Moody's Talks - Inside Economics - Healthy Job Market, Unhealthy Hosts

Episode Date: April 7, 2023

Inside Economics regular Dante DeAntonio joins us for the March release of the US employment report. Down the strike zone.  In the middle of the uprights. Down the fairway. Sticking to script.  All apt descriptions of the job market in the month of March. But this is all before the fallout of the banking crisis has become evident.Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. And I'm joined on this Jobs Friday by my three colleagues, two trusted co-host, Chris DeReedies and Marissa Dina Talley. And Dante, you might as well be a co-host. You're on every Jobs Friday. So good to have you all. I guess a lot of illness here. We were just talking about this.

Marissa's not feeling so well. We won't go into that any detail, but not her 100% self. And Chris sounds like you got a cold. Yeah, something. Something. Dante, how are you feeling? Surprisingly, I'm okay. My kids have been sick this week.

I'm dodging the bullet so far, as we'll see. I'm with you. I know. My niece and nephew are six and three, and they're constantly sick. And so I feel like every time I see them, I get whatever they have. my wife's got a bad cold too she was coughing and sneezing all night so yeah but so far i dodged that bullet too yeah for you yeah so far so good um but anyway sorry about that we'll see how this goes uh with everyone under the weather uh but you know the jobs report that must have cheered

everybody up right i mean the job market is healthy job market feels pretty good right right dante you want to give us a rundown on the jobs numbers today this is for the uh month of March, 23. This is Friday, April 7th, so we've got the number. So they felt pretty good to me, but what do you think? Yeah, I would call it maybe the least contentious report we've had in a while. You know, we had some reports that were upside surprises. We had some reports where the surveys tended to diverge a bit. And this one felt like it was not really a surprise at all. You know, job growth has continued to moderate. Topline, non-farm payrolls were up 236,000 in March. The three-month average gain is still pretty high at $345,000.

That's up from the end of last year, but it's still down significantly from a year ago. In the first quarter of 2022, we were averaging, you know, better than $550,000 jobs a month. So still a definitive slowdown in the job market here over the last year. On the industry detail, maybe a little bit of surprise with construction payrolls finally falling. I mean, maybe that was sort of always expected to happen, but it finally did happen here for the first time since the beginning of last year. Manufacturing fell for the second month in row, albeit by a very small amount. Retail was down, although it was up pretty big in the last two months. So just a little bit of buyback there.

Information payrolls actually gained a little bit, which is maybe a little bit surprising given sort of the ongoing tech layoff announcements that we keep seeing. The gain was small relative to the declines over the last few months. So still not a positive story there. Healthcare, leisure and hospitality continue to be the drivers, primary drivers of payroll growth. and that has not really changed. A similar story to last month in terms of earnings and hours, average weekly hours, ticked down a little bit again.

Earnings were 0.3% over the month again, which was sort of in line with where it's been the last few months. Year over year, wage growth is now, you know, getting close to 4%. The lowest it's been in a while. The household survey, if anything, was maybe stronger than people would have expected. It's probably the more robust side of the report here. The unemployment rate ticked back down a little bit to 3.5% after it jumped a little bit last month. And that was for the right reasons.

Labor force growth is still strong. Employment as measured by the household survey is strong again this month. So, you know, sort of maybe a bit more positive story out of the household survey and maybe a bit more strength than we or the Fed would like to see. But all in all, I think it was, you know, probably the least surprising report we've seen in a while sort of fell in line with expectations. So we've been looking for reports that kind of throw out a needle. We want the job market to kind of throttle back here a bit so that wage and price pressures moderate, get inflation back in. But we obviously don't want the labor market to weaken too much or fall apart because that would be consistent with a recession. So in that kind of frame, where does this report land? I mean, it feels to me like it's in the sweet spot. I mean, the labor market. it's slowing. It doesn't seem like it's crashing too quickly. Maybe you could argue that it could slow a little bit more quickly and that would be okay.

But I think after we saw two sort of upside surprises in the last few months, this was, I think, a welcome change of pace in terms of what we need to see here moving forward. So you would say down the strike zone in the middle of the fairway. According to script, you know, any one of those. They all fit. They all kind of fit. Huh? Yeah, right. are all zandiisms, I would say.

We had a few wild pitches the last few months and now we're... Yeah, we're back in the strike zone. Back in the strike zone. Apropos to the start of baseball season. There you go. The fills are having a bit of trouble. So I'm not watching at the moment. So they got to get back on track.

Okay, that was a good rundown. But Merceau, what do you think? Anything, any gaps there you want to fill in? And I guess also is your interpretation of the report consistent with Dante and in my interpretation. Yeah, I think it shows a slowing job market, but not cratering, still strength in many pockets of the industries that we look at. Some of the more interest rates sensitive industries look to be slowing a bit more,

which is something we've been expecting, especially given the housing market, we've been expecting construction to slow. And I agree the household survey side of it looks even a bit stronger. You know, the labor force had a large increase of over 400,000 during the month. The employment population ratio, the labor force participation rate, both rose, sending the unemployment rate down a little bit. And unemployment rates fell for most of major demographic groups. So people are still doing well in the labor market, but perhaps not quite as well as

They were six months ago, and we combine this with other labor market data we've gotten recently. I think it's pretty clear there is some cooling off here. So I like it. You know, I think as Dante said, the Fed probably wants to see things slowing more consistently and maybe a little more rapidly, but it's a nice pace of slowdown in terms of, you know, perhaps avoiding a recession while still getting some relief. wage growth slowed year over year, hours ticked down. So it's moving in the right direction in those regards.

Yeah, maybe this is the time to throw in a couple other kind of data points we got this week related to the job market that seemed consistent roughly or roughly to the jobs numbers. That would be the initial claims for unemployment insurance. That's a kind of a read on the number of people getting laid off. and also on the jolts, the job opening labor turnover survey. That's a month lag. So that's a window on what happened back in February with regard to open positions, hires, that kind of thing.

Did you want to just explain those two numbers, sets of numbers, and your interpretation in the context of this job's number? Marissa. Oh, me. Sure. So the, well, the unemployment insurance claims data is, interesting because it actually got revised with this Thursday's release. It gets revised every year when the BLS, or not the BLS, sorry, the Department of Labor who puts out the UI data

redo the seasonal adjustment factors. They redid them this time, but they actually switched the methodology back to what it had been prior to the pandemic. So the methodology used to be this multiplicative seasonal factor whereby they would multiply the seasonal factor to the level of UI claims. They suspended that during the pandemic because the pandemic threw everything off. They started adding the seasonal factor instead. They switched this methodology back and that had the effect of revising up UI claims from, I think it was, Dante was at the middle of 2021 through present.

