We really don't know. First of the year, end of December. Look, as Michael McKee says, lots of labor noise statistically.
To me, it's a big toss up purity. You know, eight consecutive months payrolls have surprised to the upside on the day. Yeah, baby. All the way back to last spring. I mean, give my coverage on radio with Paul Sweeney 9 a.m.
yesterday. James Glassman on without question, the most accurate labor calls last year. He said there's gloom about it is just wrong. And he said, you know, the tech stories tangible, but that's not the American labor economy. That's the point. I think there's two questions here. Who do you listen to? Lisa, what you look at, because the labor market data this week has been great and then it's been tech firm after tech firm announcing what we've gotten used to over the last twelve months, which is job cuts. That's why I keep going back to you can
pick your narrative depending on the data that you want to choose. This is the question that a lot of people have. Why are people not listening to labor market data more, especially when Fed officials are saying that's what matters to them and they want to get more restrictive? The chart that I'm watching today is Fed funds rates and where the market is pricing in the terminal rate. It has gotten to 5 percent. It had been about four point eight percent. But it's nowhere near where all the Fed
officials are saying we're going to get to be going full blast or full Kashkari. Which one is it? I think that a lot of people are shrugging off Kashkari, but there's not that much difference between Bullard and Kashkari. Blair's top marginal rate of 5.1. Kashkari took about five points, four with more history ways. I mean, is very different. My good friend James Bullard, my good friend James Bullard said one thing yesterday in X hours later, he said a different thing. You know, they go with the wind.
Kashkari, at least, has consistently been dovish. What I think he's been dovish is ordered five point four others dovish. He's right. I think others are you know, they're out high fives. People are warbling about heaven as your
board moves the market and 7 percent a couple of weeks ago. Okay. I'm going to turn to the markets. Is this the first time I've heard Kashkari call it tough? But we can talk about that later, at least the past year. Yes, yes. Yes. I mean, you heard the Kashkari of two years ago that definitely dove. OK, futures on the S&P looked like this unchanged on the S&P 500 into pay rose.
We are come an absolutely nowhere on the week so far. The S&P 500 heading for a fifth straight weekly loss, the longest weekly losing streak, potentially going all the way back to May. The affects market Eurodollar 1 to 5, 10. Some we could talk about CPI out of the eurozone, if you like.
Headline CPI comes in, but it's looking like core CPI is pretty sticky and sticky as a problem for this ECB stick is really the story for two thousand twenty three. The idea of the worst of it all. I mean, everybody can pick their direction and we can listen to every single guest and pundit we have on. But it's a winner. Is anybody really looking with confidence? John Pierce, March 30 first? I don't think so.
With confidence? Absolutely not. There's just no way. No way. The tenure right now. Your time. My basis point. Lisa 373 0 9 Dani Burger. I don't even have confidence going into two and a half hours from now.
We get that December payrolls report. But a lot of people already are looking for isn't necessarily the headline number expected to come in north of 200000. But the average hourly wages, how much do they decelerate? How much do they come down, especially after the ADP report yesterday? All right. Put aside how much people discount this. It showed wages much growing much more
quickly than some of the other official statistics have shown. Does that correlate? Will be really interesting. 10:00 a.m., we talk about core core inflation in the eurozone, core inflation in the U.S., the fact that some indicators are going down the good side. But services is really the question.
We get the ISAF services index for December. We also get factory goods and durable factory orders and terrible goods are more interested in services. How much resilient is it, Sarah? Is there considering the fact that that really is one of the drivers of inflation at this point? And we've got a roster of Fed speak today. We can pass the doves from the hawks again. The Delta between them, not that great,
which I think is indicative of just where this Fed is and how united it is in terms of at least the rhetoric that we're hearing. Atlanta Fed President Rafael Bostic, Fed Governor Lisa CAC, Richmond Fed President Tom Harkin and Kansas City Fed president yesterday he said he's running out of breath. That's right. I mean, honestly, you know, we also have other people coming in. We've got ECB chief economist. We have, you know, former Fed head Ben
Bernanke and everyone's speaking today. Great, fantastic insight about that. Sometimes you get away. Lisa, thank you. Steve Wanting joins us now. Chief investment strategist and chief
economist at Citi Global Wealth Management. Steve. Happy New Year to you. Fantastic to meet you, sir. The labor market data so far this week. Let's go through it together. Job openings still indicating a strong
market. You look at the quits rate. Indicating a strong labor market. Jobless claims strong in the CAC where the ads pay for whatever that's worth strong say. What is it right now? Do we have a tight labor market or what is this about to crack? We have a tight labor market.
But let's recall that recessions begin when labor markets have reached their peak, when they've reached the greatest level of progress. Right. So it really matters again where things will be. What are the dynamics that will add to labor demand going forward? No, just take the easy one is the housing market. If you don't have home sales, you're probably not going to need people to build more homes.
And if you just think about broad construction, employment, all of our full year declines that we've had in them since going back to World War 2 have also been declines in broad private. What is the need for labor when we have massive increases in inventories and we're not going to worry too much about American manufacturing and that. But marketing, sales, advertising positions, these are things that tell us where labor market demand will be in the next 12 months. And I think it's going to be significantly worse than the year behind us. We're still trying to catch up with demand. Steve WHITING, I just looked at man principles of economics and you are expert at Chapter 25, which is actually linking the real economy into your strategy and into Citigroup economics.
