Moody's Talks - Inside Economics - Jobs Survey Smackdown!

Episode Date: March 8, 2024

The Inside Economics team dissects yet another upside surprise in the February jobs report and ponders the mixed messages between the payroll and household surveys. Employment is coming in hot but the unemployment rate rose to its highest level in over a year and wage growth cooled. The team theorizes on why the two surveys are so at odds with each other lately. Finally, they each opine on whether the data are leaning more toward a higher risk of recession or “no landing”. Surprisingly, they’re all in agreement.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 Zandi, the chief economist of Moody's Analytics, and I'm joined by my good friends and colleagues, Chris DeRides. Hey, Chris. Hey, Mark. Marcia, DeNatally. Hey, Marissa. Hey, Marcia. Hey, Mark. And Dr. De Antonio, Dante. Hi, how are you? And now that I see you, I know it's Jobs Friday. Not that anyone can tell me, but, you know, if you're on Inside Economics podcast, it's got to be Jobs Friday. So good to have you. It's also International Women's Day. Happy International Women's Day.

Oh, is that today? Yeah. Yes. There you go. Okay. I think we did some really cool research I saw on labor force female labor force participation around the world. Yeah, some of our colleagues did.

And I think we'll have them on the podcast to talk about it at some point. In a couple weeks. Oh, is that right? Mm-hmm. I took a quick look. It looked pretty interesting. Interesting. Do you guys read the study yet or that's to be done? That's not my to-dos.

Yeah. I looked at the high-level stuff. But, yeah, they did participation rates across different countries and representation of women, you know, in the labor force and in the workforce. It looks pretty cool. Yeah, it looks pretty cool. I have to read them carefully. And I know it's on EV, right, Dante, or was on EV? It is. Yep. Okay. That's economic view. Yeah, there you go. Thank you. Thank you. Yeah, economic view. Okay, well, this is March 8th, Friday, March 8th, 2024, Jobs Friday. We got the report for the month of February. So, Dante, you want to start us off here? Give us a sense of the jobs numbers. What they say? What do you think? Sure. It's another

impressive month for the labor market, another upside surprise. Job growth came in stronger than expectations for at least the third month in row. A total job growth was 275,000. We got some downward revisions to previous months. So the net effect wasn't all that big in terms of trend job growth over the last three months. It did cool a little bit given how big the revisions were to December and January. Job growth is still pretty broad-based. Most major industries still adding to payrolls in February. It was sort of a return to the concentration of job growth that we had seen towards the end of 2023 with health care, leisure and hospitality and the public sector adding the sort of overwhelming majority of jobs in

February. Some other positive news under sort of the surface of the strong headline number and some reversals from last month. Average hourly earnings came in much weaker than they did in January. So we got a sort of a big, a big increase in January and a much, much smaller increase in February only up a tenth of a percent. It's the smallest monthly gain in quite a while. So the sort of net effect of the last two months is really nothing to write home about year-over-year wage growth is now back close to 4%, which is where it's been and sort of where it's been headed for a while.

I think we'd also talk last month about some concern around average weekly hours. There's been this sort of long-running downward trend in average weekly hours that would signal some softness in labor demand. That did reverse course a little bit in February. it's now, you know, if you look sort of over the last 12 months or so, it's relatively stable. It doesn't look like it's headed south to any meaningful degree. I think probably still something to obviously to keep an eye on, but doesn't seem to be as big of a concern as it might have been last month. On the household side of things, the household survey side of things where we get the unemployment rate, there was obviously a little bit of a surprise there with the unemployment rates edging up to 3.9% from 3.7% last month.

Other than that, wasn't a whole lot going on there. Labor force participation was basically flat. A little bit of increase in, if you look at prime age participation or prime age employment population ratio up a little bit, so you're not a huge amount of concern there. The unemployment rate I would read a little bit as noise. The employment series on the household survey side of things has been kind of weak over the last couple months. I'm not sure whether there's a big story there in terms of the divergence, but

certainly a little bit of a softer reports on the household survey side of things than the payroll side. So household, the survey of households, how many, is it 60K or 80K? I can't remember. It's in the 60 to 70,000 household range, yeah. As opposed to the so-called establishment survey, the survey of business. I haven't looked, maybe you have. If this feels like to me the household survey is coming in soft, I mean, the job creation growth in the household survey has been coming in soft compared to the job growth in the establishment survey. Do I have that right? Do you know?

