the two-year note was, the yield down a bit. where is that now? 77. so kind of on that. >> the dollar was the big pov. >> dollar was a big move. we may not have it. a little bit -- a bit weaker. >> dollar index down. >> thanks for being here. >> my pleasure. >> everybody have a great holiday weekend. joe, see you tuesday. >> i will be here tuesday. >> tuesday. time for "squawk on the street." >> good morning. welcome to "squawk on the street" david faber with sara eisen and kelly evans. the august jobs report showing slower than expected payroll growth up 151,000. the unemployment rate held steady at 4.9%. average hourly earnings up 0.1%. let's give you a look at the markets as you can see taking it well as the equity market at this point perhaps pushing off the idea of a fed increase as soon as the next meeting. let's see how european markets

are faring and as we do, given that employment number, the 10-year note yield, strong performance for the equity markets in europe and there is a look at a yield that has come down a few basis points. had been above 1.6 yesterday. . crude up today reversing a slide recently. and we'll see how all the equity markets fair. the employment report ahead of the fed policy meeting later this month. ladies? >> the research notes are flying in the inbox already. what are they saying in. >> takes pressure off the fed, forget september, it's not going to happen. here we go again. >> we're in this perverse world where a disappointment on the economy, is very positive for equities. you see the rally, the dollar weakening, treasure yields go lower tells a tale of a fed that might not have to hike interest rates. it's not a total disaster in terms of the jobs report. if you break the report down it

came in below consensus but we're also coming off a strong stretch for june and july. unemployment holding steady at 4.9%. you saw gains in restaurants again in the services sector and financial in health care, some of the industries that have been creating jobs, but, of course, this was a high stakes one because it comes off a jackson hole meeting where janet yellen said the case was strengthening and as we march into the election. >> is it weak enough to really potentially change people's forecasts? >> clearly that's the initial gut reaction. it's something that i would love to get [ inaudible ] his take. >> we will have him. >> think about these jobs reports. >> you're taking, obviously, this into account if you're the fed and a lot of other things, kelly, including retail sales, numbers today -- >> ism number. >> what is going on with the industrial part of the economy. hard not to call it a recession if you take the fact that year on year the production numbers have been bad, manufacturing report comes out yesterday, only hope i guess would be it's been below 50 before.

in fact, before during this year and it's recovered. >> january. >> the goods producing part of the report was not good. the productivity stuff broadly in this economy is not good. that's the missing link. >> wages missed expectations at 2.4% from last year, the growth in wages. ploog for a number around 2.6% what we got back in july and we know that is the key component that the federal reserve is looking for in determining whether inflation -- >> or the prospect thereof. >> help might come in the softer dollar if it moves down because of the discussion, a little help for maybe some of the exporters, a good side. >> we did see exports jump almost 2%, buried beneath the jobs numbers, but the trade deficit narrowed and that was important. talk more about what jobs means for this market, and for investors, david kelly with us, chief global strategist at jpmorgan funds and on the phone tom pore selly, chief u.s. economist at ubs capital markets.

tom, take that question, the weaker than expected jobs report, weak enough to take september and maybe december off the table for the fed? >> i certainly don't think it takes december off the table. i do think it takes september off the table, though. but, you know, again, keep in mind, my general stance on this. we have -- we think the fed should be engaged in a hiking cycle right now. really, the question is, is this report enough for this fed to take a pass in september and we think the answer is yes. 150,000 jobs all-in is actually a really nice outcome for an economy, particularly if your expectation is for it to continue to move along at 2%, which is what our call is. for this fed it's probably not enough. i mean, the guts of the report were rather squishy. so we don't think that this report is enough for them. >> why? what within the report do you think was squishy and why do you think the fed has a high bar? >> you know, i don't think they do. let me be more clear. i think that bulk of the fed actually does not have a high

bar. we've heard it countless times from, you know, people we would sort of call centrists like williams, who have basically said 100 to 150,000 jobs is really a totally reasonable outcome and moreover, the point he has been making and others agreed, moving into the mature phase of the cycle where job growth is starting to slow down. job growth has slowed down. two years ago averaging 250,000 jobs, last year we were averaging 220,000 jobs this year averaging less than 200,000 jobs. job growth is slowing down and that's something that i would argue the fed already recognized. >> as you look at the market reaction, dow futures up 52 points, do they have it right? >> well, i think they have it right on the economy. the economy is doing everything the economy should do right now. it is stuck in third gear. doing fine.

this is 150,000 jobs, 151,000 jobs, that really is what this economy can introduce right now without the labor market tightening. as to take september off the table, i think september is still on the table. because at some stage the federal reserve has got to prove that they are willing to look beyond the short-term momentum of the economy and the level of interest rates relative to the level of the economy and a lot of fed members have been talking about the dangers of keeping persist abnormally low interest rates in causing asset bubbles and so forth so this looks like the economy is motoring along perfectly healthy, unemployment below 5%, inflation moving up. they ought to move higher now to give them a chance to lower rates when they need to. because this is not an environment in which you should have an abnormal monetary policy. we have a very abnormal monetary policy. >> tom, what do you think is going on with the productivity numbers? >> yeah. look, you know, this is -- it's a much bigger conversation than i can get into the sound bite

that probably this time amount requires. but what i would say is this, if you think about it from t the perspective of hours, right, just think about hours for a minute, we actually had a significant decline in hours, basically from like the 1970s through to the middle 1990s. from 1990, middle 1990s or so to today, hours have moved sideways. that doesn't make a whole lot of sense given the fact that you've actually had all of this sort of productivity happening, technology has come on board, et set terra. if you had a decline in hours, which i would submit makes a lot of sense, productivity would be 2%. if you had a five-hour decline in hours you would have productivity at 5%. now, let me be very clear on this, and it's hard to say all this in a little sound bite, what i can tell you i'm not saying people aren't working 9 to 5. that's absolutely true. instead i'm saying are people actually working from 9 to 5.

i think you had an adjustment in hours you would sort of the productivity outcome that most people seem to want. >> sounds like the problem is we're all on social media during the workday? >> i don't think that's really the problem. i think one of the big problems we're not doing enough investment spending. look at what productivity has fallen, number one reason is a decline in the capital or the growth in the capital labor ratio. so what we've got to do is promote more investment. that means lower corporate taxes and more trade to allow u.s. companies invest here to sell around the world. we need a pro-investment policy if we are going to push productivity up. >> david, does this jobs report change your outlook as you deal with the equity markets and the fixed income markets? >> it leaves it about in the right place because if we're -- this is as close to a soft landing as you're going to get actually. we have a soft landing. that is encouraging the equity market but it's keeping rates so low you still have to be a little overweight equity versus fixed income. it's i think a good economy.

people shouldn't, you know, hesitate to get invested because waiting for something better. it doesn't get much better than this in today's u.s. economy. >> does it change the direction of financials which have made a nice move higher and are the best performing sector for the week? >> i want to see what happens in september in terms of their logic. at some stage, the fed is worried nobody believes them. they say they are thinking about raising rates and worried keeping rates too low too long and don't move. at some stage they will make a hawkish move and will have a significant effect on interest rates and financials. we have to see what happens the next two weeks. >> i wonder if the awareness on the part of the fed about the fact that market might not believe them when it comes to hiking rates might lead them to do so? sooner than you might think? >> yeah. look, i think it's the irony of this whole conversation is, one of the things that we haven't talked about was the market pricing for september and right

now market pricing looking at my screen is 26%. that -- it's an unfortunate sort of -- that we live in but that matters to this fed. i don't think it should matter. i think at the end of the day if the fed thinks that backdrop demands higher rates they shouldn't care where market pricing is and give the markets -- they should give the economy higher rates. but again that's just the sad state of affairs where we are right now. this does matter to this fed. i'll say it again, the fed should be fully engaged in this hiking cycle. we have said this for a very long time. but i think things like this actually do matter to this fed. >> yeah. we will leave it there. good discussion, guys. thanks for joining us on jobs day. tom from rbc and david kelly from jpmorgan. >> got to keep a closer eye on workers. first reaction from the white house to this morning's jobs report. labor secretary tomas perez live and first on cnbc interview.

