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Feb. Jobs Report: 'not all the jobs lost will come back', says former FOMC Economist

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Yahoo Finance’s Akiko Fujita and Zack Guzman break down the February employment numbers with, Vincent Reinhart, former FOMC Secretary and Economist.

Video Transcript

AKIKO FUJITA: Let's start with that upside surprise in the jobs numbers, though. The Labor Department reporting non-farm payrolls jumped to 379,000 in February. The unemployment rate fell to 6.2%. We've got Vincent Reinhart, who's former secretary and economist of the FOMC. Vincent, it's good to talk to you today. Let me just get your thoughts on the headline number that came out today. What does that tell you about the type of momentum that we're seeing in the economic recovery?

VINCENT REINHART: That the headline would have been even stronger had it not been for runoffs and state and local governments-- big decline in employment and education there-- and bad weather. And underneath the hood, you see that it was a considerable gain in leisure, hospitality, service jobs. So it tells you that when people are more comfortable returning to market activity, they will. And this was a number stronger than economists had expected, too.

ZACK GUZMAN: Yeah, the leisure and hospitality payrolls number a pretty impressive 355,000, the jump we saw there. When you brought it out, though, and looked at it, obviously, I think the number probably could have been a little bit stronger, if you didn't factor in that winter storm that really hit the country pretty hard. What would you say about it now, though, looking ahead to future jobs reports and the numbers that you would expect, once we got past kind of winter here? What do you see in terms of the way that this recovery is starting to gain steam now?

VINCENT REINHART: So there's a couple of points. One is, we'll roll off the weather effects. So negative this last month will be positive this month. And second, we're rolling into fiscal stimulus. The payments were in the hands of households last month. They are going to be spent over the next few months, and as will the enhanced unemployment benefits.

So, we're going to see a replay on a much more muted fashion of what we saw in terms of employment gains after the horrific drop in April of last year. So, reset your expectations. 400,000 jobs created in a given month will be a good-- should be your baseline, at least for a while.

AKIKO FUJITA: The hospitality sector, of course, seeing the biggest job gains of 355,000 new jobs. But if you look at where things are right now compared to pre-pandemic, we're still looking at about 3 and 1/2 million jobs short of where levels were from a year ago. What does that tell you about how long the path is towards recovery? How many of those jobs that were lost, do you think, are ultimately going to come back?

VINCENT REINHART: So there's two parts to the answer. The first is, not all the jobs that were lost will come back on a permanent basis. Why? Businesses closed don't necessarily reopen. People are going to be rethinking what they do. It's going to be a while before business travel gets even anywhere close to where it was. It's going to be a while before people think about getting back into-- on a cruise ship or in a crowded auditorium. So there is a permanent aspect to the job loss.

The second is a more temporary business cycle phenomenon. Congress probably next week will raise unemployment benefits. And at the very low end, there are going to be a lot of workers who will benefit more by staying out of work than getting back on to the payrolls. And probably that legislation will extend the period of enhanced unemployment benefits. So that will mean the unemployment rate will drop more slowly, just because businesses at a low paying end of the spectrum are going to find it hard to find people who are willing to work at those wages.

ZACK GUZMAN: Vincent, given your background at the Fed, I was interested to get your take on maybe what we're seeing play out here and the pressure now showing in the bond market. Right after we got the report, we saw the 10-year-- yield on the 10-year spike to 1.62. That would be the highest. We've seen a new high relative to the last year.

When you look at that and think about what the Fed is expected to do, there's a little bit of a strange kind of good news stronger jobs report, bad news for the market, considering how it might be adding to maybe some of the pressure here for the Fed. What's your take on maybe how the market's reacting to all this at this stage when we're trying to figure out how quickly the Fed might shift off their increasingly accommodative position?

VINCENT REINHART: Yeah, it's a bit of a head scratcher to say record job gains showing an improving economy and more confidence in market activity and a big drop off-- drop in equity prices. And you're right to identify the mechanism, and that is longer term yields, better outlook, quicker journey to the destination of herd immunity, people more confident about market activity. It means that the Fed will be willing to raise rates sooner when they get to their goal.

But hey, Chairman Powell has been very clear that their goal is far away. They want to get to the point where the labor market is performing at least as well and probably better than it was at the opening of 2020. That's an unemployment rate of 3 and 1/2%. As he said repeatedly over the last couple of weeks, we're a long way from that.

The Fed is trying to control the biggest risk it faces right now, which is that investors come to expect a premature withdrawal policy accommodation. And they will say any which way they can that they're not going to be tightening any time soon.

AKIKO FUJITA: Vincent, I want to get back to what you said about the Fed chair and what he is looking at long term before he even considers raising rates. We heard from him yesterday saying specifically that substantial further progress needs to be seen before they even consider changing up the pace of asset purchases. Is that how you define the progress when you're talking about the labor market? What are other factors you think he's looking for?

VINCENT REINHART: So one is, he repeats often that he doesn't look at one indicator of the labor market. It is a collection of gauges on how hot the labor market is. Yes, we've seen a lot of improvement, but the labor market isn't hot yet. And it's not until they get back to where it was at the beginning of last year that he'll be able to believe his mission accomplished.

In Senate testimony, one of the senators ticked off the list. If I hear you right, Mr. Chair, you're not going to be moving your policy accommodation until at least inflation is at 2% your goal, that you have a forecast in which inflation overshoots that goal, and the unemployment rate is back at pre-pandemic levels. Those are the three tripwires for Fed officials. That's a long way away.

AKIKO FUJITA: Vincent Reinhart, former secretary and economist of the FOMC, it's good to talk to you today. Appreciate your time.