Moody's Talks - Inside Economics - July Jobs: Ugh! Yikes! Eesh! Hmmm….

Episode Date: August 2, 2024

Nick Bunker from Indeed joined the podcast to break down July’s surprisingly weak employment report. The team put forward their favorite interjections before breaking down the report into causes for concern, potential measurement issues and (a few) reasons for cautious optimism. The discussion turned to the “Sahm Rule” as the group pondered whether the recent rise in the unemployment rate is signaling a recession.  Mark and Marisa both claimed victory in the Statistics Game before the podcast ended with the team putting forward their current recession probabilities. (4:00) July Employment Report  (22:58) Labor Market Issues(51:00) Stats Game(1:02:50) Recession RisksToday's Guest: Nick Bunker, Director of North American Economic Research at IndeedFollow Nick Bunker: @Nick_BunkerHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by a bevy of folks. We've got my two trusty co-host, Chris D. Reedy's and Marissa D. Natali. Hi, guys. Hi, Mark. Good to see you. Good morning. You know, we typically start these podcasts with a little bit of chit-chat, but my son says he doesn't like to chit-chat.

Oh. And the reason he gave me was, you guys are just boring. No. I'm not kidding. I'm not kidding. That's harsh. Are we all boring or maybe just one of us? Actually, he did single out one person.

I'm just not going to tell you who that is. It could have been me. It could have been me. I'm just saying. But anyway, Alex is right. We're going to have to upgrade our chit-chat. But no chit-chat today because this is Job Friday. This is August 2nd.

And I'm just going to say one word before I bring and the other guess. The word is, u-g-h-h-exclamation point, ugh. Anyway, we also have Dante, Dante. You come on every Jop's Friday. Good to see you. Hi, Mark. I don't think we can be accused of being boring on Jop's Friday. I don't think that's possible. I don't know, Dante. We live in a bubble, I think. But I love your shirt. I love your vacation shirt. Thank you. Thank you for joining us on your vacation. No problem. Yeah. How's the water at the New Jersey Shore? Oh, no chitchell. There you go. It slips right in. One word cold.

Cold. It's one word cold. It's one word you're cold. Very good. And Nick, Nick Bunker, you're back. Good to see you, man. Glad to be here and glad that my son's not old enough to give feedback on my conversation on a podcast because I think that might get similar. Oh, yeah. Oh, I'm sure. I'm sure I'll get the same feedback. So I'm just, I'm biting my time until. How old's your son? I have two. And they are turning two. later this month. Well, you got one more your grace period and then criticisms begin. About three and a half. Dad! Really? Dad!

What are you out of your mind? They don't say that at three and a half, but that's what they're thinking. Yeah. We'll get there. We'll get there. Okay. All right. And Nick, you're at the Indeed. Oh, you've been on a couple times, at least three, maybe two, three. I think this is my third time. Third time. Excellent. Good to have you.

Do you want to just give the audience kind of a brief bio and anything you want to say about Indeed? Yeah, sure. So I am the director for North American research at the Indeed hiring lab. The hiring lab is Indeed's economic research arm. We're in the fortunate position where we get to use all the proprietary data, or at least a large majority of the proprietary data at Indeed to understand what's happening in labor

markets. So that's in the US, Canada. We also have economists in Europe, in Japan, Australia as well. So we get to use data on job postings to come up with metrics like that. like our job postings index to tell folks what's happening to sort of state of demand. We also have measures of posted wages. And then we do bespoke longer research projects on a variety of topics. So we keep our eye on the lay market in a variety of ways,

including the government data that we get across markets. So excited about digging into not only the jobs report we got this week, but all the data that came out, you know, earlier. And then any of the data that indeed has that can, shed some additional light. Yeah, very cool. We're very lucky to have you on Jobs Friday. This was a labor market data dump this week, wasn't it? We had lots of stuff come out. And I had this one word to say, UG-U-G-H-exclamation point, ugh. Okay, let's dive right in. And I'm going to begin with Dante. Dante, you want to give us the nuts and bolts of the report, the jobs report for today?

Sure. I mean, I'll share your top line sentiment of UG. I think it was hard to find much to like in the report today. Headline job growth 114,000 in July. Private sector job growth came in just under 100,000. Three-month average job growth didn't really change all that much, mainly because we had a really weak reading in April as well, which rolled off the three-month average. So we went from one UG in April to another one now, which left average job growth right about 170,000. Downward revisions, again, not nearly as big as they were last month, but still, it seems to be that not only is headlined growth weakening, but revisions to prior months are also causing things to look a little bit weaker than they had originally. You know, the industry composition again. I just go, quick question. I always ask this, underlying monthly job growth.

So abstracting from the vagaries of the data, this month we had a hurricane that blew through and kind of maybe scrambled things, seasonal adjustment. Abstracting from all of that, what do you think underlying monthly? job growth is? I think at best $200,000 at worst $150,000, so somewhere in that range. So, okay, $150 to $200K. Yeah. Okay. All right, go ahead. Industry-wise, it was not a whole lot of new news. The composition was still largely the same, sort of everything throttled back for the most part. So you still had, you know, health care, lesion hospitality, public sector driving the majority of job games.

construction also getting a little bit stronger here as the year wears on. Not a lot else to sort of write home about industry-wise. Information was the one big loser in July, dropped 20,000 jobs. Other than that, there weren't any sort of major declines and not a whole lot of action on the industry front. On the house wages also came in weaker again in July. We had a week reading in June. another week reading in July, they were up 0.2%. Year-over-year growth is now down below 4%. It's at 3.6.6. So I think we can sort of firmly take concerns. Average hourly earnings are 3.6% year-over-year through the month of July.

Okay. That's right. Feels like kind of where you want them to be, right? Not too hot, not too cold. Yeah, I certainly think any concern that wage growth was going to be a problem in terms of inflation should be pretty much gone at this point. It doesn't feel like, if anything, it feels like we're going to go the other direction here. not if the labor market's going to get hot again. Right. Average weekly hours ticked down a little bit.

You know, that likely the hurricane impact probably plays a role there. But we've seen that be weak here now throughout 2024. So I'm not overly surprised that it has stayed weak at this point. The household survey didn't bring a whole lot else to be excited about. And maybe a couple of bright spots sort of mixed in with the bad news. You know, the headline is the unemployment rate rose for the fourth straight month. It's up to 4.3%. we did get a big gain in the labor force

labor force grew by over 400,000 labor force participation tick back up again prime labor force participation so for 25 to 54 year olds actually jumped quite a bit an increase for the fourth straight month that it's at its highest level since 2001 so if there is maybe a positive story there it's that we're continuing to see

a strong level of participation and employment among prime age workers outside of that you know employment was up a little bit. The number of unemployed workers did jump quite a bit. So there's not a whole lot on a positive front on the household survey either. It's sort of a sign of weakening across the report as far as I've seen. Okay. So would you characterize the labor market, how would you, broadly speaking, how would you characterize the labor market? I mean, if you asked that question six months ago, you would have said strong, I assume. Now, now what would you, how would you characterize it?

somewhere in between strong and weak. It's moderating for sure now. I definitely wouldn't call it strong anymore, but I don't think I'm ready to call it weak just yet. I think there's enough uncertainty around this month that I'm not believing that underlying job growth is 115,000 at this point either. So I'm not sort of all the way in the camp

that things were headed to zero and below immediately. But I think it's definitively weaker than it was six months ago in my mind. Got it. Okay. Hey, Nick, what do you think? First, there's a lot in that report. So if you want to flesh out anything that Dante said or add anything on the numbers, that would be great. But also I'm very interested in your just general impression.

