Moody's Talks - Inside Economics - Eagles and Jobs and Tariffs, Oh My!

Episode Date: February 7, 2025

Dante joins the podcast to break down the January employment report and provide his odds for an Eagles Super Bowl victory. The job market is starting 2025 in a great place, and the team discusses the implications of significant revisions to labor market data. Finally, the conversation turns to tariff policy as everyone weighs in on which tariffs, if any, are likely to stick around and the resulting impact on the economic outlook.Guest: Dante DeAntonio, Senior Director of Economic Research, Moody's AnalyticsHosts: 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 AnalyticsFollow 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 Sandy, the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues, my two trusty co-host, Chris Duretis and Marissa Dina Talley. Hi, guys. Morning, Mark. Hey, Mark. And we got Dante, Dante, Dr. D'Antonio.

We're in his Eagles, Jersey. Is he really? I'm ready for Sunday. Go birds. Go birds. It's a good weekend. Yeah, I'm excited. Me too.

Yeah. Do you think they're going to win, though, Dante? I'm as optimistic as a Philadelphia sports fan can be. I feel pretty good. So what probability do you attach to a victory on Sunday? 65%. See how he does that right below the 66% threshold. So he doesn't have to change his forecast.

What about you, Chris? Are you an Eagles fan? I know you're a Bocci ball fan, but are you an Eagles fan? Having lived in Philadelphia area, I guess I have to be an Eagles fan. I can't declare otherwise, but that's not a resounding. Yeah, I didn't feel like strong support. I would be happy if they won, sure, sure. Okay.

I would be happier that they won than the Chiefs. How about that? Yeah, okay, I'll take it. And Marcy, you don't care. You know, this is like not even on your radar screen. No, it is. It is. Oh, it is. Oh, it is. Okay.

I grew up in Philadelphia. Yeah. Yeah. I just don't follow the Eagles as much as I used to now living in California because I just don't get to see them, right? Like they're not playing in the Rams division out here or whatever. So I have to go out of my way if I want to watch Eagles games if they're not on Monday night or something. But yeah, I'm an Eagles fan. I had forgotten you're a Philadelphia, you were raised in Philadelphia, the Philadelphia area? Yeah. Yeah. Oh, where'd you go to high school? Downingtown. How did I not know that? Or maybe I forgot that. You did at one point. Oh, I did know that.

Yeah, we've definitely. We had this conversation like three times. Yeah. I went to Upper Marion High School, you know. Yeah. So a little bit to the east of you. Are you arch rivals or? No, we weren't in the same.

What do they call it? Not district or. I don't know. I feel like we played Upper and Lower Marion sometimes and some. sports, but maybe those were sort of like... We were in a different league. We were in a different league. We were more playing all the schools closer to Philly.

Yeah, like the main line sort of schools. Yeah. Yeah. The schools. Yeah. Okay. Well, good. I didn't, I didn't, that explains a lot.

It explains a lot. Does it? Yeah. You know, stuff. Stuff. Okay. I do I do with that. It's a lot there.

Well, we got a lot to talk about. This is Jobs Friday. We got the data for the month of January, January 2025, and a lot of moving parts. We're going to have to go down into the bowels here a bit to understand what's going on. A lot of revisions and all kinds of data. So I thought we spent a fair amount of time on that. We talk about this is tariffs. President Trump unveiled this first round of terrorists back about a week ago now.

Is it a week ago? Am I right? No, it was a two weeks ago. No, a week ago. It feels like a long time ago. A lot of changes. But I want to talk about that. We'll play the game, the stats game,

and maybe take some listener questions, depending on how things go. We were practicing our Italian before we got on. What do you think? Spaghetti. Got some work to do, it's my opinion. But, you know, I'm just one man.

Did you see how quickly he offered that criticism? That was like, he didn't even delay. It was fully. You're asking for opinion. Okay, wait, wait. Parmesan cheese. No? What do you think?

Let's get to the numbers. Chris, can you take him to Italy with you at some point? So you can practice a little bit? He could be a translator. Per se, something in Italian. Just anything. To say life is good. Spaghetti.

Sounds good. say it, though, all he will say. Yeah, he's, well, now you're saying you like the way he says it better than me? I didn't bring you into it. I just said I like the way he says it, you know? It feels like you're feeling. It's all about you, Mark. That's funny.

That's funny. Okay. Anyway, where were we? Oh, the jobs report. So before you go into the down and dirty with all this stuff, because again, a lot going on here. Just what's the, what's the overarching message? coming from the report, Dante? It's a good day.

I mean, I think it's a good day. Yeah. It was in line with expectations, I think, across the board. Okay. So very consistent with the very healthy job market. Yeah. Okay. All right.

Okay. So give us a rundown. You know, give us some detail here. Sure. I mean, we should focus on the sort of non-revision aspect of it first. I mean, the normal stuff. Right. So headline job growth was 143,000 in January, you know,

signals, I think moderation and job growth as we had expected. The last three months have looked a little bit strange. You got big positive revisions in November and December. So the three month average is actually 237,000 now. But I think that's overstating the case a little bit. November and December were boosted by recovery from hurricanes that hit in October of last year. Industries look mostly the same. So I always ask you this.

What's underlying job growth, monthly job growth? Extracting from the vagaries of the data? 150. 150? Yeah, I mean, average growth over all of last year was just over 160, and we got 143 in January. I think we're right around 150. Okay, okay. Okay, so the industry detail?

Yeah, I mean, the story hasn't changed a whole lot. Healthcare still the biggest contributor, the public sector and retail were the other two big components. They accounted for basically all of that top line number. If anything, I think you saw sort of smaller gains across the board than we've seen. You know, you had very little sort of positive news elsewhere outside of those three industries. Even leisure and hospitality pulled back just slightly after, you know, big gains the last two months. Again, you know, construction, very small gain, manufacturing up very little information, finance, all, you know, sort of very, very small gains.

Most of it was concentrated in health care government. retail. You know, there, there's been this kind of lingering concern in circles that the job growth has been narrowly focused on government. And when we're saying that, it's not the federal government. It's mostly local government. And health care. Health care, that seems to be a job engine, you know, through thick and thin.

