Moody's Talks - Inside Economics - A Jobs Debate

Episode Date: July 2, 2026

The Inside Economics crew takes a deep dive into the June employment report, which was notably softer following a string of upside surprises. The team debates how to define labor market slack given the sharp divergence between the payroll and household surveys since the beginning of the year. The stats game had some twists and turns, from the labor market to the World Cup, and Dante takes heat for mixing up positives and negatives. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris Deerite's, Mr. Marissa Deed and Talley. Hi, guys. Hey, Mark. Hey, Mark. Getting ready for the big July 4th weekend. Absolutely.

Yeah, great. Good. Good. Any plans, Chris? Watching the fireworks off my back porch. Can you do that? You have fireworks off your back porch? Well, someone, a neighbor, an anonymous neighbor somewhere, is shooting off fireworks for

the whole neighborhood. So that's what we do. I'm assuming he has a permit. I'm not asking. Oh, that sounds like a lot of fun, actually. Yeah, it is. It is. Yeah.

And you, Marissa, are you, are you into fireworks as well? Yeah, but I haven't actually watched them the last few years. I may, I may do that this year. Yeah. Our kids have gotten over the years a little jaded by, I don't know, they expect, like, you know, the fireworks aren't absolutely fabulous. You know, when I was a kid, you know, they threw off one or two or three every, you know, took, they were pretty leisurely about it. Then they had this grand finale.

We all waited for the grand finale and we were all satisfied. Now they, my kids just want grand finale the whole time, you know, if it's not like, right, Dante, you know what I'm talking about? Yeah, my kids are over fireworks unless it's like some, you know, raging display for 25 minutes straight, you know, it doesn't do it anymore. Yeah. Yeah. And of course, Dr. De Antonio has joined us because this is job Thursday, because we have Friday off because of the holiday weekend. But we're talking about the job numbers and we always have Dante on. And how old are your kids, Dante? Eight and six. Eight and six. They should be deep into the fireworks. Yeah, I feel like there's so many fireworks everywhere now that they've seen so many fireworks. It's like wherever you go, there's fireworks. I don't know. Yeah. Anyway, well, it's kind of blistering hot here in Pennsylvania. I mean, I think we're going to be over 100 degrees today.

It's just outrageous. Hopefully by the fireworks, it's going to cool off. Not really. It's going to still be pretty toasty, isn't it? Yeah. Yeah. Okay.

And I guess in Southern California, you're okay? The weather's, uh... Yeah, it's like low 70s. It's nice. That feels, sounds good. Yeah, sorry to hear that. I'm sorry to hear that. All right, well, let's get down the business.

We've got the job numbers for the month of June, June 20, 26. and a lot to unpack there. It feels like all the strong job numbers we got over the last couple of three months, they all kind of evaporated with this report. So we're back to where we were, it seems. But we'll talk about that. We'll play the game, the stats game, and we change the rules just a little bit. I'm not going to go into detail, but we'll hopefully that speeds things up a little bit.

You know, Marissa can drag that game on for a long time. She likes to stick the knife in your back and like twist it around and, you know, make it very painful. And then she declares victory. We're going to speed up that process, hopefully. And then maybe some listener questions if we have time, but we'll see. So was that, Dante, tell us about the job numbers. Yeah, as you alluded to, we sort of ran out of upside surprises that we had over the last couple of months. We got a much more downbeat employment report. Top line payroll growth was only 57,000 jobs, big downer revisions to the last two months. So, combined 74,000 revised down in April and May.

So if you look at three-month average growth, last month when we were talking about it, it was 188,000. It was very, very strong. Now, three-month average growth is 111,000. So still obviously stronger than it was at the end of last year, but not nearly as strong as it seemed a month ago. Industry composition-wise on the payroll side, we're sort of back to where we were previously, where healthcare is doing most of the heavy lifting here.

You know, healthcare added about 47,000. about 47,000 job. Out of the 57,000 total, professional business services also added about 35,000. And those were really the only two big highlights. On the downside, you had a big decline in leisure and hospitality, a little over 60,000 information, retail, a couple of industries down by a few thousand here and there. But overall, just not a whole lot of action outside of health care and that decline in leisure and hospitality. Yeah, a lot to unpack there. The, I was expecting a bigger, the consensus was higher, right?

I think the consensus was like 115, 120, something like that. And I was expecting something closer to, in my own kind of, in my own mind, I was thinking 100, about 100K, of which half would come from hiring related to the World Cup. Because, you know, we would go back to other, we had a World Cup here, didn't we, back, When was that? The 90s, 90s, you go back. 94, if you go back and you look, by the way, that game last night with the U.S. was, that was a great game.

That was a fun game to watch. Obviously, he won 2-0, but that was a lot of fun. But speaking of the World Cup, did you guys see the clip of what happened after the Mexico won its game against Ecuador? Did you guys see that at all? Oh, you should go look. The Mexicans were so happy. I mean, they were, they were, it was jammed. It was like they won the national, the entire match, the entire tournament, you know.

If that's winning to get into the round of 32, I can't imagine. It almost made me say, I want the Mexicans to win because, you know, they were just so happy. It was just just so, so great to watch. Do you have a favorite? Do I have a favorite? If it's not Mexico, what's your... Well, I, you know, the U.S., I mean, right? No.

Okay. No, you're not U.S.? Doesn't have to be. Are you asking his expectation or who he wants to win? That's a different question, right? Good point, good point. Well, I don't... I guess both.

I guess the U.S. is going to... It's a pretty tough road, right? I mean, they're going to have to play Portugal or Spain, and Spain is number two, I think, right? And then France and I don't know. Do you have a favorite? Chris? Cabo Verde.

It's now my favorite. Oh, I haven't been watching them. Are they still in it? They're still in it. I think they play Spain next. Oh, okay. Well, I'm rooting for them. How many people live there?

