Soft Jobs Data Trims Fed Rate-Hike Bets

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.
This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Carol Massar** (0:32)
So let's get to it, and let's get to the labor market, and that report we got this morning at 8:30 a.m. Eastern. Here's just kind of some of the details. US employers unexpectedly cut jobs in the month of July, and hiring the prior two months was revised lower, suggesting that the labor market here in the US is weaker than previously thought, after surprising strength, Tim, earlier this year.

**Tim Stenovec** (0:52)
The decline in jobs driven by cuts in government, leisure, and hospitality, also retail. Private sector payrolls rose by $30,000 for a second month that was led by health care and social assistance.
Manufacturing and construction payrolls, those continued to climb.

**Carol Massar** (1:05)
And then there was the participation rate. The share of the population working or looking for work fell to 61.4%, which excluding the pandemic, was the lowest since the 1970s. Among those between the ages of 25 and 54, known as prime age workers, participation edged higher but remained near the lowest levels of the last few years. White House Director of the National Economic Council, we're talking about Kevin Hassett. He spoke earlier on Bloomberg TV and radio on open interest with Danny Berger and Michael McKee.

**Kevin Hassett** (1:36)
The labor force participation is kind of on a downward trajectory, which means that the break even jobs number, that is that the jobs number you need so that unemployment rate doesn't go up, has gone from maybe 120, 130,000 a few years ago to maybe about 40,000 now. And so what it means is that what the market is used to look at, oh, it's like a normal tread the water kind of jobs number if it's around 100 is no longer true.

**Carol Massar** (2:03)
All right. That of course is White House Director of the National Economic Council, Kevin Hassett earlier on Bloomberg. Joining us with more is our own Michael McKee, who was talking to Mr. Hassett earlier on Bloomberg. He's of course Bloomberg TV and radio, International Economics and Policy correspondent, joining us here in studio along with and back with us, Matt Luzzetti, his chief economist at Deutsche Bank. Guys, thank you so much. I do want to kick it off with you though, Mike. We've had a few hours for the dust to settle. Is this a report that was weaker?
Like what's the assessment here?

**Mike McKee** (2:33)
I think the bottom line to just skip to the end of the book is that the labor market is weaker than it had appeared, but it's not weak. It's not a problem for the Fed to have to deal with. And there were, as you mentioned, some quirks in the data this time. And everything Kevin said was true about the labor force declining.
You need fewer jobs to employ people so the unemployment rate can go down. And that is something that the Fed's gonna have to think about in terms of what is the level of interest rates that keeps the unemployment rate steady.

**Tim Stenovec** (3:09)
We'll dig into all of this and more in just a minute. First, I want to bring in Matt Luzzetti, chief economist over at Deutsche Bank. Do you agree with Mike's assessment here that, yeah, on the surface, it looks weaker, but it's not as bad as sort of the headline number?

**Matthew Luzzetti** (3:24)
Yeah, I think absolutely. You got a downside surprise on payrolls. You had the 100,000 of downward revisions to prior months.
But I think what it does is it confirms that that break-even number is just lower. So there's various Fed estimates out there suggesting that the break-even number could be as low as zero per month. Over the past three or six months, we're running at 20 to 45,000 on headline payroll numbers. With that backdrop, we've seen the unemployment rate decline to the lowest level in 18 months. We've seen other measures of labor market slack actually tighten on the margins as well. And so I think it actually fits more with a story where the break-even number is quite low. We see payroll gains trending kind of around those levels, maybe a little bit above. Labor market slack tightening at the margins. But it takes away some of the upside risks that the labor market, that the Fed might have been contemplating.

**Carol Massar** (4:06)