Retail comes in and out. I think that might be more seasonal adjustment than anything. But it's really health care and government. Is there, do you have any concern about that, that, you know, the job growth is that narrowly focused on those two sectors? I mean, I don't think, I mean, I think part of it is if we're expecting job growth to slow further, you know, if we expect job growth to get down to 100,000 jobs a month sometime this year. And realistically, healthcare, I think, will continue to be an engine of growth. So if health care is adding 50 or 60K and we're only expecting the headline number to be 100 or so by the end of the year, there's not a whole lot of room for other individuals. to grow much in that math to me. So I think you'll have months where, you know, retail jumps one month and then it's down another month. I think you'll have a lot more

of this back and forth movement in industries outside of health care. Obviously, government will be interesting in the near term. Federal government doesn't usually play a huge role in those changes, but certainly I think that could be a little bit bigger story. Is it a doge? The doge. Right. Yeah. Right. I feels like that could be a big deal. I mean, I was doing a little chat GPTing before this, preparing for the stats game. And not that I'm going to use chat GPT. See how I assure you,

no chat GPT during the game. Okay, okay. That's the sound, Mark. I pay 20 bucks an extra a month to, I don't know why I do. Apparently I have a better version of chat GPT. So I got to use it. And I learned,

correct me if I'm wrong 2.1 million federal employees ex-military 2.1 million and that's been and postal service right

ex-postal service and that's that's been unchanged for a long time not years but decades and then I this one I I think we should check

but chat GPT sounded pretty certain about it 3.7 million private sector, federal government contractors, you know, folks in the private sector that contract to the federal government to provide services to the federal government. So that, you know, if you add that up, that's not inconsequential. But anyway, okay, but, you know, there's this other kind of underlying current of thought that somehow the jobs created in government and health care are lesser than other jobs. You know, they're more derivative, you know, they're

not, you've heard this criticism, right, Dante? I have, yeah. I don't know that I agree with it. I think there's still jobs. They're good jobs in large, I mean, especially in health care, I think the jobs, not that they're all high paying, excellent jobs, but I think we could do worse than adding more health care jobs every month. And I think the same thing with the public sector, you know, they're maybe not quite as high

paying as private sector equivalents in a lot of cases, but still good quality jobs that we can use and people want. Yeah, I don't, I mean, I don't get that, Chris, that kind of a strain of thought. with health care at all, right? I mean, that, given the demographic trends, we need more people working in health care. And that cuts across all occupations. It's in every community across the country. That's a good source of high paying, good quality jobs across the wage and skill destruction.

On government, it feels like the government was just slow to hiring, you know, back coming out of the pandemic because of, you know, the lags that are involved in the, in the hiring and firing process and the restructuring of government. So they're just kind of playing catch up. It's not, yeah, you would agree? Yeah, and to your point, it's not the federal government we're talking about, right? A lot of it is state and local government and education payrolls in particular. Oh, yeah, right. I think those, again, are jobs that we need and good jobs by and large.

Okay. Okay, the unemployment rate, that was a, that's the one statistic that actually surprised me a little bit. It went down to 4%. down to 4%. Obviously, there's a lot of moving parts in the household survey in January. We're getting the new population controls. It's a little bit hard to look at the month-to-month changes. They do publish a sort of estimate of what they would look like in the absence of those controls. But it was largely a good story. The labor force grew. Employment in the household survey rose. The number of unemployed workers fell, and that contributed to the unemployment rate falling to

to 4%, as you mentioned. So I think stronger than I would have expected on that side of things. I thought, you know, because, and I don't want to dig too deep yet into the population controls, but I thought the because the BLS was added to population because of the surge in immigration, that we'd see a tick up in unemployment because the unemployment rate for immigrant workers would be, this is my intuition, higher than were native. have born, but we did not see that in the number. Yeah, I agree.

I mean, I had expected it to maybe tick up to four, two, as opposed to down before. So I was thinking along the same lines. Same lines. At the end of the day, it's a pretty trivial movement either way. Okay. And it's been 4% for amazingly, I think, three years on the nose now. I mean, round four, a little bit below, a little bit above, but, you know, hovering around four for three years, which is just incredible.

If it weren't for the population control, actually, the population control, actually, the population control did make the unemployment rate tick a tenth of a percentage point higher than it. Oh, okay. So without that, it actually would be three nine. Ah, is that right? Yeah. I guess that in the report. Okay.

Well, maybe that explains partly why the tenure treasury yield sold off. We'll come back to that in a second. Oh, did it? Yeah, long-term rates rose. I was wondering why. That might be the reason why. Okay. How about wage growth?

That came in strong. It didn't come in strong. I mean, it was 0.5% in January. I will say January wage growth tends to be a little bit hot. So that that's the strongest reading since last January, which was also half a percent. And if you go back a couple of January before that, you had a 0.7% in there, another 0.4. So it's not unusual to get a strong January reading. Year over year growth moved a little bit higher.

I think it's at 4.1% now. It had been just under 4%. So I still don't think it changes the story. on wage growth all that much? I mean, certainly if we start to stack up, you know, stronger wage gains like that might be a little bit concerning, but I think the one-off January increase and the fact that the year-over-year growth rate is still, you know, pretty close to 4%. It doesn't cause a whole lot of concern in my book. Yeah. And did that be, I'm just throwing this out. I don't know. Minimum wage hikes. Are there, I mean, because I know in January's past, that was a reason for those

big jumps. You know, you saw minimum wages go up. Do you know? know whether that happened this year as well or not? I don't think there were as many. I mean, you had a few years ago many more states implement your beginning of year sort of automatic changes that were tied to CPI. So I think you do have more states that are increasing minimum wage just sort of by legislation at this point every year. The other thing that happens in January is there's a huge, there's much more churn in January

in terms of the labor market than usual. If you think about the non-seasonally adjusted, you know, job market, you have huge losses. in January. It's going to give a lot more change in industry composition, potentially, that can affect those January numbers as well. You think about, you know, retail and leisure hospitality, sort of pulling back after the holiday season. Those are lower paid occupations. I think that can also contribute to that slightly stronger reading that you get in January as well. Okay. So 4%, I mean, 4.1%, to be precise. I mean, the other wage data is very consistent. We got the employment cost index, ECI. I don't know who was this week or last week.

Last week. Last week. That was 4% too, wasn't it, on the nose? You're over year, year, 4%. I believe, pretty close. It was right around 4%. Total compensation. So it feels like we're at 4. And that seems exactly where you kind of sort of want it to be consistent with 2% inflation and kind of 2% underlying productivity growth. Yeah, I agree. I mean, I feel like that's been the story for most of the last year is that wage rates is basically settled where you would sort of expect it to be at this point. Okay. Okay. And then the final kind of key top line statistic, or I always get confused, is it top line or bottom line statistic? Do you get confused by that too?

Should, is it top line or bottom line? I feel like, well, I don't know what you're talking. I'm assuming you're talking about. Without knowing what you're talking about, it's hard to know which one of it is. I have no idea what you're talking. Okay, that's fair. That's fair. I'm not sure I do either.

I'm just confused. let's say the other key statistic. Let's abstract from this top line, bottom line thing. We'll come back to that. We'll come back to that. And I'm curious, Chris, how you say that in Italian, bottom line, top line. But anyway, we'll come back to that. The key other key statistic is hours work per week.

And that tick down a tent. Any information there? Or is that just, you know, monthly noise? I mean, it is pretty low. I mean, obviously it's been a little bit weak here, over the last year or so. I mean, that it's now down to, if you're looking at sort of average weekly hours for total private workers, it's down to 34.1 hours. That is, that's, you know, that data doesn't go back that far. It goes back to 2006. That's the weakest it's ever been when

we're not in a recession. So, you know, it was that week in early 2020 and it was that week for a while in 2009. But outside of that, it's, it's never been that low when the economy is, is doing well. If you look at the other, you know, the production and non-supervisory employee series, so sort of a more limited look at hours, it's still weak, but it's not sort of historically weak like the all-employee series is. So I don't know that I read a whole lot into it. I think we know that, you know, demand is a little bit soft. We know the firms have been a little bit reluctant to lay workers off.