It's been remarkably soft, actually. I'll give away one of my stats I was going to use. But over the last three months, the household survey employment is down just under 900,000. Wow. And the payroll side's up almost 800,000 over the last three months. that is the biggest divergence over a three-month period ever, except for March, April 2020, you know, in the immediate aftermath of the pandemic, yeah. Wow.

That's interesting. And that's with revisions because the establishment survey increases for the month of January and December were revised meaningfully lower, right? Right. They were. But, yeah, job growth is still, you know, quite strong on the payroll side of things. Okay. So if you look at the establishment survey, which we tend to do and which is what the media tends to look at, it says a very strong job market.

It may be throttling back a little bit, but underlying job growth feels like it's well over 200,000 per month. That's I consider to be a strong job market. We can come back and talk about whether it's too strong. But if you look at the household survey, it's a weak. it's a weak job market. I mean, I mean, obviously negative numbers really weak. So what's the reality do you think? And well, maybe what some theories about why the difference, what's going on? And, you know, what does it mean in terms of how we think about the labor market? Is it strong or is it weak? I think the reality is almost certainly somewhere in between those two readings.

the household survey does tend to be a little bit more volatile month to month. And so you can get a three, four, four, five month period where employment looks really weak and that it might swing to be stronger than the payroll side of things over the next couple of months. It's not unheard of. I mean, the gap is sort of bigger than it's been in a three month period, but we've seen some pretty good divergences before. The other thing that was a little bit interesting is if you look at the age composition of employment on the household survey side of things, a lot of that decline in the last three months has been. amongst 16 to 24-year-olds. If you actually look at prime age employment, it's actually up over the last three months. And the decline is all in sort of younger and older workers. Whether that's something meaningful or just noise in the data, I'd lean more probably towards noise, especially for that 16 to 25-year-old group around the end of the year, you tend to get big seasonal movements because of people going back to school or being on break from school and working.

And so you do tend to get large, unadjusted movements in employment for that younger age group. And so, you know, that seasonal adjustment process could be a little bit funky this year. Okay. So it sounds like you're discounting the weakness in the household survey to some degree. Would you also discount the strength in the establishment survey to some degree? I mean, I mentioned the revisions. It feels like we're getting consistently downward revisions. And it feels like it goes back to low response rates.

rates. The initial set of responses are low. And as the Bureau of Labor Statistics gets more survey responses in, they tend to be coming in on the soft side and we're getting these downward revisions. So does that sound right to you? Would you sort of downgrade the kind of the strength and the establish from survey? Yeah, I think the strength there is probably a little bit overstated. I mean, we saw a huge downward revision to January. I mean, I think it's one of the largest, if not the, the largest outside of the pandemic that we've had in the last decade. Yeah, you've noticed everything's like the biggest ever. It just seems like everything is more volatile and more subject to revision than it's been in recent history. Wow.

Okay. So, okay. So if I asked you, what do you think underlying job growth? I know I ask you this every month. And it's very difficult because these numbers are swinging all over the place, you know, because of the revisions and the noise and everything else. But what do you think underlying monthly job growth is, abstracting from the vagaries of the data?

I still think it's probably around 200K. You know, kind of sort of where we were towards the end of 2023, sort of before we got a couple of big prints in December and January, we were at, I think, 180, 190, somewhere close to 200. We had been on a pretty steady downtrend, and I still think that's probably reality. Okay, 200K.

and do you think underlying labor force growth then is 200K? That's actually the thing I'm a little bit maybe more concerned about. If you look over the labor force growth has been pretty weak over the last three, four, five months. And if you look at the 12 month average is now only about 100K, where not all that long ago, the average was 200K, pretty steadily, if not a little bit higher. And so it's there again, it's a question of, is there a little bit of volatility over the last few months? and it's really 150 or 200, or is that, you know, sort of 100K that we've now seen over the last 12 months is that reality?

And if it is, then I think the job market almost certainly has to slow down here pretty soon. Although none of that squares with the unemployment rate, right? The unemployment rate, if anything, is pushed up a little bit here. It's not declined. So if all else being equal, I would suggest that labor force is stronger than employment growth, right? You would think that should be the mechanics, so that's not with some of the data showing at least over the last couple months. Okay. Okay. One of the test one other theory out on you. I don't know if we talked about this in the in the pre-podcast last week or the week before. Immigration. So we do know we're getting a lot of

immigrants into the country, given what's going on at the southern border. The CBO congressional budget office, non-person and folks that do the budget, they have to forecast the economy, and therefore where they have to forecast population growth and demographics. They came out with a study that said, look, we estimate 3.3 million immigrants came into the country in 2023 on top of 2.6 million in 2022 and some other big number in 2021. And just for context, typically before the last few years, we were getting a million, let's say, immigrants. And that's both legal and undocumented.

