Moody's Talks - Inside Economics - Every Rose Has Its Thorn

Episode Date: May 2, 2025

 Moody’s Analytics colleague Dante DeAntonio joins the podcast to recap the April jobs report, along with the potpourri of other economic data released this week. Marisa dives into other labor market data, Cris tackles GDP, and Mark discusses consumer confidence. All along the way, Mark points out the thorns in recent data. The team also provides an update on their recession probabilities. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsGuest: Dante DeAntonio - Senior Director of Economic ResearchFollow Mark Zandi on 'X', BlueSky or LinkedIn @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. I'm joined with my trusty co-host, Marissa D. Natalei, Chris D. Redis. Hi, guys. Hi, Mark. Hi, Mark. And it's Jobs Friday. This is May 2nd, Friday, May 2nd. And we get jobs for the month of April. And so we have Dr. D. Antonio. Hey, Dante. Hi, Mark. How are you? Good. Good. It feels like everyone was traveling this week. No?

I, Marissa was just recounting a very long EV trek through Southern California. And you said your EV, I asked, but I didn't hear the answer. Did you have to rejuice at some point? No, no. Oh, cool. No, I drove like seven hours on Wednesday. Now, were you sweating it out the whole time? No, I wasn't.

I, you know, I knew it. I figured it would be okay, but it would probably be close. Right. Which it was, but no, I did it. You didn't use your air conditioner and your, didn't turn your teams. I have the AC on, blasting the whole time.

Yeah. Okay. Very, very cool. It can be done, folks. It can be done. With a little planning, it can be done.

Oh, you actually planned. You said if I need juice, I'll stop here. Yeah, but I had mapped out the mileage and I figured I would be okay. Yeah.

Okay. Yeah. It's California, though, right? There's like a charger on every corner. Not in Los Angeles. No. All right. I mean,

there's chargers, but there's, you know, eight chargers per million people or something. So it's not very, it's not great. Yeah. I didn't know that. Yeah, there's not enough chargers at all in L.A. Maybe a little better than Carbon County, Pennsylvania. Probably.

Well, I don't understand the reference. We have Carbon County, fossil fuels is big still. I don't think there are many EV chargers. Oh, are there any of eachart? It's in the name of the county. Yeah, yeah, the name of the county. Yeah. I didn't even know Pennsylvania has a county named Carbon.

Yep. Really? Dante knows it well. I don't know if I know well, but I've heard of it. I don't, you know, probably been there at some point. And where is that? Is that Western PA? It's got to be.

It's not Jim Thorpe. It's more northern than Western. Oh, no. Oh, no. Yeah. Yeah. Yeah. Pretty country, for sure.

Beautiful. Yeah. So, Chris, are you traveling this week as well? I was not. Ah, okay. That's why you look so rested. Yeah, exactly. Yeah.

I was taking it all in. But you guys are off to Miami next week, right? Yeah, we have the big banking, Moody's banking conference in Miami. Yeah. Dante, were you traveling at all or were you looking at? Last week and next week, but nothing this week. Okay. Anywhere exciting or just?

I'm swooping into Miami right. after you to do something on the tail end of the summit. So I'll be there. Oh, cool. Oh, good. Maybe I'll come and heckle you then. That's fine. Yeah, okay.

Really? It's fine. It would be hard for the course. I can't really tell you not to. I mean, is that a... Yeah, good point. Good point. Yeah, I had busy travel week.

I'm so glad to be home. Yeah, I was in Chicago for a bit and was in Boston. A lot of asset managers meeting all kinds of assets. asset managers, equity, fixed income, real estate, kind of interesting. We're all very calm at the moment. Well, asset managers are always pretty kind of, no matter what's going on. And in fact, some of them kind of like the chaos, right? They like the volatility.

So I was at a couple of shops where they were kind of happy about all the ups and downs and all the rounds. I think generally people are confused, but I'd say their mind is exactly where our mind is, and we'll talk about that in the podcast. So what I thought, you know, this was a big week for economic data. Have you ever seen a week like this past week? We don't typically have, I mean, it felt like everything came out in the same week. That's very rare, isn't it? It happens like twice a year where we get GDP and employment in the same week. Ah, okay. It'll happen again in August.

Okay, so it wasn't just my imagination, but it felt like a blizzard. No, it's rare. Yeah. Yeah, a blizzard of data. And I thought what we would do, we'd each go around and pick the data release that you're, you know, most focused on or interested in or you think is most telling. And then we'll kind of bring it all together, talk about what it means for the economy and aggregate, you know, maybe we do the summer, do this kind of the same summary as we've done in the past, the probability of recession, and then play the game.

Although I say that with some intrepidation, because if we're talking about the data, we might take everybody's statistics for the game, but, you know, there was a lot of statistics, so I think we'll be fine. I think we'll be fine. So that sounds like a good game plan? Great. Great. Okay, good.

All right. So, Dante, you're the guest, and I'm guessing I know what data, release you're going to pick. Yeah, I'll kick us off with the Employment Report, although I will say, Oh, yeah, the Employment Report. I don't know that it's actually the most important labor data because even though it's pretty timely, it still feels pretty out of date already. Right.

So the reference week was pretty early in April, and given everything that happened in early April, it feels like this maybe is a little bit better than what reality currently is today. Oh, explain that for a second for the listener. Oh, I'm sorry, Chris. Go ahead. I was going to say it was right after Liberation Day, right? Yeah, so the, right, the reference week is the week that includes the 12th of the month. The 12th was on a Saturday in April.

So that means that was the end of the reference week. So it actually went from the 6th to 12th. Liberation Day was obviously only a couple days before that. So it's unlikely that companies were reacting to and making employment decisions that quickly in April that you would see the impact in this employment report. So it sort of looked like you would have expected it to look without sort of the tariff news that came up. and that's largely because I don't think it reflects any of that tariff news that we saw about a month ago. Job growth was 177,000, sort of in line with where it was after revisions in March, roughly still in that 150,000 sort of trend job growth ballpark over the last three or four months.

