Moody's Talks - Inside Economics - Revisions, Revisions, Revisions

Episode Date: October 2, 2026

Dante joined the Inside Economics crew to discuss the September employment report, which told a more consistent story of a soft labor market. The team also dove into the bevy of other economic data released this week, including GDP, inflation, income, and spending. Recent data revisions were a recurring theme throughout the discussion, but in the end, the balance of revisions does not fundamentally change the team’s outlook.Interested in the Moody's Economics conference at New York on 10/22? Email [e-mail]. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you. To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Marissa D. Natali, Chris D. Rieis. Hi, guys. Hi, Mark. Hi, Mark. Marcia's always slow to say hello to me.

I let Chris, Chris always jumps in with the high mark first, so I wait until that greeting is out of the way. So you are happy to see me. You're just waiting. I am. Very happy. Okay. Just checking.

Just checking. And we got Dante, Dante, Dr. Deanton. How are you, Dante? Doing all right. How are you? Good, good. All three of us were, where were we? Exactly. Washington, D.C. Well, Washington, D.C. That's right at our conference. So what did you think, Dante?

I thought it won really well. Yeah, and everyone seemed to engage. The topics were good. What about my speech? What do you think about my speech? Well, I mean, obviously, always the highlight of the day. Always a good way to kick it off. I'll take my check in the mail whenever you're going to send it to me for, you know, making sure I say the right thing. Exactly. And what did you talk about at the conference, Dante? Mike Bristin and I talked about K-shaped consumers, you know, sort of labor market impacts, consumer credit.

Oh, that sounds like a good one. I missed it, but it sounds like what was good. Missed a good one, yeah. Yeah. And Chris and Marissa, you guys were tag teaming it on AI, the AI impact. How did that go? Good, I thought. Good, Chris? I thought so as well. Yeah. Yeah. Yeah. There we go. Good. Well, it was a good conference.

We had fun. We enjoyed it. You did? I don't know about the audience, but, oh, is that right? They were very, I think they liked it. They were pretty engaged, yeah. That's great. Well, we've got another conference coming up right in New York. I think it's a Thursday, October 22nd.

And the Washington conference was sold out. I think in New York, we're still filling the attendees. And so if you have an interest, just let us know Inside Economics at Moody's.com. And we'll go from there. But I'm looking forward to that conference. So I was just looking at the agenda. And I did notice that Sarah gave me a few more minutes. I thought that was pretty encouraging.

What did you think? You think that good idea? Give me a few more minutes? I think someone asked for those minutes. Forced the hand of the agenda maker. Yeah, exactly. Exactly. Well, anyway, we had a good time in D.C.

And I couldn't see a lot of old friends and some former colleagues, right? We had a few former colleagues there, and that'll be the same case in New York. So hopefully we'll see you there. But let's get down to business because there's a lot of business. This was a busy week on the economic data front. But obviously the headliner was today's numbers. This is Friday. October's the second jobs Friday.

And, well, gee, here we go. What do you think, Dante? I mean, it all makes more sense or does it just create more confusion? Yeah, I think it all makes. a little more sense now. You know, we've had some, some noise in recent months, and I think this, this sort of gets us back on a track that we were expecting to be on. The headline number, obviously, a little bit weak, 29,000 jobs added in September, but the three-month average is now right about about 50,000, which we've been talking about is, you know, sort of roughly what

we think underlying job growth is. So, you know, sort of brings things into balance. Hold it. Hold it. Hold it. We? Certainly you and I, I don't know about the other two. You and I certainly have certainly been talking about 50,000. Right. Right. Right. Right. I don't know what these other guys have been saying, but it's not going to fall on that sore. Yeah. Okay. Okay.

There you go. Slightly more pessimistic about the last couple of months, right, downward revisions totaling about 60,000 over July and August. Certainly much weaker than last month, right? Even in August with the downer revision, we added 133,000 jobs down to 29,000 in September. The breadth of job creation pretty narrow again, like we've seen, you know, sort of before the last couple of months. health care, the biggest driver, added 23,000 jobs of the 29,000 top line. Construction manufacturing, still putting up positive numbers a little bit weaker than the last few months,

but I think still a good sign that we're getting some growth out of the goods producing side of the economy. Not a whole lot else to write home about. White collar jobs still falling, right? Information, finance, professional business services all down again in the month as they've been, you know, sort of most of the time here throughout 2026. Yeah, so I would say, you know, a week of September, but if you're looking over the last couple of months, it sort of brings everything into balance and I think makes a lot of sense in terms of where growth is.

