Moody's Talks - Inside Economics - Payrolls and Planes

Episode Date: January 7, 2022

Mark, Ryan, and Cris welcome back Dante DeAntonio, Senior Economist at Moody's Analytics, to dissect the December U.S. employment report and the latest effects of the Omicron variant on the economy. They also discuss reasons why people are quitting in droves.Full episode transcript. 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 Sandy, the chief economist of Moody's Analytics, and I am joined by a bevy of my colleagues today. We've got Ryan Sweet. Ryan is the director of real-time economics. You know what Bevy means, right, Ryan? No, I have no idea. I don't have to Google that.

Right. Is that like a flock of birds? It's like a flock of birds or something? Lock of birds, right? I don't know if I'm using the word correctly. Well, we got Chris. Chris DeRides, who's the deputy chief of economy. He definitely knows.

He's got to know. Chris, do you know? Is Bevy the right word? Bevy? I think so. It's a group, right? A large number. A big, reasonably good size number.

And, of course, rounding out the group is Dante D. Antonio. Dante is a regular here on Jobs Friday. And, of course, today is the day that the December employment data got released by the Bureau of Labor Statistics. So welcome, Dante. Thanks, Mark. Now, Dante, did you know the, What Bevy meant?

Is that like in your lexicon? That's in my repertoire, yeah, Bevy. That's in your repertoire. Okay. I think Lexicon is the more appropriate word, don't you think? Probably. Yeah, probably. Yeah, okay.

We're going to talk vocabulary instead of the, let's forget about employment. Yeah, I've got an EDP. I am. Let's go SAT words. Yeah, we should point that out. You know, Dante joins us when he's wrong, you know, Not just wrong, very wrong.

We can just move on from that discussion title. Something else we want to talk about now? We'll come back and explain that. But, you know, Don- Well, since we're on SAT words, my favorite SAT word, which describes how I feel right now, is apoplectic.

Apoplectic, in my thinking means, like a chaotic, confusion, upset, bad, yeah, okay, those are all good words. Angry. Angry. Yeah, okay. Because you were wrong, we were all wrong. We were all wrong.

The most wrong. Yeah, I was probably the most wrong. And of course, we're talking about the December job number, which is, it came in $199,000 jobs, couldn't they have just made it in even $200K? You know, why $199? Well, why? I mean, they're wrong, so. It's wrong.

Yeah, you're right. The number's wrong. It's wrong anyway. But, you know, it came in at $199. Okay, so let's do this. I'm going to turn to Ryan, have him summarize the report, and then, you know, ask for commentary on that. Then we'll do the game, our game, you know, the statistics game, and I'll explain what

that is for folks who don't know. Although, I believe this is our 39th podcast, guys, you know. Wow. So if you don't know what the game is, then, you know. You've been asleep. You haven't been following. And then we'll talk about some labor market issues because obviously it's Jobs Friday and there's a lot to talk about there on the jobs front.

They're always on the labor market front. There always is. Okay. Does that sound like a good roadmap for the conversation? Yep. Okay. So, Ryan, just give us the numbers, give us a sense of things. How would you explain this report to folks?

But I want to give too many numbers because I don't want to take somebody's number for the game. but the key numbers are, again, I think the way to describe this employment report is a tail of two surveys, just like last month. Household survey, much stronger than the establishment survey. So that $199,000 number that you threw out there, that's the net increase in employment. That comes from the establishment survey. Job Rove was pretty disappointing. The consensus was for over $400,000.

Dante's number was north of $800. So. And explain that. When you say that, what do you mean? His number. I was going to, I was going to give him a break. Are you going to rub it in at some other points? Yeah, later, yeah.

Later, we'll rub it in. Thank you. Go ahead. But if you look at the household survey, which, again, roughly 60,000 households are surveyed about employment, the unemployment rate came down from 4.2% to 3.9%. Prime age employment to population ratio ticked up from 78.8% to the 79%. So we're getting closer and closer to that 80% threshold that's consistent with an economy at full employment. So again, wage growth picked up, labor supply issues are binding.

All in all, I think, you know, it was a strong report. You know, even that $199,000, it's very, very misleading. If you look at non-seasonally adjusted employment, which, you know, removes any seasonal adjustment factor, it actually increased in December, which is very, very rare. So I don't know what the BLS is doing with their seasonal adjustment factors, but it's all very, very quirky. Oh, that's interesting. So what you're saying is the data, the 199 is based on seasonally adjusted data.

Obviously, you've got to account for normal seasonal patterns, holidays, and so forth and so on. And typically, you see a decline in December employment non-seasonally adjusted. and it increased this December. We actually saw an increase. Despite that, the seasonally adjusted number was small. Increase was small, $199. Yep. So they doubled down on the seasonal adjustment factor.

So if they used a normal seasonal adjustment factor, which was typical pre-pendemic, the increase in employment would have been closer to $500,000. Oh. Seasonally adjusted. So it was expected in close. I don't know. Maybe Dante can explain what they're doing, but I have no idea what's going on with this process. Okay.

So you said two things. One, bottom line, don't pay attention to the $199,000 job gain. That belies the strength of labor market. Everything else says strong job market. Second thing you said is one way of seeing that is look at the employment gain that is from the household survey. The $1.99 is from a survey of businesses, establishments. That's what we typically look at, but you also have the household survey, which is the basis for the unemployment rate.

That increased, I think, 650K, didn't it? Correct. Right. Something, which, again, feels more like reality than the 199K. Right. Okay. The one thing you didn't mention, which I thought you were going to mention, is revisions to previous months. Did you want to talk about that at all?

Or maybe I should let Dante fill in the blanks there. Yeah, let Dante. Okay. All right, Dante. Yeah, I mean, it was actually surprised that the revision to November wasn't bigger. It was a positive revision, but it was pretty small. We got a decent size revision in October or something around 100,000, but the revision to November, the response rate was historically low last month for the first spring.

So I was expecting a bigger boost, given how low the number was and how big the difference was between the two surveys last month. And we didn't see it yet. It doesn't mean that we couldn't still get a big revision next month for November. Obviously, we got a big one for the two months ago estimate now for October. So it could still get revised higher, but I was surprised that that didn't. move further this month. Yeah. Oh, go ahead, Ryan.

On the revision front, if you look at the QCEW data, so that's the quarterly census employment and wages, that's right, Dante, right? Do I get that right? Yep. So we have that through mid-year. This is like a complete count. This is what's going to get benchmarked. We're going to get big upper revisions to employment.

Right. So just to make that more concrete, the establishment survey, is a survey of a lot of establishments, but not the universe of businesses out there. Once a year, the Bureau of Labor Statistics says, hey, let's go in what they say call benchmark, the survey-based estimates, like the one we got today, the 199, to actual employment accounts,

full employment accounts based on the QCEW. That's the unemployment insurance record. So every company, no matter how big you are, you know, you have to report to unemployment insurance, you know, how many employees you have, you know, for obvious reasons, and so you have a complete count. But they don't use that every month because it's just too many data points that can't process it, so they do the survey. But once a year, they come back and benchmark, and that data comes out, that benchmark data comes out next month, right?