There weren't a whole lot of changes. Industry composition was largely the same as it's been health care leading the way, leisure and hospitality, transportation warehousing, picking up some support. Government holding up, I think, still a little bit better than we would expect. Overall government was still positive. Federal government was down just a little bit. But still, we haven't seen any of sort of the big, you know, Doge cut related layoffs in the federal government, at least not in this data. Just a sidebar there. I think the BLS called this out. They said if the federal government, If the employees on paid leave or on, I guess it's a deferral, then it's just not going to show up in the data.

That's right. Yeah. They continue to know, right. If you're on any sort of paid leave or you're receiving severance, right? You're not having. Right. Right. Is losing your job yet.

So that's not surprising, I don't think, but over the next couple months, I would expect to see a bigger impact start to show up in terms of federal government layoffs. Right. Big negative revisions to the prior months, which seems like the same story we've had lately. So over the last two months, it was a combined negative revision of 58,000. So even though growth was a little strong this month, the three-month average basically stayed the same compared to last month because you had sort of offsetting negative revisions. Wage growth was- Just the sidebar. Sorry, I'm doing these quick sidebars.

On that one, my sense is that when the economy is throttling back or accelerating, then you get the revisions moving. in one direction or the opposite. So if the economy's accelerating, you tend to get upward revisions to previous months. And if the economy is throttling back, slowing, you tend to get downward revisions. And we got down, last month we got down, I believe, last month we got downward revisions, this month we got that pretty sizable done in revisions. Yeah, that's right. And I think, yeah, and over the last six or nine months, you've seen many more negative

revisions and you've seen positive revisions. I agree with that. Okay. wage growth, there wasn't really any new story there. It did decelerate slightly in April to 0.2% growth in April, but the year over year rate stayed the same at 3.8%. It's still been sort of at or near 4% for the last two years, at least. Average weekly hours technically stayed the same, although there was a slight upward revision to March. So it stayed the same at a higher level than what we thought last month.

But again, that was a pretty minor impact. sidebar there is that the right word to use sidebar yeah I guess uh interruption third I'm interrupting you uh manufacturing hours fell though pretty sharply it's a good question I actually didn't look oh I should I'll trust you yeah yeah that was my stat yeah yeah I think it fell back it's maybe not surprising given what's going on but yeah right fell by over an hour Okay. No, that's wrong. Two-tenths.

Two-tenths. 40 hours a week. I was looking at the diffusion index. Yeah. Anyway, sorry about the interruption. No, you're fine. Household survey, again, was strong. I think stronger, you know, stronger than we think probably is currently true today.

Unemployment rate was unchanged to 4.2%. And that was actually, even though we had a huge increase in the labor force, labor force participation ticked up slightly. there was a big household survey employment gain over 400,000. But other than that, things were most prime labor force participation ticked up a little bit. And I say on the sidebar interruption, whatever the right thing. Is that to your second, third significant digit? I don't want to take your stat, but...

I was not going to use that. But yeah, so remember last month we talked about, you know, we went from 4.14 to 4.15. Right. It'll go into 4.19 this month. I mean, it's basically been unchanged to two digits over the last three months now. So it still has not moved much at all.

Employment population ratio, both overall and prime EOP were both up again. Again, there had been a little bit of weakness in recent months on participation in an EOP and we've seen that sort of reverse here over the last couple months. So things were on net, I think, pretty strong. But again, I think it's,

pretty strong with a big, you know, sort of butt at the end that we haven't yet really seen what the impact of, you know, the trade war will be, and it's certainly not showing up here yet, and we'll have to wait for the May data to see what impact there is. I said? I think that's a, yeah, we got a lot of data to talk about, right? So I was trying to keep it short for you. Yeah, you know, there was a couple things in there that made me a bit more cautious about the report. I mean, you take the top of the line, the top line, the 177, 177 case, no big deal.

We talked about the revisions. That kind of shows some weakening and the consistency of the downward revision success. The economy is kind of thralling back. The hours worked in manufacturing, which goes to obviously the trade war and the impact, the disruptions that's having on the manufacturing base. The other kind of cautionary note, I think, and just I want to ask you. skew is if you look at job growth in the transportation distribution and warehousing sector, that was pretty big. And I'm wondering, and it's actually been rising strongly since last October November. So that feels like that's consistent with the surge in imports that we've seen in anticipation of the tariffs. So there's been a lot of front loading of imports and you need

to move that stuff around, therefore you need people to do it. If that's the appropriate explanation, then that would suggest there's an air pocket on the other side of this in coming months. Yeah, I would agree. I mean, yeah, I think the growth is certainly not sustainable. And I think you're likely to see a pullback and not to steal any of Marissa's thunder, but I think in the Challenger report, transportation was up there amongst the top private industries for announced job cuts in April.

So I think you will start to see some pullback here moving forward. Right. And then, of course, the other thing was the federal government employment. That's declining. but in all likelihood, it's declined more than is in the data because of the severance packages and everything else, just delaying when that shows up in the data. Is that fair? Yeah, I think that, yeah, I mean, we think there's been over 100,000 cuts, you know,

at least that have been announced and we're pretty sure are coming, and we've only seen a very small decline in federal government employment that's been reported so far. So I think it's certainly more declines to come. Right. So I look at the report, and, you know, it's good in that it suggests that the job market, oh, the other kind of negative was the one you pointed out early reference week, so it didn't really pick up a lot of what happened after Liberation Day, so-called Liberation Day. But, you know, I look at the report, and, you know, the top line number is fine, it's good, suggests that the labor market, you know, continue to hold firm in April through early April. and that's a critical firewall between a continued broader economic growth in a recession. You know, once the job market, once that firewall comes down, you're toast, you know, you're in

recession. So that firewall still is up there. But in my mind, it feels like that firewall is just getting fragile. There's a lot of cracks in the firewall and, you know, very vulnerable to, if the trade war, for example, were to continue on without any de-escalation. Is that fair what I'm just saying? Is it you come to this from the same perspective? Yeah, I think that's fair. I mean, right, this looked fine if you sort of ignore the fact that it doesn't account for sort of everything that's happened over the last month. So I think that's a big caveat, obviously, that it looks okay. I'd be more worried if it looked very negative knowing that it doesn't really pick up what happened in April.

