Moody's Talks - Inside Economics - Michael Strain on the Jobs Report

Episode Date: October 4, 2024

Mark and Cris are joined by Dante and Michael Strain, Director of Economic Policy Studies at the American Enterprise Institute.  Dante kicks things off with a detailed summary of the stronger than expected U.S. employment report for September. Buoyant wage growth and upward revisions to July and August’s numbers confirm that the economy remains healthy.  The discussion then pivoted to the presidential election with Michael making a strong case for status quo economic policies and divided government.Check out Michael's Strain's Book: The American Dream Is Not DeadGuest: Michael R. Strain - Director of Economic Policy Studies, American Enterprise Institute (AEI)Guest: Dante DeAntonio, Senior Director of Economic Research, Moody's AnalyticsHosts: 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. I'm joined by two of my trusty colleagues, Chris DeReedies and Dr. DeAntoe, Dante DeAntonio. Hi, guys. Hey, Mark. Good day, isn't it? Jobs Friday. Bill's pretty good. We'll have to come back to that.

We've got a guest. Mike Strain. Mike, good to see you again. Great to be back. Thanks for having me. Absolutely. I can't remember. You know, Mike is the director of economic policy.

I got that right, right? The Director of Economic Policy Studies at AEI, American Enterprise Institute. Yeah. And you've been on before, Mike. I have been on before. I have been on a few times. A few times. Oh, really?

I didn't know. I kind of lost track. I'm getting old. That means you must have been right, whatever you said. Not good enough to operate the microphone, but you're going to come back. Well, we've got a lot to talk about. I mean, we're going to talk about the election. the candidates, their policies, the implications for the economy. But as I mentioned, this is a big day.

This is Jobs Friday. And we got the Jobs Report for the month of September. So I thought we just kind of just dive right into that. I mean, I thought it was pretty good. But Dante, what do you think? You want to give us the nuts and bolts of the report? Yeah, hard to argue that it was a better month than we've seen in a while. Headline job growth, 254,000 plus positive revisions to the last two months, I think really sort of changed the picture of where the labor market stands today. If you go back a month ago, the three-month average of job growth was only 116,000. Now with revisions and the strong number in September, that's up to 186,000. I think, yeah, we've talked about before. I think true trend job growth is probably somewhere between those two. You know,

we're probably a little high now, but I think the last couple months had understated sort of the pace of job gains. So I think we're back to a more sustainable level at this point. So what do you think the underlying rate of monthly job growth is? I think it's between 150 and 175. 15 and 175. Yeah. So I think we're a little above that today. I think obviously this is probably a little bit hot in terms of what is reality in terms of the labor market. But industry composition looked pretty good. I'd say a thing of particular note there, healthcare, leisure and hospitality, the public sector, still the sort of primary of job growth as they've been really over the last year or more. If you're looking for something to complain about, I guess, you can look at either average weekly hours or the measure of aggregate hours, both ticked down a little bit despite the big job gain.

Wage growth came in a little bit strong again. Quickly on the hours, because that on the face of it is the only real blemish in the report, if you want to call it a blemish. But could that be just compositional, you know, just industry mix effects as opposed to anything more fundamental? I think so. I mean, it was only a tenth of an hour in terms of the average weekly hours, which I never try to read too much into. We get those tenth of an hour up and down movements pretty frequently. You know, wage growth was strong for the second month in a row. It's still only a 4% year over year, which, you know, I don't think is problematic in terms of thinking about potential impacts on inflation.

But I think if you're looking for something to criticize, it could be the, wage growth looks like it could be sort of warming up again, at least over the last couple of months. On the household survey side of things, it was a positive story as well. The unemployment rate edged lower again for the second straight month. We're down to 4.1% after we were up at 4.3% in July. And it declined again for the right reasons. Labor force growth is still there, but household employment growth outpaced it this month caused the unemployment rate to come down a little bit. So I think mostly a positive story on the household survey side of things as well. You mentioned average hourly earnings.

Did you say it was 4% year over year? 4% year over year. Yeah. So, you know, if you go back a year two or three ago, if we had 4% people would be hair on fire, that's too strong, that's inflationary. What do you say about that today? Yeah, I don't think that's the case today. I mean, if the productivity growth numbers that we've seen over the last couple quarters

hold up if I see Chris's face over there. If they hold up, you know, I think 4% is more than sustainable in the world that we're in with what productivity growth has looked like over the last couple quarters. Yeah. So, of course, this is an inside joke because I don't know how inside it is, because we've talked about it on inside economics, but you're the productivity bear, aren't you, Dante? And Chris has been the productivity bull. And he's just pointing, he's just, without saying it, he's pointing out that these productivity numbers are pretty good. And that allows for, as you said, allows for strong wage growth without that being inflationary. Right.

That's right. That's right. That's all you have to say on the subject is that's right. Well, I'm not going to argue against Chris. He's, his position has looked pretty good on productivity growth of late. I'm not willing to concede. Well, actually, I want to come back to that productivity question, right? Because I was in Canada this past week.

And the big, believe it or not, they've all got their own political issues, you know, Trudeau and Justin Trudeau, and it looks like he's going to, they're going to call an election, and he's not going to win. So there's going to be a change in government. But the key economic questions around productivity, that, you know, U.S. is barreling along productivity growth has been very strong. In Canada, not so much. So, you know, what's the difference?

So let's come back to that. But anything else broadly on the jobs report, you want to call out before we move forward? No, it was a good report, like you said. It's about time, right? we had this sort of string of, I think, weaker than average and weaker than we expected reports, and we finally got one that you could feel good about. Mike, what do you think, consistent with your take? I'm assuming I know you've been busy teaching young minds this morning.