So to me, it's probably an artifact of that, that you've got slightly higher head counts than maybe you need. And so that's putting a little bit of downward pressure on hours. Does that create a problem where eventually we start to see that turn into layoffs? I think maybe it depends on how the economy holds up here in 2025. Okay. I thought maybe also the fires in L.A. Because generally natural disasters don't impact jobs because all you have to do is work an hour

in the week when the BLS Bureau of Labor Statistics conduct the survey to be employed. But certainly your hours can be impacted. So generally a natural disaster shows up in weaker hours. could maybe, I'm stretching, but maybe that is where it shows up. Yeah, I think it could have an impact. You know, BLS gave the standard, you know, sort of no discernible impact from the wildfires, but they've said that in the past when it certainly looks like there's at least some impact. Some impact is going on, yeah.

Okay. Okay. So bottom line, top line, everything in between, it feels like a good report. Yeah, it was as expected. The labor market's healthy. Yeah. The labor market's holding up well, yeah. Holding up well.

Okay. Marissa, any anything to add to that or want to flesh out or do you take a different perspective on the job numbers? No, I kudos to Dante for pretty much hitting it on the head with the forecast for what the number would be. You don't suck up to me like you're sucking up to Dante. I just don't just appreciate that she doesn't call me out when my forecast is bad. She only brings up when it's good. Now you're sucking up to Marissa. Everyone's sucking up to everyone except for me.

Just saying. Anyway, sorry. It's called a positive feedback, Mark. Oh, yeah. Yeah. Okay, I'll remember that. Yeah. Please do.

Do I have anything to add? Just I noted the weakness in leisure hospitality that Dante brought up, right, weakness in manufacturing, which has been ongoing. Weakness in professional business services. I mean, the breadth of job growth was narrower over. the month. If you look at the diffusion index, it is still above 50, but it fell from where it was. So definitely fewer industries kind of adding to this. And then, yeah, I mean, I think it was a pretty solid report. And then other labor market data that we got over the past week, I think also

bolster that assessment. You mean the jolts, the job opening labor turnover survey, the UI claims. Yeah. Yeah. Yeah. Yeah. Okay. All pretty consistent with a solid job market. Yeah. Okay. Chris, anything? Not really. No, I think summarized well.

We can circle back to the treasuries, right? The treasury market. Yeah, right. It'd jump up. So the 10 years over four and a half, or just around four and a half percent. So I think that speaks to the strength of the report. Perhaps relative expectations with, you know, 4% unemployment rate, again, perhaps being stronger than investors thought.

reducing the odds of an actual Fed cut anytime soon. Yeah, I mean, as the Fed looks at this, they'll say, I'm pretty happy where the funds rate is right now. Yeah, with this. Okay, okay, good.

I mean, I agree with you. I thought it was a solid report. I don't know if I've said this in the past, but I say it again, if I had, you know, soak it in, this brief shining moment, perhaps. I mean, the labor market's about where you want to see it on every front, you know, every measure that we look at. It feels like exactly where you'd want it to be. So got to be happy with the employment statistics. Okay, let's now dig deep,

deeper into the data. We had two sets of revisions to the data. We had the so-called benchmark revisions to the payroll survey. That's the monthly job growth numbers that we look at, where they come from. Once you hear the BLS so-called benchmarks, their survey-based estimates to actual employment counts from the unemployment insurance records,

and there was a big revision down in that data. And the other was, the other big revision was to the household survey. That's where we get the unemployment rate in labor force. And there, the Bureau of Labor Statistics incorporated new population counts that incorporate the impact,

the impact of the surge in immigration we've experienced, and that increased significantly the size of the labor force and had other effects. So maybe, and we're lucky because we've got two former BLS officials here, both Dante and Marissa were, you know, at the BLS back in the day. We were not officials, if you're listening to this. We were not officials. You're officials in my book. Yeah.

Yeah. I'm going to say official officials. You know, it sounds more important, doesn't it? It definitely. It's more important. So, but you are, you are, you are and more important. And key to the BLS is publishing of these data. So, Murza, I'll go to you for, very well. See that? Did you see that? How I did that? Positive feedback. Now I'm sucking up to you. Yeah. So which one of those revisions do you want to tackle, Mercia? The, the benchmark to the payroll survey or the population counts to the household survey? I'll do the household survey. Okay.

That was my whole. Okay. Oh, there you go. Oh, there you go. See, official. It's an official speaking officially. Go ahead. Oh, you want me to go first.

You want to do the population controls? Well, yeah, I thought so because Dante's been speaking an awful lot, you know. That's true. You know, he's been monopolizing the conversation in my view. Okay. So every January's, with the January release, every February, BLS on the household survey, this is where the unemployment rate comes from. This is the survey of 60,000 households that the Census Bureau conducts, right? So every year, they benchmark the size of that, the estimates from that survey to actual Census

Bureau population counts. And if you're a listener to this podcast, you know that we've talked quite a bit over the past year about how this surge in immigration across the southern border over the past three years has really affected estimates of population, estimates of other economic statistics, right? One place that it hadn't affected and where we had seen a disconnect was in the household survey numbers. So that population surge had not yet been in course. by the Census Bureau into the household survey. So with this revision to the January data, the Census Bureau finally put those estimates into the 2024 population numbers starting in,

sorry, they put the data from 2024 in subsequent years into the January 2025 estimates. The result of that is that if you look at the civilian non-institutional population, which is a subset of the whole population, but that's the population that the BLS uses. It added 2.8 million people to the population in January. It added 2.1 million to the labor force, exactly 2 million to the number of people employed, and a little over 100,000 to the number of people that were unemployed. And when the BLS does this, unlike what Dante is going to tell you about the benchmark revision, they do not go back and revise previous months so that when you look at, when we look at December 24 versus January, there's this big break in the series. They don't go back

and smooth that. Now, they used to produce an experimental series that they would publish on their website, this is before the pandemic, where they would do this smoothing. exercise as kind of just a nice thing to do for people. They did say they're going to start doing that and they're going to release that with the, did they release it today, Dante? I don't think it's out yet. I think they're going to release it. It's supposed to be released today, but it wasn't out of them. I didn't see it on the website yet when I looked, but they will do that. And that's just sort of as a courtesy to make things comparable because this is such an enormous break in the series. So finally, what we have now is a household survey that makes sense vis-a-vis the payroll survey. So we'll hear

that the payroll survey got revised lower. The household survey got revised higher. So this big gap that we've always talked about between the two in the past year has now been narrowed significantly. And just a couple things to note. I mean, this certainly is the effect of immigration. If you look at sort of the demographic breakdown of where this population came. It is disproportionately among Hispanics and Asians. And if you look at the population change between now what we had in January of 24 and January of 25, right, this is this bump. The bump for the foreign born was 6.1% in terms of the population. The bump for the native born was 1%. So it really is the result of this surge in immigration. And as we know, since, you know, the summer of last year, there's been basically

