Moody's Talks - Inside Economics - No Jobs Friday: The Sequel

Episode Date: November 7, 2025

Mark, Cris and Marisa discuss the trajectory of the alternative labor market data on what is yet another “jobs” Friday with no official labor market data release. They discuss various outcomes around the federal government shutdown, how and when it may end, and what that means for the backlog of economic data releases. The trio concludes by answering several thought-provoking listener questions.  Hosts: 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 Analytics 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 Moody's Analytics, and I am joined by my two trusty co-host, Marissa Dina Talley, Chris Dreadies. Hi, guys. Hi, Mark. How are Tings? Tings. I'm excited about Jobs Friday. Yeah. Today's Jobs Friday. It should be anyway. Yeah, but we're missing the jobs data.

Bummer. Two months in a row now. We're going to make it a Jobs Friday. We're going to make it to Jobs Friday. Is that the deal? Okay, we're going to go look at all the alternative data sources and see what it says. Okay, absolutely. It's been a while since it was just the three of us on the podcast, hasn't it? Has been.

I think you're right. Yeah. I think it's been a while. It feels good, though, somehow. I like it. It feels like I'm home. It's not a proposed. It's a safe space.

It's a safe space. We're missing Dante, though, so it's not quite. That's right. That's true. It's a bit. job Friday without Dante. Dante's on a cruise. Somehow, I just don't see Dante on cruises. Dante is a prolific cruiser. Are you kidding me? Prolific. Wow. No, he, you'll have to ask him about it. Really? He goes on multiple cruises a year. Huh. Chris, would you have thought

Dante a cruiser? I would have not, but I'm not a crew. I'm the antithesis of a cruiser. That sounds like the worst vacation. Have you ever been on a cruise? No, I have not. I have not. I don't have an open mind about it. Mercia, have you ever been on a cruise? I've been on one. Uh-huh. And it was a small luxury cruise, and I did not like it at all. I had the mindset that Chris had, like very anti-crues, and I got talked into, this is when I went to Japan a few years ago.

Like, it was 10 days, way too long. I got sick of seeing the same hundred people every morning at breakfast. It was not my thing at all. But I'm glad I tried it because now it confirmed to me that it's not my thing. What are you, Mark? I've never been on a cruise. And I'm, you know, it's hard to say I'm anti-crues. Because if some billionaire invited me to come on a yacht with, you know,

made with a rock star and, you know, a novelist. Yeah, that's not really a cruise. That's not really a cruise. Okay. I would do that too. in a heart thing. Maybe then I am anti-cruz. I don't know.

Maybe I'll give it a shot one of these days. Yeah, you'll have to ask Dante. I mean, I think with Dante, it's a function of having little kids and it's easy entertainment, contained easy entertainment. Right. Yeah, no, that makes a lot of sense. Yeah, but okay, here we are our own jobs Friday. We want to talk about the jobs data from private data sources that we have.

have gotten and what it says. And we got the UI claims data from the state labor department so we can talk about that as well, and Challenger layoff announcements. So a bunch of stuff we can talk about, I think, which will provide some insight into what's going on in the labor market and kind of more broadly. We'll play the game at some point, statistics game. And I, Marissa, you have a bunch of listener questions, you said. Yeah, we have a ton.

We have a ton. Okay, so we'll take those as well. Okay, so let's just dive right in. Marissa, where should we go first? What data would you like to point to? So I think there's three that I watch closely, right, that are a pretty good alternative to the BLS. So the first thing that we have on the unemployment side, really the only thing we have on the unemployment side is unemployment insurance claims. So we've mentioned this in past podcast. The ETA, which is the Department of Labor's arm that puts out national claims is not putting out national aggregate claims.

But individual state departments of labor are still reporting. And so we can aggregate what those are saying. So in the week ending November 1st, right, so this was last week, claims rose by 10,000. So they were 219,000 in two weeks ago. and last week they rose to 229,000. So more of the same there, right? Still extremely low. Still not seeing much.

We're getting bounces around from week to week, but nothing concerning, really, on the UI claims. Nothing that would make me say we should rethink our unemployment rate forecast, you know, for Q4. Matt Collier, our colleague who's been on the podcast many times and who puts that UI claim to get data. together for us, you know, goes to the state labor departments and collects that data, said that it does not include federal government employees, former federal government employees. It does not include that. That count doesn't, right. Federal people claiming federal employees claiming benefits are reported separately.

And he put that at about 8 to 10,000 last week. So it would be something closer to what, 240K? 40. Yeah. Yeah. Still pretty low. Yeah. Okay. Yeah. So that's one data point we have. And that's a nice one because we get it every week, right? Yeah. Just to remind everybody, kind of my rule of thumb, I'm curious if you think this is consistent with yours, if you're below 250K per week, everything's okay. There's really not on the radar screen. Layoffs remain low. Two 50, above 250 closer to 270, that's when it's on the radar screen, you know, yellow flares are going off. 300K, then the red flares and recession becomes a real, real, more likely than not at that point, I would think. Is that about right?

Is that the way you think about it? Yeah. Yeah. Okay. Okay. So right now, it's not on the radar screen. It's fine. Everything looks okay, at least from the perspective of layoffs.

Layoffs remain low. And that even with all the announced, what seems like a lot of announced laughs, and maybe you're going to go here next, the Challenger Gray and Christmas. Is that where you're going? Okay, go ahead. Yeah, you're right. That's right. So there's people filing UI claims are out of a job, right? Right.

Then there's companies coming out and saying we're planning on cutting 10,000 jobs, 30,000 jobs. Those are just announcements. And oftentimes the timing around that is murky. so oftentimes is the breakdown between whether those are companies that are just taking down open jobs that they're advertising for versus actually firing people. Right. So it could be we're cutting the headcount by 10,000. That doesn't necessarily mean they're going to lay 10,000 people off.