And so UI claims now are higher, you know, than they were. And the trend shows that they've actually been rising since February of this year pretty steadily. So UI claims in the latest week were 228,000, whereas previously we were looking at a level of claims that was just under 200,000. So the trend now shows rising claims, which it did not before. It had been kind of holding at that 190, 200,000 level for a long time. And they're much higher than they were before. Still not recessionary. Still not in a recessionary territory, but definitely consistent with all the layoff

announcements that we've been hearing. You know, we've been scratching our head about this for a long time, right? Why aren't these layoffs showing up? If people are getting laid off, why isn't it in the claims data? Now it looks like it clearly is. You see when you look at it by state, you clearly see big uptick in claims in California and other states where we know a lot of these layoffs happened. But still, it's kind of consistent with what you'd want to kind of see if you're threading

the needle, right? I mean, because 200K, that is exceptionally low. And that's indicative of incredibly tight labor market, not consistent with the idea that wage growth is going to come in, and inflation is going to moderate, 225K or 230K, where we feel, it feels like where we are now, that's still pretty low, right? I mean, you know, by historical norms. Kind of sort of want to see something around 250, maybe in the current context, maybe even high is 275, because Dante, isn't that your calculation of break-even? Yeah, break-even's around 270. And, I mean, the four-week average right now is about 240. So, I mean, we're getting close to

that ballpark, I would think. Yeah, the recent week fell a bit from where it had been in the weeks prior. So I think certainly creeping up in that direction. And, you know, my guess it would be we're going to be above 250 here pretty soon. Although a little uncertainty there because the banking crisis. I saw, I noticed that there was a big jump. The big jump in UI was in the week when the banking crisis really hit. And it came back in last week. So I'll be really curious to see, you know, is this related to the banking crisis for the crisis or is this something, you know, deeper, broader going on? Right. It was up close to 250 in this, both of the second, you know, the last two weeks of March and then it came back down a little bit here in the

first week of April. So it's hard enough if that's just volatility or if that's a signal of things sort of settling down a bit. Right. So when I, I'm not, I don't want to put words in your mouth, but, you know, I look at that and I say, you know, when you see trend lines like that, you go, oh, I'm a little nervous about where the trend is going. Are these UI claims going to continue to go north and ultimately signal recession? But we've been waiting for this to happen, I mean, for the to the rise. So it feels like it's consistent with the script, you know, back to the Zandieism. Yeah.

Yeah. It had been a head scratcher. It had been a head scratcher. This wasn't budging at, and it was at such a low level. And just to reiterate, the change, the revision wasn't because they came up with more claims. the revision was because they just changed the way they seasonally adjust the data. That's right. Yeah.

That's right. What about the jolts, the job opening labor turnover survey, Dante? Is that consistent with the threading the needle narrative? I would say it is, but it's a little bit more confusing of a story given some of the different data there. Certainly the job openings data was what we would want to see a big decline in openings. Back below, 10 million was the lowest level of job openings since the middle of 20. So that certainly is signaling a slowdown in labor demand, which is obviously in line with what the Fed wants to see. The sort of a little bit more puzzling data points where that quits ticked back up a little bit,

signaling that workers maybe are feeling still pretty good about what's going on and feeling confident in quitting. And layoffs in the Jolt's data actually fell a little bit from January, which seems a little bit counterintuitive with what we've seen. And now in the claims data, neither of those movements were particularly large. and it's likely just a little bit of month-to-month noise in the data. So I think the big drop in openings is probably the headline there, and the rest of it is likely not a whole lot to write home about. And just put a number on it.

And I hope I'm not taking anyone's statistics game number, but 9.9 million unfilled open positions in the month of February. The peak was 12 million unfilled positions, I believe about a year ago, early 2022. And just for context, right before the pandemic hit in kind of 2019, early 2020, we're kind of just north of $7 million. So it feels like we're not quite halfway back

to where we need to be to be consistent with a, you know, a strong labor market, but one that's not overly tight. Is that roughly right? Yeah. Yeah. Yeah. Dante, we have to remind him,

this is, you know, people are listening, you know, on their podcast. They don't see your frowns and your, You're accepted watching on YouTube. Yeah, yeah. Yeah. Okay. So, Chris, you've heard all this.

What do we miss? Anything on the jobs numbers or any of the employment-related statistics that came out this week? And what it means in terms of this narrative about, you know, threading the needle between getting growth down, consistent with moderating inflation, but not getting growth down so far that it means recession. Yeah, it all looks quite good, as Dante and Marissa suggested. We have other, if you dig a little bit deeper into some of the demographics, you can see that men's labor force participation ticked up as well.

That's positive. That's something we had been lagging. So, you know, hard to find any real blemishes here. I guess the one to harp on would be the month-month increase in average hourly earnings. Is that sufficiently weak for the Fed? Fed, right? Still not where they want it. Yeah, maybe it's trending gradually in the right direction, but it still looks a bit too strong for the Fed's liking would be my interpretation. Although with the banking crisis and everything else going on, I think that their, you know,

their tolerance certainly is a little bit wider here in terms of how they're going to make the decision. I think the CPI report next week is going to have more of a bearing. Yeah. So you're making the. the point that because of the potential fallout from the banking crisis on the economy of labor market, which we haven't quite, I'm sure we haven't seen yet. I mean, because the crisis happened. I think as Silicon Valley Bank failed on the 10th of March, and the survey, the Bureau Labor Statistics survey was done in the week of the 12th.

So it would pick up some of it, but I'm pretty sure not much of it. there's a lot more to come, I would expect. And you're saying, look, the Fed got to be thinking the same way, and they'll want to see what kind of impact the banking crisis and had it on business confidence and lending and everything else and ultimately on jobs. That's right. That's right. So I think this is a good report in the strike zone.

But even this, the ref would say, the Deridi's ref would say in the strike zone. There you go. Maybe not right in the middle of the uprights. Right, pretty close. So now we went to baseball to football. Yeah. In one sentence. I don't know.

I should add that. Yeah. Yeah. Okay. Talking about the banking crisis, how are you feeling about that? In terms of the crisis itself and then also in terms of, are you noticing any fallout here in other data you're following? Chris.

Yeah. So I would say it looks. At this point, it looks like the worst of it is behind us because all the measures that the Fred and others have taken would quash any type of additional contagion. At least that seems to be the case at this point. So may still very well and may still see some additional bank failures, but the likelihood that they would spread to the same degree and cause the same amount of angst, I think has been taken off the table here. I don't think we've seen the fallout in the data quite yet. I mean, everyone is talking about the lending standards tightening up. And I did see one data point from the Dallas Fed. They do have banking conditions survey that they collect that actually was collected after the Silicon Valley Bank failure.