a closing of the southern border. Immigration flows have dropped very, very markedly. So this should be, and now particularly within, you know, the Trump administration and their policies that they're going to put forth on immigration, this should be a one-time adjustment that we see. We shouldn't see this again. Can I ask, well, a couple things. One, the, even with this big upward revocation, vision of population and labor force and household employment did not affect the unemployment rate. You just want to explain why or the participation rate. Yeah, that's a good point. So basically what this does is it's lifting the level of everything, right? And it did so in a proportionate way such that the rates of things really weren't affected very much by this. So when we look at

calculations of the unemployment rate, the labor force participation rate, the employment rate, the employment population ratio, the effect of those, all of those things was a tenth of a percentage point. That was the result of this population adjustment. So not large. And if you remove the population adjustment, as I said for the unemployment rate, it actually would have been a bigger decline over the month. It would have been two tenths of a percentage point if not for this. But for the participation rate, it would have been zero. And for the Epo, ratio, it also would have been zero. So because you're adding to all of those categories in a pretty proportionate way, it's not really affecting the rates of things. Yeah. Also, I guess we may

have to wait for the experimental data to get a consistent time series. But do you, do you have any, given what we've got now, do you have any sense of what underlying labor force growth is? I probably just should wait a few hours and get the data, but I'm just curious. I mean, if you remove the population effect between December and January, the labor force would have increased by about 91,000 month over month without that effect. So I don't know, we're probably looking at about, it's slowed, right? It certainly has slowed. So it's kind of hard to say what underlying is because we were looking at over 200,000 added to the labor force maybe like a year ago. And now it seems like that slowed pretty markedly.

To about half that. Yeah. That's what it seems. But we'll look at that experimental series. Yeah. Yeah. We'll wait and see. I mean,

I ask because that gives me a sense of kind of underlying potential growth of the economy, which is equal to the growth in the labor force plus productivity growth. And that's obviously been very, very strong, but it's clearly slowing. I mean, labor force is going to slow because immigration is coming away off, as you pointed out. And even the productivity growth numbers, you know, we got for the fourth quarter. They show some slowing too. Yeah. Okay.

Dante, do anything else you want to add on to what Marissa said about the household data and the population counts before we move to the payroll survey? No, I think that pretty well covers it. Yeah. I mean, it's a big upward division. That's ultimately what we expected and what we got. We expect it. Yeah.

Yeah. Okay. Okay. Okay, very good. Okay, so let's go to the payroll survey, the survey of business establishments, and that had a downward revision in the benchmark. You want to explain that? revision? Sure. So the revision process is a little bit different on the payroll side. They do what's

called a benchmark revision where they actually fix a level of employment for the previous March. So the benchmark here was March 24. They're using the UI claims data, right, the unemployment insurance data, which is a near universal count of employment to set that benchmark level. So they essentially say, okay, here's the new level for March of 2024. They wedge that difference back through, you know, to April of 2023 to make it a smooth, consistent change in the data historically. And then that level in March of 2024 becomes the new benchmark point. And then they reestimates the remainder of 2024 off of that new level. And they also update the seasonal adjustment factors throughout 2024. So you do get some changes in the data in 2024. But the real impact of the benchmark is actually

from April of 23 through March of 24. So it's pretty backward looking. The size of the revision was large relative to history, but it was actually smaller than the preliminary estimate. So a few months back, they had estimated that the benchmark revision would be just over 800,000 down. The revision we got was about 590,000 down.

So that March 2024 level moved lower by about 590,000. You got smaller revisions then through the rest of 2024 for the most part. What does that do in terms of actual employment change? So if you look again at that sort of benchmark period from April of 23 through March of 24, before the revision, average job growth was 242,000 over that period. After the revision, it's 196,000. So again, it's a big shift relative to what it normally is. it doesn't fundamentally change the story about how the labor market is doing, right?

You know, the fact that we were adding 200,000 jobs a month is still obviously fairly strong. If you look at full year 2024, I think I mentioned earlier, that average is now 166,000 for the full year, which is also lower than it was previously. But again, I think fits the story here pretty well. The job growth is continuing to decelerate, you know, after it really peaked in 2021 coming out of the pandemic. Remind me, I can't remember why. Why the downward revision, did we establish why there's such a large downward revision?

I mean, oftentimes the issue here is new business creation, right? The so-called birth-death adjustment. So in real time on a month-month basis, BLS is estimating the impact from net births and deaths of businesses because they can't sample and measure what's happening in those businesses that are opening and closing. So oftentimes when you get a big, a bigger-than-usual benchmark revision, it's, you know, we point to that as the factor here. If, you know, they're using historical data for business birth and deaths to try to forecast what's happening in real time. So if what's happening in real time is fundamentally different than what had been happening historically, that can lead to

some problems. So my guess would be we were overestimating, you know, sort of those business births relative to deaths. And then we got the sort of the real data that showed that, you know, there wasn't quite as much new business formation and creation happening. And so that's typically what we point to when there's a bigger than average revision. Okay. And that average feels like 250, 300K, something like this. This is kind of double that. Yeah. So if you look over the last 10 years on a percentage basis, the average absolute revision is a 10th of a percent. This one was four tenths of a percent. Four tenths. Okay. It's quite a bit larger than normal. Yeah. Okay. Okay. It doesn't change the story. It doesn't change the picture of the labor market. I don't think so. I mean, it's the 200,000

K a month is not all that different from 240 in terms of what we think about how the labor market's doing. It was performing. Okay. All right. Well, good. That was both very helpful. So anything on that?

Did you want to add? No. Okay. That was very helpful. A very clear explanation. Before we move on to the stats game, anything else on the jobs numbers? Chris, anything you want to add? Just checking in.

Did we mention the upward revisions for December? No, there was pretty substantial, right? Yeah, that's, yeah. Good point. Dante, you want to? Yes, they were, they were big, right? I think I alluded to the fact that they were large before. It's 100,000 in November and December combined. So it's a rather big revision. I think obviously there's. Just for the listener, because now they're probably totally confused. So we got, you know, down revision. We've got upper revisions. I mean, what's going on? Well, yeah, and so November and December are even more sort of convoluted because there's a couple things happening, right? So you had the benchmark revision, which changed the level and you had updated season. adjustment factors that's affecting all of 2024. But October and November, we get sort of normal revisions to the prior two months. So that's, you know, those are bigger changes because you're getting additional sample that's come in for November and December, right? You're getting more information about businesses and how they've done. And particularly because November and December had recovery from the hurricanes in October, I think it's not surprising that we sort of underestimated

how big that recovery was initially. And now that we've got more data in, it's, you know, sort of solidifying that we had a pretty strong bounce back in November and December after a very weak October. So yeah, there's lots of things affecting those. It's the combination of the benchmark and seasonal adjustment and additional sample coming in for those two months. Okay. So to summarize, the average monthly job growth, 150K, K, unemployment rate, 4%. That's four percent. I mean, if you're going to put it on a piece of paper, what you wanted to see, the labor market, it probably would be those three numbers, wouldn't it? Yeah, I think, right, given what we think about labor force growth, I don't think you can

hope for much stronger job growth at this point, right? I mean, that's about as good as it can. I mean, yeah, I mean, yeah. And that even 150K is better than, it's pretty darn good because labor force growth, immigration has been a source of growth. But, okay. Okay, all right, very good. Let's play the game.

