Moody's Talks - Inside Economics - Jobs and Jogging in Boston

Episode Date: September 2, 2022

Two colleagues and regulars on Inside Economics, Marisa DiNatale and Dante DeAntonio, join Mark, Cris, and Ryan to breakdown the August U.S. Employment Report and what it means for the Federal Reserve. Due to a bad wifi connection, Mark is forced to participate all episode by cell phone.Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis @MiddleWayEcon for additional insight.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. And today is Jobs Day for the month of August 2022. And we've got our normal crew here of Moody's Analytics economists. We got my co-host, Ryan Sweet and Chris DeReedies. Hi, guys. Mark. Where are you? Good to see you. I am in Boston. I'm moving my daughter into an apartment. And she's starting graduate school on, well, next week sometime after Labor Day. So, and right now my wife and daughter, well, let's not even go there.

A lot of stuff going on here. Well, I guess, anyway. Wait, are you going to a Red Sox game? Oh, you know what? I didn't even think about that. I mean, I'm like literally just around the corner from Fenway Park. I could go there and boo, you know. I can do that.

Where is she going to school, Mark? he's going to Boston you. She's getting a master's in bioinformatics, which is kind of interesting. Yeah. That's his alma mater. Yep. Oh, it is. You know, here's the weirdest thing.

I had never run along the Charles River, never. I've always wanted to do that. Yeah. And I did it yesterday. A gorgeous day here in Boston and ran along the Charles River. really had a lot of fun. So, about my age, though, really. All these young women passed in right by me.

I'm going, what the hell? I can't even hang. Oh, they are in college, Mark. I know, but still, you know. Anyway, and I see Ryan's back. Oh, by the way, it's Marissa. Marissa, Dean of Talley. Good to have you on.

You're one of the key contributors to Jobs Friday. and I should just to round it all out, introduce Dante, Dante De Antonio, De Antonio, sorry, Dante. Good to see you. I see you, Mark. Very good. And we got Ryan back. Ryan was away for two weeks at the beach,

and you definitely looked like you were on the beach, Ryan. Probably looks like he had a great time. There we had a wonderful time. I'm jealous. Dante's still down there. Oh, is that right? Is that right? Yeah.

Where are you done? I know. Ocean City, New Jersey. It was right down the street from Ryan. Guys see each other on the beach, make sand castles together and that kind of stuff. Yeah, our kids were playing together. Yeah. Oh, really? Your kids were playing together.

Oh, yeah. You'll see the expense report come through. Yeah, we were having a meeting on the beach. All is fair. I, you know, I get you guys work all the time. So that's definitely fair. anyway. Okay, jobs Friday. Well, I'm really curious what people think. So we'll dive right in. I've got a view, but I won't tell you what that is until you give us a sense of the lay of the land here.

So, Ryan, I think you volunteered to give us your first take on the report. What's your view on the numbers? All right. So overall, the economy created 315,000 jobs on net between July and August, a little bit better than what we and the consensus anticipated, but it's a step down from what we've seen over the last few months, trend-wise. So basically, the takeaway is the Fed is getting what they want. They want job growth to slow. They want wage growth to slow, which we saw with average hourly earnings. They want the labor force to increase, which it did. And the reason the unemployment rate, increase from 3.5% to 3.7% is that we got a pretty good increase in the labor force participation rate. My favorite indicator, the prime age employment to population ratio went from 80 to 80.3%. So that's another good indication. So all in all, I think it was a really good report. I mean, there's not a lot to, you know, a lot of blemishes. I mean, people may point to the unemployment rate, but it rose for the right reason. More people came into the labor force. And if you look at the labor force flows data, the number of people that are going from out of the labor force to

unemployed increased. So people are coming back in. I think that's a good indication. But I guess, you know, if you have to dig and, you know, try to nitpick, you know, the duration of unemployment increased. So there was more people that were unemployed, you know, five to 12 weeks or 27 weeks and over. But again, that's kind of what the Fed wants. They want the labor demand to soften and that's going to keep people unemployed for a little bit longer. But getting back to that $315,000, you know, the breadth of job growth was still very, very strong. So all in all, I think it was a pretty good report. Yeah, let me ask you, and maybe this is not the best thing to do right immediately, but getting down into the DNA of the numbers, August tends to be a soft month.

Right. I mean, if you look historically, the BLS generally comes out with a number for August that looks a little on the soft side. In fact, I can remember I think it was coming out of a financial crisis. And we were all, you know, waiting for the job numbers to improve. And they had been improving. And then I think it was August of 2011, maybe, or 2010. It was August of 2010. We came in with the zero, actually zero jobs in that month.

and everyone went into panic mode. But it just feels like every August we get surprised on the downside. And, you know, why is that? And it didn't really seem to happen this month. Or maybe it did. Maybe the numbers were actually stronger. I'm not sure. That's a great point.

I mean, the thing I was going to point out is that over the last five years, the average revision between the government's first estimate and the third estimate. So just to be clear, our first. look at employment, that number gets revised. So we know it's wrong. It's going to get revised a second time and a third time and then eventually with the benchmark revisions. But that average revision between the first estimate and the third estimate for just August over the last five years is a positive 120,000. So odds are job growth this August is stronger than the 315,000 that we got to see today. But August is always quirky. Usually it's safe to take the under on August employment.

because of a low response rate. And I checked in the response rate this August was actually the lowest since I think 2006. So it was a pretty low response rate. We were also going from a July reference period that had five weeks between them to one that only had four. And usually when that happens, it biases job growth lower because you pull some of the jobs that would have been added in August into July. But so I think bottom line, I think, you know, if my gut, is that you're going to see upper revisions to August over the next couple of months. Hopefully that offsets some of the downward revisions that we saw to the prior two months,

which were $107,000. Great. And anything else you want to bring up before we get the rest of the gang's perspective on the numbers? I think we should everybody else chime in. Okay. Okay. Lots to digest. So, Dante, you want to go next?

