Moody's Talks - Inside Economics - Jobs Friday: On the Couch with Dr. Zandi

Episode Date: May 3, 2024

Inside Economics regular Dante DeAntonio joins the podcast to discuss the April jobs report. It was something of a surprise, but a happy one, at least for Dante and Mark.  The job market remains strong, but is cooling, opening the window just a bit for the Fed to begin cutting rates. But Cris and Marisa weren’t so sure, worried that the report may signal the start of a more serious slowdown.Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues, my two trusty co-host, Chris D. Reides, Marissa D. Natale, and of course, Dante Di Antonio. Of course, what does that mean? It means it's Jobs Friday. Dante, good to see you.

Hi, guys. How's everybody? Hi, Mark. Doing well? I'm feeling pretty chipper. You seem giddy. Yeah, I used that word before. We've got to come up with a different word.

I'm chipper. I'm chipper. Okay. And because of the jobs report? Is this fair chipper? I don't want to color anyone's views on this, but damn right. It felt pretty good, don't you think? Okay.

Anyway, we'll get to that, obviously. This is Friday, May the 3rd, Friday the May the 3rd, and then we got the April jobs numbers, and they were pretty good. So we've got to talk about that. And why don't we just get right into it, Dante? Unless you guys want to chit-chat. We generally chit-chat a little bit beforehand, but I, anything you want to chit-chat about before we get down to brass tax here on the jobs numbers? No, I want to know why you're so happy.

The job numbers are pretty good. It's sunny outside, you know, I had a, the Sixers lost. That was a bit of a disappointment. But I quickly forgot about that. So now you reminded me of that. I'm not going to think about that. Okay. I was, I had a nice trip to Atlanta with Raymond James.

That was a good, good meeting. And, oh, I also was at the Economic Club of New York. I interviewed Jared Bernstein. You know, Jared is, we've had him on the podcast before. A great guy. Yeah. He's the chairman of the Council of Economic Advisor, C.E.A. And so that was, that was interesting and fun.

And he's always, you know, really good to chat. with so that was good. I know you guys had a busy travel week too. Chris you were out in about I don't know where you were. Where were you? Yeah, I was in New York and then Austin. Austin. What was in Austin? Nice. A large corporation. Okay. All right. That's pretty cryptic but okay. All right. There were several large corporations, but I think one of them. There are many in Austin. They kind of hang out. They kind of hang out in Austin, don't they? those big corporations? There are a lot.

The airport was full. So if that's any indicator of economic activity, things are still moving ahead here. You know, it's been a long time since I've been to Austin. I don't know why. But when I was there, the airport was kind of small and rinky dink.

Do they have a new airport? Or is it still small and rinky dink? It didn't seem rinky dink to me. Okay, okay. I don't know if it's new or if they expanded or what, but it looked like a it seemed large to me maybe you guys have different definitions of of rinketatee size

speaking of airports I was in LaGuardia boy that I liked that's a nice they did a pretty good job there in LaGuardia oh I heard I haven't been there yet yeah quite nice all right well that's enough chit-chat let's get down to brass tax I get into the Philly airport because

what's that let's not get into the Philly airport that still needs Well, I love Philly because, and I'm a connoisseur of airports, you should know. I love Philly because you can get in and out really fast. There's like no, you know, issues with that. Like Atlanta takes forever, but. Oh, I see.

The physical. Yeah, it's just easy. And, of course, it's a hub for American, so that makes it really, you know, quite nice. But it is, the terminals are small. all their, you know, they're kind of 30, 40 years out of date, you know, really need to upgrade our airport. But actually, I can go on and on about Philly's infrastructure. Oh, yeah. Yeah, I know.

That's just one symptom of a. Yeah, exactly, right. Long duration. All right. It's nothing that commitsing. Jobs numbers. Mr. Dr. D. Antonio, what do you think? You want to give us a little bit of a rundown on the numbers?

I can do that. I mean, certainly the headline number was softer than we've seen, but I don't think that's something to be concerned about. So we got 175,000 jobs added. In April, the three-month average is still just north of 240,000. So, you know, we're coming off of, you know, what was really impressive job growth in the first quarter of the year. I think, you know, likely April is just representative of some normal month-to-month volatility in the jobs numbers. The industry composition, you know, I, I think as we talked about before, maybe a little bit concerning. You know, healthcare was basically half of the top line gain. No real big gains in other industries. Retail and transportation did all right. You know, gains everywhere else were pretty small. Even in leisure hospitality and government, which had been, you know, pretty robust here

over the last several months added just, I think, 13,000 jobs combined between those two industries. So, you know, increasingly concentrated healthcare, you know, is really the, the main engine here of growth, at least in April. Um, you know, on the positive side from the payroll survey is, is wage growth, right? We got another month. Yeah, just stop you there for just one second before you move on. Sure. To the push back on your point about health care, I mean, you're kind of saying it's narrow, uh, the job, we had 175K, half of that was in health care. But feels like to me, health care is, you know, a very diverse sector, right? I mean, you got all kinds of jobs there. You got, you know, the obviously highly skilled, educated doctors and technicians. You've got kind of middle-skilled,

kind of nursing and then lower-skilled, you know, jobs. Obviously, a lot of folks needed to maintain hospitals. And also hospitals and health care are, in... in every community across the country. And there's good, solid, fundamental tailwinds behind the industry. I mean, demographics being the most obvious. You know, I think there's a bit of catch-up going on here because healthcare lost a lot of jobs during the teeth of the pandemic, and I'm guessing that they're kind of trying to get their staff up to the right levels

post-pandemic. But doesn't, you know, when you say the job creation is kind of narrow, narrow because it's all in health care, that kind of belies the diversity of the health care sector. Would you push back on my pushback? I mean, I don't disagree. I think job growth in health care is good, and you're right, it's not just one type of job that we're talking about. I think, obviously, job growth across, broadly across industries is better than just in

health care. But I don't think having, you know, adding 80, 90,000 jobs in health care every month is certainly not a bad thing. certainly can sustain the economy, I think, at least in large part. So I'd like to see broader job growth, but I don't think it's bad news that it's health care. Okay. And the other point I wanted to make was because we're on the question of the distribution of the job gains, how narrow narrow are those job gains. I think if you look at the diffusion, so-called diffusion index, one-month diffusion index,

So that's the percent of industries in the report. I think there are over 200, correct me if I'm wrong, I think there is over 250 industries that the BLS, the Bureau of Labor Statistics, you know, includes in the survey, payroll survey. 60 percent, the diffusion in the answer was 60 percent. So that, and that's, that's, that's not the highest has ever been, but that's okay. That's not bad. That's pretty high. That's pretty high, right?

