Moody's Talks - Inside Economics - Jobs and More Jobs

Episode Date: June 4, 2021

Dante DeAntonio, Senior Economist at Moody's Analytics, joins Mark Zandi to discuss the May U.S. employment report and the state of the labor market. 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.

Hello, and welcome to Inside Economics. I'm Mark Sandy. I'm the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues today. First, Ryan Sweet, head of real-time economics. It's good to have you, Ryan. And we're going to spend a lot of time with you today, I suspect, because today is Jobs Day,

and we've got a big jobs report, and I know you're dug deep into that. So we'll come back to that in just a second. And then Chris Deerey's Deputy Chief Economist, and always good for a few jokes. So we'll see how that goes today. We'll count on those. And then we also have Dante Di Antonio.

Dante, how long have you been with us? How long have you worked at Moody's Analytics? My five-year anniversary is this weekend. Oh, my goodness, five years. Now, do you get a, does Moody give you anything for a five-year anniversary? Oh, you have a certificate. I think you got to make it to 10. Yeah.

Did you guys get, you got your tenure, right? I mean, you got an email saying, congratulations, 10 year anniversary. Go to this website, pick out what you want. Do you guys remember what you picked out? Would you pick out, Chris? I got a toaster. Oh. One of those.

How did that work out for you? It's still going. So, you know. Okay. Very good. Positive. And Ryan, what did you get? I think I got a set of kitchen knives.

Now, that's a good choice. I'd say that's a good choice. They were nice. They worked. Yeah. I got a bike. You got a bike. Wow.

Yeah. It didn't work. It really didn't work. That could be me. So, wait, Rudy didn't buy you, but they didn't buy you the Peloton. No, no, no, not the Peloton. No, no, no, not the Pelot. No, no, wait. It wasn't 10 years. It was my 20-year anniversary, right? Because when I sold the company to Moody's, I was grandfathered in as an employee. So I was already a 15-year-long employee when we signed on with Moody's. And so at my 20th, I think I got a 30th, but I can't even remember what that prize was or what that gift was. But I know for my 20th, it was like a bike, well before Peloton.

And it's still next to my pile of time. I'm not kidding. Yeah. So Dante, I'm sorry. I guess there's no five-year gift. Otherwise, you know by now. Sorry about this phone. We'll let this pass.

Sorry. This is just, you know, the way it goes. This is live radio. Unvarnished. Unvarnished podcast. So, Dante, you came to us from Bureau of Labor Statistics. Is that correct? I worked there first and then I went to grad school and then I came here.

Oh, I didn't know that. So you, out of undergrad, you went to BLS. How long were you at BLS? About two years. You know, Dante, you are lagging. Your connection is pretty bad, I think. So I don't know. If you got anything open, I'd close it, see if that helps.

And then you went to grad school. Where did you go to grad school? Lehigh. Oh, Lehigh. Lehigh. Oh, very good. And did you do a thesis on labor market conditions? Because you were...

My dissertation was actually in sports economics. No way. Really? Yeah. Labor market implications are. It was three parts, valuations of college basketball players, the impact of holdouts on NFL contract negotiations. and the impact of sports arenas on local labor markets.

Oh, all three of those are pretty interesting topics. I mean, in your first essay on, it was college basketball, did you, like, determine what the market value was of college ball players? Was that part of it? Yeah, we tried to estimate the marginal revenue product, basically, of college basketball players and worked out to be, on average, something like $200,000, which, you know, there's, a huge disparity in distribution where, you know, superstar players at big programs are probably

worth, you know, five, ten, twenty times that much. And then your average bench player at, you know, a run of the mill school is worth almost nothing to the university. So what were the highest valued players worth, roughly? Uh, in excess of a million dollars a year. And that was back, well, now five, six, seven, eight years ago. So, yeah, I don't know if that's. Yeah, that data was late two thousands, yeah. Late two thousands. Yeah. Yeah, right. Well, good. Well, thank you for joining because you are now doing a lot of work in labor market on labor market issues. And, of course, this is, again, jobs day. So we're going to be spending a fair amount of time on the labor market. And I just want to call out that you and I have worked on a number of papers. And our most recent papers coming out soon, coming soon, is on racial inequality, racial, bias and its macroeconomic consequences. And you've done some really good empirical work there that we're writing about and we're going to publish in the next week or two. So stay tuned for that.

So thank you for that. Okay. As the listener of this podcast knows, there's three parts to it. Part one is the data. We're going to talk a bit about what happened in the past week, maybe what's going to happened in the coming week. Talk about our favorite statistics and jobs will be number one. Second, the big topic. And well, you know, it's jobs day. We're going to talk about jobs. And some of the lot of questions surrounding the labor market, a lot of odd things going on. So we'll talk about that. And then finally, I'll bring it all together at the end. So let's start off. Ryan, what's your statistic of the week? What's your data point? I'm going to give you guys an underhanded softball.

Underhanded softball. Okay. Because last week you gave me a lot of grief as opposed to an overhanded softball, an underhanded softball. No, there is no such thing as an overhand softball. Yeah, we need to sit down. Right. That's baseball.

That's baseball. That's baseball. I'm so confused. Okay. Why you're confused? I'll give you the number. number, 77.1%. 77.1%.

Your clue is, it's in the employment report, and it's a very important indicator of gauging where we are. Oh, is that the E-pop for prime age workers? Correct. Ah, E-pop being, what's E-pop? I'm going to tell everyone what E-Pop is? That was just the prime-age employment of population ratio. Yeah, right.

And why is that, why do you think that's such an important statistic? Well, I mean, throughout the last expansion, that did the best job of showing how much slack or the lack thereof in the labor market was throughout the business cycle. So just like we are now, we're hearing lots of, you know, anecdotes, you know, in the page book, the ISM survey that there's labor shortages, but there aren't labor shortages. It's just a very difficult hiring environment. There's a lot of people that are between 25 and 54, which is the prime age. that are sitting on the sidelines for various reasons.