What a profits look like. And what does that mean for the Fed? Greenspan would say it's a big deal. I'm not hearing this conversation in 2023. Is it a big deal? I think it's a big deal for markets so early and, you know, you want to think about national income, you might want to think about profits as well as wages.
You know, there is a gain for one, there's a loss for the other. And we think that the drop that we will have in profits this year will be low double digits. I think we got some of the action out of the way last year with what happened with financials and summer consumer areas. But it's going to be a disincentive to invest in our capacity to the economy to rebalance in a stronger way. We'll rebalance in a week away. Unfortunately, you can get inflation
down. Steve, one consensus that I've heard start to form around the edges is a less a less offensive kind of view of tech right now. People are talking about tech as possibly having some gains this year because of the cuts. We've heard the job cuts, the cost cutting. Do you agree that that will actually dampen some of the pessimism and create some upside for tech this year? Not immediately.
Now, in the end, if we had a really severe drop in demand for some of these companies in terms of tech, I mean, there are cyclical components. It's a lot of advertising. There's some that move merchandise around. These are all not very much the same
type of tech companies that were all clustered in the late 1990s. What we have had is a big adjustment down in valuation driven by interest rates. The economic impact of a slump probably isn't fully there yet, even in the tech sector and some of the cyclical areas. But I think, again, we'll get out of it. And you can see again the tech
industries that had a lot of Covid benefits, the adaptations we needed to use tech to make the economy work during Covid. Some of that was access. And I don't view again, just getting cheap enough because of low rates is really the catalyst for recovery. It will come probably before the year is out, though.
Just remember how much changes from beginning of the year to the end of the year, how different our years were just in the last few years. So I think again, we will probably see that recovery within 2023, but not soon. What's the leadership then for this year? Well, I think immediate leadership is just defensive, highest quality companies in their industry that, you know, have a lot more profits than they pay out in dividends. So they raise their dividends. It's form suitable some of the non cyclical industries that are been beaten down. And there are some little anomalies. I mean, China had its hard landing in 2022. You know, we seem to be following that same quarter, sort of a policy tightening course that could get us the better 2024.
They are a little ahead of the game on that. Many of the unusual. But really, it will be a recovery. I think that the Fed is imposing a severe slowing on the economy and then the recovery from that will be stronger. So there will be cyclical leadership
again. But we still haven't helped all of this in the economy yet. All of these orders, numbers, I assume orders, readings at 45 is telling us that the goods sector is going to have a big drop and it's not going to leave all of the services sector employment unscathed. Steve Vladeck of Citi Global Wealth
Management. Steve, thank you. Just picking up on the ISE data a little bit earlier this week on the manufacturing side. Not great at so echoing some of this bit of a bit of anger this morning. We think the next big story for markets will be a sharp loss of growth momentum in response to aggressive monetary tightening. They are not constructive on European equities. A prosperous new year. T.K., if they put a big question mark on that, this is important.
Steve WHITING just said there dovetails perfectly with his colleagues, Stuart Kizer, on what Citigroup sees as what's called the jargon is a diminished choice that you're sitting at your desk and you've got to figure out what to do. And there's fewer and fewer ideas, John. Because of the new constraints and of course, one of those constraints is money finally costs something. But I love Rod Stewart. Kaiser said it was 10 days ago, two weeks ago. I love it. WHITING says here that there's just really there's fewer things to pick right now. In the new consensus on that, though,
it's buy bonds if there is something we can agree on. Well, they are lining up to start 23 said of a conversation yesterday from Deborah Cunningham, I thought was brilliant with him, as I'm not saying I agree with her. But she said, look, you're going to clip the coupon this year if you're lucky, and that's an outlier call.
Well, but there are a growing number of people that I keep going back to. Arabella Farooqi said this collision course between the Fed and where market expectations are right now and they're kind of going to be doing an uncomfortable DAX that will create volatility throughout the year. And that's going to create perhaps a premium for a coupon that can give you income to offset that, but not much more.
Looking forward to premium reveal on this. She's going to join a little bit later this morning. Some take a fantastic lineup for you on these payrolls.
Friday prayer, Mr. FTSE. Coming up a little bit later, we'll catch up with some possibly of RTS following that, Randy Kroszner, formerly of the Federal Reserve. And Jeff Rosenberg of BlackRock after the jobs number added a bit later. Look at your equity market. We shape up as follows on only S&P 500 equity features an absolutely nowhere coming to this jobs sprint and a couple of hours time. We're positive by what? A little more than a tenth of 1 percent. You know, it's up almost a single basis
point on a 10 year 370, say 53 euro dollar not too much at 1 2 5 0 6. And what a choppy week has been for crude, just about holding onto seventy four seventy four dollars a barrel and positive a half of 1 per cent on this payrolls Friday. Your estimate this morning is two hundred and two thousand from New York. This is pulling back. Keeping you up today with news from around the world with the first word. I'm Lisa Matteo. Today's U.S. jobs report will help determine what the Federal Reserve does next on interest rates. The estimates are that employers added
fewer jobs last month and this indicates a cooling in the labor market. That would reduce the need for higher rate hikes. But data released Thursday show the job market is still resilient. Inflation in the eurozone has returned to single digits for the first time since August. That's feeling hopes that the bloc's worst ever spike in consumer prices has peaked. Prices in December were up nine point two percent from a year ago.