So you're saying underlying job growth, and we have to find that to mean abstracting from the monthly vagaries of the data methodological or measurement or whatever it may be because the numbers are bouncing up and down and all around. It seems like a lot of noise in the data month to month. And this month is on the weak side, but, you know, it's making a case, but overstating the case. you kind of abstract from all that, we're at 50,000 per month job. Yeah, and actually, right. The three-month average is about 50, and actually the 12-month average is also right at about 50K right now.

So, I mean, that tells you, you know, over the last three months and over the last year, we're, you know, sort of holding in that same zone. Chris, what do you think? Are you on board with the 50K? I can't remember where you were, but does that sound? A little less than that. A little less than 50K. I think so, but like 40, 40, 45, right?

39K. No, price is right rule. No, I think it's a little bit weaker, but. Why do you say that? I'm just curious. Why do you think it's a little bit weaker? Just based on the demographics and the supply side of the equation. Got it.

Oh, thinking about the unemployment rate and all like, we'll come back to that. Yeah. I see. Got it. You're working kind of backwards here. You're saying, okay, if I've got relatively stable unemployment and this is what I think supply is, this gives me a sense of underlying job growth. That's right.

Yeah, got it. Why don't you, Marissa? I can't remember where you were, but are you on board with the 50K? Yeah, I mean, I've kind of been on board with the 50K, but I kind of agree with Chris. It could be a little longer. I'm telling you on the other side. Yeah. Aren't you on the high side? No.

Someone's got to keep track of what she's saying. I've got to start writing these things down. Fortunately, this is recorded, so there is a record. There is. That means somebody. Can we ask Claude to go back and look, maybe? Probably. Yeah.

crap. You've got to pin her down. You're crazy. Very hard to put. So you're saying 50K. Yeah, I think 50K-ish, sure. I mean, I don't. She does that.

She put the ish in there. So next time she's going to come out and say 60K, 70K. Well, that's the same as 50K-ish. My standard error is, you know, 100-K, you know. Okay, I hear you. I got you. But we're all kind of on the same place now. Yeah.

Yeah, I think so. Hey, Dante, you know, back to the next. narrowness of the job growth. Am I dreaming this, but if you exclude healthcare, the one sector, health care sector, and admittedly a big sector, but you exclude it. Payroll job growth over the past year has been basically zero. Is that, is that right? Yeah, and it's actually true for longer than just the last year. I mean, it's over the last couple of years. If you take health care out, it's been basically zero. Right. So how does one view that? I guess is it positive or negative or for both.

I mean, I think it's certainly a positive that health care is at least still growing. And I think, you know, just dividing that way masks a little bit of what's going on. Like, you know, we've seen some sort of at least somewhat persistent growth in manufacturing and construction this year. But that's, you know, sort of offsetting weakness that happened earlier in that period. It's offsetting some weakness in other industries. So it's not that no other industries have grown at all. It's just if you throw it all together, there's enough offsetting factors there.

So I think there are pockets of, of brightness maybe in there a little bit outside of health care, but nothing that's been consistent over the last two years. Yeah, but pretty much on the margin. I mean, construction and manufacturing, you're adding 10K, maybe, you know, and then you're losing 10K if they have services and professional services. And you're saying the net of all that zero, but it's not like these guys are adding tens of thousands per month. They're adding thousands per month, maybe. That's right.

Yeah, I mean, white collar has been a pretty persistent negative drags. I mean, if you took that, if you also excluded that piece of it, then sort of the balance outside of that is a little bit positive. It's nowhere close to health care, right? Healthcare is far and away the biggest driver over the last couple of years. But I do think there is, you know, a little bit of positive story outside of health care. Yeah, it feels like AI's got its fingerprints. So I think we talked about this last month, but it feels like, you know, so on the construction job gain, it was around 10K. I can't remember exactly what it was.

That's data centers, right? and data center related. That's AI. On manufacturing, it feels like that's probably, maybe that's broader based, but it feels AI-ish. So that's the positive side of AI on the job market. And then on the negative side,

while we're losing jobs and financial services and professional services, and when I say professional service, that's everything from like illegal and accounting, advertising, that feel like they're more easily substituted out by AI. That's the negative. and if you take it all together,

the positives and the negatives, you're basically at zero. So, A.I's, first of all, do you think AI is playing that kind of role? And second of all, if it is, is it basically playing to a wash, you know, basically zero labor market impact at this point? What do you think, Dante?