a rough morning for lululemon following earnings and outlook as the shares look poised lower. another look at futures this hour, they're now moving higher with the dow implied to open up 57, s&p up 6, the nasdaq up 16. more "squawk on the street" from post nine at the new york stock exchange when we come right back. thay the world does norevolve arnd you. fi theerfect gift t of trillions of combitions. anworking withhenew york gr to find treaents and am helping sesame et make education unique everyhild. heo,y na is watson. make education unique everyhild. woing togethererwecahinkny. heo,y na is watson. there's nno one surfafa...e. no one way of driving

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check out shares of lululemon down sharply in the premarket after posting quarterly result last night that key retail metric comp store sales and on-line sales up 5%, below what the street was looking for around 5.9%. lululemon also raising earnings guidance in a range that was slightly below foeshgsz. you know i recently spoke to the ceo and have a lot to say about this report. what was light the comp store sales and guidance. the reason, the executive gave on the earnings call, little bit slower traffic. they said they're not immune to what else is happening in the retail industry. having said that, this is a company that is still posting 14% revenue growth in a quarter and 5% same-store sales which is industry beating. the other point that i'm sure executive are frustrated right now that is not getting paid attention to, the gross margin

improvement. they managed to grow that for the first time since early 2014. it's something that laurent pot de vin has been promising since he stepped in about two years ago and this quarter was what he called an inflection point on that front. investors are ignoring that rise in profitability and they are looking at what was a weaker comp number. that's because look at the stock, it's been a moonshot, up 45% so far this year before today and pretty high short interest, about 18% of the current -- >> pretty high multiple as you know and, in fact, in this market it seems those high multiple stonkz stocks in particular are being signaled out for punishment. ul ta, a favorite of my colleague jim cramer's who pointed out the same. not a bad report but if it's not perfection given the mults. crm, salesforce.com, they did tweak the guidance but not full-year guidance and stokts was punished.

you have to execute perfectly. >> this fits into that trend, which is one we have seen in this earnings report, especially in a stock like lululemon. there are high hopes for the change of profitability. potentially that was priced in because the ceo has been setting us up for that. in terms of other moves they're making because this is a competitive market. you know about under armor and nike. and the new store concept chain called locals, smaller square footage, more targeted communities like aspen. a new designer on the bras and tank tops up double digits 13%. some of the initiatives. this is what happens when you -- >> yeah. i'm feeling a little out of the conversation here. >> that's okay. >> a nice change. it really is. yeah, i'm all for lulu men's whatever that would be. >> you don't know about the abc pants. >> jim mentioned it the other day and i didn't want to know.

>> anti-[ inaudible ] crushing. apparently miraculous. >> thank you for that. sara eisen with the explanation of abc. all right. we wanted to hit cap as well. i don't know, i did see the shares right now, not looking down that much. it's funny, not so many -- so few companies at this point. the report sales numbers on a monthly basis but the gap still does and not particularly good. in particular, banana republic having a tough time. >> the overall comps were down 3% for august. banana republic down 10% on the comps. old navy doing better and did highlight that performance. again they also had a setback with the fire burning through one of their distribution centers in upstate new york which supplies gap and banana merchandise to on-line and store customers in the northeast. a good chunk of their business, the shares down about 2.5% as we keep an eye on the open. you got to give them credit for reporting the monthlies. the larger question what do they do with banana. >> and gap brand seeing decline

in comps, maybe an improvement in the last year there. gap in the tough spot talk about the trends converging in retail that changed the industry, caught between the fast fashion zara retailers and boom in on-line amazon and left in between and they can't seem to figure out how to turn it around. even the old navy, which is a bright spot, only saw 1% comp store sales growth. not holding up what has been a weak banana republic. >> it's funny, j. crew a competitor in some ways, pot a public company but does report results showed declines. not as baaed in the past. >> for j. crew it's relative. >> they've struggled. >> the top line decreases, though, perhaps better than some had anticipated. >> i would think -- >> it's a tough environment and has been for certain retailers in the mall but not all. >> not all. with gap certainly. it's lost a quarter of its value in the last year. the question is, is it cheap enough. so many people waiting on the sidelines to see improvement. they've got the ceo in.

art peck who has been trying to change it and focus digitally and get new styles in. back to school a lot riding on back to school this year. >> what's interesting with aeropostale. for years in retail a little consensus that someone needed to buy a bunch of these things, roll them up, combine them, close a bunch of stores, whatever it is. aeropostale starting to see that process happen. i wonder is it a template for what more is to come across. >> gap has closed an enormous amount of stores over let's call it the last five to eight years. >> no. they've been closing stores. they've been trying -- they've been trying to turn around the namesake brand. it was jim that said they have an identity crisis. people don't want to look normal anymore and wear these, you know, the gap jeans and the khakis. >> they want to wear the abc pants. come on. >> i guess. >> the new normal. now that i know what they are. >> all over that, david. >> when we return, the fallout from the epipen controversy prompted hillary clinton to announce a new plan aimed at cracking down on what she is calling excessive drug prices.

and right after the opening bell, we'll talk to the labor secretary, tomas perez on today's jobs report. have a look at u.s. futures. on the back of that disappoi disappointing jobs report in rally mode. dow up 62, s&p up 6, nasdaq up 17. much more "squawk on the street" from the nyse straight ahead. thiss a mobile trading desk, so i can te my tding platfo wherever i go yoknow that t inkorswim amssly scs across all your devices.

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♪ ♪ in the wake of the epipen price controversy, hillary clinton announcing a new plan aimed to protect consumers from

what she calls unjustified drug price hikes. clinton says if she is elected she will create an oversight panel to monitor life saving drugs and the panel would be able to take a numb of enforcement actions including imposing penalties and fines on drugmakers. clinton said, quote, over the last year or past year, we've seen far too many examples of drug companies racing prices excessively. for long standing life saving treatments with little no innovation or r&d. this picked up steam with the cont vefrs other mylan's epipen the price has gone up for a drug frankly that was discovered in 1906, epinephrine. it started in part with touring pharmaceuticals and indicted chairman mr. shkreli, valeant pharmaceuticals, of course, which we follow closely here, part of its strategy had been to acquire drugs and raise their prices, not spend a lot on r&d. all of these have brought this

issue to the floor. it will be interesting to see if this happens, how you actually figger out what is unjustified versus a justified price increase. >> i'm sure there will be no problems with that or unintended consequences or broader research development process. watch the biotech space. hillary clinton has managed to move these things every time the issue is brought up and not just in that day but setting the tone for weeks at a time. >> i was wondering how uncomfortable do you think this is going make the industry now that we've got a little more specificity as to what her plans are? >> i mean, i would think specificity, perhaps, to a certain extent could allay concerns because at least you can get some idea here as to what you're talking about if you read through the press release but at the same time we have seen these stocks to kelly's point suffer. in the mylan epipen controversy, all the pharmaceutical started to suffer. we've seen it with valeant, that you will see some sort of action

in some new administration, against the pharmaceutical companies broadly speaking but one would hope you could figure out a way to change our to specifically identify innovation as opposed to price gouging. >> plus, you would need congress to approve any changes, right? >> see what congress looks like november too. >> that's the other question. >> the opening bell less than five minutes away followed by labor secretary tomas perez. more "squawk on the street" after this. ♪

