Moody's Talks - Inside Economics - On An Economic Tight Rope

Episode Date: August 1, 2025

The Inside Economics team turned lugubrious in this week’s episode. Given this week’s data dump showing that inflation is uncomfortably high and accelerating, and the job market and broader economy are struggling, it's hard not to be. They also consider what it all means for the Fed, which is in an increasingly difficult position, and prospects that the economy will fall off the narrow tight rope it is on, into recession. 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' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedInQuestions or Comments, please email us at [e-mail]. We would love to hear from you.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and welcome back, Marissa Dina Talley. I'm back. You're back. Unbelievable. I'm still on vacation, I should say, but I am doing this podcast today. Oh, it's been a while. I mean, it's been...

I know. It's been a month. It was the last jobs report, I think, that I was on. Really? Wow. I picked a good time to come back. Yeah, I know. You brought a lot of luck to jobs report this month.

Well, welcome back. And, of course, Chris, Chris, welcome. Hi, Mark. And we have Dante, of course. Dante, Dr. De Antonio, it's Jobs Friday. This is Friday, August 1st. Hey, Dante. Hi, Mark.

How you doing? Good, good, good. Are you happy to have Marissa back? I certainly am. That's like she was never gone. She was here the last time I was here, so I haven't missed her. Chris is so damn boring, you know. Wow.

Ouch. That's tough. That's rough. I noticed you didn't ask me to fill in for Marissa while she was out, though. I didn't get the, you didn't ask me to come on in her place, you know, so. So what are you doing here, then? There's no replacement. Yeah, apparently.

Oh, is it you're crashing a party? Is that what you're saying? I don't know. I'm glad you're, thank God you're here. That was a definite oversight. You are so mellow, Dante. I can't believe it. I'm not going to tell you the reason why I'm mellow.

Where are you? I'm at the beach. I, yeah. Guys. Guys weekend, yeah. Okay. Guys weekend. Yeah.

Oh. Guys weekend. Wow. They golf and I do a podcast, so. Oh, I say that. Seems like a third grade. You're the dork of the group. Pretty much, yeah.

Can I ask where do you go when you say I'm going to the beach? Normally, we go to Ocean City, New Jersey as a family. This trip is in Ocean City, Maryland. Oh, okay. Got it. I've never been to the city Maryland. The party town. Okay.

Is that what? that is, a party town? I think they're all party towns, actually. Chris would know, right? Of course he would. Of course he would. No, no, it's way too low brown for Chris. Not the boring, Chris.

Not the boring. No, it's way too low brow for Chris, man. Ocean City, Maryland. It's not the Amalfi Coast. Not the Amalfi Coast, exactly. That is true. Anyway, well, this is a big day, man. It seems like everything changed with this jobs report,

huge, huge revisions. But anyway, you want to dive right in, Dante? You want to give us a rundown of the numbers? I can do that. Headline job growth slowed, as we expected. Seventy-three thousand jobs added in July. As you alluded to, the bigger story was the revisions to prior months combined 258,000 down in May and June. So you went from a three-month average job gain of 150,000 last month, and it's now just 35,000 average over the last three months. That's a pretty significant shift in the narrative around the labor market. Yeah, the industry mix is, is nothing. Hey, can I stop you right there as I'm wanting to do?

Yeah, the revisions. Let's just focus on. So this is the jobs report for the month of July. That's correct. And, you know, coming in to this report, it felt like the job market was hanging together reasonably well, 150,000 jobs on average per month in the previous three months. that's all gone, all completely revised away. And these revisions, I think you told me before we started the podcast, that that's the biggest revisions in the history of the BLS payroll employment

survey? Going back to 1979, yeah, except for one month in the pandemic, but obviously we're dealing with changes that were very, very large, so it's not surprising. We had big revisions then. Right. Okay. And so what's going on? What do you think? I know we don't know for sure, but why what the heck is going on here? Why is such large revisions? I think it's a mix of things. I mean, you've got obviously survey response issues, you know, low response rates. You've got a big part of the revision was government.

And so you have sort of perpetual response problems with the federal government. And then you have obviously all the Doge-related cuts that have been sort of on again, off again. So I think you're seeing some of that now show up when they didn't have, you know, sort of concrete information a few months ago. Seasonal adjustment issues. We talked last month about there was a huge reporting. gain in state and local governments that now got wiped away. It was largely a seasonal adjustment issue that I think now was since resolved. So I think it's a mix of factors that are playing into it. Marissa, you were mentioning before the podcast, you thought maybe the government cuts to statistical

agencies, the fact that they've been reducing their own payrolls, maybe playing a role here? Yeah. I mean, I think just given the magnitude of these revisions and given what we know is going on with cuts to funding for stats agencies, given all the layoffs in federal government. And given that federal government usually has very large revisions, it just, it seems like there's, you know, there's a lot of smoke there, right? So I think it has to be playing into what we're seeing here with the stats, which doesn't give me a ton of confidence in the statistics themselves, right? Like, what are we going to see when we get the benchmark revision and all of that? I think we're now in a situation where we should expect very large revisions to all the data.

So this 73,000 jobs we got in the month of July, that's suspect as well. I mean, if we- I think so, I think that could actually be negative. That's right. I think given the magnitude of the revisions we see in the previous two months, yeah. I mean, I don't have much confidence in that particular number. And you mentioned the benchmark revision. These provisions we got today are the kind of the,

monthly revisions, you know, the BLS goes back a couple months every month and revises the data to be more consistent with all the survey responses that they're getting. But once a year, they go back and they so-called benchmark the estimates from the survey that we're looking at now to actual counts of jobs from the unemployment insurance records. And we have a sense of that, too. that feels like those numbers, the basis for those benchmark revisions, the QCEW, the quarterly Census of Employment and Wages, that's also been very weak. So we could even see even more downward revision. It feels like we're going to see even more downward revision when we get those benchmarks at the start of next year. Right. Yeah, I think we talked about that a month ago.