It could mean they have 5,000 open positions that they're just going to take down, right, from their website. Right. So, right. So there's another source that we have Challenger. and Christmas. They're a consulting company and they put out a job cut announcement report every month. This was kind of interesting this last month. So they reported 153,000 announced job cuts for the month of October. That sounds like a lot. That is the highest since 2003. Ooh. Okay. So highest number, highest one month

cut announcement in any month in over 20 years. So that is really big. And they break it down by the reasons. They look at the reasons that companies attribute to these announcements. The number one is cost cutting, which that could mean a lot of things. And you would think that's usually the reason a company would announce job cuts. At the end of the day. Right. So I don't know what that really tells us. But the second most common reason given was artificial intelligence, reducing the need for as many people on the payrolls. Now, that's interesting. Yeah. Yeah.

And we've talked a lot about, can that really be verified? Do we really believe that AI is really having that kind of an impact? I think that's very much up for debate. But companies are certainly saying it is having an impact in their hiring and firing decisions. And this would include the Amazon layoffs and UPS and I think Target and who else. Are there any other names there, a big layoff announcements? I was talking to a coworker whose spouse works for Booz Allen Hamilton, which is big consultancy in Washington, D.C. that does a lot of government contracts.

They're laying off something like 15,000 people in the D.C. area because of a combination of the government shut down and doge cuts earlier in the year. So there are some big, there are some big names out there. Do you think this, this is a leading indicator of a future initial claims for unemployment insurance, that, you know, these are announced. It takes time for them to actually be implemented. That will be implemented over the course of coming months, presumably, and that would argue for higher UI claims.

Is it, is it correlation that tight or not so tight? No. So if you look back at announced jobs cuts and you track, you know, look at it next to U.I claims, often it doesn't track very well. So there have been previous years and months where there was an enormous surge in announcements that never ended up translating into either a rise in unemployment or a significant bump in UI claims. So it's not to say that there's no relationship, but I don't think we can infer with a lot of confidence that we're going to see this enormous, you know, increase in unemployment in the months ahead. We may, but I don't have, you know, I don't think it's extremely tight relationship between these two things. Hey, Chris, what do you make of the, oh, sorry, Kurosos.

I was going to ask, these are global announcements, right? They're not just U.S. is that correct? That's right. Right. So I could make a case that if AI is actually really right. now leading to cuts in the back office, say, some of the processing that might be outsourced to other countries, maybe that's where some of these Amazon cuts, for example, might hit home first.

It might not actually be the U.S. labor market that's impacted by the cuts, AI-related cuts as much as maybe other. Lots of hypotheses, right? Are you saying it's more likely the cuts would be overseas than at home because they're AI cuts? I'm saying if they are AI cuts. Yeah. And if we think that the first round, let's say, if AI cuts are really on those more routinized tasks.

A lot of those tasks have already been outsourced to India or other countries. So maybe those are the ones that get cut. I don't know. I'm just a- Yeah, yeah, you're hypothesizing, right? Before we read too much into the data. And maybe that could help to explain why there might not be such a strong correlation between announced cuts, which are global and U.S. unemployment insurance claims, right?

Right. Marissa, do you know offhand, you mentioned cost cutting, you mentioned AI. What was the next reason given for the layoffs challenge for Christmustin' Grey? Do you recall? I don't know offhand. Okay. Okay. Yeah, I wrote down the top too.

Chris, what do you make of the AI explanation? I mean, what's your intuition there? Is it real or is it performative? Because if a company says I'm cutting because of AI, at least so far they've been rewarded in the equity market because of it. I'm adopting AI. So you have a It feeds that narrative, right?

It feeds that narrative, right? But I still see it as AI's early days. I think certainly not all firms are adopting AI. The adoption continues, but a lot of it that I see is still experimentation. So I see more of a case to be made that they're not hiring because of AI or the promise of AI. I don't know that I'll need as many people in the future. therefore I'm going to taper my hiring in this uncertain environment, but to actually cut

because of a, I struggle with that one. I don't know that there's direct evidence that says, aha. Unless you've made the case for specific industries, like computer programmers. Maybe there, there is a case to be made. But there, a lot of these tech cuts I see is also just a reaction to some overhiring that went over the last five years, so maybe just rebalancing or restructuring and AI gives a nice cover,

at least for now. It very well could be the case that AI does lead to more cuts, but it seems too early in the process for me to think that's the main driver. Okay, so it seems to with regard to this aspect of the job market, we're focused on the layoff side of the job market. What I'm hearing, and I'm with you, is that layoffs remain low in aggregate. But there are some signs that they may soon pick up because of all these announcements.

A bunch of reasons, one of which is AI, but still early days, and we can't put too much weight on that at this point in time. But it feels like the best news with regard to layoffs, well, I guess it can't get any better than it is. So there's only one way to go here. It does feel like layoffs, if anything, are going to start pushing up here to some degree. Did I get that roughly right? Would that be fair to say? I think so. And I did look up your question.

So the third reason given was economic or business conditions. Business conditions. The fourth reason was closing stores or locations. But interesting that overall throughout the entire year, 2025, the number one reason has been Doge cuts. and it's downstream effects. So over 200,000 jobs cut announcements that are directly the result of Doge and then like another 25,000 that are downstream impacts from Doge. So that's the whole year.

Right. Hey, one other thing about the layoffs. I mean, I was under the impression or thought that, you know, all those government workers who got cut during Doge but were put on... deferral, they were essentially given severance, and that, you know, that would last through month of October. At that point, then they would come off and then they would join the role, the ranks of the unemployed and may show up in UI claims. But is that, did I have that right? And why haven't we seen that? Well, it was the month of September.

Month of September. Yeah. So October 1 would be when they're off payrolls. Right. Okay. So, so. So, if. If we had BLS data, you would see it in, you would have seen it in today's report for October. I see. Why aren't we seeing it in the UI claims, the initial claims for unemployment insurance? Why aren't they? So I think you guys had a webinar where Justin Bagley was talking about this, right? And he was talking about how a lot of the furloughed federal workers may not be.