And it did look as though there was some tightening on lending standards, particularly for consumer loans, but still early days. That's a Dallas Fed survey, bank survey. That's right, that's right. But still early days. So I don't think we've seen the full brunt of this yet. And I think it's going to take a long time for this to play out in terms of the lending standards, the credit crunch, at least a credit shock is going to be going on throughout the next few quarters. Well, we should be getting the Equifax credit file data for the month of March pretty soon. That'll be interesting to see, because we can see what's going on with outdoors. the growth in outstandings across different kinds of consumer and mortgage products. I would expect the fallout to be much larger on businesses. And that's harder to measure real time.

But it will be interesting to see what that March data says. If there's any, you know, meaning. It was already the growth that I think was already slowing, right? Yes. Yeah. Because lenders had been starting to tighten in response to an erosion and credit conditions, delinquency rates. but it would be really interesting to see if there's anything that shows up there.

Yeah. But even that, right, that's partial. Yeah. Part of the month. It was susceptible to the bank failures, right? I guess the other, yeah, totally agree. I guess the other channel through which the banking crisis can impact the economy, the first being through lending standards and loan growth and credit availability,

that kind of thing, is sentiment. And, excuse me, hopefully, I'm not getting sick too. Oh, no, no, I'm good. I'm good. I'm doing, you know, everyone's monitoring their body every 30 seconds. This could be a very interesting podcast. Yes. Yeah, we're going down.

I noticed the ISM survey for. Oh, you did. Now you like it. Well, it was back down to, you know, the services side. That was a pretty meaningful drop. Yeah. And the ISM survey is a survey of purchasing managers. And it's based partially on hard data, but a lot of its sentiment.

It's how people are feeling about things. And that took a pretty meaningful nosedive in the month of March. And that survey is conducted through the entire month. And according to the ISM folks, most of the respondents wait to the end of the month to respond. So it would be more fully reflective of, you know, kind of their thinking about, what the bank crisis might mean. And that does suggest that, you know, businesses are on edge. Yep.

Yeah. Yeah, for sure. Wasn't it the largest decline since the financial crisis or something? I think for the orders component of it. Oh, that's right. It was the new orders component. And I think I'm stealing Dante's analysis now, which I, as you can tell. Bernard, if it's a, that's what it's there for.

Yeah, careful consumer of it. the overall index fell even more sharply in the month of December, and that felt bogus because it just bounced right back up. So I'm not sure, maybe, you know, whether this is in the same kind of, has the same kind of issues, but we'll say, I guess the one thing it feels like it's saying is people are on edge. You know, if anything kind of doesn't stick to script, you know, they get very nervous, very fast. And maybe that's the message here in the, in these surveys that, you know, people are very, very nervous about things. Yeah.

We also got the factory orders for February this week, and they were down, right? So it was already suggesting slow down even before. Right, right. Although those numbers, I always am hesitant to read too much into, because they're so volatile month to month, right? Yeah, but you're right. I mean, certainly consistent with it. Two consecutive months, right?

Yeah, yeah, two consecutive months. Yeah. Okay. we got a few things I want to do during the podcast. One is the game, the statisticist game. Maybe we'll do that next. Then I want to take listener questions. We've been soliciting listeners to the podcast for their questions.

And here, I'm soliciting again. Please fire away. We're collecting them. And we're going to respond to a couple, three of them here today. And then I think I want to come back at the end. we haven't done this in a bit, probability of recession, maybe broaden that discussion out a little bit.

You know, we've been focused on the next 12 months. Maybe we should start thinking a little longer run. But we'll do that as well. It sounds like a good game plan going forward? Everyone good with that? Okay. Let's turn to the game,

the statistics game. Just a reminder, we all put forward to statistic. The rest of the group tries to figure out what that is through questions and clues, deductive reasoning. The best statistic is one where, It's not so easy.

We get it immediately. Not so hard. We never get it. And if it's apropos to the topic at hand, I guess that would be banking and job market and released this week by the agencies or trade groups, that would be desirable. Okay. Tradition is we began with Marissa. Marissa, you're up.

What's your statistic? My statistic is 172,000. in the jobs numbers today it is household survey yes okay uh is it related to uh the labor force well no i mean yes it's it's related to the head everything's related to the labor force oh okay that was too broad yeah well i was thinking you know the is it related job employment or or I guess it's, well, I guess that's a bad question, a bad question. Everything's related to the labor force.

Is it a demographic cut of the data? No. Is it a change in? It is a over the month change. Over the month's change. It's not a demographic cut. What do you think, guys? Is it one of those marginal workers, permanent job, losers?

something like not in the labor something related to not yeah it is something like that is it an increase or a decrease did you say that it's an increase okay just just checking increase in what in the margin plus 172 000 over the month yes i'm sorry i'm sorry i missed that so it it's related to an increase chris just said it i mean he said a bunch of different unrelated things and Change and marginal worker, marginally attached. No, no. Permanent job losers. Yes.

So it's the number, it's the increase in the number of people who permanently lost a job in March. And that's significant because in the prior month in February, that number rose by $123,000. So over the past two months, that's risen by nearly $300,000, which would be the biggest, you know, consecutive month-on-month. gain that we've seen since the teeth of the pandemic. And then you'd have to go back much for, I'm going back and I'm still not seeing it, you know, years and years and years to get to a two-month number like that. You'd have to go back into like 2009 to see a two-month increase in the number of permanent job losers that big. So this is also consistent with what we're seeing with the hearing about the layoffs and the increase in UI claims and, you know, slow down.

hiring and just overall cooling in the job market. It's got to be off of pretty low levels, though, right? I mean, that's true. Yeah. I mean, it's got to still be incredibly low, I would think. No? Yeah, it, yes, it is. Yeah, I was trying to find it, but I can't find it right away.

But yeah. Okay, so you're saying over the month change was pretty significant. We haven't seen a big increase in that series in a long, long time. So you think there's information there? You do think there is information there. I think it's consistent. It's just consistent with this other data showing that, yeah, perhaps layoffs are ticking up and the job market is cooling.

Right. Okay. So the number of people who have permanently lost their job has increased meaningfully over the last couple months. Still low, but it is increased and consistent with these other data suggesting and easing up of the labor market. Yeah. And this is, you know, the BLS reports why people are unemployed, the reason for unemployment.

So the other reasons could be they're on temporary layoff. They quit a job. So this isn't people voluntarily leaving, right? This is basically a layoff. And we haven't seen this kind of movement in that series in quite some time. Right. I think I bring this up every job's report, but it keeps, I bring it up because it bothers me. the idea that the labor markets well beyond full employment.

It just doesn't, if you look at the data, it all is consistent with a job market that's at full employment. The unemployment rate's 3.5%. That's where it's been for, you know, an entire year, and that's where it was prior to the pandemic. The, you know, the employment to population ratio, you know, it's high in rising. I think it's 80.7%.