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you're watching "squawk on the street" live from the financial capital of the world. the opening bell going to ring in a minute and a half to cap off this week's trading, of course, as we enter the month of september. the big news this morning is the jobs report that came in a bit below what had been anticipated. or depending on your views, a good deal below. questions whether that will, in fact, change the fed's trajectory. we heard tom porcelo say one

thing. i've been looking at notes coming in. some of the economist note i've been able to see to change that many views. bark clay thinking september is when it's going to hit. >> the market wasn't that convinced of september to begin with. going into this report less than a 50% chance that september was going to see an interest rate increase. this sort of weakens the case for that even more i would say. tom pore selly telling us december was more realistic here. september would mean a rate hike before the election, which though the fed says it's not political, might not want to go into that. it didn't raise rates because of the brexit. we got that from the minutes from that fed meeting in june. the u.s. dollar is preacting and selling off and shows you the skepticism around the case for september. >> i will watch the banks at the open and see how they react. very sensitive over the last week or two to what's happening in terms of potential rate hike. >> the best performing sector in

august and continuing that move through the course of this week. in anticipation of higher rates and, therefore, net interest martgin that starts to show itself which would be bishl. the opening bell on friday. the real-time exchange at headquarters composing to what will likely be more green than red. here at the big board, first cash celebrating its transfer to the nyse. at the nasdaq, the tennis chanel. celebrating the 2016 u.s. open tennis championships. they got that retractable roof which apparently is cause something noise problems when it's closed. the rain actually causes a racket, so to speak. >> oh, no. >> yes. >> so the players are starting to complain about noise. they were complaining about the rain and then the roof. tennis players will complain apparently. >> one thing i wanted to point out oil that has been a big story. energy is leading the gains in the s&p 500 right now. it's been a tough week for those

energy stocks because before today, wti was down about 9% over the last four sessions on higher inventory levels, concerns that the opec members might not freeze production, a stronger dollar. 2.25% rally. vladimir putin of russia sort of signaling that potentially they would be on board with a production freeze. a major producer and part of this opec meeting. >> why do people think -- it's like herding cats with opec. an incrediblebly political difficult process to get everybody to agree on something. >> audis -- saudis have never cut at all. >> no. everybody needs the cash. >> everybody thinks they will or at least freeze. >> cash and production freezing. and they have made noises they would be amenable. >> but they never do. >> the question is iran whether included in any deal or not. they're ramping it up after sankships to take back market share. >> not to forget the

geopolitical concerns in terms of iran and saudi arabia being on opposite sides of virtually everything. stocks to watch, did want to hit yum. yum brands, of course, it's only a couple months away we will see them up on the podium, yum china. that is going to be separated from the company. a china business, of course, as many of our viewers know, that follow the company closely, kentucky fried chicken a huge -- funny when you use that word now -- a very large chain in that country. extremely successful. >> huge. >> huge. >> it's amazing. excellent. but this morning, they do announce the deal with a couple of what they're calling strategic investors, namely per ma vera capital combing to put in 4$460 come million. the company has no leverage, no debt but saying that the addition of these two to the board as well, you're going to

have fred hugh, big private equity investor, in china, joining the board as its non-executive chairman will be helpful in terms of navigating the chinese market. couple different things associated with this. some warrants. and it will be priced at an 8% discount, $460 million worth of stock to whatever the volume waetsds average is between the day 31 and day 60 of trading. avoid first 30 days of trading. you're going to have a pure play china on china in terms of fast food restaurants when this list here at the nyse in a couple months. >> at a time when the china business for yum has rebounded after the food scandal they had and shares reflect that. shares run up into this planned spinoff. kfc has done better. not sure about pizza hut. kfc has done better. >> more than 7,000 stores -- >> an enormous success story over the long term in china. delaware headquartered company

incorporated company, but based solely in china. interesting to sew what shareholder base ends up being. a lot of people here who want exposure in that way. and now they're trumpeting this deal. small deal economically but strategically important. >> the ipo pipeline. when we come back from the long weekend the focus will turn to who else might be listing here ringing that bell over at the nasdaq. a couple of the names in the pipeline include elf beauty, which is, you know, cosmetics name out there, part of that big trend with ulta you're talking about. and one of my favorites stories ivan though i've -- even though i've never used a yeti cooler all the rage. they're so sought after. and that's one of the firms potentially to list at the nasdaq. >> really? >> i like that. kind of low tech, not high tech. >> great story. the lengths people are going to pillfer one of these high-end coolers that have become so popular. interesting things to watch for

once we come back from the long weekend. >> banks, you said you were going to be watching that into the open. all the industry groups are higher right now. a pretty broad based rally. financials are lagging with telecom and yields are lower on this idea maybe the fed will get an excuse to push out the interest rate hike more. that was exciting the financial investors. financials have been a long time laggard in terms of industry performance. they're up about 2% this year. >> yeah. and every time they seem to be sort of creating some momentum something gets in the way, namely the idea that perhaps we won't have an interest rate hike any time soon. let's move on to that jobs number from today. the labor department reporting 151,000 jobs added in august. the unemployment rate unchanged at 4.9%. joining us first on cnbc with reaction from the obama administration is that administration's labor secretary, thomas perez. always good to have you, mr. secretary. >> good morning. happy labor day to all of you. >> and to you. you know, i'll ask the question

i can almost answer it we've done this so many times, are you disappointed at all with the 151,000 number? >> i think this is a solid number. we've had a good summer. two excellent months in june and july followed by a solid month in august. exactly what we would expect to see this report at this stage of the recovery. we're having solid job growth and solid wage growth and you look at wage growth over the last year, 2.4%, you look at it annualized for 2016, it's 2.8%. so, when we reach this stage of the recovery, the pace of job growth tends to slow a little bit, although we're well above what we need to sustain our moving the unemployment rate in the right direction. and then the pace of wage growth picks up. that's exactly what these numbers are showing. >> right. okay. let me follow up. you did say it's exactly what we would expect to see at this point if the recovery. give me some historical basis for that statement? >> sure. >> we are late in the recovery.

clearly you believe. but where does that come from? >> well, when you are getting close to the summit of the mountain of full employment, the rate of the unemployment rate going down is not as fast. our unemployment rate a year ago was 1.5%. two years ago was 6.2%. it was easier to get from 6.2 to 5.1 than from 5.1 to 4.9 and it's going to continue to go down at a slow clip. we still have slack in the economy and what we're seeing now that we didn't see two or three years ago is, again, the page of wage growth picking up. that's the tradeoff that you see when you get closer to that summit of full employment. we're not near that yet. i still think there's slack in the economy. i still think we can do more. we need to really double our investments in infrastructure because the construction numbers in this report, the manufacturing numbers in this report, they're not where they

need to be. and when we invest in infrastructure we create good, middle class jobs. i'm heartened by the fact we're seeing wage growth and it's been steady over the last year. 2.4% over the last year. and even better in 2016 when you annualize it out. that's -- you look historically at recoveries and that's exactly what you've seen. >> a lot of people are talking about this idea of full employment. you said we're not quite there yet. we've been hearing a similar message from the federal reserve as well. the recovery the cycle has created 12 million jobs the population over that time has expanded by 18 million people. how do you say that that's full labor recovery. >> well i have never said that and i think we still have a ways to go. i think we can do better. you look at the '90s that was a period of time of sustained job growth and sustained real wage growth and an unemployment rate

roughly 4%. we're at 4.9%. we can do better. and we know how to do better. by redoubling our investments in infrastructure. we can do more on infrastructure and having just driven my daughter to college, boy, the number of road closures because of bad roads that are in desperate need of repair and bridges, our port system, when you invest in that sort of infrastructure you create good jobs and so i think there's more to do and we're also -- it's a remark ply resilient economy when you consider the global headwinds we have been sailing into. manufacturing is an export dependent industry and when you have a strong dollar, and you have so many other economies that haven't seen our recovery,. i think there's's additional room for growth and no one slacking the football here at the white house or labor department. more to do.

