Moody's Talks - Inside Economics - Curb Your (Job Market) Enthusiasm

Episode Date: April 3, 2026

The Inside Economics crew (minus Dr. DeAntonio) parses the March jobs report, which came in surprisingly strong. They all agree that the headline number is deceptive and the labor market is actually quite weak and poised to weaken further in the wake of the conflict in the Middle East. Mark unveils his new take on the Sahm Rule indicator, which points to a surprising conclusion. The stats game is back (and not going anywhere), and the team takes several good listener questions.  Email us at [e-mail] for more info about the Moody's Summit '26 Conference in San Diego 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, Marissa Dina Talley and Chris Dorettes. Hi, guys. Hi, Mark. What's going on this Friday morning, April the 3rd, to 2026? Anything cooking? Well, we got a jobs report. We did. We did. We got a big jobs report. And on the face of it, pretty positive.

But we'll need to dig into that. Yeah, we're going to dig in. And we don't have Dr. De Antonio. We don't. I think he's on a cruise somewhere, isn't he? It's not on a cruise, but he isn't a tropical location, I can confirm. You can. Okay.

Very good. Yeah, we always have him on Jobs Friday, but we're going to miss him today. But that's okay. I think we can cover all the bases. Yeah. I'll do our best. We'll do our best, yeah. And I'm going to see you guys in San Diego in a few weeks, right?

You guys getting ready for the big banking conference, the summit in San Diego? Yeah, absolutely. Chris, what are you speaking on? I can't quite recall. So I'm doing a session on affordability with Matt Collier, and we have a panel on consumer credit, consumer outlook with Mike Brisson and yourself. I'm on that panel too.

Good. Good, good. So the three of us, good. And Marissa, what are you speaking on? Me and Dante are speaking on AI. Ah, okay, that feels like something we were nothing, that's all we were talking about before this Iran more. I know, right? We haven't talked about it in a while.

We haven't talked about it since. Yeah. We're going to revive it. Yeah, we're going to, hopefully, hopefully get to the other side of this war, you know, pretty soon, doing a lot of damage. And speaking of the economy and all that, we got the job numbers. and as I said, on the face of it, you know, first blush, they look pretty good, right? I mean, what do you think, Marissa? Yeah, I would say the payroll numbers look pretty good.

I think the story is a little different for the household survey, and some of the details in the payroll survey aren't great, but it was certainly a surprise. So why don't you give us some of the numbers, just to, you know, do the nuts and bulk here? So non-farm payrolls rose 178,000 in March. Expectations, including our own, consensus, were more in the 50 to 60K range. So a very big surprise. And you remember we got a big surprise in January as well. The previous- Well, you did nothing but surprises up and down.

That's true. I mean, every- Last month it was a big surprise down, right? Yeah, it seems to be extreme one way or the other, right? It's either surprising us because it's very positive or it's a decline. So you have these big increases nestled in with all these declines in employment now since last fall. So 178,000 in March, the February figure was revised down by 41,000. It was minus 92,000. and now it's minus 133,000 for the month of February. January's figure was revised up by 34,000 from 126,000. So now that's 160,000. So we kind of have this January, March, bookend with this big decline in February.

So total revisions for February and January were down 7,000. So let's stick to the payroll survey. So the three-month moving average, this brings a three-month moving average of payroll gains to 68,000 through March. A bit of what we saw in January with goods-producing industries up. So we got a bump up in construction, employment of 26,000, and that followed a decline in February. We got a small gain in manufacturing employment and in transportation and utilities as well. I'm sorry, I'm getting confused in the ups and down. So are we now talking about the month of March?

Okay, in the month of March. I'm going through the detail of the industries. Yeah. Okay. Yeah. Okay, fair enough. So also in the month of March, probably no big surprise. Healthcare was an enormous contributor to this gain.

So it added 90,000 jobs over the month. Leisure hospitality also was up big. It was up 44,000. And that's the biggest gain we've seen in healthcare since October of 2023. Sorry, in leisure hospitality. Yeah. In leisure hospitality. And remember, that had been weak in previous months.

That had weakened pretty significantly. So that was a big bump. Other notable things in the payroll survey, government lost jobs again, a big decline in federal government employment down 18,000. State government was down a little bit, and it was partially offset by a gain in local, but overall government has been a drag for several months in a row. All the other industries either lost jobs or had very little gain. So like professional business services added a small number of jobs, but it was all in administrative support and temp help. Professional management jobs fell. Financial services jobs fell, and that was true in both finance and real estate sections of that industry.

Information jobs fell. So kind of all the white collar stuff fell over the month. hours fell by before you go there just stay on the jobs payroll jobs is survey of businesses so February we were down 133 133 K in in March we were up one what 60 something 178 so if you take the average of the two we're up 45 50k yes yeah yeah so that would be that's reality right because you know you had in February you had a strike, that was 30, 35K in health care that you got back in March. So, you know, you had that contributed to the big decline in February and contributed to the big increase in March.

And then you had weather. You had incredibly bad weather throughout the country in February, atypically bad weather in the winter. And that weighed on everything, construction, leisure hospitality. That's another probably 30, 35K in decline in February, which you got back in March because March was more typical. So it feels like if you want to get to the underlying growth rate, I mean, at least in the last couple of months, you got to take the two months together. You can't, the reality is not minus 133 and the reality is not plus 162. Yeah.

It's the average of the two, right? No? Yeah, absolutely. Great. Okay. I mean, this is so whipsawed back and forth by different factors. You certainly have to average. Right.

And then if you want to take a longer kind of horizon, you take a step back and you look at the March level, even with the pop of 162, and you go back to March of last year, I think we've created $250,000 jobs in total in that entire year. Yeah, it's about $250,000 over the year. That's right. Which is close to zero, you know? Right. Close to zero. It's barely statistically significant. Exactly.

And so, you know, my sense of things is you can't get caught up into these months up and down and all around. You've got to take a step back. And you take the step back still feels like the labor market's going nowhere fast, at least in terms of these payroll employment numbers. Chris, would you agree with that or not? Absolutely. You would agree with that. You definitely have to look through, right? It's been a roller coaster month to month, right?