We were emailing back and forth substitution of income effects, and I got a cold sweat when I heard that. They're very important. You know, remember those blue books? You take the tests in the blue books. Do they still take tests in the blue books? Or are they well beyond that? They don't take this in the blue books. And that's a source of discomfort for me.

So I make them come in with their own paper because I think you can still get the blue books, but they're very hard to get. So I tell them, you know, back in the old days, we used to use these blue books. But for me to acquire those for you would be extremely difficult. So please bring a stack of paper in and write on that. Yeah, I'll have to tell you. you, I don't, I don't dream very much. But when I dream, I dream about those damn blue books. They really made an impression on me. Where do you teach? Where are you teaching?

Georgetown in the policy. Oh, Georgetown. Oh, great. Oh, great. A lot of smart kids there, for sure. Yes, for sure. It's that they're terrific. Yeah, that's great. So what do you think about the jobs numbers? I assume you had the, you know, I've had the out of consensus minority view. that the Fed, you know, though right to be worried about both inflation and unemployment, kind of has the weights backwards. And I've had the view that the inflation risk is greater than the unemployment risk. And so I was surprised that the Fed cut by 50 in September. I was surprised that markets were, you know, pricing a substantial probability at times,

a likelihood that the Fed would cut by 50 in November. And so, you know, I wasn't, I wasn't surprised. I was, I wasn't surprised to see the really strong report this morning. And, you know, I think it's, I think it's hard, I think it's hard to really know what to, to make of the monthly job gain numbers, just given everything that's happening in the labor market with immigration. But, you know, the unemployment rate is a ratio. And that makes it, I think, easier to interpret.

And, you know, so to me, the big number was the unemployment rate falling again. And that's consistent, I think, with a labor market that is, you know, in great shape. And that is powering earnings and income and therefore consumption throughout the economy. So you're, the Fed's trying to balance these two objectives. One is full employment. The other is inflation that's low and stable. And recently in the last few weeks, few months, since Jackson Hole, it feels like when Al gave his speech about we need to focus more on the full employment mandate that he got, he was becoming more concerned that the economy was weakening to the degree that, you know, we need to start moving on rates. you're saying that he still needs to be really focused on the inflation mandate, that that isn't quite as Yeah, I think that's right. I mean, the way I would say it, you know, so for for for a while, the Fed was only focused on inflation, putting no weight on unemployment. And that was appropriate when, you know, we had 9% CPI inflation, 8%, 7% CPI inflation. We're very far from that world. And so the Fed, should be focusing on on both sides of its of its mandate but you know i think i kind of interpret the fed and the consensus view of economists to be you know okay uh mission accomplished on inflation

the unemployment rate's been going up and that's a big problem and a signal of uh potential labor market weakness, not just weakening, but weakness. We need to really address that unemployment rate, and we don't really need to worry about inflation. And my reading of the labor market has been that it's very strong. The unemployment rate did go up, but it went up from the kind of mid-threes, which was just a just unsustainably low. And it's consistent with transitioning back to a normal economy from a kind of, you know, pandemic era economy.

And the, you know, but over the past year, I don't see a lot of labor market weakness. The labor market is weaker than it was in 2022. But over the past year, I don't see a lot of labor market weakening. And I certainly don't see, don't see any reason to think the labor market is. is weak or on the precipice of becoming weak. You know, whereas I think inflation, you know, runs the risk of kind of getting stuck at, you know, 2.6%, 2.7%, something like that, you know.

Which is where we are right now. Which is where we are right now. And, you know, maybe kind of gradually drifting down, you know, 2.5 or 24. But, you know, I, you know, I think it's kind of got a, I think the Fed has had the right approach to this. We need sustainable progress toward the target. That is inconsistent with inflation getting stuck at 25 or 26.

When I kind of look at things, you know, I see a labor market that doesn't seem to be weakening over the past year, a labor market that's very strong and inflation that seems to be, you know, kind of stuck above 2.5%. And, you know, that suggests to me that, that, that suggests to me that, that they're worried about the wrong thing. And, you know, kind of left me unsurprised this morning when job gains were, you know, around 100,000 higher than consensus. The unemployment rate went down and wage growth accelerated. So if the Fed did cut rates from 5.5% or just south of 5.5 to 5, that's the half point

or 50 basis point cut in rates. And I think most economists, certainly on the Fed, and I would concur, is that 5% is still high compared to what you might consider equilibrium, equilibrium being that rate at which interest rates, monetary policies, neither supporting a restraining growth. So this 5% is still high enough that it's restraining growth. It's restrictive, as they would say. And so, therefore, you know, still focused on inflation to some degree, trying to make sure to get inflate. Would you, would you agree with that? kind of frame the way I just framed it. Yeah, I think I'd agree with that frame. And so if we're kind of operating within that frame, you know, the big question is, what's the destination? Yep. And, you know, the Fed thinks the destination is 2.9 percent, you know, kind of roughly

speaking, it's hard to talk about the funds rate now that we've switched to this range. But, you know, the Fed, you know, the Fed thinks it's, you know, around 2.9 percent. investors think it's around 2.9%. You know, the Fed forecast that it was going to get to around 3.4% by the end of 2025. Markets thought, at least I haven't looked this morning, but markets thought as of a few days ago that the Fed was going to get down to 2.9% by the end of 2025. And, you know, I think both the Fed's forecast for the next 15 months and market expectations for the next 15 months is, you know, getting the destination wrong and getting kind of the velocity along the path to

that destination wrong. You know, I agree that five is, you know, very likely still restrictive. But I think it's an open question, you know, how restrictive. I mean, maybe instead of 2.9, you know, the magic number is four or something like that. And then if that's the case, we're in a very, a very different world. You know, the five and three eighths that we were at before the September cut just looks a lot different. And the, you know, 50 points below that, you know, also looks a lot different. I mean, why, you know, why do I, why do I think this?

