Moody's Talks - Inside Economics - Jitters Over Jobs

Episode Date: July 5, 2024

Dante joins the podcast to break down the June employment report. While everyone agreed that the report was mostly good, concerns remain around the concentration of job gains and the slowdown in hiring. With job growth moderating and the unemployment rate edging higher, the team argues that the time is now for the Fed to start cutting rates. Link to surveyGuest Hosts: Dante DeAntonio - Senior Director, Moody's AnalyticsHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues. Of course, my two co-hosts, Marissa Dina Talley and Chris Duretis. Hi, guys. Hey, Mark. Can I ask you the question, everyone is wanting to know? Yeah, far away.

Who won the Sandcastle contest? Oh, right. This is July 4th, Friday after July 4th. You know, we haven't played that in a couple years, Chris. Oh, years. Yeah. Oh. Yeah.

Because I think we, once we couldn't, we stopped winning. And we're getting trophies. It really wasn't as fun, you know? So I think it really is the age of your kids. Our kids are older now and they're not into sandcastles like they were. I think we got to wait for the grandkids now, you know, for that. All right. All right.

Could be a while. Yeah. But you're right. We come down to the Jersey Beach, New Jersey, South Jersey Beach, every 4th of July week and used to play in this contest to make sandcastles, really. And the way

we won was not that we had any talent. It was just we were, you know, brute force. You know, it's like we built the biggest damn castle there was, even if it was pretty ugly. And that can win you every once in a while, but I can't win you consistently, I guess. So, right.

How was your July 4th? That was good. That was good. Pretty, uh, low key just with the neighbors here. Yeah. Saw some fireworks. Firework, free fireworks show because there's another neighbor that puts on a huge display.

Yeah. Wow. So everyone just sits on a hill and watches. Great. And Marissa, what do you do for July 4th? Do you get fireworks and hot dogs? I went to a friend's house and we cooked and drank and, you know, all that. We didn't go watch fireworks.

I actually was leaving their house, and I saw like five different fireworks shows from the car on my drive home. Very cool. Yeah. Well, here in the beach, for the first time, at least that I've noticed, they use the fireworks from a barge. It used to be they do it on the beach. That's what they do here. Oh, is that right? Yeah.

I saw him setting it up yesterday afternoon. I go, what's that? What's that big tug and that barge doing? And that's what it was. That's pretty cool. Yeah, and of course we got Dante, Dante D'Antonio. Hey, Dante. Hey, Mark, how's it going?

Good. Of course, this is Jobs Friday, the day after July 4th. And how was your fourth, Dante? It was pretty low-key hanging by the pool and just relaxing, yeah. Do you make sand castles? You know, my kids usually convince me. They're big into holes, not castles. So we try to dig the deepest hole we can dig every year when we go to the beach.

That can be dangerous. You've got to be careful, right? to break someone's ankle. I agree. Yeah. So usually it's hard to get out of by the time the hole is fully dug and you got to fill it back in at the end of the day so somebody doesn't fall into it. But yeah.

Also, if you go and some people actually died, I think, they, they dug such a deep hole. And they got in the hole and it caved on them. All right. Well, that's when my kids ask me this year, I'm going to say to call you. And you say it's unsafe. You got to be careful. Because I don't usually dig holes in my free time, but that's the one time I give in. Yeah, you got to be very careful not to go too deep.

All right. Fair enough. Just some advice, parental advice. Well, of course, it is Jobs Friday, and we got a Jobs Report. Not too bad, but I don't want to color your views. Dante, I know you've got a view, so you want to give us a sense of things? Sure. I think it's middle-of-the-road jobs report maybe, certainly weaker than what we saw last month,

but I think probably return to more normal expectations. Headline growth was 206,000 jobs added in June. Maybe the bigger story perhaps is negative revisions to the prior two months, which were quite large, total of 111,000 in downward revision. So you took a three-month average job growth last month when we talked that was 249,000, and that now sits at 177,000. So a fairly different picture of what job growth looks like here. in June relative to what we thought was happening in May. But again, I don't think that's necessarily

a bad thing. We've talked at length over the last six, nine, 12 months about the need to see job growth slow and the labor market soften and moderate. And I think this report fits that story a lot more so than last month did. Industry composition was maybe a... Can I stop you before we go into the industry mix? You're not worried that it's slowing too much. I mean, And this is now more consistent with the other economic data we're getting, right? Like GDP, the real GDP growth is really throttle back. I mean, according to our tracking estimates that you put together based on monthly data coming in,

I think in the first half of this year is going to come in around 1.5%. We have Q1. That was 1.4.4. And I think Q2, according to our tracking, is like 1,415. That's way down from last year for calendar. 23, we got two and a half. So that's a full percentage point down and even more dramatic if you compare it to the second half of the last year. And then you look at all the other data like the ISM surveys, you know, they were really weak. They were below that 50 threshold for both

the manufacturing and non-man vehicle sales, retail sales, just unemployment insurance claims, you know, everything feels like it's really softening up here, which, you know, as you say, is to some degree, by design, the cool things off, but you're not, you don't think we're going too far here in the other direction. I don't think yet.

I don't think there's signs of that yet. I mean, right now I feel like we're in a pretty good spot. Obviously, you know, you don't want to see it go too far too fast, but I don't feel bad about this jobs report. Right. Okay. And those downward revisions, anything there?

I mean, that's pretty surprising, right? because we didn't, I mean, I guess it would be consistent with the down draft and the downshifting and growth, right? That would be consistent with that. Yeah, I mean, we've seen revisions of this size happen before over the last year. I mean, certainly for May, it's not concerning since May started at such a high level. You know, we went from 272 to 218, I think. April, you know, maybe causes a little more concern for people now that the revised values down to just 108,000 jobs added in April. But I still think, again, that's part of that's just month to month volatility.

And the average here is still pretty solid at 177 given sort of everything that's going on. Okay. All right. I stopped you. So you're on to industry mix. Sure. Industry mix may be a little bit more concentrated this month in terms of the big contributors. Healthcare still number one added just over 80,000 jobs.