Why, that's the, it can't be. It's tiny. It's tiny. Yeah, yeah, that's a good one to root for. Oh, back to the job numbers, though. Where was I? Oh, World Cup. What happened to the World Cup?

Yeah, because 1994, I think if you go back and you look at the data, the month the Cup started, the tournament started, that added 40, 45K or something. It looked like it added a fair amount of jobs. But you didn't see that this month, Dante. So what's your thesis there? Do you have a view? Yeah, I mean, I think we talked about a little bit. I think some of it showed up in May, right?

So, I mean, there was a gain in Leisure Hospitality in May. It was revised lower this month, but it's still there. Police, restaurants, had 40,000 jobs in May. Last month, we talked about this big gain in local government excluding education. and we talked a little about, you know, that could be related to, you know, sort of World Cup activity. Again, that gain was revised lower. You know, it was 40,000 plus. Originally, now it was just under 30,000.

But I still think, you know, maybe some of that showed up early and you got a little bit of pull forward of some of that activity. And so now you're seeing that the consequence of that pull forward was, or less momentum in June than you would have maybe expected. So do you think we got the bump in May? I mean, we kind of pooh-pooed that argument. We thought it was going to show up in June. because that would be consistent with what happened back in 1994. But you're thinking is, well, probably showed up in May. Yeah, I think we got all we're going to get in May,

and I don't think there's anything else to come here at this point. There's anything else to come. Okay. Okay. So we're at 57K. As you point out, the previous months, a couple months were pretty strong. But, you know, the numbers have been jumping up and down and all around. And in fact, another thing we might want to talk about is it just feels,

and this is a feeling I have. haven't investigated, but I'm curious what you're feeling is that the data just feels a lot noisier than all the data, the payroll data, the household data, everything feels just a lot noisier. But anyway, abstracting from the noise, the ups, the downs, the all arounds, the seasonal adjustment issues, the, you know, birth death model, World Cup one-offs, all that stuff, underlying monthly job growth. What is it? What do you think it is, Dante? Yeah, I mean, the average over the first, we have half the year now, the average in the first half of the year was 92,000 a month

with the ups and downs. I think underlying is probably a little bit below that, but I think I've probably upgraded my estimate. I would say it's probably 70, 75,000 now. 75K, okay. Yeah. Chris, do you have a different view on that? No, I agree with that.

You do, 75K. Okay. In terms of... Interline. Break-even is lower, though. Break-even is lower than that. So we're getting more job. growth and the labor market should be tightening is what you said oh relative to the demographics and

well that's found that that those are fighting words i know i i throw that out there so laid it down okay okay we got to come back to that we'll come back to that in the context of the household employment data yeah okay but that's a that's a that's a that's a that's a gontlet he threw down the gauntlet there yeah okay uh what's your view on the underlying rate of job growth Marissa? I think it's, I think I maybe a little higher. It's maybe 80-90K, something like that. Really? You know, you, you, you tend to go with the wind, my sense, on this number. I don't think that that's true. Oh. No? That's true at all. I think I, I think somehow I've become the optimist of this group when it comes to the labor market. I don't know how to, it depends on the

month. Is that my point? Someone, no, are you sure? The last several months I've been On the positive side. On the upside of the, yeah. Right. She took the over yesterday, too. I did. I was wrong about this, but not the past several months. You're talking about our internal bet about.

That's right. Yeah. Yeah. Right. Right. Dante, I think Dante nailed it, didn't he did. He did. Yeah.

I said to Chris, I mean, you're right every once in a while. If you're pessimistic all the time, eventually, you're going to be right. Yeah. Same with the optimism. Just stick with her down to say. Dante, Dante's so humble. Did you see how that? There you go.

Yeah. I admire that. Yeah. Because that's not exactly the opposite of me. I admire that. You'd be shooting all fireworks. Yeah, exactly. You got to run.

Exactly. Okay, so, Dante, you said 75. Yeah. Chris, you said, what did you say? Yeah, I agree with that. You agree with that. And Marissa is a little higher than that, but roughly 75K. Okay.

All right. And you're lower. Oh, yeah. Yeah, I'm lower. I'm in 50K. That's where I've been all along, you know, for the last, well, really, since the job market has gone flat here since early 2025. In fact, it was interesting. If you go take a step, take chart employment over the past, say, three years and take a good look at it, you know, it looked like with Liberation Day, April 2025, things have kind of pancakeed. And more recently, they've gotten a little bit more volatile, but it still feels like to me we're kind of in that world of about 50K. And that's, That's pretty close to the average monthly job growth we've gotten over the past year. In fact, that's a little lower. You know, the 12-month is more like 40K, something like that. So I think it's more like 50K.

Okay. Anything on the payroll survey, hours worked? That would kind of, no change there. I guess manufacturing hours worked dipped a little bit, Dante, didn't they? I think so, yeah. But no, I wouldn't need that much to reading too. Yeah. Right.

And another statistic that comes from the payroll survey is, is earnings, average hourly earnings? What did they show? I was up 0.3% on the month, which was the same as May. Year over year growth actually accelerated slightly. It went to 3.5% from 3.4%. But I feel like it's sort of been holding around 3.5% now for quite a while. Right. That's consistent with the other.

It doesn't matter what wage measure you pick. They're all kind of centered around 3.5%. It feels like that's down from a year ago and the year before that, right? I mean, wage growth has been decelerating. Yeah, we were closer to 4% a year ago. It's definitely come down there. It's definitely come down. Okay.

Okay. Oh, and the revisions. We've got revisions. You mentioned those. They were all down and pretty substantial. Yeah, it was a total of 74,000 across the two months. Most of that came in leisure hospitality, which was revised down 67,000 in the two months. Construction was also revised lower, though, so we had some, it would look to be some pretty positive numbers in construction in April and May.