Yeah. And, of course, you made the point, Marissa, just to reinforce the point. point, it's all health care, right? Leisure hospitality, that's up, that's down month to month. I mean, it's going nowhere. The only thing that's up in a consistent way of any magnitude is health care. Yes. I mean, I think I did a real quick calculation over the past year in total we're up

$250, $300,000, something like that, no more than that. It's all health care. The health care wasn't in there. we'd be down 300K or 400K, something like that on the year. So it's all one industry that's driving the train. No? Mr. Smith, would you agree with that? Push back there?

Yes, definitely. I mean, in this particular month, the gains were a little bit more broad-based than they've been, but, you know, the diffusion index was 57, which is high relative to where it's been. But again, I mean, this is kind of all over the place, and it's been very volatile. the past few months. And yeah, like I said, healthcare is 90,000 of this gain. Yeah, even there,

it feels weather related. I mean, you turn, courier, construction, couriers, that was up a lot. I mean,

you know, leisure hospitality, broadly, you know, so even that feels weather related. And we know we've had

unseasonably warm weather this march over across much of the country. So has it been unseasably warm? Yes, yeah.

But has been. Okay. Right. Oh, interesting. Definitely for Marissa, it's been unseasonally warm. Yes. Oh, in Southern California, right. Yeah. I mean, the West Coast has, it's been, it was the warmest march on record ever. Oh, oh, that's, that's, that's, so that, that, that would argue that we may actually see some weather pullback in April again.

If it normalizes, right. Yeah. Oh, good point. It's still, it's still quite warm here. Exactly. Exactly. Okay. Okay. I, I stopped you on the, on the, on the, payroll employment and now you're you were about ready to move on anything else to say on the payroll employment guys i was just going to say hours fell a little bit average hourly earnings were up 3.8 percent they ticked up a little bit compared to where they were in the prior month average hourly earnings yeah year over year yes it's three and a half percent you said it's 3.8 oh 3.8 yeah it was 3.7 in uh oh

actually no i'm sorry i was looking at February i think it was three and a half yeah you're right yeah So it didn't tick up, I don't think. No, it's kind of soft, particularly in the context of accelerating inflation. So, you know, real wage growth is barely positive if it is positive. Yeah. Yeah. And this goes to the mix of jobs being created each month, right? So if we're getting a lot of jobs, we got more jobs, for example, in this month in leisure hospitality, in retail trade, it was more skewed to the lower end of the pay scale than we've seen in previous months where that hasn't been as big of a fact. Yeah, but even the employment cost index and other measure of wages that controls for the mix, that's also, it's less than three and a half, I think. Yeah, it's definitely trending. There is mixed issues, but the message is the same, that wage growth is slowing, no? Yep. Okay. All right.

Yeah. Very good. Okay, let's go on to the household survey, the survey that is used by the Bureau of Labor 66 to calculate unemployment and participation, that kind of stuff. And you kind of alluded to some softness there. Yeah, that story is not nearly as rosy as the payroll data. So actually quite weak, the labor force fell by nearly 400,000 over the month. Employment was down by 64,000 over the month. Both the labor force participation rate and the employment population ratio, which is the share of,

of people in the population who have a job, they both fell a tenth of a percentage point. And the unemployment rate fell a tenth of a percentage point, actually a little more than a tenth if you look at the unrounded. That went from 4.4 to 4.3 because the number of unemployed people also fell. So there was just this big decline in the labor force coming out of both the employed and the unemployed. If you adjust the household survey to the payroll survey concept to get them on an apples to apples basis, right? So you take out the self-employed, you take out people working in agriculture. If you do that adjustment, household employment would be down 217,000. That would be the comparable number to the payroll survey. So telling a very different story on the household side,

very, very much weaker. And I'll say in addition to that, other measures of weakness in the labor market worsened. So the number of people that were marginally attached or discouraged workers, they were both up over the month. So these are people that aren't actively looking in the last month because they've just given up because they feel like they can't find a job. But they've looked sometime in the last year. Both of, and BLS tracks those measures as an alternative measure of, of labor force attachment, and they both worsened over the month as well. So, so nothing in the household survey that makes you feel any better about what's going on.

No. No. No. I mean, even like I said, even the unemployment rate falling isn't necessarily for great reasons, right? It's just because a lot of people left the labor force. A lot of people moved up, essentially. Yeah, it's really, we're going to come back to this in just a minute because we've been doing some work around this.

But the participation rate is falling pretty sharply here over the past year. I think it's down, if I got the number right, down six, seven tenths of a percent percentage point, isn't it, over the past year? Something like that. That's very unusual to see something. I was looking like the participation rate for men is at an all-time low, historical low. Is that right? Plummeted, yeah.

It's held up a little bit better for women. And it's better for prime age workers than it, right? It's actually mostly people 55 and older for which it's fallen sharply. But, yeah, I mean, nevertheless, for certain groups, it's at an all-time low. Hmm. Chris, anything to add on the household survey data that you want to point out? No, again, pretty weak overall. I was discouraged by the discouraged workers, right?

Seeing that increase there. That's typically one of the recession signals, right? People start to give up looking for work because they think that it just doesn't exist. Right. Okay. So taking it all together, Broadview, what's your takeaway here, Chris? I view it as a week report.

Week report, right? The headline says one thing, but, you know, with all the caveats and the volatility, right? I look at the aggregate index of hours as a measure as well. And, right, so that takes into account not only the number of people employ, but the hours. And we saw that the work week was down. And the aggregate number of hours is down this month as well. So that suggests that, you know, taking it all together,

it's not a great labor market. Right. Marissa, many pushback there? No. No, no, not at all. Yeah, no, that's my take too. I'll take the top line number, but it doesn't go very far, you know, given everything else that's going on in the report.

