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Gross, Rosenberg Say Employment Growth an Illusion: Tom Keene

Bill Gross, co-chief investment officer of Pacific Investment Management Co., speaks at the Morningstar Investment Conference luncheon in Chicago. Photographer: Tim Boyle/Bloomberg News
Bill Gross, co-chief investment officer of Pacific Investment Management Co., speaks at the Morningstar Investment Conference luncheon in Chicago. Photographer: Tim Boyle/Bloomberg News

July 2 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross and David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., said June’s employment report indicates sluggish job growth and a slowing economy.

Employers cut 125,000 jobs last month, reflecting a drop in federal census workers, after an increase of 433,000 in May, Labor Department figures showed. Companies in the U.S. hired 83,000 workers, below the median forecast in a Bloomberg News survey for a gain of 110,000. The unemployment rate dropped to 9.5 percent from 9.7 percent as the labor force shrank.

“That’s a statistical illusion because you had this precipitous fall-off for the second month in a row in the labor force and without that, the unemployment rate would have gone up to 10 percent,” Toronto-based Rosenberg said during a radio interview on Bloomberg Surveillance with Tom Keene. “You can go as high as 16.5 percent, if you count the unemployed and under-employed.”

The pace of hiring signals it will take years for the world’s largest economy to recover the more than 8 million jobs lost during the recession that began in December 2007. The turmoil in financial markets brought on by the European debt crisis raises the risk that employment will slow, depriving American households of the income needed to maintain spending.

“The economy is slowing, not just in the United States, but globally,” Gross, co-chief investment officer at Pimco, said in a separate interview with Keene. “It’s a ‘new normal’ type of phenomenon. I don’t think the Federal Reserve can raise interest rates in the face of unemployment near 10 percent.”

‘Bearish Story’

The central bank said on June 23 at the conclusion of its two-day policy meeting that the recovery pace is “likely to be moderate for a time” and that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” The Fed has held its target rate at a record low zero to 0.25 percent since December 2008.

“There’s no quick fix,” Rosenberg, formerly of Merrill Lynch & Co., said. “This is a situation where we have the aftereffects of all the stimulus and we are still seeing what the consumer looks like in a stripped- down version when all the support from Uncle Sam is behind us. It’s a bearish story. It’s tough to pinpoint what will support the consumer over the next few quarters.”

‘Ignoring Signs’

Average hourly earnings fell 2 cents to $22.53 in June, today’s report showed. The average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month.

Most investors are ignoring signs that “global financial market returns stand at the threshold of mediocrity,” Gross wrote in his July investment outlook posted June 30 on the Newport Beach, California-based company’s website.

“Our ‘new normal’ two-word duality seems to resonate more on the ‘normal’ than the ‘new’ to economists whose last names aren’t Roubini, Reinhart, Rogoff, or Rosenberg” Gross wrote in his July investment outlook. “It’s as if ‘R’ has been eliminated from the financial alphabet, and ‘new’ from investors’ dictionaries worldwide.”

Nouriel Roubini, the New York University professor who predicted the financial crisis, has also forecast a continued downturn in growth. Gross was also citing Carmen Reinhart, an economics professor at the University of Maryland in College Park who co-wrote “This Time Is Different: Eight Centuries of Financial Folly” with Harvard University’s Kenneth Rogoff.

Total Return Fund

An overdependence on debt has the global economy entering a period of fundamental transformation that Gross calls the “new normal.” Pimco says mounting deficits and tighter financial regulation will dampen growth in the U.S. and the euro zone for the next three to five years. Emerging-market nations such as Brazil and China, with stable levels of government debt and expanding middle classes, should continue to thrive.

The $234 billion Total Return Fund managed by Gross returned 12.98 percent in the past year, beating 61 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.61 percent, outpacing 86 percent of competitors. Pimco is a unit of Munich-based insurer Allianz SE.

Gross in May boosted holdings of U.S. government-related debt to the highest level in six months as Europe’s sovereign debt crisis increased the refuge appeal of the securities.

The fund’s investment in the debt was increased to 51 percent of assets in May, from 36 percent the previous month, according to the website. Gross cut holdings of non-U.S. developed debt to 6 percent from 13 percent, the lowest since November and increased emerging market debt to a record 9 percent.

To contact the reporters on this story: Thomas R. Keene in New York; Susanne Walker in New York at

To contact the editor responsible for this story: David Liedtka at

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