Relatim relative to the past few months. Yeah, exactly. Yeah. Yeah, but historically, if you take a step back and look historically, 60% feels like kind of in the middle of the distribution, right? Yeah, right. Yeah, I think it sort of fits with the sort of top line industry view where there weren't a lot of declines across top line industries.

They were just, you know, the gains got smaller, right? Yeah. Manufacturing added, construction added, retail added, I think transportation added. Yeah. Pretty broad base. It's just smaller gains across the board. Okay. All right.

I'll just made my point. I'll let you move forward. Wage growth. You're on to wage growth. Wage growth. Yeah. I mean, obviously, you know, from the Fed's perspective or the perspective of ensuring that the labor market isn't, you know, overheating or heating up again, I think, you know, the wage

growth story here is a good one. You know, after we got a really strong wage growth number in January, we've now had three straight months of, you know, wage growth figures that would signal moderation, you know, was up 0.2% in April year over year wage growth on average hourly earnings is now only 3.9%. So it's the lowest this cycle below 4% for the first time since the, you know, sort of the pandemic through that measure all out of whack. Yes, I think a good story there on wage growth and something to be, you know, happy about sort of despite the slowdown in job growth. The household survey side of things, I think, is still a little bit of a mess. And we've talked about the complications here with the likely under-

accounting of population and immigration from the Census Bureau probably having an effect. Yeah, I think on the rate side of things, it probably still looks about right. The unemployment rate technically edged up to 3.9%, but it's basically been flat for three straight months if you look at the unrounded numbers. Oh, is that right? I didn't do that. So it just picked up a little bit on the second significant digit and then rounded up to 3.9. Right. It was 3.86 in February, 3.83 in March and 3.86 in April. So, I mean, it's basically not moved at all in the last three months. Yeah. If you look at labor force participation, you'll look at employment population,

they've moved a little bit up and down, but none of them have really changed all that much over the last several months, and they all are still at or near cycle highs. So there's no real sign of concern there. The thing that sort of seems like an outlier is that you've got really weak labor force growth. You've got really weak employment growth, as reported by the household service. So the labor force expanded by- But that's just bogus, right? That's my argument is that, yeah, I think the rates are fine.

I think the levels here probably are a little bit misleading, right? You had 25,000 jobs added, you know, averaging 45,000 over the last 12 months compared to, you know, an average closer to 250,000 on the payroll side. So I just don't think you can really- And just for the listener, and we've done that we've gone over this before, but just to reiterate, the issue is foreign immigration. We know there's a lot of immigrants coming into the country, and that's juicing up a population labor force growth. But the household survey is ultimately benchmarked back to population counts that are coming from census. And census is not including in its estimates a surge in immigration. We know this is happening because we can see it with the number of people getting immigrants getting stopped by border patrol and getting asylum.

him. We know this, but it's just not getting into the household employment data because it is benchmarked to census population, which doesn't account for this at all. Is that kind of roughly right? Yeah, that's my view. Yes, your view. Okay. All right. Okay. What else? Anything else in the report? That's the big stuff. I think I mean, I think like you let off, it's a good report, right? I mean, if you can sort of set aside what seems like a slowdown and top line job growth, I think that's not anything to be concerned about. And so aside from that, the report is pretty solid. Yeah. Okay. Marissa, any anything you want to add there? Any pushback? Any color? I'm a little worried, only because this stuff. A little worried, not a lot worried, a little

worried. Yeah, a little worried. Because. Any bitty, witty, witty, worried? Or, I'm worried that we still have pretty high inflation and the job market. I'm a little worried, okay, because who knows what's going to happen? What does that mean? Now I'm getting worried. I'm worried that this is the start of a significant slowdown in the labor market and that this is the start of businesses pulling back on hiring and investing at a time

where inflation is still high, and this leaves the Fed in a very weird position. We've been saying that they're going to, they're pretty much ignoring the job market at this point, right? They're laser focused on inflation. We're at full employment. I just, I'm worried that they're going to screw this up. Yeah. Well, so your worry, your primary worry at the moment is that,

the job market's going to weaken more substantively here, that this is just the start of a much more substantive weakening. And that puts the Fed in a tough spot because do they respond to the weakening job market, or do they continue to maintain high rates to try to get inflation back down to their target? Yes. Yes. And I'm only a little worried just because we know that the jobs, job numbers can be, you know, all over the place from month to month, right? So this may not be

the start of any trend, but it could be. I mean, this is a pretty weak report in terms of, if you look across industries, I mean, there's like professional business services, didn't really add any jobs. Temp help is shedding a lot of jobs. Leisure hospitality didn't do anything. I'm just worried. Yeah. Well, Well, maybe I can work to swage your words. These do. Yeah. Yes.

I mean, as you just said, you know, it's hard to read too much into a month-to-month change because these things get revised anyway. Yeah. And right now it looks like they're getting revised up. They're getting revised down. They're getting revised all over the place. I mean, last the data for March got, we were 300,000 job gained that got revised up. Right, right.

So if you take a, like we typically do, like a three-month moving average, you know what, guess what the average monthly job growth is the past three months? It's 242. Yeah. I hope that wasn't your statistic. Was that your statistic? No, it wasn't. You said that so quickly.

That's true. Because I'm looking at it. What has it been? What was it last year? Or the calendar year 23. This is a real test. Probably 250 or something. Yeah, yeah.

Yeah, 251. 251. I think I got that right. I might be making that up, but, you know, it sounds good. Yeah, sounds good. So, okay. And then, and then you take a look at, like, other labor markets. Look at the number of initial claims for unemployment insurance every week.

