Jobs report: ‘We’re at full employment,’ strategist says

Miller Tabak Equity Strategist Matt Maley and University of Michigan Professor of public policy and economics Betsey Stevenson join Yahoo Finance Live to discuss the November jobs report.

Video transcript

JULIE HYMAN: Let's get some more analysis on all of that. I want to welcome to the program Betsey Stevenson, professor of public policy and Economics at the Ford School at the University of Michigan, and Matt Maley, managing director and Equity Strategist at Miller Tabak.

Betsey, first I want to go to you because I'm seeing a lot of sort of flash commentary here about the sort of disconnect and the disconnect is this, on the one hand, we have a relatively small growth in payrolls of $210,000 in this report. On the other hand, household survey data showing that drop in the unemployment rate to 4.2%, and a drop of the unemployed persons of 542,000. Now, I know it's measuring different things but what do we take away from those seemingly disparate numbers?

BETSEY STEVENSON: Well, so first of all, these are real jobs. So what the household survey shows is there was an increase in the number of people employed of over a million. So 1.1 million increase in employment in that household survey, boy, what are the jobs they took if there's only 210,000 jobs that employers say they added?

A part of what's happening right now is the seasonal factors maybe a little bit wonky. So we normally see a lot of jobs added in November as we're going into the holiday season. Because we're expecting those jobs, they are seasonally adjusted away. So if you look at the seasonally unadjusted numbers-- and this sounds again, kind of wonky-- but we did see nearly 800,000 jobs added, it's just we actually expected a large chunk of those. So when we factor in those seasonal patterns we say, Oh, we really only added 210,000 permanent jobs.

So I think the real question is going to be, is there a greater share of the jobs we saw added in November that are permanent than what we would normally see in November as stores start to gear up for Christmas shopping? And I think that's a really hard question to answer right now. But certainly there are real people in real jobs right now, more than those 210,000 suggest, just the question is, are they going to be let go by January or not?

JULIE HYMAN: Oh, gotcha. Because I was going to ask, Betsey, just as a quick follow up, if we're going to see then a big revision to this number?

BETSEY STEVENSON: Well, we did see, you know, the number revised up again for September and October. So we're looking-- September looked like our weakest number and that went up another 67,000, so that number is now approaching 400,000, September doesn't look that weak anymore. October went up even further. So it is at nearly 550,000. So we see that, you know, we got these increases in September, October, we could very easily see a revision up in November.

But I think what's a bigger issue here is just, are we all shopping in our normal seasonal way? Are we going to the stores in our normal seasonal way? Are the stores hiring up in our normal seasonal way or not? And, you know, if they're not, then more of these jobs will end up sticking and that will mean we see a bigger number in January, when our seasonal factors usually account for us letting all these people go.

BRIAN SOZZI: Matt, you've been writing all week long about this shift in tone from the Federal Reserve Chairman Jerome Powell. When you look at this jobs report, you have $82,000 in upward revisions, you have, I would say, an inflationary wage growth rate of 4.8%, doesn't this feed the narrative that the Fed is likely to be more hawkish next year and that you would sell stocks at these levels?

MATTHEW MALEY: Yes, I do. And look, I think what Betsey talked about the kind of the wonkiness of those numbers but she's absolutely right. And you just look at the move in the bond market it hasn't moved at all. I mean, if anything, interest rates have actually moved up a little bit. And you think that if everybody thought the Fed-- this was going to get the Fed to back off from there quicker tapering time frame, yields would have fallen. They haven't at all. And so I think that's what the market is telling us right now.

And that's the thing, is it the Fed? You know, they was-- they started talking about tapering back in January and it was incredibly gradual, you know, and they move slowly, slowly, slowly. And over the summer, you know, transitory et cetera, they were just talking, you know, that this was going to be something that when they do do it, it was going to be very, very slow.

Well, that, kind of, that went off the table. They started pulling back on that, started getting more aggressive last week. Then that was taken off the table quickly for like a day or two, Sunday and Monday, when this omicron variant came-- came up. And then of course, Chairman Powell slammed it back in the middle of the table on Tuesday and Wednesday during his testimony.