And you're saying that that's going to show a big upward, even a further upward revision in the data. And how do you know that, Ryan? Because you're looking at the QCEW quarterly data that's coming out? Yeah, we bank it. So you can look at it. Yep. So we can look at it. I can send you the chart afterwards.

Through mid-year, we're going to get a big upper revision. One thing to remember, though, the benchmark that comes out next month is only actually through the first quarter of last year. So there wasn't much of a change through the first quarter. I think it's really going to take another year until you're going to see that big up up where that shows up in mid-201. Well, this just goes to highlight that, you know, the difficulty of coming. to some assessment of reality, right? Because it's going to be two years before we get all the

data end for what happened in this period. But it feels like everything's getting revised up, right? Every month we're seeing these huge upward revisions in the data and everything suggests that we created a boatload of jobs. Right. Said that, again, boatload of jobs. But boatload of jobs, this is Andyism, a boatload of jobs in 2021, but it's even more than that. It's going to be even more than that when all the data are in. That's why Chris and I emphasize looking at the non-seasonally adjusted data because the seasonal factors

just because of the pandemic have been really thrown off. So looking at it a little bit differently is more important. Yeah. Okay. Hey, Dante, you heard Ryan's kind of summary of the report. And you kind of filled in a couple of the blanks.

Any other blanks you want to fill in? Any other things you observed in the report that you think are important? I think at a high level, the story is largely the same as last month. It's like, Ryan, plan it out. It's seasonal adjustment, and it's the difference between the two surveys that, you know, sort of remains to be the big thing to try to figure out. Yeah.

Okay. I mean, all the other stuff was pretty solid. I think I saw average weekly hours was up. I think it ticked higher. And I think that's, you know, obviously a positive sign. You know, businesses can hire more people or they can increase the hours worked of people. What else? You mentioned the unemployment rate falling below 4%.

3.9%. And that happened despite, I think, stable labor force participation. Isn't that right? I think participation held study. What's that? I was just saying ignore labor force participation. No, I know. I know you like to look at it.

No, but the unemployment rate didn't fall because labor force contracted or was... Right, no, the labor force rose. Yep. Yeah, the labor force increased typically. So that wasn't the reason why we saw unemployment decline. What else? Any other, you know, there are some signs of weakness in the report, you know, abstracting from the technical measurement issues like seasonal adjustment, but, I mean,

retail is soft, but that, there's got to be some fundamental reasons for soft retailing employment, right? I mean, you know, there's some, I mean, retail was a week before the pandemic because of increased online use. So, you know, that's a continued downward weight. And, you know, places like motor vehicle, I think we saw job losses at motor vehicle dealerships, didn't we? And not obviously because they can't sell cars because they can't produce them. Health care was weak. Nursing homes, that's been perennial, perennially weak, I think, for lots of reasons. And that may also be burnout by health care workers. You know, they're just,

you know, clearly struggling with the pandemic, very, very, very. difficult time. Chris, did you look at daycares? I was down. No, I didn't check it up. It was down. That's something I was down. Yeah, that's a problem.

Yeah, particularly for you, right? I mean, yeah. Dante, Chris and I, we're at, we're. Yeah. Daycare is important. Struggling with that. Yeah. Plus snow day today.

Yeah, we got a snow day. You guys got a snow day today, huh? Mm-hmm. Second one this week. Really? You got a COVID shutdown instead for 10 days. So just started today. Oh, yeah, poor Dante.

Oh, boy. What a mess. All right. Okay, Chris, anything you want to add on this? You see, Mark didn't offer to, you know, help out, you know, come watch the kids. Yeah, you know. Yeah. Are you kidding me?

You really want me to watch your kids. Hey, at this point, you know, it's been a long two years. You'll take it. You'll take it. Well, I'll be teaching the MESAT word. So, yeah, probably pretty good. That's fine. all works out.

Any other job members you want to point out? I look at some of the demographics just because that's also part of the Fed mandate. So a couple of things that stood out to me were education, if you break out the unemployment rate by education, so the biggest gains or improvement in the unemployment rate was at the lower end.

So less than high school or high school graduates. It's all the biggest improvement. So that's encouraging. On the other hand, if you look at it, the numbers by race, most of the improvement, or the improvement was really driven by white demographic. African Americans actually saw their unemployment rates rise in December.

So that's troubling. And then if you dig a little bit further, you see it's actually African American women who's had a big jump from November to December. So I don't know exactly what's going on there. Maybe we talk about the pandemic in December not having a large impact. on the labor on labor force overall, but maybe it did impact certain occupations or industries

where African-American women tend to be more concentrated. So that certainly stood out. It was a pretty sizable jump in an unemployment rate for that. Yeah. Of course, that, again, when you get down to those. Yeah. That level of detail based on a small sample, you know, and the seasonal adjustment issues, hard to.

Yeah, I don't want to move to the. wrong direction, but hard to draw too much from that. Yeah. Okay. But certainly something to bear, if the Fed is keeping those demographic trends in mind as part of their policy decision, certainly something to watch. Right. Okay, two questions then.

One is, well, obviously this is backward looking this report, right? This was based on a survey that was done about a month ago, not quite a month ago, but before Omicron, this was kind of on the backside of the Delta wave. So that's one reason why we all expected a pretty solid job number for December and why we expected a strong job report, which we got. But then there's Omicron, and that is now in full force. In fact, it feels like when the Bureau of Labor Statistics does its survey for January, which is next week, that could coincide with the peak in infections,

are pretty close. Yeah. And so what do you think about that? So what do you think of the, what that means for the employment report for the month of January, which we'll be talking about four weeks from now? It means we're going to add a million jobs?

Because everything is, it's backwards. It's backwards. Everything's backwards. The season's unwined. Yeah, exactly. Oh, geez. No, I think it's possible that employment falls. You know, we saw that, you know,

when Delta peaked, employment fell in December of last year. So, you know, this wave That was Delta, though. That was not the Delta, yeah. It wasn't a pre, no, that was a previous variant. I can't remember what variant that was. Delta hit it this past summer. I can't keep these things straight.

I know, it fell, but it was a different, that was a pretty bad wave. Different variant. Beta probably. I don't know. If a job growth did slow during Delta, you can see it very clear that it took, you know, a bite out of the job market. So I think employment could fall. Yeah.

I meant to ask. you, Ryan, because you look at the number of people that aren't working. That was my number. I got to come up with a new number. I'm sorry. No. Okay. 1.6 million, up from 1.5 million.

Yep. Up from 1.5. So if you look at the relationship between average confirmed COVID cases during the reference week versus the number of people that are not at work because of own illness, relationship is pretty strong. But if that holds, we could be over two million next month or for January. Yeah, right. Okay.