Are you in the UG camp as well? So I wouldn't say UG. I will say yikes. Maybe to add a letter there just for a little bit of variation. I really like that. Yeah. Yeah, I think literally the first word out of my mouth when I refreshed the PDF this morning was yikes. And then maybe some words after that that you don't want to say on a family-friendly podcast.

That and I- We're not that friendly, Nick, just saying. So, you know, buckle in. Noted. But I think like Dante, I see the lay market as materially weaker than it was a few months ago, but I wouldn't say it's weak right now. So I think if you look at this report at the current state of the lay market as it is in July of 2024, it's in a decent spot.

you know, you are seeing employment to population ratio for prime age workers at levels we saw in the early 2000s, like 2001, when that was a strong labor market. Wage growth has slowed down, but it's still, you know, in a vicinity we saw in 2019 was pretty strong and inflation trending down. So real earnings are picking up and a rise in unemployment, you know, 4.3% unemployment, it's higher than what we're seeing recently, but it's pretty low by historical standards. That all being said, everything else in the report, it's the direction that's really concerning, that everything is not only weaker than it was six months ago. The outlook is it looks like it will continue to weaken, that payroll gains are still, you know, relatively healthy,

but the diffusion index got one below 50, and that's also been sort of like slowly trending down over time. Can you just explain that very quickly for the listener? It's the diffusion index. So the diffusion index is a metric that essentially tells you what percent of industries are adding jobs in a given month. So if it's 50 or above, that's a sign of broad-based expansion. If it's below 50, that means less than, you know, that means most industries or sectors are subtract, not adding jobs. So that dipping down not only means that the magnitude of job gains that we're seeing is lower, but also the scale of the job gains are as smaller as. well so there's just fewer industries adding jobs and so in in addition to that you know the

unemployed rate is just still creeping up i think you know before this report lots of people sort of game planning you know just this thing rise above like the psalm rule indicator what's that mean and i mean you can have those conversations but i think the underlying reality is it's it's going up the trajectory is still in the like the bad numbers going up that's that is very well listener we'll come back to the SOMS rule because that got triggered, I think, right? Marissa? Yeah. We got triggered. So we'll explain that and what it has meant historically. So it, I think if you look at unemployment rate, you look at other metrics as well,

it's clear the lay market is, it's weakening, whether or not it's weak. It's not weak right now, but it's trending. The direction is weakening. I think the question right now is it's clearly still weakening. It's unclear whether it's, you know, that weakening is accelerating or just staying the same. But to my mind, you know, regardless of that, the outcome of that debate, it's still not leveling off and it's not getting better.

So trajectory is still towards weakness. And if that keeps continuing, eventually it's a weakly market. And eventually whether or not it trips any specific statistical line, that's a recession for me. many people. So noted, so you're, you're yikes. You know, this is, and all the trend lines look a little disturbing. Certainly not what you'd want to see. But let me ask you this. Is there anything in the report that you came away with with, that's okay. That's pretty good. We mentioned wage growth as

one of the indicators that might, I guess it's okay. It's not too hot and no cold. Anything else in the report that seems okay to you? Yeah. So I will say, I mentioned it briefly, but the share of workers ages 25 to 54 with a job that picked up at like levels consistent with the strong way market so that's good to see I think that is one of the things that um you know if that sort of merely like that has leveled off essentially you know it's up over the month but over the last year it's kind of flatlined and that is a sign that hey the lay market isn't deteriorating in a major way because the share of the share of the people with an age group with a job is holding steady so at least it's not trending down so that is good to see and then the

I think within the sector data, Dante referenced this, but construction employment is still going strong. That was good to see that that's been an interesting sector over the past two years just because traditionally quite interest rate sensitive, but it's held on. So seeing it still adding jobs was a positive indicator for me. Maybe I'll just ask you one more question before I move on to Marissa and get her views. You were talking about the trajectory here and unemployment. rising, job growth is slowing. If those trends continue, then the job market goes from whatever

it is to weak. It'll be weak here in not too distant future. What do you think? I mean, do you think the trend lines will, do you think we will stabilize here or in the next few months? Or do you think the trend lines will continue to move in the untoward direction? I guess I'm hard pressed to think of any signs of anything that would change the current trajectory. and like in a positive direction, what would slow things down? You know, maybe it is, there's expectations of interest rate cuts today. It sort of brings the mortgage date down a lot and then sort of that props the housing market up and that there's some knock on effects there.

Or maybe the consumption stays strong because inflation's come down enough that people feel good enough to keep up their consumption. but I've been thinking this morning about what's going to make me feel better about these trendlines, and I'm drawing a blank right now. Okay. All right. Well, at the end of the conversation, I'm going to ask everyone for the probability of recession starting at some point in the next year.

Sounds like you're going to be on, you're on the negative side of that. But don't tell me. Don't tell me. We'll come back to that. I will say that the trend in my recession probability has been up over the last period of time. Marissa, anything you want to flesh out in? in the numbers that we haven't already covered in, and what's your kind of take on things? I think yikes and eish and wow are all.

No, ugg? Yeah, I forgot about ugg. All of these words, yeah. I'm worried because I too believe that this is not a weak labor market, but it is weakening and it appears to be weakening pretty rapidly. And it's not just the jobs report, right? We got the Jolt's report this week. Hiring is now at its lowest rate in 10 years.

This is the final step employers take before they start laying people off. I mean, so if I'm looking for bright spots in the report, then I go to the household survey, which you guys have already said, you know, labor force participation for prime age workers, basically back where it was at the peak of the all-time peak of the labor market in the late 1990s, 2000s, that's great. We still don't see a lot of evidence of layoffs. I mean, I know unemployment insurance claims have trended up,

but there's still, you know, there might be seasonal things going on there. It looks a lot like it did last summer. It's not in this flashing red territory yet, and we don't see evidence of layoffs from other surveys. So we don't see it in this report, and we didn't see it in the Joltz report either. We didn't see it in the Challenger report, which we also got this week.

challenger layoffs. This is the Challenger Gray and Christmas. These are announced layoffs. They scrape it from the web. And those were actually down compared to where they were in the month prior. So we're not seeing employers laying off, but we're seeing them pull back on hiring very, very sharply. Dante went through some of the industries, right? We also got losses. I think Dante, you said the information industry had a job loss. So did professional business services headline. And that wasn't just temp help. It was other stuff. Within financial services, banks lost jobs over the month and all kinds of banking, not investment

banks, Wall Street type stuff, but bank banks, right? People that lend money. A lot of our clients saw big job losses over the month. So I don't like what I'm seeing on the payroll survey side. And we didn't really say much about the hurricane. I'm not convinced there's much of an effect from that hurricane on this data, but we could talk about it. Right. The BLS actually in the-

The BLS said there was not. If you look at the survey response rates, on the household survey side, the response rate was exactly what it was last July. 70.9%. But on the payroll survey, the response rate was 56.9%, which is the lowest it's been in any July since 2001. It was significantly lower than what it normally is in a July. Now, BLS may not be worried about that because that's still within their margin of error and it's not affecting the statistical significance of these gains and losses, but there could be some effect there.