First of all, a lot of them knew they were losing a job back in. January, February, March. They have had six months plus to find other employment. And they were free to do that. Right. So if they took this deferred layoff, they would be paid by the federal government through the end of September, but they could get another job in the private sector or somewhere else in the meantime. So you have to figure a lot of them probably reemployed. Federal government employees also tend to be older on average. There's a lot of people that may have just said, I'm retiring completely. So I think there's a couple reasons why they may be less likely to file for unemployment insurance than, say, a private sector worker in that situation. They had six

months, right, of a heads up on this. So presumably a lot of them have found work. And if you're a federal worker who's in this situation and you listen to this podcast, we'd love to hear from you. we've seen it, right, Mark? Like we've seen, we have some open positions and we've seen a lot of federal workers, former federal workers, people that are not working for the federal government anymore because of Doge applying for jobs, economists jobs with us. So there's certainly a lot out there looking for jobs. So there is some uptick in UI claims among federal workers, but it's not huge.

It's not as big as you'd think. You know, Christian, did you catch that she's listening to the podcast when she's not even on the podcast, I'd say that's a pretty good sign. No, I was listening to your, your webinar that you did on the shutdown. Oh, the webinar. Oh, the webinar. Oh, with Justin and Brendan. Yeah, yeah, yeah.

You talked about this a little bit, I think, on that webinar. Right. We'll come back to that. Okay. Okay, so that's the layoff side of the job market. That's a layoff side. Right. Then there's the demand side, right?

Well, the other part of the demand side, which is hiring. So the two big ones are ADP, the payroll. processing company and Ravello Labs. We had Lisa Simon, the chief economist on several, like a month ago, right, talking about the Rvelio data. So the ADP number came out on Wednesday morning. That showed a gain of private sector employment of $42,000, so plus $42,000 from ADP on private payrolls.

And the previous month that had declined. So showing some improvement for the month of October. The gains were kind of narrow. One of the highlights of what it showed was a, I think it showed a decline in leisure hospitality, which their chief economist pointed out as maybe concerning since we've talked about how consumers have been powering this expansion so far. Right. So there's been some wavering in retail and leisure hospitality things powered by consumer spending. Yep, go ahead. There's also a seasonal component perhaps.

going on because we are coming up on seasonal hiring, right, for holiday workers in a lot of these industries. So I think that has to be taken with some grain of salt there when you look at highly seasonal industries at this time of year. Were you going to say something, Mark? Question that? No, just to point out that, again, this is private sector. So, again, not the government.

And so in all likelihood, government employment declined again, going back to Doge. the government shutdown. And that would, that said, what was it? It was a positive, what? It was plus 42 for private sector. So it's definitely lower than that. We don't know how much lower, but definitely lower.

In total. We have some idea, right? So Ravellio, who puts out a report that they collect their data by scraping professional profile websites like LinkedIn. They reported total non-farm payroll declassive. line of 9,100 over the month. So that does include government workers. And the government portion of that looks like it was down like 20,000-ish.

So their private sector number, to be consistent with ADP, would have been plus 13,000. Got it. Right. So then you add in these 9,000 government workers that lost their. job down 9100. Sorry, whatever I said before, 20,000 government workers lost their job down 9100 was the headline. Right.

They also reported downward revisions to the data that they reported from June through September. So it makes kind of the whole summer into fall period look weaker than what they initially reported. So, oh, go ahead. You were going to say something else? I was going to say, put, if you put these things. together, right? Like, one of the things that we do... That's where I was going to go. Yeah, when we

try to forecast what the payroll number is going to be, what I've been doing the past few months, is combining the Revelyo number and the ADP number. And if you do that, then you get plus 28 on private sector employment. If you average the two private sector estimates, right? average the $42,000 and the plus 13. But we would estimate, again, you have a lot of federal employees coming off the payroll. We know that just given that this buyout situation ended at the end of September. So if you factor that in, we would estimate a decline of $15,000 in total non-farm payrolls. That's where our team, you know, Dante's team, our colleague Matt Collier, that's where they

ended up for the month. So they would pencil in minus 15K for the month of October, given all this data. Okay. So because we don't have government data, the Bureau of Labor Statistics is not operating, so we're not getting the numbers. We're now focused on these two private sources of data, the ADP data, the Ravallio data. in looking historically in recent history, these track the BLS numbers pretty well, I would say. Yeah, they do.

Yeah. And so we're taking those two numbers and we're combining them, taking an average of the two. And what you're saying is, if you take an average of the two, it would suggest if we had gotten the BLS numbers, it would show a small decline. So it feels like basically the economy is not creating any jobs. That's what we're saying effectively. No jobs. There's no layoffs, but there's no jobs, and no jobs, therefore there's no hiring. That's what we're saying.

Yeah. And I'll point out one more private data point, if I can. Indeed has an estimate of job postings and they track wages. The number of job postings in October was the lowest it's been. since 2021. And wage growth has been pretty weak. They're looking at wage growth of two and a half percent year over year. So that is less than the rate of inflation right now, right?

So we've seen inflation rise. So that's, again, looking at demand for workers. And we've talked about job postings and how that's a little iffy, right? But nevertheless, companies are taking down job postings. And now they are as low as they've been in, you know, four years. years, five years, almost. I guess the other data point that's consistent with no hiring is that going back to the insurance claims data, continuing claims, the number of people continue to be on unemployment

insurance, that continues to push up. It's high. It's high and it's pushing up. Is that right? Do I have that right? It's the highest it's been in about almost four years. Since the pandemic, coming out of the pandemic. Yeah.

It feels high. Okay. All right. So, I mean, the picture here is one of a pretty, people get upset when I use the word, but I looked it up and it's a word punk, punk labor market. It's not going anywhere fast. Is that right, Chris, would you, any push back there? Is it worse than punk? Is it like negative punk?

I mean, are we actually losing jobs now, do you think? probably in any given month. Yeah, any given month. Certainly, you know, down 15K, I wouldn't dispute that given the government payrolls, but I'd say flat at this point. I don't know that I go so far to say it's, what, negative punk, but negative punk. But definitely flat. And certainly the trend is in that direction.