Last time. A month ago. Yeah. Right. Yeah. I think now I'm forgetting exactly what the number was, but I mean, it was in the 900,000 range, right? And BLS, I think today in the release of the jobs report said that the preliminary benchmark will be released in September. So with the August, yeah, so we'll get a preview of it. The next month we're going to get a preview of the benchmarks. Yes, right, right. Oh, wow.

So there's a reasonable probability. I'm going to say this as a statement, but. you know, respond any way you want. There's a reasonable probability that we're actually already seeing job loss, not job loss, right? When, Dante, do you think that's the possibility? I can't rule it out. I mean, I'm not sure that it, you know, maybe it's a 50-50 probability at this point.

Okay. All right. Okay. All right. So 35K on average, monthly, over the monthly job growth. over the past three months. Okay. All right. Go forward. The 35K average, but you think about healthcare by itself is averaging more than 60,000 over the last three months, right? So everything else is down, right? Just in July, the headline game was 73. Healthcare added 73.3. Healthcare added 73.3,000

jobs, right? So everything else out of healthcare was net zero. There were, you know, a couple industries that were up a little bit, some that were down a little bit, but they net out to nothing. growth is basically coming from health care and nothing else at this point. So what you're saying is not only is the job growth slowing and slowing very sharply, it's becoming very concentrated. It's like healthcare. That's pretty much. Right.

I mean, it's been, but up until recently we've had, you know, the public sector had been contributing at times, leisure hospitality had been contributing at times, but now those increasingly have vanished and it's just health care on a regular basis. Right, right. And I noticed in the, if you look at the industry, detail. We're still getting some job growth in construction, which I suspect that's not going to last very long because it feels like single-family housing construction is going to fall off here pretty significant, given all the inventory of unsold homes. But manufacturing is actually losing,

consistently losing jobs now. Yeah. And there were some down to revisions there. Yeah, the manufacturing is down, I think almost 40,000 now over the last three months. So, yeah, you've got pretty consistent losses now in manufacturing. Right. And anything else, you said government's now laying off pretty federal government obviously because of the doge cut related cuts and there's more of that to come i think right as yeah almost certainly there's yeah those still all haven't made their way through the system and then you still have a lot of the deferred resignations that won't hit until you know later this year early fall probably right okay and state and local government is kind of flattish yes it was i think it was basically flat this month you know if you go

back last month there was that like 70 000 gain in state and local government and that got reduced down to like 10, you know, basically got wiped out. That wasn't a real gain. It was just seasonal adjustment issues. Okay. All right. Anything else on that payroll? This is the payroll survey, the survey of businesses.

Yeah, I mean, there's no real news on hourly earning. It feels inconsequential compared to the numbers, the jobs numbers themselves. I mean, earnings haven't really moved, you know, year-over-year growth is still around 4%, which, you know, doesn't feel like it matters all that much, given everything else. learned. Okay. So I ask you every month, you know, what is the underlying rate of monthly job growth? Yeah. Of course, that's hard to do when these revisions are occurring. I mean, they're so large, but okay, here we are. What is underlying monthly job growth? 75. I think I'm just looking at health care and saying health care is growing at about, you know, 65 to 75 and maybe that's just

what we get moving forward. The 75K. Yeah. That is the. the abstracting from the vagaries of the data, the survey issues, the seasonal adjustment issues, kind of the underlying rate of job growth of 75K. I think that's, yeah, that's my guess right now. Mercia, what do you think? Is that your sense of things, too? I think it's lower. Lower.

Yeah. I don't know. Because, again, I don't have a ton of confidence in the numbers right now. but I feel like we're barely positive here right now. Yeah, barely positive. If we're positive. If we're positive. Chris, what do you think?

Yeah, I agree with Marissa. I think we're quite low. Yeah. He's still treading water here. Right. But, and I don't think they're mass layoffs, right? We have employment insurance claims are still fairly buoyant. But that's the only good news in the labor market.

is no layoffs. No layoffs. Initial claims are low. Right. But it's fascinating, even with no layoffs, we're getting no job growth, right? That's pretty amazing, actually.

So what if there's any little, even if we get a little bit of a pickup in layoffs, we're definitely in negative territory. Yeah. Yeah. Yeah. Wow. All right.

And I think I just put it out there. My sense is that, when the payroll employment numbers go negative, when you start seeing declines in payroll employment, these are the numbers we're talking about right now, that is recession. I mean, every time you go, that's the, that is, payroll employment is the single best, most accurate, coincident indicator of economic activity. That's, that's the, the, the National Bureau of Economic Research, the folks, the academics sit down in data recession, data, they look at a plethora of data, but that's the single most important. variable. And I think, correct me if I'm wrong, Dante, maybe you know, I think the month the payroll

employment goes negative and a consistent way is the month that recessions or the start of recessions. I'm pretty sure about that. Yeah, and I'm also trying to remember I'll have to dig up the piece. I think I had looked at one point. I don't think it's ever happened that you had two consecutive months of declines in payrolls without a recession following, right? It only takes two months. So you get the odd month every once in a while that you get a decline, but you get two declines in a row. it's pretty strong signal that we're already in it, you know. Right. Okay.

All right. Well, let's go to the household survey, the survey of households. And what did it say? Not much in the way of a silver lining there. I mean, other than the unemployment rate is still low, but it ticked up. It reversed the small decline from last month. So it's at 4.2% again. Labor force contracted again.

It was a smaller decline than we've had in recent months, but still fell. The participation rate fell. It's down to 62.2%. That's the lowest it's been since, I think, late 2022. And it's down, I think, four-tenths of a percent since just like three months ago. So we've seen the labor force is actually smaller today than it was at the beginning of the year in January. So the trend there is not a positive one. Household survey employment actually declined by 260,000.

So not a whole lot of good news on that front either. Yeah. So household employment fell. So that's the other measure of employment. We put less weight on that just because the household survey is small. It's, what, 60,000 households. So it's historically been less reliable, but that's down. In Labor Force, I was looking, I think he mentioned this,

it hasn't changed at all since the beginning of the year, right? It's flat as a pancake, right? And that probably goes to, one, the weakening demand for labor, less hiring, but also probably more importantly, the immigration policies, right? Because you can see labor force. I didn't look at labor force for foreign born. Did it, was it week again in the month of July? Do you know? I did not check it beforehand.