And if I look across industries, the only industry where I could say maybe this is a hurricane effect is there were some losses within transportation like ground transportation, passenger transportation, things like that that could conceivably be affected by the hurricane. But I don't think we can blame the jobs, because I've seen some of this in the press this morning, you know, blaming some of the weakness on the hurricane. But I don't think there's a ton of evidence to suggest that that's the case. Well, I mean, if the survey response rates lower, that may be hurricane related. It could be.

One survey. Yeah. bias the number to some degree. And then there's also a number in the report. I didn't look at it, but maybe someone else has. The number of people who say, you have Nick, that's the number of people who say they aren't working because of weather? Yeah, who said that they have a job employed, but they're absent due to weather.

And also, I think there was also usually work full-time, but working part-time instead. So I think that's in the household is what I've seen people point at. And also some temporary layoffs. And it were elevated? Those numbers were elevated. Those numbers were elevated. Okay. So there is some evidence that maybe this thing is overstated.

Yeah, but I would, I would, if it is, you know, I'd say maybe it's like 10 to 20,000 jobs. So it's not going to, I don't think, I don't think without this that you'd get a plus 200K number on the payroll survey. Just for everyone out there, we're referring to that hurricane and Texas. Houston, right. Knock things out for a while. Yeah. During the service. And then the only other things I wanted to say is if you adjust the household survey to the payroll,

survey concept, you would have got a 19,000 K decline on the household survey. And that's mostly because if you look at the composition of job growth as reported by the household survey, a lot of it was among the self-employed. So private wage and salary workers and government workers, I think they both fell, if I'm not mistaken over the month. It was really the self-employed that boosted the top line number. So when you take out the self-employed because they're not included in the payroll survey, you would have got a negative print on household employment. Got it. Okay. So Chris, I know three keen observers have given their take on the report and given their review. I'm not sure there's anything left to pick over on the report, but if there is,

all the years, but most interested in your perspective on this. And maybe you have another description for how you feel. Yikes, ugh, wow. I think that was Iish, yis, you got it with an accent de gu, the accent de gu. I don't know what that means, but, you know. I don't know what that means either. It's French for something.

I don't know. It sounds right. Anyway, I'm trying to widen things up because my son says we're boring. How can that, that wasn't boring, was it? That didn't feel boring to me. How about a, growing his eyes, but okay.

How about a, hmm. I like that. Yeah, let me offer everyone listening to the podcast a brief moment of silence, take a deep breath. There's a lot of going on. I'd also advise not to look at your retirement or 401K statements this weekend, you know, go for a walk. Yeah, it was a bad report. But, you know, we identified some of the positives here. And I guess my point, the main point I would make is this is not terribly unexpected, right?

We were expecting slowing. We were expecting to see, you know, things coming. We were actually surprised at the upside a few months ago. So, you know, yeah, not a good report, certainly. But I don't see this as the end of the world either. There's, you know, more script to be written here. So I think I'll offer that perspective check. It's so funny.

All of a sudden, he's the optimist. Yeah, all of a sudden, how he's optimistic. How did that? happened. What? What's going on here? This is going right to my script. So, you know. Oh, I see. Exactly. Exactly. Okay. So you're saying no hair, you shouldn't have hair on fire here. I mean, obviously this was not what you would want to see, but, you know, you get bum reports all the time, you know, so that might be, this might be just a bum report. But to Nick's point about the trend lines, I mean, that resonates with me. I mean, I look at the unemployment.

rate, that's the one that really bugs me the most. I mean, unemployment rate's 4.3, 4.3%. You know, objectively, that's very low by historical standards. But that's up, what, a percentage point from a year ago or pretty close to a percentage point? Point nine, I think. Yeah, and it's rising now pretty significantly. And now we're going to get into the Psalms rule. You know, this, historically, when you see increases in unemployment on this quickly over this kind of a period, it suggests the economy is really already suck in the wind, right? And I think the intuition behind it is, at least my intuition behind it is, once unemployment starts rising, that makes people nervous.

Consumers start to become more cautious. And there's indications of that, particularly more income households. And that then causes businesses to pull back even more on their payrolls, layoffs. start to start to climb. And you get into this kind of self-reinforcing vicious negative cycle that takes on a life, a dynamic of its own, a life of its own. And that's recession. In fact, what's the Sam's role exactly? Mercer? What's the exact formula? It's the three-month, when the three-month moving average of the unemployment rate rises half a percentage point or more from its low point in the prior 12-month period. Okay. Okay. So,

you know, we're 4-3, that's not, if you take a three-month moving average or probably 4-1 or something like that. Yeah. And we're up more than a half a point from the low point on three-month moving average over the past 12 months. So that rule has now been triggered. That regularity in history has been triggered. It went from the indicator was 0.43 in June, and it jumped to 0.53 with this morning's

report. So we're above that 0.5 threshold. now. Now, we had been talking about this via email over the week, and the one thing I did not completely understand is that the Psalms rule is not a leading indicator of recession. It's actually a lagging indicator. Once it actually is triggered, historically, you're already in recession by a couple three months. Yeah. Okay. And I think that's been kind of widely misunderstood when if you go, you know, up until today, well, I haven't Googled it today, but there's so many articles about the Psalm rule, people on TV talking about it, talking about it as a forecast or a

leading indicator of recession. It's not. And if you look at the original Psalm rule that Claudia Sam herself says, and she's been doing a lot of interviews telling everybody to calm down, like this is not what it is, right? It's not meant to be a leading indicator. It's just that she observed over, and it's true, you can go back to business cycles since the 19. 50s and 60s, that when this triggers, you're typically about three months into a recession already. Now, you don't know you are, right? Because we don't know the official start and end dates of a recession until the National Bureau of Economic Research dates this like a year after the fact. So if we go back and we look at these official start dates of recession, the Sam rule typically has

triggered several months into a recession. So that would suggest, like, if this was true today, it would suggest that the economy went into a recession a couple months ago. Right. And that's the value of it. That is when you're, when the economy is going into recession, it generally very difficult for people to actually know that. Right.

At the time. The log of the data. Yep. in this this this this this this the so-called rule this regularity historically would cuts through the fog and says okay you're in so if this this rule holds today we're we're already in recession okay what do you think of the Psalms rule and what do you think of it in the context the current context is that it's saying we're already in recession so I've I've been a person who's been watching this once the unemployment rate started like slowly drifting up in 2023.

I was like, all right, I'm just going to like every month. The report comes out, check the indicator. And I think it's very useful in part because I think it gets at the underlying point of that the unemployment rate when it starts rising, it doesn't just usually rise a little bit. It has some upward momentum to it. So I think this gives you an indicator of not just that it's rising, but the speed that it's, at which the unemployment rate is rising. The fact that it's like the three-month average

has to be at least a half point. So it's both at a speed and a time frame of how quickly and large those increases are. So in terms of like the current sort of economic situation, whether it means whether or not we're in a recession, I am thinking a little bit of two years ago when we had two consecutive months of negative GDP growth, which is, you know, it's not as back to,

as Claudia's research with the SOM rule, but that's usually an indicator that you have entered a recession. And I don't think we entered a recession then. We were flirting with it. And I think, you know, if you take the SOM rule at its face value, say, oh, you're in a recession two months ago, I think about the other data we have that you usually use to determine a recession,

all those indicators are not indicating that we're in a recession. You know, GDP growth, you know, not only was above 2%, it was an upside surprise, you know, personal, you know, how a personal disposable income is still growing. All of those other indicators are pointing it. So I think the way I'm taking it right now is whether or not it's a recession or if in a year and a half from now, the fine folks that in NBR when they meet in Cambridge will say,

oh, no, it was a recession. I think right now we can tell the labor market's clearly deteriorating. And maybe the overall economy is not in a recession right now, but the labor market's definitely feeling, you know, more pain than did before. and it's trending in that direction. Yeah, my own sense is that the SOM's rules not very, is not going to work this go-round for two reasons. I don't think we're in recession.

