Bloomberg News

Gross Says U.S. in Anemic, Jobless Recovery: Tom Keene

November 04, 2011

(Adds Gross comments beginning in fourth paragraph.)

Nov. 4 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross said the U.S. is in an “anemic, jobless recovery” where there is little real wage growth after a government report showed employment rose at the slowest pace in four months.

The firm has a “little more dourer outlook” than the Federal Reserve when it comes to growth, Gross, manager of the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

The 80,000 increase in payrolls was less than forecast and followed gains in the prior two months that were revised up by 102,000, Labor Department figures showed today in Washington. The unemployment rate fell to a six-month low of 9 percent from 9.1 percent even as the labor force expanded.

“You need 200,000 jobs basically a month, and we are not seeing that, to reduce unemployment,” said Gross in the interview from Pimco’s headquarters in Newport Beach, California. “So it would suggest the 9 percent number is going to be with us for a long, long time. We are facing structural headwinds that have relatively little to do with a cyclical rebound.”

Fed policy makers said this week that the economy has picked up while “significant downside risks” remain, and they refrained from taking any additional steps to ease monetary policy. Fed Chairman Ben S. Bernanke and his colleagues left unchanged their pledge to keep the benchmark interest rate near zero through at least mid-2013 as long as unemployment remains high and the inflation outlook stays “subdued” at the completion of their regular rate setting meeting on Nov. 2.

Growth Forecasts

“The bad news is that we are still in this unemployment crisis,” said Pimco Chief Executive Officer Mohamed El-Erian in a separate interview on Bloomberg Television’s “In the Loop ” with Betty Liu. “It doesn’t do enough to remove the risk of stall speed. There is growth, but not fast enough growth.”

Fed officials also lowered their economic-growth projections compared with June and said the unemployment rate will decline at a slower pace. Gross domestic product, adjusted for inflation, will rise by 2.5 percent to 2.9 percent next year, compared with a range of 3.3 percent to 3.7 percent from the prior projections in June, according to the median range of economic projections from the 17 governors and regional Fed presidents. Growth in 2013 will be 3 percent to 3.5 percent, lower than the prior range of 3.5 percent to 4.2 percent.

Corporate Profits

The jobless rate in the fourth quarter of 2012 will range from 8.5 percent to 8.7 percent, up from the previous forecast of 7.8 percent to 8.2 percent, the Fed said in a release separate from the FOMC statement.

“Corporate profits as a percentage of gross domestic product are 13 percent versus an average of 9 so profits are doing very well but really at the expense of labor,” Gross said. “It’s labor that is being laid off and not rehired and labor that is not earning an attractive wage. It’s due to globalization and that there are choices for corporations.”

Gross’s Total Return Bond Fund, which is having its worst run this year since at least 1995, regained its spot among top bond funds last month as investors returned to riskier assets. The $244 billion fund, the world’s biggest mutual fund, rose 1.7 percent in the past month, beating 93 percent of rivals and accounting for almost half of the fund’s 3.6 return so far this year, according to data compiled by Bloomberg.

Gross, who last month told clients he hasn’t lost his touch after missing the biggest quarterly rally in Treasuries since 2008, was helped by a rebound in riskier assets such as corporate credit and non-U.S. holdings. Total Return has 21 percent of assets in corporate debt and 33 percent in securities outside the U.S., and owns inflation-linked bonds that rise with expectations for higher consumer prices.

Sovereign Debt

Gross, the founder of Pimco, has trailed 71 percent of competing funds in 2011 after he got out of Treasuries in the early part of the year, missing a rally when investors rushed to the safety of government-backed debt amid the European sovereign-debt crisis. That’s his worst performance relative to peers since at least 1995, the earliest year for which Bloomberg has rankings for the fund.

Pimco continues to favor sovereign debt of nations including the U.S. and U.K. where central banks are keeping interest rates low and embarking on monetary stimulus programs such as debt purchases, said Gross, who serves as co-chief investment officer with El-Erian.

--With assistance from Sree Vidya Bhaktavatsalam in Boston. Editors: Dave Liedtka, Ken Pringle

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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