[music]

Welcome to Yahoo Finance's special

coverage of the July jobs report. I'm

Julie Hyman along with Yahoo Finance's

Jay Connley. As you can see, I have

coordinated my outfit with the breaking

news background that we have today.

Actually, no, I didn't I didn't really

think about it and then I just saw the

shot and I was like, "Oh, that worked

well." Um, so we are looking here just

running through some of the estimates

here for the change in non-farm

payrolls. economists on average looking

for 80,000 jobs added to the US economy

in July. So, we'll be focusing in on

that number. The change in manufacturing

payrolls might be getting a little more

attention than usual. It's been picking

up a little bit. The estimate for that

is 4,000. Average hourly earnings

predicted to tick up to 0.3%.

And the labor force participation rate

going to get some more attention too

because it fell um in June. The estimate

for that on average uh 61.6%.

So those are some of the numbers last

month.

>> Yeah. So we'll be zeroing in on some of

those numbers.

>> Manufacturing will be interesting

because we got the ADP print earlier

this week and we saw manufacturing and

the goods producing side of the economy

actually pull back a little bit. Now the

ISM manufacturing read we got earlier

this week showed strength there showed

hiring. But I think to your point that

number especially after the

manufacturing strength we saw in H1

that's hopefully supporting this economy

is going to be closely watched. And and

by the way, the backdrop for all of this

and markets is that we have been seeing

yields climb.

>> That's right.

>> Stocks have also been climbing and

futures are higher this morning. In

fact, we're setting up for the best week

for the S&P and the Dow since April 17th

um and since May 8th for the NASDAQ. So,

it's been a pretty strong week. Um let's

talk more with um we've got a panel of

folks with us here who are going to

react to the report, but let's bring

them in now. Uh Lesie Falconeia is with

us, UBS Global Wealth Management head of

taxable fixed income. Brian Jacobson

also with us, Annex Wealth Management,

chief economist and strategist, some of

our regular players here with us today.

Lesie, given the move that we have been

seeing in yield, I mean it feels much

more like the attention of the market is

on inflation data versus jobs data. But

how are you thinking about the jobs data

in context here? Listen, I think the

jobs data is overall important, but to

but to your point, the inflation is

going to be the key and with within that

say the wage inflation that we get

within this jobs data, obviously the CPI

next week, you know, if you have a a

large divergence than what the market is

expecting, obviously that's going to

have a very large knee-jerk reaction.

You know, I think it's important. I

think it's something we're watching, but

mostly the key will be that wage

inflation and obviously next week

inflation data. Leslie,

the UBS House call right now is for the

next move to be a cut next year. Is

there anything you could see in this

print that would change that for you?

>> It would be the wage side. It would it

would be the wage inflation side and not

necessarily. I think the focus even if

you have a solid or even strong labor

market, if the you know unemployment

rate actually ticks down, I think you

know the the committee could actually

handle that stability and strength in

labor. what they couldn't handle would

be that rise in wage inflation. So I

think that would be the key in terms of

us shifting our view and saying okay

this this market was pricing in at the

end of December right of this year might

actually have legs but right now we're

not quite there yet. So that's why we

have a hold in 2026 the next move a cut

in in mid 2027.

>> And Brian what about you? What are you

looking for from this number and and how

important are you weighing it here this

morning? Yeah, I think that the devil is

really in the details with this report

as with just about every report.

Obviously, the Federal Reserve is very

interested in talking about the

unemployment rate, but that's driven by

so many different factors. We know that

ever since the beginning of the year,

the labor force has been shrinking, and

so you don't exactly have a high bar to

clear in order to keep the unemployment

rate from moving up. Uh the wage

inflation idea I think is much more

front of mind in terms of some of their

models as to whether or not they have to

almost like choke off the nent recovery

that we're seeing in the manufacturing

sector because wages are growing too

fast and then they can panic because

then that drives future inflation even

though there isn't really a lot of

evidence that that actually happens but

that doesn't matter. What matters is

what they believe not necessarily what

the data actually says. So I think the

wage dynamics also that unemployment

rate number but in terms of what we

could see going forward I think that

will be really fascinating is especially

as we get towards the end of August with

Jackson Hole will chair war try to make

more of a fullthroated argument for

instead of hiking rates to stave off

inflation maybe they should focus on the

balance sheet instead. So I think that's

going to be a really interesting thing.

>> It will be if he and it'll be

interesting if he tells us any of that

as well. We'll discuss that. We'll

discuss that much more in a few moments.