But I think we still have reason to be concerned that things are going to get much weaker moving forward. Yeah, I guess I guess what I'm saying is if you, you know, if you look at the top line number, you come away, okay, fine, no problem. And that's how the stock market's taking it. I'm investors. Last day long, the stock market was up quite a bit. But if you look into the bowels of the report like you do, that doesn't give you as much. I don't feel quite a saying one about the number. Yeah, I agree.

I mean, you think about it. If transportation warehousing starts to pull back, if government starts to pull back, you start to have fewer and fewer industries that are adding to jobs, and it makes it harder to get a top line number that's strongly positive. Right. Okay. Okay. Before we move on, Marissa, Chris, anything on the jobs numbers report that we missed? I mean, am I looking at this? Obviously, I'm looking at it with dark colored glasses. Is that appropriate?

Or how do you see it? Chris? Yeah, I'd agree with that. I'd still somewhat, like all the data they'll be talking about. It's looking in the back or the rearview mirror. So, you know, need to take it with a grain of solid. It's not incorporating all the policy changes that we know of. Right. Marissa, any different view there? I mean, I'm glad that it's, I'm glad we're entering this period on this level of strength, right? Because it means it's going to be harder to knock down. But yeah, I just think we haven't seen the impact of this yet. And you can find things that look weak if you look in the data, you know, the number of multiple job holders has been rising for a while. The number of people working part-time for economic reasons.

The number of discouraged workers. And that's all consistent with some of the other labor market data that show people aren't being laid off necessarily on mass yet. But hiring has become, you know, has fallen to lows that we haven't seen in years and years and years. So it seems like employers aren't necessarily laying people off yet, but they're not hiring either. And I think you can find some evidence in the jobs report for that. Yeah. You know, the other thing, from a kind of a broader perspective, if you look at the unemployment rate, it hasn't really budged in about a year. You know, it's kind of flattish.

And that's after, if you go back the year prior to that, it had risen quite a bit. It had risen almost a point. Like we're at three and a half. Well, I guess not a point, maybe six, seven, eight, tenths of a percent. We're at three five, three four. Now we're at four two. And that all happened, you know, kind of late 23 going into 24. And since kind of mid-24, it's kind of been just flat.

And that seems to suggest that, and growth has slowed, you know, growth has slowed. And the unemployment rate hasn't, you know, hasn't pushed up. It feels like, you know, kind of the potential growth of the economy is starting to throttle back, doesn't it? I mean, you know. Yeah. And I think some of that is the immigration story, too. I mean, part of the reason for that rise in the unemployment rate has. had been just this massive influx of immigrants into the labor force, right?

So that has slowed down significantly. So I think that's helped keep a ceiling on the unemployment rate. Yeah. So that suggests that, you know, the immigration effects are starting to, it feels like, maybe a bit premature, but it feels like it's starting to show up in the numbers. And it suggests that the economy's potential, that rate at which it can grow. without, you know, unemployment going, changing is now throttling back here. It's slowing down quite a bit.

Anyway, Dante, do you agree with that kind of observation? Yeah, I agree. I mean, I think that makes sense to me that there's just less room for growth. Yeah, less room for growth. Okay. Okay, Marissa, you're up. What do you want to focus on? What data do you want to focus on?

Look at the other labor market data that we had that we got this past week. We got a lot. So we got, as we always. The popery? Yep. So we got unemployment insurance claims as we do every week. There was a pop in unemployment insurance claims. So they rose 18,000 over the previous week.

They're at 241,000 on the week ending April 26th. That's still not high, but it's significantly higher than we've seen since, I think, February. maybe even so that does suggest that maybe layoffs are rising a little bit. You don't see it yet in the Joltz data. You don't see it in the employment report, but this, you know, you would see it here first, right? So that's why we focus on UI claims. So I don't think it's, I don't think it's flashing red, but it's certainly something to watch. It's not heading in the right direction.

And it's not unexpected, frankly. I think maybe one of the more. concerning things in the UI claims, the UI claims report is the continuing claims. So these are people that are still unemployed. So they've already filed the initial claim for unemployment and they're still collecting unemployment insurance. This is high and this is the highest it's been since 2021. And so that, again, is consistent with this story that it's just becoming harder for people to find a job. You know, the people that are being laid off or unemployed are finding it more difficult

to find a job. Well, someone told me, because I was traveling, I couldn't look deeply into the UI claims data that it was a few states or maybe one or two states where you saw the big jump in initial claims, like New Jersey or maybe it was a new. Is that right? Connecticut and Rhode Island, yeah. Oh, okay, so it was broader than that. So it was kind of the Northeast in general.

Yeah, yeah. Oh, interesting. But those are pretty volatile when you look at the state level data. You know, I was again looking at Washington, D.C., Virginia, Maryland, because that's been sort of trending up where you would see those doge layoffs. And that didn't really do anything over the month when I look at D.C. I mean, it's higher than it was at the start of the year. You're certainly seeing some of that impact. But yeah, this looks like it was led by the Northeast.

Okay. So in general, kind of like the employment report, you know, the top line, number 241 initial claims, that's still pretty low. Yes. Yeah, there's no alarm bells and it's just one week, but it's, you know, clearly moving in the other, the wrong direction. And, you're saying the continuing claims also signals some stress. So yeah, kind of in the bowels of the numbers, you go, you come away with looking at it with dark colored glasses as opposed to rose color glasses. Yeah, I mean, I think, right, employers, and we've been talking about the impact of tariffs, I wouldn't expect all these mass layoffs immediately during this tariff announcement.

I think employers are going to do what they can to avoid laying people off. The first thing they're going to do is stop hiring people, right? And so I think that's what, that's the impact that we're seeing is just to sort of freeze up in the rates of hiring and people leaving their, people aren't going to leave their jobs when they don't feel great about labor market prospects. So that's the first thing you'll see. The layoffs will come later. Okay. That's one part of the potpourri. What was it? One element of the potpour? What is that? One piece of the potri?