Does I want to fill any gaps there in the job numbers? I think, you know, Ryan mentioned participation. I think labor supply is the biggest, you know, positive news out of the report, right? I mean, that had been the thing that we've been sort of waiting for it to improve over the last six months that have been just sort of, you know, hanging there, not really doing a whole lot in a positive way. And so we got a big increase in participation rates, you know, across lots of different demographic groups. You know, it certainly looks like people are, you know, coming back into the labor force more strongly than they had been over the last, you know, at least six months. And that should make the Fed feel better, right? That'll take some of the pressure off of wages, hopefully in the near term,

you know, satisfy some of that outstanding labor demand. So I think that, you know, the increases in labor supply and participation are, you know, the biggest positive. I mean, the one thing to add to Dante's comment is that what's driving job growth from a month to month basis is labor supply. The labor demand, we saw on the job openings, a labor turnover survey is still really, really strong. I don't know how the exact number. is Dante, it's more than 11 million or Mercedes. It's 11 million job openings, right? 11.3, right?

11.2, 11.3? Right. And it's been there for a year, basically. The labor demand has a change. It's strong and it's been strong. Yeah. So supply is the big issue. It actually improved in this.

Yeah. Yeah. In July. Yeah. Well, let me ask you a question on the labor supply since we're on it. If you look at the growth in the labor force, so that's, work that's a working age population times labor force participation and so labor force can be affected by both and and they both are lifting labor force growth so if you look at year over year

um well over three million people were added to the labor force so you divide by 12 you know that's not quite 300,000 per month but that would be consistent you know if we were able to maintain that rate of labor force, that would be consistent with 300K in jobs and employment. So it feels like labor force has really come on here quite significantly. And that obviously is very important. I would agree. It's probably a function of a few things, you know, inflation, because, you know, that's adding a lot to everyone's monthly costs to purchase the same goods and services this year as they did last year. And within inflation, gasoline prices. I think the past increases may have pulled more people back in. Right, because they, they just don't have the income. The sort of lower

income households just don't have the income to pay their gas, fill their gas tank and pay their rent and everything else. So they need to come, come back to work. That's what you're suggesting. Right. In the establishment survey, because there's two surveys of employment, the establishment in the household. In the establishment, you can have double counting. So Dante and I are double counted. So we are employed at Moody's, but we also work at a university. We teach economics. So we're counted twice in the establishment survey. So there could be some multiple job holders in the establishment survey.

Oh, yeah, and you've never thought about that, right? Yeah. You're kind of sort of moonlighting. Dante more so than I am. Oh, is that right? Dante's teaching like two or three classes. Two, two now. Yeah.

Is that right? I had no idea. Well, we certainly need, we need good professors at university. So it's good that you're doing that way. We also need Dante in the office. He leaves at like 4 o'clock on, you know, Monday, Wednesday, and Friday. Hey, you're just making stuff up. Aren't you his boss, right?

That is true. Yes. This is the annual review. Yeah, this is it right here. Yeah. Exactly. Okay. So Dante, from your perspective, any blemishes? I mean, Ryan had to go pretty deep to find the blummish. What was your blemish again? I can't remember. Oh, duration of unemployed. That's going pretty down there to find a blemish. What about you, Dante? Any? Yeah, I mean, mine's pretty nitpicky too, I think. You have the diffusion index. So, you know, looking at how broad job growth was was the lowest that's been since January 2021. And the second lowest since the second lowest since. the pandemic started. It's still over 62. So 62% of industries adding to jobs. But it's definitely

weakened over the last few months. And so it signals that job growth is not quite as broad as it's been recently. Right. Okay. Okay. But that's still pressing pretty hard to find a blumish too, right? Wouldn't you say? Yeah. Agreed. Yeah. Okay. All right. Next up, Marissa, what do you think? what's your sense of the report? I think it's good. I think I don't, yeah, I don't really see blemishes in it. You know, I think the increase in the labor force participation rate was quite large compared to, you know, what we've seen over the past year or so.

I was looking at the unemployment flows data, too. It seems like that is a, you know, a big part of the up. and unemployment is just people coming into the labor force, coming back into the labor force, more specifically, to look for work. And a lot of those people found jobs, too. I mean, actually, the people coming out of the, from out of the labor force directly into a job was quite large as well. It just looks a little softer, you know, the downward revisions, I guess, to the June and July data make everything look a touch softer. But, Again, this is kind of what we've wanted.

I mean, a gain of over 300,000 by normal standards is still quite a large month-on-month employment gain, right? We've gotten used to half a million jobs a month. But, yeah, I mean, the breadth of job growth, as Dante said, the diffusion index is down a little bit. But when you look at the detail across industries, it's hard to find anything that looks really weak. So I think it's good. I can't really find anything bad in it. Yeah.