Slower growth in energy costs was a big reason. Republicans making history on Capitol Hill. Party dissidents have blocked Kevin McCarthy from becoming speaker of the House on 11 ballots. That's a post civil war record. The standoff has left Republicans fractured after they reclaim the majority. McCarthy has offered concessions to hard
line conservatives, but so far he hasn't been able to get enough votes. Russia is seeking more cash from commodity producers and state owned companies to help offset the costs of the war in Ukraine. Proposals include one time payment from fertilizer and coal companies. Russia's budget has been increasingly squeezed by higher military spending and an economy battered by international sanctions. And that holiday travel meltdown is prompting Southwest Airlines to revise its financial outlook before reporting fourth quarter results. The airline canceled almost 16000 flights over eight days.
Southwest says it is assessing the costs of flight disruptions and compensation to passengers for hotels and meals. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm Lisa Mateo. This is Bloomberg.
It's time for the Republicans to get their act together. And we as Democrats are ready, willing and able to partner with them to find common ground whenever and wherever possible. Not as Democrats, not as Republicans, as Americans. It's time for Congress to get to work. Representative Hakeem Jeffries, Democrat from New York Life from New York City on this payrolls Friday, counting it down to pay, rose about two hours and 13 minutes away.
Your market action looks like this. Sunny S&P 500 futures positive by just a tenth of one per cent, trying to raise some of the losses at a week so far. Heading for a fifth straight consecutive loss on the S&P 500 on a weekly basis in the bond market. It would have been lower for the week so far. Yields try to push higher by almost a
basis point right now on a 10 year at 372 35. We've had some data from Europe this morning. I'll touch on that briefly. Eurodollar at 1 2 5 0 7. We've got a problem with core CPI over in Europe.
Clearly headline inflation is slowing sharply. That core CPI year over year in the eurozone is still 5.2 per cent. That was actually higher than the previous month. It went up. I didn't know that. Interesting. On a year over year basis since the
January 12th to peril on that. John, I think it's important to say that the Bloomberg Financial Conditions Index into this jobs report is ever more accommodative. It is buttressed up against recent maximum accommodation. I think it's a big issue for this Federal Reserve time. And we've asked the question, are we
seeing an unwarranted easing of financial conditions, given their objective to get inflation lower? And on a path where they're convinced that we can get back to 2 percent. One of the great things we do here is surveillance was you listen worldwide experts on a given theme. And it was very good the other day to listen to a professor from Oxbridge in England. Professor Jonathan Ferro, who lectured
us on American civics. Jan, you're absolutely nailed. Nailed what? William Cohen, the extinguished. William Cohen, senator of Maine, secretary of defense, along with Alton Friar Fry of the Council on Foreign Relations. The Democrats could, however, offer motions to open the possibility of selecting a speaker capable of working across the aisle.
Nominating an experienced, respected Republican from outside the House could trigger a contested ballot, leading to a speaker in the mold of the original constitutional conception. John, you nailed this. I didn't say on air that some say I'm not sure accounts, but I'm pleased. You know everything you say even off of. Seriously? There we are. Let's go to Annmarie Horden. NIKKEI somebody off my stuff. I like Emory.
I lost count. How many votes are we up to this morning? What does this afternoon, rather? Is it the 10th or the 11th vote? Yeah, I'm pretty sure this morning will be as 12 this afternoon, 12th vote at noon. Yes. Okay.
I want to talk about this reality. I talked to a bunch of Washington insiders yesterday and they're waiting for common sense to come in here. And there's an out where somebody from outside can come in.
If McCarthy, I guess, agrees or you tell me the process, they mention the governor of Maryland, Hogan, and they mentioned the gentleman from Michigan. Upton, is there even a possibility up there near Hogan would save the day? Yeah, Fred Upton's name has been circling, especially in the Twitter world. But this is really just interesting thinking that this is a West Wing episode.
It will not happen at that point. If McCarthy is unable to get the votes he needs, the Republican will just try for another candidate. They are not going to strike a deal with the Democrats. That is a Hail Mary. And honestly, it's just dreamworld.
It would not happen much because his dream role. This morning I ask this question less today. Let's redux it. Who does he call this morning? It's the same. Well, Punchbowl News is reporting that the Republicans are going to have a virtual conference this morning where more McCarthy and his leadership team will go through the new rules.
Now, this is the same concessions that we already spoke about the entire week. The biggest one being that one individual can have this motion to vacate. The fact that maybe more Freedom Caucus members could be on the very important rules committee and he would outline this. And, you know, I spoke to an aide of one of these dissenters who said the devil's in the details and when those details become public. So if McCarthy is able to and what we're hearing, especially The Washington Post is reporting that there are some these individuals are starting to move to support him if he goes through this vote and he starts to ease some of these numbers.
Right. And you have some of those 20 move over to him and he shows some progress. They're calling that phase one, according to The Washington Post. And then they would move into phase two, which would be immense pressure from conservative Republicans and moderate Republicans to get the remainder on board for him to hit 218.
But we should make very clear, if he is able to clinch this and it could go into the weekend, he will start his speakership very, very week because he's given away so many concessions. That's where I want it to go. The Phase 1, Phase 2 carwash, does that leave any moderate Republicans not wanting to support Kevin McCarthy and want to nominate somebody else because of how much he's given up? Well, the issue is, even if they go to someone in his leadership team like Steve Scalise, whose name has been mentioned a number of times, they've already all worked on this deal. Patrick McHenry, Representative Emmer, they worked on this deal.