They're still positive, but they're now lower than they were before. Right. Okay. What was I going to say? Oh, the one thing I'm a little confused by is professional business and professional services. You know, I didn't look at the detail. There's a lot. That's a malagia stuff. Any, any sector that stands out there in terms of the job growth? No, temp help was actually up by a little over 9,000, which is a fairly big game there. There was a similar size increase in April, actually. So maybe that, you know, signals a little bit of positive. story for the labor market. Could that be World Cup? Sounds like World Cup. It could be.

Yeah, I think you could certainly make that argument. Maybe it's a sign that, you know, a lot of that temp help often is tied to, you know, manufacturing and production. So maybe that's a little bit of a positive story around manufacturing. We haven't seen actual manufacturing payrolls really rise to any significant degree, but maybe that's a little bit of a positive. I think overtime hours for manufacturing are up, right? Wouldn't that be consistent?

I didn't see that. But yeah, that would also be consistent with a little bit of positive movement in manufacturing. Oh, I thought manufacturing hours were down, but I didn't look at overtime hours. I think overtime was up. Really? Not a lot, but... Yeah, that's weird. Oh, interesting. Okay. Okay. Oh, Marissa, did you have a chance to just look at the response rates?

Back to my kind of point. It was, they were a bit lower than they've been the past couple months, but actually in the past couple months, they were. were higher than earlier in the year. So they're kind of not that different. I think the response rate is about a percentage point lower in June than it was last June. I mean, so there, you know, there is a secular trend down here in response rates. They've been heading lower for a while. But I don't, but, you know, we were talking about it in the context of the seeming volatility in the numbers. I don't think that it explains that. No. Do you sense the same thing as me, that there's just more noise or it might it's just me? It seems it to me. I mean, both on the payroll survey and now the household survey,

which we haven't gotten to really this month. But yeah, I mean, it's a bit all over the place. I mean, the leisure hospitality thing, the government, I'm not quite, I mean, yeah, you have the World Cup, but the seasonal factors and the not seasonally adjusted data don't really seem to support that story so much. So I don't really know what's going on there. Okay. All right. Well, let's go on to the household. survey. Payroll survey, obviously, is the survey businesses that we generally focus more on because it's a larger

there's just a lot more the economy covered there. But the household survey, that's where the unemployment rate comes from. So you want to give us a rundown on the household data? Sure, yeah. Just one positive data point, which is that the unemployment rate fell to 4.2%.

I think that's about the only positive thing you can say. Oh, come on. That wasn't really that you take solace in that? I don't. I'm saying if you're looking for a positive, that's about all you can point to. You got it really stretched for that one. I agree. The reason it declined was that you had a massive decrease in the labor force was down 720,000 in the month. The number of employed people, right? So household survey employment was down a little over 500,000 just in June. The number of unemployed people actually did fall, but it's, you know, I think, again, little

comfort given what's going on in the labor force and what's going on with employment. So yeah, not much to be happy about. If you look at participation rates, you know, down across the board, headline rate is down prime age participation down big so yeah not not a lot of positive story on the household survey but the labor force is is full out contracting it's like you know i was i think yeah since the beginning of the year right down over a million yep and the one problem we have with this data is there's these population controls that are implemented at the start of the year so you see these big discontinuities in the data in the January of the month. And so it's hard to look at year over year. But if you go back to the start of this year, so you get around this issue, you're saying that labor force is

actually down by over a million people. Yeah, it's $1.1 million right around there. Right. And that's consistent with the decline in labor force participation and so forth and so on. Right. Yeah. The one thing I noticed on that is the labor force participation rate, you know, has been declining pretty significantly consistent with this, what we were talking about. But up until last month, it was largely around participation of older workers, you know, 65 and over. This month that we saw a very, and this goes back to my point about the noise, a very, very large decline in participation of prime age workers, 25 to 54. Did you notice that, Dante? I'm sure you did.

Yeah, and it's not, I did look, you know, over the last couple years, it's not uncommon to see a move, you know, a couple of percent, a couple tenth of a percent in one month. And the decline really just sort of gets us back to sort of the bottom of the range that we've seen over the last two or three years. You know, prime age participation has been sort of holding in a pretty narrow range. And this, we were sort of at the top end of it. Now we're sort of at the bottom end of that range with this decline. So it still doesn't move things out of what looks like a strong labor market for prime

age workers, but it obviously is concerning if that continues. Yeah. So what do you make of the decline in participation? I was looking at it. It's pretty broad-based this month. I mean, you see it pretty much across every major age group. It's both men and women. It's foreign-born.

It's native-born. So it's hard to point to any one thing except what you're pointing out, which is that we saw a very sharp decline in prime age, which had been the one section that's been sort of holding up. I don't want to make too much out of that, though, just given what we just talked about with the volatility and it's the household service. survey, which is more volatile anyway. So I wouldn't make too much out of it unless we see it become, you know, a trend over several months. All right. Chris, what do you make of it?

Yeah, I'm thinking noise. Discounting it? Discounting it is noise, yeah, at this point. Yeah. We'll see. We'll see. Okay. Yeah.

Okay. So household employment since the beginning of the year, again, abstracting from the effects of the population controls. That, I think that's down like 800K, right? Household employment, employment as measured by the household survey, is down over 800K since the beginning of the year. Is that right, Dante? That's right, yeah.

And payroll is up by what since the beginning of year? Just about 400,000. 400,000. 400,000. Yeah. So these surveys are saying, oh, can I ask if you put the household survey on the payroll basis, you know, because there's definitional differences, How big a decline has there been?

It's actually even bigger. It's a little over 900,000. Wow. So the household survey on the payroll basis is down 900K since the beginning of the year, and on the payroll survey is up 400K. Yep. Have we seen? I mean, these surveys are different, obviously,

and they can't be different for extended periods, but this feels unusual, no? Yeah, I think it's getting to be, you know, they often diverge, right? then the divergence can be pretty big, but usually it's pretty narrow in terms of timing, right? Or you can have a sort of longer divergence in terms of timing, but it's usually not quite as sharp in terms of magnitude.