Okay. Yeah, it fell. It fell. Okay. So we've gone from a year ago. We're seeing boom-like growth in labor force for foreign born. But now it's, I think after you control for population, can you make an adjustment for population controls.

I won't go into any detail what that means, but you've got to make an adjustment. I think labor forces for the foreign born as immigrants are actually declining, which would be consistent with, you know, all the things that are going on, you know, with regard to immigration policy. It fell by like half a million. Yeah. Say that again? It fell by about half a million just over the month.

Yeah. That's a lot. Yeah. Wow. Okay. All right. Okay. So, and the unemployment rate 4-2, you know, read much into that, or I mean, it's been kind of hovering around 4. I guess it's just getting hard to interpret what the unemployment rate really means, right? Yeah, I mean, we talked about this, I think, a little bit last month, but it feels like we're getting closer to that situation where job growth is basically flat and the unemployment rate still isn't increasing, right? The unemployment rate could stay pretty low. here because there's basically no labor force growth, even as you get, you know, basically no job growth.

So it's going to be hard to reconcile. Okay. All right. Well, we're going to come back and I'm going to ask you about your probability of recession, you know, later maybe at the end of the conversation, but this, these kind of numbers got to change your views on that a little bit, right? Just to presage. I think it has to make you more pessimistic, yeah.

Has to make you more pessimistic. Okay. Marcia, anything else you want to add on the job numbers, writ large? No, I'm just concerned about the quality of the data that we're getting and the revisions that we're seeing. I think it's difficult to really get a good handle on what exactly is happening here in the labor market. Chris, anything? Any broad perspective on us? I think it's tough to find something really positive in this.

report, right? Yeah. Is there any positives in the report? Anything at all? There was little tick up in the average work week. Oh, was there? Okay. But that's after a decline last month, right? Yeah. Yeah. And hours are pretty low. Hours worked are pretty low. That's right. And it's difficult to estimate as well. So even that, you're not so much. No. Yeah. But I'm looking for something. Looking for something. Looking for something. All right. Yeah, I see nothing at all redeeming in the report. I mean, it's disconcerting, very, very disconcerting. You know, particularly on top of the fact that inflation is clearly accelerating, right?

Because we got a lot of data this week. We got the GDP number. We got the consumer expenditure deflater inflation number, which was I found that came out yesterday, Thursday, July 31st. And that was equally disconcerting, right? Because it showed a pretty sizable increase in core, excluding food and energy, PCE. That was up point three, and near rear, it's up 28. And it's clearly the direction of travel here is clear inflation is accelerating, right? Did you, Chris, any, how do you interpret that data?

Same. Same. CERning, right? Right. Right. There are those out there who are saying it's a one-time shift. Don't worry about it, but I don't know. It's not happening.

It's definitely not the case. Definitely not the case. Definitely not the case. Especially, go ahead, sorry. I'm going to say without even all the tariff effects fully baked in yet, right? We're still in this honeymoon phase, if you will, before the full effects of the tariff really take hold. Yeah, we got a long way to go here, don't we? I mean, the effective tariff rate still hasn't caught up with the reality of what's going on.

And we got, this is August 1st. We've got more news on the. tariff front, right? So with the, we're getting a lot, tariff seems like they're going, you know, for all this talk of taco, you know, this is the Trump always chickens out on the tariffs. You know, I don't see Taco. I see he's doing exactly what he said he was going to do, right? I mean, tariffs are up and they're up a lot. I mean, if you go, if you go look at the effective tariff rate, the actual tariff revenues that Americans are paying, businesses and consumers, are actually paying. You can see it. The Treasury Department, you know, releases this data on a, on

ongoing basis. The effective tariff rate is 10% plus up from 2% at the beginning of the year. And all, and we know all the trend lines point to a higher effective tariff rate. And it feels like we're headed to somewhere between 15 and 20%. So we're kind of, we may only be halfway through the increase in the tariffs. And then, of course, there's a long lag between when the tariffs, tariffs go up and implement it. And they actually begin to affect economic activity and show up in the inflation data. That's two, three, four, five, six months. It takes a long time for that to, you know, play out. So it feels like we're in store for the least the next six, nine, maybe even 12 months, you know, accelerating inflation. No? Yeah. First? You agree.

Yeah. Yeah. Okay. All right. And all the data dump we got this week, Marissa, I don't know, and you've been on vacation. I've been, you were following this week, but today, this week was a big week for economic data. Anything else you want to call out? We talked about the jobs numbers. We talked about the PC. I've got one other one I'm going to call up, but I'll let you go first. No, I think I did pay attention a bit. Jobless claims didn't, right? Back to your point about layoffs, I mean, there's not, it's not as if there's this mass layoff thing happening.

That's not why job growth is weakening. It's that businesses are not hiring. Not hiring, yeah. Dante, sorry, go ahead. Which makes sense, given the environment, what we're talking about with all the uncertainty around tariffs. And I think a lot of businesses are. are probably trying not to pass on prices to consumers for as long as they possibly can,

right? And that probably means not hiring people to be able to afford to do that. Yeah. Yeah. Dante, in the data dump we got this week, anything else that stood out to you? I mean, I think the consumer confidence data on both, you know, it seemingly had stabilized and even rebounded a little bit, but that seems like it's set to start declining again. I mean, given the jobs numbers we just got and sort of the potential impact of tariffs still to come, it feels like confidence will take a turn for the worst here in the next couple months. Yeah. You know the thing that stood up for me?

We got the GDP number, right? And, you know, taking it at face value, this is for Q2, the second quarter of 2025, but taking a face value, you say, okay, it's not a problem. It was 3%. You know, that's a solid increase. But, of course, that comes off after the Q1 decline of money minus 0.5, and these swings and the quarterly numbers are related to swings and trade imports related to the tariffs, you know, all the front loading that we got.