I hope it didn't take anyone's to. but 80.7% for prime age workers, 25 to 54. But that's pretty much where peaked out, you know, prior to the pandemic. You know, you look at all of the numbers in the report. It doesn't seem to suggest that, you know, we're operating well beyond full employment. Am I wrong? I mean, I don't know that that's consensus view. It's certainly not the view at the Fed, I don't think.

They view the labor market as beyond foreign point. But they're looking at the wages, right? But even on the wages, the signal. But they're slowing. Yeah. Slowing, but they're still faster than. Yeah. Historical average, right?

Okay. I'm going to go. This is the moderator's prerogative. I'm going to go next in the context of this conversation. Okay. And I got, this may now be too easy a statistic. And if it is, then I'm going to give you a second one. 3.75%.

3.75%. Is this the three-month moving average of annualized wage growth? Yeah, but the Q1 annualized wage growth, average hourly earnings wage growth, 3.75%. So I don't know. That's exactly where it was pre-pandemic. I mean, you know, we've talked about wage growth

and why it was so elevated, you know, in my view, not because of an extraordinarily tight labor market. Certainly you couldn't get that kind of wage growth without a tight labor market, a full employment economy, but, you know, it goes to other things like inflation expectations. And 3.75% is, I'd say that's pretty consistent with or close to what the Fed would want to see, given their inflation target. So 2% inflation, you know, 1.5% productivity growth gets to 3.5%. That's, you know, 3.75 is worth in spitting distance. So again, I'd say it's pretty consistent with the idea that the economy is at full employment, but not beyond full employment. Do you want anyone take significant, Chris, would you take, would you push back on that? Do you think we are well beyond full employment? I don't think we're well beyond, no.

Okay. We might be beyond. Beyond, okay. And Dante? Yeah, at the risk of burning another statistic. I mean, we're still adding, over the last three months, we're adding almost 600,000 people to labor force every month. So it's hard to feel like you're well beyond full employment if you're still bringing

that many new workers. This other thing I forgot to say. Yeah, exactly. Yeah. Okay, here's my second statistic in the context of that. Because you wouldn't have gotten that 3.75 as easily if it wasn't in the conversation the way it was put in. Correct?

Oh, now we don't know. We don't know. We don't know. counterfactual. That's true. That's true. All right, here's another one. This one's harder, but you know, you've got context. Two numbers. 2.43 million.

2.05 million. What do you think those numbers are? 2.43 and it's a change over the year in the context of labor force growth. Labor force growth.

It's $2.43 million. So divide by 12, that's a couple hundred thousand a month, right? That's your labor force growth. And that goes to the increase. No one mentioned labor forest participation increase again. Or maybe I missed it. I did. No, you did.

Okay. So another increase. 2.05 million. What's that? You got labor supply. Oh, is it the civilian non-institutional population? No, it's an increase in labor demand. That's the change in employment plus the unfil,

position. That's labor demand. 2.43 million in supply. This is through year over year through the month of March, 2.05 million labor demand. I'm using a little bit of a slight a hand here because I'm using the jolt's data and that ended in February. So I just assumed that March is going to be the same as January to get to that number. I think that's a reasonable assumption to make.

This is the first month since right in the teeth of the pandemic that labor supply is greater than labor demand this month in the month of March on a year or year basis. So, I mean, I think that's encouraging, again, in the context of we are threading the needle, you know, here between the, we want the job market to ease up so that it eases wage pressures, but we don't want it to ease up too much. Okay. Actually, I have a great chart. I'll send all around to you guys, you know, showing that.

Yeah. I'm going to tweet it out probably on Sunday. Don't take it. Okay. You know, Chris. Easter. Easter Sunday tweeting about the labor market. Oh.

Is that inappropriate? No. Just defines the priorities. It's a bit of an Easter egg. Right. Right. Okay. Okay.

Dante, you're up. I'm digging deep into the stats that I had on my list here. Minus 0.1. And it's in the jobs. numbers? It's in the jobs numbers. It is a percent. It's not a percent. Is it a change in an unemployment rate for a specific demographic group? It is not. That would really be digging deep, wasn't it? But it's a change in. It's a month to month. It's a month to month change in. Okay. But there's no units. There's no unit.

Is it changing that ratio between, is it changing a ratio? Not a ratio. Okay. It was a minus 0.1? Declined. Yeah, declined. Household or household survey? No, payroll survey.

Payroll survey. Is it the diffusion index? It's not. That was actually up slightly. It's been down a lot. It was back up a little bit. Oh, it was. Yeah, a little bit.

Quick tangent, explain that. And what that it is, and what is saying? So the diffusion index measures the breadth of job creation. It looks at basically the percentage of detailed industries that are adding to payroll. So a diffusion index, which it was 60.2 in March, that means that 60.2% of the detailed industries they look at were adding to jobs versus 40%, which were losing jobs with some middle ground there for industries that didn't change at all. It was 57.4 last month, and that was the lowest it had been in a long time. And that was a, it's been down very large over the last year.

So if you look back to February of 2022, that was the peak of this cycle. And it was above 80, which is historically high. I mean, that's, you know, record high for the share of industries adding to payrolls. And it's been falling precipitously. And as you start to get down below 60 into that, you know, sort of mid-50s range, that tends to be the area where you can see job losses, you know, in aggregate start to happen. So the fact that it seems to have plateaued and pick back up a little bit as a good sign

in terms of not seeing things to the bottom fall out of the labor market. It is volatile months a month, so it's hard to read too much into single month movements back and forth, but certainly something to keep an eye on to see if sort of the breadth of job losses keep spreading out here over the next couple months. Okay, going back to your statistic, I think I know what it is. Okay. Minus 0.1. The decline in hours worked per week. The aggregate index of hours worked. Yeah. So I thought Chris would get it because I think he actually decided it last month or the month before. So this is the second straight month that it's fallen. So even though we have huge payroll gains happening, we've had declines in average weekly hours. And that in aggregate total hours have been down now for two months in a row. So I mean, it's just another signal that demand here is softening, even though we're getting job games, the total number of hours being work. are falling.

Actually, average weekly hours also fell minus point one. That's true. 34.5 to 34.4, I think. That's right. And 34.4 is like we've come full circle because when the pandemic hit, we saw a big increase in hours work in part because I think all the people leaving the labor force, people who were in the labor force were working more. And it's a mix effects, too, given where the job growth is,

is happening across sectors. But it's now come all the way back in. So it's 34.4 of is exactly where it was pre-pendemic. Okay. But that's it. So what your point is, your point is, look,

we saw this increase in employment, but we saw this decrease in hours work. So the aggregate hours work, which is jobs, times our average weekly hours, that actually decline, which is consistent with the idea that the economy is moderating.

The demand here is moderating. Right. I think you, if you look at job openings from jolts and you look at, you know, sort of total hours being worked, both of those are signals that demand is certainly softening here.