Yeah, I certainly think it's playing a role. Yeah, I don't think it's a huge magnitude in either direction. I think it's probably pretty close to zero in terms of the net effect at this point, right? I think the question is, does that affect push more negative as we move forward, right? Do you sort of lose some of the construction of manufacturing positive and does the downside get bigger as time goes on? I think that's obviously the big open question that we need to figure out. So what do you think? Do you think that the risk we took I just said around AI is roughly right? Yeah, I do. I mean, I think something's clearly going on, particularly in information,

maybe in financial services and insurance, AI related. Perhaps it's stifling, hiring a bit. But I don't think it's huge. I think there's other. things going on that are making hiring in those industries very soft. But on the flip side, as you said, non-res construction is really powered by AI. So yeah, it's in there. It's in there, but it's small. And it's probably going to get larger as we move into the next year. What do you think, Chris? Is that a good way of thinking about what's going on underneath the hood? Yeah, yeah. I agree with Mercer. I think the effects on financial services in particular, are more indirect. I don't, I'm not quite buying into the idea that AI is actually doing a lot of the, you know, replacement of jobs. It's more augmenting and perhaps causing firms just to pull back

on the hiring and wait and see. But I'm not, I'm not seeing a large degree of evidence that it's actually doing a lot more of the, uh, the tasks that insurers or, or finance companies do. Got it. Got it. There's, there's other data in the payroll survey, Dante, anything you want to call out? I mean, wage growth week, again, 0.1% in September, year over year. Wage growth is now down to 3% even, which is the weakest, abstracting from the noise right after the pandemic, that's the weakest since the end of 2019. And obviously, inflation at the end of 2019 was much lower than it is today. So I think that's still a concern is what real wage growth looks like here moving forward. Yeah, so average hourly earnings, that's the measure of wages in

the payroll survey that we're looking at today. You're saying that increase, that increase but very modestly in year over year or three percent on the nose, I believe, and inflation's higher than that. You know, my mind immediately goes to, well, if wage growth is slowing and it has been consistently slowing. This is not new. This has been the case for year two or three. We've been steadily decelerating, seeing steadily decelering, seeing steadily decelering wage growth,

that that would indicate that the economy is, despite the 4.2% unemployment rate, which will come back to. we're not at full employment. We're operating below full employment. Do you think I have that right, or is there another explanation for what's going on here with the wage numbers? I mean, that feels like the most likely, you know, for going with your Occam's Razor theme lately. That feels like the simplest explanation, right, that that's got to be what's driving wage growth to keep, you know. Occam's Razor.

Oh, yeah. I've been listening to things you say, you know, that's what I'm. Right. So you want to, does everyone know what Occam's Razor is? I guess if you were at the Comptuant, though. the simplest, what is it? The, the simplest explanation for something is the most likely explanation for something. So that's what you're saying.

Yeah, I didn't fact check your definition before. I just, I'm taking your word for it. I think I made that up. Now if you're wrong, I'm also wrong and it's okay. Yeah, yeah. But so can you think of any other possible explanation for what's going on with the decelerating wage growth other than there's still some slack in the labor market that we're not operating at full employment despite the 4.2% unemployment rate?

I mean, the other thing I would think to is, you know, is there a mix issue in industries? But, you know, the employment cost index is also pointing in the same direction. Obviously, we don't have, you know, Q3 data yet. We'll get that at the end of this month. So, you know, maybe there will be some divergence there that would point to, you know, a little bit of a mix issue. But up until now, they've been essentially trending in the same direction. So that doesn't seem to be playing a big part.

Yeah. Even on the mixed side, I mean, you're right. The ECI, the Employment Cost Index is saying the exact same thing. The Atlanta Fed wage tracker, another way of measuring wage growth, saying the same thing. The rate of growth is a little bit higher. It's measuring things a little bit differently, but it's also decelerating, consistent with, you know, word below for employment. On the mix issue, it feels like it might go the other way, right?

because of all the immigrant, the highly restrictive immigration policy, you're kicking out a lot of immigrants that are generally at the lower part of the pay scale. If anything, that would raise measured wage growth. No? Well, I'm just thinking, you obviously have seen weakness in white collar, right? You know, finance. So you're losing some of those high wage jobs, although, you know, the jobs are being created in construction and manufacturing. Those aren't necessarily low wage jobs. Or if you're talking about, you know, sort of specialty contracting and high tech manufacturing, you know, those aren't low wage, but I still think you might get a little bit of offset there from losing those white collar jobs. Got it.