So if you take an average of the two quarters, which I think is the way to get to the underlying trend, where just growth, GDP growth in the first half of the year was just over 1%. That's over 1%. And that's pretty weak. You know, potential is, well, I'm not even sure what potential is anymore given labor force. but, you know, 1% is pretty weak, and that's now more consistent with the job numbers that we're getting, you know, the kind of the weakening in job numbers. But here's the thing that struck me was consumer spending. Real consumer spending in the month of June, we got that data point yesterday indicates that consumer spending all in.

If I look at all the spending consumers do on the good side and on the service side, after. inflation, so real consumer spending, that has not budged since December of last year. So for the entire expanse of 2025, we've seen no change in real consumer spending, which is, you know, that's not recession, but that's pretty darn close. I mean, you know, consumers drive the train. Okay. And that's with the pull ahead in spending. Yeah.

Prior to the tariffs, right? A lot of cars were sold. And there's the backside of that, which we're going to see. Exactly. And it's all in doing a bit of a forecast, you know, here you're coming into the second half of the year. And now you're seeing the price increases related to the tariffs kick in and undermine real purchasing power, which passed away on consumer spending, right?

And you didn't see that in the first half of the year because it's only now that those price increases are starting to translate through. So, okay. It just feels like we're leading up to what the probability of recession is going to be. I mean, it just feels increasingly dark. Okay. Any good news, Mark? Any positives?

In the statistics we got this week? Yeah. No. There was absolutely, there's nothing redeeming in the data that we've got. It's doing, you know, it's redeeming in the sense that it's consistent with what economists, like us have been saying, tariffs and restrictive immigration policy mean higher inflation in weaker economic growth, you know? And here we are, higher inflation and weaker economic growth. It's not surprising. I mean, this is to the textbook, it's script. And I would just say, you know,

buckle up because you're just starting here. You know, we've got a ways to go to digest these. And the tariffs are still rising. They're still going up. They're not going down. They're going up. And the immigration policy isn't easing. It's getting more restrictive. So, you know, these policies that are weighing heavily on the economy are, I don't see them getting any easier anytime soon.

You know, maybe. Maybe the administration changes his mind here. But, you know, right now it feels like we're just going to double down on these policies. And they are, they're doing what the textbook said they would do. higher inflation and weaker economic growth, and that is the clear message that we're getting from the economic data that we got in this past week. There's, you know, there's no refuting it. It's, you know, patently obviously, you know, at this point. Anyway, I want to come back and talk about, you know, how markets are reacting to all this and, you know, thinking about Fed policy,

what the Fed should do, what the Fed is going to do in response to all. of this very confusing but before that why don't we do the the stats game in because we've got marissa back and she's key to this and uh i i suspect that everyone's kind of feels like everyone's holding out a little bit on their their commentary around their job stumbers because i don't want to give away their statistic i just have am i right do i have that sense i'm a little guilty of that yeah okay all right fair enough all right let's play the game so the the game is we all put forward a stat, the statistic, the rest of us try to figure that out with clues, questions, deducted reasoning.

The best stat is one that's not so easy. We get it immediately. One that's not so hard we never get it. And if it's apropos to the topic at hand, and we've got a lot of things we've been talking about all the better. And let's begin with you, Marissa. What's your stat? My stat is 13.4%.

In the jobs numbers? Yes. Payroll survey? No. Household survey. Yes. Okay. It's an unemployment rate of some variety.

No. Okay. Share. It is a share. Yep. Okay. It's a demographic related to some form of demographic demography? Not really.

No. Not really? Okay. Oh. Okay. It related to participation rates? No. 13.4.

I mean, it's not a participation rate. Yeah. Does it have to do with labor force flows? Oh, that's a tricky one. Kind of. Yeah, yeah, you could say that. Okay. So you're saying from employed to unemployed, employed out of the labor force.

Yeah, that's a bit. Yeah. Yeah, yeah. Only a bit, though. I don't know what they mean. Like, it's not, it's not, not one of those. It's not a direct labor force flow statistic,

but it does have to do with movement into and out of the labor force, yes. Oh. I give, I give. Would you guys give? Yes, I give. It sounds like a good one. Marissa, we give.

What is it? Okay. It's the share. of the unemployed who are new entrants into the labor force. 13.4%. And picked it because back to this notion that we're talking about that it's not as if massive layoffs are happening outside of federal government, right? This is the largest the share has been since like 1985.

There is a huge movement of people, new people entering the labor force and looking for work, but they're not finding work. And I think I might have had a similar statistic last month, too. So there's a lot of people coming into the labor force for the first time, right? New graduates, and they are not finding jobs. It's a very tough job-seeking market. Just so I understand, I mean, we know hiring rates are down. So what you're saying is not only are hiring rates down, but you have this huge influx of young or people coming into the labor force for the first time looking for work. Right. Yeah. And we're not seeing growth in the labor force as we talked right, right? Because there's a lot of offset to this, but there are a lot of

people coming into the labor force looking for work for the first time. And they're facing a very difficult job market. Do you know, are they young people or do you have any sense of the age? I didn't look at the age, but I wouldn't be surprised if that's the case. Yeah. Why is it so high? I mean, why is it unusually high? I mean, it's not like there's more kids in school graduating than typical, right? Or is there?

I don't know. Even if I look at, I thought maybe it's a seasonal adjustment thing, but even if you look at the NSA data, it's very large still. It's not unusually large. Like the flow coming in is normal, but they're so little higher. And they're unemployed. Right. I'm looking at the people who are unemployed that are coming in. Oh, so this could be related to the weak hire. This is the weak hiring. Yeah, that's my point. Oh, I see. Yeah, yeah, yeah.

It's not the flow. What you're saying is that you're looking at that group of people that have, that are coming in and they're not getting out. They're not getting out. Right, right, right, right. Very consistent with the lack of hiring. Yeah. Okay, okay. I misinterpreted. Yeah, sorry. Maybe wasn't clear on that. That makes sense. That makes sense. Wow. that is interesting. So you're talking about, you know, a job market that you haven't had this sort of weakness for new job seekers since the early 80s. Yeah. Wow. 40 years. That's, that is interesting.