You know, financial variables are not acting like they're under a lot of pressure from, the Fed's policy rate. The stock market's been going gangbusters. You know, the, you know, kind of real inflation adjusted rate of interest, you know, is, you know, on, on a 10-year bond is, you know, kind of around 2 percent, hasn't really gone up over the past year. You know, overall financial conditions have eased back. So, you know, credit spreads, bond yields, equity prices, exchange rates. They're, you know, when you kind of aggregate all those up and try and, you know, form one index out of them, we're back to, you know, kind of where we were in 2022 in terms

of how restrictive overall financial conditions are. And so, you know, not, you know, certainly not back to where we were, you know, prior to the fed's hiking cycle. But we're, you know, we're, we're, we're, we're, we're, we're, we're, we're, we're, we're, we're, we're, we're, we're, conditions are considerably less restrictive than they were throughout 2022 or throughout 2023. Of course, just a pushback there, just a little pushback. I mean, the markets are anticipating some pretty aggressive rate cutting by the Fed.

Yeah, sure. So they have, I mean, if you look at futures, and I haven't looked in the last few days either, but last I looked, they had that fund rate coming back into three here by this, I think by this time next year. So that's a pretty aggressive set of rate cutting. Yeah, yeah. No, I agree. I agree that that's driving it. And so, you know, that's why it's important to also look at real economy variables. And, you know, the unemployment rate's been coming down, not up over the last two months. It did go up, but I think it went up because of a big increase in the size of the workforce. And those new workers didn't immediately get jobs. You know, layoff rates, as reported by the Jolts, show no upward. trend over the last year. And layoff rates are lower than they were in 2019 prior to the pandemic. So, you know, if you go by the jolts, you're not seeing evidence of an upward trend in layoffs.

That's consistent with the unemployment rate coming down as it has done over the last two months. You're not seeing, I think, a downward trend in consumer spending. You know, that's consistent with the labor market continuing to, you know, kind of power earnings for workers. You know, the economy grew at a three percent annual rate in the second quarter. That's above potential that will create inflationary pressure, not not create disinflationary pressure. And, you know, the last time I looked, the economy was on track to, you know, according to, you know, now cast estimates of the third quarter, the economy was on track to grow, you know, 2, 5, 3 percent, something like that in the current quarter.

You know, those nowcast estimates are going to go up, I think, after this morning's report. And, you know, so that's, you know, that's not below potential, certainly. You know, if we had two. Although I can make a case, right? I mean, with labor force and productivity kind of added up. I mean, the economy has grown 3% over the past year, year over year through Q2, 2024. But the unemployment rate rose during that period. You know, as you mentioned earlier, it was in the mid threes.

Now it's around four. So that would suggest that actually potential, not that it's sustainable for any length of time, but potential over the past year may actually have been higher than 3%. Yeah. No, I don't think, yes, for sure. And, you know, I should say that I think, I think the contentious view and the Fed view is a, is a, is a reasonable view. You know, I, you know, there have been, there have been times over the past four years where I've thought the Fed was, you know, unreasonable in its, in its outlook. But, but this is not, this is not one of them. I mean, I think, I think, I think, I think, I think, I think, I think, I think, I think, I think, I think the world definitely could unfold. Okay. So if you were like king for the week, you know, Fed cut now we're five

and of course things change given events, but what do you think is the path here? Is it? I think there's a real question about whether or not the Fed should be cutting

at all for the rest of this year. Okay. You know, we did this big aggressive cut in September. And, you know, there's a meeting in November. There's a meeting in December. You know,

imagine The next jobs report shows the unemployment rate goes down again. You know, I don't know, I don't know, you know, now we're, you know, now we're at a 4% unemployment rate. The Fed has indicated, I think, that they think of 4.4% as, you know, kind of the, you know, stable, sustainable rate over time. Right. So, you know, we're, you know, right now we're at 4.1% unemployment rate. So below that long-term sustainable unemployment rate.

and we're above, well above 2% price inflation, you know, not catastrophically above it like we have been, but, you know, the Fed should be uncomfortable with the current inflation rate. You know, another month of data that shows the unemployment rate, you know, is still comfortably below 4.4%. Another month of inflation data that shows that the rate of inflation is still comfortably above 2%.

I'm not sure, you know, yes, if you really bet the house that 2.9% is the neutral interest rate where the Fed is neither accelerating and stimulating the economy nor holding the economy back, then, you know, sure, keep cutting. But, you know, when I look at financial markets, they don't seem unduly burdened. When I look at the labor market, it does not seem weak. And when I look at the consumer, the consumer is still spending. I'll have to say, if we were both on the FMC, it would be a really interesting set of meetings. You're on the opposite side of this one than I am. So we'd make for a great discussion like this. Like the podcast.

Hey, Chris, let me bring you into the conversation. So taking it back to the job numbers, anything you want to call out there? Anything that Dante missed? And just generally, how are you thinking about, you know, the number and what it means for the economy? Yeah, it was a strong report. I can't agree with Dante's assessment there. The revisions or something that I focused on, they're particularly high for July. So I'm kind of restating.

Although August always gets revised up, right, Dante? I mean, August is always the first point as low as they say. And then it gets revised up. It's like invariable. Yeah. Yeah, but July was. was at what, 55 and went to 140. Oh, is that right?

