Moody's Talks - Inside Economics - Catch Up and Ketchup

Episode Date: January 5, 2024

This week’s podcast focuses on the jobs report for December. The usual cast of characters discusses the job catch-up (not ketchup) in government and healthcare, and its implications. Everyone agreed that despite the considerable cross-currents in the numbers, it was a good report. Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. 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 Sandy, the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues on Jobs Friday, January 5th, 2024. Got Chris DeReedy, say Chris. Hi, Mark. Good to see you. Good to see you. Good to see you. Mark.

Happy New Year. Happy New Year. And Mr. D. Antonio. Good to see you as well. Good to see you, too, Mark. I see this stone background. You were just telling it regaling us that that is actual real. Are you in Chester County, Pennsylvania?

I am in Chester County, yeah. Okay, that's Chester County PA Stone. That's right there. Local, local stone. Yeah. And that's because a lot of homes, like my home, has a lot of that kind of stone. It's kind of a thing in Chester County, PA. It's not serpentine, though.

Serpentine? Yeah. What's that? That's the stone. Oh, that's called serpentine? It's a special stone in this area. Anyway, it's news to me. That's another podcast.

Hold on. I didn't know this. Really? It's called serpentine? There's another type of stone in this area that they used for building. And we'll have a colonial area, a colonial era construction here. And they used serpentine stone. Has a distinct look, a little bit more greenish than what Dante has there.

That's the actual. So an expert. Yeah. How do you know this? Or I could be making this all up. You never know. That's true. Not like your forecast, though.

Never make that. Those are rock solid. Those are rocks. Rock solid. No pun intended. Solid. Yeah. Exactly.

Exactly. Yeah. So serpentine is the name of the stone, the type of the stone. Yes. Oh, okay. I got it. Yeah. I didn't realize that.

Oh, that's good to know. All right. Well, Jobs Friday has become tradition that Dante kind of leads the way, gives us the rundown and his perspective on things. So what do you think, Dante? You want to stick with tradition? Sure. I can do that. Okay. All right. Fire away. Say the December employment report was a little bit confusing, just given some of the differing results that we got across the two surveys. But by and large, it hasn't really changed my outlook for the labor market moving. to 2024. Top line job growth was a little bit stronger than expectations, came in at 216,000. But if you look at three-month average growth, it actually slowed pretty sharply from last month to this month, given, you know, downward revisions that we saw in October and

November. Private growth is only averaging 115,000 jobs over the last three months, which is, again, fairly slow relative to certainly last year and even relative to sort of earlier this year or earlier in 2023. Growth remains fairly concentrated. Government payrolls, healthcare, leisure and hospitality or accounting for, you know, something close to three quarters of all job growth over the last couple of months. In terms of other industry performance, construction picked back up a little bit after

a week, November, you know, sort of still bucking an expectation for it to slow down more meaningfully at some point. We've got ongoing weakness in transportation and warehousing. It's been down now for several months in a row after sort of outsized gains earlier in the recovery. Temp help still very weak, which it has been now for probably almost the last year, not a huge surprise there. Manufacturing is now sort of stabilized after the impact of the UAW strike. It was up slightly in December, you know, a sign that manufacturing is at least holding up in the face of sort of challenges, but probably not growing. are going anywhere fast.

Confusing on the household survey side, the unemployment rate was unchanged to 3.7%, which is good news. It was sort of unchanged for what we would say, the wrong reasons. We had a huge decline in the labor force, a huge decline in employment, as reported by the household survey.

But a lot of that just looks like volatility. We've had big swings in October and November and now again in December. And so it looks like noise more than sort of anything to really be consistent. concerned about moving forward. Wage growth, I think, again, maybe causes some angst amongst people. It was up 0.4% again in December after a similar increase in November. Year over year growth ticked a little bit higher. It had been just under 4%. Now it's at 4.1% again.

Again, I think that's probably splitting hairs about whether that really matters a whole lot for sort of the outlook moving forward. By and large, I'd say it's a good report. It's in line with expectations, the labor market is still clearly moderating relative to a year ago. It still looks like things are headed in the direction we want them to. Good, good. A lot to unpack there. One thing maybe we can unpack right now before we move on to get Marissa and Chris's take. The job growth, as you pointed out in the last, I guess, couple months, maybe three

so months, been primarily in government, health care, private education. And my narrative on that, I'm just going to give it to you and just see what you think, is that it's just ketchup from the, not catch up as in, you know, tomato based ketchup, but catch, cat, am I saying it right? Catch up. Catch up. Catch up. Catch up. It's catch up from the pandemic shutdown. So that the private, early on, the private sector employers, they caught up quickly. were very aggressive in going out and hiring and getting people back to work. They paid up, they jacked up wages to be able to do that. Government, health care, education, not in a position to do that, just given some of its unionized and its contracts and more bureaucratic, slower. And, of course, they can't raise wages nearly as aggressively as the private sector can,

given the constraints on their ability to do that. And as a result, they're now catching up. The private sector has caught up. Things have cooled off there. Hiring has kind of normalized, slowed. And the health care sector, the education sector, the government sector, is now able to do that. And that's what they're doing. If that's the case, that would suggest once those sectors catch up, you know, employment is back to kind of where

was pre-pendemic at least, that that's when we'll see another really meaningful step down in job creation. So right now, underlying job growth, you know, abstracting from the vigors of the data, feel like there's somewhere 150, 175K per month, something like that. And that once the catch-up is over in those sectors, we're going to step down to something like 75K to 100, you know, something like that. And that probably will happen. feels like by mid-year, certainly by later this year.