That is interesting. Very telling. Okay. All right, Dante, you want to go next? That was great statistic, Marissa. Great one. I can. I'm going to preface it by saying mine, it's impossibly hard, but it's a good hat tip to my form.

colleagues at BLS, so I want to use it. So maybe that's a hint. So the stat is 3,100. Payroll employment in some... It is. Industry? Yeah. In federal government?

No, it's not... Okay. Payroll employment, but not in an industry. 3,100. It's also not directly from today's report. That helps. Okay. not no that doesn't help that doesn't

I used to work in the state and metro employment group at BLS so you're saying some of states some of states was up to 3,100 jobs in June so yeah June because it's like one year one month that data comes out a few weeks later right but it was a strong signal that June was going to get revised down a lot right there was this huge disconnect between the original June estimate that we got at the national level and what the sum of state was. And the advantage that the state data has. Can you stop for just a second? Because we're talking in code, I think, a little bit.

Take a step back and just explain to the listener what's going on. What are you saying here? Sure. So on Jobs Friday, we get national level employment data. A few weeks later, we get state and metro employment data and unemployment data. So we get all the same information, but for states and metro areas. So you can get a sort of national level comparison by taking all the changes at the state level and summing them up, right? We call it the sum of state estimate. So that data is lagged a

little bit, but the benefit that it has is they actually get additional sample data in before they produce that data, right? So it's based on a larger sample than what the national data is based on because it is lagged by a few weeks. So that sum of state data for June, the last estimates that were published, was only up 3,100, right, across all states. And the national level number when we first got June was up 174,000, 47,000, 140,000. So there was this, you know, 140,000 gap between those two numbers, which signaled that, you know, you're likely to get a big downward revision to June, which we did. So that, you know, it's not a perfect estimate. The sum of state isn't always, you know, perfectly representative of what the national number is going to do. But in this case,

it was sending a pretty strong signal that the labor market was weaker than what the original number suggested. Yeah, that's interesting. Do you look at that? some of states estimate every month? I don't always. I should more often. And actually, one of my former colleagues that so works there actually texts me this morning, and he's the one that pointed it out to me and said, hey, you know, we're doing pretty good work here. You should pay attention. So could you just every month follow that? Let's just to see what it's saying. Yeah. But it has not turned negative. It's still positive. Hasn't turned negative. But it's obviously getting pretty close here. 3,100 is pretty close to negative. Yes. Okay. It's probably not statistically significant.

I mean, there's no way it is, right? Right. But I mean, I used to look at those sum of the state's numbers all the time in my youth, you know, when I was watching that data carefully. And it can diverge meaningfully from the national data. The irony here is that when I actually worked there, there was huge divergences at a time when it mattered. Yeah, that was when the Great Recession was happening and the sum of state data was really bad, right? It was saying that job growth was still very strong when it wasn't. So the goal is their hope is that they've improved the state data meaningfully over the last 15 years since I worked there.

And now it does a better job of signaling. Got it. Got it. That's a really good one. All right, Chris, you're up. All right. $2,000, $522,000. Payroll survey?

Yep. Yes. Yes. Is it an industry level? Oh, it's... Two million. Five hundred thousand. Job gains over the past since the beginning of the year in some industry.

No. More direct than that. More direct than that. What was the number again? Two million. 550,000. 522,000. Is it an employment in an industry, Chris?

Yes. Is it temp help? It is. Oh. There you go. Ding, ding. Yeah, this hasn't changed all that much. It's been declining.

right? Well, very gradually. Yeah, gradually, but it's been headed south for a while, right? It's actually leveled off more this year. It was defining a lot. Oh, has it? Okay. Yeah, so that's more of a positive sign, if you will. I was trying to look for something positive. Oh, okay. So tempel usually is an indicator, right? When we see that pullback, that's one of the indicators that things are moving south, but this is actually holding up reasonably well. So, is it rising? It's not rising. It's gradually declining.

Okay. But it's pretty level, I should say. It declined a lot last year, though. Yeah. So maybe it already did its thing. Possibly. Well, I would expect if it was really, if we're really on the precipice here, you'd see this go down as well.

What do you think, Dante, do you agree with that? I think if I remember, I haven't looked at it, but I think the level today is still, we're well below, like, the 2019 level of temp help, right? So it's like we've already sort of like readjusted to a much lower level of temp help employment just generally in the labor market. So I mean, yeah, I would expect it to decline if we were headed into a recession. But I mean, it is still declining and it has declined a lot over the last four years in total.

So I'm not sure. Yeah. Signal is at this point. Right, right. Interesting. So you think there's an absolute bottom here or threshold where you can't really go below that. I guess maybe I just don't expect as big of declines as you might have given how far it's already fallen.

That's fair. That's fair. Yeah, the signal is just not quite as strong because it might otherwise be, right? But that's interesting. Okay, I got mine. I got one. Yep. 46.8%.

The fusion index. Ah, yes, indeed. Over what period of time? Three months, private. Oh, my gosh. This is your number two indicator. This was number two. Oh, that's funny.

That's impressive. I'm surprised you picked the one you picked over the 46.8%. I thought that was way too easy. It's like... Oh, really? Would you've gotten that, Dante, the 46.8? No, because I looked at the current month actually was above 50, I think. Oh.

50. For July. So I didn't look to see how weak it was the last two months. But yeah, that's good. 46.8 is... That's low. That's low. That's recession.

Yeah, that's recession. I mean, I think a kind of a loose threshold is 50, if you go below 50, but it's not perfect. I mean, there's been some false positives, but 46.8. I mean, what we're saying is that if you look at all the BLS industries, how many are there? There's over 350 or something, something like that. And you look at, you know, job growth over the past three months, and you determine the percent of those industries where job growth. growth over the past three months has been positive, only 46.8% of those industries are positive.

So that means there's more- Or flat. Or flat. More industries are down than flat-flat-to-up. And that's historically, if you go back, you look at the data, we've got data back into the early 90s, late 80s. You know, when it falls below 50%, that's a strong tell that you've got a problem, that recession is, you know, we're in recession. We're headed towards recession. It's been below 50 for three months now. Yeah. Yeah. Yeah. It has been. It's consistent. It's not just a one-one thing. There's other false positives. There was one, I think, back in a year or two ago, that was for one quick month or something. So, no, I think this is a pretty strong signal. Okay. I know you did your best, Chris, to find a positive, but I didn't feel that positive to me. I'm just saying. So how are the markets reacting? I saw a lot of red on my screen. Maybe, though, Let's begin with the Fed expectations. You know, what are markets now saying about rate cuts this year?

