Moody's Talks - Inside Economics - Glass Half Full or Half Empty

Episode Date: August 5, 2022

Mark, Ryan and Cris welcome colleagues, Marisa DiNatale and Dante DeAntonio, to dig deep into the July U.S. employment report. They also discuss what the new data tells us about a recession, productivity and what it means for the Federal Reserve. Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis @MiddleWayEcon for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. I'm joined by a group of colleagues, my two co-hosts, Chris D. Reedy's. Chris is the deputy chief economist and Ryan Sweet. Ryan is the Director of Real Time Economics. And then we've got Marissa, Marissa D. Natale and Dante, Dante Di Antonio, our two job market mavens. Because you guys both came from the BLS, right, one point or another. I think we established that you guys did not overlap. They're shaking their heads, no. We did not overlap. You did not overlap. And, Mercy, you worked on, what was the report you worked on when you were there? Well, I worked on the household survey side. Oh, that's right.

The CPS, but the people in that office write the jobs report. Got it. Yeah. Got it. So you were focused on that household employment survey. which is the basis for the unemployment rate, participation rate, that kind of thing, which will definitely come back to. And Dante, you were focused on regional, I believe, employment.

Yeah, so it's payroll survey, but state metro employment, yeah. State metro employment. So we've got some real expertise here. You got to make up for, you know, Ryan's deficiencies, you know, so I'm not sure about Ryan's. What were you? Three minutes? You know, I'm just going to point out your forecast for the job gains.

this month was pretty bad, I thought. We Maverick. You had the same forecast. I know. I know. It's true. We had the same forecast. 225K.

Yeah. But I know I went back. I made an amateur mistake. Oh, okay. We got, I want to hear about that. Yeah, because my mistakes are always professional, but, you know, I'd love to hear the.

But anyway, We're obviously talking about the July employment number from the Bureau of Labor Statistics, and we need a rundown. So, Marissa, you want to lead the way here? You want to get the report? Yeah. So you guys were only about 300,000 off. I'll remember this.

The increase, the net increase in payrolls in July was 528,000. Huge. Very surprising. I mean, you, and you weren't the only ones that are off, right? consensus was nowhere near that as well. I think it was 250, wasn't it? Yeah. Yeah.

The highest forecast was around 300. So this was way out of. Oh, really? Mm-hmm. So not alone. The distribution was very narrow on the forecast. I think the range, it could be off by a little bit. I think it went from 40 to 350.

Wow. Okay. Okay. Interesting. And then, so 528,000 in July. And then if you look at May and June revisions added another 28,000. thousand to payrolls, both May and June, were revised higher. The job gains were very broad-based. We got a huge increase in leisure hospitality, employment. I'll say that the BLS in writing up their

news release makes it a point to say, we're now, we're now back above where we were in February of 2020 in terms of payroll employment. And that's true of most industries. There's only a couple of industries now where payrolls are still are below where they were prior to the pandemic. So that's leisure hospitality, education, health care, state and local government. And I think wholesale trade might be below as well, but everything else is back above where it was. So in that respect, the labor market is kind of back to normal. The unemployment rate fell. Would you consider that normal, though, I mean, in the sense that if there had been no pandemic, what employment is. Presumably higher, right? Yeah.

A lot higher. Like, how much higher do you think? Well, if you think what average job growth pre-pendemic was $150, $200,000 per month. So that adds up pretty quickly. Although, that probably would have slowed, right? Because we were at full employment, given labor force, probably even $100,000, maybe. Yeah, so $100. Okay.

So you're saying maybe two and a half million more jobs, something like that. Correct. So the pandemic is still weighing on the labor market. Yeah. Okay. We're back to where we were. Right. We're back to where we were.

The unemployment rate fell to three and a half percent. And that is where we were when we went into the recession induced by the pandemic. It was three and a half percent in February. in January of 2020. And the labor force participation rate actually didn't really change. It ticked up by a tenth of a percentage point. It looks like to tick up. I thought it ticked down.

By a tenth of a percentage point. Tick down. I thought it was up. See, you have all these problems with negative positive signs. Here we go. Yeah. It's like, here we go again. Yeah.

Like, what the heck? Really? I fell. Yeah, it fell. 62 point. Right. Dante, Dante. Did it fall?

I don't go down by a tenth, yeah. Okay. Down, apparently a tenth of a percentage point. There you go. That's funny. Let's see. What else? Average hourly earnings were up 0.4% over the month.

Are you sure? Are you sure they were up? I'm just making things up. Okay. Yeah, yeah, I think you're right. Yeah. Yeah. And the year-over-year growth rate, though, in average hourly earnings has come down a bit.

I mean, it's actually accelerated month-on-month, but on the year, it's decelerated a bit over the past few months. So we are seeing real negative wage growth for most workers. I think the year-over-year is 5-2, 5.2 percent. Is that right, Ryan? Do you know? It's 5.1 or 5.2. Yeah. Yeah. Okay. Yeah.

It feels like, at least in terms of average hourly earnings. And I think I go so far as to say all the wage statistics, there's, you know, obviously not exactly the same, but they're all coalescing around the 5%-ish kind of wage growth. Would that sound about right to you? If you look at ECI, too. And, yeah. Employment cost index. and, you know, the plethora of data. Okay. And what would you say, my sense is we want wage growth that to be consistent with 2% inflation, which is the Fed's target where the Fed wants inflation to go

appropriately. So that would be consistent with wage growth of what, would you say? Something three and a half, four percent, something like that. That would be 2% inflation plus 1.5.2% productivity growth, something like that. Okay. Okay. I'm asking you, Marissa, is that? Oh. Sorry. Yeah. Sorry. I thought you said, Ryan. Three, three and a half percent. Yeah. I think that's right. Okay. Okay. Okay. Okay. Very good. Sorry. I didn't mean to interrupt. I'm just. Yeah. No, that's okay. Yeah.

And in terms of the payroll survey, like I said, it was pretty broad-based. The diffusion index was high, indicating that job gains are broad-based across industries. I was looking at some of the industry detail. If you look at the job gains across industries, really don't see many negative numbers. Some in manufacturing, notably motor vehicles, lost jobs over the month. But other than that, there weren't any major, you know, big industries that actually lost jobs. over the month. It was mostly gains everywhere. What else? It's a really good report. It's hard to find anything that's bad in this, really.

Except for maybe the step back in participation, I guess, right? That would be the only sort of plummish. Yeah, but I wouldn't, I wouldn't read much into a one-day, 10th percentage point move in either direction. I mean, it's not even in their statistical significance of movements in that statistics. So whether it's up a 10th or down a 10th, it's really all the same. Okay. Yeah, that makes sense. That makes sense.

Okay. So a good, well, it depends on your perspective. I mean, looking at it from a prism of growth, this. unabashedly good report. Looking at it from the prism of the Fed's prism, you know, wage and price pressures, maybe not so much. They probably would have some issue with this or some concern with it. But we'll come back to that. Okay, Dante, you want to fill any gaps in there? Anything you want to highlight? Anything that you think is important that we should focus on? Yeah. I mean, I think the one month moving participation doesn't matter so much,

but there certainly looks like there's a trend forming in the wrong direction, where over the last three or four months, it's continued to sort of tick a little bit lower. You know, it's primarily driven by older workers. I think there was a little bit of step back in young workers this month as well. You know, prime age seems to be holding up pretty good, which is, you know, the most important piece. But certainly I think older workers and increased share of retirements is going to be an issue at some point

if we continue to add jobs like this, you know, participation is going to matter more and more. And I think that older cohort of workers that have retired at higher rates over the last two years, at some point, is going to come into play in terms of availability of workers. So that's one thing. And then, you know, I still think it's seasonal adjustment. Before you move on on the Labor Force participation point, so what you're saying is, yeah, one month down, no big deal, but this, there's, it feels like it's slumping here a little bit. participation rate caved when the pandemic hit, came back when the economy reopened, never got