Public sector was a bigger contributor this month. And it's been recently with 70,000 jobs. So, I mean, basically three quarters of overall job creation came from just health care and the public sector. Construction still holding up well. Manufacturing, you know, weak turn negative again, which has done quite a few times here over the last year, sort of consistent with most of the other data that we have on manufacturing. Temp help, obviously, is sort of a big weight on the headline number here. It fell almost 50,000 jobs in June. You know, it's been down consistently for the last two years.

but that down 49,000 is the biggest single month decline over that period. So still, even though it's been down, it's sort of unusually large decline in June. Other than that, I don't know if there's not a whole lot interesting in the industry mix, you know, a little bit of weakness in retail and manufacturing. But again, that's, I don't think not a new story here. Yeah. Household survey side of things. That's on the industry, the kind of the narrative there has been, because a lot of the job

growth is in health care and government. And that's been the case now for a while, maybe six, nine, 12 months. The narrative has been that that's catch up, that not catch up the, you know, the tomato base thing, but catch up. It's catching up. Those are the sectors that, every other sector of the economy industry has kind of hired back all the folks they lost during the pandemic and then some. And government and health care were just slower to be able to do that, in part because of the budgeting contracting process that's involved.

It's just slower for that to occur. And, of course, the other sectors could jack up wages much more quickly and attract workers in a tight labor market. But these industries are now catching up that they're getting pretty close. I haven't looked recently, but I suspect they're pretty close to pre-pandemic levels, maybe even a little bit higher at this point. So would you expect the kind of, that's the narrative for the strong job growth in those sectors. If that's the narrative, then as they catch up, then you expect that job growth to slow. Is that, do you buy into that narrative?

Does that make sense to you? And does that make, does that, do you expect to slow down here? I think I definitely do for government. I mean, there, there's a pretty obvious lag in, in, in. sort of the return to hiring after the pandemic. I mean, obviously there's issues with, you know, the public sector being able to compete on wages. And it seems like over the last 12 months, they've obviously done much better at attracting workers than they had in, you know, 2021 and 2022. And we've seen some slowdown. I mean, government payrolls were flat in April.

They were only up 25,000 in May, which was sort of a little bit below the average that we've seen. So the 70 this month is sort of outsized and probably a little bit overstating the strength that's there. So I do expect government growth to slow on average here. moving forward. Healthcare, maybe it's a little bit of catch-up, but I think it's also just sort of strong demand growth in health care too, more so than we see in other industry as you've got a more sort of consistent base of demand growth there. So I would expect that to, you know, obviously probably still slow a little bit from 80,000 average every month, but I think that'll hold up better than almost any industry just given what we know about the demand for health care

services. Okay. Okay. And now on to the household survey. Yeah, I would say the household survey was a little bit of a mixed bag. The headline is obviously that the unemployment rate crept up a little bit higher, right? The third straight month that it increased by a tenth of a percent. So it's up to 4.1. That's the highest since November of 2021, I believe. So a little bit disconcerting. It's up from a low of three and a half percent, you know, just over a year ago. So that's not great news. On the more positive side, you got labor force growth that came back a little stronger this month. Labor Force participation edged higher. Household survey employment increased, a modest increase, but it was back to positive after it's been a pretty rocky road of late.

If you look across the board in terms of participation, in terms of employment to population ratios, everything looks good. It looks more positive this month that it's been recently. So I would say aside from the unemployment rate edging a little bit higher, it was mostly good news on the household survey. And I'm not sure how much to read into the, you know, how much does 4.1% unemployment matter versus 3.9% or 4%. It feels a little bit like splitting hairs here month to month. Obviously, we don't want to see that continue every month here moving forward, but it doesn't feel like a big problem yet. And so I think it's a, at least for me, it's a watch and wait a little bit longer here before I get concerned about it. Okay. So generally you're sanguine about the slowing and

easing up of the labor market? I am, yeah. You are. Okay. All right, Marissa, what do you think? Are you as saying when as Dante is? I think so. If you look in the details...

Are you trying to get in touch with your emotions? Is that what's going on? I mean, I think so. I'm still working through it. Working through it. Okay. Yeah, it's early. So I think that if you look at the details of the household survey,

look at, for example, the reason that the unemployment rate rose, right? It still is not layoffs or people losing their job. It's still all coming from this month people quitting rose in the household survey, as did people entering the workforce for the first time or reentering after a break. The number of job losers fell. So there's certainly evidence that it's harder for people to find a job when they're looking now and we can get into that more.

But again, it's not companies laying people off yet. So that's the loan holdout here, right? We haven't really seen that. We've seen jobless claims rise over the past month or so. But this is what happened last summer, too. It feels almost like a seasonal phenomenon, and then they proceeded to fall. And they're still low.

They're still not in worrisome territory. We got a Challenger layoff report this week, too, that showed that the number of layoffs was also down. The joltz data came out the other day. That also shows, right, it's really hiring and quitting that are down over the past year. It's not people being laid off. So that gives me some solace in the softness going on in the labor market right now. And then even on the payroll survey side, yes, we have this big concentration of jobs in government and in health care, but the one-month diffusion index of employment rose over the month. So we still have a whole bunch of industries, most industries,

adding to payrolls or holding payroll steady. You know, like we did have some losses in manufacturing this month and in retail trade, but other than that, there's still gains going on. Wage growth is slowing, not collapsing, but slowing. We're now under 4% year over year on average hourly earnings. So I'm cautiously optimistic that this is heading down in a graceful way and it's not imploding, right? It's not going down at a rate that is worrisome yet. But we all know that that can change pretty quickly too.

Right, right. I did notice in the BLS report that going back to those revisions, that the BLS will next month release an estimate of the S report. so-called benchmark. That's right. Yep. Do you want to explain that very quickly? Sure. So this is something they do every year where they take the payroll survey is a sample of half a million businesses and they draw that sample from unemployment insurance records. So every employer basically has to pay into the federal and their state UI system. So based on those UI payroll records, they have a kind of near-university.

count of employment that they then kind of reconcile the payroll survey to every year. They will do a preliminary release of this with the next month's data, but then they will actually do the benchmarking, which means they'll go in and they'll adjust the payroll survey estimates going back to March of the previous year. They'll do that with the release of the January 2025 data. So we get a preview of what those revisions will be. And typically, the revisions are small. They're usually like, you know, it's a tenth of a percentage point in payroll employment. That can vary. It can vary based on industries. Some industries are harder to capture responses from than others when the government does this survey. So we'll be looking to see if there

are, I will be looking to see if there are big downward revisions to the benchmark, to the payroll survey, just, you know, one of the features over the past couple of years has been this big divergence between household employment and payroll employment unusually large. And some people were saying, you know, some people think this could indicate that we're going to get a downward revision to the payroll survey, which has looked stronger. Other people have said, no, it's the household survey that's wrong. It's not capturing the surge in immigration that we have coming into the country. So this will really show us, I think, what, which survey has been more accurate over the past year. Or both. It could be some combination. It could be a combination. And very well may be

some combination of both. And it may be difficult to tease out how much. Right. Okay. Okay. So I'd be, you know, we do get some lag data, the so-called QCEW, quarterly census of employment and wages, I guess. and that is based on a full count, I guess, of, of, that is the data they will use to do the benchmark. That's right. And I haven't looked at that. Any sense from, Dante, maybe you have, on the recent, on the QCEW data, which gives us some hint about what their benchmark revision is going to look like. Any information there? Yeah, so we don't have the first quarter data yet, which is what they're waiting for to do that preliminary revision.

