The Labor Department reported a big beat on jobs growth for April with 428,000 added versus the expected 380,000. Despite reductions in labor productivity and a weaker Q1 GDP, the job figures promoted some optimism among analysts. Jeffrey Cleveland, the chief economist for investment firm Payden & Rygel, joined Cheddar to break it down. "I know that Q1 GDP was negative and people are concerned about that, concerned about recession but in real-time, I put my money on the payroll data," he said. "And that continues to look very, very strong. So, the U.S. economy has very good momentum in my opinion."

Closing Bell

Gauging U.S. Economic Momentum With Strong April Jobs Report

Welcome back to cheddar News is closing bell this morning the Labor Department released its jobs report for the month of april the US adding 428,000 jobs in april beating expectations, wages are up but still below that of red hot inflation. Worker productivity is down, there's a big mismatch in job openings and unemployed people help us break down this report. We're joined by Jeffrey Cleveland principal and chief economist at investment management firm Payden and Rygel Jeffrey. Welcome to the show. Let's talk about the overall job growth. Is this a good sign for the US economy? Absolutely adding 500,000 jobs in the three month moving average. That's pretty close to the 12-month moving average of job growth? Very strong job growth. Job growth by the way is in my opinion, the best real time indicator of the economy. So I know that Q1 GDP was negative and people are concerned about that, concerned about recession. But in real time I put my money on the payroll data and that continues to look very very strong. So the U. S. Economy has very good momentum in my opinion. Okay. Which sectors saw the biggest gains in april. What do those numbers tell us about how the economy looks like moving forward at least for the next couple of months? Well, I don't think it's any surprise to say we see big bounce back in leisure and hospitality transport. So you know the the economy moving things around. That's been good and then getting people back out there. Um enjoying life again after lockdown. So those have been big, big drivers, big factors, I think also tellingly, labor demand looks very strong. So when I talk to all of our clients that ranges from small businesses all the way up to big multinational corporations, They have a huge demand for labor. Their main struggle is finding people to fill those positions. And we've seen the data that we saw for the month of March, 12 million, almost 12 million unfilled job openings. There's roughly 5.9 million unemployed people. So there's roughly two job openings for every unemployed person out there. This is a historic level of labor demand. So again, it's telling you the labor market is very, very strong. We saw productivity falling about 7.5% in the first quarter. That marks the biggest drop in about 75 years. That as you well know, send the cost of labor skyrocketing. What do you think these numbers tell us about the job market at least currently? Well, tricky. I love productivity. I want to be more productive. I want the economy to be more productive, but product tv is a residual. So in the first quarter, GDP did fall and it fell for reasons that I think are a bit quirky. So we imported a lot, you know, that was a drag on our overall growth figures. That is more of a consequence of I think the state of the global economy. So we imported more than we than than we exported. That's a global story. Us demand. Domestic demand remained very, very strong. So I think probably for most investors probably should ignore some of the productivity data effort for the first quarter because of the noise around output, Jeffrey. I want to go back to something you said a moment ago. So there are 11.5 million job openings. About 5.9 million unemployed people. How problematic is this mismatch when it comes to labor supply and demand? Well, problematic. If you are a business and you're looking to, you know, fill positions to create output to meet that demand or you're in short order, you're having to pay more to entice people to those positions. So we're seeing a lot of people also quit jobs. The number of people quitting as at a record high as of the march data and they're quitting because they're getting better wages at other places. So, so that's problematic of your business owner. I don't think it's problematic at all as as an employee, I think this is great. So for the average consumer and some consumers keep in mind haven't seen very strong wage growth in a couple of decades. So it's not bad for a consumer. I think it's great. The 3rd category to Consider Central Bankers you put on your central banker. Hat, how do they think about the demand for labor, the pickup in wages. They don't like that because they think that higher faster wage growth could feed through into two sustained inflation. So that is actually at the heart of everything the Fed is doing here. They're trying to restrain demand a little bit to bring down that demand for labor to bring down wage costs to keep inflation in check whether or not they can achieve that. That's a separate question. So to answer your question, you have to have three different groups and they all have different views on how much of a problem wage growth is Wages grew 5.5% from last year. Well behind the inflation rate as I don't have to tell you this, Jeffrey have 8.5%. Is there a sense that the Fed's decision to raise interest rates might help balance things out? That's the hope, that is the hope. I I just, if you've ever been boating, you know behind the, at the helm alone on a boat, you know, that's the challenge. It doesn't respond precisely to your movements like a car does. So that's what the central bank is doing. They're turning the wheel, they're tightening policy, it's going to be a lag before. It actually Has an impact on, on the economy. So yeah, I think keep, keep that in mind. Um again, I would, I guess one thing I would point to the 8.5 is the headline CPI I write. So consumers are looking at that because they're saying, oh my paycheck 5.5% wage growth but 8.5% inflation. The caution there is, that's probably not the best gauge of inflation. I would point everyone, you know, go into google or whatever you have available. Look at. I think the trimmed mean PC inflation rate that is closer to 3.7%- 4%. I think that's where prices will settle in After a year's time. So you think about where inflation will be in a year's time? I think it will be closer to that 4% rate and if that's true then 5% 5.5% 6% average hourly earnings is good. You're going to be beating inflation. It's just in the short run we've had a lot of problems with global supply chains, obviously the price of oil that's feeding through into gasoline, that's pushing up that headline number that you're referring to. So you've made me very optimistic, Jeffrey, thank you so much and thank you for the insight. Yes, absolutely. Jeffrey Cleveland principal and chief economist at investment management firm Payden and Rygel, thank you again for your time