That's the concerning part, right? It's not getting that. A little bit more in the weeds, before we tie it all back together. Going back to the ADP, there's two other things I noticed about the ADP data for this month, for the month of October. One was the only job growth is that large companies, you know, companies more than 250, I think they say more than 250 employees. That's their cutoff for a large worker, excuse me, a large employer. anything below that, we're seeing companies of any size below that, we're seeing job lost, you know, consistent job lost, which again is kind of consistent with the environment,

you know, the tariffs, the damage that, that's mostly smaller companies. They don't have the same resource or capability to shuffle their supply chains to avoid the effects of the tariffs. The big guys are in a much better position to do that. So it makes a lot of sense. So they're taking it on the chin. they can't pass through their higher tariffs to customers like the big guys can. The other thing I noticed, which makes me a little suspicious that the ADP data may even be

overstating things, all of the job growth was in trade transportation. Their sector, as they defined trade transportation and utilities. You know, that feels really weird to me. That feels really weird to me. So I'm not, if anything, I bet that number is on the high side. It might even get revised lower. but something to point out. Okay, so let's bring it all together.

You know, I've asked this before, I'll ask it again. What do you think underlying monthly job growth is, you know, abstracting from the vagaries of the data like the ones I just described, and what do you think the break-even number is? You know, what number of jobs do we need to create every month to maintain stable unemployment? Chris, what are your two numbers there? Gosh, I'd say zero. Zero.

And the break-even is tough, but I'm going to stay, I think I said 25K, 30-K last time. I'm probably going to stick with that. 25-50K? Yeah, in that range, but probably in the lower end. Obviously, that goes to the fact that we have very restrictive immigration policy. Labor force of the foreign born is falling. Labor force in total has gone flat. So if you have no labor force, you can't create any jobs.

Therefore, we're a little bit below break even, but not a lot below break. So that would suggest unemployment is going up. It's going up. Okay. Still low, but going up. Marissa, what are your numbers? This is boring, but I have the same exact answers as Chris. I think it's zero and 2530K.

You do. Okay. Yeah. I tell you, I think we're in negative territory. You know, because we haven't talked about revisions. There's going to be revisions. You know, even the data we got this past month, and all likely is going to be revised lower, right, to more negative.

And we've got other benchmark revisions as well. So it feels like zero to minus 25. You know, that's where the actual number is. And break-even, I'd say, yeah, 25 at the low end, you know, 25 to 50 sounds about right. So that's a gap of about 50, 100K. that's not inconsequential, you know? I mean, that means unemployment's starting to move higher. And that would be consistent with, you know, other data we're getting, like the University

of Michigan. Do you see the University of Michigan survey today? Yeah. Oh, it came out this morning, didn't it? No. Bad, right? Very bad. It fell sharply and is, I think it's pretty close to a record low, if not at a record

low. I mean, there's some, there's measurement issues there. So you got to, because they switched to an online kind of survey, so it probably overstates the case, but it's making a case. So, yeah, yeah, right. Okay. All right. Anything else on the labor market, job market?

Any other, you know, we're obviously scouring the economic world for any data that we can find. But anything else out there, Chris, Marissa, anything? We got the ISM surveys for both non-manufacturing and manufacturing. They're both below 50 on the employment indexes. So that means both service sector and manufacturers. shrinking head count. Right. Do you think this is sustainable?

I mean, what we're saying is the job market's not creating any jobs. It's not a lot different from the break-even job growth. So unemployment is pushing up, but it's still low 4.3% and it's pushing up slowly. That's the implication of, you know, those calculations. Is that sustainable, though, for very long? I mean, does that feel like, you know, the economy can hang together if that continues for any length of time, Mercia? I worry about it in combination with other things going on. So, like, I worry, I would have said, yeah, you could muddle through for, for, I think, a while.

If break-even job growth is really, really low, then maybe full employment, maybe the Fed doesn't really worry that we're in this very low employment environment. But combine that with an extended government shutdown where we're now looking at a massive federal workforce, potentially facing, you know, losing three paychecks in a row. if this goes through the end of November, the end of a lot of federal assistance for families, that stuff, that kind of stuff, I feel like could put us over the edge. Yeah. Right.

How do you feel, Chris? I agree with Merce. Absent that shock, the shutdown shock, let's call it, then I would say, yeah, we could probably muddle through. It's not very comfortable, but if you're just, you know, moving along, very slow, labor force growth, you know,

very modest hiring, and you can muddle through for a long time, right, as you make that adjustment. But what it does do is it makes you vulnerable to any shock. And this is a great example. Like an extended shutdown, certainly. Could tip things over and then there are all the ripple effects

that occur, right? If these workers are not getting paid, that means the holiday season is going to be a lot smaller and all the other impacts on the broader economy are going to be felt over the coming months as well. You know, to this question of sustainability, given the slow rise in unemployment, this may be a time when the so-called som rule is going to be useful, actually. The someril is that if the unemployment rate rises by more than a half a percentage point on the three-month moving average

basis over the low point in unemployment in the previous year, we're already in recession, historically. And the intuition is that, you know, if unemployment's rising like to that degree, it's undermining consumers, sentiment, confidence, spending, consumers are pulling back. Businesses see that, they lay off more, start laying off and then lay off more, and then we're in recession. And right now the unemployment rate is up, but it's not up a lot, and it's moving up slowly. So if that continued, that can continue for quite some time, and it won't be enough to trigger kind of the dynamics implied by the SOM rule. But if we start to see, you know, the, it feels like, of course, we're not getting the

unemployment rate. So, but, you know, if we weren't getting the unemployment rate, then that would suggest something else. Just one other quick technical question, and then we'll move on. It seems like, given the government shutdown, because we're now shut down for quite some time, in no survey, no, BLS wasn't able to do any surveys for the monocale. October. We're never going to get data for the month of October. That's what it feels

like. Is that right, Marissa? Will we ever get it? Any data? Maybe the payroll, right? They could. Maybe the payroll data because it's surveyed businesses and they can get that data. We're certainly never going to get anything for September. That ship has certainly sailed,

right? Oh, no, I think they had the data, right? They just didn't release it, right? We got pretty close to release date. So I'm guessing we get that data? It's the October data because the survey week, there was nothing happening. And now that's in the rearview mirror by a long shot. And so they can't go. You're right. You're right. You're right. Yeah. Yeah. So government shut down on October first, right.