fully back, and now it feels like it's slumping a little bit. And that's a bit of a concern because we having Labor Force participation generally remains relatively low, certainly compared to pre-pandemic. Can I ask you about that, though? Is it, I mean, if you look at projections for the Labor Force participation rate pre-pandemic. Look at our projections, look at projections from the Congressional Budget Office. Projections were for lower participation throughout this period, just given the aging out of the baby boom generation from the workforce. And I think, if I'm not mistaken, that the participation rate today is almost exactly where the CBO said it was going to be, you know, pre-pandemic. From that, from that, from the, does that make sense to

you, does that cushion the blow here in terms of your thinking as to what it means? I think it certainly cushions the blow a bit, right? I mean, we weren't expecting participation rates to, you know, they had sort of spiked right before the pandemic in late 2019, and that trend certainly wasn't expected to continue. So I think that does make it, you know, a little bit of a softer impact. If you look at our forecast just for the size of the labor force back at the end of 2019, relative to where we are now, there's still like a about a three, million gap, I think, between sort of where we thought the labor force would be in terms of total size versus where we are today. So, you know, certainly we're still missing some

segment of the workforce that we thought would be there absent the pandemic. You know, I think that is, right. We weren't expecting growth to continue at the rates we saw in, you know, 2015 to 2019, but even if it had grown at slower rates, you know, absent the pandemic, we would be, we'd have a bigger labor force today. There'd be more older workers in the labor force still, it would probably take some of that pressure off of wages that we're seeing sort of persist. So I think from the Fed's perspective in terms of wage and price pressure is that the labor force issue is big because it's going to keep those wage pressures higher for longer, I think that it would be. Yeah, my, I think that's right.

I think, though, the thing that's a bit surprising isn't that labor force participation is as low as it is, because that feels like that was going to happen more or less, even without the pandemic. What is different, though, is working-age population growth. That really got crushed during the pandemic and has rebounded a little bit. But if you look at that, it's only a little bit above today's working-age population is only a little bit above what it was pre-pandemic. And that goes to, I think, largely immigration. We just had so many fewer immigrants come into the country.

Certainly leading up to the pandemic because of changing immigration law under President Trump, but the pandemic just crushed the immigration, which is key to the labor force. So I agree with that for. Yeah, I think, you know, thinking about long-term growth potential, especially, you know, immigration, if it doesn't ever come back to what it was before, you know, as natural population growth keeps slowing, which, you know, almost certainly will. immigration would be a bigger and bigger piece of potential labor force growth moving forward.

So it's a critical piece to watch out for, I think, over the next few years. Got it. Got it. Hey, Ryan, anything you want to add to the run down on the employment report? I think something that I found very encouraging is the drop in long-term unemployed. So the number of people that are unemployed for 27 weeks or longer, that fell more than 250,000, and is now lower than it was pre-pendemic. So, you know, there's concerns about long-term scarring effects of the pandemic unemployed and, like, structurally higher unemployment doesn't seem to be, you know, coming to fruition. So I thought that was very encouraging.

Yeah. I hadn't noticed that. That's a very interesting. Was that, is that in the month or is that a trend that you've been observing in the data? It's been steadily declining, but there's a big drop in July. And that put us back down lower than we were pre-pendemic. So the other thing I noticed was the number of people. people that were employed but not at work because of own illness, that ticked up in July. I think that's COVID related, but say that again. What was that? The number of people that are employed, but not at work because of an illness, that rose in July. Not a lot, but it ticked up and it's still, you know, elevated. So I think, you know, the pandemic is still having an effect on the labor market.

Could that be part of the labor force participation issue? It could be. I mean, there's some discussion that maybe long COVID is having an effect on the participation rate, which we have to dig into and see if there's any evidence for that. But there's lots of reasons why the participation rate is not going anywhere. Yeah. But that's bounced around, right? I mean, it didn't look like it was an unusual spike in July.

With the number of people out sick? Yeah. Oh, no, it wasn't an unusual. I thought hopefully the trend was going to keep going down, but we're kind of bouncing back up. Although, if you look at the supplemental questions about COVID, the number of people who said that they were. working from home because of COVID, felt at the lowest it's been since the start of the pandemic. And that's even with cases quite high in the U.S., right? And I don't put a lot of, I think we've talked about this before, I don't put a ton of stock in that particular question,

but just directionally in the magnitude of it, the fact that it's reached a pandemic low, I think, is significant, just in terms of how people are coping with COVID differently. now than they were maybe a year ago. Yeah, it's definitely less disruptive because of the quarantine period has been slash and half. But one thing I'm worried about is monkeypox because the quarantine period is two to four weeks. So if these cases really start to increase, that could be very, very disruptive to the job market. Hey, Marissa, the number of people that said they were not working because of COVID, was that the

548,000, 550,000 people? Is that the number? No, no, no, this is the number of, well, what I was referring to is people who said they were working from home because of the pandemic, teleworking. And that was like 11 million people or something like that. It was 7% of employed. I see, yeah. Yeah, I think there's another COVID-related statistic in the number of people saying that they're not in the labor force because of COVID. is now 548, $550,000.

That's right. There's another number. Yeah. Yeah. I'm not sure what it was, but you're right. That's still a lot of people. There's still a lot of people. Yeah.

So COVID's still playing a role, I mean, a meaningful role, but it's just you're saying it's becoming less significant as we. And I think it's just becoming less disruptive. I think, you know, people are, some people are working from home. Other people are kind of going about their business pretty quick. after a diagnosis. So it's a different, it's a different world than we were in a year ago if you, if you got COVID, right? I think it was far more disruptive a year ago to the labor force.

So here's how I think about it. So as you point out employment, payroll employment is now back to its pre-pandemic peak, a little bit above, 30,000k above. Yeah. If not for the pandemic, I think it would be fair to say that employment would probably be about two and a half. million jobs higher than it is today. That's 100K per per month sort of on average, something like that. Of that 2.5 million K that were kind of, it's called them missing, I'd say three-fourths of that is, and this is kind of in my mind, I'm just laying it out and like to hear what you think. But three and a half, about three quarters of that is related to the decline in working age population growth relative to what it would have been because of the hit to immigration.

And that's largely policy and the pandemic. And then the other fourth is still related to COVID. You know, people, you know, not working because of COVID for some reason. Long COVID, fear of getting sick, fear of making their parents, their overly parent sick or their kids sick or whatever it may be. And also a little bit in there of the two and a half million are, you know, people who don't need two or three jobs, you know, at least up to this point in time. They got they sheltered in place, save money, or they got government support, save money. And it's allowed them to be a little bit more leisurely in terms of taking a second or third job,

that they needed to have before the pandemic. So that goes to the fact that we've seen much fewer part-time jobs out there compared to full-time jobs. Does that characterization sound right to you, you know, roughly right, or would you have a different kind of frame? And I'm kind of throwing it out to the group if anyone's got an opinion about that. Does that sound about right? Good framework?

I think so. It does. I noted that there's a, the 55 plus crowd is the demographic that has stepped out at a higher rate and hasn't really come back in. So whether that's directly related to COVID or indirectly related to COVID because of the savings, they may have been able to build up. I'm not sure. But I think that's a wildcard, right?

Will that group stay permanently out or are they going to come back in at some point? Right. Especially given what equity markets have been. doing recently, right? Well, if my frame is right, then we're never going to get all those jobs back, right? I mean, we're not going to have immigration above what it would have been otherwise for an extended period. It doesn't feel like that's unlikely.

Unlikely. We might get those COVID-related folks that have been affected by COVID back in, but that could take a long time to come back in. And, you know, who knows. So, you know, we may get partway back those two and a half million that we're down, but it doesn't feel like we're going to get most of those back. It feels like we're going to, when you graph, when we look back five, ten years from now and graph employment and look at the level of employment, you're going to see a shift down

in employment. We're not going to get all that back. It doesn't feel like, yeah. Okay. Hey, Chris, I didn't ask you. Anything else in the jobs report you wanted to call out? Were you as equally surprised? I don't know what your forecast was for this.