Hey, Chris, any other explanation for the continued deceleration of wage growth other than we've got slack in the labor market? Well, perhaps somewhat perhaps related is just loss of bargaining power, right? You could have... But isn't that postal of slack in the labor market? I mean, it feels like that's how that actually works, right? No? Well, I guess that's an area I'm thinking of you. There's the threat of AI or the threat of more technology coming online and therefore, as I work and, you know, employment is still okay for now, but I don't, I just don't have as much power to go forth and demand higher wages.

Yeah, the balance is coming. That makes sense. I guess the other possible explanation might be there's just so little. churn in the labor market, right? The quits, yeah. Yeah, there's just no quitting. And usually the bigger, you get a bigger pay increase when you switch a job. So if there's no switching here or much less switching, that would reduce the measured wage

worth. Is that right, Marissa? Do I have that right? Yeah, you do. I was going to say that, but then I was thinking, but the low quits rate is also sort of a reflection of how much slack there is, right? If you think that if you think the labor market's really tight, you're much more likely to quit your job because you think it will be easier to find another one and people just aren't quitting. They're staying in place. And interestingly, the quits rate is particularly low in these office using industries in finance, insurance, professional services. So workers in these industries are not wanting to move perhaps because they perceive that it'll be difficult to. get a new job in that industry.

Well, we know that getting a job is pretty tough if you lose it, right? I mean, the duration of unemployment, pretty long. Yep. So it's interesting. So the unemployment rate, the labor force participation rate, aren't telling the whole story here about how labor is kind of on its back heels. People have jobs, but they're fearful that if they lose their job, they don't want to move because no one's hiring, they can't move,

and they're fearful of losing their job because they can't get hired because hiring is so low. And they see the specter of AI, maybe if that's playing a role here, you know, that's still, you know, it's got a long way to play out. So they're kind of hunkering down,

and you're saying, okay, I'll take a smaller wage increase just to keep me on board so that you don't fire me. That's kind of sort of what we're saying, right? Right. Yeah, interesting. And you're saying proof of that, or at least some evidence of that is if you look at the quit rates in sectors that are most likely going to be pressured by AI where the hiring rates are relative low.

It's those sectors where people are moving. Right. Yeah. Yeah. Interesting. Interesting. Okay. But fundamentally, that's still slack in the labor market, right?

I mean, yeah, right. Yeah. Full employment, non-employment rate, you know, is, well, anyway. Oh, I think we covered it. Why don't we go to the household survey? And Dante, can you want to give us a run down there? The unemployment rate, notch tire, anything to tell on that front? Yes, I mean, it's a similar story to last month where we got this sort of initial turnaround in the household survey.

It had been pretty downbeat up until August. And then we got a big increase in the labor force in August. We got another big increase in the labor force in September. It was up, I think, $485,000, pushed the participation rate back up another $2,000. of a percent. So it's still down over the last year, but it's now up four-tenths of a percent over the last two months. So definitely a rebound with that a big increase in household survey employment. So starting to close that big gap that had formed between the payroll and household survey. I think it sort of fits more to the script we've had in our forecast for

the unemployment rate to creep back a little bit higher throughout the end of this year, early next year as labor force growth comes back, at least to some degree, right? We didn't expect that the labor force would continue to contract as it had. been early in the year. So I think, again, similar to the payroll survey, this just seems to make a little bit more sense about what's going on. It's, you know, sort of makes the picture a little clearer, I think, in my mind. Got it. Got it. So, you know, the other concept that we continue to debate, we talk about every month is the so-called break-even rate of monthly job growth. So how many jobs do we need to maintain kind of stable slack in the labor market? What do you think that is,

Dante. When I say Slack, you know, it's more than just the unemployment rate, right? It's participation in everything else that's going into this. Yeah, I mean, it feels to me if we're thinking about sort of moving forward, you know, I'm assuming trend job growth will be 50K and at the same time, I'm assuming the unemployment rate is going to creep a little bit higher. So to me, that break-even level has got to be something just above 50,000, right? We're not going to add enough jobs over the next six months to keep unemployment stable in my mind. Right. So you didn't give me a number. 70, 75. Okay, 75. Okay. By the way, it's exactly where I am. And where I've been. Yeah, there you go. There we go.

On the same beat. What about you, Marissa? Do you have a sense of the underlying, or excuse me, the break-even rate of job growth? I think it's 60-ish. 60-ish. I used ish again, I know. I know. I'll let it slide.

Thank you. Yeah. Yeah. And Chris, you're lower. I think it's closer to 50. Okay, so you're 40K underlying 50K break even, something like that. And that goes to all the work you've done on kind of the demographic trends and what that means for kind of overall underlying job growth and break even. Yes, although admittedly there's a lot of uncertainty, right, when it comes to the immigration numbers or size labor force.