but the data sort of leading up to that, the data through the end of last year, certainly are signaling that we're likely to get a downward revision. I don't think it looks at this point that it's going to be huge by any means, but I think it's certainly the likelihood here is that it'll cut some. The average monthly job growth in, you know, 2023 and early 2024 is likely to be slightly lower than it was previously reported. Okay, so this gap between the growth in jobs as measured by the payroll survey, the survey of businesses and the employment.

as measured by the household surveys, the survey, obviously, of households, is probably going to narrow, in part because of these revisions to the payroll survey down. And I assume at some point, we'll get a, once the immigration numbers are more realistically embedded into the estimates of population counts from census, I guess we could get an upper revision to the household employment numbers.

Does that happen? That doesn't happen. does it? They don't actually revise. They don't revise. You'll see basically a jump off, potentially if you get a significant change in the weights, but yeah, they don't actually go back and revise this. They don't revise. Okay. Okay. Okay, Chris, what are you, are you saying, when is Dante and Marissa are? I'd say overall, they just have a face value. I'd say it's a good report. So you're getting, you haven't gotten your emotions. You're still getting, they're trying to figure out your emotions on this one as well.

No, I think I'm just to figure out the wording. The wording. The way to describe my feelings. Your emotions. Got it. I guess it can be hard. That dope. What's that?

Well, it's not only hard to figuring out what your emotions are, but it's equally as hard as to figure out how to express them. That's what you're saying. That's right. That's right. This report kind of has a bit of that mixed emotion feeling to it, right? The downward revisions kind of give me a little bit of

oddly enough some comfort because it was more consistent with some of the other data we've been seen. Right. And the top line number is still good. It's still strong. It's not a collapsing labor market. But I think we're at that uneasy point where, yeah, again, to use the old aircraft landing on the tarmac description.

know, are we, we're kind of at that point where, you know, we're right about to land on the, on the runway there, but, you know, could easily go a little too low and crash into the, into the ship. So that's the, it's all kinds of mentors now. It's an aircraft carrier, apparently. Okay, that, that reconciles. Yeah. Yeah. Sorry for that that wasn't clear. No, it wasn't. When you think of a plane landing, you don't, you don't, you usually go to aircraft carry. Oh, okay. Well, we've talked about aircraft carry in the past.

Oh, there you go. Okay, so what would you say? Good report. Good report. It kind of serves the Fed's purpose. I think that's a positive. I mean, September rate cut still in view based on this report. Right.

But what do we have a 3.9% average hourly earnings growth? Yeah, no one mentioned that. That's the wage number in the report. Yeah, so, you know, pretty good, right? Pretty good, pretty good. Yeah. So, yeah, from all, from that perspective, everything that makes sense, it's kind of moving in that soft landing direction.

But again, you got to be a little cautious here that things could get restated, right? there could be further revision. Right. And certainly there are some of these trends here that could easily go a little softer than we'd like. The other statistic that I often look at to gauge, you know, the strength of the labor market is weekly hours. How many hours people are working each week? I didn't catch that. Did you guys catch that?

It did not change? No. Okay. That has normal. They're still low. I mean, they're low, right? Yeah. But it didn't go lower.

It didn't go lower in the month? No. Okay. All right. Well, you know, I look at this through the prism of what the Fed should be doing because that's kind of the key question, you know, at the moment. And it feels like to me, and I agree, you know, the numbers are consistent with an economy that's okay and doing pretty well and thrott, but throttling back. And, you know, that's by design. The Fed's been working to keep a lid on growth and get inflation back in the bottle, so to speak. this would be consistent with that. But it feels like it's more on the soft side and an argument for why the Fed should start cutting interest rates sooner rather than later. So this idea or this view in markets that, and it's in our baseline forecast as well,

that the first rate cuts in September, that feels increasingly like too far for two, that's like, that's a long time from now. It feels like it should be earlier in that, like, you know, at the July meeting, the upcoming meeting of the Federal Reserve, not only because growth is slowing. And you can see it now, even in the job numbers. Previously, it was in other data, not in the job numbers, but with today's numbers, you can see it. But the inflation statistics also, you know, really pretty good. I mean, last month they were great in the month of June, both CPI and the consumer expenditure inflator. So it feels like to me, strong arguments for the Fed to start cutting interest rates here and not crashing that plane into the ship.

You know, I think that would be helpful at this point. So I'm growing a little bit more nervous about slowing and what's going on in the job market. And the other thing, the revisions remind us of is it can change our perceptions, you know, like in an instant, right? Dante was saying last month we thought the average monthly job growth was 250K now we see with the revisions

no if there are 200k we're lucky they're probably less than that so you know feels like got to be really careful here given the quality of the information and data that we're getting

and we'll err on the side of doing too much here okay why don't we do this why don't we play the stats game the statistics game and then we'll come back and do a deeper dive into the kind of the bows of what's going on in the labor market, see if we can't teach things out a little bit more. And then we'll call it a podcast. We'll make this a short podcast because this is, again, Friday after July 4th.

And I think we have off, don't we? Do we have off? No. Oh, we're working. You have to work today. Okay, maybe it won't be a short podcast. I didn't know that. I thought I know.

No? No. Okay. All right. Okay, the stats game. We each before a stat. The rest of the group tries to figure that out with clues to deductive reasoning questions,

and the best stat is one that's not so easy. We get it immediately, one that's not so hard we never get it. And if it's apropos to the topic hand, all the better. So as tradition it has it, we start with Marissa. Marissa, what's your stat? My stat is 9.8.

Percent? No, I'm not going to tell you the units. Not going to tell me the units. Employment related, job market related? Yes. In the employment report? Yes. Payroll survey?

No. Okay. That means it's the household survey, just to be complete and precise. I know how tricky you are. That's good. Yeah. And it's not a combination of the payroll or household survey. It's coming right from the household survey.

Mm-hmm. Is it months? nine point eight months no okay is it a ratio of something to something no dante is it's not an unemployment rate of some kind no it's not no uh is it uh is it not a percent it's not it's not number of jobs? No. Is it an index related to an index? No. Should we know this number?

It's in the report. Really? It's not a statistic we talk about a lot. Oh, it's not? No, but it's one I think bears watching right now, given our conversation. Interesting. Is it related to the, is it related to unemployment? It is.