We we got about 10 seconds to go until

the numbers here. Again, futures

indicating a higher open. We'll see if

that changes once we get these numbers

uh coming out. Should be coming out

right about now. So,

>> 30 year holding it

>> 20 negative 23,000 a drop of 23,000 jobs

in the month of July. And not only that,

the prior month, the month of June being

revised lower to 20,000 from 57,000. So

that two-month payroll net revision down

by 103,000. Uh manufacturing payroll is

actually growing more than expected by

5,000 versus a 4,000 that was expected

and uh actually being revised higher in

June to 11,000 from 3,000. So strong

manufacturing picture not strong um X

manufacturing average hourly earnings

ticking up less than estimated only by a

tenth of 1% average hourly earnings on a

year-over-year basis up 3.2%. and the

labor force participation rate going

down, not up to 61.4%.

The unemployment rate coming in also

ticking down perhaps because we've got

that decrease in labor force

participation 4.1%.

The reading on the unemployment rate

that is a tenth of a percent better than

estimated and a tenth of a percent lower

than the prior month. So pretty

surprising here in a number of different

ways, Jake.

>> That's right. And far below what any

economist had predicted. The lowest

range we saw coming into this was

looking for an ad of 47,000 jobs. We

just got a loss on the month. Over in

the bond market, we see twos at holding

at 415 10's 460 30-year at 519. It

started right before the print 521

coming off that level a little bit as

the market says. I think Julie,

>> maybe we don't need a hike as

immediately.

Maybe this gives Kevin Worsh a little

bit of breathing room.

>> Maybe it does. Um I just want to break

down some of the different sectors

within employment here to see what the

trends um look like. Employment in local

government education down by 50,000

here. So that's something to keep in

mind. Retail down by 19,000. Uh we also

saw employment as a subset of that

declining in warehouse clubs, super

centers, and other general merchandise

retailers. Financial activities also

down by 14,000. That was because of

losses in credit intermediation and

related activities as well as insurance.

Um healthcare continuing its strength up

22,000. It is a bit of a slower pace

than we have seen before. But that

really has been healthcare has been

employment has been the thing that has

been pulling everything else along

>> and it confirms what we got earlier this

week with the ADP private data where we

saw pay healthcare payrolls really

pulling ahead in that services sector

like we've been seeing for the past call

it year.

>> Yeah. Re so interesting stuff here

throughout the report. Um wherever

you're looking at the at the various

pieces of it and and under the hood as

well. futures as you mentioned um

remaining uh uh actually I've got a

delayed look at futures so I I'll get a

check on that in a moment. Let's get

some reaction to this report. Leslie

Falcone of UBS Global Wealth Management

and Brian Jacobson of Annex Wealth

Management are with us. Brian, I want to

start with you here um and this

unexpected drop that we see in this

number. Were you surprised by that and

what are the implications?

I was surprised that it had a negative

number at the beginning, but then when I

look at the government uh shredding or

shedding 53,000 jobs, right? You look at

the private sector gaining 30,000. It's

not a great number, but it's probably

good enough in terms of that private

sector strength, especially that we have

had a little bit of a heads up from the

ADP weekly numbers. If we look at the

trajectory for that really started

turning positive back in November and

then it was accelerating but it's been

on a decelerating path. So still

positive just not as positive as what it

was. So I think that when we strip out

the government part of it the notable

part manufacturing was still positive

5,000. But I also like looking a little

further down in that table where it

talks about what's happening from the

the establishment survey. There's the

diffusion indices. Now all those show is

that within private service sectors and

then also manufacturing like the percent

that are expanding and contracting

manufacturing is basically treading

water at about 50 but it's a lot better

than what it was you know just a few

months ago. So I think there is still

that manufacturing strength that nent

recovery going on. The problem is the

service sector signs of slowing there.

Leisure and hospitality down 40,000. So

much for that World Cup effect.

>> Yeah.

>> Leslie, you told us you were focused

coming into this on wage inflation. We

just saw those numbers. Average hourly

earnings year coming in below estimates

at 3.2%

last month revised down to 3.4%.

Give me your read on that. How does that

impact how you're looking at this and

how you're taking these numbers and the

loss at the top line that we just saw?

