Jobs Surveys Show 'Concerning Weakness' in Labor, Says Pimco Economist Wilding

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00:00Let's say this is all we've got and there's a lot still to play for in October. It's only just

00:03started. I've got no idea how long the shutdown goes on for, but let's say this is all we've got.

00:07Is there anything in here that would stop this Federal Reserve from just cutting interest rates

00:11again at the end of the month? No, I mean, so I think clearly this ADP report was weak

00:18and I think digging through the details of it, you know, I think there's an interesting

00:22bifurcation in large versus small and medium business sizes. This has been something we've

00:28been very focused on because we think that this economy is basically creating winners and losers.

00:34The tariffs, the technology improvements that we're seeing, the various tax cuts,

00:40all of that we think is benefiting somewhat more larger companies. And it's a really,

00:45really challenging environment for those small and mid-sized businesses. And that's where you saw

00:50the, you know, some more of the weakness. I think that in terms of the ADP report,

00:55the fact that it contracted, if you adjust the payroll survey, the government survey for the

01:01overestimation in that survey over recent years, you know, you can get to numbers that look like

01:07they were contractionary over the last three months as well. So I think these surveys are given a

01:11consistent signal that we are seeing some more concerning weakness in the labor market.

01:16And so right now you're seeing priced into the market, 101% chance of a 25 basis point rate cut

01:22at the October 29th press conference and meeting. And then in December, again, almost a 100% chance,

01:2988% chance of another cut. I just wonder, Tiffany, is that the solution to what essentially is the

01:35K-shaped economy that's getting to be an even bigger K?

01:38Yeah, I mean, so I think that's right. There is, you know, I think interest rate cuts as a result

01:47of the fact that the shock that we're going through right now is both a demand and supply

01:51side shock. Tariffs in both immigration will have supply side effects as well. You know,

01:56and of course, central bank policy is not well suited to deal with supply shocks, but nevertheless,

02:02policy is in restrictive territory. And, you know, I think when you're in an economy that is going

02:07through this type of transition, given the policy U-turns, arguing that it's closer to neutral is

02:14certainly very reasonable. And I think the interesting thing that we're seeing, you know,

02:17since the implementation of tariffs is that the adjustment that the economy is making to tariffs

02:22is not primarily through price adjustments, but it actually looks like it's happening through the labor

02:28market as well, as companies are trying to cut labor and other costs. So that just means, you know,

02:34we think that means the Federal Reserve has room to cut interest rates here. They still have rates

02:39that are above neutral. Getting back to that is very reasonable in our minds, given the weakness

02:44of the labor market we're seeing.