Yeah, very good. Okay, Chris, you're up. All right. So you've mentioned all of the labor market statistics that I had selected. So I'm going to go off script here. Off script. Oh, oh. And this is a tough one.

Okay. But I think it's relevant. It's a Q1 number. The number is 183. 183,000? Nope, 183. 183. There's units, there's some units though. Yes. Okay, so we have to guess the units. Yes. If I tell you the units, you'll. Is it job market related? No. No. It's business credit related. Oh,

business credit related. 183 billion? What's it? 183? What? Billion? No. Banks? Nope. That banks. Some other. Entity. $183 businesses. $183. Okay. Another B. 183 businesses.

Oh, goodness. Something happened to them in the first quarter. Oh, okay. Do you any idea? Dante? 133, something happened. Corporations. More specific.

183 corporations. Oh, announced layoffs? No. Bankruptcies? Yes. Yes. Oh. Oh.

183 corporate bankruptcies in the first quarter. That's the highest in 12 years. Really? Yeah. So obviously, SVB, Silvergate, banks that were in there, but there were other corporations, consumer discretionary companies especially that filed for bankruptcy in the first quarter. Oh, wow.

So that's interesting. So we can't. Yeah. Yeah. So 183 corporations filed for some form of bankruptcy in Q1. That's right. And that's the largest number of bankruptcies, quarterly bankruptcy since when? Back to 2010. 2010 coming out of the financial crisis. Yeah, that's right. Do you have any granularity on that? Like what industries or just curious. Maybe tech? It would be tech and banking, I guess. So 23 were consumer discretionary, 14 were financials, 14 were healthcare, 13 industrials, and then, you know, energy information. No tech. Or tech is one of those categories. No tech? Tech, unless it's a, I guess it could, no, nothing. Well, there's communication services, I think.

Okay, yeah. But only four, right? And they weren't very large. Huh. That's interesting. I, could I go back to business formation? Because business formation and the pandemic has been extraordinarily strong. And of course, a lot of businesses that form fail. So could it be that is what's going on as opposed to any kind of,

this just feels weird that you'd see. Well, maybe not. By Q1, I guess you would start to see. some stress here. Interesting. What about personal bankruptcies? That also is released, isn't it, with that data? Oh, I didn't see that. I think that's been trending up as well, though. Yeah. I think it's still very low, but the trend is up. Okay. Part of this could be just a bounceback, right, because the bankruptcies were very low during the pandemic. Yeah. Right. So maybe this is just catching up. Catching up. Yeah. Right. Finally. But worth watching for sure. Yeah. Interesting. Early sign of some

stress here. Yeah. Okay. Okay, very good. Let's go to listener questions. And I know, Marcia, you've been kind of following those. Are there any ones you want to post to the group? There's only a few. So I have to, again, you know, send a reminder to people if you have a question, you can tweet them to Mark on Twitter or Chris on Twitter. At Marks, Andy, at Marks, Andy. And Chris, your Twitter handle is. He's on LinkedIn. He's on LinkedIn. He's a link. I'm more on LinkedIn. Middleway econ on Twitter.

Okay. Yeah. And I'm on LinkedIn and Chris is on LinkedIn. And you can also send an email to helpeconomy.com. That's where most of these questions come in because we're running out of questions. I'm going to have to start making them up. Oh, no. So let's see.

This is a kind of an interesting one. You know, this was back during Jerome Powell's press conference. testimony in front of Congress as he does every time, right, the Fed meets and the senators get together and question him. And I guess I did see part of this, this listener to the podcast was watching, this back and forth between him and Senator Elizabeth Warren. And she was sort of going after him saying you're going to cause a recession, you're going to cause harm to the economy. All these people are going to be put out of a job, right? What else could the Fed, what other tools does the Fed have to, if any, to fight inflation? How do they tow this line between trying to fight

inflation and keeping the economy at full employment? Is there anything else they can do other than raise short-term interest rates? Like what would be the alternative if she's saying raising rates this high, this fast is detrimental to the economy? What else could the Fed do? Yeah. Before I I answer that question. Maybe others would like to crack at it as well. I watched that exchange and I was thinking to myself, how would I respond? If I were Jay Powell sitting there listening to Senator Warren, who I respect both of them, you know, a lot. How would I respond to that question?

Because she was going after him saying, look, you're going to push the economy into a recession here with your policies. That's going to hurt a lot of people. And, you know, why do that? you know, you shouldn't do that. And I would argue, I would have argued, and Jay Powell said something, well, you know, inflation is bad too. People don't really like, everyone hates inflation. We got to get that back in. That caused a lot of damage as well. That was his response. My response would have been that you could have said that. That's true. But the other thing I would have said is, look, I'm trying to keep unemployment as low for as long as possible. And if I, if we,

don't get inflation in, you know, we may have low unemployment here in the immediate future, but we are ultimately going to have much higher unemployment for a longer period of time. So if your goal here is to keep unemployment as low for as long as possible, the best policy is one to get that inflation rate back in as fast as possible. That's kind of sort of how I would answer that question. In terms of the tools, that's part of the problem and why it's so difficult. You don't, they don't have many tools. You know, they have a couple.

You know, the one is monetary policy. That's interest rates. And that, you know, that is traditional kind of short-term interest rates, federal funds rate targeting, that kind of thing. Then there's the non-traditional QEQT to try to get long-term interest rates down. But that's a very blunt instrument, you know, to address inflation. And obviously a lot of difficulty. The second broad set of instruments,

is around regulation of the banking system, right? If you can, if you want to bring bring down growth and demand and, and quell inflation, you can use your regulatory oversight to make it, you know, make banks more cautious to extending credit. And, of course, that second tool, they didn't need to use it all because we had the banking crisis, in part because they raise interest rates so aggressively. So it's a very, very difficult thing for them to do. And why threading this needle, kind of the frame I've been using here through this podcast is so difficult to do.

It is literally threading the needle, really, really hard to do because you just don't have the explicit tools to get it done. I guess a third tool, I just throw it into the mix just to try to be complete, but, you know, I don't think it has much impact is through jawboning, you know, just trying to, He's, what he's doing and all the central bank, all the folks on the Fed are doing is they're talking tough about inflation. They said, we're going to do whatever it takes to get inflation back in to target. And by so doing, if you can convince people that that, in fact, is what you're going to do, inflation expectations will remain lower and it's easier to get inflation back in. So that's kind of a third tool they can use and have been using here to try to get inflation.

But again, you know, that's pretty difficult to, you know, execute on as a pretty blunt tool. Chris, anything you want to add there to what I just said? I think that's right. I mean, the Fed's tools are blunt. And I would have said communication and certain the Fed funds rate are their primary vehicles. I obviously wouldn't be this defensive in a congressional hearing, but I would turn it back on Congress and say, look, this is, you know, the Fed is the firefighter here. They do what they can with these very blunt tools to deal with the situation, but they're going to cause damage, right, with these very blunt tools. It's not as surgical as you would like.