and the thing is we know what to do to move forward and my big frustration is, things like infrastructure and raising the minimum wage haves historically by bipartisan issues. but because of the hijacking of congress by the tea party, we can't get consensus on what should be done and what would have been done in a bipartisan fashion in a prior administration. >> i was going to ask you about manufacturing, especially after that number yesterday. >> sure. >> showed it's back contracting. what's wrong with the manufacturing sector in this country? why isn't it adding more jobs? is it about the strong dollar? >> well, again, it's over the last year is where we've had our challenges primarily and the two biggest things are when you the global economy not recovering the way our economy is, and when you have that strong dollar, your -- the cost -- when you're making things to sell to other countries, they are now more

expensive. and the demand for those products when other countries are still not recovered is not what it needs to be. so those are the headwinds that we're seeing in manufacturing. but what it's also important to understand are some of the other indicators of the strength of our economy. our first time claims for unemployment insurance now, once again, under 300,000. something like 78 weeks in a row. and that's the longest streak since 1970. that's a very good indicator of our economy being in good shape. in addition, you look at consumer confidence, consumer spending, both very solid right now. so we're seeing good spending among u.s. consumers. what we're not seeing is consumption in the global economy and that's an undeniable drag on manufacturing. >> secretary perez, we've, obviously, had this conversation month to month many times. you bring up infrastructure

spending almost all the time but that's a political issue and one that your administration certainly is not going to be in a position to deal with. do you have any expectation we're going to see the kind of infrastructure spend that you've continued to talk about for quite some time? >> sure. well i sure hope so. you know, i will remind your viewers that infrastructure was, you know, a originally a brainchild of dwight eisenhower. our interstate highway system was an eisenhower initiative. those conservatives who really felt that the role of the federal government was limited, historically, they've strongly believed that one of those important roles within their construct of limited government was infrastructure. now we have the fairy dust caucus. fairy dust comes down from heaven and repairs our road, builds our bridges, make sure our ports are state of the art and that fairy dust is alice in wonderland stuff. that's why we have to do this. and i'm hopeful that we will get

there. we're going to continue to fight here in the obama administration and, you know, i'm confident this is going to continue because all you have to do is travel on our highways, look at the evidence, talk to structural engineers about the state of our infrastructure. we've got roads and brings so old if they were people they would be on medicare. that's not safe. and that's terrible public policy on so many levels. we're going to keep fighting here and i'm confident this battle will continue beyond the administration of president obama. >> sure. secretary perez, we always appreciate you joining us. thank you. >> happy labor day to all of you. >> and to you. thomas perez, secretary of labor. >> back here courtney reagan on the floor with more on what's moving at the new york stock exchange. >> good morning, kelly. jobs jobs jobs. where are they? that number was disapointing. we had been looking for more jobs but there's still a lot of movement now that we've seen the number and keep in mind that the

august jobs number is the one that is the most revised. as a matter of fact, the last five august jobs reports have been upwardly revised 71,000 jobs. the first reading isn't really the best indicator of the current labor market, but that's too bad because the fed has to meet in september and make a decision on interest rates anyways. the market is now thinking it will be less likely that fed will hike. replacing odds of a september rate hike at 12%. barclays is sticking with its call for a september rate hike. the s&p 500 is just about 1% away from its all-time high. we are higher here this morning. we'll see what happens if this helps us push a little bit closer to all-time highs. we're going to watch as these yields fall, the interest rate sensitive groups and stocks. look at names like defensive names, utilities, telecoms, banks and consumer stocks. see here that a number of those sectors are higher this morning by about a percent if not a little more in the case of utilities. but let's also take a look at

the commodities move because we know that stocks have been so tied to what's happening with the price of crude. crude oil is higher by 2.6%. gold is actually sitting at its week highs as well. that could dictate some of what we see with equities this morning. if we can move away from the fed into other news that has to do with the consumer but starting with ups and the freight, they're upping their freight shipping rates by 5% september 19th. lucky for most of us, the increase will hit the rest of the shipping services the day after christmas. something to keep in mind for sure down the road when looking at how that impacts other consumer names and consumers themselves. speaking of consumer names take a look at gap. shares down, banana republic still really struggling. we had a fire at a gap factory. that's hurting on-line orders and comps disappointing again. shares down more than 3% and very quickly if we can just look at lululemon, we have to talk about it again, because it's down so sharply. a number of analysts say what's happening here today is what we

saw very clearly with ulta before the earnings where expectations were really high, it's been doing really well for a long time. lulu shares up almost 34% for the year. if you don't come in with a blockbuster number you will see some pullback there. but nat boss at jpmorgan thinks they're guiding conservative to set their bar low and beat it. back to you. >> thank you. let's head over to the bond pits with rick santelli at the cme group in chicago. good morning, rick. >> good morning, sara. if you look at an intraday of two-year and intraday of 10-year you can basically see the data came out and the markets had a move and then the move disappeared. as a matter of fact, you can argue now that we're actually seeing yields climb just a little bit higher. i wonder why. maybe it's because, you know, average immediate mediocre data still pretty good for stocks and when stocks seem to bounce under those conditions you actually

get into awaken the treasury complex to some extent but, of course, we've been there, done that with the ranges, especially in the 150s for 10s. it's going to be very interesting to see if we back away most likely we will statistically pretty good resistance on a closing yield basis on anything pretty much above the 1.60 level. a two-day of bunds. wasn't their employment data but we all share in policy with regard to central planners, central bankers and we're going to share in market response as well. when it comes to the dollar index the lasting effects of what occurred with stan fisher and janet yellen in jackson hole, is slowly sinking into the sunset. now here's something that you wouldn't expect. if i told you that there was an interest rate that was trading at its highest level since the end of march, i don't know that this is the one you would pick. this is the jgb. japanese government bond 10-year note yield.

never has such a small yield compared to the highest level in many months but it is and what's even odder f you look at kind of a mid-august read on the dollar/yen that's the dollar going up. the yen is supposed to be going up when rates are going up and those counterintuitive scenarios give you a glimpse into counterintuitive policies. sara, back to you. >> that is a strange one. rick, thank you. when we come back, former continental airlines ceo gordon bethune on what's ahead for the nation's carriers as the travel season of summer winds down. "squawk on the street" will be right back with the dow up 117. ♪ thchindo e' neadyn the pletarpeecy ald,preci at's it. we neereally thtmpature contro. gierg, aynamics-lit second t log ulmean scrapping l l stting over. propulsi, structalnalysi maple bourbon cara

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jo let's get a closer look at oil prices. bertha coombs joins us from the nymex. good morning, bertha. >> good morning david. oil prices were strong even going into the jobs number after vladimir putin said he thought it made good economic sense for there to be a freeze that comes one day after his oil minister said russia would not participate in discussions to freeze production. if russia buys in, that could help bring saudi arabia along to

actually push things forward at the meeting later this month for at least a freeze in production. and for wti nymex crude despite today's big move, that's an important situation because we have such high inventories. four straight days of losses, biggest pace for the loss since january. tim evans notes refiners about to take a million barrels of day off-line as they go into the season, the lower imports we have the better in terms of those inventories here in the u.s. metals are higher today as that dollar following the jobs report. back to you. >> energy stocks among the best performers thank you. up next tracking now what is tropical storm hermine and the damage it has caused so far. keep it here on cnbc.

season, the lower imports we tropical storm hermine and the as a supervisor at pg&e, it's my job to protect public safety, keeping the power lines clear, while also protecting the environment. the natural world is a beautiful thing, the work that we do helps us protect it. public education is definitely a big part of our job, to teach our customers about the best type of trees to plant around the power lines. we want to keep the power on for our customers. we want to keep our community safe. this is our community, this is where we live.

we need to make sure that we have a beautiful place for our children to live. together, we're building a better california. great time for a shiny floor wax, no? not if you just put the finishing touches on your latest masterpiece. timing's important. comcast business knows that. that's why you can schedule an installation at a time that works for you. even late at night, or on the weekend, if that's what you need. because you have enough to worry about. i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. after barreling into florida as a hurricane, hermine has been downgraded this morning to a tropical storm but is still doing damage. our morgan brennan live in savannah, georgia, where they're bracing for the storm there. good morning, morgan. >> good morning, sara. that's right. it's just starting to blow into

savannah here. we're starting to see the winds pick up. we're starting to see the rain pick up. georgia's governor has declared a state of emergency for 56 counties. the state is warning of heavy rains tornadoes power outages and perhaps most pressingly flooding with as much as 10 inches of rainfall expected along the coast. now this is putting the property insurance industry into focus even though it's still much too early to tell what the ultimate costs will be that are racked up by the storm. wbw's myers shields thinks the industry could absorb a $15 billion loss without generating a negative quarterly return and notes that the three biggest property insurers in southeastern u.s., private insurers are state farm, all state and nationwide but unless the forecast dramatically changes the losses are not expected to be anywhere near the worst that the industry has experienced in terms of hurricanes. to put that in perspective the costliest hurricanes by property coverage were katrina in 2005, that was $41 billion, and that

excludes the flood coverage that was covered by the federal government. 1992's andrew at $15.5 billion. and hurricane sandy in 2012, which was $19 billion. the second most expensive. that's according to the insurance information institute and property claim services. keep in mind hermine is just coming in to this area. the worst is really expected at midday. businesses her are closed. schools are closed. many travelers that are stranded in these hotels along the waterfront due to flight cancellations. i'll note that the port of savannah is closed today. boosting billions of dollars invested in that port. if we see damages that could be meaningful. back over to you. >> thank you very much. yeah. that's a tough assignment right there. coming up goldman sachs' chief economist jan hatzius on today's jobs report and what he sees ahead for the federal reserve. where we explore. protting bioversity.