Okay. So it's pretty clear that Ammocrin's going to do some damage here. Yeah, I think so. In January. Anyone have a different perspective on that? I mean, I mean, obviously a lot of measurement issues and, you know, all joking aside, you may be right. You know, the seasonals, if they're, you know, if they were wrong on one side in December, they've got to be wrong on the other side at some point.

right? So it could be month of January. Okay. I'd agree with that, but I guess one other factor, for better or worse, is that the isolation period now, it's been cut down to five days, right? Good point. Whereas Delta is 10 days. So the volume is still well above what it was. So I think it will have an impact, but it might not be on a relative basis as big as we might otherwise expect. And that goes to kind of an underlying assumption we've been making all along here since the pandemic hit, is that we are going to experience more waves of the pandemic in all likelihood, but that each wave of the pandemic will be less disruptive than the previous wave, that, you know, Omicron is going to do damage, but less damage than Delta, and Delta did less damage than, let's say, beta back a year ago, and so forth and so on. And so far that feels roughly right. That feels like that's roughly right. And we're getting better in terms of how we respond from a healthcare perspective.

Of course, the virus itself is helping, right? It's becoming less virulent, and that's a positive thing. And businesses seem to be getting better at kind of figuring this out and adjusting to it. So it's less disruptive, but still disruptive. It's still kind of the pandemic is still kind of driving the train here. but increasingly less so. Okay. I said I had two questions.

The first was Rannamacron. The second is, how do you, and I'll turn to Ryan for this. Ryan, how do you think the Fed members view all this? This report, you know,

how does this fit in with the way they're thinking about things? There's no bearing on monetary policy. They're gun-ho focused, they're laser focused on inflation. They are, you know, even the most doveish members of the FOMC are turning hawkish.

So yesterday, Mary Daly, who's the president of the San Francisco Fed, as recently as November was pushing against any rate hikes this year, is now on board with, you know, she said that inflation's too high. So they're really worried about inflation being higher for longer. You can see it in the FOMC minutes. They're talking about, you know, reducing the size of their balance sheet very quickly after the first rate hike. So, you know, this is like the, I think I email Chris. It's like the fast and the furious. The Fed is going to aggressively tighten monetary policy because they're petrified of

inflation. Well, from that prism, though, this report has bearing, right? I mean, if you're Yeah, I think the wage number, even though I don't look at average hourly earnings, I think the Fed, they're paying very close attention to measures of wages because they're worried about the wage price spiral setting in. There's no evidence of it yet, but the job market is getting tight. They're going to worry that strong inflation or strong wage pressures are going to pull up inflation even further. Yeah, right. And of course, 3.9% unemployment rate also, right? I mean, as you point out, that in employment to population ratio for prime age workers, they're not quite where you would expect them to be in a full employment economy, but they're getting there. We're getting there.

So, you know, I would think they're looking at that and saying, oh, you know, we need to normalize policy here, get going here and try to normalize policy. Yeah, so financial markets put an 85% probability for a rate hike in March. Oh, is that right? 85%. So March is the month when their quantitative easing will come to an end. Their bond buying will come to an end. Correct. The tapering process ends in March.

Yep. and they're saying they're going to start tightening interest rates right away. As soon as the QE, the quantitative easing is over, they're going to start raising rates. Yeah, that's what the bond market saying. The bond market says. I did notice, I looked at before I got on, we got on the podcast, the 10-year treasure yield, actually, even with that 199K number, which is on the soft side, 10-year yields are rising. They still rose.

So it feels like investors are interpreting the employment report the same way we are. a strong report. The $199. Yeah, okay. Right. Okay. Okay. Okay.

Okay. Okay. Anything else on you know? What do you think the Fed's going to do? When do you think they're going to raise interest rates? Well, I think it's more likely going to be June when they raise rates for the first time. The reason being that I think Amacron is going to do some damage here. Yeah, I agree.

Growth. and you can see it in January, you'll probably see it February going into March. And so, you know, unemployment could be back over four, you know, maybe as you go into March. So if that forecast is right, if I'm right about Omicron doing some damage here, and we have that in our forecast, right? We, you know, before Amicron, we had growth, GDP growth for the first quarter, close to 5% annualized. We mark that down to two, which is very consistent.

with what Delta did to the economy back in the third quarter. So we're using that as a case study here for Humacrimes impact. So if you get 2% growth in Q1, you know, you will still get solid job growth. You know, I think coming by March, April, the job market will rev back up. But I don't think that'll be enough at that point for them to start raising rates. I also expect inflation to come in, you know, that by the March, you know, April period, it'll be clear that, you know, inflation has rolled over. You know, energy prices are down, gas prices are down.

You know, we should see some abating of the shortages and high prices for some of the for various goods. And we'll see, you know, inflation roll over. So the combination of those two things would, I think, suggest that the Fed might want to wait a little bit. But having said all of that, I don't think I'd argue the point very strongly. I mean, you know, it's possible. It could be March.

You know, I wouldn't attach an 80% probability to it. I might attach a 30% probability to it, but I'm not going to argue with anybody about it. Rates are going up. There's no doubt about it. It's just a question of, you know, precisely when and by how much. So, you know, from my perspective. Chris, any anything on that you want to add? Do you have any different perspective?

You agree? Dante, anything? No. Okay. You're on board with that. All right, let's play the game. Oh, well, okay, before I do that, just to make sure, is this about the time where we tease Dante? No, we can do it.

Yeah, this is a good time. Okay, so what's going on here? You know, Dante, Dante is the key guy that puts the ADP data together. ADP is the human resource company. They have records for 20, 25 million employees. We get them, then we use that to construct an estimate of what we think, employment gain will be. We're predicting the BLS number a couple days before BLS comes out. So we put out the ADP number on Wednesday, today's Friday. We said employment was going to be up

800, was it going to be 800K, I think? Yeah, 800K, private sector jobs. I think it was 807. 8707K. 870K. And Dante, you know, it came in at 199. And there are months when, you know, they're pretty close. But it seems like every time we have Dante on, it's really badly, wrong. Is that just my, do I have that wrong? I think that's right. No, that's right. That's wrong correlation. Yeah. Yeah. So we have you on. So we know when we have you on, your ADP is going to miss pretty badly. That is true. And the time I would like to remind people that you, you know, ultimately approve

that number before. I like to make sure. Thanks very much. Thanks very much. I usually remind people of that when we're right. Don't know. I'm just saying. I mean, to Dante's credit, or to back them up, everything else was consistent with a very strong employment.

I know. I mean, this is like, you know, this is a fluke. Well, and actually, I think ADP has been consistently stronger than BLS first print pretty, I think, all the year long. And again, every month,

the BLS number gets revised higher and then revised higher. And we just argued it's going to be revised higher. so by the time it's all said and done, it feels like BLS is going to be closer to ADP than the other way or right. I don't know about it. That's a big gap to close in December. Oh, is that right?