Right. Okay. Anything else on the job? Did anything surprise you, Dante, in the job? Well, there was a lot to surprise. Anything on the upside? Was there any upside surprise? It seems like it was all downside surprises, you know, things that fell short of expectations.

Anything come in on the high side of expectations? Not real. I mean, other than, you know, labor force growth being strong, again, I think is a good sign. I don't know if it was overly surprising, but I think it does, it just makes more sense. The two surveys make more sense together now than they did a few months ago, which is good. Can I ask, and I don't want to take anyone's stat about, but, uh, uh, but I'm going to do it anyway. The household employment gain, what was that?

That was about 70, 80K, something? Household survey employment? Yeah, household survey. It was up 400, yeah, a little over 400K. Oh, it was a big increase. Adjusted, though, to payroll concept. It was much, much smaller. It was only about 100K.

About 100, yeah. Okay, got it. And when you look over the past year, payroll, average monthly payroll job growth has been 50K. Do you know what household employment growth has been on average per month? Yeah, so I mean, if you look since January, since the beginning of the year, household survey employment is basically flat now. It had been down big, and now it's basically rebounded to flat.

And payroll survey since January is up between 4 and 500,000. So that gap between the two had been about a million just two months ago, and now it's basically half as wide as it was, and so it's moving in the right direction. Got, got it. Chris, Marissa, anything else on the job numbers before we move forward? You wanted a positive employment to population for prime age workers was 80.7. So it's rebounded. Yeah.

Rebounded, yeah. Is it right back to where it all started? Pretty much. It was certainly earlier in the year. Yeah, the peak overall was 80.9, I think. So, I mean, we're just off the high of the cycle. I mean, it's about as high as it's been. Right.

Right. Okay. Got it. Okay. let's move on. This past week has been full of a lot of good economic data. Marissa, kind of in the appropriate of information that we got this week, what do you want to focus on?

I think we should focus on GDP. GDP. Yeah. So we got the third and final estimate for second quarter GDP, and there was a quite a large upward revision from the second print. So GDP grew 2.2 percent annualized in the second. second quarter. And the revisions also pushed up Q1 GDP. We got benchmark revisions to the national income and product accounts that go all the way back to 2021. So kind of everything was

revised around GDP, right? So GDP, the spending numbers, the savings rate, all of that stuff was revised. So 2.2% growth on GDP in the second quarter, two and a half percent growth on GDP in the first quarter. So that revision, you know, there were revisions in both quarters that were pretty large. And consumer spending was quite strong, particularly in the second quarter, so was investment. And the BEA particularly called out the build out of data centers as being one of the main drivers of that upward revision in Q2 to investment. So the economy looks, I would say, substantially stronger than we were first estimating. So we were at about 2%.

It could abstract, again, there's a lot of variability here, quarter to quarter. And before the revisions, it felt like underlying GDP growth, real GDP growth. Some quarters are a little higher. Some quarter is a little lower. But on average, if you cut through the ups and downs and all the rounds, it felt like it was about 2%,ish. That's what we grew last year. That's kind of what we grew in the first half of this year annualized. Now with the revisions, what would you say it is?

I think we're above 2%. If you look at the first half where somewhere like 2, 3, something like that on average. Because we went from 2.5% in the first quarter to 2.2% in the second quarter. That was a 0.7 percentage point upward revision. between the second print and the final print for Q for Q2 here. So I think we're growing a little bit above 2%. Got it, got it. In Q3, the current quarter, the tracking estimates feel like they're around 3% annualized.

Some are a little higher. Ours is a little bit lower, but it feels like they're kind of coalescing around 3. There's still a lot of data to be released before you kind of get a real fix on that. So it feels like GDP growth, the job numbers were pretty bad. The revision kind of took us back down. But the case of if we stick to these GDP, these revised GDP numbers, they feel a, you use the word, what did you use the word, significant or substantial? Does that, is that overstating the case?

I mean, it feels better, but is it, I guess it's measurable. Is that what you're saying? Better? Yeah. Like, if, you know, the original growth in Q. was 1.5%. So we went from 1.5% to to 2.2. That's 2. Yeah, to 2.5 in the first quarter. I mean, that's a big revision. And again, this is,

this is the benchmark revisions that are taking GDP growth back to 2021. So, and if you take out, like if you look at the real final sales, real final private sales, that rose four point six percent in the second quarter. So this is if you just look at consumer spending and private investment, right? So we take out government, we take out exports. That was 4.6 percent in Q2. That's that's quite strong. Right, right. Not for importing all of the stuff we're importing, right? I mean, subtract imports out. We're importing tons of IT stuff, chips, chips, all the stuff going into AI, take that out, take out. But you can't really do that, right?