I mean, I guess the biggest thing for me right now is that we look at people talk about we need full employment. We're at full employment. I mean four point-- you know, it would be-- this thought that we have to get to back to the 3.5% unemployment rate that we saw pre-pandemic. We've spent 4% of the time, in the last 50 years, below 4%. 4% of the time-- 25 out of 600 months, that's it. The normal full employment has been considered for a long time between 4% and 6%, We're there.

The Fed is now moved to away from the employment issue and Fed Chairman Powell said, we're firmly worried about inflation and that means the Fed is going to tighten faster. Don't fight the Fed.

- OK, so I'm going to direct that question to Betsey, are we at full employment? Because Matt's looking at the unemployment rate, what are you looking at?

BETSEY STEVENSON: Well, you know, I also look at the labor force participation rate and not just the unemployment rate. And I also think, you know, it's not right to look over the last 50 years because I think the things that determine, things like frictional unemployment have changed over time.

I think one place where we are in agreement is, I think right now we're at a time of what I would call heightened frictional unemployment. In other words, it's taking people longer to figure out what kind of job is going to be the right job for them. So we're seeing high quit rates. We're seeing high hiring. We're seeing a lot of churn in the US economy that's going to keep unemployment a little bit elevated right now and it's keeping a little bit-- it's keeping some people out of the labor force.

But I think we've got another two-- really two years of job growth in front of us. What we're going to need is Federal Reserve policy that allows that to happen. That doesn't mean that they shouldn't accelerate the taper, I'm not saying that. But I do think that we've got two more years to get back to full employment, where we get people back into the labor force.

And I think it's-- it's really important to realize that it's not the unemployment number that matters, it's that underlying churn that matters. You know, we have over 6 million people leave jobs every month and more than 6 million people are hired. What we want to do is slow the exit of people out of jobs, out of the labor force and try to accelerate the flow of people back into the labor force and into jobs. And I think we've got some work yet to do on that.

- And then Matt, just to kind of come back to you. I mean, Betsey is kind of underscoring that wedge that is happening between the Fed's dual mandates when you have inflationary pressures rising, they're acknowledging that-- Chairman Powell, as you mentioned, was acknowledging that.

But the labor market based off of what we saw 15 minutes ago, still very much has a lot of legs to go in terms of trying to close that gap. Does that mean that we are set up for what could be a very noisy meeting in two weeks or in a week and a half that might actually get markets, not to necessarily get into a tantrum per SE, but to maybe get some risk there in terms of a surprise?

MATTHEW MALEY: Well, I mean, I think that-- I mean, one of the things the Fed can only do, I mean, it's they can create a situation where jobs are available and they have done that. There are more jobs available than people who are unemployed. So there's only so much more they can do. They can do more, don't get me wrong. And of course, you know, we'd all like to have--

Again, the unemployment rate is not always just the exact number we want to be using. I totally agree with that. But there's only so much they can do. If you want a job, you can get one. This is my point right now. It may not be the job you want but it's out there. How much more can the Fed do? There are some things but there's only so much more they can do.

And-- but my-- to answer your question, I think we're back to what the Fed was-- the Fed's tone is now back to what we saw in the fourth quarter of 2018, when they were tightening and that created a problems for the markets. It always does. And they know it will, they're OK with that. And I think they're right to be OK with that. But the market trading at 21 times earnings.

The market is too far ahead of the fundamentals, let it come back in. They're doing-- they're doing the right thing by continuing to taper and even raise interest rates because we're out of the emergency. We don't need emergency stimulus anymore. And if that causes a short term pullback in the market, some volatility, some tantrums, that's OK. We don't-- healthy stock markets don't go up on a straight line forever. They do have pullbacks. They do have corrections. Those are normal. They're healthy and I think we're going to be heading towards one of those as we move into the new year.

JULIE HYMAN: Wow, it's not the end of the world when stocks sell off, Matt. All right, we're going to take a quick break. Matt Maley of Miller Tabak is going to stick with us as is Betsey Stevenson. You see there, the numbers that we got just a little while ago. 210,000 jobs added to the US economy last month, although we did have, as Betsey pointed out, perhaps some seasonal effects throwing off the numbers here-- 4.2% unemployment rate and 4.8% year over year wage.