So that's a lot of immigrants. And those immigrants, many of those immigrants, or at least some of those immigrants, are finding their way into jobs that will show up in the establishment survey because you're just surveying businesses. You're not surveying individuals. And the businesses are going to say, I got X number of people on my payroll. But it may not show up in the household survey because those immigrants might be nervous about responding to any survey that they get. First of all, that's a small sample, 6070K. that you may not be picking things up, but if you're an immigrant and you have any question about your status in this country, even if you feel comfortable with your status in the country,

I'm not sure you'd want to respond. You may not. And therefore, you get this gap that we're now observing. I don't think you can explain the last three months. I'm sure there's a lot of noise there. But this seemingly growing gap that exists between the household survey and the payroll survey, does that make any sense at all what I just said? I mean, I guess it's logically consistent, right? I mean, yeah, I think it's definitely logically consistent. I think it's a question of, you know, what's the magnitude of that effect and does it explain, you know, all of the sort of gap that we've seen that I'm less sure about. Okay. Marissa, Chris, any comments on on that theory? Any views on that? Any perspectives or any thing you want to add? You know, I used to work on the

current population survey before coming to Moody's many, many years ago. It was one of the basis of the household surveys. That's right. So where the unemployment rate comes from. It's one of the most common questions we got at BLS is are undocumented people being picked up in these surveys. And BLS really doesn't have any good way to, to measure that, right? Because none of these surveys asked about a person's legal status or citizenship status. They just ask if you were born in a foreign country or not. That's all. And when you were born, when you came to the United States. But so it's certainly an acknowledged issue, but there's really no good way of quantifying it. And like you said, BLS assumes a lot of

people won't respond to these surveys for that reason. Okay. Okay. A quick question, does BLS conduct the survey in Spanish as well? Yeah. They do. Okay. So language barrier, potentially less of an issue.

It's just. Right. And actually, I was just reading the other day. I was looking into it a little bit since the pandemic, BLS has sort of modernized the way a lot of these survey collections happen. So it used to be that people from the Census Bureau would call you, well, first they would do in-person visit to your home for the first and the eighth months that you're in the in the survey, and then they would call you for follow-ups in the in-between months. Now they let people

do electronic surveying, so they'll let you submit your answers, you know, via a web app or something like that. So they're trying to raise response rates on these surveys by making it easier for people to respond. And yeah, they'll do it in different languages as well. But if you're a new immigrant getting selected into the survey, like potentially could take some time, right? That just from a random sampling, I don't know how often that occurs or... Yeah, that's true. Yeah, it's true of any sample-based survey, right? It's going to take time for that to show up in the sample. So potentially, that could be an issue here as well. Yeah. Right. Okay. So bottom line, Dante, good report, bad report? What do you think? Yeah, I mean, I think it's a good report.

report. If anything, job growth is still strong and the parts that we were focusing on is potentially bad over the last couple months seemed to have gone away. So I would call it a good report. Good report. Okay. Marissa, what do you think? Anything you want to call out in the report that Dante did not focus on? I'll just call out a few things that Dante mentioned and just maybe delve in a little more. I mean, one thing to keep in mind that you mentioned, Mark, is the smaller sample size of the household survey, so those estimates are inherently less reliable than the payroll survey. And just for context, on household employment, you need a movement of over 600,000 in a single month in either direction for it to be statistically significant at the 90% confidence level.

Can I say, can I say I always found that weird? Like, if I got a number that said 700 today, 1,000, I'd say, that's just bogus. There's nothing. But they'd be like, oh, that's an actual amount about that. That's just noise. So it's rare, right, to see a movement that big in the household survey. I think there was one in December or November. And then I think you'd have to go back to the beginning of January to get plus or minus that big in the household survey.

So the margin of error is big in the household survey. Yeah, good point. So I just want to call that out. And then you mentioned the survey response rate. the survey response rate on the household survey this past month in February was 70% and it was even lower on the establishment survey. It was 67%. So if you look at charts of these response rates, I mean, they've just been coming down

across the board, right, for all of these government surveys. These in particular are ones to watch. The Joltz survey, which I think we'll talk about later, is even more abysmal response rate. Right. Is 70% on the household survey put that into the, historical content. I know you said it's coming, is that the lowest it's been since something? No, it's not. I mean, if you look, if you look back prior to the pandemic, though, you're up around 85%. So it's really, these response rates have really come down bad since the pandemic.