What do you think? Does that is a narrative that you can buy into? Yeah, I agree. I think that's largely how I view it. Yeah. Okay. So this concern that, you know, or the worry that the job creation is just top-heavy in these sectors is, I don't know if that's a worry.

That's just the reality of what the situation that these sectors have been in. They just haven't been able to, you know, compete with the private sector. I think so. I wrote something similar recently. I mean, if you look, you know, there's been some concern about the diffusion index, you know, which obviously measures more broadly, what, you know, sort of job creation looks like. You know, it's obviously fallen a lot over the last 12 or 18 months, but that's also not surprising, right?

If job growth is slowing to any meaningful degree, that almost always comes with, you know, sort of less broad-based job gains. And you need that if we expect job growth to be in the 100,000 to 150,000 range, that that's not consistent with the diffusion index of 60 or 65, right? Historically, you need a diffusion index that's in the 50s to get job growth that's that slow. And so you can't have every industry adding to payrolls and only have payroll growth of 100,000 a month. It just doesn't happen that way. So I think things are largely as I would expect them to be. Hey, Marissa, Chris, on that point, anything you'd want to push back on or anything you'd want to say before, I'll give you another chance to weigh in, but it's just

on that particular point about government, health care, private education. Chris, anything? No, I tend to agree. I guess one question for you, Mark, Heinz or Hunts? Heinz or Hunts? You've been using ketchup a lot. I'm getting, you know, Oh, right. Choose carefully. Are you a Heinz or a Hunt's person? You know, I don't know. Oh, okay. All right. That's a great question.

I'm not sure. I thought Pennsylvania, you know, you'd be all Heinz, all in the Heinz. Where's hunts from? Where are they from? I don't even know. You don't know that, you know serpentine, but you don't know where a hunts ketchup comes from? No, no, I do not. Oh.

You're in my education. Yeah, I'm guessing we're a Heinz family. I just haven't looked at the label recently. You're actually used a little bit of ketchup last night. don't tell my wife the chicken was a little i don't know oh you're still getting it was that you had to put ketchup on it yeah i know that sounds really bad uh well we've both been kind of under the weather to be fair oh you can't taste anything anyway i can't taste anything anyway and maybe that's why i didn't pull out to ketchup because i thought maybe i could taste the ketchup no no such

No such luck. Maybe because it was Hunt's ketchup, though. Maybe that's why I couldn't taste it. If it was Heinz, nobody could catch it. There you go. It's California, by the way. Oh, is it? Okay. I've had to look it up. Mercia, anything on that point you want to bring up? On the ketchup point or the job? What do I want to bring up? Oh, just one thing is that I'll just point out that leisure hospitality is still pretty far from. from its pre-pandemic peak, right? So that's one industry that had been making up a good portion of the job growth through most of the recovery over the past couple years.

We saw kind of average monthly job gains around 80,000. That's about half of that right now. We're back down to about half of that on leisure hospitality. And it's still under where it was prior to the pandemic. So that's one industry where we could potentially get more job growth or our quote unquote missing jobs in that industry, or perhaps the industry is just restructured, right, to a point where we're not

going to get back up there in the next, I don't know, six months or something. Maybe it takes a little bit longer. That's a good point. So I think leisure hospitality added, correct me if I'm wrong, Dante, 40K in the month, something like that. Something like that. Yeah, which is still pretty strong. So another catch-up, that's another catch-up sector. Yeah, okay. Yeah, and still catching up, right? because like I said, it's not back. And yeah, I think Dante, you wrote, I saw you wrote about the diffusion index and then I wrote about the diffusion index too in the macro last month. And just to underscore what Dante said, you would expect this to come in, right? As all of these industries have regained jobs back, you're going to have this effect where you're having concentration in a few industries as we move along and job growth slows.

overall. The diffusion index actually rose a bit over the month this month in December. It was up a couple points it looks like. And it's still above 50. That's the, that's the percent of industries, and I think there's what, close to 300 industries that the BLS? 250, yeah, that are either adding jobs or keeping payroll steady. So that's, you know, unless that gets down near 50 and looks like it's going to drop below 50. There's nothing recessionary about it, but it's come in quite a bit, as Dante said, over the last year or so. Okay. The other thing I want to unpack before I move on to Marissa and Chris that you said, Dante is about wage growth. You know, it feels like it's kind of settling in around 4% year over year, which is a little higher than kind of the rule of thumb that it most

accountants have been using that we need three and a half percent wage growth to be consistent with 2% inflation because underlying productivity growth has been 1.5. So 1.5 plus 2% is 3.5. If we're at 4, then that might be inflationary. It might be putting pressure on businesses. Their margins will come under pressure and put pressure on businesses to raise their prices more aggressively. I don't know. My sense is that 4% might be the right number, right? Because it feels like underlying productivity growth may be at least, I don't know, forever, but in the recent, and period closer to two than one and a half. So maybe four is just fine. It's not inflationary. What do you think? I agree. I made the same case today when I wrote about it that I think three and a half might not be