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good morning. welcome back to "squawk on the street." i'm david faber with sara eisen and kelly evans. carl quintanilla has the day off. a look at the markets. a positive reaction in the equity markets to the shortfall in the jobs report, at least in terms of what people had been anticipating. you can see oil, though, having a strong day. set for some comments from vladimir putin, perhaps, russia will look to freeze, we'll see. if any of that actually pans out. that's a quick look at the broader mbroad markets. >> our road map, jobs. 150,000 added to the month of august. that missed wall street estimate. we'll break down what that cooling number means for a possible interest rate hike in september and, of course for your money straight ahead. >> fast food in focus as a yum deal and a possible bid for mcdonald's in china hit the tape. we'll get you all those details. >> hillary clinton unveiling her plan to crack down on, quote, excessive increases in drug prices. we've got the latest on that.

david with health care under praering. >> yep. given the plans from hillary clinton. we've got economic data crossing the tape. to rick santelli who has the numbers for us. rick? >> david, we saw a nice reversal in fakts orders up 1.9 for july, follows a slightly revised more negative minus 1.8. our final read on july for durable goods and remained at up 4.4 which isn't bad. ex-transportation take that out, of course, to get more solid read on what aircraft are doing, they're volatile, up 1.3. and that follows 1.5. but maybe the money ball is capital goods orders, nondefense, ex-aircraft, proxy for business, capital spending, and that number was up 1.5. 1.5 isn't bad when you consider this is, what, the eighth number that we've had in this series and we've had -- i'm sorry the seventh and we've had minus 3, negative three numbers, and this

balances it out, putting four numbers in positive territory. it's always an important number to try to give us a better glimpse ahead. it's not a big positive, but it's positive nonetheless. top of the range for 10s hovering below 1.60 and the stoems are quite happy -- stock markets are happy today as the data on the spongy side probably makes the chances of a rate hike in september a bit on the spongy side. back to you. >> back to the spongy data of the morning the august jobs report. st. lou steve liesman joins us with more. how disappointing was it? >> not very much so. couple ways to look at this number. from a straight economic point of view we added 151,000 jobs. that's pretty solid. a little under the expectation. but -- and down from prior strong readings but not bad to add 151,000. but if you look at this number as a proxy for clarity from the fed it is a lousy number. just on the cusp of what would be good enough for the fed to

hike in september or just below. some of the commentary, barclays says labor markets squeak past threshold for september rate hike, but prestige rights fed on hold after not so labor day. a lot of that in the market. more people siding with jason sheknef prestige, the possibility of a rate hike falls by six points to 20% according to the reuters calculations. some guys use a different one out there from the cme. it's a little higher. that's the one we use here. 20% is the number. here's the numbers everybody is talking about non-farm payrolls up 151,000 against an estimate of 181. unemployment rate unchanged, estimate was for it to fall. average hourly wages luke warm at 0.1%. maybe a little statistical problem with that. here's where the jobs were. leisure hospitality up 29,000, government second strong month up 25,000. professional business services 2 22, retail at 15,000. here's where the jobs were not.

goods producing down 24,000. inside that manufacturing, falling by a strong 14,000. construction not helping out down 6,000. and not a great sign there temporary help down by 3100. sara, it's an interesting analysis here. this 151 for the fed, hey it's 50,000 over what many think is the steady state rate for payroll growth in this country, sara? >> it's a good point. and certainly raise some questions about whether it will be good enough for the fed. steve, stay with us. we want to get more analysis on the jobs report with barry bannister chief equity strategist at stifel and mike, jpmorgan's chief u.s. economist. mike, on that question, does this change anything for the federal reserve in terms of raising rates in september or december? >> yeah. i don't think this really adds to any urgency, right, because you had the unemployment rate steady, steady most of the year now, 4.9%, and wages as steve mentioned weren't particularly hot. i don't think there's real urgency to move in september

with some of the inflation data looking a little soft lately. i think it's, you know, we think they move in december, but this probably doesn't really change our thinking on that. we still have a couple months between now and then. i would say probably reduces the odds of september some. which we're far below 50% in my opinion. doesn't really tell us about december much. >> one idea it just reminded me of, steve, would be on that urgency point, the case for september might be for the federal reserve to save face, after janet yellen just told us that the case is strengthening for an interest rate hike. >> i kind of agree with that. i don't know how she says that in august and says the case is strengthening for a hike. gets a decent number below expectations and below the prior months, but really she has said publicly that 100,000 is close to the steady state for job growth given the demographics in this country and then say they don't hike. i think they have stable inflation. there's a couple more numbers, a retail sales number, cpi number,

the factory order numbers that rick read sounded like they were pretty decent. i think you're going to get a decent rebound in the second half, we're on track for the third quarter. so i think she could make the case if she wants to. i don't know if she has the committee with her. >> barry, how do you read today's jobs report in terms of the implications for the fed and for the markets which are in rally mode and we're seeing it broad based every sector is green in the s&p. >> yeah. the wages retained, the jobs were light. it is late cycle. one of the things that we've been considering is that if the fed does move in september, and it signals one and done this year, it really doesn't matter if they move earlier or later as long as they go slow. there is some element of sold the rumor, buy the fact here. the market has been very resilient and third quarters usually soft. fourth quarter is usually strong. so we have to consider that as well. >> what do you mean by that, barry? that there's actually maybe more strength here?

>> no, it's not strong. it's resilient. the market has been hit with some bad news and some uncertainty and it's held on fairly well. so given that third quarter for all time has been the weakest quarter, fourth quarter has been the strongest, we have to consider the possibility that p/e expand well into 2017, much like fourth quarter '98 in into '99, a very similar period in history. >> but not -- that's an interesting period to pick, though, barry because that was when we were on our way to the bubble era highs. should we cheer that kind of multiple expansion if it's going to happen? >> well, i don't know. markets, sara, don't wait for us to cheer them. they just go up until they stop. you know, this is -- it's been a bull market, a very hated bull market for a very long time. when it ends it will probable i be a surprise. right now there's too much bearish sentiment for me to think the market is just done. when you look at the discount rate that you apply to earnings, it's very low. if earnings bottom, they don't

have to go up very much. a lot of this depends on the dollar and the dollar has been in a channel, in a box. >> mike, where are you on manufacturing? we didn't see job growth there again this month and we saw that disappointing read on ism yesterday. what's it going to take to get manufacturing chugging again? >> manufacturing has been a bit of a mystery over the last month or two. we did see signs that manufacturing was picking up and that was, you know, consistent with the fact that the dollar has stabilized. looks like the inventory cycle is -- should be a little more positive here. so we are surprised that manufacturing took a leg down in august. we do think as we look toward the remainder of the year it should do a little better. we have to be humble by the fact that it does seem to be showing surprising weakness over the last month or two. >> hey, mike. >> go ahead. >> i wanted to ask mike a question. mike, this number as we've talked about the last couple days, the august number is often revised higher.

if this number had come in at 200,000, or 220, would you be talking about a rate hike here? are we that close that fed should be hiking if it was 50 k higher? >> you know, i still think if it were 50k higher i would be below 50% still on september. i just think that we haven't seen enough, given what the fed has told us they're looking for, i don't think we've seen enough nominal pressure either on wages or prices. yeah, maybe if we got 200, with a move down in the rates, stronger, average hourly earnings, we could be -- i think it would be an interesting conversation. i think even with a 200, 220, i still think below 50%. >> i want to point out a contingent on the fed that's worried about the financial stability aspects of zero rates and want to claw back some of the excesses that they think are out there raising rates when they can. for what it's worth the contingent and some of them are former doves. >> it's a good point. finally david, i was going to ask, you showed the probability of september moving lower after

the report. did the december probability move at all? >> yes. that came down as well. i need to take another look at it, but i thought it shaved a few points off. i'll get you that. i think i will be back at 11 and get you that number personally. >> steve, thank you very much. our steve liesman, barry bannister thanks to you as well, and mike feroli. have a great labor day weekend. well coming up, much more on that jobs report. we will have goldman sachs' chief economist jan hatzius joining us. plus, yum brands strikes a deal in china to sell equity to strategic investors for its chinese operations. which will soon hit the public markets. as well reports that carlisle and siddic are partnering for bid for mcdonald's outlets in hong kong. the details straight ahead on "squawk on the street."

