Labor market: ‘It’s not just the Fed that tends to overshoot,’ strategist says

BMO Senior Economist Jennifer Lee and Miller Tabak Managing Director Matt Maley join Yahoo Finance Live to discuss September jobs report data, the Fed’s stance on a recession and getting inflation back down to 2%, stock futures, earnings, and the outlook for the labor market.

Video transcript

BRIAN SOZZI: Welcome back. All right, we're-- this is jobs report Friday, of course. Non-farm payrolls up 263,000 in the month of September. We still have Jennifer Lee and Matt Maley with us here to talk all things jobs report. Jen, let me get back to you here because, so, clearly, month over month, job growth did, in fact, slow. The Fed is still going to come out here and jack up rates pretty aggressively, probably at its next meeting. Is this a Fed that you think is OK putting the economy into a recession?

JENNIFER LEE: Unfortunately, yes. I'm going to say yes. And they sort of softened their tone a little bit over the past two months. They used to say that they could probably do this and achieve a softish landing. But now they've already said that there will be pain felt. And it's unfortunate, but this is what happens when a central bank is aggressively tightening, and where pain is something-- is another word that's being shared amongst many other central bankers around the world as well, and just the acknowledgment and being upfront that they're going to be tightening.

And whether or not it's going to be a recession that's going to-- that's what it's going to take to get inflation back down to 2% remains to be seen. We are looking for a mild recession here [INAUDIBLE]. But again, this is all depends on how much the consumer reacts and how much business is reacting and how quickly the Fed is going to continue on. But right now, for sure, all the hawkish talk is very much on still-- on full volume.

By the way, it was very interesting yesterday that the Cleveland Fed semester came out and actually said that we are not going to be cutting rates in 2023. Just actually coming out and saying that, I thought was quite telling.

BRAD SMITH: OK, and so Matt, with that in mind, for the CEOs whose confidence we've continued to watch wane, leading up to that potential recession, regardless of how deep or protracted it may be, there still is the consideration of how much the cuts that they may make, the restructuring that they make is also going to continue to be a larger economic overhang.

And the risk there is over cutting positions, is over-trimming the amount of staff and restructuring perhaps as well. You know, what type of restructuring would you think is actually adequate for right now for the CEOs that have to think about that, and for those who are going to be looking at other parts of the economy, the jobs economy, for jobs?

MATT MALEY: Well, you know, it's funny because I totally agree with what Jennifer said about the Fed. They're willing to risk a recession to make sure they can take care of this inflationary issue. But like the Fed always seems to go too far in one way or the other, a lot of corporate managers do the same thing when it comes to hiring.

And they tend to-- I mean, the attitude is, I'm sorry to say, is that, so, jeez, we're going to lay people off. It's like, OK, we've got to cut our purse strings. You know, I've got a-- I've got shareholders I've got to make sure to take care of. And if we have to hire people back six months from now, that's what we'll do.

And so the whole thing is-- I feel bad about it, but the whole thing is that it's not just the Fed that tends to overshoot. It's corporate managers. And that tends to exacerbate the situation in both directions. In this way, of course, the direction's to the downside. And again, it causes the whole thing to overshoot. And that's just kind of the way our system works, I'm sorry to say.

JULIE HYMAN: Jen, what's the readthrough from this report on inflation? I mean, it's interesting to see wages unchanged, which is, on the one hand, good for people who are earning those wages, but on the other hand, perhaps not so good for that overall inflation number.

JENNIFER LEE: Yeah, this is like-- we always say this is a very strange world that we're living in right now. We want to see wages cool a little bit only because, again, the inflationary aspect, and it's a lot more pain for businesses. But at the same time, we're talking about consumers' livelihood. You want to make a decent wage in order to have a decent lifestyle. So you don't want them to be rising too quickly.

And then this is where the whole wage price spiral potential comes into play, where people are expecting-- if they're expecting higher inflation, they're going to start asking for more wages. And if they start asking for more wages, corporations are going to be forced to lift prices. And then you get that whole wage price spiral and the like.

And the Fed or whatever central bank we're talking about will have to step in and be more aggressive on cutting those-- cutting inflation expectations down. So this is what they're trying to avoid. And so right now, I mean, the last report, still a steady increase in wages. It wasn't too hot. It wasn't too cold either, but enough, again, to keep the Fed tightening.

BRIAN SOZZI: Matt, we're really seeing futures accelerate, those losses accelerate after this report. Hit us with some strategies into the weekend. If one bought stocks on Monday and Tuesday in that rally, what should they be doing here right into the weekend?

MATT MALEY: Well, I mean, to be honest with you, I've been saying since the beginning of the year to use rallies to raise cash. And I still think that's the case. The thing is that we can do, though, is we still want to look at some of the best companies out there. And this whole thing with dollar cost averaging, that's a good thing to use sometimes.

It is a particularly good thing to do in a bear market because once you-- especially if the market is down so much. I mean, you can look at a stock like Google or Alphabet, Google. This stock, I mean, it's only been cheaper two of the times. It was during the depths of the great financial crisis and then a couple of years later, during the European crisis of 2011 and 2012.

So if you start buying that stock gradually, buy a little bit each month for the next six, 12, 9, 12 months, well, your average price a year from now is going to look pretty good, especially three years from now. So look at those really good companies, lots of cash, long-term potential is fabulous, and, you know, it's going to be very, very difficult to get that exact low in the market. Why not dollar cost average over the next several months-- not just the next couple of weeks, for the next year? And boy, I tell you, you're going to looking real good 3, 5, 10 years from now.