the right number. And it's also still, I mean, there's a lot of noise in the wage data, right? It's still definitively come in, right? The end of 2022 wage growth, I think was at 4.8% year over year. Now we end 2023 at 4.1%. So there's nothing to say that it's not going to continue to come in a little bit further. and get back under 4% over the next six months or so. But to your point, I think maybe there's some evidence that we can sustain wage growth at something closer to 4% as opposed to, you know, 3.5. So, you know, I don't think there's anything to be concerned about right now. Yeah, the other thing I've always wondered is we, you know, in that calculation I just did,

we used 2%, which is the consumer expenditure deflator because a measurement difference is the CPI, the consumer price index is probably going to be 2.5, right? not two. So two and a half plus one and a half is four. So maybe it's, why, why are we using the consumer expenditure deflator in this calculation? Right. It agreed. I don't think there's a good reason. And I also think part, I mean, I think wage growth was just so weak for so long, you know, prior to 2020 that I think, you know, people see four percent wage growth and it feels like something is wrong. But I don't, you know, I think wage growth was obviously, you know, a little bit depressed prior to the pandemic for the decade prior to the pandemic. So I don't think there's necessarily

anything wrong with wage growth at 4% right now. And if it is 4%, that's a very positive thing, right? Because CPI inflation now is three. I think it's close to three. Even core is coming, core excluding food and energy is coming in close to three. So if you're at four and inflation is at three headed south, and you're a rock solid four and three percent inflation head south. That means real wages are rising after inflation wages are rising. And that, that means more purchasing power. That's good for consumers and another reason to be more optimistic. Chris, anything, Mercer anything on that you want to weigh in on or push back on?

If you look at the whole trajectory since before the pandemic of inflation and wages, wages, you know, kind of just popped up again above inflation just in the past year or so. So it's not like real wage growth is, you know, there's this huge gap, right, between wages and inflation. I mean, we've been through quite a bumpy ride with both over the past four years. So wages are just outpacing inflation if you look at it over a longer period of time, say if you go back to early 2020. The other thing is, you know, there are 22 states that are... Just to make sure I got that right.

What you were saying is that real wages, wage growth less inflation, really over the past three years or so, has been basically flat. It hasn't gone anywhere. Right. I mean, it's been, it's kind of, the way it's shaped out now, it's kind of ended up right just above inflation, right? There's not this huge gap. Right.

The other thing I was going to say is that there's 22 states that are raising their minimum wage as of the first of the year. And those minimum wage gains vary quite a bit, you know, from a few cents additional an hour to a few dollars an hour. I don't think this has any real implication for inflation. It usually doesn't, especially because the minimum wage is one that never keeps up with inflation over time, right? That's talk about catch up. That's a lot of catch up. But that's just something to keep in mind, too, as we look at average hourly earnings over the next few months that we might see some influence from these minimum wage increases that went into effect this week.

That's not in this number because this is for December, but you're saying when we get the number for January next month, that may be in there. It could be in there. Yeah. Okay. Chris, anything on that? I guess I'm not terribly worried about the average hourly earnings growth either. the Fed's on the lookout for a wage price spiral.

And we just don't have any evidence of that at this point. So, you know, yeah, they keep an eye on the wage growth. But it's really what they're focusing on is on prices. And we're not seeing that those wage increases that we're observing are really translating into service sector acceleration of inflation, right? So as long as that maintains, you know, I think the productivity story holds, we could certainly continue to benefit from higher wages without necessarily tripping an inflationary spiral. Okay.

Okay. All right, Marissa, you want to fill in any gaps holes in what Dante said and give us a sense of how you think about the report? Yeah, I don't really think there were any major gaps in what Dante reported. I mean, just going to the household survey quickly because it was. There's never any major gaps. I mean, that's a little rude. I would, you know, major gaps. You almost said gaps.

There's no major gaps in what he said. Yeah. Oh, come on. There were not any. There never are. Okay, never are. There might be some minor gaps or gaps. Possibly.

Possibly. But major. Geez. No, I think he did a fantastic job, as usual, summarizing the jobs report. What else can we say? I guess if we look at the household survey where there were very large declines in employment in the labor force, I was looking at the demographic makeup of that. And it's pretty broad-based, right?

Usually we found that it's, we can maybe point it to one or two categories where it's coming from. But this is pretty broad-based across ages, race and ethnic groups. all up and down the educational attainment spectrum. It is a bit more severe for women than men, but both women and men's labor force and employment both fell. But really, pretty much every group I looked at, except for African Americans, employment was down. So that's kind of what I want to say on the household survey.

I guess on that. Yeah. I mean, do we, should? Should we pay any attention to the household survey this past month? I mean, it felt really just weird, bizarre. You know, big decline in labor force, big decline in labor force participation, these big swings and measured unemployment across demographics. I don't know.

You know, they did redo the seasonal adjustment factors in that. Did they? Okay. Household survey. But, yeah, they did. But it didn't change. Dante, you may have looked at this problem. more closely than I did. I don't think it changed any rate calculations, like the unemployment

rate or the labor force participation rate, but they did introduce new seasonal factors. Could that play some role here? Maybe, but it, you know, this is a standard thing they do every year. The seasonals also, I mean, just felt a lot of seasonality affecting the numbers. Like even there was a large decline in employment among couriers, you know, in December. That's the you know, the FedExes, the UPSs, you know, that felt weird too. On the payroll survey, the survey of establishments, businesses. So it just feels like there's a lot of this season. And I guess this is the time of year where the seasonal factors could be pretty messed up.