It's really up to Congress to set the stage in terms of addressing a number of other factors that could help to bring inflation down. So, you know, good to criticize the Fed. We absolutely should, but the Congress is not helping by allowing a debt ceiling issue. issue to linger, being wishy-washy in terms of energy policies, right? There are lots of other things that could be done here outside the Fed's purview. That's a good response. Dante, anything you would add? I don't think I would add, but on a related note in terms of what the Fed might do moving forward, I don't know if you saw market expectations swung pretty dramatically on the news of the employment report this morning. Oh, no, I didn't see that. As of yesterday, it was basically 50-50 about whether

there'd be another rate hike in May and now it's swung basically 70-30 in favor of a rate hike in May. So I'm curious if that sort of fits with what, apparently they think this gives the Fed cover, you know, to go ahead and hike again. I'm not sure that I would have read it the same way. You know, this feels like what the Fed wanted to see, but curious what your reaction is to that. It's thin trading. It's good Friday.

Yeah, equity markets closed. The bond market's trading through midday. So I'm not sure I'd read too much. into it. Let's wait, see what it looks like, you know, come next week. And I suspect it's going to bounce around 50-50 here because it is 50-50, you know. In our forecast, our baseline forecast, no recession forecast. We have one more rate hike in May, you know, so it's in there. So, you know, and they are talking tough and they've made it pretty clear that it sounds like they've been kind of laying the foundation for another rate hike and assuming nothing else goes off the rail. So

Not too surprised, but let's wait and see. I'm sure the market isn't that liquid. That was a great question. Mercy, should we do one more? Sure. This is more of a softer question, but it's related to the one I just asked, which is the job market is so great, right? We come on here and talk about that all the time,

how strong the job market is, how low unemployment is, wage growth has been faster than it's been in a long time despite the recent slowing. So why do people feel so crappy about their personal financial situation, about prospects for their finances, you know, by many different surveys you can look at, right? We look at consumer confidence surveys. This listener was pointing to a Wall Street Journal survey that asked people about their personal financial situation. most people said they feel worse off today than they would have expected to be at this stage in their life.

So if the job market's so great, which is the vast majority of sort of people's financial situation, why do people feel so bad? I got a lot of answers for that one. But maybe I'll let you guys take a crack or swing at that first. Who would like to do that? Chris or Dante? I'll start with the data. I always question the data.

Yep, exactly. The surveys, I don't know how reliable they are anymore. So I always take them with a grain of salt. Who's answering these survey questions? How are the questions being asked? You always have to take that into consideration. And there is a disconnect between observed or revealed behavior and survey behavior. So good question to ask why that's the case.

I think a lot of it has to do with just people not. either not being truthful or fully truthful when they answer the survey or the survey being a flawed instrument in terms of representation. So I think that's part of it. On top of that, I would say there likely is a lot of scarring still out there. People have been through a couple cycles here of really negative economic situation. So I believe that they are more guarded. Even the labor market is great today. Well, what's going to happen tomorrow? What's going to happen the next day? I think that that might color their opinions as well of what the future looks like for them and for their children.

Dante? Yeah, I mean, I think it's an artifact of a lot of these sentiment-style surveys where people tend to respond more negatively about their own situation, even if they have a more positive view about sort of the overall economy or the overall labor market, they tend to think their own situation is worse than sort of the average person out there in the labor markets. I mean, I think that's one thing that could be contributing to it. I mean, the other sort of real factors that certainly, you know, inflation and its erosion on purchasing power has had a real impact for some people, right?

I mean, wage growth has been strong, but there's still a large segment of the workforce who, you know, likely has less purchasing power today than they did a few years ago. So, I mean, I think some of that is, you know, a real deterioration in how people are feeling about their finances and their spending power. So, I mean, I mean, the obvious answer is inflation. I mean, people hate inflation. And I think maybe exacerbating how much they hate it is many people have never experienced it. They go, like, what is this? You know, so, you know, the last time we've had inflation that was a problem was back in the 70s and 80s, and many people weren't even alive at that point in time. And others, you know, barely remember it.

And I think people view here, I'm stretching a little bit, but I think people view inflation as being unfair. You know, it's like, why am I spending, you know, by our calculation, right in the month of February, the average American household was spending $372 more a month to buy the same goods and services that they were purchasing a year ago because of the inflation. And they go, well, why? You know, why is that? I'm getting ripped off here. Someone's taken advantage of me.

And then the surveys, I would push back a little bit because surveys are saying different things. The University of Michigan survey, a popular monthly survey, people are feeling crummy. But if you look at the conference board survey, another monthly survey, the sentiment is about where it's been on average over the history of the index. They're not feeling great, but they're not feeling, I wouldn't characterize it as feeling crummy. It's just feeling like average. And that just goes to Chris and Dante's point about the survey.

The Michigan survey is focused on people's personal finances, inflation, and also stock market and also perhaps housing values they're down, whereas the conference board survey is more focused on the job market, which is, as we've been talking, is good. I mean, unemployment's 3.5 percent, you know, people are doing pretty well. So I don't know that I'd say by all different sentiment measures, it's not fair to say that people are feeling, they're not feeling. Again, no one's feeling great, but they're not feeling crummy. And then there's, I think, all kinds of atmospherics that, you know, play a role, the political, environment, you know, that can't be, because, you know, you look at the survey responses, Republicans are really, really depressed, you know, compared to no, again, no one's feeling great, but the Republicans are feeling really depressed. And that's, that's got to be, you know,

the environment, political environment that we're in. So I think it's just a whole slurry of, of things that have come together to create this kind of noxious brew in people's minds. They're feeling depressed, but they're still spending. They're still. Yeah, they're still spending. The revealed behavior is different. Yeah. Yeah.

Okay, well, let's move on. There's one more thing I want to do, and that's the probability of recession going forward. And let me ask you this. I've not talked this over with you guys, but maybe I can look for two numbers. The probability number one is the probability that a recession will start in 20. So the next nine months of 2020. And then the next one is the probability of recession in 20, starting in 2024. How does that sound?

Just to provide a little more granularity here in terms of people's thinking. Does that sound reasonable? Okay. And it correct me if I'm wrong, but it feels like even if you weren't more pessimistic about the economy in 24 than 23, that. your probability in 24 should be a little bit higher than in 2023, just because, you know, things happen. It doesn't happen in 23.