I know. What was it? What, we got that data point yesterday. What was that? $2,000. It still didn't move. Yeah. I mean, it's like, BLS is drawing with a line, right?

I mean, you know, you know, You look at that data and you go, this is about as, you said it's volatile. It feels like it's about as stable as I can ever recall in terms of what's going on in the labor market. No? I guess not. I mean, we got, I think, three reports that looked almost exactly like this one just in the second half of last year. In the second half of last year, we got three reports that were between 150 and 200 where Oh, that's right.

There wasn't a lot of dispersion in terms of strong job growth across industries. It just seems like another sort of piece of that puzzle that the job market is probably ultimately slowing here to some degree. But it's, yeah, I mean, volatility is higher than what's really high. Yeah, I'm probably being overly anxious. Anxious about it. But, you know, it's going to happen at some point. And I just worry that it's going to, I just worry that it's going to happen. I just worry it's going to happen at a time where we're still facing uncomfortably high inflation

and this is going to be the thing that screws the whole thing up, right? Okay, so let me, let's peel the onion back one more layer on your worries. Let's like, let's put you on the couch here. Yes, so you're now on the couch. Lean back, have some kumbacha tea, you know. I don't know what that is. Cambocha. Of course Chris knows what that is.

Oh, yeah. Absolutely. Of course he does. Big fan. Big fan. He has, you know, green, lime infused, kombucha. What is it? How do you pronounce it again?

Cambucha. Oh, he's drinking it right now. He's drinking it right now. Are you telling me that's kombucha tea? No, no. This is lemon ginger, but, you know, pretty close. Oh, lemon ginger tea. What I tell you, God, I wish I had his life, you know,

somehow. He lives so well. Have you noticed that? He lives like really well. Like I don't, I can't even, I'm still drinking instant coffee when I can't get my wawa, you know? That's how bad it is. Wow. No one's got to have some standards. Mark. Do it with coffee. That blue is disgusting. Actually, I'm okay with it. I'm okay with it. You know, maybe because I've been drinking it since I was 12 years old or something. I grew up in a very hard bit. and, you know, family. They were, you know, five kids on a professor's salary. It was tough, tough going. Kids had a drink instant coffee. I had to drink instant coffee. Yeah. Where was I? I'm sorry. Oh, you're on the couch. You're on the couch. You're on the couch. You're on the couch.

And I was going to say something that was going to make you feel better. Oh, yeah, I just, I would go so far as to say, I don't think I could ever recall a labor market as stable as this one. stable and strong. I mean, the unemployment rate, 3.9, we've been sub 4% for how long? I don't know. 26 months. Has it been 26 months? I agree with you.

Okay. But it's going to end at some point. Okay. Okay. Okay. So, all right. Okay. So now that was where I was going.

So let's peel back an onion back. What out there would cause businesses to start pulling back? You said investment and jobs and payrolls to decline. They're just not going to do that immaculate conception. They're going to start pulling back. What is it you see out there that is making you nervous that they might do that? Is anything? I think at a certain point, the high interest rate environment will start to have consequences for businesses and households.

Okay. And that, you know, they can handle it for a while, but at a certain point, it starts to bite. And perhaps that happens in the next few months. Perhaps it's happening now. Yeah, I can sympathize with that argument. Yeah. I mean, clearly the jacking up of interest rates hasn't really filtered through to a large degree. for lots of different reasons.

One that we've talked about in the past is that households and businesses have done a good job locking in the previously record low interest rates. But at some point, that debt matures rolls over, and if you need to go and get new debt at a higher interest rate, obviously it's the concern in the commercial real estate market, but it's pretty much across the board for anyone who's got some debt. That starts putting added pressure on everybody. and, you know, if rates stay too high for too long, then something may break. That's kind of sort of what you're saying. Yes. Yeah, okay.

And, you know, it's hard to know exactly when that will be. It doesn't feel like that is an imminent thing. Therefore, I wouldn't be too worried about. But you're saying it's, you know, if you keep rates there here at some point, it is going to be becoming, the corrosive is going to be so significant. and it's going to undermine the underpinnings of the economy and we see a problem develops. You know, we have a problem in the economy. That's what you're saying.

Yeah. Correct. Yeah. Okay. All right. Chris, are you with me? Are you? I'm concerned.

I'm on the couch with you. Oh, really? Concerned? Yeah. You're concerned too for the same reason? For the same. I think that certainly the interest rate environment. I think they're, you know, as usual, we don't know.

what we don't know, and those higher rates are putting pressure on banks and financial system. They've managed that relatively gracefully, but at some point, something could happen. There will be a slowing. I think the narrative here, they're slowing that's consistent with, you know, the view that we want to get inflation down, but there's always that tension between slowing just enough and crashing, right? If you break something. Yeah. Yeah, I mean, you've said this in the past, kind of the soft landing metaphor, the plane's coming on to the tarmac, you know, as it's coming in, is it a soft landing or is it a crash landing? Right.

Are they going to get this right or not? I'm very sympathetic to that, you know, concern, you know, very, very much. So thinking that they should have cut interest rates. By the way, Marissa, just another pushback, inflation being too high. I know, you don't think it is. I just don't buy that. You know, if you look at harmonized inflation, get rid of that damn OER,

owner's equivalent rent, which we can't, we just simply can't measure that, certainly in this housing market. We're there, we're there. We're at, you know, the Fed should be cutting interest rates all along. That may be, but they're not.

I agree, but then, Oh, yeah, doesn't that suggest higher probability of policy mistake that they're looking at you? Yeah, they're not doing it. Yeah, I hear you. I think I don't want to push back too hard. I mean, I'm not worried at this point. It feels like a soft landing to me. All the instruments in the plane are saying soft landing.

So it feels pretty good. But I hear you, you know, things. First of all, things happen and you could get a gust of wind that kind of blows this over, or the pilot sneezes at the wrong time and we go into the tarmac. So I hear you. I hear you. So I'm not, and I would have argued we should have, the Fed should have started cutting interest rates at the beginning of the year, not at the end of last year, not wait.