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yum brands selling a stake in its china business as it prepares to spin off the business which accounts for half of its total sales it would give primavera an affiliate of alibaba up to a 5.9% stake depending on the share price. joining us is david palmer a restaurant analyst at rbc capital markets. where does this leave yum? >> clearly this brings a strategic partner two to yum china, one of these partners makes the brick and mortar retail restaurant giant a more formidable competitor in that digital order and delivery realm

which they want to get bigger in that and clearly alibaba, ali pay and financial has relationships there, will help them do that and we hope so. that's clearly a strategic initiative for yum. >> in the meantime back here, there's been talk of a restaurant recession. the trends there have been a little choppy. what do you think is going on? >> restaurants in the u.s. has definitely been a slowdown period since the spring. last year, you saw a ramp up in restaurants in the fast food realm at least, as driving miles were increasing, gas prices were coming down, beginning to lap that. food prices are going down at supermarkets weighing on that fast food consumship. you're seeing very modest growth out there and the share gainers will have to get their value right to compete with the cheaper meals at supermarkets and also, they're going to have to find some fun things to do with the marketing. it is definitely a slow growth

world in fast food. >> back to yum china for a moment, you know, it's refocused attention on the fact that this thrill will start trading here at the nyse november 1st and filings they've put the value from 8.5 to $11.5 billion, about a billion dollars in ebitda. where do you see the actual value, david? >> well, we're -- we see it at a little bit higher than the high end of the range you discussed. that's a collar provision for -- so that nobody gets diluted versus the amount of shares that they expect the other party to get. the bottom line is, we see upside even to the high end of the collar range. this -- that collar protects the private equity investor from getting less than about 4.3% of the company. we think there's a great margin clawback tunchopportunity for y china going forward. we think it's a win/win. >> is it already reflected in yum shares or is it, perhaps,

under valued as a result of what you see as that significant value in yum china? >> we have a modest upside to $95 price target right now. the bull case scenario we have is 105. we're going to see what the company has to say, both the remain yum and perspectively through a road show yum china, about their initiatives. our gut is that there's upside to the multiples on both of these businesses and some of the parts in the new yum is going to be a near 100% franchise business which we think they're going to get paid on free cash going top line growth, we can see that becoming a better growth company than they are today through unit growth and comps. we'll be listening hard as the company talks to us on october 11 at their analyst day. >> still looking for 97 on the shares which are trading around just under 92. they are still up 25% on the year. david palmer, thanks for joining us. >> thank you. >> rbc capital markets.

coming up, hillary clinton unveils a plan addressing drug price hikes. the details and impact on drugmakers straight ahead as the dow cuts into its gains. it's off the highs of the morning. still up more than 80 points. ♪ [announcer] is ia foe of tureor a sal event? the summer of audi sales event is here. get up to a ,000 bonusn ct audi models.

hillary clinton unveiled a plan today to combat those sky high drug prices. our john harwood joins us with the details from washington. good morning, john. >> good morning. you know, nimble campaigns react to events that are sparking interest among the american people and there's been tremendous outrage of what happened with mylan, with the cost of the epipen, so hillary clinton has reacted to that by proposing to establish consumer oversight of drug pricing and big spikes in drug pricing and that would take place at public health agencies and the agencies that oversee medical drugs and the health care system. she would have three elements of her potential response to this. one, would be speeding the approval of potential competitive products to the

product that has seen a large price spike. the second allowing emergency importation of drugs that could also perform the same funkion and the potential for financial penalties for companies that are deemed to have been abusive in the scale of the price increases. a lot to work out in terms of the legality of that and what exactly would constitute an unfair price spike or abusive price spike but this is hillary clinton trying to, as we head into the labor day weekend, tell the american people she understands and shares the outrage that they're feeling about this issue and she would do something about it. guys? >> all right. john, john harwood, thank you very much for laying out some of the details of that clinton plan. and for more on how it actually would impact the industry and the drug companies we're joined by our own meg terrell. we're seeing some of the names trade lower like mylan and some of the others on the back of this announcement. >> that's right. sara, hillary clinton weighing in on drug pricing has never

been particularly good for biotech investors. look at the ibb, the nasdaq biotech index etf, going back for the last year, it was just actually last september that hillary clinton first weighed in on drug prices after the martin shkreli fiasco with raising the price of the drug dara prin. what drug investors are asking what constitutes a quote/unquote unjustified price hike and a drug considered to be long enough on the market that a panel like this could potentially step in. as the price of epipen has skyrocketed over the last decade, industry watchers are saying this isn't actually unique in the industry and that puts a lot of other potential drug companies at risk for this kind of scrutiny. one company that's come up a lot is jazz pharmaceuticals and its drug zi rum, a few price increases highlighted by deutsche bank and may 2016 note. another drug, one of the top selling drugs in the world and see here some of their price

increases as well. not too different over the last few years from the epipen. some people might say, though, those drugs haven't been on the market as long as epipen just at the beginning of the 2000s maybe they wouldn't be included however the price scrutiny is increasing. we're seeing a note from evercorp saying that although thick makes good headlines white take congress to act on something like that and that wouldn't happen until next year, sara. >> i was wondering about the congressional question. >> although meg, to be fair, the u.s. government is the largest buyer of pharmaceuticals for medicare and medicaid but that would require congress to get involved. >> bring up probably the thing drug investors are most worried about not some panel will be created but that medicare and medicaid will get the ability to negotiate on drug prices and would change the equation for the whole industry. >> i wonder if that becomes more of -- obviously the headlines will be all about this panel over the weekend but what about that larger prospect coming more

into focus? >> the larger prospect of medicare being able to negotiate on drug prices? that's something wonder whether people wonder if congress could get through as well. a lot are arguing and i'm hearing sort of whispers within the drug industry supporting the idea that the largest buyer of drugs should be able to negotiate. >> all right. meg, remains a question, we'll see how these stocks trade. so far under pressure on this plan. we're watching shares of lululemon. talk about under pressure the stock sinking on earnings, earnings adjusted, quarterly profit up 38 cents per share a cent above estimates and revenue in line with expectations but the stock as you can see getting crushed down more than 9%. investors have turned their attention to weaker than expected guidance and also those comp store sales which came in about 5%. the street was looking for 5.9%. and an example of the stock that was on fire up more than 45% so far this year. ahead of this report with this slide looks like the worst day for lulu since back in december