The stats game. We each put forward a stat. The rest of the group tries to figure it out with clues, questions, deductive reasoning. Best stat is one that's not so easy. We get it right away. One that's not so hard we never get it. And if it's apropos to the topic at hand, which I guess is the labor market. And we are going to be talking about tariffs next.

All the better. Marissa, we always start with you. What's your stat? My stat is 2.3%. From the job report? No. It's productivity growth over the year, I think. Yes.

Yeah. No, over the year. Oh, you mean calendar year. For 2034. Right. The annual value, yeah. Are you sure it's 2.3? I think it rounded down to 2.2.

I'm just saying. No, you think it's 2.3? I'm going to ask chat GPT. I'm going to do it. You're going to believe chat GPT over me. No. Of course not. How would I do?

Why would do that? That'd be lunacy. Lunacy. I'm just glad you took this away from Chris. So thank you for bringing it up. Chris, it couldn't bring it up. Yeah, this is the annual average productivity growth for the year 2024, 2.3%.

If you abstract from the year 2020, which we always have to do for obvious reasons, this is the fastest productivity growth we've seen since 2010 when we were coming out of the Great Recession. So productivity growth is typically very, we see it very strong coming out of a a deep recession. So you could almost abstract from 2010 to and chalk that up to the recovery. This is really, really good, solid productivity growth. Now, growth slowed in the fourth quarter compared to the third quarter. So third quarter productivity growth was 2.3%. It fell to 1.2% in the fourth quarter. So a market slowdown, as you mentioned before, Mark, but over the year, very, very strong.

So I think year over year through the fourth quarter, it's now, I'm making this up, 17, 1, 1,8, 1, 1, 9, somewhere in there. 1, Dante. 1, 6. 1, 6. I've been focusing on that number more than 2, 3, you know. Oh, I see. I see.

I see. Being the productivity. I will say, though, it does feel like, you know, this bump in productivity growth that we got this time last year appears to be fading a little bit. and we're coming back into something that we'd been experiencing more consistently. Do you agree with that, Marissa? Yeah, I mean, it was it was solidly. We were seeing three and three point something percent, right, when we were looking at

over quarter productivity growth in 2023, 2024. It's slowed for sure. Dante? Yeah, I agree. I mean, I always caveat. I want productivity growth to be strong, but I think we're likely to settle in here at something a little bit under 2% eventually, but yeah, we'll see where it goes. Chris, you've been the productivity bowl.

Any comments on this? Just a transition here. We're handing off the productivity bump because of the quit rate. Remember, we had that argument here. So that that is petering out. The fact that you have a lot of new workers, new churn, that was, you know, we got a little bit of productivity boost there. And now we're going to see the technology productivity bump.

I'll continue here. Don't lose faith. So Mark's going to keep using chat GPT more. That's what you're saying. Yeah, absolutely. That's the bump moving forward. Okay. Well, I'm not sure it improves productivity because I got to hire someone to check whether

the chat GPT is correct or not. Just to make that concrete for the listener, what you're saying is that because of all of the quitting that occurred back a couple three, maybe four years ago, people landed in new jobs that were more suited to their skills, education, and interests. They're happier in their jobs. We can see that from the various surveys of worker sentiment. And that gives us a boost to productivity, but that's, it doesn't feel like that's, that's one time.

That's not ongoing. And that's what we observed this time last year when we were getting those really strong productivity growth numbers. And you're saying your thesis is that that's now fading a little bit, but don't to spare all the productivity tail ones coming from AI and I don't know if remote work, but all these technological innovations are going to start to kick in in a more meaningful way. That's what you're saying. That's what you're sticking to it.

Yeah. Yeah, yeah, yeah. Got it. Aren't new employees less productive, though? New employees? Yeah. Oh, you mean, oh, well. People are switching jobs and they're starting a new job when you expect those people to

initially be less. initially productive. But once they get up the learning curve, you know, after a few months, maybe a year, then they kick into high gear. And they're more productive than they would, than they were at their previous job. The argument was you had a huge amount of quitting in 2021 and 2022. That fueled strong productivity in 2023, but now that's starting to sort of peter out. Yeah.

Yeah. I haven't seen any research on that. Have you? No. It's just a thesis. Yeah. Yeah. Yeah.

Just a thesis. Chris, you can control that void. It's a good, it's a good story. Yeah, it's a good story. Yeah. Okay.

Dante, you're up next. What's your stat? That's a good question. You're unprepared? No, I am. I just can't decide what I want to use. They're going super deep in the weeds. Let's go.

We'll keep it a little more high level. 50.9. Is that a diffusion? Oh, that sounds like an ISM. survey. Is that your guess? Which ISM survey are we talking about? This is the employment.

This is the employment component of the manufacturing purchasing manager survey. It is manufacturing, but it's not the employment index. Oh, it's the top line? It is the top line, yeah. Or the bottom line, which is it? Top line or bottom line. I'm going to call it top line. I think it's top line because there's things underneath it component.

It could be the bottom line, though. I'm just saying, right? Good. Sure. The bottom line point is the 50. You see my confusion around the top line and the bottom line? Maybe it's the upshot. The upshot.

The headline. How about we just called the headline? The headline. The headline. There you go. The headline. All right. So it's obviously above the neutral threshold of 50.

First time it had done that in I think a little over two years. Obviously, you know, manufacturing sentiment has been has been pretty weak. I'm not really sure how to take that. I mean, we've seen these big spikes in sentiment-based surveys here since the election. There isn't a whole lot of evidence that sort of underlying fundamentals for manufacturing have shifted in any meaningful way. So my guess is this doesn't translate into some sort of resurgence in manufacturing. My guess is it sort of fades back to something close to neutral here in the coming months. And we don't see any real movement on the employment side of things.

There seems to be some optimism amongst manufacturers for policy change. under the Trump administration. Again, I'm not sure that I buy that story a whole lot, that there's going to be some huge positive shift in the dynamics for manufacturers. But that's at least the signal we're getting right now from sentiment. Yeah, I'm not a big fan of these purchasing manager surveys

or sentiment surveys in general, right? Because they're, ISM is a little, that's referring to the purchasing manager. I say ISM. Is it still ISM Institute for Supply? management or is it purchasing managers? It is I-SIM. Yeah. You know, half the questions are basically how you feel about something, right? It's a, it's a sentiment survey. It's not based on actual production or exports or prices or half the surveys, half the survey is. And so I just downweighted,

given how biased sentiment appears to be in this very politically fractured environment, though, and do you agree with that? Yeah, and I think if any, you know, sentiment was actually, you sort of weaker than the sort of hard data would have suggested over the last couple years. The sentiment was very strongly in contractionary territory. And manufacturing wasn't doing well. It was sort of stagnant, but it wasn't as bad. The deduction was flat. Jobs were flat.