So we should get that data. Right. But October, we may get payroll data for October. But the longer this goes on, I don't think we're going to get, we're ever going to know what the unemployment rate was. or anything from the household survey, because they're not going to go back and interview people and ask them about what they were doing in October. On October 15. I can't remember what I did yesterday, let alone on October. Exactly. So I don't think we'll ever see an October unemployment rate.

Right. Okay. On November. What are your odds of a... Well, certainly on time. You mean not how long this thing's going to last? Yeah. The government shutdown, right?

Because they should be interviewing next week, right? Is it next week? Yeah, next week of the 12th they do the interview. So, yeah, it would be disrupted. You know, here we are now the longest shutdown in history. And it does feel like things are starting to break. I mean, you know, that did, ended the shutdown back in 2018, 19. That was previously the longest shutdown in history under President Trump in his first term. It was when the air traffic started to get bogged down when TSA workers weren't coming in, and air traffic controllers weren't coming into work. And you saw flight disruptions. And now we're here again, right? Right. The Transportation Department said that airports have to cut back, I think 40 airports have to cut back 10% of their air travel.

And, you know, I'm traveling and I can, I was with a group of economists and they're all, trying to think about how they're getting home. Some were getting emails that, you know, they're not going to get home, list not the way they thought. That's going to make, you know, not that anyone listens to an upset economist. You know, it's not like that. But if there's enough upset business people, I think that should start to resonate. It does feel like we are starting to get some progress politically in Washington, D.C.

So I keep hold. And then there's Thanksgiving, right? I mean, exactly. This is like the worst time of year that this could possibly happen. Right. I mean, think about travel for Thanksgiving. It will be just a mess, right? So it feels like the preconditions are coming in place for this to shut down,

for the shutdown to shut down here pretty soon. I don't know, though. Do you have any perspectives on this, Chris? Yeah, definitely. I agree with you. Related to Thanksgiving, I wonder how much travel be just canceled, right? People. Yeah.

That's correct. And that's going to show up in our spending data and have negative employment. ramifications as well. Right. Well, we're doing the forecast now for the month of November, and it looks like, because we've incorporated the effects of the shutdown under the assumption that it ends before Thanksgiving, so sometime next week, maybe early the week after. And GDP for the fourth quarter is coming in about a positive half a percentage point,

a positive half a percentage point. Now, you see a bump back up in Q1, 2026 when government workers come back to work. But, you know, we're pretty close to another negative quarter if this goes on certainly through Thanksgiving to the other side. Because then you're in the Christmas buying season, which I think, correct me if I'm wrong, but I think this Christmas buying season because of the way the dates line up is a pretty short one, isn't it? There isn't as many days or I think that's the case. So anyway, what's the buying season anymore, though, right? That's true, true. It's in August.

Yeah, true. But you're right. I think the time from Thanksgiving to Christmas is shorter. Right. Okay. All right, let's play the game, the stats game. We each put forward a stat. The other folks try to figure it out with clues, questions, to Dr. Reasoning.

The best stat is one that's not so easy. We get it right away. One that's not so hard we never get it. And it's apropos to the topic at hand, which I guess is the job market and government shut down all the better, but it doesn't have to be. So, Marissa, we'll start with you. What's your stat? My stat is 6.9%.

Uh, government data? Yeah. Government data? It is government. Oh, it is government data. Wow. Okay. Oh, it is.

Oh. Federal government data? Yeah. Is it from the UI data? Nope. What? Oh, is it from the Fed? It's from the Federal Reserve.

No. What government agency is releasing data? official report. Yeah. This is like a riddle, guys. It's a riddle. Oh my gosh. And what's the number again?

6.9? 6.9 percent. Is it labor market related? Yes. Is New York Fed? Is it some like region? Is it unemployed? Is it related to unemployment?

Mm-hmm. It is. Oh. Is it a savory? She's saved. Look at her face. I know. She's so happy with the statistic. It's so happy that we're not.

Is it for some demographic group? Nope. These are questions I'd ask if it were government data, but it is government data. But it is government data. You know, she has an end at the BLS. That's what's going on. She has an end from her former days at the BLS. No, that's not it.

I think outside the box, guys. I give up. It's outside the box. Chris, do you know? Is that a treasury? No. No? It is the Canadian unemployment rate.

Oh, good one. Good one, good one. Got us good. Yeah. So it's federal government data, just not our federal government. Yeah. Oh, that's a lesson. That's definitely a lesson.

Yeah. So what's the deal up in Canada? Things aren't so good. Things aren't so good, but this was actually an improvement. The labor market is. improved in Canada over the last couple months. So kind of, I mean, a little bit like what we saw here where the spring was really bad, right? We saw that in the stock market. We saw that around Liberation Day and the announcement of tariffs. And it's not good. 6.9% is certainly elevated,

but it's down from the peak of 7.1 a few months ago back in the summer. And the economy actually added jobs. So Canada's in a recession, but it seems like it's pretty mild. And at least on the labor market front, things are getting a little better. I just thought I would play around with you and no, that was. And sub a Canada data point for a U.S. one. I'm surprised you didn't pick like the unemployment rate in Saskatchewan or something, you know. So like with the, the Eskimos. I'm not that mean. Do they have Eskimos in Saskatchewan? Probably. We'll have to ask Brendan. We'll have to ask Brendan, yeah. Okay. Chris, you're up.

Okay, I got a trifecta here. Three numbers related. 33.2, 45, 91.9.9. Are they index values? Yes. Are they from... Are they from Michigan? They are from Michigan.

Democrats, Republicans, and Independents. Independents and Republicans, yep. Democrats at 33. 0.2, Independence, 45, and Republicans, 91.9. Wow. The biggest spread, or almost close to the largest spread between Democrats and Republicans. We actually had that last month, but it's like a 60 point, almost 60 point differential. Can you provide context, Chris?

