MacroPolicy Perspectives Founder & President Julia Coronado sits down with Yahoo Finance Live to outline factors contributing to slow labor market recoveries going forward, highlighting competition between industries and demands for wage growth.

Video Transcript

JULIE HYMAN: The lowest number of jobless claims going back to 1969, that's what we got this morning, 184,000 claims filed last week. That comes on a very low number, sub 200,000 number the week prior to that. Let's try and figure out what all of this means and look ahead to inflation data tomorrow with Julia Coronado, MacroPolicy Perspectives founder and president. Julia, thanks for being here. I got to ask about this jobless claims conundrum, first of all, the fact that we have this very, very low number. What do we make of this? Is it sort of wonky seasonal effects? What do you think is going on?

JULIA CORONADO: Well, look, the labor market is very strong. But what we've seen with jobless claims and payrolls, they don't always map one for one because the pace of firing is slowing, but the pace in hiring might be slowing as well. So the sector that drove so much of the volatility, leisure and hospitality, they may naturally just be entering a low-- they may have caught up. They're in a low seasonal hiring point. So low jobless claims definitely confirm that the labor market is very strong. There's no doubt about it. There's no indicator that says it is not. But does it mean we're going to see some return to a million in payrolls? Probably not.

BRIAN CHEUNG: Hey, Julia, Brian Cheung here. It's great to have you on the show. The shortfall right now compared to pre-pandemic employment when you're looking at the monthly jobs report is, what, 3.9 million. And what was interesting to me is that that kind of maps closely the difference in pre-pandemic job openings to where the elevated levels we are at now. It's at 11 million now. It was about something close to 7 million in 2019. What does that tell you about the mismatch that's happening right now and why it's persisted for much longer than perhaps Fed policymakers were hoping at the beginning of this year?

JULIA CORONADO: Yeah, well, at the beginning, you know, there was still this notion that we were going to reopen the economy and kind of go back to normal. And what we're doing is not doing that. We're seeing that the pandemic is more of an endemic. Some of these moves, the geographic moves that people made during the pandemic, some of the structural changes in the way people spend money and what they spend money on might last longer. They might be stickier, maybe even permanent.

And that means that the whole supply side of the economy needs to kind of rotate a little bit and adjust. So there's a lot of frictions in this process. And by the way, the pandemic has also-- you know, still a headwind, a constraint on labor force participation. And we saw some good news on that front last month, but now we have omicron. So, you know, some people are just still on the sidelines, trying to navigate what that means for their families. And so there's just still a lot of friction and churn associated with this recovery.

BRIAN CHEUNG: OK, so let me follow on that by asking about one of my favorite-- well, actually, my favorite topic is talking about burgers, but my second favorite topic is talking about the wage Phillips curve. So when we talk about wage growth, obviously, that's been bumping up a lot, specifically for those on the lower wage spectrum in leisure and hospitality. But people have been looking at the wage growth numbers on the aggregate and saying, is this kind of emblematic of the broad inflationary trends that we're seeing?

How are you reading, interpreting wage growth data? Because there is kind of this, all right, you've got the bulls who are saying, this is great for a labor economy. People are getting paid more. But then maybe the bears who are saying, eh, this just shows how inflation is getting really high and kind of scary.

JULIA CORONADO: Well, I mean, we can't definitively say which one of those scenarios, and more likely, it's somewhere in between, right? So we do know that there is extreme tightness in the lower end of the job spectrum, in the lower paid end of the job spectrum.

So you've got Amazon competing with leisure and hospitality and retail, all for the same pool of workers, which, by the way, is a shrinking pool of workers, both because of more people getting higher education and because of reduced immigration. And new immigrants are more highly educated. This kind of pool of low wage workers is actually shrinking-- has been for years even before the pandemic. So now we've added on this intense demand surge, and we're seeing lots of wage growth there.

Elsewhere, the dynamics look very healthy, still a strong job market, still more of a worker's market than before the pandemic. But it's still more normal dynamics than this kind of intense resetting of wage norms that's happening at the lower end. So is it inflationary? It's definitely not deflationary or disinflationary the way wage trends were before the pandemic. But we have to wait and see how much of this is a reopening push.

You know, one metric I like to use is the labor share of GDP. So wage growth has been very strong, but they're just-- workers are just kind of getting their share of this huge demand surge. So that means that's good. That means workers are realizing a boost in purchasing power at the lower end. But is this like the seeds of a wage price spiral that's something that the Fed is going to need to slam on the brakes in response to?

I think it's way too early to conclude that. I mean, what we've seen is that the economy can be flexible and evolve and adapt. And as we get those responses, you know, some of this sort of resetting of, you know, prices and wages across sectors may settle down. The Fed's not waiting around, obviously. They're going to move to remove accommodation much more quickly than they previously thought.

And that's the big pivot we've seen, is there's enough data now showing that the labor market strong enough. Inflation is persistent and broad enough that it's time to kind of move to the exit and sort of start a steady march away from monetary accommodation.

JULIE HYMAN: And Julie, we're going to get more data on that front tomorrow, the hotly anticipated CPI number from last month. 6.8% is the latest consensus on the topline year over year, 4.9% if you back out food and energy. Is that in line with what you're expecting? And talking about all these wage increases, a lot of people are just turning right around and paying out those wage increases to buy stuff. So how sustainable is that?

JULIA CORONADO: Yeah, yeah. So tomorrow's number is going to be ugly, right? It's going to-- all sources of inflation are pushing up in the November report. So we've got the supply chain inflation re-accelerated because of the disruptions from delta. That's going to be a big chunk of it. Used car prices are going to be a huge bump yet again. But there's other things like rents that are more confirmation that the cycle is really strong. Then you layer on top of that a big energy hit, right?

So this is-- the energy hit came from global developments in the energy sector that really aren't messages of the cycle. It is, as you say, just attacks on consumers. Now, consumers are pretty well positioned to absorb this blow because wage growth is pretty strong. There's been a lot of purchasing power through fiscal policy. But, you know, it's going to be a nasty report. And it's going to be one that the Fed, you know, can't just keep saying, well, this is a one-off. This is a one-off.

But at the same time, they've got to be careful because to the extent we still have supply chain and energy price inflation, that's not necessarily-- it is hurting consumer purchasing power. It might take a bite out of demand. We're going to need to gauge how momentum in the economy is going into Q1 as consumers absorb this. And already looking forward, energy prices have come down partially in response to the Fed's pivot. And so, you know, consumers should at least get some relief on that front in coming months. But, you know, it's going to be a tough report. And the Fed's going to be in the hot seat next week.

JULIE HYMAN: Yes, they are. Meanwhile, all Brian Cheung wants to know is the price of a burger from P. Terry's in Austin.

BRIAN CHEUNG: So good.

JULIE HYMAN: There you are. That's what we were talking about during the break. I think he made us all hungry. Julia Coronado, good to catch up with you. Thanks for being here. Really appreciate it. MacroPolicy Perspectives founder and president.