And you still think that. Firmly. Firmly believe that. I mean, I think the inflation is, you know, in the Q1 was elevated, but that's measurement an issue, technical factors, residual effects of the pandemic, motor vehicle insurance being a good case in point, and all those things are going away. And I'm confident that in coming months we're going to see inflation, you know, that's back to target.

So another reason why I'm not overly concerned. I will say, though, the one thing that makes me, and I'm not going to join you on the couch, but, you know, I might think about joining you on the couch, is that if you look at the underlying job growth, and now you pull in the Joltz data, the job opening labor turnover survey data, you see the reason why job, the reason why we're creating jobs is simply because there's no layoffs. Hiring is actually soft. If you've seen the hiring rate, that's come way down, and that's even below, you know, what it was kind of in the pre-pand-a.

It's not really, it's not recession low, but it's lower than it was, you know, pre-pandemic. quits also way down. That goes to the moderation of wage growth, but that also indicates that, you know, workers are more cautious about, you know, going out and quitting their job and looking for another one. You mentioned temp help. That's down. That is a classic leading indicator of jobs. Hours worked. That went down again in this month.

Dante didn't mention that, but that went back down again. It's not, again, it's not at recession levels, but it's very weak. So the only thing that's causing, allowing for this job creation is the low number of layoffs because at the end of the day, it's hiring less layoffs that drive job, you know, the job, the net job number. And it's hard to explain why they're so low and stable, you know, it just, why? You know, what is it about the environment that makes it such? you know, the pet theory is that businesses have been dealing with a tight labor market for a long time, pre-pandemic, during the pandemic, now post-pandemic.

And they're very fearful that if they lay off workers, they're not going to be able to hire them back quickly enough. And they'll get wrong-footed like they did during the pandemic. And so they're not doing that. But that feels kind of like a tenuous argument. It makes me. So that's what I hear you. That makes me a little bit nervous. Okay, Chris, anything you wanted to add on the job numbers?

And I think we covered really all of it. Again, I think it's a good report in terms of the narrative, right? We do need slowing, and 175 is still nothing to sneeze at. It's still relative strength. I guess the question for Dante is consensus was much higher. For this, and we mentioned unemployment insurance claims were low. So why do you think the market missed? I mean, I think in part because nothing else was signaling a slowdown, right?

I mean, if you look at claims, you look at, you know, implied job growth from jolts. All of it was, you know, rock solid. It looked just like it did in the first three months of the year, which was generating, you know, job growth much stronger than 175. And I think that's, you know, I think I go back to my initial. This feels more like a little bit of an anomaly. You know, if you look at last month and this month, you get an average. that's right around 250, right? I don't think last month's number is the real number. I don't, you know, so I think you have to take the month to month change with a grain of salt, right? I think

we're averaging something close to 250,000 jobs, which still feels pretty good. You know, could this be the sign that we're not really doing that and it's slowing significantly. It could be, but we could also turn around and add 250 next month. And it just looks like, you know, if you net out March and April, there's nothing to even look at, right? There's nothing to be concerned about. So I just, I read it as month to month volatility. Okay. I think a little bit too. I think we got a little bit spoiled by the first quarter of the year. I think if we had seen this job's report in the second half of last year, we would have been excited about it, right? It would have fit the narrative exactly like you just said. We wanted job growth to slow. We wanted the unemployment rate to stay relatively stable. We wanted wage growth to be coming in. And all of that's happening here. In the first quarter, we said, okay, well, we still had the unemployment rate that was stable. Wage growth was still coming in. And we were getting job growth at 250, 275, 300. It's like, well, that's even better, right? If we can keep those things stable and see job growth that strong rate, right? I don't think that was sustainable. And so I think we're just sort of coming a little bit back

to reality here with the April report. But to me, it doesn't be a signal some side of concern. I mean, the same concern still exists that we talked about in the second half of last year. When you're asking for the labor market to moderate, it's hard to know where that lands, right? Does it moderate nicely and sort of plateau at a sustainable level? Does it crash down and you end up with job losses? And that's, I think, still the concern. But I think ultimately we still have to expect to see moderating job growth as the year goes on. Got it.

And it sounds like you're just thinking reasonable chance that this actually does get revised upward. You wouldn't discount that. I don't even know that needs to get revised. I mean, because last month got revised even higher. So it's not necessarily that they're going to get revised to be 250 every month. But I think you have to look at, you know, the three month average and say that the three month average. still looks about like we expected to look. And so you're going to get some months that are high and some months that are low.

And that's just the reality of the numbers. Okay. So Dante, Marissa's on the couch. Chris joined Marissa on the couch. I refuse to get on the couch, but I'm looking at the couch. You're the therapist in this. Yeah, I'm the therapist. Sort of not the best therapist, but playing the role.

Where are you on this couch thing? I'm not even looking at it right now. You're not even looking at the couch. I'm not even looking at the couch. Like I said, I think the same concern still exists that we're there, you know, for the last six or nine months. But I don't think they've gotten any worse in my mind today because of this report. It doesn't change how I feel about the state of the labor market. Okay.

Here, I want to test one other thing out on you. I'm a little surprise that someone didn't go in this direction. So there's the soft landing scenario, which I have firmly held to. I'm just going to repeat that so everyone can hear that. I firmly held to that soft landing scenario. Never wavered. Never. I might have wavered a little bit, you know.

That ceiling time? That was kind of scary, scary. Yeah, maybe, maybe that was a little scary. But I, you know, I wavered a little bit, but I never, I always soft landing. Now we're all kind of on board with a soft landing, but a little nervous about the economy kind of sliding into recession here. You know, things, not the corrosive of the high-end. interest rates undermining spending and investment and layoffs start to kick in and that goes into recession.

