Pimco's Gross Sees New Normal Intact Amid 7.5% Unemployment

Friday, 03 May 2013 11:35 AM

 

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Bill Gross, manager of the world’s biggest bond fund, said the “new normal” of subpar economic growth in the world’s biggest economy is intact even after U.S. employment increased more than forecast in April.

“We don’t see higher real growth than 2 percent going forward,” Pacific Investment Management Co. founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “We’ve seen basically 3.5 percent nominal GDP growth even in the midst of an accelerating housing sector.”

The jobless rate unexpectedly declined to a four-year low of 7.5 percent and Labor Department figures showed that more jobs than forecast were added last month, suggesting the early stages of government budget cuts failed to destabilize the U.S. labor market. The U.S. economy expanded 2.2 percent in 2012 and is forecast to grow 2 percent this year, according to the median estimate of economists surveyed by Bloomberg.

Mohamed El-Erian, who serves as co-chief investment officer with Gross at Newport Beach, California-based Pimco, coined the term “new normal” in 2009 to describe an era of lower returns, heightened government regulation and shrinking U.S. clout in the world economy following the 2007-2009 financial crisis.

Payrolls expanded by 165,000 workers last month following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed. The median forecast of 90 economists surveyed by Bloomberg projected a 140,000 gain. Revisions to the prior two months’ reports added a total of 114,000 jobs to the employment count in February and March.

‘Escape Velocity’

“Today’s job report was a good one,” El-Erian, who is also Pimco’s chief executive officer, said in a separate Bloomberg Television interview with Betty Liu. “‘We’ve taken a good step toward escape velocity.”

Gross boosted the proportion of U.S. government securities in the Total Return Fund to 33 percent in March from 28 percent in February, according to the latest available data on the Newport Beach, California-based company’s website. Gross has been advising investors to buy government debt, including inflation-linked securities and nominal Treasurys.

The $293 billion Total Return Fund gained 7.6 percent during the past year, beating 92 percent of its peers, according to data compiled by Bloomberg. Pimco, a unit of the Munich-based insurer Allianz SE, managed $2.04 trillion in assets as of March.

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