So the Freedom Caucus members know what they can get out of it. So really, I think it is going to be a weak leader regardless of who it is, unless they go for this dreamworld land that Tom is talking about, which is you get a Democrats on board and you get an outside unity candidate. Does this make the Republican Party more extreme or more moderate, considering that the moderates may have to work more closely with the Democrats to get anything done? It's a great question.
Libby Cantrell of PIMCO spoke to us about this yesterday when it comes to the debt ceiling. Everyone is talking about the fact that this just foreshadows how difficult those negotiations are going to be when it comes to raising the debt ceiling and everyone is concerned about being on that cliff. The way we were, say, in 2011, she's actually saying that a lot of these moderate Republicans come from Biden won districts. And what they're going to want to prove more than ever after this absolute chaotic to back on the House floor, being able to elect a speaker, which we have not seen in 100 years. They're going to want to show they're able to govern and that they are not playing fast and loose with the U.S. credit, with the U.S.
spending. And she says that potentially this can actually show that those negotiations will be easier. But it remains to be seen. And I should just want to set up the
next town with you when you come back. But just briefly, what's happening with Ukraine and Russia and this so-called offer of a cease fire from Vladimir Putin? Please don't read into this cease fire. Vladimir Putin is being beaten on the battlefield. What we have seen in the Far East, most recently, Russia admitting that they lost eighty nine members of their military. That number was raised. And right now, he has suffered a number of defeats. This is a moment for Vladimir Putin to
give in to this idea that because it is the orthodox Christmas, that they want a cease. This is his moment to potentially restock and look at goods and for the Ukrainians. If there are Russian military on their soil and they do not have territorial sovereignty, there is no cease fire. We'll continue this conversation about 60 Minutes. Looking forward to it. I a standard D.C. armory.
Thank you. On this payrolls Friday, if you just tuned again on TV and radio, your estimate this morning is two hundred and 2000. The range is pretty big. Looking ahead to the number we get in about two hours time, but 200 in 2K is the number we're looking for. The unemployment rate expected to stick at three point seven percent. And the overwhelming focus, I think, on
Wall Street at the moment at least is going to be on wages. 5 percent is the estimate, 5.1 per cent was the previous number. And that, I think is where people's eyes are. Although that said, the headline number will be interesting with Bill Dudley saying that it has to fall below 100000 for several consecutive monthly reads in order to get to perhaps where the Fed wants to go.
Wages will be some leading indicator of just how tight the labor market is and whether we're anywhere closer to that. It's okay. Yeah, I would go with that. I think it's a massive mystery. You know, as you mentioned at the top of the show, John, 200 up to 2 0 to the wage dynamics will be great. But I just think it's a more nuanced thing than punditry. Certitude right now is Steve, why he would say, what about profits versus wages? That's an important dynamic. And I would also point out off the trade balance the other day, exports minus imports is compared to something we talked about 15, 20 years ago, domestic final sales, which is sort of the American interior economy. All this jumble staggers out not to
today, but gets as after January 12th. Do you think the pundits really have certainty right now? I don't think anyone here have said anything really believe Lee might say we believe. And then they say asterisk. We don't know what we're talking about because no one knows it's going to happen. I mean, honestly. But it's been a long time. I couldn't do it. One of my favorite conversations at the
end of last year was with Sarah House last Tom Keene on what she called the final mile getting inflation DAX towards 2 percent after the big moves we saw last year. That conversation coming up next. Two hours away from the payrolls report, equity futures up by a tenth of 1 per cent. Good morning to you will look like this across the board on the Nasdaq, which is slightly negative here. We're down about a tenth of one per cent down on the week here on the S&P 500 by almost one full percentage point, down for a fifth consecutive week in the bond market. I have to say, this bond market has not
traded on the labor market data, which has been resilient this week because year what's through Thursday, a 10 year down about 15 basis points. Now, maybe you can blame the ISE came in soft. Perhaps you can say something about the Fed speak whipsawed between hawks and doves. I've got no idea, Brammer, but people are lining up to buy bonds. Your 10 year, 372 72.
And that's in the long end. And here's really what my question is. If you take a look at the very short and you have seen yields rising and you see that yield curve inversion for the three month in the 10 month reaching the lowest since at least 1982. So maybe that's where they're sort of talking about it. But I get your point. Collision course right now, people aren't buying what the Fed selling Alix Steel tense negative. Seventy four this morning. Well, but that's under play with pretty miserable news steepness.
And as you mentioned, versions of Amanda Lang came on a number of months ago and she said negative thoughts. And we were like, wow, massive killer. Yeah, I could it 40, negative 50. And here we are just sort of relaxed and comfortable with this idea. The negative 74 on two stands. I'll get to that in a moment. I want to finish on this.
In the foreign exchange market, just euro dollar had a bit of CPI data out of the eurozone today. Headline CPI slowing sharply year over year, we're told. But if you look at core sticky Halifax, it's still problematic for the ECB. Lisa mentioned earlier, about 30 minutes ago, you hear from Philip Lane, the chief economist of the ECB.
A little bit later this morning. So looking at the comments on that Eurodollar just about holding on to one to five at the moment, 1 2 5 0, a negative a tenth of 1 per cent. As I say, we're about two hours away from the December payrolls report. Jobs growth expected to slow to 230000.