The first reason is it feels like the increase in the unemployment rate is mostly because of labor supply, not a decline in or weakening and significant weakening in labor demand. And the labor supply goes to the strong inflows of immigrants into the country. And we know there are a lot of immigrants that have come in. They apply for work authorization. They get that within, I think, nine, 12 months, and then they're working.

And we've seen that in a lot of different industries where immigrants tend to work. And that, you know, Liberty demand is probably weakening as well. You can see it, I think you kind of feel in hiring rates. You can see it in hours worked, maybe temp help. So I'm not saying it's not, we haven't seen some weeks. weakening in demand. But that, you know, if I said, okay, the unemployment rate rates risen a percentage point over the past year, my intuition is that two-thirds, three-fourth of that's labor

supply, one-third, one-fourth of that's labor demand. And the labor-demand side of this is exactly what the Fed would want, right? I mean, because we were, unemployment was, from their perspective, too low. The suggested the economy was beyond full employment, too tight, generating wage and price pressures, we want to cool things off, we want unemployment rate to rise, and they pretty much got that. And the rest of what we've gotten here is just labor supply, and I don't view that as being as serious a worry. The other thing is the best coincident indicator of where the economy is in the business cycle by orders of magnitude is jobs, it's payroll jobs. As Dante said, I think we're probably closer to 150K, you know, after abstracting from everything in all the

revisions. But 150K still, that's good. I mean, that's not a problem. I mean, that's exactly, maybe even on the high side of where you want to see it, if labor supply wasn't, wasn't, you know, as strong as it is. So I don't know. I don't feel like the Psalms rule is going to work in a meaningful way this go around. Nick, any reaction to that?

And I see if the others have a reaction as well. On the supply side, I tend to agree. Agree with parts of that, that yeah, a lot of this has been supply side increase, like more people engaging with the labor force. I think in some ways today's report is a little microcosm of that, where you did see, yes, the unemployed rate ticked up, but the labor force participant patient rate did as well. I think, and I hear you on the immigration side,

I think one caveat I would add to that is that a lot of a decent chunk of the increase in the unemployment rate the last year plus has been in entrance and re-entrance to the labor force. So I think one line of thought there is, look, this isn't just more people entering the labor force. It's a more benign form of unemployment rate. And I think my response to that be, yes, it's good that they're entering, but the fact that they're not finding a job. And also that we're seeing fewer people come from not into labor force right into employment. That's a time to me that, okay, yeah, people are still looking for a job. So it's tight enough that people are still looking for a job. But maybe the tightness is loosening enough that when they do go to,

they do go to look for that job, they're not finding it as quickly. So I think it is, it's, that measure, I think is hard to untangle how much of its supply and how much of it is demand. You got my point on payroll employment, that that is a coincident indicator. Yeah. So I think, I mean, I think part of the logic for liking the SOM rule is that the household survey doesn't get revised. The payrolls, survey does. And I think particularly in the period where there's been uncertainty in some corners and straight up mistrust and others about like the revisions to the payroll number that

people have emphasized the household survey. But I think I'm more in the camp of, I'm, I would lean towards the payroll survey more for underlying employment growth, which is why I don't think we're like necessarily under recession right now because they're still adding jobs. Job openings and job postings are still elevates. So there's still some. demand there if it's come down. So I think that, you know, I would, I'm taking, I'm drawing signal from the rise to unemployment rate, but I'm not saying, oh, the rise in unemployment rate means the payroll surveys much lower than actually is. So I would say, I would agree that like the current pace of payroll growth, the 150-ish, let's say, does suggest we're not in recession. But to go back to my,

like, my other one of the day, which is trend, like the trend. Like the trend is like down. So like the payroll, it doesn't look like the payroll's going to pick up anytime soon. I don't see any signs of like a clear leveling off there either. Okay. Well, the other data point I wanted to throw out there to kind of consistent with the idea that this might be more labor supply than demand is the unemployment rate increase has been most significant among less educated workers, you know, less than high school degree. High school degree, less than high school degree, where you would expect the immigration

to have its biggest impact if that's, you know, if that's, in fact, the factor. What do you think, Chris? Do you have a view on this? On the Sons rule and how, I mean, the Sons rule says we're in recession. So what do you think? It certainly doesn't feel like recession right now. The other indicators, and I understand there's cloud, cloudy data here. But it doesn't seem that that's been the case for two, three months at least, if that's the yardstick here.

So I agree with you. I think this go around, it may not be right, or maybe it may be to take more to trigger, right? We may need, maybe it's a little bit more delayed than typical. Yeah. Dante, any other views on that? No, I mean, I would agree. I think we talked about this earlier this week in the email thread that you mentioned, you know, if you look back historically at your business cycles where the SOM rule was triggered,

in most cases when it triggers, you know, three-month average job growth is already negative, which clearly is not the case today. If you look at the couple cases where it wasn't already negative, in one case, there had been negative prints of job growth in the six months leading up to the somerl triggering. It just wasn't negative at that moment. And then in the other,

I think two cases within a month or two after the somerle triggering, job growth went negative. And it just doesn't feel like we're headed to a negative print on top line job growth in the next month or two. I think, again, if underlying job growth, both is 150K, it feels unlikely we're going to get to zero here in the next month or two. I mean, the bottom could fall out of everything.

But with layoffs sort of holding in check, it feels harder to sort of imagine that threshold getting crossed that quickly. If layoffs were on the rise already, then I'd be less sure that, you know, that couldn't happen here over the next couple of months. It just feels like, you know, the underlying fundamentals of the labor market are stronger than they usually are when the SOM rule gets triggered. You know, we, as part of that email conversation, we also. also had a bit of a back and forth on, well, okay, what is a good leading indicator?

What, you know, what would you, if you had to pick one leading indicator, meaning you want something that kind of gives you a signal before you're in the into the economic abyss? Mercia, what's your, do you have a perspective on that? I know you have a perspective because you were on the email chain, but to just listen. Yeah, I mean, the other, the other, the other component of the SOM rule that we've always seen is that if you look at unemployment insurance claims, they are always trending up when the SOM rule triggers. Always. That's never not been the case. There have been cases where a recession started officially and UI claims were not yet trending up. So that happened in the early 1980s. But that was like maybe the only time that that was the case.

But every time the SOM rule has triggered, UI claims were up compared to where they were the year before. We're not there. I mean, on the four-week moving average of U.I claims, I think we're up a little bit, Dante. We're up like maybe 1%. But if you look at, like I was looking at monthly U.I claims just to put them next to the unemployment rate. And we're still down as of the last monthly reading on U.I claims. So unless we see a very large and unexpressing. expected spike in claims over, you know, the next couple weeks here. It doesn't fit with that

either. And that goes to your point about payroll employment growth, right? I mean, if people aren't losing their jobs en masse, then we wouldn't expect to see a negative print on payroll employment. And there still is not much evidence that layoffs have picked up materially. So just in case you didn't say it, I missed it. UI for folks out there, for me, it's always been, yeah, because it's unemployment insurance claims. Unemployment insurance claims, it's weekly data, it's administrative data. It's not coming from a sample or a survey. No one's estimating it.