I mean, that doesn't really mean anything, right? Because all the stuff that's going into the data centers is an imported product. Yeah, I mean, it's being consumed and that's being counted. But I'm just saying, like, aside from government and exports, it is quite strong. I mean, consumer spending is quite strong despite the fact that inflation is high, right? and people are struggling at the bottom of the K, getting a lot of consumer spending here still through Q2. Chris, how do you interpret the data?

They are significant revisions, right? They are not just trivial. And so let's call it relatively strong GDP growth then with a weak labor market or certainly not growing quickly. that suggests that productivity is kicking in here. So my concern is that it's, you know, how durable or is this short-lived type of phenomenon? Right. This burst of activity.

Certainly the consumer, yeah, he's holding in there and incredibly resilient more than I imagine. But rates are high, you know, it's going to pinch at some point here. So this is all great data looking at. the backward or the rearview mirror, but I think there's still some challenges ahead of us here on both the consumer and even on the investment side. What do you think, Dante? Yeah, I mean, I think it's certainly good news for the first half of the year. I think my concern is just, you know, that's obviously a little bit dated at this point. And, you know, it doesn't feel to me like consumer spending and consumption can possibly hold up at that level in the second half

of the year, given what we know what's going on in the labor market with wage growth, you know, the measures of personal income are, you know, sort of looking weaker. I think if you look at real personal disposable income, it's gone pretty flat here. So it just feels like at some point it's not sustainable that consumers are going to keep powering growth. And it feels like that's going to show up sooner than later. Hey, Marissa, if you look at the entire period for which the data was revised, I think you said it's a five-year backward look, right? Back to 2021. What is the impact on average annual real GDP growth over that five-year period? How much was that revised up. I didn't, I didn't look at that. Yeah, I'd be really curious. I mean, this goes to

kind of the potential rate of growth of the economy. I mean, previously, before the revisions, I was thinking it was 2%. But now it feels like it's a little bit higher than that. Like, could be as high as 2.5%. Something like that. I know that sounds like I'm splitting hairs, but that's, that's, to your point, Mercer, that's, I don't know if a user is substantial, but would you use, Chris, meaningful? I think. Significant meaningful. Yeah, I think that was my word. But if it does feel like underlying potential growth of the economy is a little higher, would you agree with that, Dante?

I think, again, I think you have to split here a little bit. I think you're talking about, you know, a tenth or two of a percent. So is that meaningful? Does that, you know, will that hold up? I don't know. Right. It does feel like when we get the data, the revisions to the productivity numbers, though, we should see an upward revision to productivity growth, right?

because we're getting more GDP, which is an enumerator productivity, and less fewer jobs. Jobs. It feels like we're going to get more productivity growth, no? Yeah, it should. I mean, the arithmetic certainly points to upward revisions to productivity for the first half of the year. Right. Okay.

Because they did incorporate the newest QCW data on wages and jobs into all these revisions, which this was going to be my backup statistic, but we're going to see a data. downward revision to job growth when the benchmark revisions are released next year. So the labor market, and I think we would all, this is what we kind of all expected, it's been weaker than reported, you know, over much of 2026 going back to 2025. So we've already incorporated sort of the weaker labor market in this. So productivity is going to have to be stronger in order to get to these GDP numbers. So the upshot of all this, all these, all the data we've gotten this week, and there's still more to talk about, but so far in the conversation, GDP jobs, the upshot

is that it feels like the labor market's weaker and it feels like GDP is stronger. And the net of all that is we're getting more productivity growth, which would be consistent with the idea that AI might be kicking into some kind of gear here. Does that sound right, Chris? We can debate the AI impact here. Oh, okay. You select everything I said up to the AI. Productivity impact, certainly. I think Dante would even quibble with whether or not it's actually AI driven or other changes that are experienced during the pandemic.

Right. Okay. I mean, if you look at growth by industry, the biggest contributors were among them, durable goods manufacturing was one of them. but the other ones are all these white-collar industries we're talking about, real estate, finance, information. Right. That's also, right, Chris, that's also consistent with the AI story. Yeah.

No. Yeah. Could be. Yeah. Could be. Right. Could be. Could be.