Unemployment's set to hold steady at three point seven per cent. Roscoe Stricker, BlackRock wank in its industry by industry. And that is why this is such a difficult labor market. We're seeing softening it in parts of the professional class. But if you look at other parts of the labor market, hospitality, restaurants, health care, these segments of the economy lost hundreds of thousands of workers during the pandemic that have never come back.
There are still missing workers, which is why the quit rate is still high. And it's why the labor market may remain somewhat resilient as West Coast makes some still a pandemic labor market. Yeah, it's hard on a new ones. Well, this is you and I mentioned this yesterday.
This is still the thing. Were we in the pandemic right now? We're clearly in it. We're still you know, I believe it's under 400 killed a day. But the answer is a pandemic is statistically still valid. And yes, it's part of this economic
story. You've got these large companies that were able to hire Amazon Masa through the pandemic, laying people off, then a small to medium sized companies that are still looking to hire. And that's reflected by the elevated job openings we're seeing across the country, some difficult to redefine. Lisa said a few times this week and I'm totally on board with her. If you've got a narrative, an argument, easy to make it right now because it's plenty of data to back up. Whatever you want to say. Yeah, yeah.
I'll go with that. Let's talk to somebody. You mentioned this earlier and somebody way out front and this number of months ago. A great insight on the last mile, the last moment here of the American economy.
Sarah House joined senior economist at Wells Fargo. I love you saying, you know, Sarah, your update into the new year that we are hardly falling apart. I believe I read that in economics 3 0 2 years ago. What is hardly falling apart mean?
Well, it means that we are seeing, I think, the jobs market softening to some degree. We see it in things like demand coming down, layoffs at least no longer improving if you're looking at the claims data. But I think when you step back and you look at where things are on an absolute basis. So just the overall level of demand, just how low. We're still seeing layoff levels. This is still a very strong jobs market.
And we can see that in a wide range of data. Everything from the still very low unemployment rate to also still very strong job and still very strong wage growth. A payroll one to one. John mentioned 2 0 2 as a number. I don't know what the three month moving averages were.
The revision today. What is the run rate of a normal job growth for the non-farm payrolls statistic? We used to be shocked when we said it was 150. Others have gone below that. Whereas the Wells Fargo statistic of
what the normal monthly growth rate is if we're not booming like we are now. Well, it depends on what's happening in terms that labor supply growth. So both participation and and population trends, which are by no means favorable.
And when you step back and you factor those in. So the Atlanta Fed right now estimates you only need about 85000 jobs per month just to keep the unemployment rate at three point seven percent. Let alone, you know, if you if you see that needing to go a little higher in order to stomp out some of these these wage pressures that are contributing to inflation. Lisa, I never heard that statistic before under 100 I've heard, but not 85000 is a stunning statistic. Where we are. It takes a lot more work. It takes a lot more work in terms of decreased a decrease in the demand picture in order to get employment or the Fed wants it to be perversely higher unemployment as they seek to combat inflation.
Sarah. How long do you expect it would take its shortest to get to a level that is more comfortable for the Fed, that perhaps there is a little bit of a dampening pressure on inflation coming from the labor market? How long does it take? Given the strength that we're seeing today? So I think we'll see more a market slowdown as we move through this year. So we are seeing firms curtailing those hiring plans. If you look the NFIB, for example, those hiring plans are the lowest we've seen since early 2021, roughly on par with what we saw in 2019. So I think we're moving that that direction. So some of the recent job growth has still been catch up in in areas like leisure and hospitality. Government sector payrolls 4, for
example. But I think as we move further into this year, as the environment gets increasingly challenging with the high rate environment, with the clouds hanging over the broader growth outlook, you're going to see businesses get more cautious, particularly when that cost of labor is still pretty high. So I think that is going to put a dampener on on the pace of payroll growth. And we're going to feel it more probably around the spring midyear, even as people talk about recession and say the United Kingdom, we're seeing a series of strikes throughout the industries, particularly the railroads in the US, on the periphery. There have been a number of labor
activity, organized labor movements. How much has that pendulum stayed in favor of the employee for the first time after so many years of the employer kind of having the upper hand? Yes. So employer employees are still in a relatively good position compared to what we've seen over the decades. I think some of that sway has weakened a
little bit here and in the recent months. And so we have I I've heard from a lot of the clients that I've talked to, you know, they are seeing it a little bit easier to hire, a little bit easier to find quality workers. So they're not quite as worried about losing some existing workers. And so I think we're starting to see that come down on the margin. But again, stepping back and looking at where we are in an absolute sense, employees right now still have a lot of a lot of sway, some sort of a philosophical question. One of the great things of the pandemic was the invention of seventeen dollars per hour because all sorts of ginormous box warehouses need to put bodies in them. Is there a permanence to what Amazon and
others did with these ginormous warehouses where they paid off and destroyed the labor economy of the regions around them? Is that going to continue or was that a one off the drifts away? Well, I think in terms of long term trend towards towards e-commerce. I think that's in place even as we are seeing a little bit of a setback as you get the composition of consumer spending shift away from goods towards services. But I think it has left a more long lasting mark on on the wage picture. So if you think about a lot of a lot of the other industries that are having to compete against that lift in that wage level. So everything from your retail, but also things like daycare services.