Yeah, they could be a kind of wonky. Big swing factor. Yeah. Although the whole transportation category has been weak over the past few months, kind of up and down that category. So I don't know, maybe it is, maybe it is real. Yeah, okay. Okay. So in general, pretty good report, reasonably good. What do you say?

Yeah. Yeah. I guess. I mean, yeah. Job growth, you know, the headline number, I was surprised when I saw it. It was stronger than what I thought it was going to be. But digging into it, I think I agree with Dante. Like, it's pretty good. It's okay. The household survey kind of detracts, you know, makes me. a little bit more nervous about it, but not really. Didn't change your forecast or your view of views on anything. And I think, you know, the point Dante made underscored about if you just take the private sector, right, private sector employment growth is actually just right above 100,000 a month averaging now, which is kind of where we think job growth needs to be right for our soft landing to occur over the course of the next year. So I think that's probably a good number to keep our eye on as we move forward here.

Yeah, the other thing I noticed talking about weird, if you look at the native-born labor force and the foreign-born labor force, foreign-born increased again. Native-born, as we know, the overall labor force fell very sharply in the month. And as Dante pointed out, that's after several months of very strong labor force growth. looks like some statistical give back. But where you see the give back occurring, it's among the native born, not among foreign born, which is interesting. It adds to my suspicion a little bit about the data.

It just feels a little weird. But anyway, okay, Chris, what do you think? Anything to add? Good report. As usual, I've been saying now for a while, you know, ignore the headline because it's likely to get revised. We had big revisions for the last couple months in the report. October knocked down to $105,000, right?

So it does suggest that, you know, this 260 might not hold. It could be a bit lower. But still, even with those revisions, if it's, what, 170, 1008, still a very solid report when it comes to employment growth. So, yeah, I thought it was a good report. So I said the underlying rate of payroll job growth, underlying meaning, abstracting from the vagaries of the data, the seasonal, and everything else, these revisions you just mentioned because these numbers are based on surveys

and ultimately they get revised as we get more survey responses and ultimately benchmark to actual employment counts from unemployment insurance records. Abstracting from all that, it feels like it's 150K to 175K per month. Agree? Disagree? Yeah. That sounds about right. Okay. Yeah, when I saw the report, you know, sitting down to have my, my cereal hit the button,

saw 217K, go, oh, that's stronger than I, than 3.7%. That's the headline. I go, oh, that's stronger than I expected. And then you read just another minute down, oh, these revisions. And it's basically what we expected, you know, after the revision. So I took a lot of solace in that.

Are you going to revise some of the, you're getting this from last month? No, I, you know, I mean, I will say this. Last month's report was unambiguous in my mind. There was no household survey issue. Yeah, there was no measurement issues. I can't think of a single blemish in the report. I mean, we debated a little bit about whether we should be concerned about the strong job growth and government and health care. But I, as we discussed, I don't think that's an issue. So I didn't see a single blemish. And I've been following job reports for 30 plus years. That's rare.

You know, rarely do you see, when I say rare, I mean like really rare, you know, once every 10 year kind of rare where you see no blemish in the report. Maybe I'm exaggerating. Maybe it's once every five years or something like that. But this one is more typical, although this felt like a little more than typical in terms of the, you know, the weirdness. You know, the kind of the feels, it feels, I think Dante used the word noise. It feels like there's a lot more noise in it, you know. That's a mix signals. Yeah.

So, you know, harder to interpret and to feel giddy about, right? You can't, you know, how can I can't feel giddy because, you know, the data is the data. But I'm not sure I believe it. But I, you know, my optimism about the economy is unaltered by this. In fact, it's just consistent with, with the. script. You know, you want a resilient labor market that's creating jobs. And by the way, you're right, a lot of, it's right that a lot of the bulk of the jobs are in government, health care, and private education. But we got, you know, manufacturing added to payrolls, right?

Construction added to payrolls. Those are sectors that, you know, typically when you got a problem in the economy, they're headed south in a big way. They're laying off lots of workers. And we We're not seeing it. We're just not seeing it. So I take a lot of, you know, I take a lot of solace in that. And I think the economy's, so my point is we, the economy is resilient, but it is steadily, slowly throttling back. I do want to reinforce a point, though, because I think this is going to become an issue,

is that job growth is going to slow. It's going to slow. I mean, we've been able to digest so much. many jobs because labor force growth has been, you know, robust. But that's going to throttle back too, given demographics, given the aging out of the workforce by the boomer generation. And I think we should all begin to recognize that, you know, six months from now, 12 months from now, we're going to be at 100K, south of 100K on a consistent basis. And that's going to be hard for people to get their minds around, I think, in the context of the kind of job growth we've

been getting in the last couple, three years. And I think concerns that we're going into recession are going to mount again at that point as people say, oh, things are slowing way too much. No, that is totally expected. In fact, I think this is true. If you go back and you look at our forecast for job growth at the current point in time, let's say before the pandemic, go to our forecast we did in December or January, say January of 29. and looked at what we thought Dante's doing it right now. You go to job growth, what we thought job growth would be currently. I think it was probably south of 100K.