Okay. Yeah, 600,000 gap. Yeah, 600,000 gap. That's a big gap. I don't know. Did they ever go back and adjust the BLS ever go back and adjust the seasonals? Did they ever do that?

I guess they do do that when they get... It's part of the benchmarking process they do update this seasonal factors. Hey, I don't know, Ryan. It's possible. Yeah, maybe. Yeah, if that seasonal is, that seasonal feels.

really weird. I mean, again, if they used a seasonal factor that was, you know, that they used pre-pandemic. So like the average of 2018, 2019, the increase in employment in December would have been closer to 500. Yeah. Right. And again, that's the average monthly job growth, roughly, average monthly job growth in 2021. I think it was closer to 550 all together. Yeah. So, okay. All right, let's play the game. Who wants to go first? Should we let Dante go first after who comes such grief? Okay, there you go. That's fine.

Ryan walked the tight rope of giving this away, but I'm going to use it anyway because I think it makes sense to support it. Should I explain the game? The game is, you know, each of us give a statistic or two,

the other of us try to determine that statistic. I was going to use the word guess, but, you know. There's no guessing. No guessing. Deductive reasoning. And the best statistics are one

that first, it's something relevant. something that came out in the previous week, this past week, it's not too easy that, you know, we get it right away, but not too hard that it's too elusive and, you know, we all look stupid. So those are the best statistics. And it's related to, bonus, it's related to, you know, the topic at hand, which is, in this case, the job market. So, but that, you know, those are just guidelines that, you know, you can do what you want,

which we all do. But, all right. if you get it right, we do have a cowbell somewhere, although... It's right back there. It's right back there. Don't get it out. It's okay. We'll keep it there.

Okay, Dante, what's your statistic? That's a lot of rules. No pressure to thread that needle of hitting all those bad ones. Mine is 72,000. 72,000. You know right away? Was that the increase in... Ryan was walking...

You never actually said it, but you were walking the tightrope there early on. Is that the increase in non-seasonally? employment. Yeah. And so you mentioned it's been a while. That's the first time it's increased in December since 1999. There you go. Oh, wow.

I mean, that's pretty telling. What was this? Okay, so, okay, so listener, 72K is the increase in employment in December, payroll survey, establishment survey, non-seasonally adjusted. Remember, seasonally adjusted is $1.99. This was unadjusted. 72K, and you're saying that is the first positive, not seasonally adjusted increase in establishment payroll survey since 1999.

That's what you were saying. Correct. Usually in December falls by a couple hundred thousand. Yeah. So, I mean, this is a stark difference. Right. And the difference between the two, right, was that 199 and 72 is 127,000. That's by far the smallest difference between the two over that same 20-year period.

The average difference between the unadjusted and the seasonly adjusted is about 325,000. So usually in December, the seasonal adjustment process adds about 325 this month. It only added 127 for some reason. And that's why I say this is a strong number. I mean, the takeaway is it's a strong number. Anytime employment increases unadjusted, non-seasoned adjusted in December, it's a strong number. It's a strong month.

Hey, Dante, do you know offhand what was the seasonally adjusted increase in December employment, 1999? How big an increase was it? I do not know offhand. Yeah, maybe look it up real fast. Yeah, I know you're online. Yeah, I'm just really curious what that number was. Yeah, okay. So, so, Ryan, why, what, what's going on here?

Is it just the pandemic is scrambling the BLS seasonals? I mean, I don't understand. What's going on? I don't know. I can't explain it. I don't know. And that's why anytime I do the forecast, when I write it up for our website, I always highlight that the seasonal adjustment factor is a big wildcard. Like, it can make the number really, really strong, or in the last few months, it's made it very, very weak.

I guess we can go dig deeper and go sector by sector by industry. Correct. Something stands out. But again, could it be more fundamental? that, you know, go back to retail. I mean, the thought was that people started buying early for Christmas because there were shortages and, you know, prices were up. They were fearful not getting the presence they wanted under the tree and time.

So that could have juiced things up, you know, earlier in, like, say, October. And that steals away from the kind of numbers you would expect in December. Is that, so that would be more fundamental, right, I guess. Could it be? Yeah, I think, I think that was the case. I mean, you saw retail employment increase in October and November. But November, I mean, we had an early, this is why I'm scratching my head a little bit, is that we had a very early reference period in November.

So I thought more of the holiday hiring would be captured in December. But it's possible maybe, you know, people are shopping more online. Some of those jobs ended up in transportation, warehousing, couriers, rather than in your traditional retail employment. And, you know, I've said this once before, but let me ask it again just to make sure if the seasonals are pushing things down in a month like December, it stands to reason there's going to be a month or two or something coming up where the seasonal are going to work in the opposite direction, right? That they're going to juice. We're going to think a week number. And that's what you were joking about January.

We think a week number, but we could get a big number because the seasonal's work in the opposite direction. Yeah, throughout the year they got to, the seasons have to wash out. Right. So. All right. What was it in 1999? December 1999? What was the gain?

So the unadjusted gain in 1999 was 137,000. That was the last time that was positive in December. And what about adjusted? What was it? The difference actually wasn't that big then. The adjusted was 306. 306. So that was actually a pretty small difference between the two compared to the last 20 years.

Yeah, right. Okay. All right, very good. Okay, that was a good one. Might have been a little easy. It was a softball. Yeah. Yeah.

Okay. Okay. Chris, what's your statistic? All right. Is it housing, Chris? Yeah, it's definitely housing. It's 181,000. All right, so it's definitely labor market related.

It is labor market related. Are you hesitated? Yes. He always hesitates. He tries to use head fakes to make it more difficult for us. I'm not sure if that's right. It's got my tell. Yeah.

Can I ask this? Does it come from the household survey? No. It comes from the payroll survey. No. My definition. Oh. Ooh.

There was another survey that came out in the week. Does it come from the Joltz survey? Ding, ding, ding, ding. Yes. Ding, D joltz being job opening labor turnover service. Turnover. So that's where the quits come from, hiring, comes from. That's where open job positions come from 181.

Dante, you should know this. Too many days ago now. The joltz for November came out, I think on Wednesday. I think it came out on Wednesday. Tuesday, Wednesday. And that shit quits were at a record high, I think, right? 4.6 million, five million. People quit their job in the month of November, record number quits, which will come back to.

Is that the increase in the number of quits under Dement? That would be really, you know. Oh, oh, the 181? No. Yeah, that would violate. That's too hard kind of rule. That's a second derivative. Give me the second derivative. I might have violated that rule.

I was going to say, I feel like we're going down there. It is housing-related. Housing-related. Construction quits? Construction layoffs. Lay-off? 181,000, yeah. Really? Yes.

What's that? It was up in November versus October. October was 132,000. No, wait. You're saying 181,000 construction workers got laid off in the month of November? Yes. Oh. And that's up from 132 in the month of October?