Yeah. Okay. And if you go back 20 years ago, they were like 90%. So it's pretty dramatic. Yeah. Which again, would be consistent with the immigration story to some degree. I mean, there's a lot of other things going on in terms of low response rates. And just one more thing I wanted to call out on the, Dante mentioned the unemployment rate rose to 3.9%. Right. That's the highest. It's been in quite a while.

It's still low. It's still below 4%. And he mentioned a lot of that was teenagers. And yeah, like the teenage unemployment rate, if you look across all the demographic groups, that rose quite a bit. men, the unemployment rate, it was either down slightly or unchanged. It was mostly women and it was mostly teenagers. Okay. And what's your assessment? Good, bad, somewhere in between?

Good. I think, yeah. I mean, it's still getting solid job growth. It's nice to see that wage growth wasn't commensurate with the increase in employment like it was last month. And these downward revisions to the payroll survey over the last couple months, we kind of thought that would happen, right, when we saw the December and January numbers. And so it's reasonable to think that the truth lies somewhere between these two surveys, that the payroll survey is probably overstating the strength in the job market and the household survey may be understating it. Right. You know, in this kind of discussion around is the economy weakening and headed towards something, if not recession, something closer to recession, or is it

strengthening and therefore going to put pressure on the Federal Reserve to not cut rates or even potentially raise rates, the so-called, you know, our baseline is we soft land. You know, we kind of throttle back. We come in, unemployment stabilizes, it hangs around 4%. Life is good a year from now. The recession scenario is all these things that are starting to show some weakness in the numbers, the weakness in the household survey, the increase in unemployment. You know, you're up now, what, three-tenths of, four-tenths of a percentage point on unemployment? What's the rule of thumb? If you go up more than half a point and, you know, a certain amount of time, that's consistent with the recession.

Or you're, you know, so it's, or you have the no-landing scenario. where things are strengthening. I mean, if you look at average monthly job growth over the last three months, it's like 250, 275, something like that. That feels strong, and we're going to overheat here. So, you know, in thinking about this, I know you like the baseline. That's your most likely scenario. But of the no landing versus the recession, which do you think feels like it has greater probability?

Marissa. Recession? Okay. So you look at this report and you say there's more weakness in here than strength. Yeah. And even with the unemployment numbers, you know, most of the increase in unemployment was people that lost jobs. It's still, it's still small, relatively speaking, and we're not really seeing layoffs pop, but you can look around at different, you know, UI claims, jolts, reasons for unemployment. It's all, it is all pointing to an increase. in layoffs. The Challenger report again showed a lot of layoffs. So I would earn more on the recession side than the taking off again. Okay. Donnie, let me ask, I kind of asked you that question, good or bad, but now with that, is this new frame, you know, we got the baseline. I think we're

all on board with a soft land, some variant of the soft landing, but the two alternatives are, you know, we go into recession kind of straight away here, we're just on a path towards recession, or the no landing where we're going to reaccelerate. Inflation is going to pick up again. The Fed's not going to cut it may and tighten and pushes into recession down the road. Where's the balance of the risk in your mind? Recession or no landing? Yeah, I think I would agree with Marissa.

Just barely, I think it's toward recession. Yeah. Okay. Okay, Chris. What do you think? Anything that these guys missed, they want to call out or you want to reemphasize? And what's your assessment of the report? I think they got it.

I might underscore the average hourly earnings because of the inflation implication to Fed implications of that. And that 0.1% growth is moderating. So that seems to be less of a concern. And I guess less of an ammunition for that reacceleration story, at least for now. The wages seem to be coming in. Okay, so you're in that balance of risks, you would say more likely recession than no landing? That's right. That's right.

No landing scenario? Yeah, there's some weakness. I point to the continuing claims as kind of one of those factors. People are taking longer when they do get, when they do lose their jobs to find work. So clearly some signs of some weakening going on. Right. Okay. Okay. Yeah, I think I, I think, On balance, it shows the report shows the economy is still chugging along, resilient, doing its thing. Clearly, no recession, you know, dead ahead. And kind of a lot of cross currents, this wasn't a clean report.