Maybe Dante, you can take a look. I'd be very curious, you know, if I've got that right. I'll work on it. Okay, okay, very good. Okay, anything else on the job numbers? Anybody, do we miss anything? Do we want to say anything more about them? No?

Okay. Let's play the game, the statistics game. The game is we each put forward a statistic. The rest of the group tries to figure it out with questions, deductive reasoning, clues. The best stat is one that's not so easy. We get it immediately, although we're getting pretty good at this. Now, this time will take us forever, but we're getting pretty good at this. And not so hard and we never get it.

And one, if it's apropos to the topic at hand or a recent stat, that's all the better. Um, Marissa, uh, you're up. Uh, what's, what's your stat? My stat is 2.2%. Oh, that's a quit rate. My God. That was my staff. Oh. Okay. I have another one. Should I do another one? I mean, that was okay. That was embarrassing. The quit rate is actually my second choice. All right. This, but we, we should come back to the quit rate. Yeah, we should. Well, I'll give it. Okay. Yeah. Chris.

Why don't you explain to quit rate right now and then give us another one? Okay. While I scramble and look for another. Yeah, right. Why don't you take it, Chris? Why don't you do it? Go ahead. Go ahead.

So I picked it because the jolts, the job opening and labor turnover survey came out this week as well for the month of November. And it was kind of surprising because it showed that the hires rate fell back to a level that we haven't seen in years and years. if you abstract from the pandemic months, right? But so did the quit rate. So if you take out 2020, the quit rate is now back to where it was in March of 2018. So things are kind of normalizing there as well. The job openings rate is still elevated, but we've talked about that before,

that we think that there's some funkiness going on in that. But yeah, just the overall underlying. churn in the in the job market and the job numbers that we don't see for the payroll in the household survey is kind of interesting to look at because it shows that things really have fallen way back to pre-pandemic levels here. Chris, were you going to say anything different than that? The only thing, other thing I was going to add is that this is another reason why I'm not particularly concerned about the wage growth numbers that we're seeing.

Right. With quits coming down, I'd expect that wage growth is also going to moderate. Yeah, I mean, there's a very close correlation between high quit rates, high wage growth. Part of that's just people who switch jobs get big, tend to get much bigger pay increases. They don't tend to switch unless they get the pay increase. And so now the quit, the quit rate is back down to something more typical that suggests wage growth will, shouldn't be an issue. It shouldn't be a problem. The other positive with the quit rate, it was because of all the switching that people did back a year or two or three ago, that may be one reason why underlying productivity growth is feel stronger now, right? Because people moved into jobs that are more suited to their skills and talents and interests. And it might have taken them a little time to get up the learning curve in their new job.

But at this point, they probably are in full swing. and that might be one reason we're getting some of these good productivity games. And we know from surveys, like the conference board survey of worker attitudes, that people feel really good about the jobs they have now. I think as good as they've ever felt in the survey that's been done for a lengthy period of time. Okay, that was a good one. Okay, Mercy, you said you had another one? I do.

Okay. Minus 753,000. Is that the change in the labor force in the month? No. Oh. Because I think that was... It felt pretty close. Is it in the jobs numbers?

Yeah. Is it in the household survey? Wow. That's... It's either the payroll survey or the... Oh, no. Something else. Not the difference.

Yeah, it's the household survey. She always does this. Do you know that? She always does this. Is that the... Is that the employment change if you adjust it for payroll concepts? Yes.

That's the only reason you couldn't answer because it's a mix between the two. Oh, is that? Oh, now I get it. And there's always a good reason why she does that. Yeah. Okay. Right. Do you want to explain?

Yeah, sure. So minus $753,000 is the change in household employment if you adjust it to be on the same methodological, conceptual definition as the payroll survey. So you take out agriculture workers, you take out the self-employed, you add back multiple, you know, you take out the, you add back multiple job holders, right? When you do that adjustment, the decline in employment is even bigger this month in the household survey than it would have been if you don't do this adjustment. And that's mostly because there was actually an increase in self-employment over the month. So most of that decline in the, Chris, what, did I take it again? No, really?

He's going to do self-employed. All right, all right. I'll figure it out. Chris and I are on like a, we're having a mind-meld, I guess. Yes, yes. Yeah. Jump and self-employed was interesting. Yeah, yeah.

So, right, there was a big increase in self-employment. So all the decline in the household survey last month was among wage and salary workers, mostly in the private sector. And this difference, again, if you abstract from the pandemic months, right? This is the biggest decline since October of 2013. Whoa. Yeah. Really interesting.