That got a big revision up to? Big John. I missed that. You know, that kind of recolors our history here about in terms of what we were thinking at the time in terms of Fed policy. Right. Yeah, but otherwise, I think this was a strong report. Again, hard to find any blemishes.

The work week, perhaps is the one, but about it. Right. Okay. So you're feeling pretty good then? I am. Okay, let me ask. And forget about the fact. that I'm your boss, but who would you agree with here?

Me, more with me or with Mike? Oh, see how he's. He doesn't know what to say. He doesn't have the connection. On what aspect? I think we both agree that this is a good report. Thinking about the dual mandate and what the weight should be on full employment vis-à-vis inflation, Mike's putting more weight on, you know, on the inflation risk.

I'm putting more weight on the unemployment rate, or at least I have been. That may not have come through in this conversation, but if you're a listener to the podcast, you know this, that I've been more focused on the unemployment rate, which one would you put more weight on? Or not? So, you know, I think it's being clear to have a little bit below, I would be more balanced or have been more balanced throughout this period. I am worried that there could be some shock that causes inflation to spike.

So you can't ignore inflation. See how good he is, Mike? See what he does? He says, okay, I'm going right down the middle of the. these two guys. He should be the Fed chairman. He should be the Fed Chair. Exactly.

I agree. I haven't offered me the job yet. He's very good at committee management. Exactly. Exactly. I do want to get to the election, but before I get there, I do want to talk about one potential threat to the economy that I think has come to the fore. Actually, until last night, there was two potential threats.

So what was the strike at the ports, the dock workers, but that seems to have now been reasonably settled and it's not going to be, it doesn't feel like that's going to be an issue. But the other, obviously, is what's going on in the Middle East and the growing conflict between Israel and Iran and the potential for, you know, that bleeding out. How worried are you about that, Mike? Is that something that you're reasonably worried about? Yeah, I'm pretty worried about it. I mean, I'm not an expert on the Middle East or foreign policy, but every single expert on the Middle East and foreign policy I've spoken to is quite worried about the situation. All sorts of reasons to be worried about it. One of the reason is economic.

And, you know, on the economics, you know, a big spike in the price of oil will, you know, kind of the classic definition of a supply price shock. that will affect headline inflation. Yeah. You know, the key link seems to be oil prices, right? That's the key, I think, at least most immediate. So far, you know, I think the markets have priced in about a $5, $10 barrel kind of risk premium in price. I mean, if you go back a week or two ago before things really went off the rails here,

I think oil, WTI, Brent, was south of $70, and now we're sitting 75 to 80. So if that's the end of the story, then, you know, that's not great. But that means like, you know, the price for a gallon of regular oil and a lot goes from $3.20 to $3.50, $3.60. And that, you know, that becomes more of an issue. But if it goes higher than that, then that becomes, it feels like that becomes a real problem. And then obviously it complicates that balance the Fed has to make, right, between growth and

inflation. Yeah, I think so. I mean, you know, the U.S. economy is quite a lot. lot, it's quite a lot different than it was a half century ago with respect to oil prices. And so, you know, we have a lot of oil producers. They benefit from higher prices. We have a lot of people who drive cars and we move a lot of goods around the country on trucks and consumers and purchasers of goods are hurt when oil prices go up. You know, I'm, you know, I think these are often, you know, kind of a wash. And so the effect on on GDP, on economic.

output. I'm not, I'm not super worried about. But, you know, this will affect headline price inflation. Obviously, oil prices bleed into core inflation in important ways. So this could put upward pressure on core and likely would. And, you know, inflation expectations are quite responsive to oil prices as well. And so, you know, at a time when when the Fed is trying to get inflation back down to two, this is going to make that a lot harder. Right, right. Hey, Chris, Dante, anything to add to that threat, risk? I mean, am I missing something?

I think the key link is back to us to the U.S. economy, at least most immediately, would be through oil prices. There's no other, maybe confidence. I'm not sure. What other channels are there? I would think confidence. Confidence. I'm actually a little bit more worried about confidence. confidence, oddly enough, because I think the Saudis have capacity to fill a gap if it should

occur, right? So I think oil prices certainly could spike, but I don't see them necessarily spiking or maintaining a high level for an extended period of time. The confidence impact, though, and the human tragedy, of course, are the more disturbing pieces of this that I think could certainly have an economic impact as well. Yeah, I suppose if there's unrest on university campuses again, is that kind of that would be, is that what you mean by confidence, something like that? Yeah, or just in general, right, if it's, it becomes, if it's a, it's a conflict that is spreading throughout,

I mean, you're going to see consumers, perhaps hunkering down, perhaps expectations for oil prices would be. Right. Impacting behavior. So that's, that's what I'm thinking. But, yeah, there certainly could be a domestic unrest or impact. as well. Right. Okay.

Dante, anything to add on that threat? No, I think that, I mean, between oil prices and confidence, I think those are the two main ways that we would have to think about a potential impact. Okay. All right. Before we go to the election and what all that means for economic policy and the economic outlook, let's play the game, the stats game. Mike, are you going to play this game?

Yeah, I'll play. Okay, you'll play. But I can't go first. Okay, Dante, no, definitely Dr. De Antonio goes first here. We're missing Marissa. I forgot to mention that. Where's Marissa? she's our other co-host unfortunately she's not feeling well not feeling well okay uh sorry about

that marissa uh because marissa generally goes first uh so but dante will we'll step in so the game is we each before a stat uh the rest of the group tries to figure that out with with questions clues deductive reasoning uh a good stat is one that's not so easy we get immediately one that's not so hard we never get it and if it's apropos to the topic at hand we've been talking about job is the Fed, and we will be talking about the election, then all the better. But it doesn't have to be. This is a good way to make a point. So, Dante, you want to go first? I will go first. The stat is 12.6. Now, wait a second. This may be, could this podcast, did you listen to last week's podcast? I don't think I did, no. Did I just reuse a stat from last week? I'm pretty sure you did.

