July’s strong jobs report wasn’t enough to buoy Bill Gross’s outlook for U.S. growth and investment returns.

“The economy, absent consumer spending, is basically in a recession,” the 72-year-old billionaire bond-fund manager said in an interview Friday on Bloomberg Television. While employers are hiring “there’s a dearth of investment spending,” he said.

Payrolls surged, climbing by 255,000 last month, a sign of renewed vigor in the U.S. labor market. Even as the Federal Reserve has kept interest rates low to spur growth “it’s a deflationary world” in which monetary policy is “weak and dying,” said Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund. That means investors will need to adjust their expectation for returns.

“Pension funds and mom and pop on main street are looking forward to their pension of 7 or 8 percent, and if they don’t get it, they’re in trouble,” Gross said. Instead, investors should expect returns of around 4 percent, Gross said, reiterating the view from his recent monthly investment outlook that low interest rates have already hurt returns for banks, insurance companies, pension funds and savers.

Pension funds will “have to have more contributions or reduce benefit payments, and both of those are negative in terms of the financial structure in markets,” Gross said.

The California Public Employees’ Retirement System and the California State Teachers’ Retirement System, the nation’s two largest public pensions, returned 0.6 percent and 1.4 percent, respectively, in the year ended in June. Both count on gains of 7.5 percent a year.

Individual investors have little choice but look at real estate and gold given current bond yields, he said. “Bonds are not an asset, they’re a liability in a negative interest rate environment,” he said. “Why would someone want to own them?”

On monetary policy, Gross said he doesn’t see a Fed rate hike in September. The Fed left interest rates unchanged at its latest policy meeting, noting that near-term risks to the economic outlook have diminished while pledging to stick to a gradual pace of tightening. Officials are looking for sustained improvement in the economy that would justify another rate increase, following liftoff from near zero in December.

Traders assign about a 48 percent chance of a Fed rate hike this year, according to futures data compiled by Bloomberg, up from a 37 percent probability seen Thursday.

“The Fed funds rate has to go higher, or else capitalism itself and financial institutions are being damaged,” he said.