2015. one of the points i would bring up is, we talked a little bit about this trend of stocks that have performed well, being priced for perfection. this is a stock with high level of short interests. people betting against the stock. and it's a company that is really changed when it comes to profitability and we saw that so-called influkion point, the word of the ceo laurent potdevin when it comes to gross margins expanding for the first time in about two years. there he was. giving me a tour of the new york store a few weeks ago talking about the initiatives and new designs and this whole unique idea he doesn't really do wholesale. they sell in their own stores, sell direct to consumer and on-line and they have been showing comps of 5% which for retail industry right now, that is dealing with slower traffic and other headwinds which is something they called out on the call, has been beating. but not good enough for investors here. >> it reminds me talking about

j. crew and banana and that struggles and j. crew will sell through nordstrom. if you're lulu and have a popular brand and worried about the traffic issue do you think about more strategic partnerships. >> they start to think about experiences. like every retailer is right now. they're looking at the local store concept of smaller square footage and targeted places and doing a store within a store at heard's but that will be operated by lieu lu staff and not sold by the department stores. it's a good point. under armor with kohl's but the department stores aren't doing much better themselves and lulu will focus on digital sales and experiences and how they reach their target group because as the ceo himself told me, the athleisure bubble will pop if it's not already starting to pop we've seen shares nike, under armor weigh off the highs of the year and they have built their core consumer. >> they are athleisure. i was going to mention, too, look medivation sold to pfizer

for three times the price it was trading at in january with the market lows. these one-day sell-offs are not the final verdict. >> i think that's true especially when you a higher valuation stock and a high growth company. >> yeah. in that case, of course, medivation had a lot of potential suitors who were interested in buying so that did drive the price up. >> sold down there in the first place. >> weren't for sale and for one reason, so it wasn't the opportunity, but yeah, it's a good point although nobody i think expects consolidation involving lieu lu. >> not suggesting pfizer is going to buy lululemon. >> no. >> inversions. remember at a time there was because it's based in canada. that's not really in the cards. >> okay. well coming up we will break down the jobs number, of course, and see what the impact is on the fed's next move. goldman sachs' chief economist jan hatzius joins us. much more ahead on "squawk on the street." ♪ hey gaga, wh'd you got he? b boy is mobile trang desk so thai can ta my trg platform wherever i go.

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your cnbc news update. hurricane hermine making landfall near st. marks on the western coast of florida this morning. it has been downgraded to a tropical storm but that has not lessened its impact. tens of thousands left without power across the state. rainfall up to 10 inches carried the danger of flooding. a suicide bomb attack on a district port in northwestern pakistan killing ten and wounding 41 others. a suicide bombing throwing a grenade before detonating his explosives. no one claiming responsibility. samsung suspending sales of the galaxy 7 smartphone two weeks after launch after finding some of the batteries of the gadgets exploded while charging. customers who bought note 7s will be able to swap them. an indonesian man claiming to be the oldest person at the ripe old age of 145. he has an identity card and memories of events to prove it.

a local official says the i.d. card is real, but it's impossible to verify his claim. he lives with his 46-year-old grandson. and that's our cnbc news update for this hour. back to you, david. >> that's -- i don't believe that. >> unbelievable. >> did you see the end there he was smoking. >> that's how he spends his day, grandson says he spends his day eating and smoking. >> no way. that's impossible. 145. all right. thanks, sharon. >> you could have another 100 years. yes, i could. i'm expecting that. but i'm not going to smoke. the all-important jobs number of 151,000, of course, for august helps to push the markets higher today but will it be enough for the fed to consider raising interest rates as soon as september. joining us at post nine, jan hatzius, chief economist at goldman sachs. always come back to the fed. nice to see you. does it change your forecast at all this number which was below expectations? no it was a little below expectations but for us, it's just enough to make it a little

more likely than not that they do go in september. it's a close call, but i think if you look at what different members of the fed said over the past few weeks they basically said, we've seen some very strong jobs numbers, we need confirmation that the labor market is continuing to make progress and 151,000 is clearly above their estimate of what it takes to improve the labor market over time, three and six-month moving averages well above that. so it seems to us that they will want to go. now, of course, it's possible that they wait until the december meeting. but i think to us it's a little more likely that it's going to be september. >> really? september. so you think this market hit completely wrong. the latest funds future is about a 20% chance they raise in september. will they hike with those odds? >> well, i think those odds would have to go up between now and then because, obviously, still some time. i think what we want to look for

is basically fed commentary over the next, you know, next week or so. you can certainly see some assessments of the employment report if you see that these numbers continue to confirm that the labor market is moving forward, i think that would be a signal that they view it as good enough. on the other hand if they emphasize the comment, emphasize that, you know, this was below expectations, that the recent inflation numbers have been weaker, if you see more emphasis on the negative aspects, then i think it would be a signal in the other direction. >> do you incorporate the bad read, the contraction read on ism into this or wait to see if it's confirm in the next month or two? >> everything goes in. so both the good and bad news has to go in. i think ism probably doesn't have that much weight relative to the employment numbers in the fed's view but it does give you a sense, of course, of how the economy is performing.

the economy is certainly not blowing, you know, firing on all cylinders. third quarter gdp growth should be pretty good but other indicators are softer. what we do is basically start from what we've heard in terms of where their mindset is and look at what the new information looks like relative to that. >> your expectation we get 25 basis points between now and the end of the year. i would assume that's a higher than 55% probability of september? >> that's right. yeah. so for cumulatively one hike by the end of the year, or at least one hike, it's 80% i think if they don't go in september, then i think there's a pretty high probability they go in december. you know, of course in three months, something could happen that derails a december hike. so -- but i would say four out of five probability that you -- that you get a hike by the end of the year strikes us as about night i think that a lot of people would be surprised to

hear you say this, because what we have learned from this fed is that this is a fed that is very cautious and that can point to any negative data point and there are some within this jobs report, wage growth slowed, i mean the u 6 stayed at the elevated level and has been cautious and reluctant to raise rates. they can point to global uncertainty, they can point to weakness in manufacturing. has something changed inside the fed that is making you think they are itching to move? >> well, it's their option, but they've also said in recent statements from vice chair fisher and from chair yellen, that they're getting closer to a hike. they think that we've seen a significant amount of labor market improvement. we need to continue to confirm that labor market improvement. and then take another step. i also think that there's been a pretty strong signal they're still revising down their longer term estimates of the equilibrium interest rate. i think you could see another

downward revision to some of the longer term dots in the summary of economic projections. i suspect if they did go in september they probably would signal that this is it for the year by taking the number of 2016 hikes down from two to one. but as you said, it's a sufficiently mixed picture that they could also wait another three months. >> we've gone from raising once a meeting to raising once a year? >> certainly for 2016, that's what we've seen, yes. >> [ inaudible ]. >> a rate hike to a lot, but if they do move in september, can our economy handle it? >> i think so. i mean, we've seen a big easing in financial conditions. i think the drag from financial conditions that we saw in 2015 and early 2016, you know, clearly behind us at this point. it seems like some indicators of activity stronger. and, you know, we continue to

make progress and i think that's the most important part. we continue to make progress on the labor market and continue to move towards full employment and a little bit of a step, yeah, i don't think it's going to make a huge difference. >> anything out there that is particularly concerning to you, though, when you look at and say well what could change this picture, what would it be? >> i think it's mainly the non-u.s. events. the u.s. economy looks pretty solid and has continued to look solid for quite a while. i think the biggest risks are probably in asia. i think one risk is still china, the credit boom in china continues. you know, credit is growing much faster than gdp. so the debt to gdp ratio is increasing pretty quickly. that needs to normalize and that will mean a drag on growth out there. now the question is, when does that happen, right. i mean, it's whether that's a 2017 issue or 2018 issue, 2019 issue, i think that's harder to say and there are questions

around how much of an impact that has on the u.s. and other western economies. but that would be at the top of my list in terms of risks. >> are you not worried about corporate profits and corporate investment? a lot of economists pointing to that as held us back in the first half of the year? >> a lot of what we've seen there is basically a bit of a shift from corporate income towards consumer income. as the labor markets tighten you've seen somewhat better wage growth, the decline in energy prices has generally hurt the sector, helped the consumer. you do need to see both sides of that, not just the corporate side but also the consumer side. overall, again, it's still been consistent with an economy that's making gradual progress towards a normal state. >> the only wrinkle that i -- the question i still had about the u.s. economy is the productivity stuff, and i don't

know, is that just going to turn to be a measurement error? does it matter? of course it matters greatly, but it just is inconsistent with the story of improvement? >> i think it's -- it doesn't matter a huge amount i think for, you know, where we are on the business cycle and whether, you know, we're closer to full employment. we can just look at the labor market numbers. it does matter a lot for the longer term outlook, for where the equilibrium interest rate is, where we get to. my view is that we probably have seen a slowdown beyond the measurement era, but i do think there's also increased measurement era because it just gets harder and harder to capture the various ways we're producing real output relative to an economy that was mainly focused on producing industrial and agricultural commodities. >> 50 years ago. >> it's natural it would get harder over time and i think the