12.6 is the job's easy to hard to get in the company. It is, but I'm going to go to number two, We'll just go to number two. I was going back to last week to make a point. Are you kidding me? That's what I get for not listening to last week, apparently. That's my- Hey, Mike, Mike, how impressed are you? I mean, come on.

And I nailed that last week, didn't I, Chris? You did. He did. Dante, you need to start listening to this podcast. That's all I did. I just, yeah. Actually, this is a commentary on, you're not listening to this podcast? I usually do.

I'm going to make this. This should be mandatory. You're going to put it on my podcast. my calendar. Required listening. All right. Well, before we move on, everyone's asking,

what's the 12.6? Just quickly tell what's the 12.6? Sure. It's the labor market differential. It's from the conference board survey. It's essentially the difference between people who feel like jobs are plentiful versus people who think jobs are hard to get.

It's come down an awful lot over the last year or so. And signals that consumers are feeling less and less good about the state of the labor market, despite sort of how things have been holding up. Okay, Mike, this is going to blow your mind. This is, I'm going to impress you. And I know you're very hard to impress, but I'm going to impress you. And I'm going to ask it as a question to Dante.

I'm going to put Dante on the hot seat. Dante, this is the conference board survey being done, goes back into the 70s. What is the average of the jobs hard to get survey? And actually, I say that. I'm not sure if they've been asking that question back into the 70s. I don't know how long they've been asking the question. But if you take an average throughout the historical record, what is it?

It's negative. It's like negative three, I think, some negative three, negative five somewhere in that neighborhood. It's slightly below zero. That's pretty good. It's negative. 0.5. Negative 0.5, okay. Yeah.

So very close to zero. So, you know, neither are easy to get. So we're still, what your point is is that it's coming in, right? And it's as low as it's been since, as you said, 2021. but it's still, you know, saying pretty healthy job market. Yeah, I mean, if you look back, you know, in the entire lead up to the Great Recession, it never got as high as it still is today, right? Between 2001 and 2017, it was never 12.6. It was below that the entire time. So we were, it was very, very high, you know, right before the

pandemic and right afterwards, but that was sort of unusual if you look at the longer history of the series, right? So even though it looks like we're down a lot, it's still not sort of signaling the consumers feel that bad relative to a longer history. Okay. Okay, good. Hey, Chris, you want to go next? Sure. My number is 78.1.

78.1. In the jobs report? Yes. Payroll survey? No. Household survey. Yes. Okay.

Is it a E-pop measure, employment to population measure? It's not. quite participation rate. Yes. For prime age workers? Prime age. There you go. Women.

Men. Prime age men. No. Women. Women. Oh, it's women. Prime age women. Yeah.

That's too low for men. Too low for men. That's right. Men is 89.5. But 78.1, prime age women's labor force participation rate. It's rising. That's a record high. Oh, it is.

We continue. Oh, it matches a record high, I should say. Right. So it's, you know, women continue to, really see expansion in terms of those labor market, in terms of their employment, labor force participation. It's really positive. Yeah.

Yeah. I mean, the only demographic group where participation rates aren't back to pre-pendemic is the older group, isn't it? Like 65 plus. Do you know, Dante? I think that's right. I think that's right. Yeah, if you look at like broad age groups, yeah, I think 65.

Yeah, broad age groups. That's not back to pre-pendium. else is back. Yeah. Yeah. Okay. All right. Well, that's a good one.

I think E-pop, employment to population, that's my go-to-measure for, I like the unemployment rate as a measure full employment of the E-pop. And E-pop is, for prime age, is 80.9, right, Dante? Yeah, that's right. And it's been like, it's been there for a couple of months, yeah. Well, I think a whole year. It's been, more or less, you know, more than it goes up and down. So very consistent with a full-employment economy.

Okay. Mike, you want to go? 30.33. Ooh. In the job numbers? In the job report. Payroll survey? Payroll survey.

30.33. In the units are, is it, it's not thousands, is it? No. Okay. So is it kind of an index, a diffusion index? Oh, he's doing something like that. It's dollars. Oh, dollars.

Dollars. Oh, I thought you were, oh, dollars. 30. Oh, is that like, it's got to be some measure of wages, right? Average hour there. For, it's not overall wages, is it? No. That's 35.

It must be for the dock worker, the transportation workers or something. Your answer is proving my point. The point I want to make. Average hour of earnings for production and non-supervisory workers. the lowest paid 80% roughly production workers in the manufacturing sector, non-supervisory workers in the services sector, higher than it's ever been. And higher than it's ever, so that's nominal, but also higher than it's ever been when adjusted for inflation.

So the highest it's ever been adjusted for inflation. Okay. Okay. So another sign of strength in the labor market? Sure. Yeah. Okay. No, you know, this reminds me.

You wrote a book about the American Dream. Yeah. Yeah. And unfortunately, I think you published it the day the pandemic hit or something. As I recall. Am I right? The pandemic demonstrates that the American Dream is alive and well. Yeah.

Did I get that right? Because I remember getting the book and the whole world seemed like it was falling apart at that. I don't know how long it took to get it to you at the mail. But it came out in. in early 2020. Early 2020. Yeah, I remember this very well. And I was like, oh, I can't wait to read this because it was controversial.