Chris, have you been following that? Yeah, as of this morning, it's 80% chance of a rate cut in September. Wow. Yesterday, that was 38%. Wow. So just a big distance of changing attitudes here. Right. I am, what about December?

Do you have that one? Yeah, let me because the Fed meets in September, then October and then December. It's about generally split between two and three rate cuts by the end of the year. Okay, so that's a big change from yesterday.

Yeah. Because yesterday we got the inflation numbers, as we talked about, the PCE deflator, and that was very strong. And I think investors said, hey, how can the Fed cut rates when inflation is uncomfortably high and rising? And then you get today's numbers

that show the job market is could be falling apart, you know, and big swing and expectations around the Fed. So how do you, what do you think, Chris? I mean, given our forecast, our baseline forecast is we get one cut in September and then another quarter point, then one cut in December, quarter point, and then a few rate cuts next year. We get back to equilibrium, the R-Star, the federal funds rate at 3%. yesterday I was thinking I take out the September cut given the inflation numbers.

And we start in December thinking that at that point we'd have enough economic data, job market data, to suggest that, well, you know, we should be more focused on the job market than the inflation numbers because those could be, they're more likely to be one-off inflation increases related to the tariffs. But I'm not so sure. Maybe we should keep September and December. Yeah, today I think you put it back in. So no change.

No change. No change in the forecast. Right. But we need more data. I'm worried about that aspect as well. I think, you know, we've already alluded to some of the data challenges that we're having, just collecting data. And I think the probability of a Fed misstep here is pretty high because of that.

Right. Well, the other thing that happened, I guess it was this week was the Fed meeting, right? And they decided not to change policy. Although there were two dissenters, both of whom are on the board of governors. And I think the last time we had two, more than one dissenter from the board of governors was back in 1993 or something, you know, way back once. It's very, very unusual. Yeah.

Waller and Bowman dissented. So there is, and of course they dissented because they wanted to cut rates. So I guess their hand is now strengthened as a result of this. So you're thinking that, Chris, that we, we, we, will see a cut in September. You think that's the most likely. I think so. You do.

Okay. Of course, lots of, a lot depends on the inflation. Yeah. But the forecast, you would not change the forecast. Not at this point. Right. Right. What about you, Marissa?

Yeah, I would keep the forecast as it is. I think now we're leaning on the side of a recession week or job market over inflation. Right. But we're going to get a couple inflation readings. over the next two months. So I'm glad I'm not on the board of governors of the Fed. That's going to be really hard, right? I know.

I mean, because the inflation numbers are almost absolutely going to be ugly. I mean, they're going to be big increases in inflation. And cutting rates in the face of that is got to be pretty hard. Hard. Yeah. They knew that, you know, he's been talking about this for months. that they were going to be up against this situation. And this was going to be a very difficult thing to navigate.

Right. Given tariffs. What about you, Dante? Should we change the forecast or keep it alone? I definitely don't think it should change right now. I mean, I think obviously we'll get another employment report before the next Fed meetings. But if you get another report like this, I just, I find it hard to believe they don't cut in September. You know, I guess if you get a big reversal in a positive direction, which feels hard to imagine right now,

then that would obviously give them cover to wait. But if average job growth is still below 50K, I just, I don't, you know, the wheels seem like they're falling off at that point, right? Well, I don't know. Here's the thing. Here's the really difficult. Well, it's all difficult, but the thing that really makes it even more difficult in my own mind is maybe break-even job growth is zero.

I mean, if the labor force is not growing, and we know it's not growing because we're losing, immigrant workers, that means job growth has to be zero. Otherwise, it's inflationary when you're at full employment. We're full employment, four two. So if the break even, when I say break even, that is the amount of job growth we need to maintain a stable rate of unemployment. That could be zero.

It could be zero. So if you start cutting in the context of, say, we're getting zero to 50K, that may be exacerbating the inflationary pressures, not, you know, the labor market is, the labor market is clearly dysfunctional, but it's, it's, it's at full employment. And if you're, if you're trying to, you know, increase labor demand, you're just going to increase inflationary pressures, exacerbating. So there's, those one, everyone thinks these tariff increases are going to be one-off price increases, but maybe not. If they, this could be a serious, error. Could be a big mistake. Do you see what I'm saying? Does that make sense?

It makes sense. I think the problem, and if break even is close to zero, the problem becomes then almost by definition, you're going to get negative job readings. Yes. But what do they mean? If you're trying to average to zero, then a negative reading doesn't mean the same thing as maybe it does historically. So how do you interpret the negative? Yeah. By point. Exactly. Because, Chris, do you see what I'm saying? Yeah. And it's on both. then, right? Because the inflation story as well, if it's, if you think it's a one-off, you're going to have periods where this inflation is lingering at a higher level, and then it comes in. So you're,

how do you read the data? How do you, on the, right, you're at the zero bound in terms of the job growth and you're going to have some negatives and you have to see, can you stomach that? Right. And then on the other hand, you're going to have inflation that's elevated. And if you really believe it's one-off, still, it's going to be elevated and then it steps down. So it's just ripe for a mistake, right? Oh, it's huge. How are you going to get this right? I mean, I don't know. I think we talked about this last month. What does it mean? Because normally the problem is, you know, consumer psychology, right? If you see negative job growth, everyone, you know, runs to their bunker, right? But usually that's happening in the context of

layoffs that are increasing, the unemployment rate rising. So if layoffs are stable and the unemployment rate stable and you get negative job growth, does that still make people react the same way? I don't know. In fact, the variable that we should be focused on, perhaps, isn't job growth. If I'm sitting at the Fed, the variable I should be focused on is layoffs. If there are no layoffs, then maybe I shouldn't be easing policy. Maybe the labor market is, you know, it's weak, no doubt, but it's weak because there's no labor supply.