Huh. Okay. Maybe, maybe just for the sake of the listener, because there might be some folks that out there that aren't watching the data nearly as closely. Just quickly, payroll versus household survey, just explain that. Yeah, sure. The payroll survey is a monthly survey of employers, so of companies. And they are asking about half a million companies. It's a sample-based survey, and they're asking how many people were on your payroll during this middle month of the middle week of the month, right? So it's just a count of the number of people on an employer's

payroll. The household survey is a primarily telephone-based sample survey of 60,000 households where the Census Bureau is calling people up in their homes and asking them about their employment status and their job hunting activities over the course of the past month. So it's based on the person, not the job, if you understand, right? So the payroll survey is asking about the jobs, the household survey is asking about the employment status of individual people. So this conceptually makes employment counts a bit different. So for example, let's just, the easiest way to think about this is people that have more than one job. If I have two jobs, those two jobs will both be counted in the payroll survey because I have two different employers and those employers are going

to say, yeah, she was on my payroll here, she was on my payroll there. When the household survey asks me about my employment activity, I can tell them that I have two jobs, but I only count as one employed person. It doesn't matter how many jobs I have. So they do this adjustment. It's not official. It's kind of a research series that they put out, right? It's not in the press release to kind of make these concepts similar so we can do an apples and apples comparison of the numbers. Got it. Okay. And you said how many people are surveyed in the household survey?

It's about 60,000. Yeah, so it's small. That's one reason why economists. Yeah, it's got a bigger margin of error for sure. Yeah, there's a lot more, that's not a lot of households. You know, there's what, 135 million households in the United States, something like that. You know, 60K isn't all that, isn't a whole lot. Okay, Dante, what's your stat?

I'm giving Chris a little bit more time to conjure up another one. Let's see, which one should we go with? I'm going to go with $5.47 million. Is that in the Jolt survey? It is from the Joltz. Is that hires? I can't remember. It is hires.

Oh, there you go. I went away from the rate thinking it might stuff a little bit. Yeah, I might pull us. Yeah. Yes. Yeah, I think, again, I think this is a number that people are going to latch on to a little bit because it's down significantly. The hiring rate is now the lowest that it's been since well before the pandemic started, I think back in the mid-2010s. I don't see. I mean, the math here, the arithmetic says that the hiring rate has to come in, right? Layoffs have stayed very low. The quit rate is coming down. And so if you want job gains to slow, something has to give, right? You can't have a, you know, very strong hiring rate and very low layoffs and very low quits and have job growth that's moderating. So I don't view it as a problem. I think this is what we would want to happen, right? We'd rather see job growth slow because hiring is coming in versus it's slowing because

layoffs are picking up. I mean, so in my mind, I view it as a positive. Job growth is slowing for sort of the right reason. It's not because companies are getting anxious and laying people off. It's because they're just pulling back on hiring. And so I think I wanted to reiterate it because I don't see it as a problem. Again, I think there's probably some noise in there, too. It's probably a bigger decline than is real, but I do think hiring is, it's definitively slowing. And I think that we should view it as a good thing, not a bad thing. Yeah, the hiring, I'm sorry, go ahead, Marissa. Well, it could it also be, I mean, employers may just eventually have more trouble finding people because the unemployment rate is so low. People aren't really getting laid off. We now know the

quit rate is really low, right? So there's just sort of of fewer available people out there as we absorb them into the workforce. Yeah, agreed. Although you would expect wage growth to be, would pick up if that were the reason. That's a good question, though, is the weakening in the number of hires in the lower hiring rate. Hiring rate is actually now a little bit below what it was pre-pendentic. It's still good, but it's still now a little bit below.

Is that because of less demand from or the lack of supply? It feels like more. The openings came down a bit. Openings came down a bit. So it does suggest that it's, you know, the demand is softening. Demand, right, not supply. Could be both. Could be both, certainly.

Yeah, certainly. I'm sure some sectors has got to be. Yeah. Yeah. But I think in general it feels more like demand to me than, than supply. But that's an interesting question. And you made another interesting point, Dante, which is important. Layoffs remain incredibly low, right? Yeah, by any measure. I mean, in the Jolt survey, they're very, very low. UI claims are still exceedingly low, you know,

close to 200K in the most recent week that we got. I mean, there's just been no evidence at all that layoffs are picking up even a little bit. Yeah, so all of the slowing and job growth we're observing is hires. The hires are down, not that layoffs are up. Right. Yeah, and if anything,

there's been a little bit of disagreement in the second half of 2023, you know, from the Joltz data, you can get a sort of implied job growth measure

if you look at the difference between hires and separations. And if anything, that's been a little, it's been overstating sort of reported job growth in the second half of 2023.

Now, sort of with this most recent joltz data, they're more closely aligned. So if anything, I think the Jolt's data might have been overstating. stating the case a little bit on the hiring fronts in recent months. And now it's looks like it's

more in line with the payroll growth that we're actually seeing. Did you happen to look at the hiring rate or the number of hires by industry? Was it broad-based this, the weakening? I'm pretty sure I had looked. I think hiring slowed almost everywhere. Yeah, it was not like a huge drop in one industry. It was a modest decrease almost everywhere. Right. Interesting. Okay. Okay, very good. Chris, what's your stat? $208,000. You sound a little disappointed in your style. In the employment data?

No. No. Oh, I thought you were going to claim? Was the UI claims for a week moving average of claims? You got it. Okay. That was very gracious. I was, you know, being a little generous by you a little time.

Yeah. Yeah, and Dante already mentioned it as well, just extremely low still in terms of new unemployment insurance claims, layoffs very low, right? So, yeah. It's to the strength of labor market. That's the number of unemployment insurance claims filed weekly, but on a four-week moving average basis. Correct.