Hard to come to strong conclusions on anything, but just feels like, you know, we're kind of in a world where we're getting enough jobs to keep the economy moving forward. without going into recession, but not so many jobs that we're going to overheat here and have a no landing scenario. So it feels pretty good to me. I don't want to say right down the strike zone. That would be because it was kind of, it was in the strike zone, but it wasn't like a fastball down the strike zone. It was like a, you know, one of those, you know, it's not a curve. What was the, who was that guy who threw the ball that kind of moved around? in different places. You know what I'm talking about?

A knuckleball. A knuckle ball. Yeah, you can see I never played baseball. It was a knuckleball, right? I was like, I think you're here. No, I'm over here. No, I'm over here. I'm over here.

But strike. Strike, right? Doesn't that feel like a pretty good metaphor for that report? Yeah, Dante's laughing. Yeah, I mean, if somebody, right, if somebody would have told you that you get above consensus job growth, but at the same time, the unemployment rate goes up and wage growth cools. Yeah, right.

That would have seemed unlikely, right? Yeah. And I'm with you guys. I think the risks, I believe in the baseline. I believe in a soft landing, the economy kind of just settling in here without a recession. But I do think the balance of risks are, if we're wrong, it's going to be, we're headed towards recession more quickly. We're not going to have this reacceloration, higher inflation, higher interest rates, and ultimately recession down the road. It feels like the recession risks are a little near-term recession risks are higher. than the no landing scenario. Okay. Okay. Before we move on, play the game. And I promise these guys that this is going to be a relatively short podcast. Of course, doesn't believe it, but we're going to make this a short podcast.

But before we move on to consider what the, what this all means for monetary policy and for markets and for where we're headed, let's play the game, a statistics game. The game is we each come forward with a stat. The rest of the group tries to figure that out with questions, clues, deductive reasoning. The best stat is one that's not so easy. We get it immediately. One that's not so hard we never get it. And we always begin with Marissa.

Marissa, what's your stat? My stat is minus 1.474 million. Goodness. Dante knows what it is. He's smiling. It's the three-month change in the adjusted household survey employment. It is. Oh, really?

Wow. Only because that was my backup stat. Dante and I pretty much had the same stat, right? But his was going to be the unadjusted three-month change, but I looked at the adjusted. So if you convert the household survey to a payroll survey concept. So you take out ag workers, you add in multiple job holders. you take out the self-employed, then actually the household survey has fallen by about one and a half million employees in the last three months, which is pretty amazing, considering

what Dante said, you've like never seen this aside from a recession. You have, you know, you see it in the pandemic, obviously. Then you see it coming out of, in 2009, coming out of that recession. this is even more job loss than in the O1 recession, you just don't see that kind of loss in the household survey except for a very severe recession. So let me get this right. In the last three months, December, January, February. December through February combined, the adjusted household survey employment has fallen one and a half million.

Okay. And the unadjusted has fallen 900K. Yeah. And the establishment survey is up 800K. Yeah. Yep. I mean, that's just, pick your economy, you know? Exactly.

Holy back. Roershack, right? Yeah. Can you, can you send me the mnemonics for that series, the household adjusted? Yep. That's amazing. And someone said, just to reiterate, that that's the widest gap ever except for March of 2020, the start of the pandemic. Is that right? Yeah, either the unadjusted or adjusted concepts, the gap between either

of those and the payroll survey over the last three months is the biggest that it's ever been, aside from, yeah, April of 2020. Jeez. And actually consistent with the idea that recession is a bigger risk than a no landing scenario, I know there's research out there, although I haven't seen, this might be a little bit dated, I'm not seeing anything recent, that shows that, yeah, I probably should put more weight on the establishment survey than the household survey. It's probably a better survey because it's a bigger sample of businesses than households. But the household survey tends to lead the establishment survey and turning points in the economy. Does it no?

Marissa, you don't know, Dante. You tell me if I'm wrong, but I've looked for that research and I didn't really find anything. You didn't find anything. Definitive or updated. A broken institution's paper. At least that's what's in my. Do you know how old? It's a good 10 years old maybe.

Yeah. Yeah. Something 10, 12, something like that. I think it's a Brookings paper. Yeah, I mean, the logic behind it is certainly there that, you know, you've got, you know, a big factor in the payroll survey side of employment is this birth death adjustment, you know, that's factoring in how much employment is being added or subtracted from, you know, new or closing businesses.

And that's based on historical data. And so at a turning point, that birth death adjustment, tends to lead you in the wrong direction, right? It's going to prop up employment when it should be falling. You don't have that same sort of issue on the household survey. So I think that's always been the logic behind that is that the household survey sort of by design can react a little bit faster to a turning point. It doesn't have that sort of historical basis that's propping it up a little bit in real time.