>> You know, I I'm not as much concerned as

a loss in the top line. And I think we

we discussed that already. But to the

point of the wage inflation,

I think this really solidifies our view

that the Fed is going to stay on hold

this year. But with that said, I want to

make the note that the market was

pricing in a December hike before and

after this number. So the market's a

little bit more convinced that the Fed

is going to hike this year. Um I mean

partly because as we talked about

earlier, it's going to look through some

of this and wait for next week's CPI.

But this actually gives some comfort in

the sense that the focus that we've seen

on the mandate of price stability and

still a you know a solid labor market.

Um we there is not a point of concern

that we're going to have this huge rise

in wage inflation. And it gives also a

little bit of of you know vigor to the

fact that they might not completely

overlook some of these supply issues

that we're seeing in terms of the

inflation but also a better

understanding maybe what might be

discussed at the end of the month and

more than likely in our opinion you know

a hold you know possibly in December a

hike not our view but this really

solidifies our view that the Fed stays

you know on course in 2026. Brian, it's

kind of hilarious to me. Here's Kevin

Worse saying, "We want to take ourselves

out of the equation and we want you guys

to pay attention to data." Here we are

and immediately we start discussing what

the Fed's going to do as a result of the

data because that's what we do. That's

what the market does. That's the

market's reaction function, just like we

we're trying to figure out the Fed's

reaction function. So, I I'm really

curious for both of your take. Brian,

we'll go with you first. When Kevin

Worsh says, "Oh, it's just us in the

media or it's people who aren't actually

making financial decisions." It's not

the trigger pullers who are upset about

getting less clarity from the Fed. Um,

you guys are trigger pullers. What do

What do you think about getting and I'm

not talking about the dots.

Good riddance to the dots. They can go

away. I'm not even really talking about

forward guidance. I'm talking about

explaining the reaction function of the

Fed and the current framework of the

Fed. Do you think that what he's doing

is working?

>> Uh, no. I don't. I think that really

what he needs to do is clarify what are

the data points that he likes to look at

in terms of not just how to respond to

the data. He's we we're not asking him

to predict the data, right? That would

be the forward guidance part. It's the

reaction part reaction function part is

about how does he react to the data that

comes in and how does that shape his

view of where inflation is heading

forward. And I thought that actually his

messaging during the last press

conference was a muddled mess, right?

Trying to invoke the Lucas critique and

Goodart's law. It was very disjointed

from what would actually be relevant

because you know the the idea of like

Goodart's law is that if you have a

certain measure, let's say inflation

that they're trying to target. The

argument is that in a lot of cases that

can then get manipulated. It's like well

the Fed doesn't calculate inflation, are

they going to change the way they do it?

So to me it just didn't make much sense.

So hopefully he will explain that in a

little bit more detail when he's given

the opportunity and space to maybe put

it down in writing and think through it.

But in terms of the Fed is a thermometer

or the he the he can't make the Fed a

thermometer. They are a thermostat,

right? In terms of what they do with

policy affects the markets and that's

why we have to be concerned about how

will the Fed look at this and what will

they do. You know, Leslie, I also found

ironic that the Financial Times put out

a story citing people close to Kevin

Worsh saying that if if the inflation

data shows heat that he is likely to

raise in September. Okay. So, he's not

going to tell us directly, but he's

still going to leak to the FD. I I don't

know what this is all about.

>> Yeah, I agree. And and then here's the

problem. I mean, he had that kind of

sort of um rhetoric earlier and he ended

up really not doing it. So, you know,

the the the fixed income market is might

is going to definitely react differently

this time. Listen, I don't think the

market needs to be the market needs the

amount of communication that it had

maybe previously, but it does deserve a

bit more, you know, explanation even if

it's just these task forces, you know,

the to not be clear in communication.

You know, you don't have to spoon feed

the market, but it just it makes, you

know, the market a bit skeptical. And I

think that that what we're going to see

unfortunately is what's going to happen

is is that until we have more data until

the market feels more comfortable. You

know, you might have a situation where

okay, the Fed stays on hold to that long

end yields rise or just the opposite

until we get a little bit more of a

comfort level until he till he um you

know sharpens his communication skills.

It's not it's not necessarily

credibility, it's clarity. And that's

what I think he needs to do. Brian,

looking at the last Fed meeting, we saw

those three descents all calling for a

hike. We saw Lisa Cook come out earlier

this week sounding much more hawkish

than she usually does. And again, as

Julie brought up, the FT story, this

seems like more of a split inside the

Fed than we might usually see. And so,

I'm curious how you're thinking about

what that division looks like and where

that might lead them.