Okay. I want to say something Is it duration of unemployment? Bingo, you got it. Chris got in there first. Yeah. So it is the median duration of unemployment for people that are unemployed. It's 9.8 weeks.

And this is up by almost a full week from a year ago. So this was up from 8.9 weeks last month. Now it's 9.8. and it was 8.8 a year ago in June. So this, you know, how long it's taking people to find a job has been creeping up over the past year. And so, again, I think this goes to, you know, reduce levels of hiring, lower number of job openings. Fewer people are quitting, which means lower job openings, right? So the people that are out there looking for a job, and we know most of those people are people that are coming

into the labor market either for the first time or again after a break, they're finding it harder to find work. Now, this isn't that much different from what this statistic was prior to the pandemic. So it's kind of where it was in late 2019 or so. And when I look at all these statistics, you know, this really reminds me of the 2019 job market. I think it increasingly, you know, very much looks like this, right? And we saw, if you look at 2019, compared to the previous years, 2017, 2018, you did see weakening in the job market in 2019 compared to those previous years. And where we are right now really feels like that to me on a number of different levels. Of course, the Fed had the same dynamic then too, right? Because the Fed had jacked up interest rates,

fearful that the economy was getting ahead of itself. Inflation would pick up. and jacked up rates and slowed things down. And of course, we had the trade war at that time also slowing things down. But the Fed ultimately backtracked and started cutting interest rates, even before the memory serves, even before the, well before the pandemic hit, they were starting to cut rates again. Oh, that's interesting. Any granularity on that 9.8 weeks? Anything, you know, like across demographic group?

Is it? Is it? I don't have it across demographic. But, you know, the number of people, the share of people that have been unemployed for 27 weeks or more reached 22.2% last month, which I don't know how far back you have to go to see that number, but I mean, certainly more than a year ago. So, again, people that have been out of work for a while is, you know, that's about what? That's about six months, I guess. So that share has certainly grown higher. Again, in proportion to this down draft in hiring rates and job opening rates, which should suggest that it's a little more difficult to find a job.

And one thing that we noted in last month's job report was that if you remember a month ago, we were looking at a big decline in household employment, and it was mainly among people 20 to 24 and 55 and older. those things turned around this month. We got a gain in household employment, but we did see that the number of people 20 to 24 coming into the labor force jumped up actually a bit more than it normally does on a non-seasonally adjusted basis in June,

which could suggest that a little of that last month was just a shift in seasonal patterns. Yeah, so something to keep an eye on. for sure. And I totally agree with you. I think the Fed needs to start cutting. I think this is becoming increasingly uncomfortable to wait like this. Yeah, I guess at 9.8, the lengthening duration of unemployment also is consistent with continuing unemployment insurance claims, right? Because it's not, we look at initial claims. That's folks that just lost their job and filed for unemployment insurance. But we also can count

the number of people who are on the roles getting unemployment insurance, continuing claims. and that continues to slowly but inexorably rise, right? It continued to rise. So consistent with that. Interesting. That was a good statistic. Very good. Dante, you want to go next?

Sure. Let's go with 83.7%. Sounds like a labor force participation rate. Or an employment population ratio. Is it prime age? It is prime age. Prime age. Which one of you?

Labor Force participation. Mark's the way there. It's labor force. Only because I know what EOP for prime ages is like 80.8 or something. 80.8, yeah, which is also very good. But the prime age labor force precipitation rates, it's risen now three months in a row. It's at a high for the cycle now at 83.7%. It's well above, you know, pre-pandemic high was 83.1%.

And so this, you know, the labor, you know, unemployment rates, creeping up, but participation continues to creep up. Employment to population ratio is holding steady, basically at its cycle high. When you look at that prime age group, right, we've seen lots of noise in young workers and older workers, but that prime age group is basically rock solid at this point in terms of their participation, their engagement in the labor force. If you look men versus women in that prime age group, there's no, there's no weakness for men. I think it's at an all time high, or not all time high, but it's back to a cycle high. I think for women, it's actually just off an all-time high from last month. So just below 78%, which is basically at an all-time high.

And so yet people certainly are drawn. We've drawn people back in, which was, I think, two years ago, the concern was can we continue to generate labor supply? And we've certainly done that. And so I think despite some of the weakness here, there's a lot to be happy about in terms of how people have sort of re-engaged with the labor market over the last year. The overall participation rate across all age groups, that's flat, right? That hasn't really budged much here. Yeah, actually, it dipped a little bit last month, and it did rebound a little bit this month, but yeah, it hasn't moved a whole lot over the last year.

Right. But you're saying for prime age workers, 25 to 54, that is up, and that is above its pre-pandemic level. Solidly, yeah. Now, could that also go back to the immigration surge that Marissa was mentioning, that the immigrants tend to have higher participation rates than the native born, and that might be pushing up that group? Is that a possibility? Yeah, I think it certainly could be providing a little bit of lift, yeah.

Okay. All right, but that's not. But your basic point is folks are engaged in the market. Yeah. Yeah. No problem there. Okay. Okay.

Good. Okay. Chris, you're up. All right. $2,666,500. Jobs? Jobs. From the payroll survey?

Yes. Is it the increase over the past year in payroll employment? No. No, that would be too easy. But that's probably pretty close, I bet. Two million, what did you say? Two million what? $2,66,500.

Okay, so it's jobs. It's a change in jobs? Nope. It's a level. It's a level in jobs. Industry level, the particular industry? Yes. Oh, it's temp help.

It's got to be temp. Oh, there you go. Temp help. Yeah, Tempe help. I was going to say that, by the way. That's just, sorry. What is that? Chris, it's the level of temp help employment.

Yeah. Okay. It's a level. We mentioned the change earlier, which is 49,000, right? Dante covered that. Right. The level is low relative to history. We've been shedding a lot of these temp help jobs now for the last couple of years.

So that's been trending down. And then I went back and looked and this is the lowest level since 2013, right? Wow. Interesting. Well below what we had prior to the pandemic. So is this a sign of that further weakness that's going on? Typically, business might shed their temp help, right, if they're seeing weakness on the horizon or is this a structural change in the in the economy could be businesses are you know

adapt because there's more flexibility elsewhere maybe they don't rely on that temp help component anymore so again and some mixed messages here yeah this was part of i'm going to plug evi part of a commentary we wrote on traditional recession signals i wrote a little bit about temp help and then what's going on there so yeah uh you know case anyone's interested but what's going on dante what I mean, temp help has been steadily declining, which historically would signal a broader weakening in job creation because businesses stop using temp help before they start, you know, reducing their own payrolls. And this is a pretty substantive sustained decline. So what's going on? Yeah.