I do want to talk about the war and what impact that might have had on the March data in the context, oh, maybe let's do that now and we can come back to the war and what we think that means for the outlook, you know, going forward. But, yeah, why don't we do that first? Because the other thing I want to do is talk about a new indicator we've been working on together using AI, by the way. We're all crowded around Chris's computer yesterday using Claude for constructing this indicator, but that we want to talk about because it's got a surprising result, just a teaser, yeah, but just a teaser. So, Chris, do you think the war, and just to remind everyone, the war began, I think, on February 27th. In the BLS survey for March, both the household

and payroll surveys were done in the week, including the 12th of March, which is kind of the second, it was early in the month this month. It was kind of the second week of the month. So we weren't into the war for very long. Do you think the war had any impact on the numbers at all, the payroll numbers? Really? Yeah, I doubt. I doubt it has much of an impact in March, right? I think in April, I'll certain we'll see more of that impact. It was early on, and I think there was still this, there was uncertainty, definitely. Markets were kind of up and down and moving around, but in terms of the labor market and hiring decisions, I don't think employers were really making any major shifts in their plans.

I took a look at mining and specifically glass and oil exploration, but only two weeks, and that actually went down. Went down, okay. A little bit. Clear indication. Yeah. So, yeah, I doubt. Also, the expectations at the time, I think there was still, I think a lot of people were thinking this would be maybe a very quick or temporary blip. And now things have, you know, certainly moved in the opposite direction. So. And Marissa, do you have the same perspective on that? Do you think the war had any impact or meaningful impact on the March data?

No, I think it was too soon. And I think I agree with Chris. I think probably most people were thinking this would have been over by now. So I doubt big hiring and firing decisions were being made based on that at that point. Yeah, what kind of impact do you think it's going to have going forward? Do you think it's going to have a material impact on the April data? Because, you know, we're coming up, this is April the 3rd, another, we're not too far away from the next. survey and I think people's views of the war are now starting to shift. Well, clearly this isn't

short. This is now we're into week number five. So this is becoming longer and longer. And the president's speech that we heard earlier in the week didn't seem to indicate this was going to come to an end anytime soon. So if you're a business person and you hear all that, it feels like you might begin to respond. What kind of impact? What kind of impact? do you think it would have on the April data? I mean, are we talking thousands of jobs down, tens of thousands of jobs? What do you think, Chris? Actually, I think there'll be some impact, but we still have a lot of momentum in the economy when we look at consumers, retail sales, for example. It seems as though things are, you know,

people are holding up recently well. So I don't know that the employers will make radical decisions, but I certainly see them delaying some of their hiring plans, right? If they had something in play, thinking that I'm going to hire up, I could certainly see them delay. I could certainly see certain sectors like housing. The spring selling season is likely going to be very weak here, given what's happened to mortgage rates. So a cutback or a pullback in real estate, maybe even some of the financial markets that

are commercial reference in terms of some of the decline. and employment, we saw that could continue. So I could certainly see that. I don't know though about a broad kind of pullback across the board. I think there is still some of the tax refund momentum and other plans that are still in place when it comes to AI build out. I don't know that those change dramatically in the short term. What do you think, Marissa?

Yeah, it may still be too soon into it to see any dramatic effect on the jobs report, but I think certainly we're hearing reports of companies being more circumspect about hiring already, right? I mean, the stock market is down, companies are losing valuation, gas prices up, interest rates are up with the expectation that if anything, they may go higher, they're not going to go lower. So this puts a lot of cost pressure all around on businesses and on consumers. So I would expect that, particularly if this continues, right, through April, then I think we start to see a real impact here. What indicators are you watching to gauge how this might be playing out in terms of this broader macro job consequences? And you think, Marissa, what indicators would you be looking at? I mean, I'd be looking at layoff data. I'd be looking at the quits data just to see if people are being, you know, more.

for a quick reaction, I guess, to the data. You could also look at things like the Challenger data, which we got this week, which, you know, employers give reasons for layoff announcements. We'll see if anything related to the war shows up there. Those are the highest frequency indicators I'd be looking at. What do you think, Chris? What would you be looking at?

Yeah, I agree with Marissa, the UI claims. which came out this week. They're still fine, right? To I think 202,000 though, very low level. So no, no real indication that, again, firms are kind of ripping off the manate and stuff. They're not freaking out. They're not freaking out.

They may put a hiring freeze on, but they're not laying off. Correct. Right. And still now, then I think a lot depends on duration and magnitude, right, of the of the shocks here. Yeah, I wonder if we should, you know, be also focused on kind of the high

frequency consumer-related data, like air travel, how many people are going into McCarran airport, because you can get the more timely data, the credit card data, you know, from some of the large banks, just to get a sense of, because if it is going to have a macro consequence on jobs, it has to run through the consumer, I think, right? It has to, you got to see that in the retail sales numbers and spending more broadly. that's and one if you see some weakening in those kind of numbers that's when businesses would respond potentially would layoffs and you get into you know kind of a darker scenario but we but we haven't seen that yet um but i think that's what we need to watch uh it stands to reason

there would be an impact though right i mean just gasoline prices alone i mean they're last i looked triple a plus them at four dollars and i think 10 cents something like that so we're buck 10 over where we were prior to the start of the war. And every penny increase in the cost of regular unleaded adds about $1.5 billion to the cost of gasoline over a year. So you do the arithmetic, that's kind of consequential. That's not inconsequential in terms of the impact. Of course, you're right, Chris, we're getting the refund checks at the same time related to the One Big Beautiful Bill Act. And so that should help cushion the blow.

But the longer this goes on, the more damage it will do. Okay. Okay, let's, we're going to play the game, by the way, because we've heard from you guys out there that you like the game, so we're going to go and we're going to play that. We haven't played that in a while. But take some listener of questions. But before we get to those things,

let's talk about this indicator that we were playing with yesterday. And I'm going to take a crack at explaining it, this is the first time I've tried to explain it. It's all been in my head. So I haven't tried to articulate it. So let me take a crack at it and then you guys can clean up the mess that I create here, you know, explaining it. So most people out there probably have heard of the SOM rule, Claudia Somm, former Fed economist who's out on her own. She's been on her podcast a couple times.

Claudia's been on a couple times. Great economist. saw this regularity where if you look at the unemployment rate, smoothed it out a little bit, three-month-moving average. If it's risen a lot in a short period of time, and that's defined by if the unemployment rate on a three-month-moving average basis has risen more than half a point compared to the minimum unemployment rate in the previous 12 months, then you get recession. And if you look at the results, it's actually,

you already are in recession generally. It's not a, it's not really a leading indicator per se. It's more of a, a bit of a coincident or lagging indicator, although that's pretty good in real time. You know, it feels like a leading indicator,

because it's hard to determine when recessions actually start. That's the somnial. Go ahead, go ahead, Chris. I was going to insert there. And the NBR, which officially dates the recessions, typically takes its time, right?