Yeah, to smooth out a bit of the volatility. And anything around 200 is a strong labor market. it. I keep saying this rule of thumb, I'll just say it and make sure you guys agree. 250K, yellow flares should start going off. 300K, that's when the red flares go off. That's kind of recession. Does that feel like a good rule of thumb, Dante? Yeah, certainly when we get to 250, I start to pay more attention. And then if we start to go above that, you get a little more concerned. And we were about, yeah, we got to 250, maybe even 260 earlier this year for a little while and then came

back down. Yeah, and it's got to be consistently 250K plus because of the, talk about seasonal adjustment issues. There's all kinds of seasonal adjustment issues with this particular series. Yeah. Yeah. Okay. All right.

I'm going to mix it up a little bit. 15.5. Is it from the jobs report? No. Is it a mix? Job market related? Nope. Oh.

I knew it because I knew I was thinking, oh, you guys are going to take all my stats. I knew it. You're going to give some units on that, or do I have to? I was wondering the same thing. Okay. Is that going to give it away? I think so. All right. I'll just, let's say it's units. That's a big head. Is it, that's not vehicle sales, is it? Oh, it is indeed vehicle sales over what, you know, for what period? I was going to say, it's not the last month because it was a little bit stronger than that, a three month or a six month or even the 2023 average. There you go. 2023 average.

I'll just name them all until I get in. Three months, six, month, 12 months. So it's not, it's 15.5 million. Yes. What did I say? Oh, you just said 15.5. I should have said 15.5. If I said, yeah, you're right, that was a little unfair.

But even even with being unfair, Dante got it. Yeah. Yeah. He knew what he were doing. Yeah. 15.5 million was the number of light vehicles that were sold in the U.S. in the calendar year 2023, that's pretty good. That's as strong as it's been since before the pandemic.

In 2019, we sold 17 million units, which, you know, before the pandemic, I think that was our estimate of the kind of the underlying trend level of sales. And, you know, we've been well below that. 15.8 million in December. And we do expect it to continue to improve. I mean, one thing that clearly has weighed on vehicle sales is the effect of the pandemic on supply chains. You know, you may remember back in 2020 and going to 21, we had a couple ways of the virus that knocked out chip plants all over the world, which meant that vehicle producers couldn't produce their cars and inventories collapsed. And we've seen vehicle prices go skyward.

but now we're beyond the other side of the pandemic. North American production is back to pre-pendemic. Japanese-German production is picking up nicely. We're getting more inventory, and it feels like prices are now finally rolling over and coming down. Use vehicle prices have been declining, and now new vehicle prices are starting to decline. And hopefully with the recent kind of decline in interest rates means auto financing rates might come in a little bit.

and you combine all that, it might get more sales, and we're expecting more sales in 2024. And this is another big difference between now and other periods when we've suffered recessions. One of the sectors that always kind of leads the economy into a recession is the vehicle industry, because you have all this kind of generally spent up demand, bought forward demand during the good times, and when the Fed jacks up interest rates, that really crushes demand sales fall,

and that contributes significantly to the recession that ensues. And that's just not happening, just the opposite this go around because of the pandemic. And we have a lot of so-called pent-up demand. People have been putting off purchasing because they just couldn't find a vehicle. There's just no vehicles out there, and prices have been really high.

And so that's a good reason to think that, you know, again, we're going to continue to see growth in 2024. for. So good statistic, I thought. Very good. It goes to the reason for some optimism. Okay. Let's, I know there's a question or two from listeners.

I think maybe, Marissa, you know what they are. Maybe I'll turn it back to you. You want to pose a couple questions and then we'll call it a podcast. We'll keep this one short. Sure. This is, I actually only have one question on. One question. Tap, but, and this will probably take up some good hour.

I've got a question, too. Oh, okay, good. All right. So we're going to hit our average an hour, 10 minute podcast no matter what. That's what. That's what you're telling me. Okay, fair enough. All right.

So, Mark, this came to you via Twitter or X, as it's now called. Oh, clearly. This is from David. And he wants to know, should the Fed get credit? for the soft landing, given that we now know that the service-based economy seems less sensitive to interest rates than previously thought in supply chain issues caused most of the inflation, would inflation have come down regardless of what the Fed did with rates? I've got an answer to that question, but maybe does Chris Dante or Mercer, do you want to

take a stab at it? Chris, you want to take a stab at it? Sure. I would say the Fed deserves partial. credit. Yeah. I think the listener is correct that supply chain issues were a big part of this, right? And we needed to resolve. And that was a key step in getting inflation down. But, you know, Fed was instrumental as well in terms of the rate hike slowing things down to prevent inflation from only taking off, right? And getting, if anything, the inflation expectations down. And I think that was really the key contribution that the Fed made. Yeah.

What do you think, Marissa? Yeah, I agree. I think it mostly it was their communications and keeping financial markets in line with what to expect over the next few years. You know, if they had just done nothing and said, oh, this is all supply side, we'll just let this play out. I think expectations would have been really untethered. and you would have seen some really wacky stuff going on with financial markets, not knowing what to expect, right? Not knowing which way this was going to go and perhaps expecting higher inflation for longer,

which would have exacerbated this whole thing. Dante, do you take a different position? No, I would agree. I mean, I think you can quibble with, did they need to raise rates as high and as fast as they did? But I think they deserve credit for making a move. I think definitively things are better today than they would have been if the Fed just sat on their hands and did nothing. So I certainly think partial credit makes sense.