A piece, yeah. One dried flower petal in the poterie. Yeah, okay. I like that. One dry flour in the potry. What's the other dried flour? So there's a bunch. I mean, there was the Challenger report, as you like to point out that I love. Yeah, so this is announced job cuts by employers. So this isn't necessarily actual layoffs. It's announced layoffs. That fell quite a bit over the month, fell by 60%, but it's ups over 60% over the year. And you see that announced layoffs came. This is sort of interesting. Over the year came mostly in tech and in warehousing.

So back to the whole warehousing story about Terra. and imports. It looked good in the jobs report, but here we see layoff, planned layoffs increasing in this industry in the Challenger report. So they're up over the year. I mean, certainly you would see some indication of that. They also cite reasons for layoffs, and the people that, the employers that said explicitly that the reason for layoffs is tariffs was low so far over a thousand out of all of these announced layoffs so over 100,000 announced layoffs and only about a thousand of them cited tariffs directly for the reason for layoffs. Mostly it's this uncertainty, souring job market conditions reason that's being given.

Oh, interesting. Yeah. Okay, that's the second dried flour. Is there a third? Two other things I would point out. Maybe one is we got the ISM manufacturing survey and that has an employment index component to it. That once again is below 50 indicating that manufacturers are shedding workers instead of adding them on net. And it actually rose a little bit over the month. But I mean, it's been below 50. for really since the pandemic began.

I mean, there's been a couple months where it's popped up above 50 here and there, but you have to go all the way back to before the pandemic, before it was solidly at or above 50. So manufacturing's been quite weak for years, and it continues to do nothing on the hiring front. And then the other thing I'd point out

was back to the wage piece that we were talking about, the employment cost index came out. And this is a quarterly measure of wages and benefits, total compensation in the private sector and in the public sector. So private wages were up, private, yeah, private wages were up 3.4% over the year. And they were up 0.8% quarter over quarter. So that's a slowdown. And we haven't seen a pace that slow since 2021, I believe. Is that good or bad? So they're both slowing.

Slowing. Yeah. In the current context, do you consider that to be an issue? Because, you know, if you go back not long ago, we were worried about inflation. We were rooting for wage growth to kind of cool off. And here we are. It's cooled off. Now we, is that a good thing?

Yeah, I mean, we're well below the 4% year over year where we kind of wanted it to be below, right? So I think given the prospect of higher inflation due to tariff policy over the next couple years. It's probably good that we're, especially if you're sitting at the Fed, it's probably good that we're starting for a lower pace. It gives you more leeway here on wages. Right. And, you know, I would expect other policy to potentially push wages higher, including immigration policy. So the fact that it's slowing now is probably a good thing. Okay. Any other dried flowers on the labor market front? Well, we got Joltz data. Joltz. Yeah, you didn't mention Joltz. Yeah. Yeah. We got the job open.

and labor turnover survey data. That there wasn't, Dante, I mean, maybe I'm missing something, but not much doing there, really. I mean, actually quits rose a little bit. Layoffs fell a little bit. The hiring and the job openings rate, hiring rate, I think, was kind of flat and the job openings rate continued to fall. So small changes, but nothing dramatic, I don't think.

Yeah, and the key, I mean, that's even more out of date, right? It's through the full month of March, so it's not into April at all. So it's not surprising that nothing really showed up there in terms of weakness. You know, one thing I've wondered about is when businesses, you know, respond to things like uncertainty or even weakening in sales and try to think about their payrolls in kind of the labor market needs they have, it feels like the first thing they would cut back on, you know, if there's some concern about sales or their business is hours worked, right? And we've seen that kind of sort of happen.

They grow, at least historically, a lot of other things are going on now. But historically, they cut back on temp jobs, temporary help, and that's kind of sort of happened. I know there's a lot of dynamics there that are also involved. And then I think the next step is they pull back on open positions in hiring, right? And we've seen that, right? The hiring rate, as you pointed out, last month was kind of stable, but compared to the previous month, but it's down quite a bit from where it was. And it's actually, it feels like it's on the low side of where you'd want it to be, you know, if you look at historical kind of norms. So that then leaves you with the layoffs.

So it's almost like the businesses have done everything they can to avoid layoffs, but here we are. So if anything doesn't stick roughly to script and sales start to, their sales start to weaken, a business starts to, you know, start to underperform, they will start to layoff. That's kind of sort of how I think about the progression here in the labor market. Is that fair, Marissa? Do you think about it the same way? That's the way I think about it. I think layoffs are sort of the last resort, right? It's obviously employers don't want to lay people off. And it's expensive to lay people off because if you do that and then conditions change, you have to go through the process of recruiting and rehiring and training and all of that stuff. So yeah, the first thing you would do is just cut back on how much people are working if you have hourly

workers or part-time workers or workers you can shift to part-time and then you would just not fill open positions yeah okay all right uh chris you're up what's your data release uh it's the GDP GDP yeah Q1 GDP not quite a pulpery maybe a thorny rose let's see thorny rose uh A rose. Really? A rose? There's a rose in there? There's some rose.

Okay. I don't know if it smells sweet, but there's a lot of... I think you've got to come up with a better metaphor. Is it a metaphor? Yeah, I think it's a metaphor. Yeah. But anyway, go ahead. It's tough to follow Pulpourri.

Copee is pretty good. So the big news on GDP is that we had the first decline in the first quarter since the first quarter of 2022. All right. So that made the headlines down 0.3%. on a real inflation-adjusted basis, largely due to the surge in imports that we observed, right, in anticipation of the tariffs, right? So that's the new story.

Terrorists grew a lot. I'm sorry, imports grow a lot because of the terrorists, over 40%. And that subtracted about 4.8% from GDP. So that's a significant drag. I believe it's actually the largest drag on record. So it's a big deal. a big deal. You did have some compensating effect here, but also due to tariffs, where you had business

investment actually rise about 20%, with over 20%. So, you know, again, I see that as anticipatory. You had businesses who are maybe buying their computer equipment or other equipment ahead of the tariffs, and that led to some of that increased investment activity we noted. So if you look at domestic demand, right, which is just a lot of. consumption plus investment. So you ignore the terror, I keep saying tariffs,

you ignore the imports and net exports component here. You ignore the inventories, which again tend to be volatile, but difficult to measure. Underlying domestic demand actually still looked pretty good, about 3%, right? So from... But that goes with the forward buying, though.