It was very controversial. It was controversial. And then we got it all swept up. I got to go back and read that book. Yeah, it's real good. It's a good book. Yeah. Okay.

Did you wipe it down with the? With a quarks wiping. I might have. I might have. At that point, I was wiping down everything. Yeah. Yeah. Pretty spooked.

Okay, I think we had enough of the game. Let's move on to the election. So, Mike, I know this is a bit of a parlor game, but, you know, in our world, this is kind of critical because, you know, we have to put pen to paper, produce a forecast. So, you know, we have to have some expectation for fiscal policy, economic policy more broadly, and therefore we have to have some expectation about how this thing's, this election is all going to play out. Do you have kind of a view on that? What's the most likely scenario here in your mind in terms of how this is all going to play out in terms of the makeup of government?

Yeah, I would bet, I think, on Republicans keeping the Senate. You know, that seems like the piece of the puzzle we can be most certain about. I would bet on Vice President Harris winning the election. And I would bet on Democrats winning the House of Congress. representatives. But of those three, I have the most confidence in the Senate. That's like exactly our baseline, right? Oh, interesting.

Yeah, exactly our baseline. Of course, we have an election model that we use. So at the state electoral college level, predicting, you know, the percent of the vote that goes to the incumbent party by state. And on the right hand side, we have a bunch of political factors and economic factors. And right now, you know, it shows the state of PA, Pennsylvania, my home state, our home state. We're all, Dante and, of course, you're in PA too, right? Yes.

Yep. So our vote really, that's the state that drives the train here, you know, gets through 270. But we have her winning. And, of course, the Senate, as you say, it goes Republican, and we have the House-going Democrat. Yeah, that's interesting. I thought most model-based forecast had President Trump winning. So, I'm interesting. I mean, that's just my impression.

That could be wrong, but my impression is that most of the, the kind of model-based ones. You mean like the fair model and those kind of models? Yeah, well, yeah, or even the, I'm not sure what the fair model has, but I'm thinking more of the kind of polling aggregator models because they're, you know, they're building in a bias against Trump, right? So, you know, if the polls show that Harris is up by two, that actually means she's down by four, or the kind of that sort of thing. But I'm not sure. I don't know the details of how your model is built, obviously. I think the betting markets are closer to us on, aren't that they are? They are.

They're saying Harris, I think at this point. Yeah, I think that's right. I think the economist also, although I don't know what the structure of their model is, but they're showing Harris. They're saying Harris? Yeah. Yes. Okay. Okay. Okay. So if that's the makeup of government, then what does that mean about policy,

economic policy, Mike? Well, you know, I think I think that this next cycle will be a little unusual because some policy kind of has to happen in 2025 with the expiration of the of the Tax Cuts and Jobs Act or the expiration of many provisions, I should say, of the Tax Cuts and Jobs Act. You know, I think I think Vice President Harris is pretty clear she wants higher taxes on capital income, higher taxes on corporate income, higher taxes on the top 2% of household income earners, and she wants to preserve the Trump tax cuts for the bottom 98% of households. you know, she's going to have a lot of opposition to that, I think, in a Republican Senate. And so, you know, if I were, if I were doing your forecast, my baseline would be that the whole law gets extended for two years. Oh, interesting. You mean, the individual tax cuts that expire at the end of 2025 under current law will be extended for the whole shooting match for everybody for two years. for two years.

That's what I, that's what that, that, that's my baseline. No, but no, no, no change in policy in 2025. Okay. And, and, but, but she doesn't get all this other stuff that she's been talking about, like, tax and capital gains or. I don't think so. So you, it's the status quo. I would, I, if I, if I had to, if I had to do, if I had to do a forecast, that would be my

baseline is, is there's no change in, in policy. Right. Right. Right. What about anything outside of fiscal policy? Like, is that still the status quo, too, on trade regulation? Yeah, I mean, so she hasn't said a lot about trade, which itself, I think, is an indication that she doesn't have a, you know, strong appetite for expanding trade barriers. you know, I don't, I don't really think the Biden White House, at least initially, did either.

But I think they, you know, so then why did they keep the Trump tariff regime in place? I think a lot of it was domestic politics. You know, labor unions are an important part of the Democratic Party's constituency. And then I think a lot of it was actually foreign policy driven, where if you lowered the tariff rates on China, you know, that would affect the U.S.'s posture in our strategic competition. And so I would expect her to, you know, I would expect her baseline to be to leave the tariff regime she inherits in place, but not really escalated.

And, you know, four years is a long time. Maybe something happens in a positive direction with U.S.-China relations. tariffraeys come down but you know I wouldn't I would bet on I would bet on stasis there as well you know on other stuff

I mean it's you know look I think she's gonna I think she seems to be unattached to specific policy goals in a way that is you know

kind of unusual in the pre, you know, 20-20 history of U.S. politics, at least, you know, going back a half century or so. But she's going to want to, I think, you know, have some accomplishments. And so I think my baseline expectation is that she, you know,

works in a pragmatic way with the Congress that she, that she encounters, you know, again, likely, I think, Republican Senate, and tries to move the ball on on something in the housing market, move the ball on something in the higher ed space. What about immigration? Do you think that's possible? I mean, they came pretty close, right? I mean, they came really, really close.

I, you know, I think we can, I think we can maybe think about immigration in the same way we think about the 2025 tax cuts. you know, I think the crisis on the border is kind of a forcing event in the same way that the expiration of the tax cuts are. And so, you know, she, the political pressure may mean that they have no choice. As you say, they came very close with Senator Langford's bill. And, you know, I know from talking to folks on the hill that there's a lot of appetite to do something. And so, you know, it wouldn't, it wouldn't surprise me at all if she, if she, you know, did something pragmatic and worked with, worked with her public consent to get something done there. You know, the compromise is obvious, right? I mean, you know, trade border security for higher legal integration inflows.