I mean, is 91.1? Is that like typical or low or high? That's close to the post-pandemic high. Really? It was higher prior to the pandemic. I have it here. I'm just looking at this. Yeah, so prior to the pandemic, for Republicans, it was around 120.

120. Yeah, so it stepped down during the pandemic. It fell all the way to under 40 at the depths of the post-pandemic with high inflation, high inflation. Then, you know, since the, since last year's election, it's come up and it's kind of stayed there. And it hasn't really moved even with the latest, uh, situation shut down what happened. It's, it's moved a little bit. But the Democrats and the independents are record lows at this point. Wow.

In independence as well or that's a record low. Yeah. And that's interesting. So if you look at the spread between independents and either Republicans or Democrats, yeah. During last year's election, independents were more closely aligned with Republicans. The spread was pretty small. Now that's reversed.

And the independents are more closely aligned with Democrats. That's interesting. That's very interesting. I can use it to predict elections, perhaps. Yeah, yeah. Maybe what happened this week in New Jersey, Virginia and New York, huh? It definitely lines up, right? Oh, that's kind of cool.

That's very cool. But it's so bizarre and fascinating that people's – obviously the economy for a Republican can't be any different from the economy for a Democrat, right? Not to that degree. Right? They're not a huge threat. But their perceptions of it are just so wildly different. It's just bizarre. Yeah.

It's just bizarre. Okay. All right. Okay, 38. My number is 38. The number of date, the length of the shutdown. Yes, exactly. Yours was hard, mine was easy.

38 days, 38 days and counting. And the previous record was 35 days. So, you know, here we are. You know what, 48 days is? 48 days? Isn't that a movie called 48 Days of the Condor or something? Do you remember that movie? That was a great movie.

I think it was like, it wasn't 48 days of the Condor and made that up. Something like that, though. So do we remember the movie that you made up? It was great. It was great. That's great. In my own mind. 48 days.

Okay, what's 48 days, Chris? That's what the prediction markets are projecting. Oh. Oh. So 10 days until. That's a great stat too. Is there something magical about 10 days from now? I think every day.

Now tomorrow is going to be 49 days. I think it's that early, no, it's the week after next, right? Yeah. Well, how many more days till? Well, today's the 7th. So another 10 day 17th. Getting pretty close to Thanksgiving. There's another week before.

military pay gets missed in full. Oh, is that right? One more week? Yeah. Yeah, because it's, yeah, you're right, next week, next Friday. Oh, that could be paid for again, right? Someone might stuff. Yeah.

I guess. I don't know. You mean a private donation? Another private donation? Yeah. Okay. It's getting very expensive, though. All right.

Can I ask a question about Michigan? And I don't know if you know that. because I didn't really look at it this morning. Is the drop in sentiment attributed to the government shutdown? I mean, do you think this is what people are reacting to? Because we keep hearing about how people don't care about it. I think that's what they ascribed it to, right, Chris? That's what they wrote in the notes.

So I think they do. People have their screens. Yeah. As soon as you can't catch a plane somewhere, or your fearful, your plane's going to be canceled, I think. That's now having a real impact on the collective psyche. Yeah. Okay, let's take a few listener questions of Mercer.

Give us a couple or three. Yeah, we have so many. So I actually had chaty PT, or not chatch EPT, but co-pilot, organize them, rank them by what they thought was the most interesting. And then it gave it a star rating for each question. Isn't that cool? Wow. And you didn't even ask for that?

And it gave it to you? The star rating, no, it just did it. Wow. Cool. Okay. We kind of actually answered one of the first. first one was about when and if the federal government, when and if the federal government resumes operations. I think it's a when, not an if. How long will it take to collect and report meaningful

economic data and how long will the lag be? So we kind of touched on this, right? So September data presumably is sitting in the hopper somewhere and could be released probably pretty quickly. It's unlikely that we'll get any October data, at least from the household survey. And also the consumer price index, right? We didn't really talk about that, but that's also collected by people that go out collecting data at a certain time of month. So that is unlikely to happen.

Right. So this is an unprecedented gap. We've never had two missed BLS reports before due to government shutdowns. But we can look back at the 2013 shutdown where we did. miss a report. And it took a month before they released, like, the last missed report. So it'll take a little bit of time. Yeah.

Well, I guess it also presupposes that BLS workers are coming back. I mean, I mean, if people are looking for work, you know, so we'll see. Oh, it's like the pandemic. Yeah. Right? Shut down. Yeah. People move on.

Particularly the people who do these surveys. I'm not talking about the statisticians and the data people. The people who actually do the surveys, I mean, you know, it's not like they have a whole, I suspect a lot of financial resource. They got to do something. So, you know, we're presupposing that they're going to come back in a meaningful way. If they don't, then that delays things even further. So, Marissa, let's say it is November 17.

Let's say the market is right. for the government shutdown to end. What's your forecast then for employment report release? Would they start to survey right away? What's the protocol? I think they could still maybe do the household survey. So they would either do one of two things. They would either keep the survey reference period the same,

but people would have to remember two weeks ago, right? instead of one week ago, which does introduce some error, recall bias, they call it, right? You just can't, the longer you are from the event, the less you can remember. Or they could move the survey reference week. They could say, okay, don't tell us about the week that includes the 12th, tell us about the following week. They didn't do that last time because they thought that would introduce more error. Because then you're moving the calendar, especially in the month of November where you have a holiday, right?

Weird things could be happening. So I think they could still get data out if we, if we resume on the 17th. I think if it goes like to the end of the month or into December, then at least on the household survey side, that gets trickier and less likely. Okay. But if they do really, it's not going to be that first Friday in December. Probably not. No. It's going to be delayed at least a week or two.

Okay. All right. What's up next? So we have some, there's so many good questions. So I've said it before. Guys are listeners ask really good questions. It's hard to pick. But here's one.

