Labor market: ’We are not seeing the recovery in the service sector broadly,’ expert explains

Betsey Stevenson, Professor of Public Policy and Economics at University of Michigan's Ford School, and Matt Maley, Managing Director and Equity Strategist at Miller Tabak, join the Yahoo Finance Live hosts in assessing job growth across sectors reported from the November jobs report.

Video transcript

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BRIAN SOZZI: Welcome back to "Yahoo Finance Live." On this jobs report Friday, Betsey Stevenson and Matt Maley are still hanging out with us. Matt, I'll come back to you here because you are a trader on this panel. Charlie Munger's comments overnight catching a lot of people's attention. Him essentially saying that stock valuations are crazy. Do you think they're crazy in the context over the next 12 months, we're going to have a very different situation at the Federal Reserve?

MATT MALEY: Yeah, I think so. I mean, he says they're crazier than they were, even in the Dot Com bubble. That's a little hard too. By some measurements, there are. And I suppose there are some pockets in the marketplace that are as bad as they were back then. But I don't think the overall market is quite as bad.

However, we've seen what's happened. I mean, look what happened with Avis? Remember Avis a couple of weeks ago? The stock doubled in two days. I mean, Avis is not coming up with a new thing to help that's going to cure the pandemic. They're not coming up with a new technological advance that's going to change everything. And yet, it just showed at how much ridiculous amount of fraught that there are in some areas of the marketplace.

And the reason for that is because long after we had gotten past the emergency, the Fed was still providing emergency level stimulus. And that took the market way too far above its underlying valuation. And therefore, I do think it has to come back in. And with the Fed not just talking about tapering, but tapering more quickly, I compare it to somebody who is a weightlifter who's on steroids.

Yeah, you don't have to go all the way from taking a lot of steroids to zero steroids to get weaker, you're going to get weaker. There's going to be less stimulus in the economy. And just like the weightlifter who was artificially pushed higher, the stock market was artificially pushed higher and it needs to come back in. So that doesn't mean, again, it's not the end of the world. These things are normal and they're healthy, but it is going to be a stock picker's market. And the overall market, people are going to have to be a lot more careful.

JULIE HYMAN: Betsy, I want to bring you back into this. And obviously, you're an economist, you're not necessarily watching the market as closely as Matt. But I do wonder about market implications as volatility ticks up from this perspective. All the stimulus that Matt was just talking about, a lot of it went into people's pockets. And sure, a lot of people spent it on rent and food. But a lot of people spent it in the market as well. And so, I wonder with that uptick in stock market participation, do there then become sort of economic implications for regular Americans who are invested if we see an increase in volatility?

BETSY STEVENSON: So, I have to say, people did save a lot of the money. And one of the places they might be saving their money is the stock market. I'm not sure why we're going to necessarily see a lot of extra volatility because I think a lot of the people who put their extra money in the stock market are people who are putting it in there for the long haul.

What we saw is people built up their savings and they're building up their savings for their retirement, they're building up their savings in case something sort of really bad happens. So I think the volatility we need to be worried about is volatility coming from COVID, the new variant, and the potential for there to be a lot of turmoil in what Americans are willing to spend. But I don't think we need to worry that too many people are saving too much and they're putting their money in the stock market.

BRIAN CHEUNG: Betsy, what did you see in the composition of where the job gains were in November that kind of informs you about the status of this recovery? Because what was interesting to me is that professional and business services gained about 90,000 jobs in November, but that leisure and hospitality space where I think the shortfall is still something close to 1.4, 1.5 million compared to pre-pandemic levels only gained back about 23,000. So the shift from kind of maybe lower wage to higher wage job returns might be changing right now. Or is that kind of too soon to say?

BETSY STEVENSON: I think the whole thing that is concerning right now is that we are not seeing the recovery in the service sector, broadly, whether we're talking about higher wage or lower wage that we need to see. The good sector has more than recovered. There's more jobs in the goods producing sector, there's more sales in the goods producing sector than anybody would have predicted pre-pandemic would be at today.

So everybody wants a couch, everybody seems to want a car. And so, we did see 60,000 jobs added in the goods producing sector. To put that in perspective, we still right before the pandemic started hadn't made up all the jobs lost in the goods producing sector from the 2008 recession. That's usually really slow to recover, that's not what's happened. What's been slow to recover is the service sector, which got completely hammered by COVID.

And it's continuing to get hammered by COVID. And we are seeing that we haven't made up jobs in education and health services. It's not just leisure and hospitality. So across the board, I'd like to see faster growth in the service sector, people being able to come back to their jobs in doctor's offices, in child care services, in nursing homes. So those are real problems.

If you take a look at this report though, one of the things that really struck me is we didn't see the kind of growth in retail sales that we normally would see in November because people don't seem to be going back to the mall to do their shopping. And that is where we would see, normally, the stores are flooded with people and everybody's trying to hire so that people can get out there and physically do their shopping. I think there's less of that happening right now. And again, that all comes back to COVID. Our case rates remain high, people remain nervous and worried.

BRIAN SOZZI: Matt, final word to you. What's your home run trade off of this jobs report?

MATT MALEY: Oh gosh. Home run trade. I mean, honestly, I don't have one home one trade. What I would just say is that I think it's important for people to have a plan put in place in advance in case I'm right and then we do get more serious headwinds. Because of what the Fed is doing, don't fight the Fed. We will see, I think, a significant correction next year. That's OK, normal healthy.

Have a plan set up in advance. Don't react to it. If you have that plan set up in advance, you will not be the one who's selling at the bottom, you'll be the one buying at the bottom. And keeping your head while others around you are losing theirs. And if and if it doesn't work out having that plan, it's just good to have it and you just don't have to use it, that's fine. But have it in place.

BRIAN SOZZI: Well, that is a home run plan indeed. Matt Maley, Managing Director and Equity Strategist at Miller Tabak. Good to see you. And Betsy Stevenson, Professor of Public Policy and Economics at the Ford School, always good to see you as well.