October, yeah. Is 181 high by historical standards? No, we were at that level earlier in the year. year, but things had been trending down because construction activity was picking up. But now they reversed, and I attribute that this ongoing supply chain issue of lumber, especially has become dear again. So I think there's a slowdown in construction once again due to that, and they're laying off because they don't have the materials to actually build the homes.

Oh, boy, that's interesting. That's a long chain of events. Do you buy in that? Dante, do you buy into that? First of all, if I would have studied the joltz release for an hour, I don't think I would have known that number anyways. That was very deep weed. I think I can buy Chris's story there.

I mean, the logic makes sense. Why else would have jumped up, right? Right. I mean. Well, that's why I asked is that typical. I mean, that was seasonally just obviously. that's right. Yeah. So I don't know. Just, I don't know, that feels weird. Why would, you're saying, so what you're saying is that supply chain disruptions causing problems with lumber, appliances, building materials. Yep. Means that home builders can't put up homes, therefore they're going to lay off other workers that, you know, that otherwise would have employed. That's what you're saying. Yes.

If you can't get materials, you pause, you press pause on building. I don't know. I mean, if you look at housing starts, they're still really strong. I mean, Katie and I are trying to find an electrician to do something. Our normal electricians, like, I'll get to you in like three months because I don't have enough people to cover all the jobs. So, you know, I don't know. That sounds a little. That was actual layoffs, Chris, right?

You said layoffs in construction. Layoffs, okay. not not you could separate because of it's not separations is it oh it's layoffs it's layoffs okay all right I don't know that feels bogus to me yeah I don't know I'm with you on this one all right we'll see we'll see but lumber is way up right uh lumber prices of skyrocketed again I thought that was mostly tariffs though right it's uh okay you have uh I thought we disruptions in Canada, right? So we can't actually get the lumber out.

Hmm. I thought we, so lumber prices peaked back in May, I believe, at what, $1,600 a board square foot. Got down to 600K, which is kind of more typical back a couple months ago or three months ago. Now we're back up to $1,200, I believe, something like that. That's right. And I thought a big part of that 600, a few months ago to 1,200. now was the tariffs, but you're saying no, that it, that may be part of it, but it's also, I don't think that's the major.

The major fact. You actually think because weather in British Columbia, they couldn't get the lumber down out, and so therefore it's disrupting the ability to put up homes. And therefore, we're seeing some layoffs in the construction. Oh, geez, I don't know. Okay. All right. We'll be deeper into that way.

All right. All right. Only an economist, and really a good economist, could come up with that chain of events. He had to tie back to housing somewhere. Provocative at least. Oh, definitely provocative. Yeah, definitely provocative.

Yeah, okay. And housing-related, Ryan, so I didn't disappoint. I know. That was impressive. Yeah. I thought he was going to give us the core logic house price index again, up 18, 20%, something like that.

Okay, Ryan, you're up. What's your statistic? So this is the Holy Trinity. It covers all three. All right, you ready? Now I'm scared, actually. 3%. What is it?

3%. 3%. 3%. 3%. And when you say the Holy Trinity, does that 3% apply to three different things? That 3%? No, it covers. It's related to the job market.

It is related to the big topic. And it came out this week. Oh, I see. I see. You nailed what you're saying. You got all the criteria. You nailed it. All right.

I'm like Dante. You know, I can come through. All right. Well, let's dig a little bit three percent. Is that come from the household survey? It does not. Does it come from the payroll survey? It does not.

Does it come from jolts? It does. Okay. And you guys should get, you and Chris should definitely get this. I sent you a chart of it this week. I said to do a lot of charts. It's a quit rate. It's a quit rate.

Yeah. Quits. Yeah, it's a quit rate. Yep. highest on record going back to the early 2000s. And that chart I sent you, it shows you the quits rate versus your over-year growth in the employment cost index for wages, which suggests that we're going to get another very strong increase in wages in the fourth quarter. And that rate, I was sorry. I was just going to say one reason why the Fed pivoted.

Powell was very concerned about very strong wage growth that you saw in the ECI, the employment cost index. So this is going to spook them again, and this is why I think they're turning more and more hawk issues, that they're really concerned that wage growth is going to start pulling out inflation. Right. And the quit rate is simply the number of people who quit their jobs divided by the labor force. So we had 4.5 million, 4.6 million people who actually quit their job in one month, one month, record high. You divide that by the labor force. You get to 3%. That is a record high.

And this data goes back to, I think goes back to the year. Early 2000s. Yeah, early 2000s. And you're saying that is indicative of an incredibly tight labor market. You know, when you have high quits, a lot of turnover, tight labor market, businesses want to retain their workers. They jack up wages. Wage growth is rising, has accelerated. Employment cost index, probably the best measure of wages.

The best. The best. Let me ask you this, though. I keep going back on wages to the Atlanta Federal Reserve Wage tracker, which also I find equally as good as the ECI. Yeah, that's very good. Because it tracks the same worker workers, right, over time. So it doesn't get, had these mix effects like you would have like looking at average hourly earnings, the wage measure from the employment report. And that shows an acceleration, but it's all in low-wage jobs.

That's where the quits are. So if you look at the quits rate for leisure and hospitality, it's going through the roof. So, but it's not broad-based. I mean, I look at, you know, if I look at wage growth for high-wage workers, that's actually decelerated. Mid-wage workers, it's flat to maybe up a little bit.

It's accelerated a little bit. But it's all in the bottom quartile of the wage jobs. distribution, right? But isn't that where we have the, like, the labor supply constraints are the most binding right now, are in restaurants, in, you know, travel, leisure? Yeah. I, no, I, yeah, that's right. But then I, then I try to connect that back to monetary policy. So, okay, if it, if it, you know, do, how worried should I really be that this becomes more broad-based endemic leads to higher inflation, if it's just, you know, it's idiosyncratic to the pandemic, labor supply issues for this, you know, one segment of the, you know, of the labor market, the low wage,

low wage jobs. Should I be, how, how, how can, yeah, I mean, they shouldn't be concerned. I shouldn't, no, they shouldn't be, but they, they are. So it's like, going back to like how we forecast monetary policy. You got to forecast what they're going to do, not what they should do. Yeah. I don't think they should be panicking right now. Yeah, okay.

Okay, that's, okay, I get you. But PayPal did call out the acceleration and the employment cost index as a reason for why he pivoted. I guess he needed a reason, he's got to give some reason why he pivoted. Yeah, exactly. Right, so he's got to come up with something. You asked me the question, when do I think the Fed would have its first rate hike? Market says March, I said June. What do you say?

This pains me, but I agree with you. It's going to be June. Oh, really? Okay, June. Why is that so painful, right? Because Mark and I usually never agree on monetary policy. So the fact that we agree is... Well, our debates are pretty on the...

Oh, yeah, yeah. No, we're not like... Yeah. Yeah. No, it's... But it's fun. Close, yeah. Yeah.