statisticians, of course, have a hard time keeping up. they're trying but having a hard time keeping up with all of those changes. >> that productivity answer is hard in a sound bite. nice job. >> jan hatzius from goldman sachs. >> time to find out where the jobs actually are. kate rogers joins us live from a secret service training center in maryland. cate? >> hey there, sara. the secret service is hiring and if you want to become a special agent you to pass an extensive background check including a drug test and a polygraph. then an intensive round of training that's not for the physically or mentally weak. in fact, only about 10% of the more than 22,000 applicants the agency received in 2016 for uniform division officers and special agents even made it past what they call best qualified on to the background check portion of the process. i spent a day here training at the james rally center in beltsville, maryland and i found out why. >> so what goes into secret

service agent training? >> police. >> please help me. >> reporter: you will learn how to handle emergencies. >> police, drop your weapons. >> reporter: secret service trainees are put through a myriad of challenges including virtual active shooter drills remaining calm and collected is key. and there's extensive firearms instruction on the range. >> how do you think i did? >> we're going to work on our sight alignment and sight picture a little bit. >> reporter: future agents go through intense hands on training on shutting down threats to their pro yeektsys. there i am pretending to be president obama working the rope line. >> [ inaudible ]. >> reporter: there's controlled breaking and evasive driving training. >> let off here, get back on, minimize your inl put, doing very well. and among the most important qualities for agents, being physically fit. it's not for the faint of heart. >> trainees put through

gruelling workouts like that every day. because the job of protecting can and will get physical and while i did have a good time training here i'm better suited to reporting. back to you. >> i don't think so. >> i'm not sure about that. >> holy cow. >> david is very impressed into. >> yeah. we only got one chin up in there, kate, but i mean, maybe there were a lot more. >> david, what was -- what was off camera was my 5'2" crossfit champion -- no, no no. a crossfit champion erica helping lift me up to complete just one sad pullup. don't be too impressed. what you didn't see is my -- my shooting where i hit probably a foot over the target's head every time. >> all right. well don't tell anybody else. you looked really sharp there. in every way, kate. i would think you might be leaving for the secret service. >> kate rogers. >> if they want me i might have to think about it. >> i know. i feel safer around you back at

headquarters. we look forward to seeing more of you, kate, coming up throughout the day. kate rogers in maryland. as we lead to break take a look at shares of amazon, which are hitting all-time highs this morning, up about a half percent. 774 is the level we're looking at. 50% gain on the year. holy cow. shares of biogen rising after the fda fasttracked its alzheimer's treatment bucking the trend we're seeing across the health care space this morning. the stock is up almost 4%. much more ahead on "squawk on the street" stay with us. ♪ f a company that didn't make cs e lubrictshahat improveduel onomy. en technology make engis mo eicnt. at compa does l is? obilthat's w we'rand use ss fue things to cars beer lping yosave mon just madthe s.ons.d you ouge ergy lives here.

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coming up on trading nation, when one indicator falls it is always a time to buy. and it's down. we'll tell you what it is and why it says that at tradingnation.cnbc.com. more "squawk on the street" coming up. .

welcome back. let's get straight out to the cme group with rick santelli and the santelli exchange this morning. rick? >> good morning and thanks,

kelly. like to welcome my employment day guest, tim kaine. thanks for taking the time this first friday of the month. >> good to see you, rick. >> all right. quickly, because we have so much to get to. what was your impression of the jobs report? i used the word spongy, not because the 150s is like 25,000, it's better than that, but it's spongy in terms of what clues it gives you to janet yellen and the committee's future decisions on rate increases if that wasn't already murky enough. >> yeah. i think spongy is a great word because you can read too this whatever you want. it's pretty normal, though. it's pretty blah. the end of the summer or the phrase summer of recovery this kind of closes the books on the obama administration summers and we still haven't gotten robust recovery after eight tries. >> wait a minute. come on, tim be fair, we had labor secretary thomas perez not only did he like the number and not only did he point to maybe we're at the end of the cycle,

but he said, we are close to the summit of the mountain of full employment. i hear that from janet yellen, i hear it from stan fisher. and then from the fed side when i hear it they say maybe we'll raise our inflation target. and oh, my goodness. what do you think about all that and what about the -- if we're close to full employment and everything is terrific, why are so many people experiencing discontent with the recovery? >> well, you know, they're not counting about 2.3 million working adults. rick, it's full employment if you don't count all the people who have left the labor force. one number, 7 million, but the other side is always going to say it's demographic change. let's just look at prime age. 2.3 million people are not in this work force that should be. so yeah, there's some big weaknesses. i guess they don't make summits like they used to. >> now in terms of the notion of how we are going to get the gdp growth to me, it boils down to

the idea that creating jobs -- and we could debate how good it is on history or the needs of the public -- but there's no doubt that the jobs aren't creating the productivity or the environment for stronger growth. your >> there's a big debate right now among economists, how do you rate democratic versus republican economists. i don't like that way of looking at it. if you're a protrade economist or proimfwrags or whatnot but the obama presidency is not stack up strongly. productive growth is about 1% per year in this presidency compared to 2% per year which is the historical average. we're firing on half cylinders right now in the u.s. economy and it's something that the president is responsible for and congress is responsible for and they haven't worked well together the past 8 years. >> the other thing i always hear and it drives me crazy is more

spending on infrastructure. when eisenhower was done with infrastructure maybe he didn't necessarily see it fully completed. when you're done you can look and you can see 41,000 miles of roosd. >> yeah. >> okay. we did three quarters of a trillion of stimulus and when i look at that, i see signs that say this curb was brought to you by the recovery act. that's the way our town was. the curb was 20 feet long. the sign was 10 feet long. it isn't about building real infrastructure. it's the infrastructure like many things have been hijacked. once they get the money we don't get the infrastructure. >> and it's sponged up by regulators and bureaucrats that are approving things. it's not going to the people on the streets. the workers, the construction workers but your point is exactly right. you only need one highway system. you don't need two. you don't need three so that's

not where growth in the future needs to come from and it gets really oversold. lower taxes and letting people spend money on what they juan to buy which is money that goes to sbrup neuros in the private sector that's the key to growth. >> i volunteer to get taxed more. if when they took the tax dollars i get to see the results and i get to touch them and kick them. listen, tim, have a great long weekend. sarah, back to you. >> and to you as well. taung. let's show you where we are in the markets. half a percentage point gains across the board. still dow is up almost 100 points and all ten industry groups within the s&p are higher energy and industrials lead. much more ahead on squawk on the street. stay with us.

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>> even the banks are higher. even though we haven't talked to that many economists that think it changes the approach of the fed. >> he is saying september is a go. >> and the banks are all up again. they continue the rally up about 3% in august be w the prospect of higher rates perhaps helping in that interest margin. >> you also have oil higher that's helping the market and energy shares of four down sessions and a 9% slide. >> you have to wonder what the leadership can be if this is going to move the fed off but maybe it's not too. >> get to read into the fed comments. >> oh, boy. >> and their response to this jobs report. that's where the focus is going to turn, right? as we try and anticipate when it moves. for now over to john forte with a look at what's coming up next on squawk alley. >> we'll continue to follow the bad news is good news rally. of course we know he hasn't been a fan of the idea of rate hikes

this year. also samsung announcing a recall of the note 7 today. just a week ahead of apple's iphone 7 launch. will this change the landscape or provide a power play opportunity? finally we have seen the rocket blow up by $200 million worth of facebook investment and technology blow up too. all of that and more coming up on squawk alley. y dollar count. th's why i havthe spark cash card fm capil on with i i earn unmid ca bacon y dollar count. l of mpurchasinganth unlimit% %k from spa mea h adds ftomy bottoli.ear ing cko myusiness...

good morning. it's 8:00 a.m. at facebook headquaters. 11:00 a.m. here on wall street and squawk alley is live. ♪ good friday morning welcome to squawk alley. john forte, kelly evans and i are holding down the fort for the hour. the big story today the u. s.