I was on the higher end, but not 500K. So I was higher than consensus, but didn't expect this. So, yeah, I think the report was stunning, to use one word, as well above expectations here. And really, I think, Mercer made the point really hard to find any real sign of weakness in any sector. in any industry, any demographic, look at cross-education, gender, age, strong across the board. That's a hint for the statistics game. I really had to dig to find something. But yeah, I think it's a strong report. Good for the household, good for the overall economy.

Not so great for my productivity forecast, right? This strength and labor market, given the weakness in GDP really points to weakening. productivity growth. And I've been a productivity bull. I'm a technological evangelist. So it doesn't point in that direction. Yeah, we'll come back to that because we've got Dante on too and he's the productivity skeptic. I know.

We should talk about that a little bit. Before we go there, I do want to talk about what this means for this whole debate around have we been in recession? Are we in recession? Have we been in recession? and this feels like this. Obviously not. Obviously not.

Obviously not, right? You can't even use the R word anymore. Right. And it doesn't matter. It's a tiresome debate. It is. I think it's a side show kind of debate. I mean, it's sort of semantics.

It's like if you're a household and you, how are you doing? You know, do you have jobs? Are you getting raises? Is inflation eating into? you're spending, which it probably is, right? I mean, there's a lot of households that are hurting just because of gas prices and elevated prices across the board. It probably doesn't feel great. So I just think whether or not we label anything a recession is sort of, at this point, that's not the discussion that people should be focusing on. I mean, we can't be in a recession

when the unemployment rate is falling and it's three and a half percent, which is about as low as it's almost ever been. And we're adding half a million jobs a month. I mean, that's not a recession. That's not at all. Yeah. So then the question becomes, well, what are the things that are wrong in the economy and how can those be addressed? And that's the discussion I think that we should be having. More productive. Yeah. Yeah. And that's inflation. Yes. at least the most immediate problem. Yes, absolutely. Yeah, right. Okay.

Dante, would you take exception? I know you'd like to take the other side of these kinds of arguments. You do with me all the time. I mean, I have a few reasons why I'm a little bit skeptical of how strong the jobs for it was. I think there's reasons to believe that it's pretty overstating, pretty strongly, sort of how many jobs added. I don't, maybe after the game, I'll get into a little more detail. But I think I have probably three reasons why I think maybe, you know,

this doesn't tell us the whole story in terms of how strong the job market is. So productivity might be stronger. Well, I don't know with the productivity script. But, yeah, I think certainly I don't know that 500K is the real number this month. I think we're doing fine. The job market is fine. But, yeah, I think we're certainly probably overstating the case this month in terms of how strong it really is.

Well, you teased us three reasons. Are you saying we should wait to the game before we get the three reasons? Yeah, I'm going to give away one of my reasons if I do it. Oh, okay. All right. We'll wait then to hear the three reasons why it's not as strong as it appears. Okay. Okay.

So let's just put that to bed. This is, we're not in recession. We have not experienced recession in the first half the year. How it's not possible with falling unemployment and booming job growth. It doesn't make any sense. Yeah, that that would be the case. Okay. All right.

So then let's go to that, the question you brought up a minute ago, and that is productivity. So kind of at face value, you got GDP declining. GDP fell in the first half of the year, two quarters of consecutive decline. That's the value of all the things we produce. That's output. And then jobs are booming. Hours worked are booming. So, you know, one divided by the other, which is productivity.

That feels like it says productivity is declining, declining. So, Chris, how do you square this circle? You know, given your thinking that your productivity bull, that your technological innovation is going to drive very strong productive growth going forward. Are you giving up on that view or what? How are you squaring this circle? Not giving up long term, certainly. I think there's some noise in the data here first. So that's always the economist explanation.

right? Number one, if the data doesn't match your theory, the data must be wrong. But I think there's some legitimacy, right? We've been talking ad nauseum about the GDP report and issues in terms of measurement. High probability things get restated. So they're probably, it's probably not as dire as what those numbers suggested. But even if first and second quarter don't change, third and fourth quarter, I think, still look pretty good. So there could be some blips here, but if you smooth it all out, GDP probably is still in a relatively fine shape. So the other point to make is that, you know, clearly there are business cycles, right? So productivity may not go up with a straight line.

All right, there's going to be some ebbs and flows. But generally speaking, I still believe that remote work, all the technological innovations we've adopted over the last couple of years, they are going to pay some benefits in the longer run. It might not be as strong as 2% type of growth, but still I think we'll get reasonably high or higher than pre-pandemic levels of productivity growth going forward. Just to frame this, and then I'm going to turn to you, Dante, in a second. Yeah. You know, since World War II, productivity growth, I believe non-farm business productivity growth is almost 2% per annum on the nose.

Right, right. At the apex of the slowdown in productivity growth back in the mid part of the last decade, 2015, 2016, kind of in the wake of the de-leveraging from the financial crisis, we were at 1%. It felt like we were at 1%, give or take. What do you think underlying productivity growth is now? Underlying meaning, abstracting from the financial crisis. we were at 1%. It felt like we were at 1%, give or take. What do you think underlying productivity growth is now? Underlying meaning, abstracting from the vagaries of the data,

you know, the quarter to quarter movements, even the effects of business cycles, getting under the underlying trend. What do you think it is now? Between one and a half and two, probably do it. Okay.

Point estimate, I would say, probably one on three quarter. Okay, okay. That's my bullishness. And that's your forecast for the foreseeable future. Long run, yeah. That's your long, that's where we are, one in three quarters, which, by the way, I think before the pandemic hit, it felt like we had seen that come up to.

We were moving in that direction, yeah. Definitely moving in that direction. Okay. And that's, you think that's where we are. Somewhere one and a half, two percent. If I had to pick a number, you had to pick a number, which you do for your forecast, one and three quarters percent. Okay.

Which, by the way, going back to wage growth, that would imply that the kind of the sustainable amount of wage growth consistent with the 2% inflation would be 3 and 3 quarters percent, right? That would be 2% inflation plus 1 and 3 quarters percent percent. Obviously, there's a lot of other things going on here on the margin, but that's roughly the case. Somewhere between 3 and 1⁄2% on that's right. Okay. And you point to remote work. You didn't, one other thing I would, in helping you build your case. against Dante here because I can feel Dante is really going to come at us pretty hard here.

But the other thing is, if it, if I'm wrong, and Ryan, you probably know this data better than I, feels like businesses are investing very aggressively in labor-saving technologies, you know, software and equipment, intellectual property. And that probably goes to the fact that they realize that labor is going to be a problem. It's going to be a shortage because of the demographic trends we've been talking about aging out of the boomers, immigration flows, that kind of thing. Is that right? Do I have that right that investments been strong? It's been very strong, particularly in intellectual property.

I mean, quarter after quarter, it's been growing very, very rapidly. And that leads productivity growth by a couple of years. So we'll start to see the fruits of those investments over the next couple of years. Oh, so you're a productivity bowl as well. Yeah, I'm Chris. Oh, you're with Chris. Where are you on this, Mercer? We're trying to isolate Dante here.

Don't worry, Dante. We're coming back to you in just a second. Where do you stand on this, Marista? I'm maybe not as optimistic as Chris and Ryan are, but I do think there's some evidence that over the past few years, we've invested quite a bit in labor-saving technology. The remote work thing, I don't know that in and of itself is a huge long-term boon to productivity growth.

it's more of the other sorts of technological investments that companies have made in the last couple of years. I think the jury is still out on whether remote work by itself is productivity enhancing. On that point, though, and of course the jury is out. We need data points. But did you see there was this really cool study that Nick Bloom, the Stanford professor, who's kind of been out on this issue, looking at the productivity of engineers. And they have this controlled experiment within a company, folks that are working remotely and folks that are working in the office. And for these kinds of coders, programmers, they can actually see how much line of code

they're actually writing every day. And they found that the folks that are remote work actually written 8% more code than the folks that were working in the office. Do you see that study? I thought that was pretty cool. That sort of doesn't surprise me in that sort of job. I wonder what that looks like economy-wide with other people who are working remotely that maybe need more, do more collaborative work or group work or something. where there's more face-to-face that's part of their job, you know. So let me ask you, or has your productivity growth improved?