So I feel like we're starting to border on this is big in terms of magnitude and now it's becoming pretty long in terms of time. And so I would expect to see some convergence here in the second half of the year. If we don't, then I'd get more and more concerned about what's going on. You know, historically, we've focused more on the payroll survey

again because it's a larger survey. you know, more of the economy is covered, more of the job markets covered. But I have seen research, and I haven't seen anything more particularly recent, but I have seen research arguing that you need to look at the average of the two effectively to get to the kind of the underlying, you know, what's actually, you know, happening in terms of job growth. Do you know that research? Am I, am I dreaming that, or do I have that right? Do you know, Dante? I don't know that I've seen that. I mean, I've seen research in the past that looks at turning points in particular and that the House and survey can pick up turning points a little bit more quickly sometimes

because of the, you know, the machinery behind the payroll survey with the birth-death model and every, you know, so there's sometimes there's some momentum in the payroll survey that can make hard to pick up turning points, but. Yeah. So, so Chris, what do you make of that, that, that, that, different, again, are you can't, it's hard, it's getting increasingly hard to discount this. It feels like there's something happening here, no? Yeah, no, I'd agree with that. It's just, it just makes very difficult to gauge. I've heard this averaging thesis as well, I don't know if it's actually, I don't recall any academic research or if it's just urban legend. We should apply Claude to this question. We should. We should. Okay, I'm definitely going to do that over the weekend.

Yeah. It kind of makes sense, given some of the volatility in both the surveys, right? Right. And averaging might be more appropriate. But something's got to give. Something you'd expect convergence at some point. Of course, if you average, it's saying we're losing jobs, right? Yeah. You know, minus 900K plus 400K, the average is a pretty big negative number. Yeah. Oh, wow. Mercer, do you have any insight here? Am I dreaming that, that research? Do you recall that research? I think there's a quick paper back in the day. Someone should go check. I think it's okay. Yeah, I don't, I don't remember it. I mean, I do think there's a bit of urban legend around this, though, because I feel like we've been talking about this for a long time. I mean, we are going to get a benchmark, preliminary benchmark revision next month. That won't cover the period that we're, this, you know, this fast job growth that we've seen over the spring. It'll go through, I guess, well, I guess it'll go through last year. It looks like if you look at the QCW, it looks pretty on track with the payroll survey up until we have the QCW.

which is the end of last year, but that could be different starting in 2026. I mean, maybe something has diverged. I still think the payroll survey is the more reliable survey, just based on the sample size alone. And the response rate, too, the response rate in the household survey is lower than in the payroll survey, significantly lower. So it's hard to argue why you would put more stock in the household survey.

That said, it is strange the magnitude of this divergence. So I kind of take them both with a grain of salt right now, but it's worth looking into whether that makes sense to average them. You said a lot around benchmark revisions, QCE double being the quarterly census of employment and wages, but just for the listener out there, we're not, I don't think we should go down that path. But we've talked about this in the past. We'll talk about it in the future. But you're talking about these once a year, these revisions that occur to the data that we're getting now, the survey-based data, their benchmark to actual employment counts from unemployment insurance records. But that's, and you're saying we're going to get a read on that for this past year. Yeah. Yeah.

So when we get, actually, I think it's end of August, we get it. So I guess we'll talk about it when we talk in September, when we get the August payroll survey. we'll talk about it. Got it. Got it. Okay. So, are we talked about underlying job growth of, Chris, go ahead. I did ask Claude. Oh, you did ask Claude. There is a paper, 2005 is a similar. There are several of them that does suggest combining them, but not 50-50 weight, 70, 30 percent weight. 70 percent payroll, 30 percent. Oh, so my memory is correct. There was an 05 Brookings paper, you're saying? Yes, exactly, exactly. Okay. Now, how impressive is that? That's better than, well, not, obviously not as good as Claude, but, you know, for a human, it's not bad. It's not bad. It's pretty, who wrote the paper, do you know? Oh, I just had it. I'm just very curious.

George Perry. He was a former, I think he was Brookings. He was a very good Brookings. He was a very good Brookings, a researcher back in the day. So 7030, so someone quick do the arithmetic. I just did it. It put you right about it at zero. I mean, it puts a bit flat. Oh, zero. Okay. Chris, are you sure you want to stick to your 75K underlying job growth? Well, under what time horizon? It's always been my question. What are you?

You know, I'm thinking you're saying underlying job growth at the moment. Yeah, at the moment. This month it was the, so what's your, what's your gauge? Are you looking over 12 months? Is that the? Are you thinking, like, post-revision? Like, what's the actual number? Yeah.

Number are going to come in. Yeah, we're going to come out. When I look back historically and I look at this period, what am I going to say about underlying job growth? You know, I'm fudging it. I'm not, there's no precision here. But, you know, you get my drift. I mean, Claude might not understand what the hell I'm saying, but you should understand what I get it. Yeah.

Yeah, under that thesis then, yes, I'd say maybe it's closer to 60, 65. Oh, see how he's inching towards 50? I'm just saying, he's coming closer to 50, though, because then I agree with you. Yeah, I hear you. I hear. And the precision implied is just, you know, appropriate. Yeah. Yeah.

Okay. Okay, so given all this, then, what is break-even job growth? So, again, for everyone out there, break-even is, you know, what rate of job growth, monthly job growth, do we need to maintain stable? And I'm going to broaden the definition because historically I've said stable unemployment. But what I've, you know, I've been using unemployment as a gauge of slack in the labor market. And I'm at this point, given what's going on with the labor force and labor force participation, it doesn't feel like the unemployment rate is a good representation of the amount of slack in the labor market.