It's like a year later. that they come in and say, oh, there was a recession, and here are the official dates. So even with like a two, three month lag in the summer, you're still better off than relying on the NBER. Right. Right. And in all fairness to the NBR, they want to be right, not fast. They don't care about being fast. This is about the historical record.

They want to be right. And that's why they wait until they're absolutely positively sure there was a recession by their definition, which is a broad-based, persistent decline in economic. economic activity, which, by the way, sidebar has nothing to do with GDP declines. You know, that rule of thumb of two consecutive quarters of GDP is just a rule of thumb. The NBR has its own, looks at it, looks at all the data and makes a decision based on a plethora of data. Okay, that's the SOM rule. Did I get that right, Mursa? I didn't.

Yep. I got that right. Yeah. Okay. So we've made an adjustment to the SOM rule. Can I call it the Zandi rule? Would Claudia be upset if I did that? Well, let me explain what the change is.

You tell me whether it rises to the level of taking credit for it. Maybe it should be the Zandi-D-Reedies denatally rule, you know, ZDD. Rolls right off the tongue. The ZDD rule, the ZDD rule. And it goes to the fact that the unemployment rate at times, and certainly in recent history, does not give you a good sense of the amount of slack in the labor market because of shifts in labor force participation. So we've seen, you know, we saw a surge in participation back in 23, 24. That juiced up unemployment because you've got a lot of people coming in labor force.

that obviously goes to the surge in immigration across the southern border. A lot of those folks came in and applied for work and went to work. And the SOM rule was triggered back in that period. It breached the half a point increase. And so that the rule would say we should have had a recession back in that period, 23, 24. And of course, we did not. We did not have a recession. So the SOM rule was wrong.

And that's rare. Maybe that was the first time ever it was it was wrong. And more recently, as we were discussing earlier, the participation rate has fallen sharply. It's collapsed, you know, maybe in part because there's swings in immigration and other things. And so the unemployment rate, the 4.3% unemployment rate, understates the amount of slack in the labor market. In fact, if you did a simple calculation and assumed participation over the last year remained constant, you know, didn't rise, didn't fall, just remained the same. the unemployment rate would be closer to 5%, you know, not 4.43%. So we made an adjustment to the unemployment rate to account for these big swings in the

participation rate. And I won't go into detail how we did that, but we'll write more about this and provide all the core of detail. But if you do that and make the labor force participation adjustment and calculate unemployment based on that, take a three-month moving average, and then look at it relative, the current value relative to its minimum value in the previous 12 months, if that has risen by more than a percentage point, so different threshold, a percentage point, has always accurately predicted recession, always accurately predicted recession.

Late, it's very lagging. It's even more lagging the SOM rule, the threshold. but it's never been wrong. There's never been a false, so-called false positive going in when the threshold has been breached in a recession. That has never happened. And if it breaches the one percentage point threshold, we've always gone into recession. Okay, here's the bottom line. And then I'm turning to you guys to kind of clean it all up, this explanation all up, and explain it better.

the the the the the zdd the zandi deridius de natalie rule if claudia thinks it's okay that we can do this if it's fair and i want to hear your opinion on that one too that's a that's a critical ethical question i'm just really curious what you think uh so uh the zddd rule was breached in january uh breached more in february And even with this payroll number, given what we saw in the household survey, breached even more in March. It's now screaming, the ZDD rule is screaming, we are in fact in recession. That's what it's saying. That's what it's saying. Okay, I'll stop right there.

And Marissa, what do you think? I threw a lot out there. You want to clean it up or add any context or anything you want to say? You're probably going to say it's a DDZ rule, right? You want to be D. You want to be the first D. No, no, no. Oh, no, no.

You came up with it. We should also say we're not, this isn't the first time someone's corrected the SOM rule for labor force supply. So there are a couple of Czech economists who did this a couple years ago. They didn't do it in the same way. but they did create an alternative Psalm rule that tries to correct for labor force supply. So we should say that off the bat. But as far as I know, it's not something

that's updated on a regular basis, or at least I can't find it. And I think what we did is actually a bit simpler here. I wouldn't be surprised if a year from now the NBER came out and said we're in a recession. Really? Wow. Interesting. Yeah. Yeah.

So you're a believer. And I'm not just basing that on this alone, right? But that said, I mean, this has always said we're in a recession. If you look at other, not GDP, right, because GDP is quite strong. But if you look at almost any other indicator of the economy, it's either. poor or highly volatile and swinging back and forth between poor and okay. I mean, the labor market seems to be in a recession. I think that's pretty well established despite this month's number and January's number. Now we're, we have this conflict in the Middle East. We have rising inflation. We have

stocks and stock market and bond market both down rising interest rates. It wouldn't surprise me if a year from now we learned that we were in a recession during that's kind of how it happens

historically, right? Yeah. Chris, what do you think on all these issues? Yeah. I'm not quite as bold as Maris. I like the indicator. I think it's very, it is firing, right? And there are a couple nuances here in terms of how we set the thresholds and the,

the different windows, right? We did a lot of experimentation around that, so. That was the other work we did with Claude yesterday as a group. That's right. And the claw is great. You can, uh, it was great. Although it got, it got a little funky there for a little bit, didn't it? A little testy at one point.

A little testy at one point. We had to say, hey, you know, get back on the straight and arrow. That's right. That's right. We were throwing a lot at it, though. We were. Yeah, we were. All the variations, hard to keep track.

You didn't know who to listen to. Which of, which you guys should I be listening to? Yeah. That's right. That's right. So, um, so yeah, I think it certainly is making a clear case that labor market is weak, right? Are we labor market recession? I think we're teetering on a recession.

I don't know if I'm right at the point to say it's very, it's very, clear signal that we're deeply in a labor market recession. And then the GDP aspect that Marissa mentioned, right, I think we're in this uncharted territory or not, not a common territory where you can have still robust GDP growth and a labor market that's declining because of some of the underlying structural issues around AI and demographics and whatnot. So I don't know what the NBR is going to do with that when they make their determination. As you mentioned, And GDP is not certainly the sole or only criteria. They do consider at the overall level of economic output, but labor market definitely matter.