You're remote. Well, I've always been remote. So how's your productivity growths going? So I would say that it's improved since the pandemic because everyone else is now remote. Oh, okay. Well, okay. I mean, that's been an enormous change, right? Because I've been remote for seven years, but I was sort of.

one person isolated who was remote and you guys were all together in an office and meetings would be very challenging because you'd all be sitting around a table together. You know how that goes. There's a lot of cross talk. You forget that somebody's on the phone. The person on the phone has a hard time getting into the conversation. Now that everyone is remote, it's like a whole new world for me. We were dragging you down.

You were dragging me down. Yeah, you really were. And now it's great because now I can have fruitful discussions and conversations with people face to face. So the fact that everyone sounds like that that sounds like that. That sounds like an argument for why it could be a big deal as, you know, becomes, you hit critical mass, right? Technology improves. You know, also, the other thing I wonder about is, you know, as companies form now, it doesn't feel like there's, going to optimize around a cube in an office building. It feels like they're going to optimize

around remote work. Yeah. And that's that's a whole different, you go to a whole different level of potential productivity gains because you're, you're building from ground zero around the remote work dynamic as opposed to like us. We're kind of gerrymandering into remote work because that's not what we did, you know, pre-pandemic. Yeah. I mean, I still think it's an interesting question about the like the cultural um sorts of transfers you know the the innovation the sort of like water cooler conversations you have with people that are spontaneous that might spark new ideas when you're in an office and you're face to face you know i i don't do much spontaneous zooming of people just to chat right whereas in an office you do that sort of thing

and sometimes that generates ideas or collaborations that you might not be getting at home. These are all completely open questions. I'm not even arguing that that's not happening. Maybe it is, but I think it's going to take a while until we know what the real impact of that kind of, even if you're forming a business, right? I mean, that to me seems like something that really being in person and, I mean, you know, Mark, and being in person and being able to.

never really like being in person of my brother. I'm just saying much better over Zoom. Because you can hang up on him. No, no, I never hang up on him. He hangs up on me. Yeah. No, good point, though. All good points. So Dante. It's interesting. Oh, sorry. Go ahead. One quick point here. So I think these are all great points. I think there are some open questions here. My assumption really is just predicated on the better matching of the labor market itself. I think that alone already. gives you some productivity. That's a good point. You're tapping into a national, maybe even international labor market now

versus something that's more regional. And that has to produce some better quality matches. That's a great point. Yeah. Okay, Dante, so what do you think of this? I kind of sort of cut you out here, isolated you off from this little corner over here. So fight your way out. So, you know, of course, the data is on your side.

Yeah, so far. Before I get into my main argument, a quick counterpoint to Chris's argument about better matching is, I think the jury is still out in terms of what the impact of remote work will have on turnover. I think if more remote work leads to persistently higher levels of turnover because people find it easier to switch jobs, I think that ultimately hurts firm level productivity if you have higher rates of turnover than you had pre-pandemic. So just one small point. I don't think that's a major factor here. In my mind, the two big competing forces here are technology, sort of broadly speaking, and demographics.

And we, Mark, you and I worked on a paper a few years back, right? We quantify the impact of demographic, specifically aging on productivity. Right. And the main, the biggest impact of aging on productivity was in the last decade and in the next decade. So we're in sort of the middle of the 20-year period where the aging of the population, we think has the biggest headwind against productivity growth, right? So I think that's my main reason

why I think it's going to remain weak in the near term, right, through this decade. You know, what we've seen historically is that technological change takes a very long time to translate into much stronger productivity growth. The demographic issue is, we're already in the midst of it, right?

It's happening. It's going to continue to be a headwind. So if you're thinking about sort of estimates of productivity growth, yeah, I'm more pessimistic, I think, through this decade where I think we're probably something like 1 and a quarter percent instead of, you know, one and three quarters percent, like Chris would say. I still think that might settle higher long term, you know, once the sort of

baby boomer headwind moves largely passed, you know, at the end of the decade. Maybe you settle at, you know, one and a half percent longer term. But I just think the demographic issue is a bigger factor right now and will continue to be for the next couple years at least versus the sort of the benefit that we're getting from technological change right now. I had forgotten about that paper. That was a classic, actually. You were, that's why you're, you know, it's all. Yeah, yeah, yeah. It's funny. That was the, the aging population was a very, it has been a very significant factor way on productivity. And we explored kind of why would that be the case? And we had two theories. One, the wise man theory,

which was my favorite. And that was when aging boomers like me retire, we take all the institutional knowledge are with us and you millennials and other generations behind us, you're left diminished by that. And it hurts productivity growth. It turns out that that's not the case. We couldn't see that at all in the data. It's more the albatross theory, and that is guys like me are holding guys like you back where the age ceiling over your ability to execute on new ideas and incorporate new technologies

and obviously that's key in productivity growth. And that's what we found. It's interesting, though, my take on that study and what it means for productivity growth is a little different. You're right that the aging has lowered trend productivity, but productivity growth, but we're well beyond the peak impact of that. That felt like that was a few, you know, back in the late latter part of the last decade. And that that weight on productivity growth is now diminishing over time. And we'll be the case over the next decade. And a decade from now, basically it goes away.

is that right? Yeah, I think, yeah, basically started in roughly 2010 peaked maybe, you know, roughly 2020. And, you know, it's basically like a 20-year period with the peak in the middle. And so we're on the downside of that, that impact, I think. But I still think that impact is big enough, at least over the next couple of years to outweigh in productivity from, you know, pandemic related changes, I think. I see.

Well, I think you'll both take solace in the fact that our actual, baseline forecast is for 1.5% productivity growth. So it reflects both your views, I think, you know, quite well. We've three fully unhappy. We're equally unhappy. We're equally unhappy. Well, and that's the way as it should be. We're all unhappy. Yeah, because we don't get exactly our forecast, but it's like one and a half percent. Okay, good. Let's, uh, anything else on the productivity debate that anyone wants to bring up? No. Okay. Let's, uh, let's, uh, turn to so far, I think most of us have taken this report in the strong job gains as a glass half full kind of development.

This is, you know, how can this be bad for the economy's resilient? We're creating a lot of jobs. But let's talk about in the context of the Federal Reserve and monetary policy, because that goes to the future. This feels more like a glass half empty kind of. Would you agree, Ryan, with that perspective? Yeah, 100%. Yeah, because I mean, look at how the bond market reacted.

You know, good news is bad news for the bond market now, because now they're expecting the Fed to be very aggressive again in September and possibly even in November and December. So it's kind of, you know, the Fed wants the job market to cool off so we don't blow past full employment, which would cause give them even more headaches because returning to the economy to full employment without pushing it into a recession is very, very difficult for the Fed to pull off. off. So yeah, I think the Fed's looking at this and the job market's giving them cover to continue to aggressively raise interest rates. So I think, you know, we have 50 basis points in our baseline forecast. I think depending on what the CPI does. Yeah, for September, depending on what the CPI does next week, I think odds are pretty high that they go 75. So. Oh, really? Yeah, they're going to keep pushing hard because they want to get inflation down and I'm just afraid that you're going to overdo it.

Huh. Okay. Well, I think their number one priority is inflation. So we get, as you say, a consumer price index report, CPI report for the month of July on next Wednesday. And of course, the June CPI report was a disaster. And, you know, big increases. Of course, oil gasoline prices peaked back in June.

And we had 9.1 percent, I believe, year-over-year-of-year CPI. inflation of, you know, 40-year-high. Can you give us a sense? I know this is early and you have a lot of work to do to give you, and you're really good at this, to, you know, give us a sense of CPI, but can you give us an advanced preview? Because gasoline prices have come way in. Diesel prices have come down. Jet fuel prices have come down. Energy, the whole energy price structure has come in between June and July. We should get a, I think, a much better number, but what do you think? What does CPI looking like? So gasoline alone. So the CPI for gasoline should shave half a point off month over month growth in the CPI. So we're looking at a very small increase. You know, right now I have like 0.2. Oh, okay.