We're concerning. Yeah, the flows data is pretty interesting. So you're able to see folks exactly what their status is currently with regard to the labor market and compare that to the last month. And you're saying that if you look at that data that we're seeing a lot of people that who weren't in the labor force at all, last month in the month of July are coming back, came back in the labor force in the month of August, and those folks who did, many of them went right to jobs. They didn't go to unemployed. They went right to jobs. That's right. I mean, one interesting thing, again, if we have to nitpick and find something negative, is the number of people that stayed unemployed over the month

rose. And that's consistent with what somebody said. I don't remember if it was Dante or Ryan that the duration of unemployment has ticked up a little bit. People seem to be staying unemployed for a little bit longer. So that does suggest maybe some, you know, just a little bit more friction in the labor market, which again is what we want, what the Fed wants. So it's all good. It's just a touch softer, which I don't think is a bad thing. Right, right.

Okay, good. So really, you had a nipick, too, to find a blemish. Yeah. Yeah. Yeah. Okay. Chris, same with you. Same kind of assessment as the rest of the gang.

Yeah, you have to go deep, right, to find anything that's really concerning. So if you look at some of the demographic cuts, right, you can find some blemishes, but they're not major. And that data does tend to be more volatile once you start to cut. So if you look at, for example, less than high school educated. individuals, their participation rate did fall a bit this month. But again, things move around there or black men and women, same thing. So maybe something you put on your radar stream, but not something that screams that there's necessarily a problem right now. I think my biggest

observation may be just what Ryan said early on is that August data tends to be quirky. So I don't know that we want to read too much into anything, right? Things can may very well get revised. So I want to take this data certainly with a grain of salts. Overall, I think it's a good report, but, you know, pay attention and be aware that things might change. We saw that June got revised down by what 100,000. So there's potential here for things to move around as well. Yeah, okay.

Okay. Let me, sorry. Sorry. Yeah. Okay, so it's hard to disagree with anything you guys said. It felt like a great report. I'd say just a great report. I mean, job growth is moderating, but that's descript.

Clearly need job growth to continue to moderate. And we'll come back to that in a minute of when we start discussing what this all means for the conduct of monetary policy and what the Fed has in mind. But, you know, certainly moving in the right direction there. And maybe I'll just, before I go on, just ask, maybe you, Ryan, what do you think underlying job growth is? When I say underlying, abstracting from the vagaries of the data, abstracting from these measurement issues that we, you know, we get caught up in all every month. you know, what do you think fundamentally job growth, monthly job growth is right now? I close to 400. Really?

Wow. I'd say lower. 350 to 400. I'd say lower. Hmm. I don't know about that. What would you say, Chris? What would you say, Chris?

I was thinking the 250 to 300 range. Yeah. What the current trend is or what is sustainable? current trend we're close to 350 to 400. If you look at jobless claims, that would argue that that 350 to 400. Yeah, I think, I think, you know, yeah, that's true. That's true. I think if you look at like the six month average of monthly job growth, which is kind of

sort of what I look at to get the underlying trend, feels like it's closer to 300K than 350. But okay, we're splitting here. So let's just say in the. 300,000 range. I don't know. Or maybe to settle it. Dante, Marissa, do you have a view on kind of the underlying monthly job trend?

I think I'm more in Ryan's camp and I am yours, Mark. Yep. Okay. You think it's higher. Let's turn to Marissa. Yeah, I would say about 200. Hopefully she agrees with you. Yeah, I think it's more like 300K.

I mean, again, if you look at jobless claims, they're really. They're really low, right? And even they fell last week and they're kind of hovering in a very, very low range, which suggests there isn't there isn't job destruction really going on. I mean, over the last three months, the three months moving out of just $378,000. And we know August is going to get revised. August is going to get revised. So I think, yeah, I mean, three, 400. I don't know where Chris's pessimism came from. He said 250. I'm banking on some revisions here in the other direction. Can you actually, maybe, could you, Ryan, explain why August is weird? Is it the back-to-school seasonal stuff?

Or why is it always off in August? Yeah, so you have a bunch of quirks. You have, like you mentioned, the timing of when school years start across the country. Some start, you know, mid-August, late August, some start in September. And that can change from year to year. Typically, August has a low response rate. So the share of, you know, establishments that are surveyed that actually respond is pretty low. And that's mainly because of vacations and people forget.

Those are the key. And it's just these seasonal adjustment issues with timely layoffs around the summer, you know, because August peak summer season, except for Dante and I, you know, that's the peak. And, you know, you start to see layoffs and things like that. but the timing can get thrown off from from you to year. So there's always some little quirks with August. Some of it I can't explain. Just didn't get a number out there, given my sense of the distribution of responses to that question,

let's say 350. 350K is kind of underlying monthly job growth. And just for context, and correct me if I'm wrong and I'm sure you will, If you go back, say, towards the beginning of this year, it was pretty clear the underlying rate of monthly job growth was north of 500K. Would you agree with that? Okay. So we've gone from 500K plus to, say, 350.

And taking this one step further, what is, let's call it break-even employment growth? You know, what monthly job growth would be consistent with stable unemployment? and Brian, I'll go back to you first. Do you have a view on that? Oh, this is a ball. I think I just, no, no, I was thinking. I thought I calculated this recently. I think it's closer to 150 to 200.

Really? It's that high. So that's population. You're saying population growth, right? That's the other one. That's the number you're talking. Maybe that's the break, because I did both.

I did break-even job. maybe it's closer to 100, 100 to 150. Yeah, I mean, the simple rule, so I use is labor force growth of 1%, let's say, and that's probably on the high side of what you can expect. So the labor force is 165 million. One percent of that's 1.65 million. So, you know, you divide by 12. I guess that's, you know, it's in the ballpark of 100, 100.