We'll probably dig a lot deeper into. But at least historically, once you get to 80%, that's a good threshold. That's when we're at full employment. Anytime you're below it, there's still some slack in the labor market. And why we want to look at full employment is, you know, once we hit that, that's when we start to develop a lot of inflationary pressures. And that's when the Fed will start getting worried that this transitory inflation will turn us

on worse. Right. And as I recall, E-pop for prime age workers, 25 to 54 years old hit. It's low back in April of last year at 70%. So it was a little bit above 80 coming into the pandemic. It fell 10 percentage points. And as you point out, we're now back to 77.1%. So that means we're three percentage points away from that full employment threshold.

Correct. Okay. And if everything kind of sticks to script in terms of job growth, participation, everything, when do you think E-pop will be approaching or rising over that at 80% threshold? I can't believe I'm going to say this, but it's close to when you're expecting it. So end of next year, early 2023. Exactly. That's exactly right. It hurts to say. This is what happens when I give you an underhanded softball. Yeah, I swing and I hit it.

Yeah, you hit it. Yeah, yeah. So, yeah, that's the way I, and I think that you're absolutely right about E-pop. I think that's probably, if I had to pick one kind of measure of the state of where we are in the business cycle and the labor market conditions and how close we are to full employment, it would be E-pop. But the other way to think about it is in terms of job growth, right? So we got 500. Oh, by the way, you do deserve accolades, right? Because your expectation for the number for today was 600K, I believe, right?

And it came in at 559. So that's great, very, very close. And the consensus was 673. 673. And the range was around 250 to 1 million. Right. right so right so anyway great job and you always do a great job on the you're one of the best in the world if not i i think i actually think you are the best it will you know you ultimately

everyone will recognize this but i i recognize it first you are the very best at doing this so and you did a great job with today's number but the way i kind of the other way of kind of thinking about getting back to full employment is also in terms of of employment you know getting all those 7.6 million jobs were still down from the pre-pandemic level back. And then some, because of course, the labor force continues to grow and you need to absorb those workers and participation. And if you look at job growth, average monthly job growth, including May in the past several months, it's about 500K per month. So if you say, okay, that's what I think it's going to continue to do more or less going forward. That means we'll get those 7.6 million jobs back.

and then some by the end of 2022. And another way of thinking about it is 500K a month, that's probably enough to get the unemployment rate moving down, the 10th percentage point every month or two. Again, if you do the arithmetic, we're at 5.8, we'll get below four closer to three and a half by late 2022. So another way of thinking about this. So let me ask you this, Ryan.

Was there anything in the report that really, it felt like it was a kind of, down the fairway using another sports metaphor kind of report. Was there anything in the report that you found surprising? I mean, when I first looked at, you know, where the forecast was wrong, it was in retail and there was a big drop in grocery stores. And I just couldn't figure out, you know, I think it was down more than 20,000. It just seems odd.

You know, I know, I know, I just seemed a little bit fluky that you saw a drop there. Well, you know what? Yeah, second month. Last month was even larger. I didn't look at the revision, but it was down 50 or 60,000, I think, last month. But don't you just describe that to people going out? Yeah, I think so. A few of groceries, right.

But the other thing that was surprising was motor vehicle and parts manufacturing. That was up more than 20,000. You know, with all the semiconductor or the chip problems and lack of production and mean new car. inventory. I think this is a tentative good sign that we might start to get more production, even though, you know, the supply chain issues aren't resolved, but hopefully we'll be able to, you know, pick up production soon. Yeah. Hey, let me, before I ask Dante about his statistic, and I'm sure it's one on the jobs numbers too, is 600K, was there some secret sauce, something that you can tell us about, you know, what you're doing that got you closer?

than consensus. And by the way, again, just so everyone knows, you do this consistently. You beat the consensus perspective and you get closer to the actual employment and other statistics. You get very, very close. So in this case, was there something that you did that got you closer than the consensus? Well, I don't want to give away, like how the sausage is just me, But there's a couple things that have been working really well recently. And I'm sticking with that. So this model has worked really well. Get you in the ballpark.

And then, of course, like there's some, you know, intricacies to each month that you got to factor in. Off the podcast, I'll give you a clue. As long as you promise not to go on CNBC or CNN and be like, this is, you know, this is the new golden ticket. Oh, that's a tough one. I don't know. Okay, I promise. I'll do that. I won't tell anybody. I'm good at secrets.

Are you putting more weight on claims, right? Less, less weight. Less weight. So it's still like versus. Yeah, versus pre-pandemic. Yeah, I put a lot less weight on claims. And I guess a lot less weight on ADP too, right? Because that was on the hot side. And by the way, Dante puts together that ADP number. So you approve it, though. Yeah, yeah. Yeah. Well, I have no choice. You tell me I have to approve it. When that number came out, I emailed Dante and I was like, speechless. I was like, what is that?

I was like, there's no way we're getting close to a million. One month down the road, we're going to get close to a million. Just it wasn't going to be in May. Well, I don't know. I mean, Dante, what do you say about that? The ADP, for everyone who doesn't know, is a human resource company has clients that account for about the same size of the job market that the BLS surveys every month. So it's a very large look into the labor market. And I mean, looking at the numbers, it was strong. There was no sign of

any softness or weakness in that report. And again, it came in just south of a million. And that's private sector. It doesn't include government. Government was up pretty solidly in the month, according to BLS. So, Dante, did you see anything in the ADP number that indicated any kind of weakness to you? I didn't see it. I think to Ryan's point about claims, I think we're giving claims a little more weight now than we should be in the model. I see.