It was flat. It wasn't down. Which would, right, would suggest it should be something around 50 and it had been sort of well below 50 consistently for the last several years. I think we had this sort of weight on sentiment and that seems to be lifted now post-election. But I think the reality is the dynamics happen. really changed. The actual reality in terms of manufacturing activity is not changed. It's still basically neutral. Yeah. Basically flat. Okay. Okay, let's do one more. Chris, you're up.

What's your stat? 4.3%. Is it from the jobs number? No. I couldn't resist. Is it a yield? Is it a job? Is it came out today? Came out today. Oh, is it, is it inflation expectations from the University of Michigan. Oh, yeah. Yes, one year ahead, 4.3%. That's high, right? From 3.3%. Oh, wow.

Whoa. And like two months ago, it was 2. something. It's almost doubled in the top of two months, right? Yeah. Yeah, yeah, yeah. So there's egg prices that are getting people worried again. That's.

You think it's eggs? I think it's tariffs. It's terrorists, right? Yeah, it's got to be terrorists, right? Yeah, I would think so. Oh, gas prices went, uh, rose as well, right, over this period. So a little bit, but yeah, it's got to be tariffs.

Right. Yeah, people are preparing for that. Yeah, psychologically. Yeah, nervous about that. Yeah, interesting. Well, I even heard President Trump in just a TV clip where he said, I think the American, I'm paraphrasing, you know, the American people are prepared for some price increases that, you know, they expect it, you know, it's, we need that to accomplish.

what we're trying to accomplish. So if I'm in a, you know, if I'm a consumer and I listen to that, I go, oh, tariffs are coming and I'm going to have to pay a higher price for stuff. Yeah. Yeah. Interesting. Also in the U.Mish survey, they have the political breakout and the Republican sentiment is coming in. It's still high, but, and Democrats think this is the worst.

COVID-19. Is it really that low for the Democrats? Yeah, it's at that level. That's amazing. Yeah, that's my point about these consumer sentiment surveys. Yeah, they're bogus. Okay, well, let's talk about tariffs. Big week.

Last Saturday, the president announced tariffs on, I think, to increase tariffs on China by 10% at 10%. They're already around 10%. Based on the tariffs he imposed in his first term, he doubled them, essentially. wanted to impose tariffs of 25% on imports from Mexico and 25% on Canadian imports in the U.S. that are non-energy, all the energy-related imports from Canada were 10%. Obviously, a lot's happened since that Saturday. The tariffs on Canada and Mexico were put on hold for about a month. The Chinese tariffs were forward. The Chinese responded with their own tariffs, not on a lot of products, but felt more symbolic. And then they came forward with some non-tariff-related responses to

what President Trump did. It feels like we're often running here on the tariffs. Now, I guess the critical question is, you know, how high are the tariffs going to go? Which countries? How high over what period of time? Because that critically determines what it's going to be the macroeconomic consequence. I mean, if it's, if this is more short-term, few countries, no big deal, this is a lot of countries higher rates over a long period of time. This is a deal, you know, both in terms of inflation, it's going to add to prices. And you could see that in the consumer sentiment survey results, Chris was talking about. And it diminishes economic growth because it reduces, reduces trade, particularly if other countries retaliate. And the question in my mind, I'm curious,

what the group thinks is, what is the motivation or motivations behind the tariff increases by the president? Because I think that goes to exactly how this is going to play out. If it's an effort to raise a lot of tariff revenue, that could argue for much higher tariffs across more countries for a longer period of time. and the economic consequences of that more significant serious. If it's simply, you know, more performative, you know, satisfying a campaign promise, because obviously the president talked a lot about tariffs on the campaign trail,

then that would argue for things that are more inconsequential. Like, for example, you know, he put the tariffs on Canada on hold when the Canadian said, oh, we're going to send 10,000 troops to the Canadian border. we, you know, to do what exactly is like unclear. It's not like there's a lot of, or any illegal immigrants coming across the border, and that's not going to stop any drug trade. So that feels just totally performative. You know, it doesn't, political, doesn't feel like there's any substance.

But if that's the case, then no big deal. The terrorists will really not have any particular impact. So my question is, what do you think is the motivation, the president's motivation, the administration's, motivation here behind the tariffs, to what do you ascribe this policy? Is that a fair question? Does that make sense? Chris, does that make sense? It does. Okay, so what do you think? What do you think? What are the, and it can be more than one. There could be a, you know, a melange of stuff going on. I'm just really curious, you know, what the motivations are and how you think this is going to play out.

I do think it's a mix and I think it's a mix that depends on the countries that we're talking about here. So yeah, to your point, I think the tariff threat on Canada is more performative. It's more about perhaps, you know, saying he made promises on the campaign trail and he's fulfilling those promises. Perhaps it's also sending a signal to the rest of the world that says, hey, look, we're serious about this. Fair trade is important. I want to make sure that the deals that we have are beneficial to all parties. So, you know, just kind of sending to say, this is how we treat a good All-A-Han friend. You know, this, you know, we're not going to pull any punches here when it comes to trade.

But at the end of the day, I don't expect that tariff to go through. I think the actions the Canadians have taken probably are going to result in at least a sharp reduction in that tariff rate, if not a full backing off. But then in other cases like China, I don't think that's the case. I think that is truly about trade, about trade practices, the feeling that there's a trade imbalance in terms of those practices and therefore these tariffs are a response to those actions that China is taking, looking for more of a free or fairer type of trade deal. Beyond that, there is this revenue aspect to it. I think that that's certainly in the background, but I don't think that that's really what the motivation here is to really fund.

There's been talk about going to the McKinley, back to the McKinley days where we funded the government with tariff revenue versus income tax revenue, but I think that's just talk. I don't see that as a serious rationale for imposing tariffs. We're not going to fill our are fiscal needs through tariffs alone, certainly. So I don't see that as maybe on the margin, but not a, not a key factor in terms of motivation. Okay. So what does that imply about how the tariff war is going to play out here? What does it mean?

I mean, just to put context to it. Yeah. Before President Trump's first term, the so-called effective tariff rate, that's the amount of tariff revenue collected divided by the value of imports was 1%. After President Trump's first term in the tariffs he imposed in that term, I'm rounding, but about 3%. What do you think happens here? I mean, are we going to see tariffs rise meaningfully above that, given these motivations or not? So I think the short term we very well may, right? So even though I've described these as primarily just threats in order to achieve some type of renegotiated trade deal.

There certainly could be the case where the tariffs actually go into place. They're active or collecting that tariff revenue. And then the negotiations occur. And then subsequently the tariff rate is reduced. So I think that's the pattern in general. For countries outside of China, I think that very well could. happen. We got very close, of course, with Mexico and Canada, right? And we still might impose tariffs there and then a more formal negotiation process occurs. So that would be my expectation.

China, I think, is different. I don't, I think we very well could see the tariffs imposed and very unlikely that there'll be a sharp reduction. Maybe there's some negotiation that goes on, but the tariffs, as in the first Trump administration, kind of stay in place, right? So right now the tariff rate on China is 20%. You think it stays there going forward? 20%. I do. Even go higher than 20%.

It could even go higher. Just there, it truly depends on what the negotiations look like. And right now it doesn't look as though they're going to go anywhere. So we certainly could see that we end up with a permanently higher tariff rate on China. Marissa, any other motivations here? Yeah, I think one big motivation is immigration policy. I think that's what we're seeing with Mexico. So I think Mexico, it's different from Canada.