50k somewhere in there. That would be, that would be consistent with that. Yeah. Okay. Okay. So, so, so we were at 500k plus. We're now at 350k and to get to something consistent with stable unemployment, it'd have to be something 100 to 150K. Everyone kind of agree with that. Okay. All right. Okay. Okay. Just to, you know, complete the assessment of the August jobs numbers, you know, I, as I said, I agree with everything folks said. I guess no one, I don't think anyone mentioned this, but the one blemish I saw was the decline in average weekly hours. They declined in the month by 0.1, which, you know, not a lot and that bounces around a lot. But, you know, that's, that I guess is, you know, is, if you had to find a bummish, that would be the blemish. And maybe did anyone mention wage growth?

Ryan, as you mentioned wage growth? I mean, wage growth, I guess, is also kind of sort of a blummish in that, you know, it's moderating. It feels like it's moderating, but it's still well north of 5% year over year, which that would not. 5.2% year over year. 5.2, yeah. So that would not be consistent with the Fed's inflation target, right? It's slower growth, though. Well, actually, I don't know.

I mean, if you look at it, as wage growth as measured by average hourly earnings, which is what comes from this jobs report, that's been hanging between 5 and 5.5% since last fall. It really quite stable. The growth rate's been quite stable. So I guess good news that it's not accelerating, if you're looking at this from the of what it means for inflation, but bad news in that, a blemish in that it's not moderating more significantly. Yeah, I'd agree.

Yeah, okay. Yeah, but other than that, I thought it was pretty good news. And here's the other kind of thing I'd say, I mean, broadly speaking, from a labor perspective, I mean, this is Labor Day weekend coming up here and just, you know, doing an assessment of the labor market more broadly. It, you know, it's good, right? I mean, we've recovered all the jobs we lost during the pandemic recession and then some. Unemployment is low back, you know, pretty close to pre-pandemic levels.

Employment, the population, another measure of the slack in labor market is back to consistent with full employment. you know, everything feels like from a labor market perspective, you know, pretty good if you're doing a broad assessment. Would anyone disagree with that kind of perspective? No. No, we just need more labor supply. Yeah, but yeah, you're right. Although on that front, if we're going to get more labor supply, it feels like it's got to come from working age populations, which means, immigration, right? I mean,

labor force participation is down from pre-pandemic, but that would have been expected even if there was no pandemic, right, because of aging out of the workforce by the baby boom generation. Yeah, okay. All right,

let's, before we turn to the question of what this all means for monetary policy and the Fed, why don't we play the game, the statistics game? Is that okay with everybody? We went on board. Sounds good I don't know who I'm going to go to first Wait Chris you have a Calvo

Do you need a Cal bow? Always All right I don't have my Cal Bell Unfortunately I'll let you guys Leave the way You can't leave home without it

Actually I've got a couple now Actually I've got a couple now One in the office one at home So I'm prepared Okay so the game We each put forward a statistic The rest of the group tries to figure that out through questions and clues and deductive reasoning. The best statistic is one where it's not too easy, so we all get it quickly, one that's not too hard where we never get it,

and one that's apropos to the topic at hand or recent release. So, okay, who wants to go first? Marissa, why don't you go first? Sure. Okay. 10.1%. Brian, why are you laughing? Because I know what the first question Mark's going to ask is if the sign is correct.

But when you go with 10.1%, I think we're saved. Is the sign correct? Yes. Did it come out today? What did you say 10.1%. And this is a statistic that I derived out of today's employment report. Okay. So it doesn't appear as 10.1% in the report.

Because I want to make it a little challenging. You might have stole my number. Is it a change? I didn't steal anything from you. No, it's a proportion of something. Yeah. Does it have to do with unemployment duration? No.

No. It's not remote work related, no. Did you have to use the household survey or the establishment server? The establishment survey. It's from the establishment survey. 10.1% it's a ratio of something to something is in the establishment survey

hmm this is good this is a good one are you looking at like the share of job creation by a certain industry mm-hmm okay all right now we can just start

get us guess in go down the list of leisure and hospitality Yes, yes, that's what it is. Ever probably. That's right. So it's the proportion of the change in private sector employment made up by leisure hospitality last month. That was 10.1 percent.

And that's the lowest that it's been. I mean, this has been around almost a third of jobs, right, on average since the start of the pandemic, each month has come from leisure hospitality. So this is the lowest it's been in quite some time, since the first. end of 2020. Well, that's a good one. And the reason I picked it is because this has been such a contributor to job growth through this entire recovery, right?

And it still added a lot of jobs last month. It was over 30,000 jobs on net, but that isn't even statistically significant in the establishment survey. And that's really kind of the first time since. the labor market has gotten going after the pandemic that leisure hospitality kind of contributed a much lower than average share than it has been. So, you know, kind of going back to the diffusion index and the breadth of job growth and the labor supply question, this was one of the, this was maybe the poster child industry, right, for an industry that was hurting

from a lack of labor and a lack of labor supply. Apparently, the people that entered the labor force last month didn't necessarily take leisure hospitality jobs. But, you know, this is kind of been the juggernaut of job growth through the pandemic. So it'll be interesting to see if this is just kind of a one month thing because we know this is seasonal, right? Especially what Ryan was saying, the end of the summer and kind of summer type jobs coming off. But it's, I think it bears watching. And leisure hospitality is still the employer. level is still below pre-pendemic.

That's right. It's one of the only industries where that's the case still in the private sector, yeah. So do you think this is the beginning of a slowdown or do you think a quirk? Are we going to see a continuation of these? I don't know, right? Because I do think that unless we see sustained continued increases in the participation rate, then it could be a slowdown. I mean, eventually this industry's going to, with the unemployment rate so low, going to start running out of people to hire and with job openings so high.