And to be fair, pre-pandemic, I put a lot of emphasis in ADP. It was helpful. I just think now the way, I mean, claims was, you know, in probably everybody's, you know, employment model. And, you know, those that are, you know, still wedded to that or, you know, getting larger forecast errors, I think. Yeah, although even if you look at the, what we call the pure ADP, you know, does not, it's not, it's not, doesn't go through the model. It's not affected by anything other than taking the ADP data and making sure that we could, you know, it lines up to BLS in terms of industry weighting and the company size weighting. That was also strong. I mean, it's really strong.

no sign of any weakness. Like the declining construction jobs, that did not show up in ADP at all. And that's, you know, ADP covers that pretty well. So that's, that was surprising to me. My gut is that once we get all the revisions,

it won't close the gap between PLS and ADP, but it will make it look much less glaring. Yeah. Actually, I want to come back to that because I have a theory. I want to pass by you guys. See what you think. So,

so Dante, what's your statistic? You have one, right? You were prepared. You came prepared, didn't you? I had, I had three just in case. You are invited on this podcast.

It is, like, you know, an honor to be on this podcast. So, okay. I had three just in case somebody stole one. So I was prepared. You're prepared. Okay, very good. $431,000. Oh, that's easy.

I got that one. Oh, is that, is that, don't tell me, is that private sector employment game? Nope. No, it's not. Oh, okay. Chris, do you know? What is it again? $431,000.

I got it. This is a good one. I was going to pick this one, but then I knew you guys were going to scream at me that this is too much in the weeds. No, no. I think this was the most positive thing in the report. All right, go ahead, Chris. Oh, wait, wait, don't say.

Don't tell. I get another thing. The increase in household. No, I couldn't know. Household employment. No, that's not right. I give up. What is it?

I'll give the guess. It's the decline in the long-term unemployed. Exactly. That's right. Okay, very good. It's by far the largest decline since the pandemic. It's only the second decline, I think at all, since the pandemic started, and by far the largest. That's interesting.

And give us context. How many long-term unemployed are there and where does it stand relative to pre-pandemic, that kind of thing? Sure. That decline brought it to $3.8 million, which is still, you know, much, well elevated pre-pandemic was about one and a quarter. Okay, so we're still, well, we're still up, uh, one point, no, no, wait, two point, up four million. Yeah, about two and a half million around there.

And is that, when you say long-term unemployed, that's not quite consistent with permanently unemployed, but they're probably very closely related. Right. Long-term unemployed is unemployed for more than 26 weeks. Right. Right. Okay. Okay. That's a good, hey, that was a really, good one, Dante. I thought that was great. I don't know what Ryan's talking about, you know. No, I said that was a good number. It was probably the most important one in their whole report. Yeah. Yeah. So one question, I have my opinion, but the number of states started, you know, in early May saying that they were going to end the expanded UI benefits starting in June and July. Uh-huh. Could that have contributed to the drop? I don't think so. I think that's going to be in June and July, but I,

Those announcements actually were kind of after the survey week, too, I think. I think the first one was May 6th, and then they started trickling out. I mean, it's really close to the reference week. Yeah, maybe, maybe. I don't think it did. Yeah, too close. Too early. Yeah, I mean, you've got to be really paying attention.

Chris, what's your statistic? So that was actually mine, so I'll give you another one. Oh, so you came on. Unprepared is what you're saying. That was my best one. No, no, I'll give him the other one is 5.4. He shows up late. Yeah.

5.4%. 5.4%. 5. 5.4%. It's quarter and quarter seasonally adjusted annual rate. Ryan knows it. Dante should know this. I don't know.

Danty knows that productivity growth? Yeah, exactly. Very good. Okay. There you go. Productivity growth. That was, so that's, that's pretty strong. strong. That's about a strong. That's quite strong. Yeah. Yeah. I mean about as strong as it gets or is it stronger than that? I mean, in his historical. In coming out of recessions, after the great

recession was a bit stronger. I can't remember how high it got. But that's, you know, that's to be expected. So given where we are, I do think it's strong and I think it points to a potential for some extended faster productivity growth. And that's, you know, given the demographic discussion we had a couple weeks ago. It's critical for our long run economic growth story. Yeah, that's a good one. Hey, would you guys mind if I, if I gave you a couple of statistics that aren't related to the labor market just to mix it up a little bit because we're going to come back to the labor market. Okay. And I'm guessing you wouldn't, you'll know these two pretty quickly, but I thought they were, they came out this week and I thought they're very important.

First is 13%. What is 13%. What is 13%. What's? statistic is 13%. Oh, house price growth. Yeah, house price course. Core logic house price growth. And did you look at that release carefully? Chris, do you want to talk about that at all? I mean, so what you saw on that report? It feels like a, you know, a year ago. I don't remember much more than the 13% year of a year. Right. Well, do you remember which states had the highest rates of house price growth over the past year? In this garage? Idaho. Yep. 20% Arizona, South Dakota, of course, small state, but kind of 20% growth rates. Obviously, you can't sustain that for very long.

That's really boom-like kind of house price growth and goes to our podcast last week. And here's one more. I'm going to give you one more. And this is important, I think also 2.25%. 2.25% And if you're a careful reader of economic view, and I know Dante is,

because you are managing economic view now, aren't you, Dante? I'm slowly trying to wrestle some of it away from Ryan. Yeah. Oh, yeah. Ryan has been running that since the beginning of time, and he's slowly handing that off of Dante. So, okay.

Slow. But you guys, so both of you guys are very careful consumers of that website in all the releases. So what is 2.25%? No, really? It's not inflation expectations, is it? Yes, it is.

It is inflation expectations. And that's pretty high, actually, and it's moving up pretty fast. Now, it's moved up quickly, most recently, because of consumer surveys. The University of Michigan survey asks one year ahead and five year ahead inflation expectations, and both have moved up. And I think, Ryan, you pointed out that, that tends to be more transitory. It's related to gas prices and food prices.

