alix: u.s. stocks closing lower this labor day weekend. next week the markets in china reopen. the only certainty is uncertainty. >> plus inside today's big jobs report. the unemployment rate drops to a seven-year low. we'll break down the numbers. alix: and the great rate debate. we'll ask a former adviser to fed chairs to weigh in on whether it is time to hike. but first, we have to begin with the markets. yes, we're finishing off with the dow down about 270 points but that is kind of a comeback. >> a crazy week. alix: our session lows we were off by about 348 points to the dow and we really came back in the last sort of half hour of trading. >> absolutely. what was interesting to me this week were inflows. i was looking at this note from

a strategist at jeffries and he was saying over the past week global equity markets saw an inflow of $11 billion net and pointing to this chart there was a big switch from developed markets to emerging markets. you see the split there. last week we saw the emerging markets have a really big net withdrawal. alix: that was the money flowing into the u.s. you wouldn't know it by looking .t the worst week for the s&p second worst week for the s&p this year. in those two weeks in the last three weeks alone. it has been a wild ride. we want to get to matt miller in the newsroom to outline today's moves and the week. matt: where do the inflows go? they certainly aren't in the equity market. take a look here. we see the s&p down 1.5% at the close. the dow jones industrial average down 272 points as you say, a little bit of a comeback because we were down 330. the nasdaq down 1%. take a look at what you see in equities for the week.

the dow jones industrial average lost 540 points for the week. we've now moved it up here. the s&p we've now put in the middle. down 3.4% and the nasdaq down 3%. so a very rough week. the second worst week for the year in u.s. equities. take a look at the s&p since the u.n. devaluation, since china widened the band and allowed the currency to drop a mere 3%. that's knocked almost 9% off the s&p since august 10. it's also killed a lot of stocks or at least a lot of stocks have taken big dives since then. a great example, because the casino and hotel company gets a huge portion of revenue from a . inese gambling destination as a result wynn has fallen 30% since the yuan was devalued since august 10. it's had a lot of downgrades and is having a rough time. the same is true though surely

for different reasons for netflix. netflix faces increased competition from apple, ali baba as well. and it's trying to globalize right now. you've seen netflix come down 20% since august 10, and if you look at my terminal, come on in to the terminal and i'll show you this chart here, year to date, netflix, you're still happy if you got in on december 31 because it is still up more than a hundred percent year to date. in the last week it's come down crossing through its 50-day and 100-day moving averages the yellow line down here is a 200-day moving average. still a long way off of that but it's really been a collapse in the span of six trading days for netflix. so very interesting moves there in the markets and it just shows you that a tiny devaluation of a little currency in china can do a lot of damage to global markets.

alix: good stuff. thank you so much, matt miller. >> i just beckon you into my bloomberg terminal now to show how global this has been. the german dax had the worst day it's had in four years and we're approaching the famed and cross here. th i can't draw the circle as well as you, alix. right there. so we have a little death cross there happening with the dax today. alix: well, take a look at the terminal and i'm looking at the u-6 unemployment rate measure. basically that is the broadest measure of unemployment. anyone who wants to have a job and doesn't. it's what fed chair janet yellen looks at. 3%.s right around 10. the average of the long term was about 10.7%. we are below that average and the last time the fed hiked in 2004 it was at 9.4%. so it really goes to show that we are coming up on that level of our unemployment picture

getting better. >> you are better with the track pad. the more comprehensive number there. more is included. alix: today's jobs report isn't the only factor the fed chair needs to take into account when deciding if they should raise rates or not. they must also pay attention to we global market volatility continue to see. traders are putting the odds for a september rate hike at 28% with odds not above 50% until december. joining us now for more is the economic professor at john hopkins university and former adviser to fed chairs ben bernanke and janet yellin, a superstar on today. john, thank you so much for joining us. john: you're very welcome. ix: if you were advising janet yellen today what would you say after today's report? john: i think more important is what i would have said yesterday afternoon, which is

no single jobs report probably matters much. and probably shouldn't affect the view, the general view of the outlook and thereby shouldn't affect the policy decision much. i think there is a common misconception the fed may turn sharply on any given and that wasn't what i experienced. there have been a lot of very solid signals that the u.s. okay in s been doing the sogget growth we've seen for several years now and so i think it would have been very surprising if there had been a weak jobs report. and as we saw, it was sort of right up the middle. and it shouldn't really affect the view of the policy makers much at all. on top of that, it turns out