So we got a nice bump in the participation rate last month. So we just have to see if that's sustained. And if it is, then, you know, perhaps it can keep going at the rate it has been. But at some point, this is going to slow just because labor supply has been drawn down so much. Yeah, just from my own parochial perspective, I hope they're not stopped. They're not finished hiring in the leisure and hospitality industry. Every hotel I go to, you know, there's an issue like understaffed. Well, I won't even go there.

Yeah. Yeah. Oh, yeah. And I feel so bad for the staff, right? Because you can tell they're really scrambling. And I'm actually at a hotel now that people are great, but you can just tell they're stretched or, you know, running to do the valet. They're running this over here, doing that over there. And, you know, they're doing their best they can.

that feels pretty pretty like they're pretty stretched it's going to be more uh self-service mark yeah you got to uh yeah yeah your own bed yeah there's yeah make your own bad right that's already you know obviously happening to some degree right um but uh anyway okay so that was good i was a good Marissa, very good. And I shouldn't sound too surprised. You always come up with good statistics. You're a maven. Not as good as Ryan, but you're very good at this.

Okay, Dante, you're up. What's your statistic? 77.2%. No, it's going with percent. All right. Yeah, yeah. Is this? Came out today?

It came out today. Yes. Did you have to derive this? I did not derive this. As reported. Is it an employment population ratio of a particular group? It does not, no. Did it go back to your diffusion indices?

No, it is a household survey, which I don't usually dive into, but it's household survey. Interesting. A participation rate? It is a participation rate. For a cohort? For a cohort, yes. All right, I'm just asking. So that would be people between the ages of 35 and 44.

I got it. Chris got us. This was one of my backups. I thought you Googled it. Labor, no. No hands on the keyboard. 35 to 54-year-old women, neighbor force participation. That's right.

Prime-age women. It eclipsed its pre-pandemic high, and it's actually the second highest reading ever. It's just shy of its high all time. Wow. That's a good one. Well, here, this is something that we've talked about in the past, and that is the pandemic seemed to hit women harder than men, in part because they work industries that got hit hard during the pandemic.

You know, healthcare and educational services and retailing and leisure and hospitality. But it feels like, I'm not quite me if I'm wrong, but it feels like by all these statistics, women have made it all the way back and then some, that there's no real distinction between how men and women have done since the pandemic hit. Is that fair? Yeah, I think early on, right, it was the industry issue, was also the, you know, child care school issue early on. a pandemic and that, you know, has mostly subsided at this point.

And, you know, now if you look at participation for prime age men, it's been pretty flat to doing nothing. It's still below. It's pre-pandemic level. And women are now back above. So it's a good sign. And this is from my mind's eyes. I may have it wrong, but I think I'm right.

I think women, female unemployment is now lower than male unemployment. Does anyone know if I'm right or wrong? I think I saw that in the report. No? I don't know for sure. Take a look. Yeah. Okay.

Yeah. Marissa, do you have a sense of that? I mean, would you say that women have made it, that their labor market status is no different than men at this point, you know, that they've fully recovered from the pandemic to the degree that men have? Yeah. I mean, I think the recovery has been stronger among women than it has been among men, but that's also because they got hit harder, right? So kind of like everything during. during the pandemic, the things that went down the fastest have kind of come up the fastest. And I think we started to see that last summer when kids started going back to school and

normal school years started returning to in-person learning. And vaccinations were widespread. So you had people start traveling again and getting out there. So you had a lot of the industries that women had been laid off and start to come roaring back. So yeah, and you're right. The unemployment rate for women is now below the unemployment. below men. Right.

They got that right. It's 3.5% for women, 3.8% for men. Is that the first time since the pandemic hit? That's been the case? Then the female unemployment rate has been below the male? No, no. No? No.

Okay. Okay. Here's the other thing. Dante, remember all that work we did early on measuring labor force participation by different demographic? And we looked at the participation rate, of parents, young parents, male and female. And I, correct me if I'm wrong, but I think this goes to the point about childcare. We found that the male participation rate of young parents fell just as much as we're pretty

close to that of women. Am I wrong or right? As I recall, that was the case. I think it was more even than I think a lot of the, you know, sort of popular narrative was that it wasn't quite as a disparate outcome as you might think. But I think when I haven't updated that data in a while, but I think last I had looked, you know, female mothers had recovered pretty strongly. You know, they had gotten hit pretty hard, but they'd recovered pretty strongly as of probably six months ago, the last time I looked at it. which signaled that, you know, I think a lot of the educational child care impact had, you know, gotten much better as of earlier this year compared to, you know, 2021, certainly. Wasn't the timing of that also a bit different? Like, I think if I recall, I might be off Dante, but initially when the pandemic started, it was more women. It was more mothers that left the labor force or stayed home. And then you saw that sort of a delayed effect that had.

happened either, it was either much later in 2020 or even 2021 where you started to see fathers leaving the labor force more, almost as if there was like a switch or tradeoff. I think that's right. I think the immediate impact in April and May of 2020 was a much bigger impact to women. And then that recovered a bit and then men started to come down a little bit sort of later on. So yeah, it might have been some sort of switching effect or, you know, something else is going on there. Yeah. Okay. Okay. Hey, Chris, you're up. What are statistic? 48%.

And that comes from the job numbers, I assume? Nope. Okay. Housing? Okay, this is you fixing it up. It's not housing. Not housing. It is jobs related.

It's a jolts. Oh, I think I know what it is. All right. I think I know what it is. It comes from the ISN man manufacturing survey. No. Employment? Nope.