But yeah, I don't remember the research offhand and how strong the evidence is for that. I think that research too focused a lot on the financial crisis and part of the issue there, as Dante said, is this so-called birth-death model that's employed by the payroll survey. And the construction industry is one of the hardest industries for the payroll survey to accurately measure. Because so much of that employment is contract, not on the books, people move in and out of it. They move from manufacturing to construction. and other industries. And so during the financial crisis,

when much of the job growth was coming from the housing industry, the payroll survey missed a lot of the peaks and troughs in that industry, which was one of the big reasons for enormous revisions back then and why the household survey may have been a little bit more reliable. This time around, you know, it's not, the housing industry isn't leading or, right, lagging this. So I don't know that that applies so much to where we are right now. We are today.

Okay. Okay. Have either of you looked at some of the private data sources, the ADPs, paychecks? I haven't really been following them recently. Anything, any signals there that would either confirm or diverge? I have not been following them either. It didn't seem like either were giving a whole lot of. important signal there for a while.

Yeah. That was my sense. I've been following cursorily, cursorily, meaning not carefully. I thought you were referring to some of the name of a survey or something. Yeah, exactly. Firstly.com.

And they're coming in softer than the estuil. Actually, they're coming in somewhere between the household survey and the payroll survey. Perfect, perfect. Closer to the estowel. there's no negative numbers. You know,

there's just, the positive numbers aren't quite as positive as the establishment people, which would be consistent with the idea that, you know, the reality is not,

the establishment survey is certainly not the, the household survey. It's, you know, something in between. Okay. Dante,

you want to go next? Sure. I'm, I'm digging, digging deep over here. Let's go with five points. A list. The first two are gone.

5.687 million. Okay. It's a joltz. Joltz number? You're in the right ballpark, yeah. Right ballpark or is it the jolts in the... It is the jolts, it's jolts, yeah. Jolts, okay, so it's something in jolts.

Is that that, that is hires, isn't it? It is hires. I know it's been a great, a source of great consternation for you lately, Mark. I feel like you're really worried about the hires number. Well, I still am. I still am. The Joltz numbers, it was explain to Jolts numbers and which you're pointing to here. Yeah. So, I mean, hiring has been on a pretty steady downward trend, which, I mean,

made sense for a long time. Hiring was obviously sort of inflated from the initial recovery from the pandemic. And so it was never sustainable to stay where we were in, you know, say 2021 or even early 2022. But that rate has continued to edge lower. It's now slightly below where it was pre-pandemic, you know, certainly indicative of an environment where firms are less willing to continue to staff up. You know, they're certainly not laying people off in any large numbers yet, but certainly

looks to be some weakness on the labor demand side of things. Yeah, I think the big question is, does that plateau here? We can sort of live with the level of hiring that we have right now. But if that downtrend continues, then we could be in a pretty... you know, darker place by the end of 2024 if you continue to see that hiring come in. You know, for now, we've been sort of propped up by the fact that separations are falling at the same time, mainly from the quits rate falling. So you've got, you know, sort of both of those are declining mostly in sync. And that leaves you with net job growth still, right? That hires are

still greater than total separations. But there again, there's, you know, likely some bottom in that quits rate. There's some level where that's not going to fall below. And so, you know, at some point, you need hiring to sort of stabilize and plateau or you're going to end up in a world where job losses aren't out of the question. Yeah. Yeah. I mean, I mean, you got hires at a very low, they tick down again, so very low level, quits are at a low level, and layoffs are at a low level.

And the net of all of that is we're still creating a fair amount of jobs. Right. But this feels like, you know, if you, and this may be an unfair kind of simulation, but if you, assumed hires and quits stay where they are. Let's say they don't go any further or lower. And layoffs just simply normalize, mean go back to kind of consistent with historical norms. We're well below that. It feels like I think we'll still get job growth, but it'll be much slower than what we're experiencing today. And in fact, that is our forecast. That's our baseline forecast that, you know, going forward. Does that sound right?

That sounds right. Yeah. I think you'd be, you know, at sort of very low. net positive job growth if you had layoffs normalized yeah yeah okay okay that was a good one chris you're up okay 3.9 and 3.8 percent labor market related yes well 3.9 is the unemployment rate it is it is it is one unemployment rate this is another 3.9 oh but it's another unemployment rate or yeah oh it's no it's 9 percent is the total but there's another 3.9 that there's another 3.9 that That some demographic group is a companion to the 3.8. Yes, demographics. Oh, okay.