It's a count of people filing claims for unemployment insurance. It's very, it's one of the highest frequency labor market data points that we get, the highest frequency one, right? So you can see every week what's going on. Now, these get whipsawed, right? Like, I don't know if we saw yet the impact of the hurricane in UI claims. I think we did. I think they were up in Texas. So things like that will affect UI claims.

And so seasonal adjustment. It's hard to season. Yeah, but when you, sure, and there's seasonal adjustment. But when you smooth it out and you look over several weeks, you can really see what this trajectory and layoffs is. But they're up. They're up. Yeah, they're up.

Meaningfully up. I mean, frankly me if I'm wrong, but you can really see what you're up. go back, I don't know, a couple months ago, they were hovering around 200,000 per week. Last week, on a four-week, we're moving average basis. We're at, what, 240? You know, something like that. 235, 240. Yeah.

Now, it's still low. I'm not, again, seasonal adjustment might be a year. And you said the hurricane, you know, that would definitely have an impact. But nonetheless. They are up, no doubt about it. But the same thing happened last summer, right? So we saw this increase in UI claims over the summer months in July and into August. And they were up more actually last summer than they are now, I think.

So that suggests there may be some seasonal adjustment issue going on. I'm not totally buying into that 100%. I mean, this could very well be signaling that layoffs are happening and they're just not showing up in the survey data. yet. Dante looks at this. There's been a couple one-off issues, too, not issues, but one-off events that have, I think, probably boosted claims a little bit. So if you look at the state data back in the middle of June, there was a law change in Minnesota that allowed teachers that were hourly, I think hourly teachers to file for unemployment when they're out of school for the year. And so you saw a jump in state claims in Minnesota, you know, sort of coinciding with

the end of the school year in early to mid-June. And when you look at late June into early July, you always see a spike in Michigan when factories closed to retool in the summer, but that spike was bigger by a pretty significant, you know, normally you see claims jump to like 10, 11,000 in Michigan in a couple of weeks in July. It was up to like 17, 18,000. So, you know, none of these things are, and then the hurricane, obviously after that, none of these are huge by themselves, but you're only talking about claims moving from an average of, you know, 215 to 240. So 5, 10, 15,000. of an impact for many one of those things can explain probably at least half of that increase.

So I just, I think they're certainly look like they're edging a little bit higher, but I do think there are some one-off events here over the last two months that have contributed to that. Okay. Yeah, I just get worried. That's another worry. We're a good economist. This is exactly what we do.

We explain the way the data. And, you know, these are all good explanations, but it makes me nervous. Hey, Nick, do you have a favorite kind of leading indicator? You look at all kinds of things in the labor market. We've coalesced around the unemployment insurance claims is the best leading indicator coming out of the labor market. Would you concur with that, or do you have another kind of smoking gun indicator you look at? I mean, I think prior to a few months ago, I always said, like, sharp and sudden rises

in the unemployment rate, but here we are. So I do think UI claims are where I would go. as well. I think in part one, as much said, the high frequency nature of it. I think also the fact that, I mean, really when you use, and I think this comes through in the data today in the last few months, it's like deteriorations in unemployment and big markets start having when like hiring goes down, but when it really hits the fan is when layoffs pick up or that the willing market is so weak that people who are out of work start filing for the UI claims. And I think that's another benefit the I like of this data is that it's yes it could be people who are just recently laid off

but also might be people who have been out of work for like a couple weeks and like I don't think I could find a job and claim it um so I think it captures those two dimensions of deterioration so um it is it's usually a data release that it's not it's like not prime time viewing for me I'm not like at my computer trying to wait for it it's like more like I was check my phone like 840 on Thursdays I'm like what happened while you're fishing on Tampa Bay or something You're out there. You throw the line. You say, okay, let me take a look at the UI flames.

Or most Thursday mornings trying to convince my kids to finish their breakfast. But I think now it's going to be something that given this day of the labor market, where it's, I need to start watching it a whole lot more key to the other indicator that maybe give you a little bit more soulless is, and I know you know this data really well, is open positions, unfilled positions, right? They've come down significantly from where they were when the living market was very, very tight a couple years ago. But they're still high relative to historical norms. Did I characterize that right? And what do you take away from that? I think you did. So I think sort of two series you can watch there. One, there's the government

BLS's job openings number, which we got for the end of June. And then there's Indeed's job posting this index, which we have, I mean, we have data for last Friday and early next week all data as of today. So it's more high frequency. And like you said, I mean, both of those measures have come down quite a bit from their peak in early 2022. Our series is down 25-ish percent from its peak. But it's still, both series are still above pre-pandemic levels. So our data is about 12 to 13% above its pre-pandemic level. And actually, I have the last month or so has leveled off a little bit. But I do think that that data is consistent with hiring slowing down.

So I think that's another series that I'm like, you know, I am always like the minute it's available checking it. And I think that if you do see a more pronounced reduction there, I think that is a very, another clear sign of okay employers are pulling back on demand and now maybe that would just be a continuation of the hiring trends we've seen of late of reduction there

but I think sharp movements there would be very concerning. The one thing I will say is that I love our data but there's really the series we produce and share publicly there's really only one business cycle in it and that's the pandemic spring of 2020 which was anomalous in a variety of ways.

So I don't think the exact sort of like in looking at that data, I mean, the training set is one week it was fine and one week it started like just falling off a cliff. So I think understanding the exact like rate of deterioration that's going to be very concerning is something that we'd be learning in real time. I've asked you this before, but just to get it out there again, is, are ghost positions a big deal? I mean, are there more meaning that businesses will post for lots of different reasons, one of which is not hiring somebody. They're just posting them. And that's relatively new, you know, at least post-pandemic. Is that an issue at all in the data?

Let's say two things on that. One, the data that we used to produce the job postings index, that's not as though we're just like counting up in the platform like, oh, someone hiring here. There's an entire team. at Indeed, it's making sure that these are actual real positions to help job seekers, and there's to duplication efforts, a variety of other means to make sure that anything that's on the platform is going to actually help a job seeker find a job. And then the second point is that that sort of ghost posting's concern would be more attenuated

in a series like Joltz's job openings because that they're asking the employer, do you intend to fill this in the next 30 days? So assuming everyone's telling the truth there, that's unlikely to be a ghost position. And if you look at the trend in our data and the trend in the jolt's openings, they are very, very similar. So it does suggest that our measure is probably tracking a measure where someone's trying to verify that there's an actual intended hire there. So which is not to deny that individual people might have experience with the ghost postings, but just to say that I don't think it's a large enough issue in our data to, sort of distort the macro picture.