Just about how we forecast things, right? So we always talk about kind of in a subjective way what our probability of recession is. But one listener had a question, how do we, actually do it. So how do we actually make a forecast? Do we have proprietary software? Are we doing it in Excel? Where do we get the data that we're forecasting? Do we have internal proprietary data? How do we actually make a forecast? That's kind of, that's a cool question. Chris, you want to take a crack at it? Sure. I guess it depends a little bit on what we're actually forecasting, right? So when we talk about the probability of recession that we, that we mentioned,

on the podcast here. We do have models, right, formal conometric models that look at a number of economic factors and come up with probabilities. And then we typically overlay on top of that some policy adjustment or some other insight that we have. So that's one class of a model. But for our formal scenarios, our baseline and alternative scenarios, we produce around 10 different scenarios every month, fully internally consistent scenarios. Those are using data. So we're collecting all the government data and some proprietary or other private data sources that we have partnerships with. And then we have formal, again, econometric models, thousands of equations in a system of equations that allow us to introduce assumptions about the future, how many Fed rate cuts there are, what the price of oil will be, and then simulate or forecast out what all the other economic variables are. We forecast around 2,000 variables for the United States, a subset of that at the state

metro level. And then we do cover over 100 countries around the globe as well. And it's a fully integrated model that accounts for trade flows and financial markets and what have you. So a fairly complex system of equations is used. There are some key assumptions that we do have to make along the way, right? And we document those. There are things that are outside the scope of the model, if you will, or we have some

insight about policies or new laws that are coming along that we input into the model or the forecast directly, but largely speaking, the models are economically driven or quantitatively driven. I don't know, Mark, you have anything to add there? Well, there's so many things involved, but I think he covered it pretty well. I think it's really important to point out a few things. One, the data itself is really, obviously, very critical. And, you know, we just don't take data as given. You know, it's not, we get raw data material from different sources,

but there's many, many things we have to do to make that data consistent, clean it up, fix up any issues with the data, and fill in holes and gaps and all kinds of things. So that data kind of manufacturing process is a whole thing in and of itself, and lots of people are involved with that. And then on the modeling, we take that data, it's historical data, we model it, you know, to try to find the relationships between different variables, you know, relating jobs to unemployment, unemployment,

to inflation and so forth and so on. And now that involves a whole team of people because there's so many different issues involved with all of that. And obviously, you know, we're adapting to the environment. If these conditions are changing and some part of the economy is, you know, coming to the fore, then we'll spend more time

trying to figure out how to model that part of the economy and bring it into our forecast process. The forecast process itself is a process globally, and we've got hundreds of people involved, you know, in that process, doing a lot of quality control, checking things, making sure everything is working properly, that there's no areas looking at it relative to previous forecast to make sure it all makes a lot of, it makes sense. And then we come back and see how well we did. You know, there's, you know, how good were these forecasts? If they weren't that good, why, you know, do a kind of a root cause analysis and then use that as a basis for coming back to the data collection and modeling. So it's a very involved process that's been honed over, you know, several decades now, you know, by the work that we do. You know, one question that comes up, I'm going to throw it your way, Chris, is how is AI going to change the way we forecast? or is it changing the way we forecast? Are you afraid that AI is going to take our jobs as forecasters? I've never asked you that question.

I'm so curious how you would answer it. I welcome AI, I think, you know. You embrace AI. I embrace it. Yeah. Bring it on, baby. Yeah. For me, as we think about forecasting, the baseline of forecast is important.

It's useful, and we should talk about it. But what's really more important is understanding that broader cone of possibilities. What does that shape look like? I know any forecast is wrong, right? Never going to be perfect in the baseline. But understanding what is the confidence interval width of this forecast, that's the more interesting part for me. And that's why we produce 10 scenarios, right?

Many of our banking clients, they'll look at the baseline. But where they're really focusing on is, well, what's the worst case scenario or what's a 90% percentile? scenario. With AI, I just see more possibilities to create more scenarios or a deeper breadth of knowledge of those scenarios, really trying to understand, to your point, we do a lot of back testing in our forecasting, but that's time consuming. Perhaps AI could help us really identify parts of the model that we are missing out on, things that we could improve upon even more. So I think it only is an augmenter to our forecasting, but it's not perfect. It doesn't have the insight into human behavior and to the political dynamics here that we're talking about

when it comes to shutdown. So perhaps some insight we provide to the models is still necessary to come up with a reasonable forecast. Yeah, I think I could totally agree with you. I think it enhances what we do. It opens up a range of possibilities that we couldn't even thought of before. Because we can start modeling and forecasting stuff that before was kind of out of reach, you know? Like, you know, how many sneakers are we going to sell in Taiwan, you know, those kinds of questions, which are, there are a gazillion of those that kind of up till now we've not been able to touch, but with AI, I think we've got the capability to do that. So I view it as a something that will enhance what we do, expand what we do, not limit what we do.

Mercer, any perspective on that? Yeah, I agree. I mean, I've kind of recently had some AI breakthroughs here at work. And I'm a big fan, I have to say. Well, share. You want to let us in on one of the break, so-called breaks. Well, you know, I've always used like chat GPT personally. Yeah.

But I've always felt like with work stuff, other than using. it as like a souped up search engine. Right. I haven't really had time to, I always feel like I don't have time to play around with it. But a couple weeks ago, I said, I'm just going to sit here and take the time. And I had it, I asked it to download the spreadsheet of external data, clean up the spreadsheet, make a new time series out of certain values in the spreadsheet, delete other ones, and then make a chart for me. and it took it like 10 minutes to do that, but it did it.

And it would have taken me hours to do this because the reason I had asked it was it was in such a messy state, this data that I got that I said, this is going to take me all day to do this. So let me see if co-pilot can do it in Excel and it did it. And I was kind of blown away that it could do it that quickly. Was that my data, my chart request? Did I was the one who drove that to make to have you do the AI? No, it wasn't.

But I did for you, you know, the chart I sent you yesterday, right? On AI adoption, I think, in as a practical productivity. And I used AI to help me, right? That was kind of more like the souped up search engine part where I said, go out and look for this data and tell me all the sources that have it and then compile it all. I did that. No, this was, actually, it was Revelyo Labs data that I was working with about a month ago, and I was trying to compile certain estimates out of this mess of data, and it worked well in an Excel spreadsheet.