So those are those are industries that have had to really pay up in order to compete with these industries. And we know that nominal wages do not declined on net over. So this is, I think, a level shift up and that's going to keep wage pressures on a lot of other sectors, even as you see a slowdown in in the e-commerce and warehousing industry. Just quickly here, Sarah, you were arguing earlier in the show about the distance between five point one percent and five point four percent terminal rate in the Fed funds. The distance between going full blurred
vs. full Kashkari. How different is that? I don't think five Weiner, five four is really that big a deal. I think it's more just how long that we stay around those levels. So I think there's you know what we'll
see. Time will tell in terms of whether whether we get there. But I think it's really more about just how long you see that that very restrictive policy linger. Sarah, you've been excellent. Thanks for being with us this morning again, Sarah House there of Wells Fargo. I think Neel Kashkari of the Minneapolis
Fed early this week in that blog post called it the second step arm inflation fight. Leaks are the second step of our inflation fight is keeping rates that just pausing and waiting. And that's where the disagreement in this market and the communication between the Fed Reserve is right now. I could not agree more, especially when Fed funds rates are showing rate cuts still for next year if they keep the Fed funds rates at 5 percent for a year or two years. That is a huge difference than just getting there once for a couple of months. Your tenure at the moment, 372, 53, one
stock to watch. You know this story so well at this point. Southwest in the premarket looks a little something like this. The stock is lower by a little more than
one full percentage point. You're well aware, I'm sure, if these statistics between December 22nd through December twenty ninth. Almost 51 percent of the total flights were canceled by Southwest, according to flight to where data. And this morning, they put a number on it. The estimated revenue loss, some 400 million to 425 million dollars. The company expected to report a net
loss in the fourth quarter off the back of this chaos over the holiday period. It it's amazing to see John and I'll be on the floor in Southwest Mark, but this is part of the culture and fabric of Texas and a huge part of this country. This stark, John, is basically flat lined with his decline back eight years.
That's stunning. This is Southwest. This is like the profit center of the airline business. And that image has just been blown up. There is going to be that time, a
massive PR effort. Now over the next couple of months. And Lisa, we talked about it. Will you trust them? If you need to get to a business meeting, will you trust them over the winter period to get to wherever you need to go? Special holiday, whatever it might be? And how much will they need to adjust the price to make you take that risk? Yeah, or give drink vouchers. I do think that it's interesting that Jeffrey, is this came out with this analyst expectation. Yes. You talked about a 400 million dollar loss.
They're talking about a figure north of 800 million. Talking about 550 million tied to the cancellations themselves, but then an additional hundreds of millions of dollars to compensate people for the car rentals, for the hotel rooms, for all the lost travel when they were absolutely marooned during the holiday period. My reading of this from the unions, Alan, the ground.
They've got an angle on this is simply the under invested in technology on Wall Street. If you do that, you go out of business. Nobody's talking about Southwest going out of business. But what do they do? A whole new tack program to say we're not the old Southwest anymore. This goes back to a five year project is something Lisa has talked about repeatedly over the last couple of months for this industry raises questions about a capital return program over the last couple of years in a bigger way. If this is a basic infrastructure of this nation, and that's how it's been considered with all of these Congress members standing behind them and supporting them in a crisis, then can they continue to have the same kind of dividend programs? It's going to be a big question.
Stock is down about 1 percent in the premarket. That is payrolls Friday. That means we'll catch up with some Paul Sweeney of RBC Capital Markets. I believe he is above consensus. The payrolls. And that's why you need to be over the
last 12 months or so. We've had eight consecutive beats on the day on payrolls Friday. Will we make it nine? We'll catch up with Tom in about an hour from now. From New York. This is Bloomberg.
Keeping you up to date with News My Round the World with the first word. I'm Lisa Mateo. Kevin McCarthy's fight to become speaker of the House drags into a fourth day after his historic 11 rounds of voting.
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We've gone all the way back now to the pre inflation shock level of inflation expectations. Macro theories tell us that that bodes very well for the future of actual inflation. So this is a good signal corps disinflation in 2023. It was Jim pull out of the St.. Lewis Fat Cat Market, right? Didn't we the people yesterday who said exactly what Chairman Powers said in the news conference, which is we're getting closer to sufficiently restrictive it all. But it was almost word for word, precisely what the chairman had said in the news conference.
Anyway, the market's gonna do its thing. Equity futures unchanged this morning. And good morning to see when this pay. Ross Friday. The S&P 500 going nowhere down on the week unchanged on the session.
Yields right now up about a basis point, down on the week, up on a session 372 53 on a 10 year Eurodollar. Just a break it one to five. Right now, what if for 97 were negative a quarter of 1 percent? As I say, core CPI a problem still in the eurozone, even if headline CPI is fading just a little bit. So it's a story in Europe. Let's get to the story right now for South West, putting a number on things for us. The stock is down by about 1 percent in
the premarket. It expects a net loss in four. Q Driven by a prelim estimated pre-tax negative impact of 725 million dollars to eight hundred twenty five million dollars due to the operational disruptions through December. Putting a number on those disruptions, Tom canceled more than sixteen thousand seven hundred flights between December 21 and December thirty first Jonathan Ferro questions.
They get a bailout from the federal government during a pandemic. I mean, they all did, right? Well, this is what Lisa and I were talking about. I was listening to the capital return programs of some of these firms over the last three, four, five years.