Increase month over month for the headline CPI. What I think is going to be interesting is the core CPI is going to come in hot. So that core CPI excludes food and energy. And that should be up half a point to point six right now. So that's what the Fed's going to cling to. Why do you say that? What are you looking at? that would give you that kind of a number. 0.5.6 on core CPI. Oh, if you look at apparel prices, if you look at new and used car prices, all these prices are going to continue to increase. There's no indication that used car prices are coming down. I mean, caveat.

Shelter. All the way, wait, on the use car prices, they are coming down. They're just, you're saying not in the, if you look at the auction prices of used cars, that's based on our data. We look at the auction price of vehicles. that's definitely coming down, right? That's not what the BLS uses, though.

Okay, that's what you're saying. You're saying the BLS. Yeah, they look at transaction prices. Oh, so that, so this, I mean, I've been waiting for use car prices to really roll over here in the CPI, and you're saying not in the month of July. Not in July, but it's coming. It's coming.

Okay. All right. Yeah, so I just think July is going to be, with regards to court, to Chris's point, I mean, rent is going to, it's not going to peak until later this summer. So that's going to juice the course. CPI as well. Oh, okay.

Why do you think it'll peak later this summer? Just giving the lags between market rents and when they feed into the BLS measure of owners equivalent rent or tenants rent. Okay. It's about a year, 18 months. So that's coincides with late summer or early fall is when growth should peak. Are you asking why it's going to peak at all, Marissa? Yeah, I wasn't thinking of the OER component.

I was more thinking of tenants rent and and why. with that peak in a couple months, I could see why OER would peak at some point. Owners equivalent, right? Yeah. Well, I think the market rents have on a year-over-year-week sequential, monthly month-a-month, and on a year-over-year basis have peaked. I think they peaked a while ago, like six months ago or so. They're still very high.

I think it's still double-digit, but I think it's kind of rolled over, but then the last. There's been a lot of multifamily construction over the past year or so. There has, yeah, and a lot coming because there's a lot in the pipeline. The pipeline, yep. So you're expecting that to take an edge off of rent growth here towards the end of the year going into the next. But still, your point is in July, we got a big increase in CPI shelter. Correct. And Core is going to be hot.

And Core was up half a point, I think. think in June, right? And you're saying we're going to get another half a point in July. Because a lot of the prices that were up in July for the core CPI are sticky. And, you know, they don't, you know, really mean revert very quickly. Right. Okay. What about food prices? Any sense of that? I mean, everything seems to suggest that should be down to or at least. Yeah, for month or month they've been rising around 1%. They've been just pretty steady, but commodity prices have come down a lot. With diesel prices coming down, that should help take some heat off food prices as well. That's like over half the cost of food is just getting it from the farm to the store

shelf. Correct. Yeah. Okay. All right. So what you're saying is this given the strong jobs numbers, which are obviously too strong for the fed's taste, lower unemployment, that's the wrong direction in the Fed's view, which should be moving north to take, you know, obviously the prism is inflation and they want to cool off wage and price pressures. And you're saying the CPI report, it'll look good, top line, but underneath the hood, the core is going to give them some, some ajida constant. Is that a word, Adjada? It is a word.

Okay, Adjada. Okay. Talking about three Italians here. Yeah. Oh, you all know Adjita. Your mom would say, you're giving me Adjada. We all have it. We all have Adjada.

Okay. And we have three Italians. I didn't even think of that. We got the Reedy's De Antonia. Oh my gosh. DeNataly. It just dawned on me. You guys knew you guys.

The three D's. Three D's. Oh, wow. Cool. Very cool. And then we got one Irish, dude. Your Irish, aren't you, Ryan? No.

No. Scottish. Oh, same difference. Scott. No. Okay. Very good. That's so cool. Where were we? Oh, what's the market say, Ryan, about the Fed in September. Are they now pricing in 75 basis points? So before the employment report, it was a 60% probability of a 75 basis point rate hike. Now, last time I checked, it was close to 70%. Oh, boy. And that will go up after the CPI next week.

All right. Okay. All right. We have not changed our forecast yet, though. We're still at 50. We're going to see. Yeah, we need to see the CPI. We need to see the CPI. Okay. All right. Okay, very good. September 21st is a long way away still. Yeah, a lot can happen. Yeah, a lot can happen. A lot can happen. Yeah. And as to Danté's point, I don't think underlying job growth is 500K plus. I don't think it is. I think it's definitely south of that, probably half that. And if that's right, then that will shine through here before the Fed meeting in September. But anyway, I mean, I don't want to steal Dante's numbers, but the seasonal adjustment factor is pretty favorable in July, particularly for state and local government education. So usually that falls by a million. It didn't fall anywhere close to that. Same thing with leisure and hospitality. So you're saying the seasonal has flattered this 500K gain. A little bit, yeah.

And so the seasonals are not going to. do so in August. Well, August would be the key report for the FMC. Remember August. Always comes to. Oh, yeah. August. Oh, yeah.

We always get wacko. Yep. Wackal. Taxes and a weak August employment report. Always week in August. Yeah. Okay. And our thesis was that's because of the response rate to the surveys by businesses

and households. The response rate in July was the lowest since 2010. They just been consistently. really low this year. Wow, that's why we'll see when we get the annual benchmark revisions. Yeah, okay. Okay, let's play the game. The statistics game, as you recall, people get annoyed at me for repeating the rules

because we need to because we have folks on the podcast that do not play by the rules unless you articulate them every single time. And the rules are each of us gives us a statistic. The rest of us try to figure out that statistic through questioning and deductive reasoning and clues. The best statistic is one that's not so easy that we all get it quickly. We don't want that's too hard that we never get it. And it needs to be or should be, except I can break this rule every once in a while, but it should be the case that it's this last week or so or relevant to the topic at hand,

which is obviously the labor market. Okay, with that, I think we should go with Dante first because I really want to know what these three reasons are. So let's go back to Dante. Dante, what's your statistic of the week? 349,000. Oh, I know what that is. Is it negative?

No, not negative. Oh, okay. Oh, so you don't know what it is. No, no, mind. I thought it was, I thought it had to be negative. Well, what's negative 349? That was the change. in non-seasoning adjusted employment in July.

Oh, no, this is the, no, that's what the number. I was negative 300 and something thousand was the change in non-seasonally adjusted employment in July. Hold it. Hold on. So what? So in July, not seasonally adjusted employment fell 349,000? Mm-hmm. Usually falls a lot more.

Oh, because of, oh, because of schools. Yeah. Oh, I see. Yeah, that's right. Yeah, right. Schools let out. Okay, got it. Chris, do you know what? Yeah, this is the difference between the payroll and the household survey. Should it went with the harder version, the average. Yeah, so it's the difference between the, yeah, establishment survey and household survey employment.

Average of 350, right? Well, yeah, so over the last. Wait, well, why, Chris, how did you know that? I mean, that's a weird, that's a weird, that's a weird, collusion to know. Huh? It's a collusion. We were, uh, it's called collusion for, We were preparing for a webinar this week and I pulled this up. Oh, that's right. So it was in my mind. So I looked it up.

I was thinking of it as a statistic. Oh, you had a chart with employment versus payroll versus household employment. All right. Yeah. Okay. So Dante, why did you, why did you pick that? So the number I really wanted to use over the last four months, the average change in household employment is negative 42,000, right?

So it's down on average over the last four months. you know, the gap between payroll employment and household employment is big over the last four months. And I'm not a big proponent of household survey employment. No offense to Marissa's former career. That's exactly what you're definitely dising. None taking it about. No offense. And he says, I'm not disin Marissa.