So let me restate what the break-even job growth is. It's the rate of monthly job growth consistent with the stable amount of slack in the labor market. So given that, is that, everyone agree with that definition? Does that make sense to people? Slack is measured by what, then, if not unemployed? In the case of labor force participation, some of that decline in participation that we've observed could be people who've stepped out because they're not, they can't find work, they're no one's hiring. They would work if they could, but they're discouraged. So they're not looking for work and therefore count as unemployed, but they're taking a step out of the labor force as a result. But the declining working age population labor force participation, that would be kind of consistent

with the idea that there's slack in the labor market. These are people who are – it could be immigration related. You know, it could be immigrants are nervous about going to work because of what's going on in communities across the country with regard to the immigration policy. So they've stepped out of the workforce. They've been forced out of the workforce. They're not counted as unemployed. They're scared to say to the – to the – to the –

to the BLS that, you know, they're foreign-born. You know, that, that's what I mean. So is U-6 a better metric for you? Is that the... I can't remember what's U-6 exactly? That's just the broadest measure. Right. Marginly attached.

Yeah. Does that... Maybe I'd have to think about that. The more specifically I've been thinking about in the context of unemployment and labor force participation. If I maintain stable labor force participation, let's say over the past year, then the unemployment rate today would be closer to 5%, not 4.2%. And that 5% in my mind represents slack that we're above that we have slack in the labor market that means that we're not operating in full employment and also evident in the weakening in wage growth. So consistent with the idea that we have slack, that unemployment is not representing, you know, the amount of slack in the labor market is the fact that wage growth is decelerating in the context of much higher inflation and real wages are actually declining. So that's kind of the way I'm thinking about it and coming to break even.

Does that make sense? So it's a bit multidimensional there. So it sounds like the vicious cycle index plus wage growth. Yeah, yes, the vicious cycle index. No, the wage growth is, it's not part of it. It's a confirmation of the slack. I'm not adding, no, no, I, that plot. Yeah.

But it is the vicious cycle index. Yeah, that's, okay. That's your metric. Yes, my metric. Okay. Yeah. What's that number right? We had a podcast about this where we use Claude as a group to adjust the unemployment

rate to account for labor force changes. And that was our measure of slack that we can. came up with the vicious cyclone, so-called vicious cyclone dix. And I won't go through the intuition why it's called that, but that's the basis for it. Do you know what the VCI is right now? I think it's around 5%. Five percent. Okay. Yeah. But that's not changed then. That's... No, it's roughly the same as it was what we did a month or two ago. Yeah. Okay. I didn't run it for today's numbers, though. That could definitely change it. Yeah, it could definitely change with today's numbers because participation is down again. But so is unemployment, so I'm not sure how that nets out.

Yeah. Yeah. So, okay, Dante, what is break-even, given everything we just said, and layer your own interpretation on what I said, you know, through your own prism, what do you think the break-even rate of job growth is? Assuming my head hasn't exploded yet. I really thought that complicated. I think it's low, right? I mean, I don't think there's any argument that break-even is high right now. I think, you know, given that the labor force is declining in a meaningful way over the first half of the year, I would say it's 50K, and I would lean even lower than that. I think the risk is that it's even lower than 50K.

Well, then that means the labor market's tightening. Very little on the margin right now. Yeah. No, it's what? You have not, my friend. You have no evidence. What's your evidence? Over a very short period of time, though, what would be the evidence to the labor market?

So over the last three months, yeah, I think there's an argument that labor market. it has tightened slightly over the last three months. Job growth has been over 100K. I don't think break-even job growth is that strong. This gets back to Chris's point. Right. So the timing, right? If you're looking, so yeah, I think the labor market probably has tightened a little bit since we've seen much stronger job growth in the last three or four months. But I don't think you'd see, you're not going to see that in wage growth. You're not going to see the effects of that immediately, right? And I don't think it's going to continue. Yeah, I expect job growth to soften in the second half of the year and to come, you know, sort of back into balance with break-even is,

is how I'm thinking about it. Well, okay, let me, let me, let me, let me, come Because this is an important point. And you're, you guys are trying to obfuscate things from my opinion. Does it feel, here's my, here's my broader narrative on the labor market. One, the job growth is soft that, you know, underlying job growth. We can debate 50, 60, 70. That's still soft, you know. Some of that is supply in my mind.

mind, some of that is demand. Demand is also weak for labor, generally speaking, not everywhere, but, you know, generally. Second, that Slack is developing in the labor market, that, you know, we're not at full employment anymore. We're operating below full employment. Not a lot. I'm not saying a lot, but we're operating below full employment. And that is impacting, the evidence of that is in this raft of economic data that we have. There's a lot of other measures of slack that we haven't talked about. Like, for example, a number of people working part-time for economic reasons. That's up a lot.

If I look at the percent of the unemployed that are long-term unemployed, that's up a lot, you know, over the past year. So these are just other – if I look at the employment to population ratio now for prime age workers, that is now definitively down. I know it's one month, but it's down. It had been rock solid, stable, and that's evidence of slack in the labor market. And the most significant evidence of the lack of slack in the labor market is wage growth. That is by any measure you pick, average hourly earnings, employment cost index, whatever it is, that is slowing. That's decelerating. Not in a straight line, but it's slowing.

So that's kind of my frame of thinking of things. That's not consistent with what you're saying or what you're thinking. disagree with that. I think you're thinking over a longer time horizon than I was sort of, you know, keeping it to a relatively short time horizon. I think if you think over the last year, it feels like everything you said is, is true. And where we are now, I mean, where we're, I mean, I, month to month, maybe it varies every three months in my, you know, short term horizons, it might vary, but, you know, to give broader context of what's going on, how would you care, would your characterization be different than what I articulated? No, I don't think so. Okay. Okay.

All right. Okay, but you're saying as of this, as of this month, you would argue that the break-even is below the underlying and that the labor market has tightened somewhat during this period, this last month or so. Yeah, the last three months, say, I would make that argument, yeah. You would. Okay. Chris, is that encapsulate your thinking, too? It does. It does. I would put the break even a little bit lower, I'm a little bit more pessimistic and closer to 40K, let's say. Not dramatically lower, but just given the demographics and the tightening of immigration, lower birth rates. And I think that this phenomenon of the older workers stepping out, participation rates falling there, is real. I think we'll continue to see that persist.