Go back even further. And then you're coming out and saying, well, we underestimated under invested in our in our infrastructure. And that's why they're getting a ton of pushback. Lisa Abramowicz. So let's put a number on that. Southwest paid out nearly 10 billion dollars to shareholders in the five years leading up to the pandemic because they had that much cash and they used so much of it to reward their shareholders. The question is, why didn't they invest
it in some of the basic technology that could have provided? This is what the unions are saying. But there is also a question and shareholders are saying that now to full disclosure, Britisher has the same problem. You know, my immature take on what Britishers do, and they're no different. I mean, there's just, you know, they
divorced B, I do I. That's why I think they know that this is like a personal issue. Joanna, Tennessee, you're hooking up with InStyle often Francine Lacqua. I mean, I have the advantage of the Gulf Stream, and that's fine. But, you know, I really haven't picked a new career. You know, I thought you had. Well, you know, I just don't think you know, I don't think the public really cares what you fly. Right.
They do care, at least for ISE. I mean, we know police flights of Satya Nadella got struck and stuck in Atlanta. OK. All right. All right.
We don't have to get into that tonight. Look, I do think there is this question, particularly with low cost airlines or those that are catering to families. How much pain are people willing to tolerate to continue to vacation? And I think that that is really going to ultimately be the question. Will it just take some drink vouchers, some free frequent flyer? You know, that's what everybody is saying. Literally like the small perks that you can give that are the lowest on the totem pole off of expenses and you're laughing at me.
But these are the things that people think about. It's ridiculous. It's Lumbergh, the extended drink vouchers, because Anna Wong absolutely nailed it last year on this jobs.
Deanna Warren with a victory lap over the number one call in terminal road economics last year. Among all of our guests with Bloomberg Economics, it was stunning. And when you said above 5 percent, nobody believed you then and now you're the norm. How have you changed your dynamic of the terminal rate in the last number of weeks? Yeah, we haven't changed it.
We are still at five percent terminal rate. We expect to more 25 basis point rate hikes. And I think the way to think about it and how we thought about it last year really was thinking about real Fed funds rate. We think that the Fed wants real Fed funds rate to be at one point five or one point six percent. So then it depends on where you think inflation would be. And we think that inflation would be hanging around three point five to to around that facility or starting around the middle of this year. So that's that's how we get to get
through. That's the monetary. So what does the job economy do in this? It is jobs day. Maybe we're out front of where we'll be in May or in August. But what is the job reaction function to the Amanda Lang 5 percent call? Yeah, I mean, so so economists right now are still pricing in terminal rate of higher than 5 percent. So.
So there is a difference between traders and economists right now. Others think that the turnout rate is at 5 percent. That will cut by 40 pips by the end of 2023.
Economists think it will peak at fifty five point two five and the Fed won't cut. So where we stand is that we do think the terminal rate would be at five just because that. I think that the near-term downward momentum on inflation is actually pretty strong given what's happening in China and commodity prices and even in the toughest of jobs. I think that the headline number today from non-farm payroll would overstate the tightness of the labor market because, you know, last December in the middle of December, the early revisions came out. So, you know, the job report we're getting today is based on only a sample of firms. It's not the definitive number. And once every year, Bill s revised all
the numbers in March where they use that sense of population of firms, where that data is a definitive data of what's happening to the job market and that number. We got an early preview of that number last December and it's not looking good. So I think that the labor market is actually cooling faster than what the robust, not non-farm payroll number would suggest. Is that perhaps with the market sniffing out because we talked about the dissonance between the market and where economists are and honestly, markets tend to be correct and economists haven't had the best track record over the past decade or so or even longer.
So at what point is the market sniffing out exactly what you're talking about, perhaps a little bit more slack in the labor market than currently being represented by headline numbers or rapid disinflationary kind of pulse? How much is that going to really push the hand of the Fed later this year? Well, you know for sure the traders markets have put that money where their mouth is. So so what? But I do think that the economists have a comparative advantage in understanding what the Fed's reaction function is and that the Fed is serious about not cutting. So I think the market is still a little bit overoptimistic. The Fed will cut. But the economy's. Ah, ah, ah. Right.
That you know, that that the wage persistence underlying inflation is stronger, whereas the market thinks that inflation will become a nonstory by the end of this year. So as an economist, I want to go to the question that John's been asking quite a bit of the Fed, which is where's the balance of risks right now is equally balanced between hiking too fast and torpedoing the economy and fighting inflation, or is it still asymmetric towards fighting inflation despite some of the disinflation that you talking about? Yeah, I think that given all the things that we know today and the data we have in our hand, that the risk seems to be Bowers, we are seeing data that seems to inflation data that seems to be surprise on the downside rather than upside. Now, however, I think the battle that the Fed is fighting and they are definitely, definitely learning from the mistakes they had last year is that there are all these unforeseen personal shocks that could come on in this uncertain world.
You know, there may need maybe labor strikes, unions strikes later this year or, you know, just unforeseen shocks that could do you their whole inflation fight. And so from a risk management perspective. You want to come out ahead of that because inflation expectations are still a little bit fragile to to, you know, any additional shocks and a great call last year. Just great to catch up with you. Thank you.
And I want the Olympic economics looking for that 5 percent terminal. Right. It was not in fashion back inside the summer last year. Stunning Shery Ahn routes are called to
cause of the increase. Coming up in a moment. And I go back to a priest said a number of months ago when she said trust hands could go through 40 basis points, maybe friends go to 50. And here we are at negative 74. No one talks about it anymore.