Hmm. And it's in honor of the day. Men and women. Yeah. There you go. I don't know which is which. Oh, take a guess. 3.9 is women?

Yes. Okay. 3.9 is men. Significance is the women's unemployment rate is now higher than the, or at least this month was higher than men's. It had been significantly lower over the last year or so, half a percentage point lower. So suddenly there was a big, big jump in female unemployment rate this month. Now, there had been this more than a narrative, I think it's a reality that throughout the pandemic, women got kind of hit harder than men. And I think that went to the nature of the

pandemic in which sectors got hit by the pandemic. But it feels like things have normalized, right, in terms of men and women were pretty much back to pre-pandemic. Does anyone know? Marissa, do you know? Yeah, I mean, women got hit harder because of the industrial composition and children being out of school and women still bearing more of that brunt, right? But the rebound for women was then stronger and women had actually been doing better than men. comparatively in terms of both job growth and participation gains. But it looks like that might be normalizing or, yeah,

women certainly had a bigger increase in unemployment over the month. I don't know how much of that is layoffs versus coming back into the labor force because part of the reasons for unemployment, there was a big bump in re-entrance to the labor force too. But I don't know what that looks like by gender or gender. demographics. I don't know if you know, Chris. Yeah. Well, I did note that all the labor force growth was women, right? Women were up. Yes. Women's labor force was up 267,000. Men actually fell 116. So all the growth this month.

Again, these are demographic. You have to be a little careful. We're talking about, you know, the survey having wide confidence intervals. But nonetheless, that's what the raw data suggests. Right. Okay. Okay. I got two numbers. Two point six percent and one point six percent. Two point six and one point six. Is it from the jobs report? No, but it's labor market related. Joltz? Not Joltz. Oh, is it productivity related? It is indeed. So what's the two point six? I know what the year over year productivity number was, but wasn't that 2.6? I thought it was 3.2, right? 3.2, yeah. Year over year? 3.2 is annualized.

Okay. Okay. Okay. Okay. So 2.6 is year over year over year. Yeah. 2.6 is over a year. 1.6 is over the last three years, four years, one of those three years. Pre-pendums. Pre-pendom. Okay. average annual productivity growth, non-farm business productivity growth. So we're still enjoying, at least through the end of last year, some pretty heavy productivity gains. Of course, that was after you go back a year ago, productivity was falling. So you've got to, you know, abstract from the ups and downs and all rounds. But it feels like underlying productivity growth might be ever so slightly edging higher.

1.6 is a little bit higher than what we had been getting before the pandemic in the years ahead of the pandemic. So that's a good sign. And unit labor costs, so that is compensation, labor compensation growth, less productivity growth, that kind of goes to businesses profit margins and then ultimately to their desire to raise prices and inflation. So that's been very weak and barely growing. You know, it's positive, but barely positive. So that suggests that the pressure, you know, margins are wide.

They're not rising, but it doesn't feel like they're, you know, falling to any significant degree. So that suggests that it's taking, it's not putting pressure on businesses to raise prices. These productivity gains are, you know, consistent with the compensation, labor compensation growth and therefore keeping pressure off of businesses and inflation. So very positive development. Anything you guys want to say about the productivity? I've been at a conference here the last couple of days,

and it's all about AI. And I think the general consensus is that this is going to be a big deal for productivity growth, but not quite yet. It's going to take a little bit of time for that to kick in. Okay. Dante, anything you want to say? You're the skeptic. I'm still skeptical, and it hasn't changed my mind.

I feel like you have to really squint to see an upward. trend yet, but yeah, we'll see how it plays out. See how it plays out. Okay, fair enough. Okay, let's end the conversation. I did say it was going to be a short podcast, and it's going to be, but let's end with the market reaction and what it means for the Fed. And maybe Chris, I'll turn to you, because I know you watch the market carefully. Did this change, did today's numbers change market expectations for the first Fed rate cut?

Not really. March is still off the table. I'm looking at the CME futures, about 3% chance of a March rate cut. So that's, you know, no one, no one is expecting that. May is right around 20%, right? So at least the market expectation is the first cut is going to come in June, which is up around 75% probability. So that seems to be the case. And this report today didn't really change those numbers significantly.

They bounce around anyway. So there was no abnormal volatility that I saw. So that seems to be the case. And then through the year, I looked at through December, it looks like the market is pricing in four cuts this year. Four cuts. It's a distribution, of course. But the midpoint of the distribution looks about four.