The other scenario is that the economy is going to remain very strong, too strong, too much demand. And the supply side of the economy doesn't keep up, even with all the immigration and productivity growth. And inflation doesn't come back in. it actually goes back up, you know, and that's a prescription for a future, you know, down the road as the Fed responds to that by jacking up interest rates. And there are people out there that that's their kind of concern. But you guys, Chris, I'll turn to you, you're not concerned about you think that's a lesser possibility than we're going to slide in here as opposed to rev

back up and then go into recession. Yeah, I do. I don't see that. I certainly don't discount it. So I'm not saying that's an impossibility, but it seems like things are moving in the other direction, if anything. And I don't see that reacceleration coming along. And even if we did see it, I feel like the Fed has the tools there still, that the expectations remain relatively well anchored. I don't see that investors are getting ahead of the market here ahead of the inflation statistics. So it seems like that would be manageable, if indeed. There's more robustness here than what we're thinking. Okay, so, okay, let me frame it this way.

And I want to get your probabilities. We haven't done this in a while. Soft landing, meaning the economy goes to full employment. Inflation gets back to the Fed's target. The Fed starts cutting interest rates and normalizes rates. No, you know, there's ups and downs and all rounds, but at the end of the day, the economy continues to push forward. recession, meaning, you know, to Mercer's kind of scenario, we're at the start of some

slowdown because of the corrosive nature of the high interest rates and maybe we get some kind of gust of wind, some shock that kind of pushes the plane into the tarmac and we have a recession. And then the, so soft landing, recession, and then let's call it the no landing scenario where we, you know, we start re-accelerating here. inflationary pressures developed, the Fed has to jack up interest rates. It probably results in recession down the road a little bit. Maybe not this year, maybe next year. Okay, what's the probability of a soft, in your mind, Chris, soft landing, recession, no landing.

60, 10, 30, 30, soft landing, 10. 30 recession? 30 recession, 10, no landing. Okay. Mercer, what do you think? 20% recession, 75% soft landing. 5% no landing. No landing.

So you're 5% no landing, 10% is Chris. Dante? Yeah, I'm right in that same ballpark. Probably 75 soft landing, 20 recession, and then with five that's left is reacceleration possibility. Okay, so I'm at 80 on the soft landing. 15 on recession,

which is kind of typical, right, you know, for a given year. And 5% kind of no landing. Okay. Okay.

Very similar. Okay. Let's play the statistics game. The game is we each put forward a stat. The rest of the group tries to figure that out with clues, questions, deductive reasoning.

The best stat is one that's not so easy. We get it right off the bat. One that's not so hard we never get it. And if it's apropod, to the topic at hand, which is obviously jobs or recent data, all the better. And we always begin with Marissa. Marissa, you're up. What's your stat?

My stat is 7.4%. In the jobs numbers? Yes. Carol? Oh. What? Was that U6? Yes.

Yes. Ah. Okay. That was good. Way to go, Chris. Oh, thanks. U6 unemployment. You want to explain?

Sure. So this is the broadest measure that the BLS publishes of slack in the labor market. So it's not just the unemployment rate. The unemployment rate is only people that are available and looking for jobs in the four weeks prior to when they're surveyed. This also includes people who say that they are working part-time for economic reasons, meaning that they want a full-time job, but they can't find one. or they had one and their employer cut back their hours. It also includes people who say that they want a job, but they had given up looking in the past year because they couldn't find one.

And this is the highest that it's been since the end of 2021. Oh, is that right? High since the end of 2021. Yeah. So it has kind of been trending up all year. Just to give you some context, it was 7% at the end of 2023. And it's kind of been ticking up month after month after month. This is the highest it's been since November of 2021.

And this is also higher than it was prior to the pandemic starting. So if we go back to early 2020, it was around 7%. It was 6.97%. And I looked at why, you know, like what portion of this is coming from. A lot of it is people working part-time for economic reasons. So that went up quite a bit over this past month. So people that would like to be working full-time but can't find full-time work. That's interesting.

I guess to your itty-bitty worries. What would you say teeny bit worried? That's what you said, teeny bit? Little bitty, itty-bitty? That kind of adds to it. Yeah. And I guess it goes to that kind of heuristic that when unemployment, the unemployment rate rises,

starts to rise, it kind of takes on a life of its own, right? unemployment rises, that causes... You don't get a lot of warning, right? Yeah, consumers start to get nervous. They pull back on spending. You get into self-reinforcing vicious cycle. So that's kind of beating into your...

Anxiety. I think she needs some Valium or something. I got to give her, you know... Is it Valium? Do people take Valium for anxiousness, nervousness? Something. Yeah. There'll be some kombatia tea.

That's better. We'll start with the... I'll take the Valium. I'll take the Valium. All right. Okay, very good. Okay. Dante, you're up.

What's your number? All right. The number is negative 445,000. That isn't like the household survey based on the employment survey. It's not. And I'll caveat to say that it requires a little bit of arithmetic to get there. Oh, okay. I jump the guy.

Is it in the jobs report? It is from the jobs report, yeah. Is it household survey? It is not household survey. Is it? Payroll survey? Payroll survey, yeah. Say it again, minus what?

Minus 445,000. Is it an industry? It is related to an industry, yes. Oh, geez. The minus sign is really missing me up. Is it a difference? It's a decline over a period of time. Oh, temp jobs. Temp jobs are down 445,000 jobs over the past year.

Over the past two years. Oh, past two years. Yeah. Oh, I actually thought it was bigger. So they've declined in 24 of the last 25 months. The total decline is 445,000. I bring it more because I'm confused by it, right? I mean, I think you actually alluded to earlier, the only time temp jobs decline is usually

immediately before a recession and then in the teeth of a recession. If you look historically, you know, you only ever got big declines in, you know, 2001, in 2007, 2008, and then in 2020, right? There's no other point in the data back to 1990 where you get any sort of sustained decline at all, let alone a two-year decline of almost half a million jobs. You know, the first year of declines, it always felt like we could sort of explain it away because the run-up in temp jobs, you know, it's shot up a lot. in the immediate aftermath of the pandemic. You know, it recovered quickly. It went well above its pre-pandemic level. You know, firms were likely using temp help, you know, when there was still a lot of uncertainty about the economy. They were just trying to bring workers back on board. So, you know, the first year of decline sort of was just normalizing temp help back to where it was

in 2019. You know, it felt like that was just some sort of reshuffling of workers and bringing back full-time workers instead of temp workers. But it's just kept going south. Right now, it's well below where it was in 2019. It's just, you know, a straight line down, basically that we've been drawing for two years now. And I don't know if it's just a fundamental shift in how firms are thinking about temp help. And with how tight the labor market's been, there's just a shift away from temp help into, you know, permanent employment. Maybe that's all it is. But it just at some point feels unusual. It doesn't feel like it's, you know, the indicator of an imminent recession. It just feels like a structural shift in the labor market. I wonder, you know, a lot of, usually when

people think of temp help, they think of white collar jobs, but a lot of temp help is used in manufacturing. And manufacturing has been particularly weak on the employment front. And I wonder, we can't tell from the data, right, like what industry these workers are working in. But I wonder if some of it is coming from that, you know, I mean, there has been kind of a stark difference between the way manufacturing has been performing versus services. That's true. Yeah, I mean, I certainly think it could be part of it. Do we see any change in part-time this month?