And, you know, you can, you know, the details matter, but the, the, the parameters are pretty clear. Yeah. So it sounds like the economy we get in that scenario is the economy we have right now, right? I mean, yeah. I mean, I think the economy right now is in extremely strong shape. And, you know, my, you know, if I were in your shoes, I think my baseline would be that that would that would continue, you know, until until the economy hits some sort of shock. And, you know, that's obviously hard to forecast. The one thing I worry about in that scenario is the debt limit, right?

Because the debt limit is going to kick in again on January 1st, 2025. The Treasury is going to run out of cash at some point the summer of 2025. And, you know, it feels like every time we go down the debt limit path, we get closer and closer to a breach. It just feels that way to me. Is that something we should be worried about? So when I think about the the debt limit, I mean, I agree with your characterization. I think of that as being much more driven by Republicans than Democrats. Right.

And, you know, specifically much more driven by House Republicans. And so, you know, under the scenario that the House goes Democrat, there's a Democrat speaker. You know, I think I'm less worried about that. Yeah. I'm less worried. I'm less worried about kind of an accidental. default, you know, where, you know, they, they leave it to the 11th hour, then like, they don't get it done in time. Right. You know, everybody flips out. I'm, I'm less worried about that.

I suppose it means if both the Senate and House go are, that becomes more of a threat, then, more of a... Oh, I'd be, yeah, I'd be, I'd be quite worried about that. And under that, under that scenario, yeah. Okay. Okay, well, that's the most likely scenario of the baseline, and that's actually very similar to our baseline, although you may be a lot of the baseline, although you make a great point. In our baseline, we do assume that tax rates go up for folks that make over 400K. That's the threshold. She's kind of chosen. Although, you know, now that you say it, the way you said it, that makes, that resonates with me. That makes a lot of sense. Yeah. I mean, I'm, you know, I'm based on this a lot of, I mean, I'm here in Washington and, and, you know,

I'm basing in a lot of conversations I'm having with, you know, members and with, and with, and with both staff. But, you know, rewriting, tax law is politically and substantively very difficult. You know, in 2017, there were some great members of Congress who really, you know, were instrumental in passing a major change in tax law, you know, notably Paul Ryan, who, who, um, uh, is. had been, you know, cared a lot about policy and was very, you know, very knowledgeable about these issues. And, you know, a situation where you kind of have divided government, where there is no Paul Ryan like figure in Congress and where there is, there is the easy way out.

you know, you can just extend it. You can extend the whole thing. You know, it seems to me that if you had to bet on, you know, Congress, you know, making substantive changes that made sense and ad up and, you know, blessed by the CBO and passed by both houses and signed by the president, all by a deadline, you know, that's tough. And, you know, whereas, you know, waiting until 15. minutes before, you know, middle-class taxes go up and signing a, you know, signing a very short bill

that says, hey, you know, everything gets extended for two years. That's, that's much easier. Yeah, and it makes sense to me two years. Go to the midterm, see how Congress shakes out and then go forward. Yeah. And we're running out of time, I know, but before we lose you, I want to consider one more scenario, election outcome. And in our, in my mind, asteroid hits the earth, the ocean's boil. That's definitely a scenario. And maybe this scenario isn't too far off from that. The second most likely scenario, in my mind, is a sweep, you know, Republican sweep.

Trump wins. As you point out, the Senate's going on in the House. In that case, it's very close. They could go either way. And if he wins, then likely he will pull, you know, over those districts that like in New York, just enough to maintain Republican control. So you're not even sweet. Okay. Do you agree with that characterization? That's the second most likely scenario? Yeah, I do. I do agree. Okay. So what is policy? What is economic policy? Sorry, I shouldn't chuckle.

What is economic policy in that scenario? You know, I think it's hard to, I think it's hard to know. you're hearing different things from the campaign. Okay. You know, about important issues. 10% across the board tariff, 20% across the board tariff, you know, is the 10% like 10 percentage points plus existing tariffs or does it just bring everybody to 10%? You know, but then you're also hearing from some corners of the campaign that, that's not going to happen at all.

Instead, it's going to be a reciprocal tariff regime where if you tariff us, we tear a few. If you don't tariff us, we don't tariff you. You know, who knows? President Trump, you know, on immigration, President Trump is, you know, very recently talking about giving foreign-born graduates of U.S. universities green cards when they graduate. You know, the campaign, you know, the Trump campaign, you know, indicated that, you know, that there might be

restrictions on on that you know probably based on what's your degree in where did you go to school you know that sort of stuff it's unclear what the kind of nature

of those restrictions are that sounds like immigration reform right that's the kind of thing you would do sure yeah yeah yeah it sounds like part of immigration reform you know on tax on tax policy you know I'm not I don't know it's very hard to predict to predict

You know, Yogi Berra said predictions are hard, especially about the future. You know, they're talking about trillions and trillions of dollars of additional tax cuts. I don't know that they could actually get away with that. Yeah. I mean, so. Just because it adds so much to the deficit in debt, which are already very high. You think markets would react to that and that'd be. Yeah.

Or before it got to that, you know, Congress, you know, they're, you. even with the Republican sweep, there'd be enough deficit hawks in Congress. I see. And so I think even under a Republican sweep, I would probably still bet on just a blanket extension of the TCJA. The Trump tax cuts. Yeah. Yeah.