Canada, I don't think there's any economic reason to go after Canada. I think that's political. I think with Mexico, I think President Trump, really does see the crisis at the border, which has abated significantly over the past year. But I think he's really trying to tamp down on immigration over the border and drugs coming over the border. I think that is a big motivation. And I would say another motivation with Mexico is that it's seen as this backdoor to Chinese imports, right? So we saw a lot of Chinese manufacturers start production in Mexico and import via through Mexico to get around.

ground tariffs. So I think it's, I think there's more of an economic reason there for Mexico. So I would expect some further, you know, negotiation going on with Mexico and perhaps tariffs going into place. He says he wants to renegotiate the USMCA, which was the, the, the used to be NAFTA. He wants to take another at that, which, you know, I think that's, I think with Mexico, there's more legitimate reasons, I think, for the tariff. With the Eurozone and Europe, not quite sure, I think that's a lot of political motivation there, too. He's consistently gone after Europe for not funding NATO as much as they should be doing. That could be a political move to extract more defense, you know, dollars out of some of these European countries. But I think that is also

more political. I think the real one with teeth is the tariffs against Mexico. So you think tariffs on China, tariffs on Mexico, most likely, if tariffs remain up, that's where they're going to remain up, those two countries. Yeah. Yeah. And I think that, you know, even when we talk about China, I mean, President Biden kept those tariffs and police against China. So President Trump had started them in his first term, but President Biden kept them there. So those, that really has served a, at least in the eyes of these past two administrations, a real purpose, a real economic purpose. I think Mexico, maybe it's not an economic purpose, but it's a pretty stark political one that involves immigration and drug trade. And I think those are legitimate reasons, you know, that the administration is seeing putting tariffs on Mexico.

Okay. Dante, what's your perspective? Any other motivations you can think of? And what does it mean for the tariff war, the trade war dead ahead? No additional motivations. I mean, the one thing, I don't disagree with Marissa about the sort of rationale for Mexico being different. I am a little bit surprised that the tariffs were postponed for seemingly getting very little, right? I mean, it was similar to Canada.

You get troops on the border, which again, it feels like almost nothing. So if you're willing to postpone them with very little in return, it makes me question how strong that motivation is to actually sort of move forward with something more. Or is it just to try to score political points and get something in return that you can make into a headline to make people feel like something's happening even if it's not. So to me, it feels outside of China, it feels a little more sort of political trying to score points and have something to talk about, even if you're not really moving the needle in terms of. of changing immigration policy or trade policy. My thing is, I think China aside, I just don't know that there's a wherewithal to deal with the inflation ramifications of tariffs being in place for a long period of time. To me, I find it hard to believe that the administration is going to tolerate a sustained increase in inflation that can be pinned almost entirely on tariff policy. I think you can get away with China being sort of the one place and maybe that has a limited

impact. But if you start slapping, you know, 10% across the board tariffs everywhere, you know, that inflation impact gets bigger. And it feels to me like they don't, they don't want to deal with that. They don't want to try to explain that away. So I think for that reason, I don't see a big sustained increase in tariffs across the board. Yeah, I'll throw out a couple other possible motivations that I think the president has expressed. I'm curious to see if you think tariffs will address these motivations. One is the trade deficit. The U.S. runs a trade deficit with the rest of the world. You know, it's about 3% of GDP.

That's some goods and services for goods. I think it's closer to 4%, which, by the way, has been unchanged for almost a decade. It's been relatively stable. But it's still a deficit. And the president has expressed, you know, the view that deficits are, I think he's even used to word bad. They're bad, inherently bad, and that the solution is tariffs. What do people think about that motivation?

And do, in fact, tariffs help address the trade war help address the trade deficit? Chris? No, I think the evidence is that they don't. You have all sort of because of the dynamics, right? You slap a tariff on that it just doesn't end there. You have the retaliatory tyrus you mention. You have the currency effects, right? So potentially strengthen the dollar, which would perhaps work in the opposite direction of reducing the deficit.

So, yeah, I don't see this as the, as a strategy to achieve that goal, if indeed we want to or need to reduce the deficit, trade deficit, right? And you agree with me that that is a motivation of the president. He certainly stated it multiple times. It's unfair that the U.S. I think that's, at least publicly, that's one of the primary motivations. And then, of course, the response, the A response that's also given is to, well, we're also going to incentivize companies to come to the U.S. and just produce their goods here as a way to counteract that deficit as well. So we won't import. We'll just produce it here.

But that, too, is going to be very difficult to really attract a lot of foreign capital into the country as a result of the tariff. And that's exactly where I was going to go. But the other motivation I've heard from him publicly is this is a way to bring production here. Keep production here, make it difficult for U.S. companies to take production and jobs overseas, but also attracts more production here from foreign producers. Does that resonate at all with you? That that is a policy. Again, maybe around the margins.

Yeah. It could help. If we're talking about the employment aspect of this as well, I think Dante. And Risa would also agree that if we were to get more manufacturing back into the U.S. It would be very different than the manufacturing we lost 40, 50 years ago. It's not about jobs. It's not going to create jobs. Right.

Yeah. Okay. Because manufacturing, what is 10%? I think it's less than 10% of the employment base, right? At this point, it's highly productive. Yeah. And even if you bring production here, it doesn't mean you bring many jobs here. So, okay.

You know, my sense is that, let me make this comment. If you look at our, of course, we have to do a forecast, right, for the economy. And to do a forecast, we have to have an assumption about the tariff in tariffs and how that's going to play out going forward. In our current baseline forecast, the most likely scenario, and obviously a boatload of uncertainty, which by itself is a big problem, right? That's one reason why the Fed's gone on hold and is probably going to weigh on investment decisions and slow economic growth. But in our baseline outlook, we have the effective tariff rate. I mentioned it was 3 percent going to as high as 10 percent by the end of the year. That would include tariffs on China, at 20 percent includes basically 10 percent tariffs on many other countries with which we run a trade deficit.

Mexico, we include Canada, the EU, Japan, India, Brazil, South Korea. You can actually create a table of the U.S. trade deficit by country, and those are the countries where we expect, you know, tariffs to be higher to his focus on the trade deficit as a motivation. But what happens in our baseline is that because of the increase in the tariffs, from 3% effective tariff rate to 10%, it does damage to the economy, just like it did the terrorists did in his first term, and those were much smaller in scale than what we're talking about here. You know, there it went from 1 to 3, here we're going from 3 to 10, and it goes to inflation,

you know, prices rise, and it goes to the growth effects that weighs on economic growth. Through lots of channels, I mentioned uncertainty. I think that's a big deal. I think that's going to have a big impact. I think we will have retaliation. I mean, I don't see that any country, you know, the Chinese certainly aren't going to back down here and they'll go tit for tat. And the impact of that is higher inflation, higher interest rates, the Fed's going to be on hold for longer, lower economic growth. Stock market ultimately is going to reflect that.

