Reaction to the May Jobs Report

**SPEAKER_1** (0:02)
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**Tom Keene** (0:27)
Job safe folks, we begin our coverage here. We are thrilled to bring in Claudia Sahm, Chief Economist, New Century Advisors as we go into the report. It's a jump condition, five basis points, 452 on the 10-year, 5.01 on the 30-year bond, based on what Priya Misra said, you know, X number of minutes ago, like you're one-third of the way to her tension point for Chairman Warsh.

**Paul Sweeney** (0:51)
And on the short end, Tom, which is kind of reflects where maybe the Fed's thinking about up six basis points on the two-year treasury, 4.1% and futures, S&P, all 45 times.

**Tom Keene** (1:01)
Claudia Sahm with us here for a few minutes of perspective. Claudia, I get the idea that non-firm payrolls are tough to call, but I got a 93,000-plus two-month payroll revision. And what really pauses me is even the under-employment rate came down from 8.2% to 8.1%. How does the chairman respond to this when he's cutting the curtains for the new office?
Right.

**Claudia Sahm** (1:33)
Well, I mean, you know, it's good news on adding jobs. I think one for the Fed, this isn't such a worrisome print, and the wage growth was still pretty moderate. We're still seeing slowing in wage growth. So, you know, the Fed is not anti-jobs. They're anti-inflation, right? So, you know, if you're not seeing those cost pressures push in, you know, this can be, these are still pretty modest numbers in terms of adding payrolls. They're much better than what we saw last year.
But so I think this is this looks like a solid report, right? Unemployment stays low. Like you said, underemployment ticks down a bit and wage growth is still slowing. So, you know, in terms of this being some inflationary pressure, I just don't see it here.

**Tom Keene** (2:16)
Unfair here with, you know, two minutes into this to parse it in all. But I got a three months moving average of non-farm payrolls, folks from another time and place, a hundred and eighty eight thousand. Do you assume, Dr. Sahm, that this will be revised down in six months or 12 months?

**Claudia Sahm** (2:39)
No, and I don't think we should, even though we've seen in the last few years, our annual revisions have been pretty substantial. Down revisions, there's, you know, research coming out of Cleveland Fed that says, you know, these aren't anomalies. We haven't broken the model in terms of these surveys always being, you know, prone towards down revision. And actually we've gotten some indication from administrative data that we might actually get an upward revision for last year when that comes in in the spring.
So I think we can take these numbers for what they are. And in particular, if you look past three months, averaging up around 100,000, we saw some upward revisions. I mean, this really does look, if nothing else really puts the exclamation point and the stabilization in the labor market relative to last year.

**Tom Keene** (3:21)
Paul, can I do a shout out to our collective set of guests?

**Paul Sweeney** (3:24)
Yeah.

**Tom Keene** (3:25)
And that they have been talking for two or three weeks, the directional tone of this report.

**Paul Sweeney** (3:32)
Yep, the labor market.

**Tom Keene** (3:32)
The consensus, I think.

**Paul Sweeney** (3:33)
Pretty solid there. So, Claudia, you called out wages, 3.4% kind of annualized growth. But then I look at next Wednesday, we're going to get a CPI print. Consensus there is for like 4.2% growth in CPI. So, wages are not keeping up with inflation.
What's the thought there?

**Claudia Sahm** (3:52)
So, wages are not keeping up with inflation. That's going to limit the purchasing power. I mean, when I talk about this, not having the inflationary risk is often, if it might be concerned about kind of second round effects, workers bargaining up their wages to try and cover those prices, and that creates another round of inflation.
That's not what we're seeing in this data. So, and what we're really concerned about is, does this inflation have legs of its own? Does it really start to kind of feed on itself? And that's not the sign here from this data. Of course, the flip side of that is, this puts a hardship, puts the screws on workers that are seeing their paychecks be eaten up, and it limits the ability of businesses to pass on some of these costs. So yeah, it limits inflation, but there's kind of pain being fed into the system. It's gonna go somewhere.