It doesn't have a conditionally doesn't happen in 23. It's got to be a little bit higher than you would think, unless there's some reason why you would think otherwise that, you know, but on it. Typically, you would think it would be higher. But is that, is that, do I have that right, Chris? Do you think so these are probabilities within the, within those periods. They're not cumulative for the second one. You're saying probability of a recession in 24, independent of 23. Well, I'd say conditional on 23, no recession in 23.

Yeah, I'm sorry, assuming no recession, but not the cumulative probability. Not the cumulative probability in a year and a half. Because that, yeah, just to give more. Yeah, sure. Yeah, I think it's more, gives people more context as to how we're thinking about things. Okay, so in recession is a, as defined by the National Bureau of Economic Research, a broad-based, persistent decline in economic. activities, kind of down, not two quarters of negative GDP, which we got back in the first half of last year, but, you know, NBR National Bureau of Economic Research to find recession.

Okay. Let's go with you, Marissa, first. What is your probability of 2023 and probability of recession starting in 24? I would say I'm at 50% for the remainder of this year. And then if we go into 24, I'm at 55, somewhere between 55 and 60. Okay. Okay. And so you, and that's up from where you were for 23.

You were kind of at 45, I believe, something like that. I think, yeah, I was a little south of 50 before the banking crisis, right? Okay. All right. So you're thinking this is going to take a little longer to play out. You know, if we're going to have a recession, it's just not going to happen here in the next few months. It's going to play out further into the horizon in 24. Yeah.

I'm a little more worried that next week will be interesting when we see CPI. I'm getting a little bit more worried that sort of core services inflation is going to take. longer to budge. You know, it made good progress and then it kind of stalled over the last three months. If you look at the three month average and the longer that takes to get under control and the Fed has to play this red the needle game between the job market and financial conditions and inflation, that's just a higher probability that something goes wrong down the line. Here's the thing about the inflation outlook monetary policy and recession risks that I don't quite get. Suppose inflation, and those focus on CPI inflation, consumer price inflation, it's 6% on the nose, year over year through the month of February.

It feels, and you can correct me if you disagree or take a different perspective, but it feels like we're going to come in, come down pretty fast here, given. So-called base effects, you know, comparisons this time last year when inflation was at its peak, given the slowing and the cost of housing services, because we know rent growth has gone flat to down, and that's going to translate through with a lag. It feels like good prices are going to start to come in, you know, new vehicle prices. So it feels like we're going to go from six to three-ish here pretty quickly, and by the end of the year, we're going to be at three. The target, the Fed's target for CPI inflation, and here I'm making this up, but, you know, I think it's right,

is about 2.5%. Core consumer expenditure deflator, different measure of inflation, that's two, but because of measurement, different CPI is probably 2.5. So why, you know, do you really think the Fed is going to be on the war path over 50 basis points, you know, getting from 3 to 2 and a half? You know, I just don't see it. So it feels, I feel like it can state with confidence we're going from six to three. And once we're at three, they're going to be much more relaxed and leisurely about getting it back down. They want to get it back down. They're going to keep monetary policy tight. I don't see the funds rate coming back down, you know, quickly. But I just don't know why they would need to feel compelled to continue to press on the brakes, raise rates even more,

which is, I think, what you would need to get a recession in 2024 to get that inflation the last mile back to 2.5%. Does that, does that resonate with you? What I just laid down? So are you arguing that they should stop right now? Well, if I were king, I'd stop right now. But if it's a quarter point, no big deal. Because as Dante has pointed out, that's already embedded. You know, it's okay. Another quarter point, bringing the federal fund rate target to just over 5%.

And then I think they're going to pause. And then I'm saying, given the inflation outlook, given the economic outlook, I don't see the reason, the compelling reason why they need to start raising rates again later in the year going in and next. And then if they don't raise the rates, they have to raise rates again going into next year, there is no, it's much more difficult to construct a recession scenario in 2024. Sure, things can go wrong, and that's why the probability should rise in 24 relative to 23, because who knows what's going to happen with stuff, you know, just random events. But in terms of, you know, things that we can see and account for, monetary policy is a thing that would have to,

It would seem to me would have to push us in. The Fed would have to be more aggressive and start raising rates again for us to go back into recession in 2024. What do you think? No? But what if, so no argument that we're clearly on a downward trajectory with headline inflation because of those things you just mentioned. But we could get another energy price spike. OPEC is cutting output here. if the Fed has said they're very keyed in on wage growth, if that kind of core, super core stuff

doesn't budge, even if you get all the other rent, food, even energy falling, do you think they're going to just ignore that and let that be? That's my, let it be in the sense that they believe that it is going to continue to moderate, but it doesn't have to get back to 2.5% like now. I mean, why do I need to push the economy into recession to go from three to two and a half? I guess I'm saying what if it doesn't really moderate? What if back doesn't? My working assumption is the labor market is weakening, you know, weakening, you know,

the economy is slowing, unemployment's notching higher. That's kind of sort of, that's kind of the forecast. So you get to the end of the year and you're looking around, you're saying, why do I need to push this economy even more? It's already on the edge of recession. It's already weak. Why do I need to push this economy even harder to get, you know, that last mile to get that 50 basis points in a few months? I mean, if I'm going to get this over the next 12, 24 months, I'm okay with that. Now, of course, I'm, that's just me.

The Fed may be who knows what they're thinking and, you know, how? they're approaching it. But that I would think that they would be much more relaxed about getting that last 50 basis points. But anyway, Dante, what's your probabilities? So I think the last time you frame this as 12 months, I was at 50%. I think if, you know, if I'm thinking just in 2023, that's probably 40%. I think it's a bit lower than that. And I think I don't think I would go higher than 50% still in 2024. for a lot of the reasons you just mentioned, I don't see the Fed pushing too much higher at this point, given everything that's happening, given the improvement in the labor market, given what it was likely to be improvement in inflation here in the second half of the year. So I think I'd stick at 50% for 24. Yeah. So 40% in the remainder of 23 and 50% for 24. Okay. Okay. You just heard my kind of mini rant.

Did that resonate with you? Yeah. The only question, the thing that I ask myself is, you know, we know the labor market's slowing, right? Even if the Fed pauses, it's hard to know how much further the labor market will slow, right? I mean, if the labor market keeps slowing, even if there's a pause, we could still end up in a recession early 2024, even if the Fed does what we think they should do and, you know, sort of take the foot off here pretty soon.