So I don't know. I have a feeling that they may wait or may look for more broad-based weakness to declare recession. So I think the indicator is certainly pointing to weakness, but it could still be a few months or quarters here. that are needed before we actually determine definitively that recession has begun. Yeah, and I don't think the NBR would declare a recession if there's not some decline in GDP. Correct. Right. And Q1 GDP, Q1 is now over and we're getting data coming in.

We have a tracking model that takes all the incoming data monthly and other data and translates that into our estimate for what GDP growth will be. in the current quarter, and that would be Q1, 2026, that's coming in two and a half to three percent, something like that. So that, you know, that's off a very weak Q4 where we barely grew, and some of this swing is related to government shutdown and then reopening. But that's still not, that would not be, if that, if we keep getting positive GDP numbers in Q2, Q3, hard to see NBOR saying, hey, you were in a recession. But having just said that, you're the war. The war, Now on, hit in March, full swing in April, if it continues on for much longer, one could clearly

envisage a negative GDP number in Q2 and Q3, you know, especially in the context of everything that's going on. So the NBR may in fact come back and say, okay, you know, this is a recession. And we've had previous recessions where we've had a similar dynamic. Go back to the 2000-2001 recession. In fact, I think the recession began in 2001. That was the Y2K bubble. Y2K bubble burst in 2000. Equity prices declined the economy weekend. But it was kind of like this economy. It wasn't, it wasn't screaming recession. But then we had 9-11 and that, you know, pushed us deeply in. And that's the NBR, the NBR went back and said, okay, we suffered a recession. But I would argue without 9-11, we might not have, that might that period in the wake of the Y2K bubble bursting may not have

gone down in history as an economic downturn. But similar kind of dynamic might be playing exactly playing out here. You know, same same thing going on. Chris, what about the ethical question? Maybe we should just call it a modified Psalm rule. Just keep it at that. What do you think? Be great. You know, no? What do you think? Be gracious. Yeah. Yeah, be gracious. Maybe we should have Claudia. What a con. What a commiss or. Talk to her about it. What's that, Marissa? Maybe we should have Claudia back on and talk to her. Yeah. You know what? That's a great idea. Let's have her back on and see what she thinks of the indicator. She's so good, she'll find something wrong.

That's, damn. That's good. That's what you want, right? That's what we want. Let's ask her back on. Let's ask her back on. Hopefully she comes back on. So, yeah, I'm sure she will.

She likes Chris. I don't know. Thank God. Thank God. Thank God for Chris. I think she has a new version as well based on unemployment insurance claims. Does she? Right?

Mercer, you were, I think you're telling us. not her. It's the Richmond Fed. Oh, okay. Sorry. Yeah. Yeah. Anyway, okay. There's more nuance. We did a lot more work, but hard. I don't think we want to go into the, like we did different moving averages on the participation rate, came up with a near-term indicator. I won't go down that path. But just to say, there's a lot to explain. And we're going to, I'm going to post, do some social media post. posted first, and then we'll write this up as a white paper is too strong a word, but kind of a research paper to just give people a sense of what we've done and how we're thinking about it. Okay, anything else on that before we move on to the stats game? Chris, Marissa, anything else on that? You want to say? No? Okay. I'm curious. I mean, what's your take?

Given that the syndicator's been on for three consecutive months, could you, do you believe it? I want to do more work with Claude. I want to pound the model some more. I mean, I've got some other ideas about how we should test it out. You know, because at the end of the day, there's, what, 10 recessions that we're working with, maybe 11? I can't remember. Ten. So, you know, from a statistical perspective, that's not a lot of data points.

It's nailing the 10, 11 recessions that we got. It's nailing it. But it's still only 10-11 recession. So that makes it. So, but I want to experiment a little bit more. But I'll have to say, you know, as you know, I've been nervous about recession here for quite some time more so than most. And this just was feeding my, my angst, you know, just feeding my angst.

But it hasn't pushed me to come to say, I think we're likely experiencing recession yet. I want to do more with it before I come to that conclusion. But I do want to put it out there and see what people think and see. what kind of pushback we get. And hopefully suggestions, good constructive suggestions on how to think about it or to improve it. Okay, let's play the game, the stats game. We each before it a stat.

The rest of the group tries to figure it out with clues, questions, deductive reasoning. The best stat is one that's not so easy to get it right away, one that's not so hard that we never get it. And if it's apropos to the topic at hand, it doesn't have to be a lot of ground to cover here, all the better. and we always begin with Marissa. Marissa, what's your stat? My stat is 3.1%. I know what that is. Oh, man.

It was the one I was going to use, damn. Really? This is the hiring rate. That's right. You have that? Yep, from the Joltz report. Yeah. Oh, we had the same.

I don't know if that's ever happened, Mark, that we've made the same stat. Pooh bearer because that's a good stat. Go ahead. Explain why you picked that. Yeah, I picked it because it's actually the lowest, the hiring rate, has been since April of 2020. So right in the worst part of the pandemic. So we're looking at, you know, a six year low pretty much here for the hires rate. And I think it just underscores what I'm saying about the labor market kind of being in a session that it's just nothing's happening. We talked about how there aren't really signs of

massive layoffs, but there's just also no hiring. It just seems to be at a standstill. We also got data from Challenger, and that showed, you know, that there weren't a ton of layoff announcements. They were actually down from the previous month. But again, there's just, it's just a very paralyzed labor market, I'd say. Yeah. Did you happen to look at the industry hiring rates? You know, which industries are experiencing the weakest hiring? I did not.

No. Did you? Yeah. It's professional and business services, which is not a surprise, right? That is not hiring, you're saying. Not hiring. Well, hiring rates are down pretty much across the board across every industry. But the ones that stand out to me was the one that stood out was professional business

services. That might go to artificial intelligence to some degree. I was also surprised by, I think I have this right. I might not have it exactly right, but the hiring rate in construction is also weak, which I'm surprised. Housing is weak, but data center construction is booming. I would have thought you'd see a little bit more hiring there, but we haven't. I was a little surprised that manufacturing hiring is very weak, which, you know, that suggests tariffs haven't had any meaningful benefit, at least not to the labor market, has had no benefit. And by the way, just I've said this before, I'll say it again, we've not created, we've created barely no jobs in the past year, 253,000 jobs over the past year. What happened a year ago?