I mean, so I argued it's a couple of things, right? So immediately after the pandemic, you had this huge surge in temp help, right? It reached an all time high in terms of level. And so it always made sense that it needed to probably correct itself. Firms were leaning too heavily on temp help in the wake of the pandemic. They weren't ready to bring full-time employees back on. And so the first maybe 12 months of decline sort of brought temp help back to its pre-pandemic level, which felt like it made sense.

But it's continued to come down since then. I think it's probably a combination of two things. One, I think because the labor market is so tight, I think there's been a little bit of a structural shift away from temp help usage, right? firms are saying, you know, I want to bring full-time workers on. I don't want to worry about temp help employment because the labor market's so good. And two, I think, you know, even though temp help gets filed under, you know, services, under professional business services, you know, a large portion of temp help is dedicated to manufacturing and transportation and warehousing.

Manufacturing and transportation warehousing have not been doing well for the last 12, 18 months. And so I think a lot of that weakness that you're seeing is really carryover from those industries flowing into temp help, right? Those industries are using temp help less frequently. And so I think that's, yeah, I think we would like that's more about a shift. That's more about a shift in demand as opposed to a broader weakening in demand. People are just buying less goods, right? Right. And I think that's part of the reason why we haven't seen a whole lot of actual decline in manufacturing payrolls because it's showing up in temp help, right? They're getting rid of those temp workers as opposed to shedding quite as many, you know, permanent full-time workers.

So that's, that's my argument. Oh, that's interesting. So like many other indicators, yield curve inversion, consumer sentiment is at least measured by the University of Michigan. There's a bunch of indicators that historically have signaled recession, but they're just failing miserably this time, at least so far. Right. Yeah. Yeah. Yeah, and actually go back and look, the second half of 2019, we actually saw, I think Tempel employment fell by about $100,000 combined over those last six months of 2019.

We saw some of the same sort of weakening happen in a similar tight labor market where I think that same sort of structural shift was starting to happen. And then obviously sort of got blown up by the pandemic. But so I don't think it's that unusual that we start to see temp help, you sort of pull back a little bit when the labor market is very, very tight. Right, right. Chris, anything else to add? No, I think that's, that's just another indicator to watch, right?

Yep. Okay. All right, I've got two numbers. 49.3 and 46.1. 49.3 and 46.1. Are those the ISM non-manufacturing indices, service sector? One is the total? One's employment?

You're barking up the right tree, but you got the wrong. Indexes within it? Yeah. Am I in the right report? Half in the right report. That's a big hint. Manufacturing and services. Yeah, there you go.

And what is it? What indexes are we talking about? Not the total. Employment? Employment. Yeah, employment. Employment. Yep, very good.

Yeah, the good one, Mercer, that was good. So the ISM manufacturing survey puts their employment index was at 49.3. So below the 50 threshold, above 50 expansion, below 50 control. traction. And then services was weak. Of course, that bounces around a lot month to month recently, 46.1, so well below that 50 threshold. So if you kind of took an average of those two surveys, which are supposed to be measuring what's going on economy-wide services and in manufacturing, it's below 50. It says job growth should be, certainly shouldn't be creating, you know, 1007, 206, whatever it was, 206,000 jobs.

It would be a much weaker job market. But nonetheless, still, you know, clearly signaling, you know, some weakness there. Now, the ISM surveys are a combination of kind of hard facts and also people's sentiment, perceptions, and businesses have been worried. By the way, this is probably a good place to plug the Moody's Analytics survey of business confidence. It's a weekly survey. We've plugged it in the past. We need folks to respond to the survey. We've been doing it back for over 20 years now weekly back to 2003. It's a very valuable, I find it a very useful survey, but we need folks to respond to that. So please

do. I know this is a holiday week, so I'm fearful we're going to get a low number of responses. So take some time out, you know, a minute or two and fill out that survey. And that, We really appreciate it. But my point is the people's sentiment, feelings about things have been consistently darker, at least an aggregate, than the reality of what's going on. And that's clearly the case in the ISM surveys. But nonetheless, another indicator suggesting, you know, some weakness here. Okay.

Let's, before we call it a podcast, what I thought we would do is kind of consider the labor market from the prism of the job opening labor turnover survey report. This is another monthly survey that BLS does that kind of breaks down what's going on in the labor market and what's driving job growth in terms of hiring, in terms of layoffs and firing in terms of people quitting. There's also good data on unfilled positions. And I thought we take each one of them in turn and just maybe. turn to you, Dante, you can give us the facts and how you think about what they're saying to us

right now. So first up, let's go to unfilled open job position. What's going on there and what do you think it means? Sure. And so openings have been steadily declining now, you know, sort of barring month-to-month volatility for at least the last 18 months. They're just above $8 million in May, which was actually up a little bit from April. If you look at the openings rate, it's actually, you know, finally starting to get sort of within a stone's throw of where we were pre-pandemic, you know, openings had seemed unusually high and have seemed unusually high for quite a long time now, and it feels like we're finally starting to get back to a place where openings seem more realistic.

You know, it's, they're still elevated relatively pre-pandemic in terms of level and rate, but certainly getting, getting a little bit back closer to that level. I think based on rate, we're pretty darn close to. It's getting, yeah, they actually, it's pretty close to like the 2018 rate to the opening actually came in a little bit in 2019, so it depends what you're comparing to. But yeah, I mean, we're getting there compared to where we were a year or two ago

an opening seemed just wildly optimistic about the situation. Right, right. So your interpretation is, you know, we're kind of normalized on... Yeah, I would expect them to continue to come in a little bit here over the next six to 12 months. I don't think we're out a position here

where if they keep falling, we should start to be worried yet. I think we've got a little bit more room to run before I would start to get concerned about the level of open. Okay. Chris, any additional take on that? I was going to ask maybe Dante, what your thoughts are around the so-called phantom job openings, if you still think that that's an issue with or kind of Greenfield type of job openings,

companies that just post an opening to see what's out there, but they don't really have a strong intent to hire anytime soon. Is it still inflating the number? It feels, I mean, it just feels like maybe we've run most. of that out of the system. Maybe that's happening less, just given the level of openings today. I mean, I think my, I wouldn't say I'm not concerned about it. My big concern is obviously the response rate to the Jolt survey is very, very low still. And so I think, you know, in terms of month to month volatility and just, you know, how much you can trust any individual

number, I don't feel great about it. You know, I think we've got to take pretty long averages here to feel good about what things are and where we should expect them to be. But right. Okay. Okay, how about hires? What's going on with hires? I mean, this is obviously the one I think that's caused the most consternation amongst people over the last six or 12 months. I'm not sure that I got it.