I enjoy you, Chris and I going back and forth about this. Chris, when do you think... He's going to say June because he... He's going to say May because that's between March and June. Yes, exactly. Yeah, exactly. I don't do that. He was going to say May.

He was going to say May. That was a March, not a May. I actually think... Oh, okay. Oh, you think March. I'm getting more and more convinced that they're going to follow the market here. They're going to deliver. Yeah.

Yeah, you may be right. The growths really will have to slow because of Amacron to delay for them to pause. Yeah. I think so. Yeah. That's true. Dante, do you have a view here on the first rate hike? Yeah, I think I would lean probably towards Chris.

It seems like it seems like sort of it's all shifting in that earlier direction towards March. It feels like that's what they want to do unless there's something that comes out that seriously changes the story between now and then that that's probably what they're going to do. Yeah. Okay. Yeah. Do you see the wage growth for economists? Is there such a thing? No, I'm just giving you a heads up.

It's really tight labor market out there. Where do you get that data? We just growth for economists. We do our own survey. Yeah, we do our own survey. Oh, is that right? 10% this year. That's what that's the benchmark you're looking at, yeah, 10%.

All the wait. You guys are making something. You're making this up. If you want a time series, Dante and I agree. Is that season adjusted or? Unadjusted and season adjusted, both 10%. So you are making this up. Yeah, we're making this up.

Okay. Geez. Right over my head. You guys are too good. Too good. Yeah. All right. So what's your number, Mark?

Okay. This runs a risk of being too easy. And I may have to ask Ryan to recuse himself. Right. Which gives you a hint, by the way. 8.7 trillion. 8.7 trillion. Ryan, do you know?

I'm thinking. No, I don't know. off the top of my head. Oh, okay. Did this come out this week? Fed related if Ryan's excluding himself. Oh, no. I'm stretching.

What's that? No, I let Chris and Dante. I don't know what it is, but I feel like he's got to be fed related if Ryan was excluding himself from the conversation. Oh, damn, I shouldn't have said anything. I actually helped you out by saying that, which is true.

It is fed related. And that, you know, we... It's a balance sheet. Ah, related. Yeah, very good. And so what is it? If it's balance sheet related, 8.7 trillion. No?

All right. Ryan, go ahead. Do you know the answer? He's looking it up. No. No, actually, no. My wife, she got pulled over because I forgot to update the registration. So she's not happy with me right now.

Oh, boy. You need to go take care of that. No, no. What am I going to do? Yeah. Isn't it that the assets held outright? Yeah, that's the size of their balance sheet, the size of the treasuries, MBS that they hold on their balance sheet. 8.7.

I picked that because we had the FOMC meeting, right? On, was it, minutes from the FOMC meeting got released on Wednesday. And that was pretty hawkish. And 8.7 trillion is up a lot. you know, if you go back before the pandemic, we were closer to $4 trillion. So that's an increase of about $5 trillion. And just for context, you know, if you go back before the financial crisis, it was $1 trillion. So went from one to four, now we're four to $8.7.

And by the time the QE ends, we're probably going to be pretty close to $9 trillion, not quite, but pretty close to $9 trillion. And then it's the Fed saying, hey, I think, correct me if I'm wrong, but I think the Fed's saying, we're going to now relatively quickly let that wind down. I mean, we're gonna stop buying, we're buying now, we're tapering those purchases. At the current rate of tapering, our purchases will be over by March. Market says in March, we're gonna start raising rates

and we've been debating that. But then the next question is, what happens to their balance sheet? You know, if you go back to, after the financial crisis, once they stopped tapering QE, they, started, they kept the balance sheet pretty stable. They started, you know, when a treasury matured or a mortgage security matured or prepaid, they would take the proceeds and they would

reinvest so they'd keep the balance sheet stable. So the question is here, what are they going to do? Are they going to allow the maturing treasuries in MBS, the prepaying MBS to start to allow the balance sheet to come down? And I think the general sense is, correct me if I'm wrong, is that they're going to allow that to happen. They're going to allow the balance sheet. to start winding down pretty quickly here. Again, going back to the point that they're going to normalize policy pretty fast here. Is that right? Do I have that right?

That's correct. And that's called quantitative tightening, right, or the QT. So we're going from QE, quantitative easing bond buying to quantitative tightening QT. Correct. They got that right. Okay. And they're going to be very slow, though. They're going to be aggressive.

I mean, if they're just letting it run off, it's going to be pretty slow because, I would think because of the mortgage, right, the prepayments are going to be way down with rates rising. I think they've got a lot of debt maturing, a lot of, those treasuries are going to mature pretty cool. I think, I think, on the treasury side, matured, right? Something like that. I think Chris is right on the MBS side.

On the MBS side. That's going to be slow, but you're right that they have a ton of treasuries that are maturing. So they're going to use caps. You know, they're going to limit the amount that the treasuries can decline, but their caps are going to be larger than they were. after the financial crisis just because this year amount that they have matured. Yeah.

Okay. But we don't think they're going to outright sell. No, no. That would be kind of panic mode if they were selling. Yeah. And I guess one reason why the 10-year treasury yield, the bond market is sold off, why treasury yields have risen so much is because it's now, it's dawning on investors that the Fed's going to go from buying.

bonds, and they've been bonding a lot of them during the pandemic, to actually allowing their balance sheet to come off. And that's a big change. That's a big change. Yeah. Okay. All right. So what do you think? That was a pretty good statistic, I thought. No? That was a good one. Yeah, it was pretty good. Not necessarily tied to the lead market, but it's all right. Oh, yes, sort of. Yeah, you're right. Yeah, but I thought we needed to mix it up a little bit. Yeah, no, it was a good one. Yeah, okay. All right. I need a little stroking. Yeah, so. Okay.

Where are we? Okay, let's now turn to the labor market in more detail. And a bunch of different questions we could try to tackle. But let's tackle the quit rate, the 3% quit rate, the 4.5 million, 6 million that quit during the month of November. Dante, what's going on? Why such a high quit rate? You've got historically high job openings. You've got wages that are rising at levels that we haven't seen in a long time. There's just a lot more opportunities out there for people. And I think in addition to that, you've got lots of people who are looking to change their current work situation, looking for more flexible arrangements or remote work or whatever the case may be. So I think, the abundance of possibilities and people, you know, as a result of the pandemic, looking to, you know, make changes in their current work situation, I think, are all contributing to the number of quits we're seeing. I don't expect that to decline anytime soon.

I think, if anything, you're going to see that sort of continue, at least through the end of the year and early next year, because wages are going to continue to rise. Job openings haven't really ticked down much to this point, so there's still those opportunities out there. So there's long, it's proffer, there's a long list of reasons. And you put forward two. And I assume these are at the top of your list. The first is, well, we got a lot of open job positions.