That's going to weigh on net growth. Do you think, now, in my kind of narrative, that decline in participation that we're observing for the older workers is part, structural, you know, there's things that are going on that are unrelated to the business cycle and aren't contributing to the slack in the labor market. And people are stepping out for, you know, if they're stepping out because their nest egg is larger because they're up in stock prices, you know, that feels more structural. It doesn't feel, it could be cyclical. If the stock market declines, they may have to come back in again, but it feels more structural than cyclical. It could be AI.

We were talking about this earlier. One of our colleagues, well, Scott Hoyt retired. You know, he's been with us for many, many years. And I was talking with him about why he retired. And I think he'll be okay with us talking about this. And, you know, I said, well, why now? Because, you know, he could have retired five years ago. He could retire five years from now.

Why now? And he pointed to AI and said, you know, that's, I'm not sure he's, he's suicidal. He was not really sure he wants to invest the time and energy that's necessary to fully be engaged with AI. And so that may be going on. You know, that feels, I guess that feels more structural than cyclical, I guess. Is that what you're saying, that most of that declined structural, not sickle? But, you know, the thing is, Chris, it's declined so much in such a short period of time. It's down almost a point, you know, in about a year.

That doesn't feel, that feels, there's got to be some element of cyclical in there, no? Well, I think if you go back further and look at those participation rates, they were much lower a decade ago or even two decades ago, right? So I think the anomaly is the last decade, right, where we had participation from that older work cohort,

older age group actually higher than what we've seen historically and now we're going back to more of a... But all of a sudden, I mean, like, I mean, maybe... I think triggered by... the wealth effect, right? Now people can actually afford to to step out at that level that they prefer to, right? So I'm attributing more to the former. I'm less, I'm not so convinced by the AI. I think some certainly maybe thinking about AI is transforming the workplace and therefore

they don't want to adapt, but I think it's more about they have the wealth, resources, and... You know, I think, yeah, I'm sure they're all that's playing role. I'm wondering whether it's more immigration related? Because haven't we seen, Marissa, you know, pretty significant recent decline in participation in labor force for the foreign born? So not over, not, not really. I mean, we did last month. Since the beginning of the year. Yeah, I mean, mostly in the last couple months. It's not really been, yeah, I mean, if you look at, like if you look at since 2025, right, since current immigration policy went into effect, It didn't actually have much of an impact on participation of the foreign-born.

That didn't change all that much. Obviously, the labor force that, you know, just the sheer number of people did. But recently there's been more weakness in the labor force amongst everybody, including the foreign-born. Right. Okay. Do you have a perspective on this debate we're having? Which one? The one about the break-even, I guess.

Because, I mean, the numbers here are small, so we're parsing some pretty small numbers in a world of lots of noise. But that doesn't stop us from having this debate. And the debate is put into relief because I'm saying that the underlying rate of job growth is below the break-even, and therefore the labor market slack is increasing. We're mirror operating below full employment, and that's getting worse, which, by the way, has implications for lots of stuff, including. monetary policy. But, you know, that, but Chris and Dante are saying, more Chris than Dante, Dante, you know, how he does it, how he debates. Not sure exactly where he stands. But Chris is saying that the... That used to be my reputation, so I'm happy to pass the baton, Dante. He's below the underlying, and the labor market is tightening. So do you have that, with that frame,

where do you stand? Well, because you already said 80, 90K on underlying. So it's almost... Well, right now, right now. Yeah, I do, I'm with Chris on the confusion over the time horizon, right? I mean, if you ask what's the underlying, you could just take the three-month moving average and report that, right? That's what, if you just smooth out the most recent months, you could say, yeah, the underlying is around 100K if you just want to look at the past few months. But I think your definition is over a longer time period, abstracting from all the revisions and measurement issues and everything else. Yeah. Then, yeah. Then I'm more in agreement with you that I think the underlying is probably closer to 50,000. Ah.

I think at the end of the day, when we're sitting here a year from now and we look back after benchmark revisions, I think this is going to, a lot of this will probably be revised closer to where the household survey is. Yeah. Okay. And I think there is a lot of demographic stuff going on here. So it's hard to know. really what this break-even point is right now. I mean, I was... That doesn't stop us from coming up with a number. No, it certainly doesn't. And then it doesn't stop us from criticizing everybody's answers when they give them. Exactly. Exactly. Even though no one can prove that anyone's right or wrong. Well, that's the best debate, actually. I mean, otherwise, I could just ask Claude and the debate ends.

You know, and that's what happens now. We can't have a reasonable debate at the dinner table anymore. Well, this just has Claude. It's like, what's the population of Cape Verde? You know? So, anyway. So I don't, I'm not going to give you a precise number down to the thousand. But I think it's, I think it's near the underlying.

Like, it could be, it could be 40, it could be 50, it could be 60. It's, I think it's somewhere in that, that range. Well, you know what? I'm going to think more. deeply about how to define these terms because that's a good point i hadn't thought about it but you're right i mean it does depend on kind of your what exactly are we talking about here uh you know what's your horizon but but uh but it sounds like we're all pretty close okay uh anything else on the uh household dante i see you want to say something no i'll give credit matt collier just

sent me a little tidbit on labor force that maybe is worth pointing out so if you look at the sort of more discrete age groups. Most of the decline in the labor force this month was in 25 to 34-year-olds. It was among the largest single-month declines ever. It declined by 700,000 just in that narrow age group. And so I think you could take that one of two ways. One, you can say, well, that's more likely just to be noise because it's concentrated in this very small segment.