So you think the reality is there's just more open positions today than there was, say, in 2019 prior to the pandemic. Yes. And I think that, I mean, another way to normalize or reference job openings is not just to themselves in a time period, but to say the level of unemployment or the level of employment, especially if you look at openings to unemployed workers, you know, use the Jolt's data. And then if that's basically June, basically what you were at in 2019. prior to the pandemic. So that would suggest it's sort of normalized in that regard. And I will say

that that ratio is sort of odd that is on the high end of the readings of the tightness of the late market. And the fact that it is saying, okay, we're roughly at 2019 levels does suggest that it's that that, you know, that's sort of at best with the tightest lay market and now it's 2019. I want to consider we're going to go to play the stats game in just a second because we're already getting a little long in the tooth. But I want to ask one, question on one other issue, and that's hires and quits. The hiring rate is down a lot, and the quit rate is down a lot, at least compared to where it was a couple years ago. Even on a historical basis, they feel like they're on the soft side of where they've been, you know,

in a really good labor market. And the question is, do you think the reason why quits are down is because there's less hiring, or do you think there's less hiring because quits are down? You know what I'm saying? You know, because people aren't quitting their jobs, then there's just less of a reason to hire. So is there a direction of causality here? Do you have a sense of that? Any view on that? Yeah.

So I guess my short answer to that would be yes. Okay. It's both. Okay. Which is a cop-out. But I do think sort of my, I mean, my thinking for like how we got to the spot where the quits rate was 3%. At one point, which was very elvid, was that basically the U.S. economy in the US labor market got turned off and then turned back on. And then there was a huge

surge in hiring. And a lot of employers found that some of the people that they wanted to hire who were out of work, it wasn't as easy as they thought. So they started hiring people who already had a job or people who already had a job where it's thinking themselves, hey, that place is hiring for far more. Like someone who maybe looked around and realized that warehouse is paying how much hourly? Okay. And jump to that. And that sort of started what has been called a vacancy chain where someone left their job and then okay now I've got to backfill this person and you basically got a lot of backfilling and somewhere around the spring of 2022 a lot of employers started saying okay I've sort of gotten enough headcount staffed up I don't feel the same intensity to hire people more people

were sort of coming back to labor force so hiring slowed down the so then the back fills were less needed as more people stayed in line and now sort of drifted back down and on the quits rate it's below what we saw pre-pendemic. So I think, especially, I think, before it was very much a mix of both, and I think moving forward moves in the quits rate, I think will be more a function of how much our employer is looking to hire. Got it. Got it.

Well, let's play the stats game. We each put forward a stat, a statistic. The rest of the group tries to figure that out with clues, questions, deductive reasoning. The best, the stat is one that's not so easy. We get it immediately. One that's not so hard. We never get it. and if it's apropos to the topic at hand, all the better.

I mean, we always start with Marissa. This was hard because I have so many numbers I'd like to talk about. So it's hard to pick. I'm going to go with 53%. In the jobs report? Yes. In a payroll survey? Yes.

Is it a diffusion index? Yes. It's not the one month's diffusion. index because that Nick pointed out that was below 50. So is it like the 12-month diffusion index? It's the three-month diffusion. Three months. Nick, Nick, Nick, do you see how that's done? Oh, expertly done. Expertly done. Because the next, I'm going to let Dante do the next. It's weird. I didn't hear three-month diffusion index come out of your mouth. I feel like you missed the mark a little bit there.

Just I'm just saying. That's actually technically accurate. He didn't get it. That was the next thing I was going to say, obviously. I booked it thing. Yeah. I was wrestling. the fish to the ground. I'm in Tampa Bay, you know, fishing took it and took it right to the bottom of the boat. Marissa, are you embarrassed by how that went or you're okay with it? No, I'm not embarrassed because I get to make the point that I wanted to talk about. All right, go ahead, go ahead. When you say it's a percent from the payroll survey, there's only a few percent that it could

be. Oh, no. survey, right? Oh, my gosh. If I said household survey, 53%, God, that could be a ePOP ratio. It could be a participation rate. It could be any number of things. All right, but, but well done, Mark. That's all I really wanted. That's all I cared about. Now, well done. Okay, so I think Nick mentioned the one month diffusion index, which fell below 50. That is kind of becoming on my list of a leading indicator or at least a coincident indicator because if you look back at all the recessions, you almost always have in a month, the month or two that the recession begins or right before

the diffusion index falls below 50. That didn't happen in the 08 recession, but it happened in all the recessions beforehand. But there's also false signals in there, right? You can have it drop below 50 and then it pops back up. But the three-month diffusion index falling below 50, almost always, maybe always, signals that you're in a recession. And in July, this fell to 53%, which is the lowest it's been since March of 2010. So the lowest it's been in, yeah, in over 14 years. So it's still above 50. It's at 53, but I'm going to watch this because as this trends down, and especially as you see that one month go below 50, if we get another one below 50, then I'm really worried. about the prospects of recession.

What is it typically? What would be the average three-month diffusion index? The average? Just for some context. I mean, is it typically 60% or 55%? Do you know? Oh. It's, I mean, yeah, it's been up in the 60s.

So it's been, like, if we look at, if we go back to a year ago, right, it was 60.1%. Okay. Nice of that. So it's come down quite a bit, right? And this is, again, the breadth of job growth, the percentage of industries that are either holding payroll study or hiring. So we're right above that 50 threshold over the last month that fell to below 50. So that's kind of worrying to me. That was a good one.

Okay. So Nick, are you up for this? Yeah, I'm game. Okay. And Dante, you're up for leading the questioning here? Go easy on them, not too hard. I can. Yeah, sure.

Hey, Nick, you're up. Yeah, my number is 3.4. Oh, that's it. No. Did you say 3.4? Yeah, 3.4. Oh, is it? Are you leading the question?

No, sorry. Sorry. Is it from the jobs report today? It is not. Okay, all right. So is it from this week, something that came out this week? It is. So only Dante can guess this?

No, no, we can all guess. Dante can just, I'm just questioning the witness, apparently. He's a grand inquisitor. Oh. Is it labor market related? It is. Fair enough. It's ECI from the ECI.

It's is it is. Yeah. Annualized growth, wage growth. Is that? Employment cost index. Of what series? Private sector wages. Yeah, yeah, that's it.

Okay, so it's, it's. Oh, annualized? Annualized quarter to quarter growth. Yeah. So we got the Q2, 2020. 4 data, that was up 3.4% annualized over Q1 for private industry wages and salaries. Okay. Correct.

Got it. So do I get credit for getting that? Yeah, yeah. Yeah. Okay. It was very good because you said ECI first. So you get credit. Well done, Marissa.

Well done. Thanks, Mark. I'm patting your head over here. Thank you. Yeah. Nick, you want to explain? Why did you pick that? Yeah, sure.

So I think to my mind, I think so many other people, ECIS are like the gold standard wage growth measure. I think for a while, many people had been waiting for wage growth to return to its pre-pendemic pace to sort of sign up like, hey, here's a rebalanced, cooled off labor market. And I think we got that in this report. You know, 3.4% annualized for the series is the lowest we've seen in several years, really, until since September, the fall of 2020. so that say you're a member of, you're at the Fed and you're like, hey, this is great. Sort of wage growth, it's cooled down. I think now, especially with hindsight from this morning, it's a question of, okay, you got wage growth back to pre-pendemic level, but what did it cost to get there?