So I agree. Like, I think it's only going to enhance our productivity when it comes to forecasting and an analysis. So, yeah, I'm excited about it, the possibilities of it. Well, hey, Marce, let's do one more. One more. One more question before we call it a podcast. Five star. Five star question.

Five star question. Okay. Here's a tariff question. There's a couple good tariff questions. So there is something of a debate between whether the way tariffs are transmitted through the economy, how inflationary they are and for how long. Right. There's the school of thought that says this is a one-time level shift up in the price level. And then everybody acclimates at that new price level. But it's not, it's not inflationary in the sense that it's going to have these downstream lasting effects for years and years. Then there's a school of thought

that says, no, it is actually inflationary and it can lead through to other things and to wages. Can you explain the difference between these two schools of thought? So in particular, this one time jump in the price level argument, how does that compare to say an increase in a commodity price like oil or lumber or steel? Why are tariffs different? And how should we think about that? That's a complicated, maybe complex question, but I think it's an interesting one. Yeah, yeah. I mean, I think the consensus view, or let's see the kind of the view held by the Federal Reserve at this point in is that the tariff effects on prices is a one-time bump. That they, you know, the tariffs are passed through in the form of a higher price,

and that's the end of the story. As long as the tariffs remain in place where they are, then the impact on prices fades away. Because of the one-time bump in prices, you get an increase in inflation, but the inflation moderates back to what it would have been otherwise once the pass-through. is complete. I think that is a reasonable kind of view. That's probably the most likely scenario, particularly if the economy kind of remains weak, consumer demand remains, you know, relatively weak. And you can, you know, for lower, for things that are imported, demanded by

lower middle income households are under some significant financial pressure, demand is kind of soft. And I do think it's making it difficult for some businesses to actually pass through as quickly. And once they do pass through, that's the end of the story. They're not going to continue to try to raise prices. The other thing that's going on that suggests that this would be the case is that so-called inflation expectations, what people think inflation will be in the future, at least by measures that we get from the bond market, from financial markets appear to be stable and consistent with the Fed's target, which would suggest that, again, that we're not going to see the bump up and inflation-related tariffs get

translated into higher demands for wages, which would then cause price inflation to accelerate even more, and you get into kind of a self-reinforcing, more persistent pickup of inflation. So the fact that inflation expectations remain low and stable is a good sign, is a good sign. Now, having said all of that, I don't say any of that with confidence, you know, because it could, you know, it could be the case that we get into next year. The pass-through takes longer to occur. It gets into next year for lots of different reasons. And next year, you know, you get, we're going to get some fiscal stimulus, right? We're going to get some tax cuts.

Refund checks are going to be a lot larger in 2026 than 2025. This goes back to the one big, beautiful bill, the OBBBA. legislation. And so that could firm consumer demand, particularly among lower middle income households receiving those refund checks at just that time when you're seeing this pass-through occur. And then they may say, you know, businesses are more aggressive in passing through and raising prices. Workers see that and say, oh, you've got to pay me a higher wage to compensate. And you kind of jumpstart this, you know, self-reinforcing wage price dynamic. And also the thing that gives me a little bit of nervousness around the inflation expectations

is that they're low and stable as measured by the bond market, but they seem to be high and not that stable when you measure them by consumer sentiment surveys, like the University of Michigan survey. We got today. It didn't show any increase in inflation expectations this month, but they're up from where they were. And other measures of inflation expectations, like from the conference court surveys, suggests that you know, maybe inflation expectations aren't as stable as we might think looking at the bond

market, you know, measures. So I think it's reasonable to assume this is one-off and for the Fed to focus on jobs and growth and cut interest rates and not be too worried about inflation on the other side of the tariff hikes. But again, I say that with no confidence. And I do think there are scenarios where, you know, that could be wrong. Or it could be, you know, it's just that inflation just remains more persistent. It doesn't continue to accelerate. You know, it kind of settles in in the three somewhere, but it doesn't come back in as fast to the Fed's 2% target. It kind of hangs there for, you know, a period of time. And in fact, you know, there's some evidence that that's what the Fed thinks is going to happen because if you look at their forecast, they

put out with their, you know, their summary of economic projections once a quarter, it shows inflation above target for quite some time. You know, extended period. So maybe they're even thinking that it appears to be that they're thinking that way as well. Chris, anything to add or push back on in that response? No, I agree with the okay. Everything you said, I'd say one thing I always keep in mind with the terrorists is that it is a tax. So that's, if you just think of it as a tax, like any other tax, I think I think you'd say, oh, it's a one time jump. No one would say if we were to increase the tax, sales tax, by X amount, one time that that would be a permanent increase in the rate of inflation, right?

It would be a one-time jump, perhaps, in prices. And I think that's the same here. The one thing that makes this a little bit, this situation a little bit different when it comes to inflation expectations is just the precedent we've sent around tariffs changing, right? So it would be one thing if you said, oh, the tariff is going to go from 2% to 10% this year, and that's it, right? Make a big announcement. Everyone sees it.

it's encoded and that we just move forward. But in the current environment, right, the tariffs are moving around all the time. They're up, they're down. It's not clear that they're going to be stabilizing. And if indeed we get addicted to some of the tariff revenue, you could certainly make a case. Oh, well, the government's just going to keep increasing tariffs in the future

to increase revenue when they need it. So that could potentially feed into inflation expectations going forward. that maybe this, yeah, their one-time jumps in isolation, but if you have multiple jumps, then it just becomes a continuous increase that consumers are going to have to adjust to, and that could be perceived as inflationary. Yeah, good point. That's a really good point. I think we're going to call this a podcast.

Cover a lot of ground, and as we have been doing with regularity, we've been talking for one hour and ten minutes. So it's just like a law of podcast physics with Inside Economics, a minute and 10. So here we are. It was a great conversation. I thank you guys. Anything else to say before we sign off here? No.

Okay. Well, with that, dear listener, we're going to call this a podcast. We will talk to you next week. Take care now.