Yeah, what's happening right now. So that may not be, you might not place as much weight on that. But also the survey professional economists, which we belong to, that has also pushed up and all of that combined. Because that inflation expectations measure that I'm pointing to is a combination of a range of inflation expectation measures. And 2.25%, this is core consumer expenditure deflater inflation. That's at the high end of the range, you would think that they would, would tolerate the Fed would tolerate. The Fed wants it to be a little bit above two, but much above two and a quarter percent,

I think that would be, they must be getting a little, they might get a little uncomfortable with that, I would think. Do you think so as well? Yeah, I would agree. You would agree. But if you look like, I mean, we factor in market-based expectations as well, but the market seems to be buying into the Fed's narrative that this is going to be transitory. Five-year, five-year-forward.

You know, the gap between the CPI and PC deflator is spot on 2%. I mean, it seems like that's what they're buying into now, but we'll see if that holds up. Yeah, very good. And remember, we each of us identified one statistic that we were going to call out every single week, let people know what it is and give them a little bit of context. Ryan, what was your statistic that you want to mention? The 10-year treasure yield. Yeah.

And so where do we stand on that? By the way, with regard to 10-year treasury yield, that was down today, right? Right. So how do you interpret that? I think we're in this period where I don't want to say the May employment report was bad news, but when you get data that comes in a little bit weaker than the consensus, not significantly but just weak enough where markets know, all right, the Fed's not going to claim this is, you know, further substantial improvement in the economy and, you know, are moving closer to

tapering or raising the Fed funds rate. So data just below the consensus is actually, you know, likely going to be perceived as doveish by the bond market. Got it. So the 10 year yield, I think, ended today at 1.55. Was it 1.55? I thought it was. I thought it was off five or six basis points. And that's a pretty big move in one day for the bond market. So it looks like bond investors and did, in fact, interpret the jobs number as rubbish.

That, you know, it's not enough job growth to really cause the Fed to change its path for future normalization. Yeah, because it seems like the bond market is getting a little nervous that, you know, this tapering announcement could come sooner, you know, as early as, you know, the Jackson Hole synopsis in August. I think the Fed's going to wait until to make that announcement until a little bit later. But every data point that comes in, next week we get the CPI. I mean, that's going to be really, really important in assessing when the Fed's going to taper.

But I mean, if you look through the ups and downs in the tenure, it's been moving sideways or it's been very range bound for, you know, several weeks now. Yeah. And Chris, what was your statistic that you call out? UI claims weekly. Yeah. What were they? 3805,000 yesterday.

So an improvement. I think it was 405 the week before. So moving in the right direction. And good is what? What is good? 250, 300. Yep. It's pretty good.

So we're 385 moving south, but we got a long way to go before it's at a place that you'd feel, hey, this is a good economy. You're right. We're in a good place. Okay. Dante, do you have a statistic that you follow on a regular basis that we should be following? just to give you a sense of where things are or where they're headed.

You don't have to have one. I just was curious. You know, you probably have secrets like Ryan. Ryan holds out on me. He doesn't give me, you know, you see what he says?

He said, I'll tell you afterwards and then he disappears very quickly after the podcast is over. And you're here. I don't hear from them. So you have any, you're going to tell us what your secret sauce is

or do you have any suggestions on what we should be looking at? No secret. I think like Chris, I mean, claims, I think on a weekly basis is the most important thing that I watch. Okay. All right, very good. And the statistic I called out was copper prices. And they, I think I looked later today. It was like $4 and 55 a pound. And as you may recall, anything over $4, that's consistent with a very strong economy,

global economy with significant inflationary pressures. So, that, and that hasn't come down to any appreciable degree. It's leveled off over the last few weeks, but so it's not rising, which is a good thing, but it still remains very, very elevated. Okay, that's the statistic. Anything else on the statistics you want to say real fast before we move on to the big topic and we'd go deep into the labor market? No. What about oil at 70? Does that concern you? In what way, Chris? Inflationary pressures, you mean? Yeah. Is it indicative or is it? Or, uh, our consumer is going to start reacting to higher gas prices?

Well, I think that does contribute to the higher inflationary expectations, but I don't, I'm not overly concerned about it because there's still a surfeit of oil out there globally. Just for giving you a sense of the numbers, before the pandemic, we were globally consuming and producing just about 100 million barrels a day of oil on the nose. when the pandemic hit, demand obviously got crushed. We got down to 90 million barrels of oil, a day of oil demand. Of course, OPEC cut back. The production in the fracking fields here in the U.S. and North America got pulled back

because it was no longer economic. And that supply caught up with the collapse in demand, and prices kind of stabilized. And demand is now picking up, and supply is a little bit slow to, pick up, although OPEC has started to increase production, and I think this last week decided to increase production again. So I expect supply to pick up here and meet demand, and I don't, I don't expect oil prices go much higher than this. If they did, if they started to spike for whatever reason, in the context of everything else going on, that might be somewhat disconcerting. But at this point, no, $70 is on the high side of fair value, on high side of equilibrium, but, you know,

not that outside the band of what's a reasonable price, I think. Do you think the economy's, you know, cushioned a little bit more from rising oil prices and prices at the pump than it was, you know, pre-pandemic? I mean, our sensitivity to oil prices is diminished over a long period of time. But I remember what's our rule of thumb? Every penny change in retail gasoline prices pre-pandemic

reduced consumer spending by 1.1, 1.2 billion over the course of the week. year. Yeah, that's right. We have all this excess savings. So I think maybe we could be less concerned about, you know, the price of the pump on the demand side. I mean, like for economic activity, but inflation, that's going to be the Fed's bigger concern. And of course, the other development that was even pre-pandemic is the United States is a, is a, on net is no longer a net consumer of oil. It's kind of a wash. We produce, we, here in the U.S., of that 100 million barrels a day of oil global demand. We're 10 million barrels in a typical economy, and we produce