So pandemic hit, a lot of lost jobs. We got the vaccines, economy reopened. Every business on the planet seemingly put up a help one and sign at the same time. So if you have all these open positions, then people feel comfortable about, well, quitting. trying to find a better job because they know that they could get one pretty fast if they needed to get a job. That's at the top of the list. Yeah. Okay. And then the second reason on the list is I'm putting my own spin on it, remote work, right? That is, you know, people, and I use that as a euphemism for, I want workplace flexibility. I want more flexibility in my work arrangement,

the hours I work, where I work, how I work. And if you, Mr. Employer, Miss Employer, don't provide me with that flexibility, well, I'm going to go find another job that does. Do I have that right? Yeah. Okay. All right. Guys, any other reasons you have put on that list? I mean, first of all, are those the top two reasons, you think, for the high quit rate?

And would you put any other on there? I think so. I think there's a very active recruit. recruiting going on as well. So folks who aren't even considering looking for a job, maybe getting calls, that might be leading to some of this impact as well. I also wonder about self-employment, people starting up their own jobs as well, or their own businesses as well. And if that's feeding into this higher quit rate at this time. Right, right. Ryan, any other? That was a good one, Chris. I didn't think about the.

people start in their own companies. Entrepreneurship is picked up. Picked up a lot. If you believe the data from the IRS on EIN numbers, you know, business starts. I think lower on the list would be people quitting because of the pandemic, you know, in, you know, restaurants. Each way people are, you know, they're worried about, you know, getting COVID or bringing it home. So, you know, that could be a smaller factor. Why would you put, I would have put that pretty high on the list.

I mean, particularly because we're seeing the quits in those industries that are on the front lines of the pandemic. And when the waves come through and people get sick, you know, they quit. Yeah. That's good. Yeah. So I would have thought, actually, I had to put that probably at the top of the list or pretty close to the top of the list. Now, I wonder if it's just more labor market churn in the sense that, you know, people that are in restaurants, bartenders, waiters, you know, maybe they're just fed up and they're, you know, they want to change industries. Yeah.

What about Boomer retirements? Yeah. I was going to change. Is that going to change? Is that, are they quitting now but coming back in later? Or is this a one-way street here? Well, I think it partly depends on those housing values and those stock prices. Right. I mean, people have been, I think the boomers feel pretty comfortable about leaving maybe a little

earlier than they would have otherwise. They were going to leave anyway in the next few years, right? Because the teeth of the baby boom generation is in the early 60s now. I think it's 62, 63. So they were going to leave anyway, but they're leaving a little earlier, in part because they got shoved out by the pandemic, and they're not coming back in because they don't need to, right? They've got pretty sizable nest egg with stock prices, housing values, all the excess

saving that build up during the pandemic. So I don't know. Do you think they'll come? I guess it's possible, right? You go, you retire, you kind of try to feel. figure out retirement, you go, hey, this isn't really working for me, or at least, or if my retirement nest egg is diminished because prices come back down again, it can cut back in. But I would think that's on the margin, though, don't you think?

I think, well, I think some of the flexibility that's popping up. Yeah, good point. That could bring some people back part-time or contract. So on the margins, it could help. But I think you're right, but by and large, they're out, right? They're not coming back in any appreciable numbers. and that's going to weigh on this market then for a while. Yeah.

Right. Okay. Okay. Here's the other question. So, there are a long list of reasons. They all feel kind of pandemic-related. And as the pandemic winds down, these things will start to normalize and recede. And, in fact, I guess one could argue if people are finding better jobs, jobs that are more suited to their needs, that turnover might be even lower.

than it otherwise would have been a couple, three, four years down the road, right? I mean, that might be, you might see less turnover, possibly. Moving forward, you mean, if people are finding better matches today, yeah, you may get less than a pandemic. Yeah. Especially with the work from home, you know, if you find a job, yeah, yeah, you could get less turnover down the road, yeah, I agree. Which gets to the question, and this is always a hard question

for media answer is, is this a good thing or a bad thing? You know, you know what I'm saying? Is it, is the high quit rate a good thing? Is this a positive development? Or is this a, I mean, obviously there's transition costs for the businesses that are struggling, filling positions for people that are quitting. That's no fun. We know that. You know, we're hiring aggressively and, you know, trying to add to payrolls at the same time as, you know, hold on to retain existing workers. That's a lot of energy. That's a lot of work. But is it a problem longer, Ron?

Any views on that, Dante? Do you have any sense of that? I mean, I find it hard to believe that it's not a good thing for workers. I mean, it seems like, you know, workers feel empowered one way or the other, you know, that's reflected in that higher quits number. I mean, yeah, I think you can make the case that for businesses, it's probably a net negative. I mean, there might be some benefit if you, you know, you get workers who aren't the best fit leaving who maybe would have just stuck around before because they didn't have any other options. So maybe you get some benefit from better fit with workers, but I don't know that that, you know, I think it's probably outweighed by the cost associated with recruiting and with turnover and all of that.

So, you know, I have to imagine it's probably a little bit of a negative to businesses. Yeah, although, again, you know, it depends, right? It depends on your horizon. And maybe on the other side of the pandemic, they have a more stable job base than they have now. The other thing is businesses are not standing still. They're responding, presumably, right? They're investing, I would think. I mean, we can see it in the data.

The investment data has been pretty strong. Some of that goes to supply chain restructuring, but some of that goes to, I think, labor-saving technology. You know, businesses realize that, you know, this is going to be a problem long run, you know, tight labor market in high wages and I need to figure out how to do things more productively, which would be a good thing. It would be a positive thing. I don't know. Chris or Ryan, do you have a different, so Dante says good for workers, not so good for business. What do you think?

Good or bad? I think that the wrong question. Am I asking the wrong question? No, I think it's a good question. It's a good question. I'd say good, certainly from a macro perspective overall, right? There are certainly some businesses that are going to struggle. more than others. But in the end, I think it'll push them in a direction where they increase

productivity or they accommodate their labor force better than make changes. So I think it's a positive. I think a wildcard here, though, is immigration and what the longer term prospects are for the labor market are going to depend heavily on what that immigration policy looks like. I think it's good for businesses in the sense that the pool of available workers you know, is much larger now. You know, think about what we're doing. You know, 10 years ago, would we consider, you know,

hiring an economist and, you know, having them stay in California. Probably not. Now, you know, the doors are wide open. Right. Right. Yeah.