You know, it's hard to know how much damage will continue to happen or how much that slowing will continue, even if rate hikes stop, and we just are living in a high rate environment here for the rest of 2023. So we've gotten the thing moving in the slowdown direction, but we don't know how far it's going to go, even if they stop hiking rates. Yeah, that's fair. Again, I'd say with a reasonably high degree of confidence, that one, inflation's coming in. I think we're going six to three. I feel, you know, there's things that could derail that, but that feels, I feel pretty, strongly about that. And it also feels like the labor market is going to slow. I feel pretty confident about that. In the context of the high rates and the banking crisis, we're going to go from

300K per month on average. I think we're kind of north of that right now, 300K per month on average, underlying, abstracting from the vagaries of the monthly data down to something that's 100k or less. I feel pretty confident about, you know, we're going in that direction. And on oil prices, there I'm less confident, but, you know, I'm making an assumption that they're, I think they're going up, you know, but I don't think they're going to go back up to $100 because there's a lot of excess capacity, spare capacity now that they're in the global oil markets, given all the production cuts by OPEC and the force cuts by, on Russia because of sanctions. But that is an assumption.

So, you know, given that, that reasonable, I mean, my mind, reasonable confidence around those dynamics, I say to myself, why would the Fed raise rates, you know, feel compelled to raise rates more? And if they don't, then the odds of recession odds are in 24 very high, but doesn't feel like it's, you know, extraordinarily high. But, okay, so you're on board with that. Okay, Chris, go ahead. You're sitting down. Yeah. So, by the way, do you want me to give you my odds first so that you can have, you You can react to that?

I'd like to give you mine first so you can adjust yours. Okay, okay. Far away. I think I'm pretty compelling. You can correct yours. Yeah, correct my. I'd say 45% for 2023. Oh, okay.

Interesting. So do agree in terms of the timing there, but 67% for 2024. And 67 is strategic. Right? Yeah. Kind of strategic. Kind of strategic. Kind of strategic.

Because? I debated it could be 70, but the seven, you know, that calls a lot of attention. No, 67 is, well, it's strategic because you would put. Oh, the baseline forecast would have to change if that's the case. That's right. Because our rule of thumb is for a big change in the forecast and adopting a recession of any flavor would be a big change. And we need to be very confident and very confident as a subjective probability. probability of more than two-thirds. If you go to 67, you're effectively saying you would put a

recession at some point in 2024 in the baseline forecast, our baseline forecast. Although we already have a little bit of a recession. What does that mean? 50 basis point increase in the unemployment rate over the course of the years. Yeah, but we don't, we have 1% GDP growth. We don't, we don't, we have unemployment. Fair enough. Okay. Okay, fair enough. This is a, you're, you're, this is a, important point. It's a really important point. You're saying this is kind of an artificial line between an economy that's on the edge of recession

and an economy that experience is a modest recession, which is what you would anticipate. So it's kind of like a faux point of demarcation. It's a bit of a parlor game is what you're saying. Yes, I'm not choosing 67%. Yeah, that's fair. Is making a statement, but it's not as strong a statement as if I went to 75 or 80, then It's clearly suggesting, you know, deeper recession. No ambiguity, right?

No ambiguity in your mind. Yeah. But Marissa's at 55 and she, correct me if I'm wrong, Marcia, you would not put a recession in the baseline forecast for 24. No, I wouldn't. Yeah. I like what the baseline looks like now. Yep.

Okay. All right. Skirting recession. Well, you heard my mini-ran. So how would you respond to that? I would say all well. good. I don't know about the 3% by end of year in terms of inflation. Maybe it's three and a half. I won't quibble with that. But I don't think the Fed is going to hike aggressive. I do agree with

your assessment there. I think you might be putting a little too much or too little weight on the credit crunch from the banking crisis. I'm really concerned that this, we haven't seen the real effects of credit drying up for a lot of businesses and that inevitably will cause some pullback inactivity. I think that does take a while. I don't think it's immediate. I think it's when loans come up for refinancing and the banks are also adjusting. Right now, they may be flush with capital again. They've gotten their liquidity positions back in order, but still, they're going to be facing a lot of pressure, earnings pressure going forward. So I expect that's going to weigh heavily.

I also am expecting another shoe to drop in terms of delinquencies and losses, right? We had only started to see auto delinquencies, credit card delinquencies, starting to take up. I think we're going to continue to see those types of trends in the future. And that's also going to lead to some pullback in credit and spending and investment. So that's the rationale. I don't think we need the Fed to cause the recession. Yeah.

As long as the Fed doesn't actually cut, I think they're already putting a lot of pressure given the long and variable lags of monetary policy, we're going to be feeling these effects over the rest of this year and into 24. Right. So even as the Fed, they raise the rates a quarter point in May, the funds rate goes to a lower five. That's a terminal rate.

It doesn't go any higher than that. Even with that, given what's already in train. Yep. That's a lot. That's a lot. There's a lot. Yeah.

Okay. Okay. Okay. I'm at 40% with Dante on 2023. and I'm at 50% for 2024. So very consistent with the same kind of logic as Dante had. It's hard to see recession, well, hard is not the right word. Less likely we see a recession in 23, just given, you know, this is March.

We're still creating 236,000 jobs. Unemployment's still three and a half. It could happen. Something would have to go off the rails. You know, we'd have to get $100 plus oil for, a couple, three months, which again is not inconceivable, you know, given things, but, but not, not what, what I would consider likely. But 24, the, the odds do rise just simply in part because, you know, that's a long period of time. And to say nothing else is going to go wrong of consequences

over the next, you know, year in nine months is that's saying a lot. I mean, things can't happen. I will say, though, I do think some underlying weights on the economy will lift as we move into 2024. So, you know, for example, real disposable incomes of people are now turning positive again because inflation is coming in. Wage growth isn't coming in as fast. So people's purchasing power is no longer eroding like it was a year ago when inflation was taken off and wages were lagging far behind. So consumers should get some solos from that, particularly lower income households, seeing some benefit from that. The other is housing.

So housing, you know, under tremendous pressure, given the run-up and mortgage rates back six, nine months ago, year ago. And that undermined affordability and demand collapsed immediately. Home building fell sharply. And it feels like we're pretty close to the bottom, I think, in terms of home, if we're not already at home. sales pretty close to bottom in terms of construction. House prices more to go, but, you know, in terms of its economic consequence, I think housing goes from being this major headwind to growth over the last 12 months year to kind of going more neutral with respect to the economy.

So it does feel like there are some things out there that may actually help to support, you know, the economy as we make our way into 24. So it's not an all negative. Anyway, that was a good discussion. So we'll definitely come back to these probabilities down the road here and use this new frame of 23 and 2024. Okay, with that, anything else, guys, you want to bring up before we call it quits? We did another body scan and we made it. We all made it.

We all made it. No one collapsed. No one collapsed. Everyone has a nice holiday weekend. I think it's, I know it's Passover and Easter, which is, I think, rare for the moment. to line up like that. But so it's a very important holiday weekend for lots of people. So with that, you guys taking off the afternoon?

No, not you guys. You're always working. We actually have the afternoon off. Do we really? Although some people forgot because we have meetings on our calendar. Yeah, I got plenty. I got plenty of meetings. Okay.

But with that, we're going to call this a podcast. Take care, everyone. Thank you.