about 10 million barrels. So it means much less to us now from a macro perspective. But we should have a podcast on oil. That would be a good one, actually, because we've got a lot of, I think, interesting things to say there and some good people, maybe bring in climate change as an issue as well. That would be a good thing. But let's turn to the big topic, and that's the job market. And, of course, the, a lot of kind of odd things going on in the labor market. The thing that's, you know, most odd is that we've got a record number of open job positions. This is data from the Bureau of Labor Statistics Joltz survey, job opening labor turnover survey. I think it's a little bit lagged. I think the last data point is still for the month of March. We're going to get April

next week, I think. We got up to eight million open positions, record high. But at the same time, we have this very high level of unemployment and underemployment, you know, the 5.8% unemployment rate, I think we're over 10% on the U6, which is the underemployment rate. So, so Dante, how do you square that circle? How can we have, you know, all these record number of open positions and at the same time have all these unemployed? What's going on fundamentally?

And here, I want you to do it this way. I want you to begin with the single most important reason, and then we're going to go down to, because I'm guessing there are more than one reason here, but I don't want you to lead with your weakest argument. I'm going to lead with your strongest argument. And we'll go one by one here. So what's at the top of the list of reasons?

I think it's still, you know, there's a lot more friction in the labor market today, given the turmoil over the last year, than we would normally think coming out of a recession. You know, there's more scarring, there's more damage. What does that mean, scarring damage? Concretely, what are you talking about?

We've got health care issues. We've got child care issues. We've got a lot more reasons why people are hesitant to rejoin the labor market than they would be in a normal recovery. You know, things that would normally be happening in recovery, you know, just be people trying to find jobs. Now it's not just, should I find a job? It's, do I have to take care of my kids?

Do I have to take care of my elderly parents who are sick? Am I worried about getting sick myself? I'm just a lot more concerns today than there are in a normal recovery. Yeah. So, I mean, the way I would frame it, I'm curious, I think I'm saying the same thing you are, but let me just say it and you tell me if you would, you think about it, this is consistent with the way you're thinking about it, that, hey, this economy came to life very quickly.

The economy reopened. I mean, think back six, eight weeks ago, there were still big parts of the economy, particularly obviously in the northeast and on the west coast, not so much in other parts of the country, but broadly the economy was still dormant. You had big parts of the economy that just weren't open or, you know, if there were businesses, they were open, they were operating at half capacity or quarter capacity. It really hasn't been until very recently, probably, again, not for the last six, eight weeks, that all of a sudden it was, we felt like vaccinations,

had succeeded well enough that we could open up to significant enough degree. So everything took off. Demand took off. And every employer out there that survived the pandemic put up a help wanted sign, proverbially speaking, at the same time. And it just takes some time for people who haven't been working, not on a job, particularly those that have permanently lost their previous job. or as you point out, having to stay at home to take care of kids or parents or the people who are sick,

to get their lives in order to a point where they can just take a job. It's just doesn't happen in a day. It doesn't happen in a week. It doesn't even happen in a month. People got to figure this out. And that's the process that we're in the middle of it. That's how I kind of think about it in the frame I would use. It sounds like that similar to what you're saying.

It is. I think we're expecting an unprecedented recovery in the labor market, something that we've never seen before. And we're expecting that coming out of damage that we've never seen happen before. You talked about earlier, average job gains are $478,000 so far this year. That's below expectation somehow today. At the beginning of the year, that number would have been great. People would have been happy about that. Somehow today we're sitting here saying, what happened to job growth?

I have a quiz for you. How many times in history have we had a five-month period where, average job growth was 478,000. How many times in history have we had, say that again, how many times in history have we had, we like games here inside economics. We love games. We love games. Go ahead. How many times has job growth averaged 478,000 or better over a five-month period, which is what we have happening right now? I'd say there probably was a period after World War II, so in the 1950s. I'm guessing probably in the late,

60s, you know, Vietnam War Great Society, so that's two. I probably coming out of the early 80s recession because it went from, you know, high unemployment to rip-roaring very quickly because the Fed lowered interest rates. I'd say that's three. I'd say three times in history since World War II. What about after the pandemic? Oh, no, no, I'm not including that. I'm not including that.

Yeah, I'm excluding that, yeah, last summer. Yeah. Well, give the number right. The timing's a little off. It was once in 1941, once in 1940s in 1946 in summer. Hold it, hold in 1941. Oh, lead up to World War II. Is that what that is?

And then, okay. See, is this seasonally adjusted, Dante? Are you looking at seasonally adjusted data? It is seasonally adjusted, yeah. You know, you've got to be very precise here. And when you play these games with this is key. I don't want any seasonally unadjusted data, you know, messing with. Never, never, never.

We just lost half the listeners. If you're seasonally adjusted, I'm out. I'm out of here. Okay, all right, all right. Okay, I got a little bit wrong, I guess. Yeah, go ahead. 1946, which you were. Oh, I got that.

I got that. Yeah. And then 1984, which you hit. Those are the three. Oh, so what happened in the late 60s, really? Hmm. Okay. Okay, but pretty good.

That's, I'd say that was a pretty impressive. You were impressed, weren't you? Then I could do that. That was good. highest that we ever hit coming out of the Great Recession was only 262,000, the highest average. That is interesting. Is that right? Wow. That gives you real context. Yeah, very good. Okay. Hey, Ryan and Chris, you heard the number one reason for this seeming disconnect between all the open positions and all the unemployed. Would you put that, Dante and my reason at the top of the list, or do you have another factor that you put at the top?

Or is that, are you, are you, is your thinking consistent with that? So pandemic frictions, not only fear of getting the disease, but the fallout in terms of child care, elder care, right? All of that. Yeah, that's, I think, I mean, that's how I would say it. I mean, I put them all together, yeah. You know, my issue with these reasons is that they're all, because, okay, expanded UI benefits. That's clearly. We're going to come back to that.