Exactly a year ago. I think almost to the day a year ago, what happened? Oh, liberation. That's my stat, maybe. Right. Liberation Day. Liberation Day, right? When President Trump imposed the reciprocal tariffs, which have been now struck down by the Supreme Court. But since Liberation Day, we've created no jobs.

We've been liberated from job growth. From job growth. Yeah. I don't think that's spurious because before you go, take a look at job change month to month, you know, going back, you know, to 2024 or 2023. And you can see clearly. the month of April, boom, we're down to nothing. And we, one month we're up, one month we're down.

So, yeah, I think the, you can easily connect the dots back to liberation day. So, and was there any others that stood out in terms of the hiring rate? No, they were all pretty weak. But that's a good one. I will say, Mercer, if you look at the full time series, that data goes, that's the Joltz data. I'm looking at it right now. That's what I was going to say. Okay, go ahead.

Yeah, I mean, it's in recession territory. Like, even if you go back prior to the pandemic, you have to go back to the, the, oh, 8 recession to see hires rates at this level. So it's at a recessionary low level, right? It's never been this low during an economic expansion. Yeah, right. Okay, that was a good one, though, primarily because I was going to use it. It's a good one. Chris what's your stat?

All right. 3.46%. Percent. Jobs report? No. No. Not jobs related. Inflation related?

No. Is it a financial statistic? Yes. Is it an interest rate? It is a variation on interest rates. Oh, is it inflation? Inflation expectation? Yes.

No. No. It's a difference in interest rates. Oh, a difference in interest rates. 3.46. Is it a yield curve? It's not a spread? It's a spread. High yield bond spread? Yes. Yes. Oh, okay. Is that? Oh, really? That's interesting. That was on Monday. I cheat a little bit. It has fallen back. It fell back down to 3.16 yesterday. but 3.46 is a high since last year since liberation. It dropped 30 basis points? It did. That's bizarre. Yeah, but it could, it could certainly pop up again.

It's certainly been very volatile. Right, right. But it's, yeah, so it's highest since liberation day of last year, right? So the spreads gaped out on Liberation Day are right around there as well, as as bond investors were nervous about the future. and they're nervous again. So it's still pretty low, though, right, in the grand historical scheme of things. Yeah, historically, I think 5% is maybe 4.5% has been a trigger point. I don't know.

Did you say this? I mean, what you're looking at is the difference in interest rates on high yield corporate debt or junk below investment great corporate debt and the tenure treasury yield, which is presumably. risk-free, but there might be some risk premium they're building in. But regardless, that's the different, that difference over that spread is a good proxy for the credit risk that bond investors think they face in investing in those bonds. So if it's wider, then they're scared. They're nervous about the credit risk, the default. That's right. And it had been near record lows for the last couple of years here. So this is a pretty, a strong increase in a short period of time here.

So they're clearly nervous about the future, more nervous about the future than they were just a couple months ago. Right, right, right. But, you know, I have noticed some pretty big swings in some of these interest rates. To your point, to your observation, the 3.46 to 3.16. Yeah. That is a big move. Yeah.

I guess that reflects the rally. In equity prices in the wake of, in the, earlier in the week, Monday and Tuesday, is that what's going on when the stock market, when there was a widespread feeling that this war was going to come to an end? The president was going to get on TV on his Wednesday speech and say, you know, the war is going to come to an end in a couple three weeks and mean it and, you know, convince everybody of it. The market rally. I guess that's when the spread came back in. Is that right? That's right. Okay. But the movements are large, right? These are atypical day-to-day movements. You're right about that. Right, right. Okay.

Okay. That was an, that was an okay one. Yeah, I think it was, you know. Stock market was closed today, you know. Yeah, it's true. One of the financial metric, 10 years, up four places, points. Not a big deal. Right, right.

All right, I got one for you. All right. 2.46. 2.46. Not a percent. Percent. 2.46 percent. Job market related?

No. Not job market related. Is it an interest rate? It is an interest rate, yes. Is it that two-year? No. Two-year treasury? No.

It might be, but that's not what I had in mind. I don't think that two-year is not. It's probably... probably higher than that at this point. Yeah, much higher than that. Yeah. Yeah. Um, uh, it's, it, uh, you want to, you want to hit?

Yes. It's also related to inflation. Is it an inflation? Is it a break even? No. A break even. It's a break even. It is a break even.

Okay. Yeah. Five year break even. So that's inflation expectations. Uh, so you take the, the five year treasury yield in you, you, take the difference with the five-year tips, Treasury inflation protected securities, and you can back out what bond investors think

inflation will be over that five-year period. It's 2.46%, which is not, you know, it's up a little bit from where it was, but, you know, before the war, but it's not a whole lot. It's not a whole lot. It's on the high side of where it's been since it came back in in the wake of the Russian invasion of Ukraine

when inflation, inflation expectations, took off, it's at the high end of that range since then, but it hasn't broken out of that range. It still feels like it's pretty anchored. And I pick that because that's a key measure to watch, to gauge what the Fed's going to do in response to what's happening with the war, right? So what the Fed has done is said, we're not going to make

any change in policy. They're going to sit on their hands. And the reason is twofold. One, in my thinking, there's two reasons. One is that. There's a lot of uncertainty around how the war is going to play out. They have no idea like everybody else. Therefore, that means do nothing, sit on your hands.

Kind of like the way they treated the terrorists back after Liberation Day. They stopped cutting interest rates. They sat on their hands because of all the uncertainty that created. And the other reason is because they don't know what to do with the shock, the oil price shock, because that's going to weaken economic growth, which would argue all else equal they would cut rates. But it also raises inflation, and that would argue for higher rates. So they don't know what to do. So they're waiting to see how the shock plays out here, which of their objectives is going to be under most pressure.