Or quarter point rate cuts. Oh, correct. Yeah. So it could be quarter points. It could be half point cuts. It doesn't really matter. we have a meeting in June, July, September, November, and December. And one at the very end, December, I think.

Yeah. So they're expecting out of the five meetings, there will be cuts at four of those meetings. Correct. The market is. That's the implied. That seems aggressive to me, doesn't it? It does. It does.

Still does. It does. Yeah. Yeah. I mean, you know, give. I think the one thing I took out of Fed Chair Powell's testimony this week and he testified both in the House and the Senate was at the bar for actually cutting rates is not that high. I think I think he said it and he means it that he just needs to see another couple of inflation reports that are consistent with the idea that we're going back to the Fed's target. We're kind of sort of there, but just confirmation that we're actually headed in that direction. And that makes sense. I mean, if I were king for the day, I had enough confirmation, I'd go.

But, you know, okay, fair enough. But it seems to me once the Fed starts cutting rates, at least initially it's going to take its time, wouldn't it? I don't think, I don't, if they're not in a rush to start cutting, why would they be in a rush to get them back much lower quickly? I just don't see what would be the catalyst for that, right? I'd agree with unless they're panicking, unless they're some. some weakness, right? They're really concerned about it. That's not what the market's saying.

No, right? No. Pricees are up, credit spreads are in. That's not consistent with the idea. Oh, we think there's going to be a weak economy dead ahead. Therefore, the Fed's got a lower rates more aggressively. That's not what you see. That's right.

I guess I'd be a little cautious in looking at the CME futures because that's not just the baseline path. It's also risk management, right? There's some tail that investors are also hedging. discounting in there, right? So they may be putting more weight because they're on that the end of year kind of activity because they have some recession probability that they're trying to hedge again.

At least that's how I frame it. Okay. We don't want to read. It's not asking what is your baseline path? It's incorporated. The weighted average of all these paths. Correct.

And if you have that on the tail, a really dark scenario that you attach some probability, meaningful probability to, then you get this result. Right. Yeah. Okay. That's how I'm thinking about it. Actually, that makes a lot of sense to me.

That makes perfect sense. And our baseline, Mark, is unchanged from last month in terms of the Fed? No, Chris convinced me. You know, we had, last month, we had the Fed lowering rates in March, excuse me, in May. And then we had, I think we had three rate cuts in the year. And I think we're now going to push it to June and still maintain three rate cuts. So there will be June, November, and just point of interest is that November meetings after the election, after the election. So they're not going to cut rates right before the election.

And then we have very end of December. So basically it's one quarter point rate cut each quarter going forward. June is second quarter, September's Q3, December's Q4. And then in 2025, you know, one quarter point cut in each of those quarters. And that would get us down to, you know, equilibrium R-star, you know, that rate that's consistent with monetary policy in either restraining or supporting growth, which we put at about 3 percent sometime in early late, probably it would be more like early 2026 when we get there. Everything kind of sticks to script.

Interestingly enough, I mentioned this conference. There are some really smart folks that are now thinking that our star is that that equilibrium rate is 4 to 4.5% which I found interesting. Yeah, I found interesting. Very interesting. Anyway, and markets, how did they take it? I mean, this morning, I saw a lot of green in the equity market, but here we are towards the end of the day, kind of reddish to down. down, a reddish to flat, something like that. It was pretty flat last time I checked.

I guess the real tell is the 10-year treasury yield, and I think that's still down a little bit, right? I think that was pretty flat too. Flat too. Okay, so no reaction. So the market, the investors are interpreting it kind of sort of the way we're interpreting it. You know, good report. Everything's sticking to the script here.

Okay. Okay. All right. Well, very good. Anything else that anybody wants to bring up before we call it a podcast? I told you, Chris. It was going to be 45, 50 minutes. I think I held to that.

So what did you think of the State of the Union last year? I know. He's going to be up. Darn it. Now that we have 30 seconds left, what did you think of the State of the Union? No, I'm not answering that question. Not answering me. Actually, you can see my views on CNN.

I wrote it up, a very brief op-ed. I actually wrote it last night after the State of the Union. And you can get my sense of the, if you're interested, of the speech. from a economic policy perspective. But I'm not biting. No, Chris, I'm not doing it. I'm not doing it. Any final words, guys?

Thank you. I appreciate that. Hearing none, we're going to call us a podcast. Thank you for listening in, dear listener. We'll catch you next week. Take care now.