for the last several years august has been a really difficult month to characterize the jobs number. in fact, essentially every year for the last 10 the initial august number has been revised pward. if you think about that number being revised upward a bit it's right in the middle of the weak spot we've been experiencing for quite sometime. >> earlier today there was a case made against hiking rates. i'd like to play a bit of what he had to say. >> if you hike now, you end up doing what china did with its currency change a few weeks ago. you end up fueling global instability and you have to worry about the spill back on to your economy. i suspect they won't hike this month. >> jon, i'm very curious how you would react to that. we heard from the president of the richmond fed today saying the opposite, that he is going to this meeting on the 16th with a very open mind. but what do you react to what

he said there? are you sim pa thetic to it? jon: well, the fed and fomc always have to consider market volatility, but it's not the first consideration. e first consideration is the key elements of the duellman date. where inflation is likely to be going, where we are relative to maximum employment. and i think the main reason that market volatility will mix to the decision is that that market volatility has in part been prompted by some pretty weak evidence abroad, in china, brazil, and elsewhere, as you said at the beginning of the show, europe isn't exactly booming. maybe it's doing a bit better. the real question to ask is how is the real economy doing and is the market signaling or

highlighting or revealing something a little more about the real economy we knew before? i think it is really important to understand that market volatility can't be a show stopper or as the bank of england might put it a knockout as far as a policy change because if you were to take the view we need to have about three quiet months in the market before rates increase, i think you would never see a rate increase. whether the fed happens to first raise interest rates in september or some other time, i think it's very likely that somewhere fairly near in the rear view mirror there will be market volatility. because there's usually some market volatility in the rear view mirror. and market people always tell you while you may make that worse and that's true, but we often times see market volatility that doesn't leave major tracks in the macro

economic data in inflation and the jobs market growth and that's really the key. that's really the key issue. >> jon faust we have you for the whole half hour. please stay with us. alix: when we come back, just how much did china spend last month propping up its foreign currency exchange? the answer when we come back.

alix: i'm alix steele. david: what did you miss? alix: before the break how much did china spend in propping up last month? david: they spent between a hundred and $150 billion last month according to deutsche bank. alix: unbelievable. they say they intervened three days really heavy spending about $16 billion and the rest were about $4 billion to $8

billion. of course they wind up selling treasuries, they get dollars, and that is to slow the fall of the yuan profit there. we now return to our focus which is the federal resoive. the central bank's two mandates are price stability and employment. today we found out jobs fell to the fed sweet spot 5.1% but priceability is still a problem with core at 1.2%. still with us is jon faust former adviser to janet yellen and ben bernanke and joining us now by far the smartest person here at bloomberg from bloomberg news. jon, we're sort of missing the inflation picture. what helps us get there? jon: well, inflation has been running below the fed's objective for a few years now. and that's a concern. the main issue, though, is that the economy can be

pushed upward is really through jobs growth through the jobs market. that is as the job market slack healthier and as and resource use in the labor market, as those decline, we think inevitably that inflation will provide upward pressure. unfortunately, it's pretty hard to tell exactly where that point is. a lot of people might have thought it would have occurred when the employment rate was 5.8% or 5.5%. we haven't seen that pressure much. i think the reason that the fed considering raising rates soon is that the core, the vast majority of them, think we are surely nearing that point where the upward pressure will appear and because there's long lags

in how the fed affects the economy, it's time to not tighten policy particularly but extremely ghtly less accommodate iff. t really all comes down to the jobs market and confidence whether that will continue to tighten because that'll be the source of the upward pressure. david: jon, how do you deal with in setting policy all of the uncertainty surrounding what is holding down core inflation right now and how much progress we need to make in the labor market in order to generate inflation, sort of, you know, the idea that the natural rate might be a lot lower than it was in the past? jon: that's a really good question. and that's always a different -- difficult question even in the times we used to call normal times. but like i said, there's really

two bedrock issues in macro economics. there is not a lot. we think we fully understand. and two of them are that when omething like oil prices fall, or the exchange rate goes up which puts pressure, that those effects are trans tory. we've experienced that many times in the past and the effects of trans tri. we think that inflation is low right now because of the fall in oil prices, mainly. and also to some extent by the rise in the exchange rate. the second bedrock principle is at some point at the labor market titans there will be upward pressure on inflation. very hat point is, is uncertain right now. but the notion that we're approaching it is the judgment call i think that they'll be

discussing in the fomc. everybody thinks we're probably close. how certain are you? how certain do you need to be? and the one additional piece is we need to move further in that direction. how confident are we the labor market will continue to heal, that labor market slack will continue to disappear? i think that is where the debate is going to be at the fomc. how competent are we? we're nearing the point. and how competent are we we'll continue to make progress toward that point? i think most of the fomc has made clear that before seeing this recent turmoil that we -- we're very close to that point. and so the third big issue will be whether what is happening abroad can the u.s. economy remain buoyant in the face of that? alix: great you brought that up.