Oh, that's with the forward buying. Yeah. So again. And then there's a forward buying and consumption, too, consumer spending, right? There is presumably, but the consumption, and although consumption growth was positive, it was lower than it was in the fourth quarter, right? So there's some pullback in that consumption as well. Yeah, but despite the pull forward, you got a pretty soft consumption number.

So I mean, that's what I'm saying. Okay, fine, right, okay. Yeah. Yeah, and then, of course, government also. So where's the rose? Where's the rose? Well, for now, you know, the rose looks pretty good. It might be wilting, but, you know.

Okay. a thorny wilting rose okay that's better that makes more sense to me yeah yeah okay so largely looking in the real rearview mirror here that's that's the issue with this report right but it mean it was a negative number negative point three and uh you know it feels like yeah it's related to just the anticipation of the tariffs also doge was in there too wasn't it because federal government spending fell. Yeah, quarter points cuts, quarter point. Lost in government.

So the tariffs, the trade war, and the doge are their fingerprints all over the report, right? I mean, and it was a week, no matter how you slice it, it feels like a weak quarter, right? Yeah, definitely a week. I suspect there'll be some revisions. Some revisions, okay. Maybe it comes in a little, but it's not going to swing the numbers dramatically. Right. Right.

I could see it does feel like the inventory. So what you would thought of what happened is there's a surge in imports to get ahead of the tariffs. If they're not consumed and we know consumption was very weak, then it has to go into inventory, presumably. And inventory investment did increase, but it didn't increase all that month, not as much as you would have thought, right? And so what you're saying is maybe, because that number always gets revised because measuring inventories is tough and it's always lagged, we might see more inventory accumulation in subsequent GDP releases. And so we might go from a negative to a positive, although it's still going to be soft.

It's not going to be negative is what kind of what you're saying. That's my expectation. Yeah. It's just very difficult, right? There's estimation. There are lags in how you estimate these things, how you time them, right? Both on the inventories and on the exports imports. it's just a difficult statistical exercise.

Yeah. So in theory, the inventory should have captured the imports, but in practice, you're saying perhaps didn't, probably didn't. Yeah, it looks like something's missing. Something's missing, right? So what does that suggest for the second quarter then? Does that suggest the current quarter for GDP? another soft

presumably another soft quarter it could be negative but you know you might see some reversal of these measurement things and you'd see kind of a pop to grow because imports will come down you know and that's right

right that's right so so I think we should be kind of blending these quarters together okay the full picture right right again I think you too also have some quirkiness in it in terms of reversing some of these issues but I'd expect

overall softness across the board. Right. One other is kind of a more technical point question. I don't know if we've talked about it in the past, but in Mercia, maybe, or Dante, you guys may know this. You know, the way that Bureau of, this now goes to the doge cuts in its impact on federal government spending, which declined in the quarter. The way the government calculates the government GDP or what's in the GDP report is by looking at the number of federal government employees and their compensation, and they use that as a basis for coming up with that estimate. So if you, you know, actually cut people, which was what Doge was doing, then that would show up in a decline in government GDP,

and that's what we're saying. Is that, do I have that right? Do you know, Dante or Marissa? Yes, I think that that, I think that reflects government wages paid. Wages paid. Yeah. Right. Right. Dante? Yeah, I mean, it's included in there. I'm not sure exactly how they estimate it every quarter, but I mean, it's definitely there as part of government spending. I think, you know, when they calculate GDP, they, you know, collect data from all kinds of sources, you know, for consumption, investment, net exports. They got a blizzard of data sources.

And in the case of government, I think they, the way they do it to make it tractable is they actually look at how many people are working in the federal government, what their competence. and they use that as a basis for calculating, you know, government GDP, which is, you know, government spending or expenditures or outlays that are in the report, I think. Someone out there will correct me if I'm wrong, but I think that's the case. Because it's more of an accounting exercise, almost an accounting. If you cut government jobs, you're going to hate federal government spending or GDP, and you get the kind of effect you saw in the first quarter.

Okay. Anything else on the GDP? number, you know, the corollary to that is the personal income and consumption, consumer spending data that kind of comes out, the monthly data. I guess no surprise there. It looked like that was, it showed pull forward spending, you know, in the consumption data, but anything stand out there, Chris? No.

No. No. Okay. Okay. Okay. Okay. All right. Okay. All right, I'm going to go, and you'll know what it is. It's the Conference Board Survey of Consumer Confidence. My favorite leading indicator of recession, when that declines, you know, typically confidence reflects, sentiment reflects the economy, what's going on with jobs, what's going on with inflation, the stock market, those kinds of things.

But points in time, the causality shifts in confidence. caves, declines, consumers lose faith that they're going to be able to hold them to their job and their financial situation is going to erode and they pull back on spending and that's the basis for recession typically. And the Conference Board survey of consumer confidence, which is a monthly survey done back many decades, I think does a really good job, and particularly in recent years, a very good job of kind of giving us a sense of what consumers are actually going to thinking and what they're doing. It doesn't feel as biased by political overlays as some of the other surveys do. It just feels like it's more consistent with what consumers are actually doing.

And that continues to fall very sharply. You got the data point for April, and it fell, again, more than anticipated. And a good rule of thumb historically is that if the index, consumer confidence index falls by more than 20 points in the three-month period, we're going in. Consumers to recession. Consumers have lost faith. They're packing it in, and that's the start of an economic downturn a few months later. I think the kind of the average length of time between when that you get that 20 point plus decline and you get recession is about six months. In the month of April, the index is down 19.3 points compared to its three. So not quite there, you know, that kind of sort of like our forecast, right? I mean, it's kind of like our forecast. Not quite

recession, but it feels like we're awfully close and, you know, things have to start going right here, otherwise we'll go into an economic downturn. The other indicator in there is the job that we watch very carefully, or at least I do, the jobs easy to, how easier jobs to get and how harder they to get, and you kind of look at the differential, and that tends to be a very good measure of unemployment. It does a pretty good job of predicting unemployment. And it is consistent with stable to slightly rising unemployment here. So that's what we're saying.