Their full employment objective or their low and stable inflation objective. And to make that judgment, they're going to be focused on inflation expectations. If inflation expectations start to rise, then they're going to do what they did back in 2020. and 23, when Russia invaded in oil prices jumped, they jacked up interest rates, right, very aggressively. And that, I think, goes to the fact that inflation expectation took off. You take a look at the five-year break-evens, they took off during that period. But if they stay low like they've had so far, that would argue that they're not going to raise interest rates, and they're going to be more focused on the full employment objective,

ultimately and start cutting interest rates down the road once we get to the other side of all this. And that, by the way, is our forecast that, you know, they're going to start cutting rates again, but not until December or early next year. They have to see how this all plays out. So I think that's a really good indicator to watch the five-year break-even. You can get it on Fred to sue Fred five-year break-even. You can see it to follow because that's going to be key to how the Fed operates here. What do you think?

Was that good statistic? Good one. I'd add another reason for the Fed to weigh is just the long and variable lags in monetary policy, right? typically or historically, a NOAA price shock and it has corrected itself relatively quickly. So by the time the monetary impact is felt, it could be, the shock may be over. This time might be different, but I think that's another rationale to go ahead and sit versus overreacting in the short term. Yeah, yeah, agreed. Okay.

You know, some of the folks we canvassed the folks about the game and said, asked if they'd like us to continue. They universally said yes, I didn't get any nose. But there was one complaint that we're not using the cowbell anymore. You want to explain why we're not using the cowbell, Marissa? You know, the cowbell, I think, actually predated me. I mean, I've been on this podcast for, I think, three years. But it stopped, I believe. Legend has it that the mics that we use filter out the cowbell now.

Exactly. So even if we rang a cowbell, you wouldn't. hear it because these fancy podcast mics. Here, let's try. Let's experiment. Ready? Oh, you have one. Can you hear that? Well, I heard that. You heard it. In the recording, we'll see if the recording. We'll see if Franco can pick that up. See if that legend is correct or not. Actually, I'm sitting at my desk.

I've got multiple cowbells here, Mercer. I'm going to have to send you one. Maybe I'll bring one to San Diego for you. Please. Yeah. Okay. I have one and it's got paintings of you guys on it. Oh. Oh, yeah. Yeah. Yeah. Yeah.

Well, it was the thought that counts. Yeah. That was from our good friend Tim Daley. That's right. Tim Daly. Yeah. Who runs sales. Yeah.

Anyway, you want to take a few, a couple of questions, a couple three questions for the next five, ten minutes or so, and then we'll call it a podcast. Okay. Marcea, you're up. What do you got? Okay. Here's a good one. And this follows from the discussion we had.

on last week's podcast when we had Shandor on talking about our recession indicator model. So this listener says he was listening to that podcast about the recession odds. And he said, if I were to consider the economy as a bimodal distribution, especially under the view of a K-shaped economy, would I be right to assume that this is a tale of two cities where one side of the economy is in and has been in a recession for a while, and the only thing preventing a recession on a national scale is the side of the economy that's been insulated

from the upheaval starting in 2022 and beyond. With that in mind, is there data to show recession odds or status from a bimodal data perspective? And this is because we're saying the baseline is the middle of the distribution, right, with basically 50% chance that the outcome is worse, 50% chance that the outcome is better. So would you define the economy as like in this way where half of the economy might be in a recession and half is not? Yeah. Chris, you've been writing a lot

about this, haven't you? Yeah, it's certainly concentration risk. Concentration risk. It's either it's the labor market or certainly households. I think this is more along the lines of income, the income distribution of households, you have the top 20%, you know, doing relatively well, right? So because of stock prices, house prices, incomes for that group have held up well. So they are generating a lot of the spending. And then you have the bottom 20% or the bottom third that are really struggling, taking out more debt, not seeing any type of asset appreciation that they can fall back on or even

their income growth now is weaker than the middle or the top. So I do agree with this idea of kind of a tale of two cities where that bottom third of household is not able to really contribute a lot to the growth. They're just kind of keeping up with inflation, doing their best to get by. So that's clear. But then you have concentration risks in even the stock market, even companies, right? We look at the overall index, but we know it's really being driven by magnificent seven or just a few select stocks relative to the rest. labor market. Marissa just went through the rundown. It's all health care and a little bit of leisure hospitality maybe, but other industries really struggling. So I see these concentrations

everywhere. And I think the distribution is something more fat-tailed than in the past. I don't know that it's so extreme that I would say it's either we're going to see tremendous growth or we're going to collapse, but it's more extreme than typical, I would say at this point. Yeah, it does feel the word the listener used bimodal, the distribution doesn't feel normal. It's not this nice bell-shaped kind of distribution of performance. It doesn't, Chris, you say fat tails, same thing as kind of bimodal, right? I mean.

Yeah, just a question of extreme. I don't think it's at that, at the, at the, at the, yeah, it's not all the way out of the tail. Right, yeah. But it's certainly, you know, flatter than it might typically be. So when you look at averages or medians or something that tries to describe as the middle of the distribution, it doesn't give you the, you know, that's why it doesn't feel right, I think, to many people, because they're not in the middle. They're either on one side or the other. They're, you know, it's too cold or too hot, you know. So, you know, it makes it very difficult to make a judgment why you have these very disparate perspectives on what's going on, I think. Yeah, that's a great question. Want to fire another one, Marissa? So we got two different listeners asking the same question and pointing to a report that came out of the Treasury Department, essentially saying the U.S. government is insolvent. So the liabilities of the government far outstrip the assets of the U.S. government.

And that's made worse in 2025 by the ballooning debt, right, with the passage of the U.S. the one big beautiful bill act. And I guess the listeners are asking, what do we think about that? And why aren't more people talking about it? And it goes to another question we got a while ago, which is, why do most economic commentators seem unconcerned with the level of the U.S. debt?

Are you familiar with this Treasury study? I've not familiar with it. Marissa, did you? I wasn't until we got multiple questions about it. Did you take a look? Is there some treasury study? about liabilities and assets and looking at the difference? Have you seen the study?

Yeah, there is. Oh, put out by the current Treasury Department. Yeah. Oh, maybe you can send around the link. I was unaware of that. But let me stay right up front. I think this is a big problem. I think in solvency, you know, that's the strong word.