It's actually hard to kind of disentangle all the cross currents here, you know, in terms of what it means. Yeah. The question I have is, do you think this ever full reverts back to what it was pre-pan you know do you think job openings ever get back to where they

were pre-pandemic or they stay elevated do quits ever go back to sort of the old level or does churns stay higher than it was before the opposite of what i was saying on the churns stays elevated because you're saying the remote work you're saying people can move around a lot more easily therefore well that and are you in a perpetual state of you know a higher degree of labor shortage. You've got more openings all the time than you had before. And so you've got more opportunities for workers all the time. And they're sort of constantly looking and evaluating more than they used to. I don't know. Right. You're saying for a lot, for other reasons that labor market is going to be tight demographics, reaching out of the boomers, weak immigration. So you've

inherently tight labor market. Therefore, that's going to keep quits up because people have opportunity to quit. Possibly. I mean, right, we've seen lots of job gains, but job openings are still, I mean, budged, right? They're down slightly off of their 11 million high, but they've barely moved, even though we've added workers pretty consistently here. Yeah. Yeah, interesting. So it's just the opposite of what I was saying, that after the pandemic, we get a more stable workforce, fewer quits. It could be, who knows? It could be hard to know that. Very interesting point. Okay. If we're moving to a national labor market, I think it's going to take a while for things to acclaborate here.

We're just in the early stages. Everyone's grappling with what it means, what does pay mean? Do you regionally adjust? Do you not? I think there are a lot of open questions here in terms of where the equilibrium actually is. It could have a lot of churn for a while, I guess is what I'm saying. Yeah. Yeah.

There's a lot of open questions about what remote work actually looks like in the future. right? I mean, do firm settle on mostly hybrid bottles where they aren't hiring nationally because they still want people to come into an office periodically or you have to more of them end up in a sort of fully remote world where they don't care if people ever come to an office? I think that's still to be decided in large part for a lot of companies. So, yeah. Yeah, yeah. You're right, a lot of good, a lot of cross currents.

They're hard to know how that's going to play out. Okay. Well, I think we've got time for one more kind of broad labor market issue before we call it a podcast. What should we tackle here? I mean, I guess wage growth might be one place to explore a little bit in more detail, because that is key. What's your sentence? Do you think wage growth is going to roll over here? is going to normalize that, you know, going back to low wage workers, that's where the

wage growth has accelerated the most significantly. Does that come back in? Or we're going to see the wage acceleration broaden out more deeply across the labor market. What do you think? I certainly don't think it comes back in soon. I think we're still probably accelerating or plateaued maybe, but I certainly don't think it's going to start to decelerate in the near future. it seems like there's pressure on both sides, right? Firms are offering higher wages to retain current workers. Firms are offering even higher wages to try to lure workers to them. We see that in, we don't talk about it a lot, but the ADP wage data, you know,

the pay increases for job switchers have still been ticking higher and higher, right? Firms are offering bigger and bigger increases to workers over the last six months to lure them away. And I don't, you know, with the number of job openings that still exist, I don't see that changing anytime soon. Right. Right. So your sense is that this acceleration in wage growth is going to continue and broaden out to other parts of the labor market.

Yeah. I don't know that it'll fully broaden across all, you know, income skill groups or whether it's, you know, sort of the lower end of the distribution is enough to sort of sustain it for some period of time. but it certainly doesn't feel like it's going away in the early part of this year for sure. Well, I suppose as the economy comes into full employment, that, you know, means higher wage growth, right? I mean, a broadening in the wage growth. It all goes back to the Federal Reserve.

Good reason for it to be tightening, starting to tighten monetary policy or normalizing policy as quickly as possible. Yeah. Okay. Any other thoughts on that? On the wage picture? No. I think short term that is right, but I always come back to automation and productivity enhancement.

I think those investments are going in now. They will bend the curve later on, right? Maybe later this year, maybe next year. But I think employers are sensitive looking for other ways to supplement or to substitute for labor. Yeah, I mean, our baseline forecast, you know, kind of in the middle of the distribution of possible outcomes are pretty sanguine one, right? We're saying that as the pandemic winds down and recedes, and, you know, that's kind of the working assumption that we're operating

under, that each new wave of the pandemic is less disruptive than the previous wave, and over time, you know, this kind of recedes. If pandemic becomes more endemic, that labor markets are going to start to normalize, get back to some, they're not going back to where they were pre-pandemic, but they are going to get back to something more resembling what we're used to. Wage growth for low-wage workers will moderate, and those for other workers will remain roughly where they are today, consistent with productivity growth. We see some improvement in productivity gains

as businesses respond to the tight labor market and the realization that they're going to be dealing with persistent labor shortages for a long time to come, and the higher wages gives them an economic incentive to do it, and the combination of all that. And, of course, the Federal Reserve will normalize monetary policy, raise interest rates in a way that causes growth to ultimately slow, so that when the economy achieves full employment,

which is, you know, everything sticks to script about this time next year, about a year from now, that the economy kind of soft lands. You know, everything kind of glides down, hit comes down on the tarmac and life is good, you know, we're all good. That's the baseline. And that's the strong consensus view, right? That's the view.

But it feels like, based on this conversation, it's going to be pretty bumpy, you know, landing that economic plane on the tarmac isn't going to be quite as graceful as I just described it. it's going to be difficult. Did I get that, is that a fair characterization of kind of the way, that's how I'm thinking about things, is that? You guys are on board with that. Yeah, this is a more boom-bust cycle. Well, that's a little different.

Are you saying we're booming and we're going to bust, or are you saying it's just a little more boomy, busty, a little more bumpy there? Yeah, but we're still going to play in the plane. Yep. Yeah. I really don't want to stick to the plane metaphor. I don't know, you know, I'm coming to the sense. the conclusion, it's not a conclusion is not the right word, I need a better word, but it's

starting to bother me that, you know, the plane is coming into the tarmac at a pretty high rate of speed. You got a lot of winds blowing in lots of directions, pandemic waves, fiscal policy, and, you know, the fog of bad data. We don't really, you know, what's going on exactly. are they going to actually be able to land that plane on the tarmac? And by the way, historically, they rarely do. Never done it before. They never do. So I guess what I'm saying is I'd start watching out for 2023 and 2024.

This could be a little more difficult. We'll have to watch. It's one of those plane landings where it's really bumpy that people start clapping that we actually made it on the ground. Exactly. Yeah, it's going to be one of those. Yay, and everyone's clapping. Yeah, yeah, right. I never understood that when people clap when we land.

It's like we're, isn't the expectation that you, you land? Like, I don't know. I think it is. It's like, you know, applaud for meeting expectations. Yep. It is really. Yeah, I'm alive. Thank God.

Is that right. Okay, I think that's the metaphor we're going to use. Okay. Well, I think this is a very useful podcast. We covered a lot of ground. You're forgetting something, Mark. You're forgetting something. Yeah, at Mark Zandi.

There it is. There it is. I wasn't going to say anything. You said something. I'm on Twitter, so is Ryan, but he won't tell us what his handle is. Next week, I'll tell you. What is it? I'll tell you next week.

Okay, tell me next week. At Mark Zandi. And please, feel free to follow. And anything else, guys, before we call it a podcast? No good. Hey, thanks, Dante. Always appreciate it. Anytime.

Good nature. I know we make, you know, we have a lot of fun. And, you know, it's all good nature. You're great. Okay, thanks, everyone. See you. Talk to you next week. Take care now. Bye-bye.