Are we going conference board? Yes. The labor market differential was 38, right? That's correct. You are correct. So that's not my number. It's very closely related to that number, though. It's one of the components.

So you're saying this is from the conference board survey of consumer competence, and they ask a lot of questions. So many of them labor market oriented. And this is coming from one of those questions. Yes. What that they ask? And right. You didn't derive it.

What's that? It's the share of the thing. jobs are plentiful. You said it's a component of the differential. Yeah. Correct. That's right. That's right. I'll give you a half. I'll let you two share at Cowbell. Well, I'm still in the dust here. Catch me up. So what was that number? So 48% of respondents indicated that jobs are plentiful. Oh, that's lower, lower than it's been. Yeah. And that's been trending down. That's down. Yeah. It was 55% at the start of the year. that's been going down throughout there, which I found interesting because we also had the Joltz number come out this week, which, as we mentioned earlier, actually ticked up, or 11.2 million job openings, right? And it's been high all year. It isn't as though it's been falling. But the perception, at least, from consumers is that jobs aren't quite as plantable as they may have been before.

Yeah, Joltz being job opening labor turnover survey, another BLS survey that's lagged the month that breaks things down in terms of job openings, hires, separations, layoffs, that kind of thing. Right. Okay, well, that's interesting. The one thing I did notice in the open positions in the Joltz numbers, the number of open, but you mentioned that actually increased in the month of July, the last data point. Yeah. And I don't know if anyone else noticed it, but a large part of that increase was in financial services. It just felt weird that that would be the case, right? Given all the layoffs going on in the mortgage industry, it just didn't feel right to me.

So it felt like a data quirk. And I, you know, you might be asking why focus on that number? Because, and the answer is because the Fed is looking at those job opening numbers as a gauge as to whether the labor market is easing up and up to get wage growth down to something more consistent with their inflation targets. And the children went in the wrong direction. I think everyone, including us, was expecting the number of open decisions declined. It actually rose.

But it look weird. Would you agree, Ryan, when you looked at the data? Yeah, okay. All right. Okay, that was a good one. Mixed up a little bit. Ryan, what's your statistic? 0.2% month over month.

And like Marissa, I had to drive it. Yeah. So it's a growth rate, a month-on-month growth rate in something? Was it out of the jobs report? It is correct. It's an important number, but it's hard. Mark, you've looked at it.

Chris, Marissa, Dante, you've all looked at it at some point. Oh, interesting. And it's a month-to-month growth rate. Correct. Out of the household or employment survey? Implements, right. Oh, really? He had to stop.

Yeah, I had to think for a second. Yeah. I'll come off two weeks of vacation. All right. Yeah, but still. Yeah. Is it something to do with earnings? Is it?

Earnings is part of it? Part of it. You said it was derived. Yeah, you have to. calculate it. You have to calculate it. It's not coming out of the report. You have to construct it. It's a growth rate in average hourly earnings of something. Am I right? Well, I'll give you a hint. Yes. You use average hour. average hour earnings is part. That's one. Then you need the second part. Oh, real real growth or something? No.

I'll give you a hint. I'll give you a hint. It provides some light into the discrepancy between GDP and GDI. Okay. GDP gross domestic product, GDI, gross domestic income, both conceptually measuring the same thing, but GDI is on the income side of the account, GDP on the expenditure side. So personal income. you're getting there you're working yourself

Are you taking like employment and hourly earnings and coming up with like total total wages or something In one month? You're getting very very close on thing Yeah that's what it is Mark's gonna kick himself Because he's already over so far today It's like something to do with unit labor costs or You guys are so close all right all right

This is like this is like the proxy for labor income Very good Wages salary Yeah. It's the labor income proxy. It's average hour earnings times. Employment. Hours worked. Or work week, excuse me, the work week. Okay. So this closely tracks historically personal income for wages and salaries that feeds into GDI. So if you look at the growth in this proxy versus what actual personal income in wages and salaries is doing, would argue that the data that's going into GDI is being grossly overstated.

So before we were thinking the revisions were going to be GDP closer to GDI, but it looks like it's going to be the other way around. I'll send you the chart. It is, it's pretty compelling. Oh, no. I don't want to hear that at all. Yeah, I know you didn't want to hear that. So you're saying that if I,

if you take this proxy, if you take this proxy for for wage and salary income, and you map that against GD. gross domestic income GDI, it looks like the GDI is overstated, you know, compared to historical norms in that relationship. Yeah, I didn't go proxy to GDI. I went proxy to the input or the source data that goes into GDI, which is personally income from wages and salaries.

And they usually line up. I mean, they're always not perfect, but they're pretty darn close. And over the last couple of years, this proxy and the source data have really diverged. So interesting. Yeah, can you send that to me? I'm really curious about that. I'm going to write it up for the site today and I'll send you the chart. Yeah, very good.

Okay. So what would GDI go down to? I got to calculate that. I got to calculate that. Question number two, yeah. I'm going to figure out what the revision would be. But right now it looks like the gap is 4% to 5%. Can I just say there's only a handful people on the planet probably understand

what the heck we're talking about. I mean, yeah, we just lost half of it. Yeah, yeah. So just to make it concrete and clear, as everyone knows, GDP has declined in the last couple of quarters and set off this whole debate about,

are we in recession or not? And one argument against the idea that we are in recession is gross domestic income growth has been much stronger GDI. And that goes back to the conceptually measuring the same thing, output of all the things that we produce, but looking at different source data, And we've been thinking that the GDP number is going to be revised higher. But here, Ryan, is suggesting, based on this other data from the employment report,

that maybe no GDI will revise lower. But having said that, you know, historically, the best measure of where the economy is and where things ultimately will land in the data after all revision is an average of the GDP and the GDI. So it feels likely that GDP might be revised up, GDI might be revised down. You just meet in the middle. You meet in the middle, which, by the way, meeting in the middle would be zero, you know, at least in the first half of this year. There's no growth, you know, no growth in GDP.