By the way, can I just preface this with a few anecdotes? You know, I have me here on New Jersey Beach. I'm with broader family, a lot of cousins and a lot of nephews and nieces, you know, people that are in their kind of 20s and kind of getting going here in their careers and they're starting to switch job you know they naturally switching jobs for different reasons and they're telling me again this is the anecdote sitting around you know after we play spike ball and volleyball and you know run into the ocean and run quickly out because it's pretty cold you know we're sitting there chatting and they're saying it's taking me it's hard I'm having a hard

time uh finding a job I'm applying uh consistently, I'm aggressively going after jobs, but people are not hiring, businesses are not hiring. So that's my anecdotal prism in perspective. I mean, is that borne out in the hiring data? I mean, certainly hiring has slowed dramatically over the last two years, right? I mean, we were at a sort of outsized pace of hiring back in 2022 when businesses were still recovering from the pandemic and still staffing back up again. And so we're clearly well below that. And we're not only below that, but we're back below, you know, sort of what the pre-painting pandemic normal was for hiring, right? The average hiring rate in 2019 was about 3.9%. Now it's at

36. It's been as low as 3.5 here recently. So the pace of hiring is certainly slower than it's recently slower than it was pre-pandemic. But I think part of that is a function of what's going on on the other side of things. You've got layoffs that are still very, very low. You've got the quit rate, which is much lower. So firms to maintain a level of staffing don't have to do much hiring, right? So I think part of that hiring rate is, you know, sort of being controlled by what's going on on the turnover side of things. There just aren't a lot of people that are leaving their jobs either voluntarily or not voluntarily. And so the, you know, sort of baseline level of hiring is, is a little bit low because of that, which can make it hard, you know,

makes it feel like it's hard to get a job for people just because there are many, you know, I think that churn in the labor market is slowing pretty dramatically here. Yeah, Mercer, do you hear those anecdotes too? about the hiring? I don't, I haven't heard the anecdotes, but we, you know, we, we see it in the data and the household survey data, the people that are new entrants and reentrance into the labor force, it looks like it's taking them longer and it's harder to find a job. And that has accounted for the updraft in the unemployment rate over the past few months.

It's not layoffs. What's interesting is if you look at it by industry, you know, you see where, I don't know, Dante, if you've looked at this, if you look at the hires rate by industry, It seems to be more, this is sort of contrary, Mark, to I think, what you're saying, but it seems to be more of like blue-collar industries where that's come down a lot. So you see the hires rate in manufacturing come in a lot. Construction, it's actually held up. You see it in trade, transportation utilities.

We don't see it as professional business services, finance. You see that's held up over the past year. I'm just looking over the past year. So it may well be, you know, day. if you look at a longer time period. But the big ones for job openings and hiring is leisure hospitality and other services. So these industries that had these huge holes to dig out of and where we were seeing a lot of the job growth and a lot of the turnover come a couple years ago. That's where we've really seen it slow down.

Yeah, well, you brought up quits. And it's hard to talk about hires, I guess, without talking about quits. Right. Quits are way down as well. Of course, they surged back a couple, three years ago when we were coming out of the pandemic. And it's hard to disentangle causality here. And that matters, right? Because, Dante, you were kind of intimating the causality goes from less quits to less hires.

And the argument is, well, we saw all these people quit their jobs two, three years ago. They got into new jobs. They're happier with those jobs. They're higher paying. They're better suited to their skills and talent. And if you look at surveys, people do seem to be happier about the jobs that they took. And they're not going to move again for a while or at least a few years. And so we're on the other side of all those.

So the surgeon quits now we're seeing a dearth of quits. And if you don't have quits, that means positions don't open up and you don't have hires. And so if that's the interpretation of what's going on, that feels more sanguine. Like how you sound, you know, you're kind of sanguine. But if it's the causality is working in the other direction, there people are. not hiring because demand is down and they're just more cautious. Businesses are more cautious. And then people see that there's no hiring going on, so therefore they don't quit their

job. So the quits are down. So how do you disentangle all that or can you disentangle all that? I'm not sure that you can. I mean, I think it's almost certainly a mix of both, right? I don't think it's purely running one way or the other. I think there's a little bit of both things happening where, yeah, obviously people feel good about quitting their job when there's lots of open positions and there's lots of good jobs to

switch into, which I think is what we saw happening, you know, two years ago when quits were sky high, people, people were taking advantage of the fact that firms were desperate to hire people. They were willing to give out big pay increases for people that were switching jobs. And so, you know, people jumped on that bandwagon. I think some of that now as people are feeling a little bit less pessimistic or feeling a little bit more pessimistic about the future course of the economy, you don't want to switch jobs now and be low man on the totem pole and a new job when, you know, when layoffs, might come six, nine, 12 months from now. So I think some of it is certainly a, you know, a darker interpretation where people are feeling less optimistic about the labor market and that's causing

that quitting to ratchet down and that's causing, you know, demand for firms in terms of hiring to pull back. But I don't think that's the whole story, right? I think some of it is that positive side still where people are, you know, maybe switch jobs. They're just happier where they are now. They don't feel the need to quit. They sort of got what they wanted a year ago when they made a switch and they're more content, and that's, you know, sort of led firms to have to hire less because they've got a more stable workforce. I think it's a mix of both in my mind.

Although it sounds like you're more on the positive side, the negative side. Yeah, I would say I'm more positive than negative, sure. Yeah, the causality is running mostly from no quits, therefore no hires. Yeah, I would say so. Okay, Chris, do you have a perspective on this, a view on this? Got kind of an oddball question for you. Do you think the promise of automation is having any impact on this?

Or businesses saying, you know what, I'm not going to really aggressively hire here because I believe. That's a negative perspective. Yeah, I'm going to get this AI dividend or automation dividend going forward. I've heard that before. Yeah. That AI dividend. So what are your thoughts, Dante? I know you're a big proponent.

Well, what are you? He's going to say, yeah, maybe, I don't know. I don't doubt that firms feel that way. I'm skeptical of whether or not you get a big enough AI dividend to fill the hole that's left by your lack of hiring. So my feeling is that maybe six, nine, 12 months from now, those firms actually do go back and hire people because they realize they're not getting a big enough pay. So I don't doubt that that's probably factoring into some of hiring decisions right now. I just question the validity of it, right? Do you actually get a big enough payoff from AI in that narrow of a time frame?

that you're going to sort of hold out on hiring, waiting for that to happen. I don't, I don't see it. What are you saying, Chris? Well, no, we actually agree here on the, on the time. I think that the, this idea that the, the payoff is going to be so quick is going to be tested. And I don't think it's going to work itself out. So I am, I'm kind of in Dante's camp. Maybe this is a temporary situation where companies think they're going to get a lot of

productivity gain, what have, what have you. And then maybe you're maybe two years down. road they Oh, but you're, you're saying, you think that the reduction in hiring is in part related to businesses

thinking that they're going to generate all these productivity gains from, in the case, in the specific case of AI, and that's a weakening in demand, so that's a more negative kind of perspective on things. In the short term. In the short term.