But clearly we've got massive fiscal issues. I think I've said this before, but I'll say it again, I look at three indicators to gauge the fiscal health of a nation, including the U.S., debt to GDP, deficits to GDP, and as a corollary, the primary deficit to GDP, which excludes interest payments. And interest payments is a share of GDP or revenue. And in the 35 years, I've been a professional economist. I've never had a period when all three of the indicators have been screaming loudly, we've got to be. got a problem and they're all screaming, we got a problem. The debt to GDP ratio is, I think it's 100% on the nose are pretty darn close. And you don't, you take a look at the forecast, all under reasonable kind of sanguine assumptions about everything, in current policy,

even including lots of tariff revenue, this is from the congressional budget office. You know, the debt GDP ratio is going to rise very, very rapidly going forward here. Deficits to GDP, we're at 6%. Primary deficit at 3%. at 3%, that's extraordinary. You know, when your economy's got a 4.3% unemployment rate, that's pretty close to full employment. Your primary deficit, forget about your deficit, but your primary deficit should be zero, should be positive. And we're negative three.

I mean, that's just, that's really disconcerting. And then you look at interest payments as a share GDP, and that's at a record high, I believe. And the direction of travel there is pretty disconcerting as well because we got a lot of debt and interest rates are up. They're not going down. You know, 10-year treasury yield is now up to four, four and a half, and you've got the Fed on hold. They're not going to cut rates. So that means interest payments are going to continue to rise.

And then just take a look at the current budget outlook. I mean, given the war in Iran, the administration is now asking for a lot more money for defense. And they're going to get, they're not going to get what they're asking for. I think they're asking for $1.5 trillion annual budget. that's up from a trillion, by the way, which I thought was a lot. But they'll get some couple hundred billion probably out of this because there's going to be some kind of reconciliation package. So you add all this up, not even considering the balance sheet, the assets versus liabilities. That's a more complicated kind of conversation and discussion. And I want to read the study from the

Treasury. But forget about that for a side. I think we got a big problem. In fact, I go far as to say, in the not too distant future, meaning not 10 years from now, maybe next year, the year after, five years from now, there's going to be some kind of precipitating event that's going to create a crisis in the bond market. We are going to see interest rate spike. And in fact, that's almost a necessary condition for us to address the fiscal problems we have

because without some forcing mechanisms, without some form of crisis, without interest rate spiking, we can't generate the political will to do the things we need to do to address the long-term fiscal problems, which mean higher taxes and less spending. And we're just not going to do that until we're forced to do it. So count me in as one of those economists who think this is a big deal. In fact, if you look, we have this risk matrix. I don't think we've ever showed it on the podcast, maybe one day we will, where we look at

all the risks, downside risks to the economy on one axis is the severity of the risk, if it were to occur on the other axis, the probability. and kind of in the northeast part of that matrix, high probability, high risk, high severity of risk is this very scenario, bond market meltdown. So very, very concerned about it. Anything to add there, Chris? I certainly share your concern. That's been one of my main concerns.

I'll just maybe step back and say that I don't think the U.S. government isn't insolvent in the sense that a household or a business might be in terms of, you know, becoming bankrupt, right? There's a big difference because government can collect taxes and print its own currency. So I don't want to go down the route and say that everything's just fine, but it's also not at the point of bankruptcy in that typical sense. But I think the real issue you highlight, Mark, is that it's a fiscal squeeze, right? We have our interest payments, interest costs growing at a very high rate faster than the overall economy, and that reduces our fiscal space, right? We've written about fiscal space in the past.

So if there is another crisis, we just don't have as many resources or it's much more difficult to marshal those resources to get through an economic downturn, for example. So it constrains us. But again, I don't think we're not at the point of Greece, right? We're about to declare bankruptcy, but nonetheless, it is a very serious situation. We can't print our way out of this. That has other consequences as well. Were you anything to add on that? Just clarify what this Treasury statement was.

It was their fiscal statement for fiscal 2025. They didn't say the government is insolvent. That was an interpretation in the media of this, right? Okay, so it's not anything new that the government's liabilities are bigger than its assets. And as Chris said, different from a household, right, the government gets an extraordinary amount of foreign influx of capital by issuing bonds. There we're still the, you know, the premier place to park your money for foreign governments and investors. So we borrow a lot. And, yeah, we print our own money.

so it is a different situation than, say, a household. Let's do one more question, then we'll call it a podcast. How about a question on the labor market since it is Jobs Friday? Jobs Friday. Okay. And this goes to a bit of what we were talking about about participation rates and AI. This listener said, we keep hearing statistics mentioned that the share, of newly unemployed workers is heavily concentrated in entry-level workers or that new college

grads are having trouble finding jobs. This person wants to know what is the trend been in labor force participation for newly minted grads or young workers. Is it fair to think that they may fall out of the unemployment statistics faster if they leave the labor force and give up? I don't, Mr. Do you know the answer to that question? Oh, yeah. I do because I looked at it because I wanted to answer the question. Actually, the labor force, if you look at labor force participation by age,

so if I look at 20 to 24-year-olds, which would be sort of the age group where you'd have, right, newly minted grads, it's actually held up okay over the past few years. It's kind of flat-ish. obviously it's lower than other age groups because some of these, a lot of these people are still in school. But it doesn't look as bad as you'd think, given this commentary around how hard it's been to find jobs. Now, the unemployment rate of this age group has moved higher over the past couple of years. So that's been trending up. But participation has been holding up pretty well, actually.

Good question, interesting question. And we need to monitor that carefully just to see what the effects of AI, because that would be the place where you'd expect to see it. Okay. Oh, I should ask, where should listeners email their questions to? I think that has changed, hasn't it? Yeah, they should email questions to inside economics at Moody's.com. Okay, inside economics, one word at Moody's.com. So questions, please fire away. We love your questions and we'll take them regularly. Anything else, guys, before we call it a podcast,

I hope to see everyone in San Diego on May the 6th. That's the Economics Day, the Banking Summit, that we're going to be all there and be good to see folks. But anything else to say, Chris, Marissa, anything? No? think so. Okay. Okay. With that, we're going to call this a podcast. Thanks for listening and dear listener. We'll talk to you next week.