But if you've noticed that the Fed has been putting greater emphasis on GDI. I had not noticed that. They are opening. Yeah, in the minutes, they have mentioned gross domestic income numerous times. Of course, the GDI would, well, I was going to say it's more consistent with the employment numbers, but now you're telling me, no, it's not, really? Okay, send me the graph. I don't show you the graph. Yeah. Gras don't lie.

Yeah, that's right, until they do. They get revised. Okay. Well, they get revised, yeah. Yeah, okay, well, let's, let's, I'm not going to give my number because it's all, you took every single one of my numbers in this conference. I feel very inadequate, but we've done enough of the game. We've got to move on. So let's talk about what all this means for the Fed in monetary policy. And Ryan, I've been going back to you first because you're away for a couple of these podcasts. So I'm putting the onus on you. What does this all mean for monetary policy? How is the Fed looking at this report? And what does it mean for the conduct of policy going forward? I think as we discussed earlier, this is what the Fed wants. I mean, they're seeing exactly what they were hoping for.

But the August employment report, I don't think, you know, shifts the Fed either towards a 50 basis point rate hike in September or a 75 basis point rate hike. I think we're still, both are on the table. And what's going to make or break or ultimately factor into what the Fed Act will do will be the August consumer price index that we get in a couple of weeks. So a lot of Fed officials have said the labor market data is not going to change their opinion. It's the inflation data. They downplayed the July consumer price index and the personal consumption expenditure deflator, basically two ways of measuring the prices that you and I are paying. But August should look really good.

We should get a decline in the consumer price index. So a number of regional Fed presidents have said, you know, if we get, you know, another good data point on consumer prices that may justify going from 75 down to 50. So I don't think August employment port changes anything. I think it's still up in the air. And that's what financial markets are saying. They're pricing in 60, 65 basis points of tightening in September. So they're kind of on the fence between 50 and 75. And did that change with today's numbers at all? A little bit like, you know, a small really. No. Okay. I mean, at the end of the day, though, the Fed does want to see job growth continue to

throttle back here, right? They want to get back to that break-even. job number we were talking about earlier consistent with stable unemployment and we agree that that's 100 to 150K somewhere in there. That's where they, at the very minimum, we got to get there. Right. Yeah. Do you think they would actually want to see it go below that? You know, something closer to zero for a while?

Yeah, to help get inflation to ensure that inflation gets back down. So basically, you know, their checklist is, all right, let's slow GDP growth, which they can check that off, slow job growth, which. they're in the process. I mean, they still have more work to do. Then they want wage growth to slow, and that ultimately will feed into inflation down the road. I mean, there's lags between each of these steps. So that's why, you know, the Fed's got to be careful not to go too slow or too fast. It's a very, very narrow path to what we call a soft landing where the Fed achieves their objective of return, keeping the economy at full employment and returning inflation back to 2%.

Hey, Mercer, do you have anything to add on into this conversation on? on what this job number means for monetary policy, the conduct of policy? I think Powell was pretty hawkish, right, and kind of said, we're going to, we have to go hard and we can't let up. And I don't think this changes anything. This is still a strong jobs report. And I agree, CPI is probably top of mind for them. But I mean, even if we get an expected slowdown in CPI, I don't know that that necessarily. means, they don't go 75 basis points. I think they're worried about being behind the curve here.

And the odds are they go harder. Yeah, so what would, I mean, given all the data we've gotten and what we're going to get before the September meeting when they decide 50 or 75 basis points, and everyone knows the CPI is going to be soft. I mean, we're going to get an all likely to negative CPI number because of the decline in gasoline prices and oil prices. What would it take for the Fed to do 50 then? I mean, all these numbers we've gotten and they're getting would suggest 50, you know, what would it take for them to go 50 and not 75?

I don't think there's any economic data besides the CPI. Maybe UMIS, but I think they got enough flack for. over emphasizing that the first time that they're going to downplay that, it would be financial market conditions. If they continue to ease or improve, then I think the Fed, it's guaranteed they're going to go 75. But if they continue to, if they tighten and tighten enough, then maybe the Fed says, all right, job growth is slow. We're moving in the right direction. Inflation is moving in the right direction. Financial market conditions are back to where we wanted them to be because, you know, they've improved since, you know, the Fed said that, you know, we have conditions where we want them to be.

So I think that's watching financial markets is important. Yeah. Okay. The idea being that the link between what the Fed does and the economy runs through financial markets and financial conditions, stock prices, credit spreads in the bond market, mortgage rates, values, the dollar, those kinds of things. And you're saying, depending on how markets respond and react, will go a long way to determining whether they feel like they need to go 50 basis or 75.

If financial conditions look tighter, meaning stock prices are down, credit spreads are wider, that makes it more likely that they'll just go 50. But if the stock market is looking better, credit spreads are coming in, the values of dollars coming down, mortgage rates are coming down, then more likely they go 75. So they're going to calibrate 50, 75 based on those financial conditions, which, again, is the link between what they're doing and what is happening to the economy. me. Exactly.

Yeah. Okay. Chris, what do you think? This all means the jobs number means for monetary policy. Did we get it right? Are we missing anything? I think he got it right. I think I agree with Ryan's assessment here from the employment report today.