Yeah, in the short term. Yeah. And in Wadi, is that Why do you think that's going on? Is that just what's the basis for that view? I think there's a lot of speculation going on, right? You see all the AI companies, the NVIDias and whatnot. There's a lot of investment going on in that space. And if businesses are making those investments, those capital investments, and they're

going to face those budget pressures to cut down on labor, at least initially. And the whole rationale, the business rationale they've given making these investments is that they're going to get some type of productivity gain. So I think that in the short term that were the case. You'd see that in like financial services. You would see it in professional and business services, I guess in information technology. So are those sectors where we've seen even according to Marissa, no, right? Those are sectors where we've not seen hiring down more. I don't, I guess I'm not arguing that they're going to resort to layoffs, but that the

less hiring. The pace of hiring will slow. Right. As a result, or could slow. Okay. Okay. All theory, right. Well, actually, I mean, we probably can investigate a little bit.

Look at hiring rates across industry. look at some measure of AI penetration by industry or where at least theoretically you would, in theory, expect to see AI penetrating and see if there's some relationship there. But that's interesting. Okay, layoffs. Dante, what's going on with layoffs?

Low. Absolutely nothing. Yeah, I mean, it depends what number you're looking at. But if you look at the layoffs number from jolts, I mean, it's been low and rock solid for three years, basically. since really early 2021. I mean, the number, the layoff rate has been basically 1%

you know, up a 10th down a 10th here or there, but it's been rock solid. I mean, if you look at UI claims, obviously there's a lot more noise on a week-to-week basis and you have to decide how much of that is, you know, real and something to worry about and how much is not. As Marissa alluded to earlier, you know, claims

are certainly up over the last six weeks or so. I don't find it to be alarming at this point. You know, last week they were 238, I think. If you look at a 12-week average, which is what I usually look at to get a sort of better sense of the trend, they are up, you know, to about 225. But again, you saw the same thing happened last summer where the 12-week average actually peaked at, I think, 245. You know, weekly claims got up further than that, you know, 250, 255 a couple of times last summer. And then

we saw it sort of come right back down. And it almost feels like you've got this a little bit of a shifting seasonal pattern where you always had a spike in July where claims picked up. Last summer, it looked like it broadened out a little bit. And so it created this big spike in seasonally adjusted claims. And it feels like that same thing's happening again. So I wouldn't be surprised if they keep rising a little bit further here as July moves on. I wouldn't be surprised if we get a week that's 250 or even slightly above that. Again, I think until we see that sort of sustained over the course of six, eight, 12 weeks. It's not something that I'm overly concerned about, especially given all the other data that we have that suggests that layoffs are not moving, right? So in Jolts and the Challenger

report, right, job cut announcements are down over the month, they're down, you know, the first half of this year was lower than the first half of last year. So there's really nothing else outside of claims to suggest that there's been any meaningful uptick in layoffs. Right. Mercer, do you have a different view or are you in tune with that? No, I mean, really, again, if I look across industries, the only real significant place I see layoffs is in real estate related positions within financial services, which makes sense, given the housing market. So it's pretty remarkable when you look across industries. You really don't see much movement at all, you know, anywhere in terms of layoffs over the past year. So the pet theory has been, or the most common narrative has

been why there's no layoffs, why they've been so low, is just labor hoarding, that businesses have been through a difficult, pretty difficult time holding onto their staff and staffing up because of the pandemic. And it goes back even before the pandemic when the labor market goes very tight. And they don't want to be wrong-footed. They don't want to lay off workers. And then discover that they're short again and have to rehire and go through that process and can be very costly. So the bar for laying off here is pretty high because of the kind of labor shortages that businesses have been experiencing now for, you know, since the 2018, 2019, that, you know, that period. Does that, Chris, do you think, does that, does that resonate with

you that argument or is there another argument why layoffs have been so low? It resonates a bit with me, but I'm a little skeptical that the business can maintain that hoarding argument for an extended period of time, right? So I think a lot, I think the demand is real. I think they're... The demand is real. That they are hiring because they need workers today. And they're not just preparing for an eventual down cycle.

Okay. Okay. So, so it's, it, there's nothing special going on here, some unique to the labor market, just that, you know, there's demand for goods and services and businesses need labor to produce those goods and services. Simple as that. And we do have the demographics, right? They're demographic headwinds, retirees. So there's still movement, if you will, right? That was already in play or going to be in play. even before the pandemic, so I think that's part of it. You know, you're very soft. Is he soft? Is Chris soft? You're very soft. A little bit. Yeah. Really? There you go. Much better. Oh, okay. Yeah. Sorry about that. Okay. Dante, what do you think of that narrative about labor hoarding?

Yeah, I mean, I think I'm probably in Chris's camp. I feel like maybe that makes a little bit of sense, but it just feels like that's not a sustainable business model, right? If your demand as a firm, you know, if you can only keep a workforce stable for so long in the face of weakening demand, right? So if there was really, if firms really needed to start laying workers off, it feels unlikely that you'd go two, three years and say, we're just not going to do it because, you know, we don't want to have to hire people back whenever this is over, right? It feels like maybe in a very short window of time, that makes some sense, you know, hey, if I've got this period of softening over a month or two or three, maybe I don't, you know, bring the axe out

quite as quick as I would have a couple years ago and start laying people off, but it feels like you can't just keep holding workers for six, nine, 12 months if your business is going south. So I think it's got to be that firms are still feeling pretty good about the economy. There's actual real demand growth there still, and that's propping up, you know, or keeping layoffs low. It just doesn't feel like that's a sustainable business model over a longer period time. The way I would put it, though, it's more of a threshold for layoffs is higher. Not that if my demand is consistently weak and I think it's going to continue to be weak, that I'm not going to lay off.

I'm not arguing that or I'm not suggesting that that's the narrative. It's just that the bar for actually laying off given some weakening and demand is a lot of. If you've got a lot of folks out there looking for work and demand is soft, you have no, not a problem. You just cut back and I'll hire them back. The wages are going to be low. No problem. you know, and you're going to be the bar for laying off is going to be a lot lower.