And in our baseline, we assume that at that point, President Trump backtracks, cut steals, declares victory, but backtracks like he did in his first term. And the tariff rate, the effective tariff rate, comes back in for all countries except for China. China stays where it is. There is widespread agreement that the Chinese aren't playing fair, and therefore this is a way to address that. While all of this does damage to the economy, it doesn't derail it. You know, the economy is strong enough that it continues to move forward, diminished, but not derailed. I just said a lot. Dante, what do you think about that baseline?

If you had to push on anything, what would you push on? No, I mean, I think I largely agree. I mean, I think it goes to my earlier point that it doesn't feel to me like there's going to be the wherewithal to keep higher tariffs on much of the world. I think you could see them come out. They could be announced. Some may get washed away before they even go into effect. Others, maybe you're in effect for, you know, brief periods of time.

But it just feels like that inflation, the potential for the inflation impact is going to be strong enough to not want to sort of keep those tariffs in place in a broad, way for very long. Okay. Marissa, any pushback? No, I agree. I think that is what is going to happen. I think there's going to be a lot of bark and the bite will be minor in the end because I think

that we'll back down. I mean, I would point out that you mentioned President Trump's first term and that there was a growth impact there and an inflation impact there. The difference here is that we're already. in a higher than average inflation environment going into this, whereas we weren't back in 2017, right? So it was hard to see what the inflation impact. People didn't feel it, I think, as much, except on specific products back then. Here we have inflation that's still well above the Fed's target. The Fed is working to bring inflation lower, and then we're going to essentially put a tax on,

we're talking about putting a tax on everything that we import. So, I, it's a tax. think it's going to be felt more acutely this time around. It's going to be a lot more obvious when it happens. And I do agree that I don't think there's going to be much will to keep that in place when this will squarely be on the shoulders of this administration if that happens. Yeah, you make a great point about the inflationary backdrop today compared to back in 2018, 19. Back then, it's hard to remember, but inflation was suboptimal. The Fed was fighting hard to get it back to the target. But inflation expectations were dead as their doorknown. We can see like from Chris's stat on consumer expectations for inflation, they're highly sensitive

to even the talk of tariffs they're jumping, the actual implementation of tariffs, which is very, very different than was the case back in 2018 and 2019. So I totally agree with you. It's a very different inflationary backdrop. Chris, any pushback on the baseline forecast, at least the assumptions around the tariffs? No, if anything, I'm expecting U.S. businesses are already talking behind closed doors. Again, based on the first Trump term experience, you remember all the exceptions and the carved outs that occurred when particularly small businesses pushed back and said, look, these are key imports.

I use these in my production process. So once we go down that road of trying to carve things out, that could certainly limit the power of some of these tariffs. And again, I make that distinction between China and the rest of the world. as well. Okay. Okay. Well, we're running along in the tooth, so I don't think we'll get, unfortunately,

we're not going to get to listener questions again, but listeners, but listeners, please, fire away. We will get to them. I do want to listen. You were a lot on tariffs and we answered a lot of them. Oh, did we? Okay. Yeah, yeah.

Okay. Well, I want to end this way in a way that we haven't in quite some time, and that's probability of recession in the next 12 months. And I bring this up because Chris, we have a macroeconomic meeting every, every month with the staff to go over assumptions, and we were talking about tariffs and other assumptions we make about monetary and fiscal policy, so forth and so on. And we always survey the participants, our colleagues,

what they think the probability of recession is going to be over the next 12 months. And that jumped. Am I right, Chris, in the last survey? The survey we conducted yesterday. The highest category was the 30 to 40%. Yeah, which is surprisingly. surprising. Well, I was surprised. I was surprised. Again, I guess we have to take all sentiment surveys with a great consistent. It's very consistent. Very consistent. But let me, let me ask you guys,

and I will chime in as well, what is the probability, what is the probability of recession in the next 12, starting in the next 12 months? And has that changed, you know, since the low, if you can think about the low point in your probability, has it increased? I don't think anyone's probability has declined here. If it has, let me know. Dante, let me begin with you. What's your probability of recession starting at some point in the next year? I would say 25%. That's probably maybe up slightly. Maybe I was probably as low as 20%, you know, at some point in the last six months. I'm not feeling overly pessimistic about a recession starting. I mean, to your point, I think I'm much more confident that the economy is going to slow over the next year, but I still don't think we're headed straight for a recession in the next 12 months.

Okay. Very good. Marissa? Mine is up to a third. And I think I had been around 20, 25 percent earlier. I just see a lot more risk out there. I don't think there's going to be a recession. I think the economy is going to do fine in the end. but I just see a lot more tail risk now than I did a year ago or six months ago. Yeah, Chris? I'm at 30%. I think it was at 25% last time we spoke. So, yeah, to Mercer's point, I think there's certainly more factors to worry about.

I think also consumer balance sheets, certainly for lower middle income households are a bit weaker. So if we get hit with some shock, it might not be as easy to get out of it. And I guess I'd also add I don't see the government, the policymakers come up to the rescue as they might in other cases. So that that also increases my odds. Yeah, good point. Well, I'm at 25%. And my low was 15. I had gotten as low as 15.

15 being kind of what you would, that's kind of the unconditional probability of recession, right? You get a recession every six, seven years, about 15%. So I was as low as 15. Now I'm at 25. And the reason I'm at 25 is the uncertainty. There's just so much in flux, you know, everywhere on everything. We talked about terrorists, but immigration policy, on tax policy, on government spending. You see what's happening with Doge.

You know, it seems like on every front things are in flux, and it's just creating so much uncertainty. And I think that affects hiring decisions. It affects investment decisions. It affects spending decisions. It hasn't shown up in the stock market yet. I mean, the stock market's kind of gone sideways here since the election. It has shown up in the bond market, yields are higher. More, you can see it in mortgage rates.

They're up. 7% plus last I looked. So just given the level of, I think the word is uncertainty. I think that's the appropriate word. It just raises the odds, almost by definition that you can have a, there should be a higher because the distribution of possible outcomes is now flatter, right? So you've got more scale of the distribution, right? So just almost arithmetically, if you think the level of uncertainty is higher, you're going

a higher probability of recession, right? Am I right, Chris? Is that right? That feels like a garp article to me, you said. No? Right? Am I wrong or right? Well, I guess you could say, is it more, you're saying it's not more binary. You're not saying you're not shifting the probabilities around saying either things could go really well or things could go really basically. The whole distribution has kind of flattened out. The whole distribution is flattened out. Anything else to add before we call it a podcast, guys? I thought that was a good podcast. A lot of chock full of information.

All right. Well, with that, we're going to call this a podcast, dear listener. Thank you for listening. What? What, what? Go birds. Go birds. Go birds.

Good job, Chris. Thank you. Thank you. Dante, any, you want to sing the fight song for us? Can you sing the fight song? You know, I think I'll pass on the singing. Really? I'll stick to my projection for an Eagles win.

Sunday. We'll hope. Marissa really was hoping to hear the fight song. I don't think anybody wants to hear that right now. A, G, L. There we go. There we go. Way to go, Chris.

All right, with that, go birds. We're looking for a victory. We'll talk to you next week. Dear listener, take care now.