Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. government must do more to support employment growth.
“What we’ve been able to apply in the last 20 years is a financial based employment structure where the magic of finance and asset appreciation” generated jobs, Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “That model no longer applies. We need to go back to the manufacturing roots of this country as opposed to the financial roots.”
The U.S. economy lost more than 8.7 million jobs since January 2008. The jobless rate hit a 26-year high of 10.1 percent in October 2009 and was 9.1 percent last month.
“It’s fiction to assume those people can all move to Silicon Valley and create the next Facebook,” Gross said in the interview. “We need to put them to work doing something and producing a product that the rest of the world wants.”
Nonfarm payrolls grew in May by 54,000, the smallest increase in eight months, after a gain of 232,000 in the previous month, the Labor Department reported June 3. The median forecast of 89 economists in a Bloomberg News survey was for an increase of 165,000.
“We should not rely solely on job or corporate-direct payroll tax credits because corporations may not take enough of that bait,” Gross wrote in a monthly investment outlook published today on Pimco’s website. “Government must step up to the plate, as it should have in early 2009.”
Unemployment has been one of the main challenges facing the U.S. economy since the global financial crisis began. It is also expected to be one of the main topics of the next presidential election, he said.
“Neither party has an awareness of the why or the wherefores of how to put America back to work again,” Gross, 67, wrote in his commentary. “It is becoming obvious that the 2012 election will be fought on a battlefield of job creation.”
The U.S. “labor force is too expensive and poorly educated for today’s marketplace,” Gross wrote. “If we are to compete globally while maintaining a higher wage base, we must train for ’middle’ in addition to ‘high tech.’ Philosophy, sociology and liberal arts agendas will no longer suffice. Skill-based education is a must, as is science and math.”
Under its “new normal” philosophy, Newport Beach, California-based Pimco expects a shrinking global role for the U.S. economy following the 2008 financial crisis.
“The past several decades have witnessed an erosion of our manufacturing base in exchange for reliance on wealth creation via financial assets,” Gross wrote. “Now as that road approaches a dead-end cul-de-sac via interest rates that can go no lower, we are left untrained, underinvested and over-indebted relative to our global competitors.”
The Federal Reserve has left its target rate for overnight loans between banks at zero to 0.25 percent since December 2008.
“The private sector is the source of long-term job creation, but in the short-term, no rational observer can believe that global or even small businesses will invest here when the labor over ‘there’ is so much cheaper,” Gross wrote. “That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global-non-U.S.-investment opportunities.”
Pimco’s $243 billion Total Return Fund handed investors a return of 6.99 percent in the past year, beating about 74 percent of its peers, according to data compiled by Bloomberg. The unit of Munich-based insurer Allianz SE, managed $1.3 trillion of assets as of March 31.
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