If the labor market is very tight and you've had trouble hiring and holding on to people, remember all the quits we were getting a couple three years ago, and your demand starts to soften, you're going to be slower to start laying off. You're going to be more reticent, those threshold for actually laying office higher. As a business person that resonates with me, I buy that. My question is, like, if the economy actually turns south, right, how much does that? that matter that that threshold is a little bit higher? Does it really make a difference at the end of the threshold is higher makes it less likely the economy goes south, right? Because at the end of the day,

it's the layoffs that spook consumers that get, it generates, is the catalyst for that self-reinforcing cycle. So the fact that the threshold is higher, it just makes the economy more resilient, less likely to experience that. That would be the argument. Yeah, I buy that. You buy that. Do you think that the change in the cost structure that businesses are facing since the pandemic plays into this at all? I mean, they're facing presumably lower real estate costs, cost of having to maintain an office. There's still a lot less business travel than there used to be prior to the pandemic. I mean, we know wages are their biggest expense in the service sector, right? But I mean, you have all these other costs that I have to imagine are much lower now than they were five

years ago, and maybe that gives them a bit more wiggle room on the HR side. What do you think about that? Yeah. Well, the way I'd frame that is margins are high. Profit margins are high. Therefore, there's less pressure to immediately respond to some weakening in demand, right? Especially because the other thing that's happened is businesses, at least an aggregate, have locked in the previously record lower interest rates. The interest payments on their debt have not really, at least according to B, E.A, economic analysis, there isn't all that much. Again, in aggregate, you know, there's lots going on in the distribution, but in aggregate. So you don't see the same kind of financial pressure to cut. If your margins are paper thin, you know, you're just a little bit

above break-even and demand weekends. You go into, you know, DefCon 1 pretty immediately as a business person, and you're cutting. You've got to get generate, and the fastest way to reduce your your expenses is to cut your payroll, right? You just don't have to pay people wages. But if your margins are wide and you're making a lot of money, then you're much more, you're just going to be slower to do that, but it's less likely to do that.

So yeah, I think that's a, I think that's a reasonable argument as well. I think there's a good argument, you know, what's going on. Chris, do you buy into that one?

I do, to some extent. I guess I just don't see, any evidence of labor hoarding on the economics team at Moody's. Well, we've been lean and mean since the beginning of time, Chris. Come on. Can't use us. That's my point.

I don't think it's been any change here. Yeah. All right. Fair enough. Fair enough. Okay. So we kind of add it all up. We kind of end where we started, right?

I mean, labor market's okay, doing pretty well, throttling back, but, you know, so far by, that's by design to cool things off and get inflation down and allow the Fed to normalize interest rates. We're pretty close to all that. But the ultimate worry is that, you know, this thing takes on a life of its own to slow down and kind of gets self-reinforcing. We can start to, this pickup we're seeing an initial claims for unemployment insurance actually signals something more fundamental. It's not just seasonal adjustment issues. and, you know, we see the plane, land, or crash into the ship, as Chris would say. But, but okay. Anything before we call this a podcast?

Anything else we want to bring up? Anything else? Marissa, anything? I have a couple things, I'll just say. I mean, one is that the three-month moving average of private sector job growth is now the lowest it's been in almost three and a half years. So we're at 146K in the private sector, right? So it's quite a change from where we've been. So 146 is probably fine.

I mean, I think it's reasonable to expect that we need more jobs, maybe than we used to, just given what we know about population growth and immigration, so we probably need a higher level of job growth to sustain a steady unemployment rate. The other thing I wanted to mention, actually, just to go back to the temp help, I was thinking that a few years ago when we got the UAW contract negotiations, there were provisions in that that kind of allowed for temp workers to become permanent workers.

And the auto industry is one of the industries that tends to use temp help a lot. And there were some changes there in those contracts that converted a lot of temp workers into permanent workers over time. So that may be something that's going on in manufacturing. And then finally, just keep your eye on talking about recession indicators. We talked about the ISM. We talked about the inverted yield curve. The SOM rule, Claudia Somm's rule, that if the three-month moving average of the unemployment rate rises by half a percentage point or more from a 12-month low, that that

has almost always signaled the start of a recession. We're just a tenth of a point under that. So we just need one 10th uptick in the three-month moving average of the unemployment rate to reach that half a percentage point threshold. And our forecast, our monthly forecast that we put together has that happening with the July jobs report. That's a moving target, right? Because that low in a 12-month period is also going to start to drift higher here because we were at a low point basically 12 months ago. So unless you get a, right, a big increase next month, I don't think we'll actually cross that. I mean, it's splitting hairs, really.

I mean, the only rate's up, you know, half a percent over the last 12 months. That's, but I don't know, does it matter if we actually cross the threshold or not? I don't know. That rule, I mean, the intuition behind it is kind of sort of what we were talking about. Right. Things start to take on a life on their own. You get to that threshold. So unemployment rises.

Consumers grow more cautious. they start to pull back a bit on their spending. Businesses see the demand weekend, they get past a threshold, and they say, oh, I got to cut workers. They start cutting workers, more layoffs, and you get into the kind of self-reinforcing cycle. So that measure, the intuition behind it is a kind of a signal that you're getting into that dark, vicious cycle kicking in called a recession. And historically, that has worked, you know, well in predicting it. And I worry about that, too. I've been the optimist, but I, you know, I have.

I mean, I was the guy that said no recession, but I'm getting nervous. I'm getting a little nervous. And again, I look at it through the prism of the Federal Reserve. These guys, it's time to cut interest rates. Time to cut interest rates. Let's get going. And this whole idea about inflation of being above target, really? Are you kidding me?

The harmonized inflation rate is below target. I mean, our colleague Matt Collier, Matt Collier, I'll get that. Matt sent around his estimate of harmonized, excluding owner's equivalent rent, a PC, consumer expenditure deflator. I think year over year is 1.7 on the top line, and it's 1.5 on core,

excluding food and energy, kind of get to the underlying inflation. So really? Come on. Let's get going here. I mean, you don't have to cut 50 basis points or 100, but cut a quarter point. Let's move on.

Let's start to take some pressure off the economy. We're there. We're there already. I'll make some room for you on the couch, Mark. I know. I'm there now. I'm with you. Pretty upset. Pretty soon I'm going to kick you guys off the cats because I'm a full-time help here. He needs it all to himself. Yeah. Come on. That meeting is next week or the week after next? The week after next. Week after, yeah. TPI is next week, right? Yeah. All right. All right, guys. We're going to call us a podcast. unless, by the way, those were really good insights,

Marissa, I'm glad I asked. But we're going to call this a podcast. And with that, dear listener, we'll talk to you next week. Take care now.