And over, over, you know, one, two, three months, you know, we see these gaps form all the time. And usually they revert back. And now we're getting to that point. where it's starting to look like maybe it's something where at four months where you've got payroll survey employment over 400,000 average over the last four months and you've got household survey employment, which is negative over the last four months, certainly makes me think that there's some weakness there in the payroll survey that we're not seeing. Again, over the next couple months, that could flip and everything could look fine over the course of the year. But

it's getting to that sort of time horizon where I start to think about it a little bit more in terms of a potential issue. So that was one of your reasons for thinking the job numbers, the report isn't quite as strong as it appears. I look at household employment, which is the survey of households that's been showing much, much weaker even declines in employment in recent months compared to this booming gains in the payroll survey. Right.

And Ryan, I'm assuming Ryan's going to tell me I should look at the adjusted concept for household employment, which is up $60,000 is better, right, this month. But the average over the last four months, is still much weaker. It's only like 180K average over the last four months. So it's still less than half the payroll. You got to love the camaraderie here. I mean, Dante knew exactly where Ryan was going to go after him on.

He immediately knew, even before Ryan said anything. Couldn't get the number out. Yeah, I knew you were coming. I knew you were going to come at me with it. Yeah, this month it was strong. But yeah, over the last four, it's still much weaker, even if you adjust. This is a tight group. This is really a tight group.

We can read each other's minds. He knew he had to get it out quick because he knew Ryan was going to pounce on him. Yeah, I could see if he's waiting. Coiled spring over there. Yeah. Very cool. So that was the one reason. Ryan touched on the other two reasons, right?

The response rate is still historically low. And 2022 on average is looking like it's going to be terrible. You know, 2021 had set a record for low response rates. 2022 is trending even lower than that in terms of average response rates on the first print estimates. And then the seasonals are... Can you explain that? Just for the listener out there, you know, these are surveys, the surveys of businesses, surveys of households. And of course, it's not compulsory. It's not like you have to fill it out from the Bureau of Labor Statistics. And you're saying that the percent of businesses that are responding to the BLS survey is way down

compared to historical norms. Right. I think this was the weakest July since 2000. And, you know, even if you look on average across the whole year, response rates have been down in 2021 and even further down in 2022. They're the weakest in, you know, 15 years probably. What's going on, do you think? Why? I assume some of it is survey fatigue. You know, I feel like over the last few years there's been just an increased number of surveys in general. And I think some of it is just, you know, exhaustion of filling out surveys and more important things to do in terms of business finances and business. this prospects than answering a survey about employment? I got fatigue. Definitely got fatigue. Yeah.

I felt out so many surveys. Many moody surveys. Although much of this is automated now. I mean, it's pretty rare that someone at a company is filling out a survey. Most of the payroll survey is an automated kind of thing. So it could be, I mean, maybe it's the working from home, Maybe like with all of this disruption. Marissa's point.

I mean, I mean, just there's disruption in the way business has been, has been transacted, right? Over the past and things have happened over the past couple years. So maybe it's that. Maybe it's business formations. Well, we get the benchmark preliminary next month, right? So we'll find out if this response rate issue, how big of an issue. That's when the BLS benchmarks, the survey-based. information to the actual counts of employment based on unemployment claims.

Yeah. Yeah. So we get a full view of what's going on in a labor market. This is their initial. It's a preliminary. Yeah. They don't actually incorporate until January, I believe. Right.

Usually the preliminary is very close to the final. Yeah. I'm curious. So that's two. What's the third reason? The third was seasonal adjustment, which Ryan touched on. For July, it's the big factor, right, outside. of January, July has the biggest seasonal adjustment factor of any other month. And pre-pandemic,

that adjustment was about $1.2 million on average up. So July employment unadjusted is typically way down. Seasonal adjustment would lift it by about $1.2 million pre-pandemic. In 2020 and 2021, that got cut to about $750K. And this year, you know, in 2022, that bounced back up over $900,000, the adjustment. So if the adjustment had stayed where it was the last two years, this number would have been in line with the average over the last few months, it would have been sub-400,000. But the seasonal adjustment bounced back up by 150K. So that's providing some support. And I think it's hard to know what is the right number, right? Is the seasonal adjustment, should it be more like 2020 and 2021? Or should we be moving back towards 2018, 2019?

I don't know what the right answer is, but I think it adds uncertainty to that number. Yeah. Okay. That's pretty convincing. So you're saying strong report, but probably there's less there than meets the eye. Yeah. It's certainly not a negative in any way. I think probably more like trend growth over the last three months than it is any sort of acceleration in job growth. Yeah, yeah. Which trend would be, I think if you take a three month moving average, the monthly job gain is like four. I hope this isn't anyone statistic. I think it's like 430, 435, something like that. Yeah, that's still strong over 100K, but okay. Okay, very good. And Chris deserves plot it, it's not a cowbell because he nailed that pretty quickly. And he's so modest, he didn't even, if I had done that, you would have definitely known that I had done that.

Where is the cowbell? Chris, do you have one? We all have cowbell. But yet no one, no one gave Chris a ring. Well, it happened last week, too. I heard. Didn't happen. You're right.

You got it last week, too, yeah. Okay. Marissa, you're up. Okay. Let's go to you. 6.7%. Is that U6? You got it.

Oh, now, okay, wait. That is a cowbell. Oh, so now it's a cowbell. Look at the excitement on his face. It was jumped out of his chair. I love the game. I love it when I gave the answer. Yeah.

Yeah, I know that was pretty easy. I was impressed. I was impressed. He was impressed. Okay. U6. What's U6?

Obviously, it was pretty easy, but I picked it because Fair enough. Six is the broadest measure from the household survey that we have of labor underutilization. So it includes the traditional unemployment rate, includes all the people that are counted as officially unemployed, but it also counts people that are working part-time for economic reasons, which means they don't want to be working part-time, but they have to, either because that's all they can find or because their employer cut their hours. And it also

includes people that are marginally attached to the labor force, which means, um, They're not working and they haven't looked for work in the past four weeks, but they looked sometime in the past year. And that includes people that are not looking for work for a variety of reasons. It could be people that are discouraged over prospects. It could be people that are sick or have to take care of a family member. So it's kind of the biggest, the most encompassing metric of labor market underutilization. And I picked it because 6.7% percent.

in July is the lowest that that has been since December of 1969. Oh, really? Yeah. That's interesting. Oh, okay. Wow. So unemployment three and a half is back to pre-pandemic. Six-seven is the lowest.

Is even lower than that, yeah, when you add in all those other groups. That's very cool. Well, three and a half are still among the lowest in the 50 years. Yeah. Yeah. I mean, and it's close, right? Like 6.7%, it's been like 6.8% or something before. But yeah, but it is the lowest since 1969. That's another one of those glass, half full glass half empty kind of things. I mean, like, I'm going, that sounds great. Then they go, oh my gosh. Yeah.

Well, I mean, I kind of had the question when Ryan, when we were talking about the Fed and obviously the Fed is keyed in on inflation. But in terms of what they're how. they're measuring what full employment is, can you talk a little bit about what you think they're looking at? Because if we're saying that we don't think the participation rate is going to get back to where it was, right, because of demographics, then how are they measuring what full employment is? Well, Ryan's got his favorite one. What's that? And I, I know the prime age. Yeah. Employment to population ratio. And that rose. It was, what was it? 80% is on the nose.

Yeah, from 79.8% in June. But 80% is, that's, you know, that's a reasonable full employment. It's not above full employment. It's not below full employment. It feels like that's exactly on full employment, right? Yep. Yeah. So you don't, you look at that and you don't, you don't go on high alert.

The economy's overheating. No, no. Yeah. But it feels like it's been hovering around 80%. percent the employment population ratio for for six months now or something yeah you're right yeah okay but six seven that's that's really interesting that's really interesting that's really interesting yeah very good okay uh chris you're up all right i'll reverse marissa 7.6 million there's why is that to reverse oh she was 6.7 this is 7.6 oh oh okay

anyone else gets that's all my words yeah 7.6 million four point 8% is related to that. Is this coming from the jolts? Nope. Came out today. 7.6 million. And what was the percentage? 4.8%.