We will, we will, but that's clearly one, a big one. But then I see them all the intermeagments. It's not clearly a big one. It's not clearly a big one. That is on the list. But, okay, I'm not going to. On the list. You're not going to concede.

I'm not conceding. But go ahead. Fair enough. I'll stop. But I think they're all interrelated, right? One reason why I might be able to, you know, take some time to care for my family is because I have a UI benefit. So what is the real reason for not reentering the labor market right away?

And I have some savings, right? So accumulated savings is another reason, but I might delay. So I don't know. We can debate these, and it sounds like we will, but I don't know how much it really adds to the conversation at the end of the day, which one is the most important? Because I see that they're all intermingled. Well, it's only important in the context of policy and policy design, because, you know, I can guarantee you, maybe not for me, but you guys are going to be around at the next recession, and the same thing's going to come up again. and we're going to come right back to this period right now, and we've got to get this history right.

If we don't get this history right, then we're going to make policy mistakes in the future. So that's why it's important, I think, right now. Okay, fair enough. To that point, I think we have to wait that to look back because all this data is being revised. Yeah. And by the way, Dante, you've got to, because we got a lot of natural experience.

Let's turn to UI for a second. So, you know, obviously on the list. and I believe it is on the list, is supplemental UI. So as part of the American Rescue Plan, workers that are unemployed get $300 a week extra pay on top of the regular UI through the start of September. And the argument has been, you hear this anecdotally all the time from business people in particular

that the UI payment with the supplemental UI, 300 plus is greater than the wages that many of these workers were getting, you know, in their jobs pre-pandemic. So they don't really have, they don't have an incentive to come back into the workforce, at least not quickly into the labor market. You know, my sense of that is, well, I'm not going to tell you what my sense of it. So you already have, you already know what I'm thinking. What do you guys think of that? Where is that on the list? It's not the top of the list, but where is it on the list of things that are going on here? Dante?

It's pretty far down. It's pretty far down my list. I don't think it's a non-factor, but I think people are making a much bigger deal out of it than it really is. And I think it goes back to your point about, you know, we have an unprecedented number of job openings. You had essentially all these firms, like you said, hanging their help wanted sign at the same time. It's harder to find workers in that environment when there are, you know, you're competing against everyone, essentially everyone's hiring and so how hard is it to find even though there are lots of unemployed workers there are also you know more people than ever that are trying to hire those workers and so

i think we're still hiring people at almost 500 000 a month clip you know where job growth is still strong it's just that for individual firms it looks like there aren't any workers because they're competing against so many other firms at the same time to get those workers as they come back yeah good way putting it uh chris what do you think brian where would you put it on the list I'm similar to Dante. It's probably on the lower end. But the last beige book kind of made me question that. So the beige book is like it's a collection of, you know, anecdotes and conversations that each Fed district has with businesses in their district. And throughout all the labor market discussion, it was we're offering $50 payments for people just to show up to an interview. I mean, that's, I mean, that's, I mean, that's, We never heard that after the financial crisis. There was lots of mentions that, you know, people were waiting to reenter because of receiving government payments,

meaning UI. So I still think it's way below child care. It's below health care concerns. But I don't think it's inconsequential. I think it's having an impact. But it's just not, I think people are making too much out of it. Yeah. Chris, what do you think?

Where would you put it on the list? Yeah. Yeah, I do think the pandemic is number one. Yeah. But I do think it has some significant impact. So I wouldn't put it too far down the list, I guess, maybe closer to the middle. But again, coming back to my argument that everything is kind of interdependence. Yeah.

Well, the fortunate thing here, I guess, is that we're getting data points, right? We have a lot of natural experiments because I think we're up to 25 states that say they're going to end their programs, the Supplemental UI program this month or in July or August and not wait until September. So I think we'll be able to use that data to get a better sense of this. In fact, I think Dante, you said you were going to do this study when we get the data points, right? Yeah. I'm hoping to look at those states and supplemental UI early and see if there's any noticeable impact there. Okay, I got another...

Oh, sorry, go ahead. I was going to throw out another fact from the report that might contribute here. Did you have to look at teen unemployment, 16 to 19-year-olds? I did not. It's 9.6%, the lowest it's been since 1953. Right? So that's an argument now going around that suggests, hey, that's an indication that, you know, there are the... The employers are getting, you know, looking wherever they can for workers.

And because teens can't collect unemployment, therefore, you know, they're soaking up jobs or taking up jobs. So that that isn't an argument that unemployment benefits are, in fact, having this disincentive effect. Oh, I hadn't heard that. I'll have to go take a look. Is the declining unemployment related to stronger job growth or weaker labor force or both? Do you know? I don't know. I think it's job growth.

I think I saw that the share of teens that are employed is also historically high. So I think it is because of actual job growth in that group. Okay. Oh, interesting. I'll have to go take a look at that. The other thing to consider is it's hard to separate all these factors because it could be partly UI, but you could have also worked in the restaurant industry and then go through this pandemic and be like, this wasn't for me.

so now you're changing, you know, industry. So you're going into retail or transportation. So it may not be, oh, UI is keeping me out, but I got to go back to school or do, you know, an online course or something to, you know, retrain and get new skills to get out of an industry that maybe you don't even want to go back to. Yeah, my sense of it or my just intuition,

and I want to see, do the study, do the work and look at the data. But my intuition is that what's going on is the UI is giving people, just buying them some time. You know, they don't necessarily need to take the first job that comes across the transom. And we probably don't want them to, right? Because we want them to match better with the job. So that means that they'll stay on the job for a longer period of time.