It's not a labor demand issue. It's labor supply. or it's the labor demand and supply. It's both. Yeah, yeah, it's both. It's both. But, you know, if you're, if, if there is no labor force growth and break even to zero and you start cutting rates given like the, you know, say we're, you said we're at 75KK,000 underlying job growth. Chris and Marissa think it's less than that, say 25 to 50K.

And you start cutting. You could actually exacerbate. the inflationary pressures and you take something that would be one off, the tariff increases, and make it something more persistent. No?

Yeah. That's the dilemma, right? Wow. That's pretty freaky. You know, that's, it's like Allison Wonderland, you know, so. It's the wage growth is also... It's pretty strong.

Yeah. Yeah. That's a... Yeah, it's almost 4% year over year. I think ECI is lower. I think the employment cost index is lower, like 3, 6, 3, 7, but it's not decelerating. Right.

It's consistent with a full employment economy, you know? Yeah. Anyway, okay, and in the stock market, last I looked, the stock market was down. It was down 600. I think the S&P is down like 400 points or something. I see 600 down on the, oh, what am I looking at? 600 on the Dow and 100 on the S&P. Yeah.

Yeah. So what, so now what the, and I think the bond, 10 year yield is down 12 basis points, right? 12. Okay. We're down to six, we're down to four and a quarter percent, four point two five percent, four, two, four point two four point two four percent. So that would indicate that the markets are pricing in a Fed ease, but that's not enough that we're going to, you know, this is, this feels like recession, doesn't it? Damage. Of course, this also reflects the, the, the tariff height.

that the president announced last night, right? So there's that, too. But this feels like the market, the equity market, is saying, hey, bad news is bad news. This isn't the bad news. It's the good news that I get the Fed cut because I'm pricing now two Fed cuts. But even despite that, I'm selling. So this says, I'm worried about the economy.

I'm worried about recession. Right? Chris? I'm worried about the man. Yeah. Yeah. Okay. Okay.

All right. Very good. What do we think about recession? Recession probabilities? And what does it mean for our forecast? Now, our forecast, our baseline forecast, has weak economy. It's been, you know, we've been saying this, you know, since the beginning of the year with the change in administration, because we knew we were going to get tariffs.

We knew we were going to get immigration restrictions and cuts. So we knew that. but we have not put a we've not had a recession in the forecast now there's been times in our conversation when we on the podcast where we've attached probabilities of recession a higher 50 percent but we have we have we have they're not the recession probabilities haven't been high enough the two-thirds threshold that we've talked about in the past where we felt confident enough to adopt a recession in our baseline forecast last time we talked last week most of us were saying 40 45 percent or so probably the recession over the next year. Now, here we are today, given the data. And we just ran hot off

the presses. Our machine learning recession probability indicator that Shandor has worked on and is updating regularly, updated it with today's jobs numbers. We're now at 49% probability of recession. And every time that particular model gets over 50, 50%, we've had a recession. And, we've never had a false positive, never has it risen above 50, and we not gotten recession. So we're right on the cusp. That's the no, that's just pure quantitative. We're not, nothing subjective about that that's a model. Okay, so that's the lay of land.

Okay, so Marissa, what do you think? What is the probability of recession at this point in the next 12 months? she's thinking i i i want to say 50 percent but i don't want to you know that seems wimpy so i'll be somewhat optimistic and say 45 45 which i think is kind of where i've been so none of this data changed your mind i don't even know what i don't i think back to the labor market discussion the labor market is just so driven right now by demographics that I totally agree with you that we could be getting 10,000 jobs a month, and that's not a recession.

Because I just think there's no, it's a supply thing going on. So negative numbers in the job market don't necessarily mean to me that we're in a recession. That's an interesting point. I mean, you've made it crystal clear. suppose the economy starts losing jobs because the labor force is contracting, is that not a recession? Why would that not be a recession? A recession is a broad-based, persistent decline in economic activity. If we get consistent job loss, regardless of whether it's demand or supply that's at the heart of it,

why wouldn't that be a downturn? The economy is shrinking. I don't know. What if other indicators are not, though? which is kind of where we are, right? I mean, GDP is messed up because of the tariffs. So we got a negative print in the first quarter. We got a strong reading in the second quarter.

I don't, you know, average those things out. We have a growing economy. We have consumers are kind of bumbling along, still spending. Okay, so what you're saying. So that doesn't sound like a recession. I see. So it's not broad-based. You're saying, okay.

Right. We're losing jobs, but still GDP's growth is positive. It can't be that. It can't be, you've got some pretty significant productivity growth to get some significant increase in productivity. But you're getting some productivity growth. Consumers, they're not, they're not packing it in. They're not pulling back.

They're holding their own. Right. They're holding their own. So that's enough to say, okay, that's not a recession. Yeah, I think so. I don't see how you can say it's a recession. Even if you have no job growth, if you have positive GDP readings and you have positive consumer spending, that doesn't sound like a recession to me. I suspect that you can't be in a world of negative jobs for any length of time and not start getting GDP negative too.

Eventually, right, because then it's all coming from productivity growth, right? If you have no labor supply, then it's all got to come out of productivity. And I don't know that we're in a world where productivity growth is that high right now. Yeah. Okay, Dante, what's your probability of recession? My conviction is declining by the minute. As I was going to go above 50. And now framing the labor market as, well, maybe break even at zero is like, well, okay,

maybe then so this isn't so bad. And, you know, sort of the government drag. It's got to be, it's bad. It's bad, but it's not as bad. If you frame it that way, it makes it seem slightly more positive, right? That's just what's feasible. And you've got this sort of temporary government drag that, you know, we'll go away eventually. We might get bigger before it gets smaller.

But so I'm going to go right at 50. I was going to go above. I'm going to go right at 50. At 50. Okay. So you're going to be the wimp. So I feel less good than I did a month ago. You're wimpy.

You're being wimpy. Wimpy. Yeah. Marissa called me out right away. anybody that goes 50 is a wimp and I'm here. Right. I know. I know.