So all in all, that's a pretty downbeat report as well. Guys, I know you look at that data too. Anything else to add on the conference board survey? Dante? I'm sort of more curious what do you think. Obviously, if you just look over the last three months, it's not down 20 points, but it's been declining right ever since November. So if you look, you know, the total decline since November is much higher than 20 points.

So it's not a sharp three-month decline, but it's a sort of prolonged five-month decline at this point. So I'm not sure how you read that. You know, I stick to my rule of thumb because I think if I, if you do, you're saying go look back four months or look back five months. If I look back five months, you know, since the peak, the peak was November, the election. that peaked. And then since then it's been sliding. It's down 20, I think I did the calculation this morning, 26 or 27 points, you know, something like that.

Yeah. But, you know, it's not quite consistent with the rule of thumb. And I think if I go back, look back historically, there are periods when you might see kind of a more attenuated decline and it doesn't result in recession. So I'm sticking to my rule of thumb, but, you know, just reinforces the point. This is not something that just happened. It's been happening, you know. people are getting nervous.

Yeah. Okay. Chris, any, Marissa, anything on that? No? Okay. All right. I guess I'm just trying to think,

were there any other, I think we got all the data, there's a lot of housing data. We even put out our house price data. Oh, that declined too, right? For the, right, Chris? The house price data declined

for the month of April, I believe, or March, excuse me. be marked right so that's some weakness um anything else out there that that week that's enough but just asking okay all right so um i don't know let's bring it all together uh and what does it all mean uh you know in terms of your thinking about the economy and the way we've been kind of summarizing our perspective on that is you know we've been doing this for quite some time what is the probability of recession beginning at some point this year um let's go around the group here and get what your current probability is and how that's

changed if it has it all. Mercia, what's your probability? I'll go with 55%, which is down 5% from where I was a week. Oh, okay. And despite all this data, you brought it down by five points? I did, yeah. Why? I just see the administration backing off a lot of this.

And I think if they continue to do that and if they do that soon enough, then this might be salvageable. I think if this vacillation continues for a lot longer, then I think it's going to be very hard to avoid a recession. But, you know, they seem to be getting spooked by some of the data that's coming in. And I think you have a lot of CEOs whispering in the ears of administration officials. warning them about the effect of the tariff policy. So I think perhaps we have a serious pullback coming soon. Okay. So what you're saying is the key to whether we go into recession or not are the tariffs

and the trade war. And if the administration is able to take off ramp here and de-escalate, bring down the tariffs with China and others, and they do it soon. you know, a few weeks, month or so, that would be potentially sufficient to avoid recession, even though you're over 50 percent, you feel less nervous about this because the folks in the administration are, and I guess overseas, other, the Chinese today, for example, been saying that they want to talk about this. And so that gives you more confidence that they will come to terms. Yes, yes. But I think it has to happen soon because I think there's a real risk

that even if there is a pullback, maybe the damage is already done, right? So, and then it just becomes this sort of momentum, negative momentum that's building on itself. But I think if they can hammer this out in the next couple weeks, month, then we might be able to salvage things. I know this is impossible, but I'll ask it anyway. How much time? Are we saying Memorial Day? Are we saying July 4th?

Are we saying Labor Day? What do you think? I think in the next two to three weeks, we have to have some real clarity. Yeah. When is Memorial Day? Yeah. Yeah, sure. Memorial Day.

Yeah. Yeah. Yeah. Yeah. I think so. Yeah. Okay. Okay.

Fair enough. So you're 55 down from 60 because you're feeling a little bit better that the tariffs are going to come down here. Yeah. It's going to de-escalate. Yeah. Okay. Dante.

I always struggle to remember where I was last month when we talked. I think I was at 50% and I'm going to stay at 50%. I don't feel any better than I did a month ago, but I don't feel worse yet. I think like Marissa, this time next month, I think we'll have a better sense of which direction things are headed. One, because we'll have data that's starting to show some of the initial impact of, you know, sort of the initial announcement of tariffs. And then two, we'll have a better sense of, you know, is the administration going to walk any of this back in a meaningful way? And I think a month from now, if they have not done that, I think that, you know, there's more serious damage to come. So I'm going to hold at 50 for now and see what happens a month from now.

So kind of a similar story to Marissa, you're looking at the tariffs in the trade war. And are you saying if we don't get a de-escalation, say, by Memorial Day, then your recession odds will rise. Yeah, I say, right. I'm saying it 50, but I think I'm going to go one direction or the other next month. They're either going to rise if nothing is happening. Yeah. Yeah. Got it.

sense. Makes sense. Chris? Oh, was it at 55. I'm going to drop it to 50. Oh. Okay. Joining Dante's party. Some very similar reasons. I do see some hints at least of progress on the tariff front. In terms of Memorial Day, I think we need something by Memorial Day, but not necessarily a finished trade deal. It's enough just to have an announcement that we're getting close or, you know, identify some specific country. I think that would certainly take some of the pressure off.

Doesn't it almost have to be China with China? Doesn't it, I mean, don't the tariffs have to come, you know, they can be some kind of deal or, you know, an arrangement with the Japanese or the South Koreans or the Indians? It sounds like those are the countries that might be first, you know, up in terms of getting the tariffs back in. But that seems all like a sideshow compared to China at 145. We have tariffs on their product of 145. they have tariffs on our product of 125, and that means there's no trade. Trade is collapsing. And we're the two largest economies on the planet.

And if our trade is collapsing between us, it feels like that's recessionary by itself. So doesn't it have to be with China? Yeah, you certainly have to get down from 145 with China within this year to avoid recession. But in terms of the staging here, my assumption is it will probably announce some deals, whether they're finalized or not prior to that. China is also the toughest not to crack. And with China, I think already some indication that, yeah, we're at least starting to think about talking to each other.