Or if that's the indicator that you were watching before you felt like things were in a good spot, maybe you waited a little bit too long, just because wage growth sometimes can be a leading indicator of where things are in the labor market. One quick question. There's this kind of rule of thumb that. that the wage growth, compensation growth that's consistent with the Fed's 2% target is what we got, 3.5%. On a year over your basis, we're still at 4. And across most of the wage data, we're at 4. Do you think 3.5 is the right number? Do you think 4 is the right number? Do you think that's

splitting hairs? Are we there in terms of where we need to be in terms of wage growth and inflation? at least at this point in time, in part because usually the rule of thumb is inflation plus like trend productivity growth and maybe that's like a long-term goal. But right now, if you take productivity numbers on their face value, it's growing 2% year over year. So 2 plus 2 is 4. Yeah, so 2 and 1. So 4% seems more. It's very sustainable. And the, in addition to that, you also have the fact that, okay, take inflation in account for that nominal wage growth of what we've got, we're still seeing some real wage gains, but that seems less inflationary to me right now because real wages are

growing, but they're still below their trajectory we saw before the pandemic. Like workers are still trying to make up for a lot of those that cut in real wages from that big burst of inflation. So it seems less concerned to me right now to have relatively strong real wage gains given what real wages did in 21 and 22 and into 23. Yeah, I'm with you. Okay, let's do one more because we're running out of time. Dante, you want to go? And Chris, you want to the question? That would be the question you're here? Sure. I'm going to use my stack game soapbox to push back on the hurricane didn't have an impact argument.

So that's just to give me. That was Maris's argument, too, to be fair. So I'm going to use this to push back a little bit. By one is formerly BLS. We keep promoting people, though. Me too. So I'm not going to know. Oh, yeah, that's right. I forgot. my own people. That's right. That's right.

$461,000. The number of people who have a job but weren't at work because of weather. So we mentioned it earlier. I was going to not use it, but I wanted to use it anyway. That's exactly right. Marissa, congratulations.

That's bogus. That's bogus. She was deep in the numbers before the podcast. She was ready to go. She's prepared. That's dialing it in, my friend. I didn't give her a tip that it was coming. So it's legit.

All right. Go ahead. So it's the number of people who are employed, but they weren't at work in the reference week due to bad weather that's from the household survey. It's one of a couple pieces of evidence in my mind that there clearly was an impact from the hurricane. So this is, that's the highest number of people that were in this category, not at work due to bad weather, in a non-winter month since September of 2017. And that was the only time in the last decade that it's been this high, not in the winter. Right. So oftentimes in either January or February, you get a spike because of, you know, snowstorms.

across the country. But back in September 2017, you had Hurricane Harvey and Arma both hits. And that caused a big spike in this number. And so this is the highest since then. So that's one thing. Right. So there's clearly was an uptick in the number of people who weren't at work because of bad weather. In the household survey, they still count those people as employed. The problem is in the payroll survey, they don't. Right. So if you don't work at least one hour for pay during the reference period, right, you don't get counted as employed. I think the timing here matters a lot. Right. So if a hurricane hits, and it's not in the reference week at all, the impact is pretty minimal. If the hurricane hits in the reference week, but it's like in the middle of the reference week, it still often

doesn't have a big impact because if people worked Monday and a hurricane hit Tuesday, they're still employed. If you look at Barrel, it made landfall on Monday of the reference week in Houston, right? So if people were out starting on Monday, if they were out that whole week, that's a big hit, right? So the timing matters a lot, even though it wasn't the most destructive hurricane we've ever seen. I think the timing of it making landfall makes it such that it's likely to have a sort of outsized impact on job growth. We'll get a better sense of that when we get the state and metro job data in a couple weeks to see, did Houston really take a big hit? It's also clear in the UI data, right? So you see the spike in Texas and UI claims, you know, just in the reference week and the week after, claims are up a combined probably about 30,000, 25 to 30,000.

Right? And you would think not everyone who wasn't at work in that week is filing a UI claim. Some of them are expecting to go back to work pretty quickly. So to me, even if the impact on the top line number is 20, 30, 40,000, that changes the story pretty much. If the headline number was 150 or 160, that's pretty much in line with what we've seen over the last couple of months on average anyway. So I'm not sure that people would be quite as concerned about things if the headline number was 160 versus 114. So to me, I think it probably does matter in terms of how people read the report and how they feel about it. Yeah, I mean, what we were 114,000 jobs, payroll jobs created in the month.

Yeah. Yeah, I think that, again, I think underlying is 150, 150. That would be kind of sort of the hurricane effect. Right. Okay. Okay, let's end the conversation with going around the horn, and each of us providing their estimate of the probability that the economy is going to go into recession, start a recession at some point in the coming year. And also, I'm also really curious about your views on what the Federal Reserve should do next. I mean, the widespread expectation before today's jobs numbers were that the Fed would start

cutting interest rates at the September meeting. They didn't in the July meeting, big mistake in my view, but September meeting. And that would be a quarter percentage point decline, 25 basis point declined. So I'm curious, you know, what do you think they will do now given today's numbers or anything? Did they, you know, would this change, you know, you're thinking about that? Makes sense. Everyone go with that. Okay, let me begin with you, Chris. And also, what was your, you know, last time we did this was probably a month or two ago. You know, what was your prior probability of recession? How has it changed? I think my prior probability was around 30%. I am at 35%. So a very modest increase, as I kind of alluded to earlier, this kind of is meeting my expectations. There's risk, but I don't see that the risk has changed appreciably. I kind of expected that there was this higher risk of Fed making mistake.

To that note, I don't think the Fed is actually going to change their stance. I think they're quarter point in September. Right. I think still seems the most likely. Not that they shouldn't. There's a difference between what they should and what they will do. Right. Probably should cut.

That's what they will do. What should they do? they should have cut on Wednesday. Okay. Yeah. Yeah, they could cut. They could, no, they have full rain. They could cut whenever they want, right, outside the meetings.

Or they could go to 50 basis points, which is what the market is currently pricing in. The odds of a 50 basis point rate cut by September is now up to 75%. But I think that would be really, unless the data really support it in the next study. job support, I think that would be shocking to the market. It could actually be counterproductive. Then we actually go into recession because of the confidence. And just for context, the kind of so-called unconditional probability of recession is about 15%. So if you look, typically we have a recession every six, seven years, so about 15%. And you're saying 35%.

Right. So elevated. And you're saying the Fed should have already cut, but they'll probably still cut one at the September meeting in a quarter, quarter percentage point. Yep. All right. Marissa? My probability of recession is 40%. Whoa. That's a big jump. Yeah. It's a big jump. Because you were at 20, I believe, weren't you? Yeah, I think, I don't know if I was a 20 or 25 somewhere in there. So yes, it's a big jump. And maybe I'm being overly reactionary here to this jobs report. But it's not just the jobs report. I mean, It's all the other labor market data that is going south rather rapidly is very worrying to me. I think the Fed should have cut on Wednesday. They most certainly will, hopefully, in September.

I fear it may be too late by the time they do. I mean, another, as we were looking at all this data over the past week, Mark, another really good indicator of a recession is the Fed hiking rates and keeping them being on a hiking cycle for a long period of time. Recession has typically happened within a year after that's ended. So I just worry that they've already moved too slow. I agree with Chris that a 50 basis point cut, barring some really wild data point that we get between now and September might show. that they're panicking and that would be counterproductive to financial markets. But yeah, I'm worried, much more worried than I was a few months ago.