You have less turnover. That's good for the employer. That's good for the worker. So it's a feature, not a bug. But if it just delays the actual, date of when someone starts a job by two, three, four, five, six weeks, you're going to see it have an impact on the labor market, on jobs. So that, that to me feels like, you know, what most fundamentally is going on here. But we'll see. Did you see the employment report that

there was 2.5 million people that were not in a labor force, but want a job, but didn't look in the past year. That's a large number of people. And that's not UI, because you would be counted as unemployed to receive UI. So, I mean, maybe that's one area to look into. Yeah. Hey, I have one other theory. I want to just throw out and see what you guys think. And that is, it does appear that there's a surge in business formation. So we get data from the Bureau of Census on EIN numbers. We talked about this in previous podcasts. Employer identification number. So you start a company, you're going to have to file taxes and unemployment insurance. And so you need a taxpayer identification number in EIN. And this data is very timely. I think we have data on a weekly basis,

may even be daily. I think it's, but I look at the weekly data through the end of May, I believe. And it is just going through the roof, stratospheric. And it's across lots of industry, all the different industries. It's across the board. Could it be the case? Two things. One, that there's a lot more job growth going on than we think. The BLS, when they construct these employment estimates, at least initially based on the survey, is they have a model that they use to predict the number of jobs that are being created by firms that are starting because they obviously can't observe the starting firms not in their survey. So they make a guesstimate based on a model. That generally works pretty good in the economy that's moving in a straight line. one like this one, which is in where business formations are surging, pretty likely they're not picking up a lot of what's going on at those new companies. And there's probably a lot of job growth there. So my, that'll, that'll become evident in the data once there's revisions. You know, the BLS will so-called benchmark, it's survey-based information to actual employment accounts from

unemployment insurance records. But that's, that's a year or two down the road. It's going to take a while for us to see that. So there are a lot more jobs. But that may also be controlled. contributing to the issues that businesses are having, right, getting workers. If they, if they're starting companies or working for new startups, that makes it much more difficult for established businesses to find workers as well. So what do you think about that? Again, that's definitely not on the top of my list, but I don't think it's on anybody's list. So I'm just throwing it out there to see what you think about that idea. Yeah, I definitely buy that. I mean, one of the big concerns at the beginning of the

pandemic was how BLS was going to handle measurement in April and May of 2020, when all these firms were dying and they didn't have any way to observe that in real time. And you have the same, and, you know, in hindsight, they actually did a pretty good job then, you know, based on the revisions that we got. But it doesn't mean they're going to do well on the other side. And so I think there is always the concern that we're missing a big swath of jobs that are being created because there's new formation today. Yeah. There aren't a lot of the formations for businesses that don't intend to hire so they're like self-employed. That would show up not necessarily in the establishment survey. So that 559,000 number we referenced earlier, but the household survey, right?

Because people would be counted as self-employed better there. So that would, if your theory holds up, you would have a bigger gap between household employment, you know, of course, adjusting it for all, making it apples to apples versus the current employment survey. That's true. But if you look at the data, the census gives you the number of EINs for all new companies. And then those for companies that say they will be adding employees. And that's about 35%. So, you know, it's not a majority, but it's not an consequential number of firms that are starting.

And it's interesting. A lot of them are in the retail sector, in construction and manufacturing and professional services. It's pretty broad-based. It's surprisingly broad-based. Restaurants. Restaurants. Yeah. Yeah.

I did want to bring up another kind of oddity in the labor market that I'm just curious as to how you're thinking about this is wage growth. Wage growth has held up admirably well during the pandemic. Now, admittedly, there's different measures of wages. Some are not as good as others. Or the data we get from the employment report on average hourly earnings probably isn't all that useful because it's effective. by the mix of jobs, whether it's low-paying or high-paying, mix of occupations. So a lot of measurement issues. But if you look at the employment cost index, the ECI from the Bureau of Labor Statistics,

quarterly data, but it controls for all these mixed issues. It shows that wage growth for wage and salary growth for private sector workers through Q1 of 2021 is still about 3% per annum, which is year over year. And actually in Q1 was actually higher than that. It actually surged in Q1, 2021. And that's about where it was pre-pandemic. So very curious how you're thinking about that. What do you think is going on here?

Why, despite the pandemic and the amazingly, you know, the damage obviously is done to the labor market and the economy, wage growth is held up as well as it has. Any perspectives on that, Dante? My explanation has always been because of the dichotomy and the impact. of the pandemic, you had lots of firms that failed, you know, because they were, you know, not in good financial position. And so because they failed, they're not weighing on job growth because they're gone completely. The firms that survived, you know, we're still doing fine in large part. They could, you know, work remotely, you know, demand wasn't impacted all that much. And those surviving firms were, you know, not maybe not unaffected, but, you know,

sort of humming along things in professional services and in finance and, you know, in high-paying industries with, you know, generally higher wage growth, you had very little impact in a lot of those industries. And so they've been propping up wage growth, I think. Yeah. Yeah. So it's just this the kind of the front line industries, they got, they got hit hard. And in those industries, you may cut jobs, you probably won't cut wages for the folks that you keep on, right? Because, you know, they're kind of keeping the businesses operating during the pandemic. But in the rest the economy that wasn't on the front lines, they kind of navigate, those industries navigated through no problem.

And the labor markets were exceedingly tight before the pandemic. So wage growth held up pretty well. Does that sound right to you, Chris, Ryan? Does that theory sound right? It sounds right. I'd throw out another one. If you go back to the productivity number at the top, if you believe that, if you think that productivity growth is genuine and real,

and we've gotten better at doing our job. and it could be that individuals are capturing more of their marginal product, right? So wages are going up. Well, that would be a great thing, right? That's what, that's the ideal, right? That's the idea. It's a win-win. Workers get higher wages.

Businesses can maintain their profit margins, and inflation remains where it is, right? So that would be pretty good. So do you think, is that what you think's going on here, Chris? I think partially. Yeah. Workers don't have as much bargaining power, certainly, as they used to. So to the extent that, you know, there is greater productivity, how much of that is being passed on to workers, some, but probably not all of it.