Right. Even today was viewed as a very positive sign. So I think we'll move in that direction. Maybe there'll be some pause or some extension, if you will. That could be a very positive sign to help rebuild some of the confidence. But you're right. if we don't deal with these very high tariffs on China, that is going to be fodder for recession. And I'd say we have a month or two maybe before it really sinks in.

Yeah, I guess just to make more concrete, what I'm saying is it doesn't, all these other deals, all these other arrangements outside of China don't really matter, you know, in terms of what it means for whether we go into recession or not. If we continue to maintain the same tariffs on China and they can maintain the same tariffs on us here going forward. So that's what I'm asking. That's kind of my view. I'm asking, is that consistent with your view? If we don't get any movement on China, do you still think there's a chance we're going to be able to avoid going into a recession?

Extremely unlikely. Okay. Fair enough. Yeah, right. It feels like it's all about China, doesn't it? To me, to a large degree, to a large degree. Unless, I guess you could drop tariffs on everybody across the globe and all you're left with those China and maybe, I guess. But even there, I think it's going to be really difficult, right, because of the supply chain effects. Right. In the short term, right? Yeah. Yeah. All right. Well, I'm at, I was at 60. I'm still at 60. And I think it's all about. China and that's why I'm still very nervous I you know all this other stuff seems like a side show to me you know any kind of arrangement with Japan you know and it's meaningless in terms of you know what it means for global trade the economy and everything else but for China that's that's a massive I mean in the Chinese feel

like they're dug in I mean it doesn't feel like they're they're gonna relent in anyway it feels tit for tat so if the US raises tariffs by X the Chinese are going to raise tariffs by X. We're now at a cap. It can't go any higher than this because at this, these tariff rates were effectively shutting off trade. And conversely, if the U.S. cuts by Y, the Chinese will cut by Y. They'll just follow us down. But it's just about, it's just tip for tat. And so if that's the case, if it's all about China and they're dug in and the dynamics, they're much more vexed. It's not just quite clear how you, how the administration is able to get those tariffs down in a way that, you know, they feel comfortable with. It just feels like

the probably something, probability that they don't get a deal or they don't get an arrangement or they don't bring down the terrace by. And I think Memorial Day is the day, you know, kind of in the future, feels like we go into recession. Oh, you know, no deal with China by Memorial Day for you is the, is the, I think that's, I think that's a trigger. Okay. Right. Because I think at that point we're going to see not only higher prices for a lot of things, we're going to see shortages of things. I just saw this one statistic where I didn't realize this, but I believe 80 to 90 percent of all the ibuprofen that we consume in the United States comes from China, comes from China. Really? Yeah. Acetametephen, which I think is, isn't that Tylenol? About, I don't know,

I'm making this up, but 60, 70 percent. Can you imagine if you can't find Motrin on the store shelf, right, Advil? You can't find Advil. You can't find Advil. I'm a daily Advil popper. Oh, well, don't tell me that. I hear you, though. You don't see exemptions coming for those things, though? I think of that were the shortages, where you might see shortages? I don't. Where it's so acute, where it's so lopsided.

Okay, well, that's that, then then I think if they put on exemptions like that, then yeah, then you're moving in the right direction. That's a de-escalation, and that it satisfies my, if they do that, if they do that. But even that, I mean, the time lags are long here, right? So if you wait until the shelves are empty to make a move, like you're still talking about two months at least, right? I mean, what's the, it's usually like 60 to 90 days of like transit, like logistical, you know, time to get things from China to store shelves in the U.S. It's like you can't. If you wait until things are gone, you've already sort of waited too long, right? That seems to be the biggest concern. It's like, yeah, there's no impact right now. But if there's no flow, happening, you're leading to an inevitable shortage of things at some point. And if you don't restart that flow quickly, you're going to get to that point, even if you do make a deal in the interim. And then what does that do to consumer confidence? And what impact does that have? Even if you've now made a deal, but you're still sort of seeing the ramifications of it.

That's, I think, what I'm concerned about. Yeah, good point. Good point. But I get, oh, sorry, go ahead, Chris. Stock up now, I think, is Dante's advice. I feel like that's the, the news back, it seems like COVID all over again where, you know, start hoarding what you need because you don't know if it's going to be there in a few months. Yeah, the next thing I'd watch is if there's any runs on different products. You know, people start, you know, hoarding stuff. Yeah.

Yeah. I mean, I know I still have toilet paper from the pandemic down in my basement. I actually have, what's that tape? Duck tape. I have duct tape from 9-11 down in my basement. I'm sure it'll come in handy at some point. I don't want to know. Yeah.

You're too young. You're too young to remember. But back then, they were telling everyone to have plastic, sheathing, and duct tape just in case, you know, there was some kind of nuclear, you know, fallout. You don't remember that, do you? I'm not too young to remember, but I don't, I don't remember. I don't remember hoarding after 9-11. No, I don't. Well, you were young, and he thought, oh, nothing's going to happen to me.

Yeah, yeah. I mean, I had my first child. We were all, we were pretty nervous at that point. Chris, do you remember that? Am I making that up? I was in D.C. And I don't remember. So was I.

You don't remember the duct tape and the plastic shooting? I must have missed out on that, though. Oh, yeah. I'm not going to say where I was because I don't want to make you feel bad. So I won't tell you where I was. In utero. That wasn't that. I was in high school, but you know.

In high school. Yeah. Yeah. That's funny. Well, I'm certainly going to go out and buy Advil now. I had no idea. Yeah, there you go. Hey, you go.

Hey, guys, do you want to play the game? I mean, we've already, I'm not sure. You want to play a couple rounds of the game and call it quits? Or what do you want to do? What's the mood of the group? I'm always up for the game. Okay, let's play. There's got a good one.

There's so many good ones. There's so many good ones. But, okay, Mercy, you're up. Okay. Oh, I should say that, can I say? I'm sorry, my fault. The stats game. We each pick a stat.

The rest of the group tries to figure it out with clues, deductive reasoning, and questions. The best stats, one that, well, you know what I'm going to say. So go ahead, Marissa. 8.1%. 8.1%. Is it in the employment report? No. The GDP report?

It's a corollary of the GDP report. Oh, income, in the income or consumption? consumer spending or getting the consumer spending report? Is that a growth rate? Yep. In a category? Is it? Yep.