Interesting. Dante? I think last time we talked about it, I was at 25%. I would say that's up to a third at this point. I'll go there. So it's a little bit more concerned, but not significantly more concerned. I think, yeah, the base case here is for a 25 basis point cut in September. I do think you've obviously got quite a bit of data that's going to come in before then. So you've got another employment report. You got two inflation prints that they'll get. You know, if those all look like what we've seen over the last two months, I think that could give them enough, you know, sort of fuel to go with a 50 basis point cut. You know, if they sort of look fine and, you know, if the employment report bounces back next month and job growth is back to 175 or 200K and it looks like the hurricane was the big thing here. And maybe the unemployment rate stops rising or creeps back down even a little bit. You know, I think any one of those things,

happening. I think they'd still cut 25, but I think, you know, any of that would sort of ensure that they're not going to make a big splash with a 50 basis point cut. And Nick? I'll come in, I'll think, a little bit below Marissa, like three eights, like 37 and a half. I think, oh, jeez. I got to do that. It wasn't thick in my head. Three eights, eight, eight, three to modify eight. Full disclosure. I was like, yeah, three, it sounds right. And then I did, I used the calculator in my phone real quick to double check my math. So it's not, I'm not bragging here. I think...

I think fractions are dead, by the way. I'm just saying. Not a thing anymore. No one of you... No thing. No, no. You're still teaching them. Still teaching them.

Like an analog clock, you know. Or a landline phone. Like a line line phone. Ding. Inside joke. Inside joke. Okay. Nick, go ahead.

So I'll say, I don't know if... I think maybe I'm just trying to temper myself a little bit of like overreacting to one month of data. But I think like like worse said, it's not like it's just this report. It's other reports and also the trend recently has been in a very negative direction. And I feel expect the Fed to cut in September. And I think, you know, even if it's 50 basis points or whatever and if it is 50 basis points, then boy, there's been some bad data since then. But I think it's also how quickly does that sort of medicine actually start to solve things? I think one of one of my lessons the last two years is

it can take some time for monetary policy to take effect, like quite some time. So it's not as though, you know, hey, we get a few cuts and then all of a sudden, like, the housing market gets going wild or like investment starts booming and consumers start spending again. So I think it might be that, you know, they do start loosening,

but it's a question of how effective that's going to be on the what time frame. So, yeah, I think maybe my number, it's a vote, my recession probability is like perhaps a particularly volatile number right now and maybe the next report will come back down but my concern about sort of recession is definitely a lot higher than it was this time last month. Do you have you on the Fed? I think they'll, I mean, they'll probably go

quarter point given where things are heading and I think that makes sense to me, but it's it's more of a, that makes sense, given the tools they have, maybe there, there's a whole lot of board guidance in that meeting, like the dots really start moving down. And there's sort of projections for other things so they can sort of get more bang, sort of more power out of that meeting and things that aren't just like short-term rate cuts. And that could help. But sort of, I wonder, they have those tools, but are those tools going to be effective on the timeline that's necessary? Yeah, well, I was at 25%. I'm with Dante. I'd say, a third, 33%.

So, very close to Chris, very close to Chris. Yeah. I think that's the first time I've been close to Chris in a while. We're pretty close. Yeah, I mean, all the trend lines look a little disconcerting to me. They're just headed in the wrong direction. And I'm not quite sure what stabilizes that, except for the Fed cutting interest rates. And they've been very inappropriate, in my mind, inappropriately. managing policy here for quite some time. I mean, in my view, the Fed achieves their objectives

six months ago. Full employment, unemployment rate. By the way, a 4.3% unemployment rate is on the high side of full employment. In my mind, I, you know, if it takes up another notch or two, I'd say that's a weak labor market. That's a labor market that's operating below full employment. And so they had achieved that goal and on inflation. This makes no sense to me that they're targeting, they're a slave to the 2% target on the consumer expenditure deflator when the only reason why the consumer expenditure is above target is owner's equivalent rent, which you can't measure, can't measure it in the good times, you can't measure it in these times given what's going on in the housing market. And there's growing evidence research,

even from the Fed system saying you shouldn't be targeting it. It's just it's counterproductive. And if you look at the consumer expenditure failure without owners equivalent rent, it's been one and a half percent year over year for more than a year. So you're there. And if you are, why five and a half percent fund rate target? That's above any estimate of of the natural rate, of the equilibrium rate, the R-Star, where policies neither supporting, restraining economic growth. So this policy just seems out of step. It's a mistake. It's been a mistake for a while, and it's now, you know, creating an issue in the probability is arising. Now, having said that, I don't think we're going into recession. I mean, I do think

the rise in unemployment, you know, what's going on? here is the economy's potential growth is a lot higher than it is typically because of all the labor force growth related immigration. And as Nicky pointed out, productivity growth is elevated right now. It's 2.5%. In fact, if you say labor force growth is 1.5% and percent and productivity degrees 2 and 1⁄2, that's 4% potential growth. The GDP through the Q2 was 3%. That explains the rise in unemployment. You're operating the economy at a rate that's below its potential, and this is going to go on. But that's a different thing than saying demand is is, is weakening. You just got a lot of supply. The supply side of this economy, you say, I want to grow. And if you don't let me grow,

you know, unemployment is going to rise. And that's going to be a problem if you don't let me grow. So cut interest rates. So what are they going to do? Well, they're not going to do what I just said they should do. They're going to cut it. I agree with Chris. They're probably going to cut it a quarter point. And that is a mistake. You think they should cut? They should cut a half a point and they should get the funds rate down to 4% as fast as possible because they've achieved their targets. We're there. Please, we're there. We're there. For goodness sake, we are there. And a 5.5%, no one thinks that that's the equilibrium rate. Four percent is on the high. side of any expectations. Get us to 4% as fast as possible. Please, please. Otherwise, you know,

something's going to go off the rails and we are going to be in recession. So, you know, as you can see, I'm getting very frustrated with this. These guys need to move. Otherwise, my probabilities are going to be higher than the third. And this is the thing that really upsets me. Chris could end up being right. That's really at the heart of all this. Economy be damned, Chris could end up being right. You can be right. You know, right, sort of right. I mean, I'm not sure I'm going to give him bull.

Yes, he's right. But, you know, anyway. All right. I got on a bit of a rant. Sorry about that, Nick. This is what happens. Lots to agree with in that rant. So happy to hear it.

Okay. Very good. Well, Nick, it's always a pleasure. Thank you so much for spending a Friday. I know you'd much rather be out on that boat in Tampa Bay fishing for. what do you fish for out there? Pompano or something, I don't know. You're a big game guy. I can tell. You're like, you know, out there going for the sailfish or something. Full confession, I'm not a fisherman whatsoever. So I'm...

How I knew that. Economists just aren't fishermen. That just doesn't... See, I'm good at comparative advantage. My brother-in-law is a fisherman, so he catches the fish, and I specialize in eating them. That's great. That's great. Well, thank you so much for coming on inside economics. Yeah, my pleasure. I really enjoyed the conversation. And just one plug. We have a sister podcast. Sarah, I'm going to have to ask you to come on and tell us the name. Moody's Talks, Asia's economy unwrapped. Okay. And I apologize to my colleagues, but that is actually a very good title, and I didn't think of it. So that's, you know, kudos, you know, to that. I think I came up with inside economics, didn't I? I'm just saying, no? Mercer, do you remember? I don't, I wasn't

part of it back then. Chris, do you remember? I don't know. I can't. I'll give you credit. Sure. No one's here to deny it. I'm not willing to fight it on Friday afternoon. I'm taking it. I'm taking it. Yeah, take it. Probably Sarah came up with it. He always comes over. Sarah blessed it for sure. She definitely. Oh, absolutely. She blessed it. Okay. All right, dear listener, I hope you enjoyed the podcast. We'll talk to you next week. Take care now.