I think they probably focus more on the wage component there. I mean, the employment is, yeah, it's kind of where they want it to be. maybe even a little too strong relative to what they ideally would want, but certainly within the range. I think that 5.2% wage growth is still too high for them. So that certainly would that would favor more of the 75 basis point approach. But I think Ryan's right. It's really about at this point, given what's left in terms of the data reporting before the meeting, it's more about financial markets and maybe expectations more broadly.

that's going to drive their 50 versus 75 decision. Based on what we have today, I think, personally, I think they're going to favor the 75 still. Really? Why? Yeah. I think it. So you can look at this labor report in kind of two ways. I can say, oh, well, and it's right in the middle, right? It's right in that Goli Locks position there. And you can say, oh, well, the labor market is still strong enough. I'm not really breaking the economy, I can afford to go a bit harder or be hawkish here early on just to really nail down the expectations, right? That's my interpretation. And still, given that the wage growth is still

too high, too hot for what they're, what they would like, why not err on that more aggressive side at this point? Yeah, I guess. Yeah, I guess the other thing I throw out there that maybe they're on would be inflation expectations. Yeah. And I think you're right, Chris, at the moment, that would favor 75 over 50, because even after all that hawkish talk coming out of Jackson Hole, Powell's speech and subsequent speeches by other Fed Bank presidents, they feel a little on the high side to me. I mean, if you look at one year, five year forward, that's inflation.

This is coming out of the bond market, you know, tips, treasury inflation, protection, protect securities, inflation swaps. it's inflation a year from now in the subsequent five-year period, which I think we've talked in the past is at least my favorite measure of expectations when it comes to trying to assess policy, monetary policy. I look today, it's a 2.7 percent. That's consumer price inflation. So that's obviously high, right? The top end of the Fed's target is probably two and a half on CPI, consumer price inflation. So, you know, despite it all, despite all that hawkish talk, it feels like it's still on the high side. So, since you're right, that might be the case. Dante, any perspective on this, any disagreements with what we're saying in terms of what it means for policy, monetary policy? Yeah, I think I probably side a little bit more with Chris.

I think, you know, the jolt's data popping up in July, even if it is a little bit quirky, certainly is probably unsettling that, you know, labor demand doesn't look like it's really come in much at all. And then on wage growth, I think the one, you know, the ECI is old at this point, but the last print you have from the ECI was actually an acceleration in growth in the second quarter, which, you know, obviously is unsettling to them, you know, and they won't have the third quarter data yet. So, yeah, I think the labor demand issue, you know, even though job growth seems like it's slowing, I think there's still enough signals out there that the job market is strong and running hotter than they want that, you know, could easily push them to 75, unless there's a, you know, much bigger than expected decline in CPI. I think that's the only thing they might save that. Yeah, ECI being the employment cost index, which is probably the broadest and most consistent measure of wage growth. It's just lag. We only have data through Q2 of 2022. But as you're pointing out, that was a little disquieting on the wage front, continued strong acceleration.

Okay. And I think, Ryan, correct me if I'm wrong, but I think in our baseline outlook, we do have 50 basis points at the September meeting and then two more quarter point rate high. and the terminal rates are kind of where the Fed ultimately lands is 3.5%. And they keep the fund rate target there through the spring of 24. Is that right? Do I have that right? That's our current baseline. But I think we're going to make a decision this weekend if we're going 75 in September

or 50. Yeah. Okay. Well, we'll talk about that. Hey, very quickly, because I've got a jump, what's the probability of recession? So I'm going to go around the horn here and get your sense of it over the next to 12, 18 months. And Merced, what's your

assessment of the probability of recession over the next year or so? 49%. Okay. Fair enough. I get a decimal point. Down from 50 last month. Ooh, that's progress.

Very good. And your reason it came down the basis point? I don't know. I just think the The day, yeah, my mood. I don't, I'm less concerned about, things seem to be heading in the right direction. I mean, yeah, the job market is, is still too hot and the Fed could put the kibosh on all of this. And that seems the most likely kind of path we go down if we do get a recession. But I don't know, external to that, I think things look pretty good. Okay, very good. And Dante, your probability, Really?

Bruce actually stole my answer. I would say just under 50%. I think I was probably 55% last month, and it's come down a little bit. I think we're on the right side of 50-50 now. Oh, cool. Very cool. So can we say 49?

49 works, yeah. Okay, good. Chris is definitely going to be higher than that. Oh, yeah. I'm sticking with 60. This doesn't... 60. 60.

No change. No change. Yeah. Yep. And Ryan? I'm down, I'm down closer to Chris now. I was at 65,

but now I'm 60. Ah, now that is fascinating. That's even though we had a Volker moment with Powell. I think, you know, they're, I think they might,

they have a better chance to pull it. I don't think they're going to pull it off, but I think they have a little bit of a better chance now. Well, that's measurably better because you were like at 65, weren't you? I was.

You came from 65, yeah, you're 65, 60, Chris is holding is a number at 60. I'm still at 45%. I think I was a little higher than that. I think I was at 49, 50, you know, maybe a few weeks ago, but I'm back down to 45. So it feels like we're moving kind of in the more optimistic direction.

It's hard to say we're optimistic, but moving in the right direction. All right. Well, very good. Well, let's say that we'll save those probabilities for posterity. and we'll come back to them and reevaluate next week. But anything else to add, guys, before we call it a podcast? Any other burning issues? I hope not because I've got to go.

Oh, yeah, happy Labor Day. Happy Labor Day, everybody. And we will talk to you next week. So with that, we'll say goodbye. Thank you, everyone.