4.8%. Is this one of the blemishes you had to find? I had to dig. Yeah. Was this in the household survey? What's that? Dante? Deep down in the demographic cuts of the household survey.

Is that where we are here? It's in the household survey, yes. Is that a deal with teenagers? Nope. And this is a bluish. This is something... Well, it's sort of a blummit. Kind of sorry.

I mean, it's not a... Yeah, a big deal. Big deal, or a detractor, if you will, but put some color on the payroll survey. Oh, on the payroll survey. Well, but it's from the household survey, but this figure... Is it part-time, full-time kind of thing? No, you're getting closer. So working for economic reasons?

No, you're getting farther. I know what it is. You got it? It's multiple job. You got it. Oh, good job. Very good. That is definitely Caldbell worthy.

That was a tough one. Yeah, Cal Bellworthy. So why did you pick that? What's that? So why did you pick that? Yeah, so it's up. So it was 7.6 million. people have multiple jobs versus seven and a half last month, so about 100K, right?

So it's increasing. It is still below what it was prior to the pandemic, right? So people are taking more jobs, right? Individuals are taking more jobs, but it's not quite at the level, either in number or percentage terms as we had pre-pandemic. So do expect this to continue, given all that demand that's out there. And if finances are tight, especially for folks at the lower end of the distribution, you can expect them to be picking up more jobs.

So again, puts a little spin on the payroll number, which, of course, counts the jobs versus households which are counting people. All right. Good one. That was a good one. Good job, Marissa. Okay. And Ryan, you're up.

$206,000. $206,000. Was that in today's jobs report? No comment. If I answer that question, you'll get it. Really? That seemed like a pretty innocuous question. No, because the answer is no.

Therefore, the answer is no. Is that something related to UI claims? It is. Oh. Is that seasonally unjusted UI claim? Dante got it. Oh, what do you mean Dante got it? He beat you.

He did. I didn't hear him. This one's for you, Dante. Oh, gee. I didn't hear him because you were talking. My normal state of affairs. Yeah. Okay, actually, this is really important.

I forgot to bring it up. But go ahead, far away. This is really, really, really interesting. So initial claims, which counts the people filing for unemployment insurance benefits have been ticking up on a seasonally adjusted basis throughout July. And I think they were close to 260,000 last week. But July, you have auto retooling. So I thought, all right, maybe the timing of the, when they normally switch over models, is throwing off UI claims.

But when you look at UI benefits, unadjusted for seasonal fluctuations, they're moving sideways. So they're exactly where they were during the June payroll reference period. So that increase kind of factored into the forecast for weaker job growth. But if I had looked at this sooner, I would realize that UI benefits. benefits really hadn't ticked up. And in today's employment data, you can look at the labor force flows. And the number of people going from employed to unemployed did not increase. So, you know, the increase in UI benefits is a little bit misleading or very misleading. Really interesting. So we've been looking at the seasonally adjusted weekly unemployment insurance claims, which we focus on,

because that's a kind of a real time indicator of what's going on. That had been trending up. We were down close to a couple hundred thousand in the spring. Last week it hit 260. That is kind of the high end of the range you feel comfortable with. Anything above that, you start saying, oh, the job market's really going to start to slow here. But you're saying if you look at the seasonally unadjusted UI claims, no real increase. And did you mention Massachusetts? Did you mention?

No, I didn't. Something's quirky going on in Massachusetts because you saw a big spike in initial claims in July, or the first half of July. They come back down a little bit, but they're still very elevated. relative to where they were in June. So I'm not quite sure. There's been a few strikes in Massachusetts, and people that are on strike can't receive you I benefits, but it doesn't stop them from filing.

Or there's the Massachusetts unemployment insurance fund is kind of running dry. They paid out billions during the pandemic. So I don't know if that, Marissa and I were talking about this. I don't think this is a factor, but I don't know. Maybe people rushed out to try to file before.

Oh, interesting. I don't know. I don't have an explanation for what's going on in Massachusetts. Right. But I think if you take total U.S. nationwide U.I claims subtract Massachusetts, seasonally unjusted, I think we're actually at a new low on claims from unemployment insurance. So one state is throwing off a lot of the data. So, I mean, your conclusion is there's been no pickup in layoffs,

and layoffs are very low by any insurance. So that goes back kind of counter to Dante's, you know, the reason for, to be weaker. This is the labor market is pretty moment. Yeah. Hmm. What I focus on UI is that, you know, especially at turning points when my benefits start going up, that means the employer is going to start going up and then you get that vicious

cycle that kicks in. Yeah. Very interesting. Very, very interesting. Okay. I'm going to give you mine. Yep. And this will be a segue into the last part of the conversation.

$4.11. Is that copper? No. Copper is $4.35. Average national gas price. Marissa. Way to go. Marissa's on fire.

He's on fire, baby. Putting us all the shame. It's making up for that. Making up for my lack of lack of bum participation rate. Yeah, the employment report. That's very good. Yeah, $4.11 cents.

That's AAA. That's as of yesterday, I believe. The all-time peak was $5 a gallon on the nose. And that was mid-June. So we're almost down a full buck. And just as a kind of point of reference, I think in a kind of a well-functioning economy with oil prices at equilibrium, which we put at 75 bucks a barrel, something like 70, 75 bucks a barrel, a gas should be going for three and a quarter, $3.50.

So, you know, we're on the high side of where it should be. But, you know, that's a big deal. That's coming in very fast. and just give you sense of how important. Remember going back to the consumer price index, CPI inflation is 9.1. Of that, 3.5 percentage points is directly related to these higher energy prices. And of course, it doesn't account for the indirect effects, the diesel prices on food that we talked about or jet fuel on on airline tickets, that kind of thing. So this is a big deal in terms of overall inflation.

And we all know that gasoline plays an outsized risk. role in kind of the collective psyche, how people kind of view the world inflation expectations and how they think about their own financial future fortunes. So this decline in oil price, oil prices is a big deal. Hey, Ryan, one quick question there. You look at wholesale prices to guide where retail prices are going to be in a couple weeks. What are wholesale prices saying? The price that you and I are paying will get close to $4 per gallon in the next couple weeks. Okay. Okay, good. Here's the other thing I find fascinating. You know, there's this old adage that gasoline prices rise like a rocket and fall like a feather.

You know, so they, when oil prices go up, oil companies jack up gas prices very quickly, when oil prices come back down, they don't bring down gas prices as quickly. That does not seem to be the case here. They're falling fast, right? They're very quickly. Yeah. So, you know, they've, they've come down as fast as they went up, yeah, which is interesting. Okay. And this is, I think, a good segue to the last part of the conversation. And that's, you know, well, what does it all mean for the economy and recession risks and odds of recession, that kind of thing? Now, let me preface this conversation this way. I'm so confused, you know, because everything I've been looking at over the past week, really over the past month, it's a

weeks makes me feel better about the economy. Today's jobs numbers make me feel, boy, the labor market is very resilient. You know, businesses are going to may look through the business cycle and keep on hiring. We'll see slowing, but they're not going to cave here because they know that they've got a big problem filling those unfilled positions in the long run. I mentioned gasoline prices. Stock prices, you know, stock prices, they were down 25% at one point. Pretty close, I think, From the peak back four, six, eight weeks ago, we're now down, you know, 15 to 20 percent, which is down, but off this incredibly high level and doesn't feel consistent with the idea that we're going to recession. I look at the ISM surveys for the month of July. They were good.

You know, they were actually the ISM services, non-manufacturing, that actually rose during the moment. So it doesn't, you know, I look at all that. I go, wow, it feels like the economy is doing pretty well. But here's the thing that I get confused at. The one thing that the fly in the ointment, the thing that I, stick in my side of any other ways of describing how I feel. You know, you get my point is that yield curve, that yield curve, the difference between two-year, 10-year treasure yields,

that is a very prescient leading indicator, gets it right. That is supported. It's negative. What is it, negative now? But it was minus 40 to minus 40 basis points this morning. 40 base, 0.4%. That's a,

that's a hard inversion. You know, there's no ambiguity around that. It's been inverted now for more than a month. So that was signal recession. So, okay, how do you,

are you as confused as I am? And how are you resolving that in your own mind and where are you landing? And I'll go around the circle, get people sensitive. of how they're thinking about the economy recession risk. Give me your odds of recession in the next 12 months, 24 months, and then I'll give you mine. So does that sound like a reasonable way to end the conversation?