Doesn't even come up in conversations that I have. Well, part of the reason why is because even the person who really kind of founded the yield curve model has pooh poohed this question of whether it actually is predictive of recession this time around. So there is a question of whether it matters. That said, the fact that we've gotten comfortable with this tells you how far we've come and perhaps how much people are perhaps overly sanguine about whatever it might be suggests. Yeah, I don't to jump on board about the predictive nature of the yield curve and all that good stuff. I just think when you're willing to accept a high yield in the near term and a lower one in the longer term says something about WEBER and you can dismiss it. You cannot dismiss it.
This goes back to what you were saying. You could pick a data point, emphasize it, deemphasize it, and then craft an area around it. But you're right, I totally agree with you. It says something really significant when you can earn more going into a money market fund than you can to lend to this country for 10 years if the tenure is lower than the two year. It says something about where investors had some rats. I am a true traditionalist in that in what's important, folks for those not paying attention is the vector over the last 15 days is not been discussed, which is I'm seeing negative 75 basis points right now. John, a huge body of our audience is not
aware of that new further inversion premise where we'll have some things to say. I have to say also today has the biggest call on payrolls for this morning and looking for a punchy number. So we'll get some more on that with preowned. No. In just a moment comes at Max font of
wisdom from T.D.. You look out for the estimates Tom Keene. Let's get to know more to what country will get. Now, what we're seeing is a very strong job market that has dried up the unemployment rate sufficiently to slow down the economy to generate slack in the labor market. While we're likely to see a slower and slower and slower non-farm payrolls, it's important not to get distracted by what's happening with the layoffs in the tech sector, industry by industry.
And that is why this is such a difficult labor market. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz new role in a new year. Payrolls should come out in the second Friday of the month. It doesn't feel right. I agree. Excited about it.
OK. You want to become fast, Jack? You want to be depressed? Go on. Somebody on Twitter goes more talk of default.
In this seven hours, silver plates. One Brahma John Micklethwait. Well, I don't exist. I'll catch up with AMH in about 20 minutes down at DC and Brown is going to run you through the risk of a debt default in the United States of America. Life from New York City this morning.
Good morning. Good morning to you. Oh, it is payrolls Friday. We're looking for something like 202 K that is in our median estimate. In our survey here at Bloomberg Ranges,
pretty white that you can go to Nomura at 130 or Titi at 350, something about two minutes time. We'll catch up with Premier of T Day as that firm looks for 350000 this month. With our guests are going to do this differently. First premium as we're here with a fixed income angle and obviously the depth of the fixed income market than Tom Solid coming up. And I want to he owns wage dynamics. I want to talk to him about the wage number that will see it 8 above consensus, some possibly in the jobs report and drama. That's been the place to be over the last eight, nine months or so.
Here's the issue. What do you do with Annmarie Horden 350 thousand payrolls report? What do you do with a real blockbuster number? Do you buy stocks? Do you sell bonds? How do you respond to it at a time when the Fed will look at this as a green light to go hard against inflation and create some real pressure? You would expect at the front end theater and you'd expect in the equity market stocks down. We'd expect it will happen by the time we get to the end of the day. I've got absolutely no idea, especially if people are suddenly going to look past these numbers. There's a weakness around the edges. You could see disinflation elsewhere. Then this is just going to end up
creating profits for the companies and better than expected kinds of earnings. You do two things when you listen to John Farrell, talk to the secretary of labor. I think, look, get some color from that. But the other thing you do is you listen to Michael McKee who goes beneath the headline data. And it's not just about 2 0 2 are the unemployment rate or six other numbers. There's some real nuances under there
that can show which part of the economy is moving, which way. That's what I'm going to do. Russ Koester could BlackRock said it. It depends where you look. Industry to industry. Very different stories and strong and tech. And what's been happening with tech jobs hasn't really spoken to the resilient labor market data we've had through most of this week.
Equity futures right now only S&P 500 totally unchanged, unchanged on the session. The S&P down on the week for a fifth consecutive week. Thomas, Steve, we can change that a little bit later this morning. And this is you know, this is under these folks. This is like 11 ratios.
Good morning. Michael Rosenberg and his team were invented. This the Bloomberg Financial Conditions Index moments ago. John moves out to new accommodation. Let me double check that. Yeah, we're buttress right up against more accommodation away from restrictive this joy in jobs we're seeing in the data that we've seen the last number of days is pushing against where Chairman Paul, why he's not a problem. Is it a challenge to Howard?
Yes, absolutely. Absolutely. I I do agree with the gloom crew that you need restriction. You know what Dudley's saying? You need higher rates and the market's pushing against Bill Dudley Mohamed El-Erian. You know him better than me. John, you keep track of this. And the answer is the restrictive crew is looking for help right now.
Brahma, which one is it? Full bladder, full Kashkari. And does it matter in between? Honestly, did you ever read those children's books Choose Your Own Adventure, where you could basically figure out which way you want to go and then turn the page to that particular outcome? It feels like that is what we are embarking upon in 2023. And so today the adventure that I'm going to be looking at is for sure going to be the way is one with 830. Thirty a.m. December payrolls report coming out, do wages come in harder than expected? Perhaps that gives more of a sense of the strength of this labor market more than even the headline number today. On the other side of the story is a service sector that has been the strongest that has been really the driver of a lot of the recent inflation.
We get some services index for the month of December. Do we see it continue to go down the way that we saw with some of the durable goods, with some of the manufacturing, with the ISF that we saw earlier this week, or does it come in harder than expected showing what th