I think I'd grown last year. Just overall part-time? Yeah. Like sort of shift towards more part-time work as well? I mean, there was that there was a big increase in part-time for economic reasons and a big decline in part-time for non-economic reasons. reasons. I don't know about what the total picture looked like. So you're not sure where this is, how big a deal this is or if it's a deal at all.

Yeah, it's, it doesn't, at this point doesn't feel like it's a deal because it's been going on for two years and it hasn't broken anything, but it just, you look at the historical data, the time series back to 1990, it just looks very strange. Right. Right. We should do a little exploring here, maybe call some of our contacts in that industry and see you know how they view this what's going on that that's a good stat yeah okay very good I just want to say I got that one right

everyone recognized that okay credit for that one thank you thank you Chris is belittling my accomplishment but that's okay you're up Chris Okay, I'm sure you're going to get this one. Oh, that will never get it. 49.4.

ISM non-manufacturing index. You got it, Marissa, feeds right into your anxiety. Oh, my gosh. I didn't see that. That came out today. Yeah, because that was going to be my stat until I saw the. Oh, but that number does this every so often. It takes a dive, you know, and then come out right back.

It hasn't. This is the first time it's been below 50 in a long time. Since December of 2022. Yeah. 15-month streak. Ooh. Wow. You know, but this is...

Something to think about. Okay, something to think about, right. Maybe now I'm going to get on that couch. Mm-hmm. It's not the symmetric with the manufacturing index went above 50 last month for the first time in basically the same time frame, right? So manufacturing seemed like it was improving a little bit and not manufacturing. Well, explain, Chris, for the listeners, what this stat is and what it means. Oh, it's the purchase managers index of non-manufacturing activity, so service sector activity.

It combines a couple different components together, right? So it's a survey of these managers. So it's looking at various things like business activity, new orders, employment, something around suppliers as well. Delivery times. Delivery times, yeah. Yeah, that's right. That's right. So should be a good measure of expansion and contraction.

Anything about 50 indicates that the service sector is expanding below 50 is indication of contraction. So the fact that the number did move below the 50 mark is significant for that reason. Employment was a source of much of the weakness. So again, kind of consistent with what we saw in the employment report today, some slowdown there. So I don't know that we want it's not a her. around fire a moment, but certainly it's gives some pause, right? Some indication that maybe things are slowing down in the service sector as well. Yeah, two things.

One, I mentioned it has shown some pretty significant volatility in the past. Maybe it hasn't gotten this low. In the recent past, we have these weird months where it dives and then it comes right back up. That's happened, I think, two other times in the last couple, three years from my mind's eye. I think that's the case. Am I wrong about that? I feel like that's right.

And the second, yeah, once in a while, yeah, it does. Yeah, the second thing is this is partly based on kind of hard data and partly based on sentiment, right? I mean, these are how people purchasing managers feel about things. And we know people just don't feel good about anything. Everyone's on a couch. All country's on a couch. No? So the vibe session?

Yeah. Yeah. The vibe session. Yeah. The vibe session. Yeah. We saw a confidence fall, right, this week as well. That's right.

The Consumer Conference Board survey, which is the one I think is much better than the University of Michigan survey. That was down too, consistent with that. Hmm. So can we talk about what you think the Fed will do? Because I know we're changing our forecast pretty significantly. Well, can we do that after I do my stat, Mercer? I'm sorry.

I'm sorry. Yes. I mean, come on. I get ripped off every time. She's taken over. She's taken over. She's like, and I,

Clark doesn't even get to say his stat. Move it along. Come on. That's right. I got things to do. Let's go. I got things to do. All right.

Let me do my stat real fast and then we'll go back. What was your, well, we'll come back to your question. Okay, this is, I think it's a pretty good stat. Two numbers, 6.6,000.

million and 3.6 million. And it is apropos to the topic at hand, the jobs market. And we kind of talked a bit about this already. 6.6 million and 3.6 million. And this is a change, a difference over time in two different series. From the employment report or no? From the employment report, yes, indeed. Yeah.

Is it your favorite foreign-born, not foreign-born? No. To immigration? No. No, that's interesting. But I don't think it would be that large. But this is really large. Yeah.

Payroll survey? Or both? Well, they're both. That's a big hint, by the way. So is it, I mean, is it a long run change in payroll employment and household survey employment over two? three years. Two years. Yeah. So if I look at, if you look at payroll employment, this is, employment is measured in the survey businesses, and you look at household employment, which we were

talking about earlier based on a survey of households, coming out of the, from the start of the pandemic to about kind of early 2022, so two years in to the pandemic, the two surveys were right on top of each other in terms of how they were performing. The economy had just recovered the jobs that had lost during the pandemic about that time. Over the past two years, so it's been four years since the pandemic. First two years, we just recovered all the jobs. In the past, in the subsequent two years, payroll employment is up 6.6 million. Household employment is up 3.6 million. That's a gap of 3 million over two years, 1.5 million per annum. That's a, that's a massive difference, a massive difference. How does that compare historically?

I don't think we've ever seen anything like that. Yeah. You know like that. And I think that goes, that goes, that goes, that's goes right to immigration, right? It goes right to immigration. So that that's, so if it's 1.5 million, and that would be consistent with the estimates we're getting from the correctional budget office and the amount of immigration. coming into the country, right? I mean, we got 3.3 million come into the country in 20203. Let's say half of those found work, you know, roughly speaking, then the arithmetic, you know, kind of works out.