we have a chart the term premium on the 10-year yield and it basically is the extra juice investors demand to wind upholding long-term treasuries instead of short-term securities and it is negative. that reflects to me, matt, there is some panic in the market. there is some trickle down from the instability we've seen. matt: yeah. it definitely hits at this point treasuries are being used as a hedge against a lot of uncertainty and things that could go wrong in global markets in the economy right now. so investors are not demanding as much of a premium to hold those treasuries as they otherwise might. in a more normal environment. alix: all right. thank you so much for sticking around. jon faust, you are staying with us. david: coming up, a surge in bartenders and waiters. why that is a telling indicator what is happening to the u.s. economy. the reason when we come back. ♪

alix: i'm alix steele. what did you miss? the jobs report shows a steep increase in the number of bartenders and waiters. david: grew another 26,000 waiters and bartenders in august. manufacturing did not see that kind of growth. it is a sign of a minimum wage recovery. alix: and a return more into the services type of economy rather than manufacturing being the growth driver. that chart is really important. david: absolutely. alix: now to the three things the fed has to pay attention to ahead of the september meeting. still with us is jon faust former adviser to ben bernanke and janet yellen. you have three charts kind of summarizing this pape they're you wrote that you presented at jackson hole. one is labor share of income. explain why that is so

significant. jon: well, labor share of income you can always think of income being divided into that going to labor for wages, say, and that going as a return to capital. and labor share had been very stable for most -- for a long period of history around 66% to 70%. and in recent years, it's fallen from nearly 70% to closer to 60%. and a lot of people think that that's part of the story behind the -- behind the worsening income inequality in the united states. and what my paper was about that i wrote with indiana university is that many of these variables that have long-term trends that don't seem related to the business cycle necessarily could be important to fed decision making. and when you think about labor share in particular, we might

imagine there's a lot of people out there on all sorts of the political spectrum who think it would be a good thing if income equality were somewhat -- if income were somewhat equally distributed in the u.s. if that's going to happen, labor share is likely to rise. david: jon, you pointed out aging, demographics another thing that needs to be looked at more closely. jon: exactly. david: why is that? jon: well, once again, some of the aging and demographics issues are important because they shed a lot of light on labor force participation for example. and the fed is right now considering a lot more than just the standard unemployment rate as you know. and part of that's because labor force participation fell incredibly rapidly during the period after the crisis. some of that people think was due to these aging issues. that was just the baby boomers moving into retirement.

but it was probably more than we would have expected. and the question is, in a healthy economy, a job market that was really calling for workers, would some of those folks like to come back and have a job and work for five years? and that's a really important question, because if they do, it means a lot more output. it also means a lot more tax revenue. it means many things for the economy that are all good. and so when the fed says, no. those people have left the labor market. they're out for good, then we may be near full employment. if those people might be willing to come back and like to have a job if the market were healthier, then that would be a very good thing for the economy. the trends are the sort of issues that central banks have typically not emphasized as much but that just happen to be very important right now. alix: the other things rather than just that core p.c.e. and unemployment rate.

thank you so much, jon faust, former special adviser to the fed board of governors. such a pleasure to have you here on jobs friday. david: we'll be right back. ♪

alix: i'm alix steele. david: what did you miss? alix: my co-anchor joe wiesenthal is on vacation this week but couldn't stay away for the jobs report. you look very well rested. you're here to tell us what we missed from today's numbers. what did you find? joe: well i love this jobs report and i really think if it weren't for all the market volatility we'd almost be talking about will the fed raise rates twice this year? we're really approaching, the labor market obviously getting tighter. the unemployment rate for people, 20 to 24 is always elevated sort of more marginal workers, really collapsed this

month. you have to really like that number. dropped significantly from the month before. lowest level in years. real sign that the labor market is getting much tighter. along with the u6 number you pointed out earlier. another thing, and i saw this chart from matthew who you just had on flows in and out of the labor force, really accelerating people outside the labor force, rushing back into the labor force. people outside, inside the labor force leaving lots of flexibility, people retiring, people coming back in. so outside of the headline you have to really like this number. alix: awesome stuff. joe, you will be back here on tuesday. thank you for showing us what we missed in the jobs number. get some more suntan. go get your suntan lotion. david: that's all from what you missed. thank you very much for watching. alix: on monday we'll be off but chinese stocks open. they've been closed for two days. watch out for what kind of blood bath we might see. david: and new data on the

trade balance there, imports and exports. something to look for as well. alix: don't miss it. have a great labor day weekend everybody. we'll see you back here on tuesday.

>> i'm emily chang. this is a special bloomberg west. oming up google with spherical cameras.