White House NEC Director Kevin Hassett Talks Trump-Warsh Talks

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Dani Burger** (0:07)
Let's continue the conversation. We want to welcome to our global TV and radio audiences. I'm Dani Burger alongside Michael McKee, US employers unexpectedly cut 23,000 jobs in July, falling a downward revision to May and June figures.
Let's bring in White House National Economic Council director Kevin Hassett. Director Hassett, great to see you this morning. And I know you've been saying posts and reaction to this surprise loss in jobs, that you're mostly looking at the unemployment figure and it fell. However, as Mike just pointed out, labor force participation also fell, which is the reason that occurred. So looking at the figures in the state of this jobs market, are there any areas at all that you are concerned about?

**Kevin Hassett** (0:49)
Right. Well, first of all, I've been talking about these numbers with Mike for, how many years, Mike? 20 years. And so he really does raise some good points. And the thing that I would say is that because of our border policy and because of deportations and the retirement of the baby boomers, that labor force participation is kind of on a downward trajectory, which means that the break-even jobs number, that is the jobs number you need so that unemployment rate doesn't go up, has gone from maybe 120,000, 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. If you get a number like 100, that's really like a great number and should make the unemployment rate go way down. And so that's like the technical big picture.
Digging into the numbers, there are some things that really jump out at me.
It was like private sector job creation was right about at the break even positive number. It was government employment that went down a lot, about 50 something thousand. And the other thing is that we see in the hospitality sector, the end of the World Cup is really clearly in the data, too. If you exclude those two things, you had about 100,000 number. And that's consistent with all the other indicators, like the purchasing managers being really high, unemployment, insurance claims being about the lowest they've been since World War II. All these other indicators suggested the market was right when it expected around 100 And given that there's just a minor correction that gives you about 100, I think suggests that's what the truth will be. But we need to see future numbers before we can make a final judgment. And that's why it's great to have a person like Mike around to help us think about it.

**Dani Burger** (2:39)
I agree, Kevin, for what it's worth. I absolutely agree.

**Mike McKee** (2:42)
Well, predictions are hard, especially about the future, as Yogi Berra said.
We're both economists, let's get wonky here. The possible growth, potential growth for the United States or any country is based on the size of the labor force, whether it keeps growing, and productivity. And you're taking credit now for the size of the labor force essentially going down because of the immigration policies of the administration. So is that a good thing for the economy overall?

**Kevin Hassett** (3:10)
Yeah, I mean, what's going on right now is if we do the old potential GDP calculations, then you add productivity plus capital deepening plus labor force participation or labor's contribution. I think that one of the things you see in productivity is that it's probably running north of 2, 2.5%.
Capital spending probably adds at least 1% to that. So before you get to the labor story, you're looking at a 3, 3.5% GDP number. And I think the labor story is still going to be positive. I just think that it's not going to be as positive as it typically has. If you go back over 40 years, the labor story adds about 1% or 1.5% every year to GDP. I think now it's likely to be about a half of that or a third of that.

**Mike McKee** (3:55)
Essentially-

**Kevin Hassett** (3:55)
You see that, by the way, you mentioned the hourly earnings. If you look at the weekly earnings, they're actually up relative to inflation quite a bit, about $1,000 overall for all Americans, about $3,000 for manufacturing workers, $4,000 for construction workers. And so there is something going on, too, where people are-
something in hours that's going on that's offsetting the participation.

**Mike McKee** (4:18)
President watching in the Oval Office is just saying, you got your point in, Kevin, good job about that.