So, you know, a big difference, a big, big difference. I don't know. Don't you think that was a good stat? That was a pretty cool stat. Yeah. Pretty cool stat. Okay, Marissa, so what did you want to talk about before we kind of sign off here? The Fed.

What is the Fed going to do? Oh, the Fed. Yeah. Of course, you want to take a crack at that or you want me to do it? No, you go. What do you think the Fed should do here? What do you think? Well, let me just say this.

What will the Fed do here? What will the Fed do? Yeah. I think the Fed is going to wait until after the election. Ooh. Great cut. Really? And is that because, yeah, why?

Not people. Well, I think they should be cutting earlier. I think the data would support it. I think this report also. Are you with me that they should have started cutting at the end of year or not? I don't know about the end of last year. Just more from a rhetoric standpoint that they need to really send the signal that they're

on top of things. So I don't know that they had to start cutting last year, but I think they should be cutting soon, right? I'd even say, you know, June was my, was my bogey. I think that would still be a reasonable time, but I don't think they will. Mm-hmm. Because we've kind of alluded to it. They've kind of tagged themselves to the official PCE, core PCE statistics as a measure of inflation.

And I fear that that's not going to show the improvement that they really need to justify the cut. And then in the middle of the election, I think everything just, the bar just becomes even more, even higher, right? You really have to see very clear evidence, inflation though, coming down, no bumps in the road in order to make that first cut. Maybe it's possible. You might see that.

So you're saying they got a 2% inflation target that's based on the growth in the core consumer expenditure deflator, core meaning ex-food and energy. That's their measure of underlying inflation. Right now year over year, it's 2.8. So we're, you know, 80 basis points, 8.8 percentage points away from target. You're saying that's not going to come in enough before the election and then throw away. in the election itself for them to actually cut rates before the election. That's right. Okay.

That's mine. So does that mean they cut right after the election in November? There's a meeting right after the election days after, or does that December, end of December? I guess that's splitting hairs, I guess. It's kind of splitting hairs. Yeah. I've been saying December, just because maybe they want to get past the election entirely. Yeah.

But. And of course, that's when they released the summary of economic projections and they. as well, so they'll have more information. Yeah, and that's your reason why you're also on the couch, because you think that may be waiting too long. I think that could be a mistake, right? Could be make a mistake. That the high rates are going to have the right fromer's point. They're going to be having that more corrosive effect as we get into the fall.

The longer you wait, the more damage that could be done. Yeah. Can I ask, what are the markets anticipating now, given today's numbers? Did you look, Chris? I looked earlier today. It was 70% chance of two cuts. Two, two cuts. The first one being when?

September, September and December, as I recall. Yeah. Okay. Okay. And that was a shift, right? Because they were down to one. They were down to one. They were consistent with you, right?

With a one after the election. Now they've got, they put in another one in September, one in December, quarter point. Okay. What do you think, Marissa? What do you think the Fed will do? I don't think they're going to be swayed by the election, the timing of the election. I think that if we get if, which is a big if, if we get a few good inflation reports, I think they'll cut before the election. Right. September. So you're with the markets. I don't think that they're going to be swayed by that.

So how good is good enough? we're at 2.5% or is that enough? 2.8, you're over here, 2.8. We're at 2.8. If we are at 2.5, close of November. Is that good enough? Is that good enough? I don't know.

I don't know how they're viewing this, right? I mean, they know everything we know. They know the vagaries of the data. They know that OER is problematic. They know about shelter employment. Excuse me, shelter inflation. So I don't know, I don't know how much they're discounting based on technical factors versus sending a signal to the market that they have to stick by a specific, you know,

2% target. You're saying they're going to cut in September, but inflation is going to be low enough at that point in time for them to make that move. If it is, I think they will. If it is, I think they will. I mean, I'm also with Chris. I'm not confident that it will be. It will come down.

Okay, but let me press you. You have to do a forecast. We all have to do a forecast. We have to put pen to paper. So you can't just say, well, if this, that, you know, what is your, what is your expectation? That's not a, that's not an, that's a fair question, right? Sure, sure. Okay.

I don't think we're going to be down to 2% on PCE by September. Okay. So I don't think that they would cut under that circumstance. But if it's a little bit above, maybe they do. I don't know. Like I just, I don't know what their margin of. But you said, you know, I don't know what they're legal rumors. What will the Fed do?

And you said they'll cut in September and December. That's what you said. Is that what you think or something else? What I was saying was that I don't think that they're swayed by the timing of the election. Okay, fair enough. That's all I'm saying, right? Is that I don't think that that's a factor that they're taking into account. I don't.

I think that if inflation were to come down very, very quickly and we get to 2% on PCE by September, I think they'll cut. I don't think that they would have a problem cutting. I think, of course, we would agree with that, too. Yeah. Yeah. He's making a forecast about inflation. He's saying, I don't think it's going to be low enough.

And I would agree with that. I highly doubt it's going to come down that quickly by September. I just, my time. If you're Mark Sandy and you're sitting there having to do a forecast and put it in the model, you said this is where you're saying you would have the first rate cut in December, not in September. Yeah. Yeah.

Or November. You know what? I'm going to get, you need more than Kibbosha T. You need, you need more than, I got to get you with something bigger, stronger than Valium, something stronger. Maybe. Sure, just knock me out until, you know, wake me up in December. Rick, right, make you up in December.

That's right. All right, Dante, I just pillory, poor Marissa, I'm going to pillory you unless you give me a good answer here. What's your answer? I'm not taking a pre-election rate cut off the table at this moment. So I would still have two this year. I mean, I think the pathway has obviously narrowed for them to be able to cut before the election, right? I think you need to get basically three consecutive good inflation reports in May, June, July.