Chris, what do you think? I'm going to go with the model. 49%. Yeah, 49%. That's slightly less wimpy, I guess.

It's honest. It's honest. Okay. All right. All right. In your heart or hearts, just let loose a little bit, you know,

in your heart of hearts, do you think we're going to, should we change, our baseline forecast, Chris? I think we should weaken the growth. Weaken the growth, which is already pretty damn weak. Yeah, but not tip into recession. But not tip in recession.

Dante? Consistent with the story we're telling here. Yeah, consistent with the story we're telling. Yeah, I wouldn't change the forecast. It just feels like the tight rope that we're sort of narrating here is getting more precarious, right? The idea that you can sort of walk this tight rope of no job growth. They're very, it just feels like it's not going to take much to tip at that point, right?

That sounds like the fodder for the title for this podcast. You've got to have tightrope in it because that's that's, you're right. We're on a tight rope and it feels like the tightrope is getting thinner and thinner. We're losing our balance, yeah. We're losing our balance. Our forecast does not have much job growth. No, no, we've been very consistent with that. And I've been getting a lot of flack, by the way.

A lot of flak. Hey, clients, I'm just saying. And Dante. I'm just saying, let me say that again. I'm just saying, okay, go ahead, Marcia. That's right. I mean, we have gotten a lot of pushback from some clients who said, how can you possibly be forecasting almost no job growth?

Yeah. Right. Here we are. And this is where we are. Here we are. Because it's demographic, it's, it's a labor supply story. So that is our forecast, and it's panning out. Well, I don't oversell the labor supply. That's definitely, but the labor demand is weak,

going back to your hiring. That's labor demand, hours worth. Labor demand is weak. It's just not falling apart because you don't have any layoffs. Right. So people aren't high. Businesses are not hiring. And we have a lot of people not in the labor force anymore that were powering a lot of the labor force growth a year ago, two years ago. Right. Well, you know, I'm with Chris. I'm going to use the model. I think, you know, the model, I said three-month moving average of the model because,

you know, it does, there's some volatility. So I'd say 45 to, I was at 40 to 45 now and 45 to 50. But I have to tell you, in my heart of hearts, I think, I think we're going into recession. I think there's a really strong probability we're going into it. You know, maybe it's my emotions taking in the data that I've just observed, so I have to digest it. But, you know, at this point, like at 1137 a.m. Eastern Standard Time, August 1st, 2025, I'll have to tell you, it does not feel good. It does not feel good.

Because the things that are driving the economy into the ditch are still in play. They're not, they're not, they're not unwinding. They're reintensifying. Here we are, the tariffs are not declining. They're going up. They're high and going up. We know they're going up. In the immigration policy, I don't see any reversal in there.

That's harder to track. We, you know, we don't really have a clear sense of how that's playing out, but you can feel it in the labor market data. So I don't know. It just, you know, and we know the prox, we know the cause of the weakness are tariffs and immigration policy. And, of course, to some degree, the cutting in government jobs. But that's secondary.

But those things are in full swing. So if you believe those things are behind what's going on, how can you – it just feels like how are we going to get through this without – and, of course, the Fed is going back to the Fed. What does the Fed do with this thing? I mean, how do they manage this? It's so hard to manage – even if they start cutting rates, you know, at this point. I mean, because that's already embedded in, a lot of rate cutting is already embedded in long-term interest rates and the stock market and everything else. So I don't know.

You know, I guess the tell, there's two tells here in my mind. When I say tell, things that will tip us to actually incorporate a recession in our baseline forecast. First is layoffs. If we get any pickup of layoffs here, if UI claims, initial claims, start headed right now they're at 220. 225 per week. If we're at 250 headed north, that would be a tell. That's the last, that's the firewall between no recession and recession right now. That means that businesses are deciding to pack it in. The other is the stock market. If the stock market goes south, you know, I think that really will be very, very, this go around, very difficult for high end, high net worth

consumers to ignore. And if they start to pull back, because they're the bulk of the, that's where all the spending goes, then, you know, very difficult to see spending not start to going negative. And once spending goes negative, then you get the layoffs and everything else. So I think if I had to pick two things I was going to, I would focus on, it would be, be those things, the UI claims and the S&P 500. Does that make sense to why I just said? Dante, does that make sense? Yeah. Would you throw any other indicator in there?

other than our recession model? No, I mean, I think layoffs to me is the single most. Layoffs, yeah. And that's, yeah. Okay. Marissa, anything else you'd add? Nope. No.

Chris? You'll incur just inverted, but, you know. Oh, is that right? Just throw that out there. Add a little fuel to the fire. Yeah. It just inverted like a minute ago. Like this morning, yeah.

How do you measure? Three month versus 10 year? Yeah. Three months versus 10 year. Okay. Yeah, with that drop in the 10 year. Right. Right.

Okay. Yeah. Again, we've had a whole session about, you know, you don't want to look at just one day, one minute. But still, it's with some. Right. Right. Right. Okay.

All right. And just to remind the listener, you know, in our, because when I said we, we, in our forecasting, we put pen to paper. I mean, we run every month. Our models, produce data. forecast that we put into databases that clients use. So, you know, we're doing this every month. And our kind of operating method is that for us to make a big change in underlying assumptions or the forecast, and adopting recession, obviously, would be a big change.

We have to be very confident, and confidence is defined by a subjective probability of over two-thirds. So, you know, we're all sitting around 50%, give or take. That's not confident enough to change the baseline. So we need to see more before we actually adopt a recession forecast. But, you know, obviously recession risks are very high. Okay. All right. We covered a lot of ground. Anything else, guys, that you want to talk about before we call it a podcast, Dante, anything? No. Okay. I know you want to get back to your golf game. Yeah. Right. And Marissa, I know she's still on vacation and wants to get back to that. And Chris, Chris is working hard.

Got some work to do. But he's got to be working. Yeah. And so anything, guys, before we call it? No? No. Going, going, gone. Okay.

Razor's Edge. Razor's Edge. That's another good potential title. Okay. With that, we're going to call this a podcast, dear listener. Hope you thought it was useful and informative. and we'll talk to you next week. Take care now.