But, you know, I think it's, I think it's hard to, I think it's hard to know what, you know, I mean, in some ways, divided government is, is easier to forecast than what, right. than what either party would do with unified control. What about, are you worried about Fed, what I call Fed capture? I mean, President Trump is, you do worry about the Fed. Former President Trump's talking about the president, meaning him, but have input into interest rate policy, setting the Fed policy. Yeah, I'm definitely worried about that.

You are, you are worried about that. Yeah. Okay. So tariffs, as you point out, who knows? a lot of this is political posturing bluster talking some of it maybe negotiation you know you're kind of setting a stage for negotiation but you're talking about tariffs we're talking about you didn't mention deportation i don't know where do you think he'd go down that path but i mean he seems to he seems to want to i i um you know he seems to strongly want to i i don't

I have serious doubts about the government's ability to execute the type of regime he's talking about. You know, how do you actually, you know, how do you do that, right? How do you find, you know, half a million or a million undocumented immigrants? How do you move them out of the country? you know, I think I think there would be a lot of a lot of logistical and operational challenges to that, a lot of legal challenges to that for sure. And, you know, the media would cover that in a way that would, I think, create political pressure against continuing it. So, you know, my, you know, if I were, if I were doing a forecast, my baseline would be that,

that, you know, there probably be some deportations, but, you know, nothing like what President Trump is talking about. But, you know, depending on the size of the sweep and the mood of the country, and, you know, I'm surely not an expert in, in the U.S.'s kind of state capacity to deport hundreds of thousands of people in a short period of time. And maybe we'd be able to do that. and maybe it would happen. If it did happen, you know, people, people were talking a lot about the inflation risk of, of a second Trump term, if President Trump is re-elected. I think the biggest inflation risk, I think, comes on the immigration side. So people are very focused on, on the tariffs causing immigration. Some people are concerned about the Fed, I'm sorry, people are concerned about the

tariffs causing inflation. Some people are concerned about the Fed causing inflation. You know, I think, I think if if the Fed becomes subject to political influence, you know, I don't, you know, I don't think, I don't think that that happens dramatically, right? Like, I don't think President Trump amends the Federal Reserve Act to put the president on the FMC or, you know, strolls down. I mean, I think it happens in a more subtle way. And I do worry about that, that structurally increasing inflation expectations. I think that takes some time to happen, you know, on the tariffs. I think you see a, you know, one-time spike in the price of imported goods. I'm not sure that feeds into inflation.

But if, if, if, if, if, if, if, if, if, if, if, if, if, if, if, if, if, if, you're concerned about hundreds of thousands of, of, of undocumented workers, you know, you know, your concern is on inflationary spiral. Sure. You're coming into this with your concern is on inflation. inflation not going back in and this just adds to that concern. I think so. Yeah. I think so.

You know, I mean, the way we think about inflation, the way we talk about it and teach it is that it starts in the labor market. And I don't think that's what happened in the cycle we're exiting. But that is the kind of, you know, textbook way it happens. And how do you get a big spike in wages? is, well, you deport half a million workers in a six-month period and, you know, see what happens. Well, so it feels like to me, and I don't want to put words in your mouth, but I'll put words in your mouth and see how they taste. I mean, tariffs, some deportation, Fed capture, or kind of the status quo on fiscal policy, continued deficit-financed kind of government, not that it's going to be more than what it is,

but it still remains what it is. That does feel like a economy that has higher inflation, interest rates. The Fed's going to be battling that in somewhat diminished growth relative to the previous scenario we just described the baseline. Does that sound right to you? Does that feel right? Yeah. I mean, I think, you know, somebody said that gridlock is the most beautiful word of the political

lexicon. Yeah. I thought you said that, Mike. I thought that was yours. And, you know, at a time when, uh, when, you know, new laws tend to hurt the economy and not help the economy. Yeah. You know, no laws are probably better than new laws. Yeah.

And, you know, you know, a divided government, I think results in more stasis. More, more. Okay. Okay. Um, okay. Um, okay, fair enough. Uh, is there any other scenario that has a high enough probability that we, we should consider? I mean, in our kind of, uh, thinking, we attach a,

the baseline, 45% probability to Harris divided government, then 35% Trump sweep, then 15% Trump divided government, 5% Democrats sweep. That's kind of how we've handicapped it. So we don't spend a whole lot of time on a Trump divided government or a Democrat sweep. Does that

sound fair? Yeah. No, I mean, I think I think the Republicans would really have to blow it to lose the Senate. Yeah. You know, it sounds like you're putting about a 15% chance on that. Yeah. You know, that's that's right in the ballpark of of of of of of where i would actually five very low five percent you know where for i thought i thought yeah democrat sweep but i thought uh i thought you gave trump divided

government so in your trump divided government i give him 15 15 on trump divided government and five who has the senate republicans okay republicans oh so so so i so maybe i'm attaching a higher probability to Republicans blowing the Senate than you are. But, you know, I'd say it's less than a one-fifth chance. Yeah, right. Okay. Okay. All right.

Well, very good. I'm not sure whether I should be happy or nervous about the fact that we're so in line. I'm going to take the happy. Sure. Yeah, I'm going to take the happy. At a time with happiness is rare. Yeah, let's take it. Let's take it.

Yes. Well, I've taken, we've taken enough of your time. I really do appreciate it. And the conversation is always great and very informative. And thank you. Thank you for coming on. Really appreciate it. Always fun to see you and always fun to be with you guys.

Thanks so much. Thank you. Chris, Dante, anything, last parting words? No. Just thank you. Hope to see you again soon. Good. Okay.

And with that, dear listener, we're going to call this a podcast. Take care now. Talk to you next week.