Yeah, I say 75, 25 to be precise. You know, I'm always precise. I can go to the third significant digit, but 75% has nothing to do with the Fed. It's just the fading effects of the pandemic in Russian war. At the end of the day, the inflation was largely the result of the supply shocks. The disruption to supply chains and labor markets caused by the pandemic and the surge in oil, natural gas, agricultural prices as a result of the Russian war in Ukraine. And those two things kind of conflated, got started to drive up wage growth. And, you know, that wage price spiral that Chris mentioned earlier felt like it might kind of kick into gear. And that gets to the Fed, the 25%. They made sure that that didn't happen. They jacked up interest rates to make sure

that inflation expectations, people's views of future inflation, which goes into wage contracting and everything else, remained stable and low. And by so doing, made sure that the inflation caused by the pandemic and Russian war didn't metastasize more broadly into inflation. So I'd say inflation would have been down anyway, I think, without the Fed being as aggressive. But I think the Fed does deserve, you know, some credit, you know, for, you know, for what happened, you know, what's happened here. So 75, 25. Does that sound, everyone agree with that? Something about 75, 25, 25. Okay. Yeah. Good. Chris, you said you had a question. I guess related to that then. Yeah. Just based on the employment report today, what do you think the Fed's reaction will be? Or does this change their view in terms of rate cuts? going forward? Is this in line? Is this make the more aggressive, less aggressive? Any thoughts there? You know, historically, I've always, whatever my view of a report or an event in what it meant for monetary policy, whatever I thought it was, I thought would be consistent with what the Fed thought about

it. Because, you know, I'm kind of cut from the same cloth in terms of the way I've view the world, the models I use in my mind to think about things, the models we actually use in our work, very similar to what the Fed uses in their work. So always very aligned. There's been points in time, though, recently where that's not been the case. And this is one area where the Fed did make a mistake, certainly in hindsight, they were slow to raise interest rates back in early 2022. And, you know, that's a point when I was kind of out of sync with them. And I was getting to be a little out of sync with them with the rate increases. I thought that they, you know, pressed on the brakes more than they really needed to. But I think we're back in sync, you know, I think we're all

on the same page again. Thank goodness the Fed got back to thinking the same way I do. I think that's, you know, good thing. And so I'd say no change here, that, you know, this report doesn't change any forecast. It doesn't change any perspective on the threat posed by inflation or the economy's growth. And so if they had an FOMC meeting, you know, today and decided what to do, what the dot plot would look like, what their forecast would be, it would still be for three rate cuts in 2024 quarter point each time. You concur? What do you think? Chris? Yeah, I'd agree. I don't think today's report changes. Change any minds. Yeah, yeah.

The acceleration of the hourly earnings has been pointed out. It's a cause of concern. But as we've mentioned, I think it's temporary and unlikely to change their opinion. Marissa, any? I think if you abstract from the household survey, it's kind of the same report we got last month, right? It's not that different. So I don't think it changes anything. And then add in the household survey and it just makes it look weaker, which is kind of what they want anyway.

So I think, I don't think it changes anything. anything. Dante? Yeah, I think logistically, there was never really a chance they were going to do anything in January when they meet. And so by the time they meet again in March, we'll have a few more data points. So this one doesn't really move the needle in terms of what they're going to do next. Yeah. I mean, we have been debating a little bit internally whether the, we have, we have four rate cuts in our forecast for 2024. And we've been debating, you know, when would be the first rate cut? And right now it's in May. So we have a cut in May, June, July. And, and, in September.

But I think markets have five or six, although I don't know, Chris, have they changed? Do you know, did they change today as a result of the report? Did market participants change their mind about the rate cuts? I looked earlier today. It's very volatile as you keeps going around. And, you know, still consensus was for March, but a little less. The probabilities had shifted a bit more towards May being the first kind. Okay, because I think they've been like two-third probability March, one-third not.

And now you're saying it's. Yeah, I think they moved up to like 70% chance in March and now they're back down to two-thirds. So it's, you know. Okay. So just, yeah. Yeah. So, but I, you know, and I, I don't think I'd argue with anybody that says March, you know, may possibly. But, you know, my sense is they, they do want it.

The Fed wants to be very cautious and does not. wanted to cut rates until there's, in their minds, they're positive that inflation is going back to target, you know, these rates. And it might take a little longer than just March, I think. But again, I don't know that. I'd argue too much about that. Okay. Anything else folks want to bring up before we call it a podcast? I did go back and look at our forecast at the beginning of 2019. So you were expecting job growth, beginning of 2024 at that point to be, around 75K, which I don't think is all that different from what our expectation is now. And didn't I tell you 50 to 100K?

And 75, right? There you go. There you go. I want to make sure I gave you credit, Ian. Yeah, absolutely. Appreciate that. I do want to just remind listeners, we want reviews. So if you want to give us a review, we'd be very happy to receive it.

and, you know, we are Sarah, who Sarah Rodriguez, who kind of helps organize and manage and has a lot of strategic vision around the podcast. It was on maternity leave, so we hadn't been posting the social media very much, but now we're doing that again. So, you know, please feel free to avail yourself with that. And if you have any questions, love to hear them. You can see we do take them and enjoy responding to them. please feel free to do that as well.

And with that, dear listener, we're going to call it a podcast. Talk to you next week.