>> Yeah, I think that there is more of a

division than what the 93 vote actually

suggested. Uh, the three were

presidents. It's not that uncommon to

see the presidents being the more

independent thinkers and it's a really I

think a question of when do one of the

governors start dissenting. Now I would

not be surprised if we do get to the

point by the September meeting assuming

that we don't see a lot of progress in

inflation. I mean that's really the

lynch pin here right if we see progress

in headline and core inflation towards

the 2% target then I think we'll be

talking more about well maybe they

should consider staying on pause or

cutting. But let's just assume for the

sake of argument that we don't see that

improvement and we're not going to get a

lot more labor market data before then

if all of a sudden you see a couple

governors dissenting will Kevin Worsh

the chair suddenly be in the descent

right we haven't seen that I think in

more than 75 years where the chair of

the Fed is actually in the minority so

uh that would be quite um the headline I

think as far as that if you actually did

have a decision to hike rates uh Kevin

[snorts] Worsh arguing that we should be

shrinking the balance sheet,

prioritizing that instead of hiking

rates. You know, he just has a different

belief about how it is the monetary

policy should behave. Maybe the rates

are good where they are, if not should

be lower. It's more it's the balance

sheet that's causing the inflationary

the more structural problems with

inflation.

>> Um Leslie, let's talk about the market's

reaction a little bit, you know, as we

look at yields that have been climbing.

And then we got to throw the yen into

all of this as well and the

interventions that we've seen that sort

of have been effective. Um so what kind

of action do you expect in the short

term and then sort of medium term from

the treasury market?

>> Yeah, look I think the markets right now

you're going through a bit of a bullener

that's actually at least in five bonds

that's our expectation. I mean, we

really had felt the curve had overly

flattened and particularly since that

short had moved up some, you know,

higher given the amount of hikes that

was priced in. You know, we do still

believe that interest rates are going to

be lower by the end of the year. Now,

unfortunately, it's just going to take,

you know, a bit of time and the data

needs to, you know, obviously, you know,

be in sync with that. But right now, I

think what you're going to see are

people probably selling this rally

initially. So, as yields go down, you're

probably going to have people probably

selling more than actually buying it

because of this uncertainty surrounding

like, you know, either inflation next

week or the Fed meeting in September.

But we do believe overall that the curve

will actually bullen by the end of the

year. Um, I just think there needs to be

a bit more clarity. We have to ensure

that the inflation expectations and that

long end remained anchored. You know,

today's numbers will help that. We think

that is the case. We do believe that we

are past peak inflation. Um but you know

we need to we need to see that in the

data the next couple months but overall

by the end of the year yields down curve

steeper in our opinion.

>> Leslie this data is

I mean a loss of 23,000 jobs kind of

shocking there but otherwise you know

this is going to be decently okay for

the Fed.

But the thing that I keep coming back to

is the loss of credibility. I think

we're seeing a little bit throughout

Wall Street, looking at the Fed, looking

at the FT story we got as Julie brought

up. How are you thinking about that Fed

credibility and what Kevin Walsh really

does need to say? Is this simply about

explaining the reaction function or is

this more he needs to say in the next

call it 3 four months to get the market

back looking at the Fed as having this

credibly kind of under control?

I I don't believe you should hike

because to try and to try and improve

credibility that that is I don't think

we obviously should not do that. Plus,

we know the Fed is not going to do a one

and done, right? If they actually do

hike, it's probably going to be a

reversal of the 75 basis point cuts that

we saw last year. So, I don't really

think necessarily it's credibility, but

but the communication definitely needs

improved. Every new Fed chair goes

through these communication, you know,

curve waffles all the time. I think that

he needs to be a little bit more

specific. I think that he needs to, you

know, answer questions a bit more

directly, not just put it over to the

task force and we won't even know the

information until the end of December,

right? Because then you start then the

market starts to really become

skeptical. You know, it wonders whether

or not is they're going to cherrypick

inflation indicators that make the

number look better, but you really don't

solve the problem. But so I think it's

really in the communication and have

some backing in terms of what this this

task force are actually going to resolve

and how he how he plans on going about

that. It's really just it's not

necessarily credibility and you

shouldn't just hike on credibility

either.

>> Guys, thank you so much Lesie Brian.

Really appreciate your time and stay

tuned. We're going to have Morning Brief

at 9:00 a.m. Eastern. We'll have more

coverage on today's top headlines. We'll

talk about the July jobs report. We'll

talk about the markets. [music] So stay

tuned for that.