That population probably has a lower response rate than average, if I had to guess. You could also think about it in terms of an AI story, right? We've talked about that younger cohort. Right. Maybe being more exposed to AI, having, you know, bigger issues with, you know, slow hiring over the last year. So maybe that's a reaction to, you know, sort of the buildup of what's been going on in the labor market and their troubles, finding jobs. Yes, I think you could probably probably somewhere in between those two, is my guess.

It's probably, you know, partially related to a tough job market in terms of hiring. It's also probably noise in some, at least in some sense. There's got to, it's got to be some noise in there for sure. You know, you don't see declines like changes like that in one month. month. But that is interesting, 25. So we're seeing a lot of the decline in labor force since the beginning of the year has been older workers and now it feels like some element of this younger cohort. Yeah, and that means, you know, we saw the big movement in prime age participation, but most of that movement in prime age participation is really just in, you know, sort of one third. That one group, all prime age, yeah. Right. Okay. Okay. Very good. You guys want to play the game? a stats game?

Are you up for that? Okay. We each put forward to a stat. The rest of the group tries to figure it out with clues, questions, deducted reasoning. The best stats, one that's not so easy we get it, one that's not so hard that we never get it.

And if it's apropos to the topic at hand, all the better, but doesn't necessarily need to be. And we always begin with Marissa. Marissa, what's your stat? I'm nervous that I'm going to screw this up, given the new rules. But my stat is 2.4.

Okay, the first rule was you've got to give us the units. It's a ratio, so there are no units. Unless it gives it away. 2.4 points. Percentage points. Points. Percentage points? Is it an index that moves?

She's not saying anything. She's already flaunting the rules. Now you're confused by the rules. I'm afraid of saying too much and making it too easy versus. Okay, fair enough. Fair enough. Okay. Dante, do you want to lead the way here?

So was it like a change in an index or something? So that's the point of change? Yeah. Is it a diffusion index? Okay, that was the second rule. No, yeah. Yes or no. I'm going to get kicked out of this game, aren't I?

I'm going to get kicked off. It's an index. Would you ask, Dante? I said, is it a diffusion index? Oh, diffusion index, right. Change in. Yeah, change in an index. Oh, man.

These rules aren't helping. These rules just aren't helpful. Oh, no, it's not a change in an infusion index. Is it a change in a per- is it a percentage point, a change in a percent? Okay. It's a difference. Oh, it's just a difference.

2.4 points. Okay. We take a step back. Is it from the jobs report today? Yes. Let's narrow down a little. Is it from the job report? Mark, your rules are making it hard or not easier.

Okay. All right. Forget the rules. We'll come back to the rules. Animal vegetable or mineral. I'm sorry. It's not, it's not from the jobs report. Oh, geez. Is it like ISM manufacturing or something? No. No. Okay. Is it consumer confidence? It is from that report. Yeah, I see. Jobs easy versus hard to get. Yes. Okay. It's the labor market differential from the conference boards, consumer conference. Yep.

Oh, thank God. We got to. I knew it was. It was. It wasn't. It's been the hard one, right? Yeah. I don't want to give too much away. Okay, well, that's a good stat. And it is consistent with the decline in unemployment rate, by the way, I think, right? I believe it is.

It moved in the right direction, didn't it? For the lower unemployment? No, this is the, well, no, this is the lowest that differential has been. Abstracting from the pandemic since 2016. So the share of people who said jobs are hard to get rose to like 22.5, which, which is the highest in about five years. Okay. Remind me that differential.

The smaller the number, if it's positive, it means only like 2.4% higher on the jobs plentiful. So as that is shrinking, you have more people saying, like you have almost an equal number of people saying they're hard to get versus they're plentiful. So this is not good. This is bad. The shrinking in the differential. Oh, okay.

So the percent that say jobs are plentiful. Plentiful minus the percentage that say they're hard to get. Right. Okay. I always get confused by that. Yeah. So the share that say they're hard to get went up a lot and is the highest it's been in a long time. Oh, okay.

And this differential is now the smallest it's been since the pandemic. But I always take the pandemic out of things because, of course, jobs are hard to get during the pandemic. If you take the pandemic out, you have to go back to July of 2016. Right, right. Just being a differential this small. Oh, so it would have been consistent with a increase in unemployment. Yeah, yeah. And we didn't.

We saw because of that massive decline in labor force, the decline in unemployment. Okay, well, I think to your point, it could be consistent with that decline in labor force, right? If some of that is simple jobs are hard to get, people stop looking, they fall out of the labor force. So that's just outweighing what you would expect to be a higher unemployment rate. Right. It's just another piece of evidence consistent with my view is what you're saying. That the labor market's weak. Yeah.

Yeah. I was going to let you point that out of. Yeah. Yeah. I didn't, that wasn't a question. That was a declarative state. That was a fact. That was a fact.

Folks. Just making that clear. An undisputed fact. Just re-enforcing the point, Chris. You know. Got it. So noted. Noted.

Noted. Okay. Dante, you're up. What's your stat? 10,000. See, no units. Yeah. 10,000. That thousand, thousand.

10,000 jobs? It is jobs, yeah. Was that government? Is it? No, I'll be definitive. No, it's not government. It's not a gain in employment by, is it a gain in employment by industry,

some industry? It is an industry change, yeah. Oh, okay. It's not manufacturing. Is it temp help? It's not temp help. That was nice. Did rise by 9,000, but this is not 10,000.

Construction was 11K, I thought, memory serves. I'll give you, it's not a single month change, if that helps. Oh, 10,000. Is it a, is it positive 10,000? It is positive. I didn't, yeah. Okay. And it is a change in employment in an industry.

Correct. In the payroll survey. Correct. Since the beginning of the year? Since the beginning of the year. That's also true. Oh. Excluding health care.

excluding healthcare, we're up 10K. Now I just looked at my... It's actually down 10K. I'm losing my mind. It's negative 10K. So if you exclude health care, we're down 10K? No, that's not the right state. I'm saying my staff to be negative 10K.

You said that. Wait a minute. That's not right. Yeah. So... Oh, my God. That's the Marissa era. I wasn't even trying to...