Okay. Why we will begin where we started with Marissa. How are you thinking about things? Did we start with me? I don't know. I thought we started with Dante. Well, anyway, okay. Don't hold it.

Didn't you give the rundown? Oh, you mean back then? Okay, yeah. I thought you meant the game. I thought you meant the game. Oh, the game, the game. Seems like an eternity ago. You want to forget the beginning. I do. I do want to forget it.

Weirdly, I feel a little more optimistic. Yeah. Than I did maybe even a month ago before the Q2 GDP came out. I mean, the job market looks better. Those ISM surveys looked a little better. Like things seem, Things seemed a little better than we were expecting. The yield curve, yeah, I mean, it's not really wrong, right?

So I'm kind of at 50% over the next year, year and a half, I think. Okay. Yeah. Yeah. Yeah. Yeah. Okay. That makes sense.

Any other statistics that sway you're thinking one way or the other that I did mention? So not really big national statistics. One thing I have been looking at is just household spending and credit, right? It looks like credit markets are tightening up a little bit. They're still pretty loose, though. The Household Survey pulse, the Census Bureau's Pulse Survey, which we've mentioned a few times on the podcast. One thing that's that's concerned, and this just goes back to inflation is they ask people if they're having trouble making ends meet, if they're having trouble just meeting their monthly household obligations. That was 40% of households said they're having trouble making ends meet at the end of July here. And that's the

highest it's been since they started taking the survey when the pandemic started. And it was a year ago, it was 27% said they were having trouble just meeting obligations. And now it's, it's 40. So I think inflation is really the problem here. So if we're assuming that this is peaking and it's going to be better from here on out, then that also makes me feel a bit better about the prospects of the economy. Okay. Dante, how are you thinking about things? I'm at 50-50, too. I think the thing I, if you could engineer what you'd want to happen with the labor market, you know, maybe we want things to slow a little bit more quickly, but, you know, layoffs don't look like they're really elevated in any meaningful way. And at the same time,

job openings have come down by over a million in the last three months, which is exactly what the Fed wanted to happen, right? They want some of the froth to come out of the labor market, some of those openings to go away to take some of the heat off of wage and price pressure without layoffs inching up, right, which is what we've seen happen now over the last few months. And so the question is, will that continue? And it feels like we're in a better place for that to continue happening over the next couple of months than maybe we're given the strength of the jobs report. So if we can continue to see openings come in without UI claims or any other measure of layoffs starting to inch higher, I think that's where we want to be. So you can see a

path forward that does not include recession, but obviously it's a narrow path. It's a narrow path, but I think, right, we need to see openings continue to come down. We need to see labor demand, you know, pull back a little without layoffs flying higher. Yeah. Right, right. Okay. Chris, where are you? I'm still at 60%. haven't really, haven't really budged there. Cession odds over the next year. Over the next year. I think we're in a good news is bad news situation.

Fed is operating with a lag and I think they'll, they're going to overdo it, overshoot it here. And with higher probability that we go into recession, I'm also looking at confidence, right? Consumer confidence remains quite low. Maybe it turns around with gas prices, but I worry that that's going to, wear on spending and the outlook overall. And housing, right? Housing slowing. I'm not seeing that

picking up substantially anytime soon. I think that's going to be a drag on activity. It should be. Yeah. Yeah, yeah. That's by design, right? If you're going to see it's a weight. Yeah. It was a weight, though. You put that on top of these other factors and the recession probably goes up. Yeah. Okay. And how much weight do you put on the yield curve inverse? version? A lot. So the 40 basis points 10, too, that's definitely why I'm over 50. If the 10 year, three month were to invert, it's not, it hasn't yet, but it's narrowing, then I'm going higher. That's really for me, very precious thing. That's going to invert in September. If they go 50 basis points, it'll be close, right? Yeah, but when they go 75? If they go 75, yeah.

They're going to invert it. But as we said, there's a lot of ground to cover between now and then. Now and then, yep. Yeah, okay. All right. So, Ryan, where are you? I'm still at 65. Okay.

That's because I'm with Chris, I think the Fed's just going to, they're going to kill something. They're going to kill inflation or they're going to kill the economy. And I think they're going too aggressive. They're behind the curves. They're trying to make up for a lost ground. So if they go 75 in September and, you know, I think that's, it's going to be too much. Right. And how much way do you put on the yield curve? Zero.

Because the yield curve is basically saying the same thing. They're saying that the Fed's going to overdo it and they're going to have to start cutting interest rates sometime next year. I mean, Fed Fund's futures are already pricing and rate cuts in late 2023. Right. But that sounds like you're putting some way. You're saying the yield curve, you're saying that the yield curve was saying something completely, if it was positive 40 basis points, that would not change your odds at all. No. The yield curve is not playing a role in your thinking. I'm a skeptic of the yield curve.

Just a coincidence. Oh, yeah. So you're on record. You said we had a hard inversion. So if we don't have a recession, we avoid a recession, does that put less weight? Are you going to be less of a yield curve? I have to be by definition, right? Just saying.

Yeah. No, no, no, no, by definition. Well, I'm at 50% too, even odds. because I can't give them these countervailing things. It's hard to come land one side or the other on this. I do think, though, my thinking is maybe evolving here. You know, my sense had been that if we're going to go into recession, it would be a near-term recession.

You know, sentiment is really bad now. And if something doesn't stick to script, we go in. If people lose faith, we go into recession. Businesses cut back. They'll like off, we go into recession. But maybe the recession is not near term. You know, maybe the recession is actually sometime a year from now. Because if you take the two year, 10 years yield curve, the lead historically on average,

a on average, and there's a distribution, but on average is about 12 to 18 months. I think it's, to be precise, 15 months on average. So, you know, that would put the recession into end of next year, you know, sometime later next year. And maybe what the curve is saying is, what bond investors are saying is that the issue isn't with the economy going to recession now, jobs are fine. is resilient. The problem is it's so resilient that inflation wage growth remains stubbornly high, inflation remains stubbornly high, core inflation remains stubbornly high, and the Fed ultimately has no choice but to really keep stepping on the breaks, and ultimately it breaks the economy, as you say.

And it breaks not end of this year early next, which is kind of sort of what I was thinking, but maybe it breaks end of next year. And maybe it breaks the end of next year. And maybe that's how you square this circle. That's how you can get all these strong numbers now, why the equity market seems to be okay now, because the equity market doesn't have that long of a horizon. And the curve is even further out and it's saying it's towards the end of the year.

What do you think of that? Did you see what a lot of Fed officials said this week? No. That a recession is avoidable. Is avoidable. Is avoidable. which means it's not avoidable. Okay.

All right. Explain that? When the Fed comes out and says, oh, we can, we still think we can avoid a recession. That's not going to build a lot of confidence. And just to me is kind of like, you know, you're kind of making your own bed. Well, they couldn't possibly say, oh, no, no. We can't avoid a recession. Of course.

But just usually when they say stuff like that, go back to Bernanke and he said that, you know, is there no problems in the subprime mortgage market? Oh, yeah. Well, he even gave a speech, wrote it down on paper, you know, was it. Yeah. Okay. All right. All right. Okay, very good. So, uh, even odds, even odds, even odds. 60%, 65%. Okay. We got to keep that into mind. Okay. Anything, anything else you want to bring up? Anything we missed? We covered up a lot of ground. Uh, I thought this was going to be a shorter podcast, but couldn't keep Dante quiet. Uh, so, uh, any, any, any, Anything else, Dante? No, I'm good. You're good. Okay. All right.

Well, very good. We're going to call this a podcast. I hope you found it of interest and we'll be back next week. Talk to you soon.