Gross, El-Erian Sing Jobs Report Praises

El-Erian says unemployment report good for Main Street; Gross says 50-50 chance Fed starts to taper

PIMCO’s two chiefs were singing the praises of the November jobs report Friday, with CEO Mohamed El-Erian noting that the 203,000 new jobs created is “unusually good” and important as the “job additions were broad based, with virtually all sectors benefiting.”

The unemployment rate fell to 7%, its lowest level since November 2008, with the 203,000 net monthly job creation coming in above the consensus expectations of 180,000. El-Erian noted in his Fortune blog that both the labor participation rate and employment-population rate went up.

The civilian employment-population ratio nudged up in November to 58.6 from 58.3, though it has remained stubbornly low since mid-2009.

El-Erian said the Friday employment report “is really good news for Main Street,” with average earnings growing on account of both hourly wages and hours worked.

PIMCO’s Bill Gross tweeted that while jobs and growth are “better” the Fed “will now focus on core inflation, which is still 1.5%.” He also noted that wages are up “only 2%.”

Gross told Bloomberg Surveillance that there’s a 50% chance the Federal Reserve will begin tapering its monthly bond purchases in December.

“It’s at least 50-50 now,” Gross said. “There was some logic for a January starting point, but it’s clear the Fed wants out. The Fed still has to be careful even when they begin to taper,” since growth has ambled along at only about 2% so far, he told Bloomberg.

El-Erian also noted the improvements in structural components of the labor market — “with the notable exception of long-term unemployment, which remained at 4.1 million, or 37% of the total.”

The job report is also “good news” for risk assets, El-Erian said, “especially given that they have already registered impressive gains year to date.”

In recent months, “markets have been all over the place when it has come to whether good economic news is indeed good or bad news for risk assets,” El-Erian said. The reason, he said, “relates to the Fed — namely, whether durable economic improvement can be strong enough to enable the Fed to normalize monetary policy in an orderly fashion, thus avoiding market disruptions such as those that occurred last May-June.”

El-Erian went on to say that if future monthly employment reports reaffirm November’s outcome “in terms of durable and comprehensive labor market improvement, and if this finally unleashes business investment in new plant and equipment — two big Ifs — markets will be right in believing that the Fed can gradually normalize policy in an orderly fashion.”

This, he said, “would be good news for both Main Street and Wall Street.”

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Check out PIMCO’s Gross: Fed Playing a ‘Dangerous Game’ on ThinkAdvisor.

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