It's no longer the Marista era. Now it's the Dante era. I did that once. He's done that twice. It's all in my paper, and I still forget. That's the first rule of fight club. Down 10K since the beginning of the year.

It's a particular industry. That's where we are. When you say, okay. Down 10K. And it's got to be some aggregate. Otherwise, it's not fun. It's not interesting, right? It's not.

Is it private sector? It can't be private sector. It's interesting in the sense that it changed a lot from last month. So if you had looked at the industry. Leisure and hospitality is down 10K. There you go. There you go. Thanks for that.

Tip. Yeah. So if you look, as of May, right, last month when we sat here, leisure hospitality was up $118,000 January to May. Now January to June, it's down $10,000, right? So it's a massive swing in what we thought was happening in leisure hospitality in a single month because you had a big decline in June. You also had big down revisions in April and May.

And so it just completely changed the story, right? I think you could sell a positive World Cup story a month ago and say, you know, hey, we're getting this job growth in Leisure Hospitality. And now that's completely gone, right? despite the World Cup, we've lost jobs in Leicester Hospitality throughout the first half of the year. Got it. That was a good one. Very good.

Chris, you want to go next? Sure. 530,000 people. This is a fun one, by the way. Is it related to the job market? No. Job data? No.

Related to the World Cup. Oh. Very loosely related to our conversation about the world. Is it the population of a country? It is. King Verde. It is. Really? Oh, my God. The population's only half a million.

Westchester PA has more than that. Wow. That's pretty impressive. My real number. Oh, good. Now, I was going to say something that violated the Bambi rule, so I won't say it. Okay. You know the Bambi rule? I've told you about the Bambi rule, no? Yes.

Oh, I have, okay. What's that? Mercer, you know the Bambi rule? Is the Bambi rule or the Thumper rule? I think it's really the Thumper rule, but people don't know Thumper, so they know Bambi. So I say Bambi, and then I segue into the thumpur rule. So it's a Bambi Thumbra. Well, now you have to say it.

Now you have to tell it. Really? Mercy you never heard of the thumpur rule? Am I wrong? Is it the if you don't have something nice to say, don't say it at all? Oh, you got it. Isn't that the golden rule? Isn't that the actual rule?

Isn't that what it's called? I think that's what everyone else calls it. No, really? Is that the golden rule? I think so. Maybe I'm losing my mind now. I don't know. No, the golden rule is due on two others. Oh, yeah, okay, you're right. It's kind of a variation. I mean, really, Dante? I don't know. I'm losing it. You're Italian. Aren't you like, you know, no?

Don't you know Bambi? Don't you know? Bambi? It's funny. Wait, does that mean you were going to say something bad about? about Cape Verde? What do you possibly have against? Why? Why are you saying that to me?

The fine people. I can't remember. Oh, I know, but I'm not going to say it. There you go. Because I'm going to violate the Thumper Rule. Right. Track the square one. Anyway, do you think people are having, when they listen to this,

they have as much fun as we're having? Just a question. I can. I mean, I'm not like having a really good time. I don't laugh like this generally. It's like, this is a lot of fun to laugh. They have a lot of fun when they're pressing fast forward. Skip ahead, skip ahead.

I'll tell you, if they don't have fun, they let us know via email. They let us know. Okay. All right. All right, let's move forward. All right, I got one real quick because we're running out of time. 80.2%. Sounds like a participation rate.

That's a prime. Is a prime employment population? Yeah, prime age employment to population. Just to call that out because that's our, historically has been one of our favorite, if not our favorite measure of slack in the labor market. And, you know, that had been rock solid, you know, for the last several years.

And now it's dipped down. So, you know, maybe it's noise. We'll see. It feels more like, it doesn't, it feels more than noise to me. But we'll watch that to see how it's going forward. Okay, I think, you know, this is the start of a holiday weekend. I was thinking about doing listener questions, but let's hold off on that. Give everyone a little bit of a break.

And please, folks, send in your questions. We want to answer those. That's a feature of these podcasts. But we're going to skip that this go around unless anyone objects to that. Are anyone objecting to that? No. Okay. All right, hearing no objections.

Anything else that you want to call out? I have something I want to call up. I actually was just looking at this because I had forgotten about it. All this talk about the World Cup, we just got the Metro employment data for the month of May. Remember, we were trying to look forward to that. There is kind of a pop in employment in leisure hospitality in May, if you sum across the 11 World Cup host cities. Okay. I haven't fully vetted that relative to like the non-eastern.

host cities, but it does look like there may be something there with leisure hospitality in those particular cities. So maybe it did happen in May. We were expecting June, but maybe it did happen in May. Yeah. Okay. Oh, Chris, I did admit, actually, one of this final thing. Well, how do market, I haven't looked at markets at all. What are they saying about this job's number? They were up, pleased, right? In terms of the stock markets. Yeah. It's always up. It doesn't matter what's going on. Dow and S&P were up. NASDAQ is kind of flat. Or even S&P. and P is pretty flat. Bonds were down two basis points. Oh, okay.

Pretty. We're still around 450, somewhere in that 450 range on the 10-year yield. Okay, so two basis points? The odds of two rate cuts by the end of the year did come in somewhat. So I think that's the bigger reaction. But that's probably more likely, more due to Warsh's more hawkish language over the last few days.

Yeah, he was in Portugal at a central bank meeting, right? And they talked a bit hawkishly. So it feels like not much of a reaction at the end of the night. Not all that much. And there's obviously a lot of other things going on with the stock market these days. Yeah, right. Okay. All right.

Anyway. No major reaction. No major visceral reaction, let's call it. Yeah. Right. Okay. All right. Well, very good with that, guys.

I hope you guys have a great Fourth of July. Enjoy those fireworks. And may they be good ones. And we'll talk to you on the other side. Take care now, our listener. I hope you enjoyed this and we'll talk to you next week.