So I think it's a contributing factor, but Dante's argument probably holds water as well. Right. And I guess the one concern, I mean, strong wage, how can you be against strong wage growth? I mean, that's a good thing. But I guess the concern would be if there isn't stronger sustained productivity, growth and and, you know, the economy continues to improve. Unemployment continues to decline. The labor market continues to tighten. Wage growth starts to accelerate. That is the recipe for higher inflation,

right? Businesses at that point because, you know, they're not getting the productivity gains. The wage growth is out stripping the productivity gains. Unit labor costs are rising quickly. If their margins are coming under pressure, they start to raise prices more aggressively and you have inflation. So that would be the concern, I guess. Yeah. Yeah. Or if these, if the wage gains are artificial, right, if they are being boosted by, you know, government policy. And once that policy expires, because, right, you just don't, you know, they tend to be sticky. They may not adjust. Right. We could end up in an environment where that predictivity growth is not justifying the higher, hire the wage. I guess that's the other point. I mean, I heard a theory that,

You remember last month there was this surge in wages at leisure and hospitality in the leisure hospitality industry, and that was used as an argument for, you know, labor shortages and UI and that kind of thing. And someone pointed out that tips are coming back. So there was no tipping because, you know, when it was going to a restaurant, all of a sudden you open up the restaurant and now people are getting tipped again, and that gets into the numbers. And of course, no seasonal adjustment is going to capture that, right, because it has nothing to do with seasonality.

So that's contributing to the bump up we saw in Q1 and coming into Q2 and proved to be more temporary. Certainly not inflationary, but more temporary. Okay, any insight on that? Any, Ryan, you want to put forward? No, I haven't heard the tipping thing. really interesting because leisure average hour earnings in leisure hospitality are up 17% annualized over the last three months, which is massive. So that's something I'm going to dig into.

That's really interesting. Okay. So we're already, this conversation has been going on for a while, hard to believe. I mean, it's been very good. But I'm going to open up, make this, usually I have this pretty well scripted, but let me just open it up a little bit. There's so many labor market issues we can talk about, you know, in the pandemic, on the other side of the pandemic, longer run. Dante, is there any issue out there you think we should people, we should be talking about that people aren't talking about or something you want to call out about the labor market, that, you know, we should be thinking about, anything at all. This is a open-ended question. You can take it anywhere you want to take it. Sure. The one thing I've been thinking,

about a lot is what happens. By the way, this better be good. This better be good. Right? I'll give you your money's worth. Okay, go ahead. You know, there's been a lot of talk about child care and parents and the impact of the pandemic. And so one of the things I think is key to watch is what happens to labor force participation for women coming out of the pandemic, right? We had a long period, 50 years where there was big increases in participation. And then, you know, basically from 2000 to 2020, it was essentially flat. It dipped. And then pre-pandemic, it basically got back to where it had been in the early 2000s and looked like it was on its way higher and higher above, I think 77% is right about where it was pre-pandemic. And then obviously it fell off a cliff. And so is there any sort of structural change as a result of the pandemic, as a result of people leaving the workforce to care for kids? Do they all come back?

How long does that take? I think in terms of policy, it begs questions about affordable child care and things like that. If we're talking about increasing participation among women and parents more broadly, if we can make child care more affordable, that makes that calculus to participate in the labor market a lot easier for more families. And so I think that's the thing that I'm watching longer term. Got it. And you have, how many kids do you have? You've got, I think you've got two.

Two. And is your wife working? she working at home? She works? We're both working at home, yep. Both working at home. And has the pandemic changed any of your work arrangements? I mean, are you both going to go back to work?

Or has this changed things for you in any way? My wife is still currently debating leaving her job. It's been on and on again, off again. But we've survived 15 months now with our kids at home. And so it's just been less sleep. That's all the pandemic has done so far. But we'll see. Yeah.

So this is a very personal question for you how this all plays out. So let us know what happens in your own family life and we'll get a pretty good grip, I think, on what the rest of the world is doing here. Okay, very good. I think it should be a reality TV show. No, no, no, no. Maybe a spin-off of my reality. I'm first.

Yeah, all right. All right. Well, thanks, Dante. Thanks for joining us. And great discussion. and we could go on forever, and I'm sure we will, we'll come back to the labor market in the next to the future. Let me just say a couple things, a few things about the labor market.

You know, first, and this is pretty obvious. Things are obviously moving in the right direction here. We are quickly recovering from the pandemic. I do think we're going to get something close to a half a million jobs per month going forward until we get close to full employment, which I would anticipate by late 2022 going into 23. But the second thing is that still feels like a long time from now. That just gives you a sense of how deep a whole the pandemic created for us in the job market.

And we're still crawling out. And it's going to take us, you know, perhaps as long as two years to get fully out of this. And I think the third thing I'd say is on the other side of the pandemic, I do think labor market is going to be front and center again. I mean, if you remember back prior to the pandemic, the number one business problem was a very tight labor market. Labor shortages were endemic. It was top of mind for most business people.

And that's our future. I think we are going to have very tight labor markets. And we are going to have to address it through policy. And we didn't talk about immigration. We're going to have to come back and talk about that at some point. in the podcast. But immigration, a reversal of immigration patterns is going to have to occur. We need more immigrants. And when I say that, I mean, obviously skilled workers, but also I think we're going to need a lot of unskilled workers as well. And I do think policies that will help to bring down the cost

of child care, allow female and participation in general to rise will be critical to ensuring that, And of course, that was part of Biden's American Family Plan. I think that was a significant part of it. But those are the kinds of policies we're going to need if we're going to have the workers that we're going to need to be able to grow and enjoy solid growth in the future. So there's going to be a lot to talk about here. But the good news is on Jobs Day Friday, I have to say it feels pretty good. We are on our way back.

So with that, let's call it a podcast. Thank you for joining us, and we will talk to you next week. Take care now.