I mean, I do wonder if, you know, I don't think the election is a non-issue from their perspective, but if you get those three reports, is it possible they cut at the meeting at the end of July? That way they're still further away from the election. Yeah. Again, that rests on getting three consecutive good inflation reports. now, but that takes the election a little bit off the table in my mind. So I think between July and September, I would still keep one cut in before the election at this point. Which one? July or September? I would probably say September, just because I think the pathway to getting July is

harder. And I don't think election matters all that much. September is still, you know, far enough away that I'm not sure they're going to worry about it. But so I would say September December. So is that what you think is going to happen? You think we're going to get three consecutive great. Two. I mean, it's by September. I don't think it's that unlikely. Just like, I mean, we weren't expecting.

Three, one July, September. No, no, three good inflation reports in a row. Oh, I still think that's not, you know, I don't think we expected to get three bad-looking inflation reports in the first quarter, so I don't think it's that unrealistic to think that you get three more favorable inflation reports in the second quarter. And I think given what's happening in the labor market, especially if job growth, you know, looks like it's still moderating and everything else is sort of hold.

to course here, I don't know that you need to get to 2% for them to pull the trigger on the first cut for all the reasons we've talked about, right? I think there is a lot of concern that they're going to have waited and will wait too long. And so I think if they can get a few inflation reports that support the case, they could go ahead and pull the trigger. So you'd say a cut in September, a cut in December. Yeah. Okay. Yeah, I'm with you. I think September and December, although I've been going back and forth on this, I think they really want to cut interest rates. They really want to.

You can see that with the FOMC meeting this week in Powell's commentary. And I don't, one thing that they did at the meeting was they announced that they're going to start winding down their quantitative tightening. Quantitative tightening is allowing the Treasury and Mortgage-backed securities on their balance sheet to wind roll off. And that by so doing that lifts long-term interest rate. So by scaling that back, that's that's a signal that they feel like everything's moving in the right direction for them to start cutting interest rates.

And they really want to cut rates. I think the reason why they aren't, and I think they're deep down, they're probably with me. When I say they, there are a lot of different views there, but the collective view, I think they're probably with me in thinking inflation is already back to target, you know, that really this persistent inflation we got in the first few months of this year was more residual effects of the pandemic and Russian war, measurement issue, you know, those kinds of seasonal adjustment issues. and also, I know I pound this drum constantly, but the only reason why inflation isn't back to target is the growth and the cost of owner's equivalent rent, and we can't measure that. We can't measure that, well, at least in a timely way. So we're there, and I think they kind of believe that and they want to cut interest rates,

but the reason they're not is just credibility. You know, they have worked so hard to nail down that 2% target in people's expectations, and it's been actually a godsend that they did because that's been very helpful in getting inflation, making sure wage growth doesn't take off and keep getting inflation back in, that they want to nail that 2%. And they want everyone to, you know, say, okay, you did it. No questions asked, no hand-waving, no magic, no OER, nothing, you know, you did it. You're there.

And by the way, once they do that, I do think they will change the framework for conducting policy so that they don't need to hit 2%. Because that's a crazy number. Yeah, they kind of box themselves in, right? That's crazy number, a crazy number, in my view. So then that gets to the question of the election and, you know, what role does that play? And, you know, this is where I keep going back and forth in my own mind. They swear up and down that that isn't playing a role.

And I would say in other elections. elections times passed, that's absolutely true. It has played no role. But this is a different kind of election. It's, and, and former President Trump is really pounding the drums here about bed independence. We talked about that last week. And, you know, if you cut rates, you know, going into the election, that's definitely something he's going to be very upset about. And he's going to make, he's going to politicize the Fed. There is no doubt about that. But I have come to the conclusion that they're just going to ignore that. They're going to do what's necessary here. And they, and you know what? That's what they should do. They should the hell with it.

You know, I can't control, you know, the election. I can't and I shouldn't have any influence on thinking about that. My mandate is to achieve full employment and low and stable inflation. And when I have achieved that, inflation expectations are nailed down, I am going to follow through with rate cuts. So I think September and December, I think they go in September and December. It would be fascinating to see how this all plays out. If they do September and December, we're golden. You know, soft landing, I think we'll be just fine.

And we can all get off the couch. But I say that with great hesitancy because there's a lot of dynamics here. So what do you think the chlorinflation? rate will be in September then to give them that justification. I think on a sequential basis, I mean, when I say sequential month to month, you know, kind of basis, I think it's going to be within spitting distance of two. You know, maybe it's two two, two, three, you know, something like that, but it's going to be within spitting distance, you know, of two, close enough for them to say, mission accomplished,

I've done what I need to do. And also, if it's coming in because of the reasons why people, like, you know, like me have articulated why it's been elevated, like, you know, motor, the cost of motor vehicle insurance and repair, that the increases start to moderate consistent with the view that they should moderate because we're getting to the other side of the effects of the pandemic, or if the growth and the cost of housing services is slowing as, you know, it should, then they can say, look, this, these are the reasons why it was elevated in Q1. It's pretty obvious now that it is fading away. It's not going to be the issue that it was.

We are going to get back to Target. We are confident we're going back to target. We're going. So it doesn't have to be too on the nose, but, you know, it's got to be south of where 2-8 on your rear basis. And it's got to be for reasons that make it very clear that it is headed to two. It is headed to two. And payrolls are coming in as well over that.

Yeah, yeah. The economy is doing what it's doing now, right? you know, 200K, 250K, we're getting enough labor force growth at unemployment rate stable, wage growth continues to moderate, you know, all those things that are happening right now continue to continue to happen. Yeah. Yeah. But it's, you know, to some degrees, it feels like a bit of a parlor game, but although I say that,

you know, although I say that, and then I think about why you guys are on the couch, you know, so too high for too long, you know. So maybe it's more than just a parlor game. I'd love to get off the couch. Yeah, I know. I know. Well, I don't think I did my, I was able to do that this go-around. So, you know, come back any week.

You know, we can take another crack at it. Okay. I said this was going to be an hour. I think it's been an hour. What do you guys think? Should we call it a podcast? Any other issues? No?

Hearing none. Chris, Marissa, Dr. D'Antonio. I'm good. I did want to talk a little bit about productivity growth, but we'll wait. We'll wait because I know you guys have a mono-o-a-mono flash coming up at one of these conferences on productivity growth. So talk about that. Okay. With that, we are, dear listener, going to call this a podcast.

Talk to you next week.