A category spending? One of the categories was up 8%. 8.1%. Okay. Okay. Well, I think motor vehicles were up. It's got to be one of the hoarding. You got it.

It's motor vehicles and parts. Oh, motor vehicles apart. Yeah. So real consumer spending on motor vehicles and vehicles. parts was up 8.1% over the month, and it was up 10.5% on a year-over-year basis, which is the strongest year-over-year growth we've seen since, like, 2016, I think you have to go back to see a number like that. Yeah, and this is just the, it's the buying ahead of the tariffs. And as you two can attest to, people went out and bought cars thinking that cars are

going to be a lot more expensive in a few months. Yeah. Yeah. Hey, Let me go next, okay. Okay. Okay. I'm generally a gentleman and let everyone go and I don't do it, but I got a good one. 44. The number is 44. Are there units on the 44?

It's an index. An index? Think of what from the conference board. It's not been the conference board. Is it from the ISM? It is, an ISM manufacturing. Is it, so it's something 44? Is that new orders?

Not new orders. Capital spending plans? No. Production. Production. Production. Production. Oh.

So the production, you know, the ISM survey, which we talked about earlier, in aggregate was, I think, I'm making it up, 48, I think. So below 50 threshold for contraction. But the components, if you look at the components, actual production, which, by the way, if you look at the, Coincident Economic Indicators, the very best coincident indicator is jobs, employment. So the day, the month, the employment goes from positive negative is the month that the recession will be dated by the National Economic Research. The second most significant coincident indicator is manufacturing production, industrial production. So this is not that, but this is a window into that. So this is the production component of the ISM survey goes to production. Forty-four.

is incredibly weak. I think it got that low, barely that low, in the teeth of the pandemic shutdown. And I think every recession going back, because this thing's been done for many years, decades, you get recession every time you're at this level. I mean, it's just screaming. I got a problem, you know, in the manufacturing. There's so much irony around that, right? Because the terrorists are supposed to be about helping the manufacturing base.

it's just crushing the manufacturing base, just crushing it. So at least in the near term. So I thought that was a pretty telling statistic. Mm-hmm. Right? Don't I get any pat on the back for that one? There's a great number. Congratulations.

Congratulations. Yeah, very good. All right, Dante, you're up. Let's go with 26,000. Is that the number of jobs? created in the transportation and distribution sector? It's not, it's close to that. It's not that though.

That was 29,000, but that was a good guess. Oh, 29, oh, man, is it an increase in jobs in a sector? It's not in a sector. It is an increase in jobs, I guess, technically. Oh. Oh. That's weird. Technically, technically.

What the hell does that mean, technically? It's technically an increase in the number of people employed, not in the number of jobs. jobs. So we're talking about the other survey here. The household survey? Yeah. And what's the number again? 26,000? Is it like the number of, it's not an industry? Is it a class of worker? It's not an industry or a class of worker. I don't know. I give up. What is it? Yeah. What is it? So it's the adjusted household survey measure. So the household survey employment was up four $136,000, but if you adjust payroll survey concept, it's only up 26. He held out on me because I was looking for the dark side of the employment.

I almost said it in the video. He wouldn't even give it to me. That's a good one. That is a really good one. Hold in my pocket. So yeah, if you look at the adjusted measure of household survey employment, it's only up by an average of, I think, about 40,000 over the last three months. So, you know, it's quite a bit weaker than the payroll survey.

again, there can be some noise in the household survey, but it's certainly reflecting even, you know, we, it had been weak for the last couple years because of the, you know, sort of population control issue and they weren't capturing immigration effectively. But I think that story is harder to make now. So I think, you know, it's more likely that that's reflecting some true weakness in the labor market. So do you know what, what was the big adjustment? Was it self-employed or, um, I do not know off the top of my head. I didn't, I didn't dive into it. I saw it right before we. jumped on. That's a good one. That's a really good one. Okay, Chris, you're up. Your last. All right. This is a tough one.

Wily covered in the media, though. So this is maybe our listeners will get this. Okay. I reported this week 10.3% decline in the month of March. Compared to the previous year, I'll even, you know. Oh, 10.3% Uh, um,

is it a price? Nope. Uh, is it jobs related? Is it GDP related? No. Nope. It's people.

Oh, it's people. People. Down 10.3%. Uh, people. They widely reported. Wildly covered in the media. Yeah. Is it Doge related?

Nope. Is it immigration related? No. We're going to kick ourselves when we hear it, I know. 10.3% down. All right, we give up. What is it, Chris? It's international arrivals to the U.S.

They were down 10.3% in March, which got a lot of headline play. But if you look at the, if you dig a little bit deeper, it's largely to do the timing of Easter this year. We had a late Easter. Oh, I see. I just want to highlight that, you know, we've got to be careful with some of this data that's coming out as well. Right, right, right, right. Well, was it still weak, even accounting for Easter?

It's a bit weak. And it was extremely weak for Canadians. Canadians are not coming to the United States and have no plans to. But for Western Europeans, it's a little bit down, but not much. Right, right. Okay, well, that's a good one. Okay, I'm glad we'd do. did the game. Before we call it a podcast, anything else anybody wants to bring up? Any other issues,

concerns, worries? FOMC meeting coming up. What's your, you know, next week? Yeah. What's your thought? I can't imagine they do anything, right? They're going to sit on their hands. They told us that that's what they're going to do until they get some clarity around all this tariff policy and other economic policy. So anyone disagree with that? I don't think so. No, I'm sure they're happy about this jobs report, right? Because it gives them some more cover to just wait and see.

Wait and see. I think if this had been really more negative, then they would have had this. What do we do? Do we wait for more inflation data and see how that pans out or do we have to start cutting? Yeah, that's a great point. I'm sure you're right. Certainly the pressure on the Fed would have been pretty intense if it was a soft number. Yeah.

Yeah. Okay. All right. Well, we got something to talk about next week for sure, already on the docket. Very good. Okay. I think we're going to call it a podcast. I hope you guys and listeners enjoyed it and we'll talk to you next week.

Take care now.