Is it AI or suggest data processing efficiency? Anyway, we don't need to get into this today. We can't. You want to? Okay. All right. None. We'll do it some other day.

We got a lot to cover it. A lot on our plate. Yeah. Okay. Oh, the other big data release, Marissa, was inflation, right? The consumer expenditure deflator data. And that also, it feels like revisions got to be in the title of this podcast, because that also was revised, right? Right.

Yeah, that was revised. And then, you know, as we've had Matt Collier on the podcast, he's been talking about some methodological changes going into the PCE with the way, like, financial services are measured, and that happened with this past release, which lowered inflation, both core and headline inflation, kind of just took a step down. So the PCE deflator was up 0.3% month over month. That's the headline. Core was up 0.2. So with all these revisions and this methodological change, we're up 3.4% on PCE, year. over year total, and we're up exactly 3% on core. Yeah.

So it's still well above target, but not nearly as much as we previously estimating. And it's moving in the right, feels like it's moving in the right direction back to the fence 2% inflation target. Yeah, that's right. Yeah. Okay. All right. So we'll come back to and talk about, you know, what the market reaction is to,

all this, what it all means for the Fed and how we think about this more broadly. But we'll play the game next. But just to summarize all this data, it feels like what we're coming to is the job market is soft. It doesn't feel like that is going anywhere fast. But GDP, the value of all the things that we produce, that feels a little bit better. And inflation while above target still. well above targets is moving in the right direction. So you kind of take it all together.

My feelings about things are equally as mixed, maybe mixed in a different way. But it just feels like we're okay. Things are moving, you know, we're moving forward, but it just feels uncomfortably okay. And looking forward, there's a lot of things to be nervous about. Is that a fair, Dante, a fair way of kind of bringing it all together? Yeah, I think so. I mean, yeah, I think. You do? This cleared up the picture on the labor market a little bit, but I think it's still, yeah, it's still a little bit unclear when you start to pull all the data together how it fits.

Okay. And, Brescia, is that your, are your emotions in the same place mine are? I mean, yeah. I didn't specifically talk about spending an income, but, you know, Dante mentioned that last month, disposable, real disposable personal income was zero. Growth was zero, right? But on the spending side, real spending was strong. It was 0.6% up over the month.

So we have people spending, but income is basically flat. So that doesn't feel good in this context either, especially with weak job growth and declining, you know, decelerating wage growth. Right. Chris, how would you characterize all of this? Yeah, similarly. that rear view mirror looks pretty good, but the road ahead looks bumpy.

And then I think you have to come back to the distributional aspects as well, right? So, yeah, spending overall good, and even at the lower tiers, but there was an increase in spending in recreational goods, for example, right? And presumably that's going to skew a little bit more towards the upper end. So I don't know, I think you need to dive in to the date a little bit further beyond the headlines. understand that, you know, clearly not all parts of the economy are moving at the same speed here. Right, right.

Okay. Okay. While why don't we play the stats game, we all put forward a statistic. The rest of the group tries to figure that out with clues, questions, deductive reasoning. The best stats, one that's not so easy, we get it right away, 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 data here to choose from all the better.

Marissa, we always start with you. What's your stat? My stat is 49. The one month, the diffusion index? Yeah. That was my stat. Oh, as I say, I also looked at it too, but yeah. Oh, explain, Marissa.

This is the one month private employment diffusion index from the payroll survey. So the BLS takes all of the industries that they publish detail for. And they take all the industries that are adding jobs and subtract the industries that are either not adding jobs or losing jobs. So anything under 50 means you have more industries basically contracting than you have adding to jobs. And it's 49 and this is the first time it's been below 50 all year. So it was 50. I think I think it was in December of 2025. it was below 50 the last time.

It's been above 50 in every month until this past month. Wow. The dissimilar indication of how soft that report was. Wow. Did you look at the three-months diffusion index? I did, and that's still a little bit above 50. So the three-month, the 12-month are okay. They're above 50.

It's just the one month that dipped below. Right. Chris, were you going to say anything other than, what Marissa just said about the diffusion index? No, she said it much more eloquently as well. That's funny. Well, that's a really good one. Is there any kind of rule of thumb,

if it falls below a certain level for a certain period of time, it indicates that we've got a big problem? With the six-month diffusion index, if that falls below 50 for, I don't, it's been a while since it was below 50. But when that falls below 50, I think for even just a few months, then there's always been a recession following. And where are we today? Do you know? On the six-month diffusion index, we're above 50. That hasn't followed below 50.

Yeah, yeah. Okay. But that happened last year, right? It did happen last year. That's right. For several months. So, yeah. Maybe recession's coming. Some false positives, maybe. Yeah. Yeah. Not foolproof, but suggestive. Yeah. Okay. Chris, I'll give you a bit of a break because I know you have to regroup. You know for that. But Dante, you want to go next? Sure. Let me up for a, this is a negative number. I want to make clear this is a negative in case I forget to say it again. And I'm going to give you the rounded version, but I'll give you the unrounded, just I don't want any accusations flying. So it's negative 20.7,000.

In the job number? It's in the job numbers, yep. Payroll survey? Payroll survey, correct. Is it a change in jobs? It is a change in jobs, yeah. Not a percent change, but a absolute change. Right, a level change, yeah, yeah.

Over a certain time period? Like, it's not a one month. Right. Correct, yeah. Over the year? It's not over the year, no. Since the beginning of the year? No.

Just echoing. It's not since the beginning of the year. year. No. It's shorter horizon than that. Okay. Oh, it's last three months. There you go. It's the last three months change and jobs. Oh, okay. Is it professional services? It's not professional services, but you're,

getting warmer. You're on the right track. Information? This feels like a boring statistic. Finance? Temp help. There you go, Chris. Temp help. Help help. Oh. It was as I said, boring. Boring statistics. Interesting pattern recently, though.

Really? Okay. Yeah, I mean, temp help had been down consistently for the last couple of years, right? And then beginning of this year, it turned positive. Temp help was up 55,000 jobs from the beginning of the year through whatever three months ago was July, June, the first half of the year. And now it's turned negative again, right? I mean, we tend to think of temp help as a signal of sort of the broader conditions of the

labor market, you know, how much maybe that's still true can be debated. But certainly it was signaling that there was some strong. strength in the labor market in the first half of the year, but now it's, that's flipped again, right? It's signaling that there's some weakness. I think we saw there was some stronger job growth in particularly in the first three or four months of the year that has, you know, sort of waned here. And so it's just another signal that maybe the second half of the year will not be quite as promising or quite as strong as the first half. Yeah, that's good one. What about you, Chrissy? Have you regrouped yet? You have got a stat?

Yeah, it's my second. If you want it, I'll give it to you, but... Oh, you're not too enthusiastic. It can't be any worse than Dantes. Ouch. Okay. All right, the number's one. It's a legit number.

I take that back. Maybe it is going to get that. Is that like job openings to unemployed people? Yes. Oh, my God. Nicely done. Oh, all right. Explain.

Go ahead. Oh, Chris. Got to explain what you're doing. But everyone, we all know what you're talking about. Presumably the listener doesn't. Or the listener's thinking the same thing I'm thinking. But go ahead. It's the number of job openings to the number of unemployed individuals, one, exactly one.

Which is okay. But certainly it got as high as two during the pandemic, of course, right? And it's been, it dipped below one last year. So it's somewhat of an improvement. But if you want to look back to say 2019, it's, it's low, right? Back then, we still had more job openings than unemployed. So now it's one for one. It just is consistent with this idea that it's not so easy to find employment if you become unemployed, certainly, or if you're entering the job market right now because you have kind of even competition, if you will,

between the vacancies and the unemployed. That's pretty good, pretty good. Yeah. Yeah, I'm going to, I usually don't play, and I'm usually MC, but I, because I feel like we were a little lacking this, this, this, the, the,

the game, I'm going to come up with, I got one for you, 1.7 percent, 1.7 percent. And it's, it's, uh,

uh, not in the government data, but it's related to the job market. Came out this week. I believe it came out this week. Uh, something survey, conference board really?

Not conference board related. 1.7 percent. Oh, you should get it now, Dante. Let's get that right now. What do we all look at to gain the change in unemployment rate? Jobs plentiful versus jobs hard to get. Is that the- Yeah, the labor market differential. Yeah. Right. That's the difference between the percent of respondents to the conference board survey that say jobs are plentiful versus the percent that say jobs are hard to get.

And that's a really good kind of indicator of where the unemployment rate is headed. And it was this past month that we can considerably. The 1.7 percent is low. And we got that tick up in the unemployment rate. But the reason I brought a reason why I picked that statistic is it highlights the conference board survey. You know, that's the consumer sentiment survey that has done. every month. And that, I found to be a pretty reliable kind of measure of sentiment in the sense that it does a pretty good job of, you know, gauging consumer spending, which is kind of what we

want to use it for. And it weakened very sharply in the month of September. I mean, notably sharply. Dante, do you make any make anything of that? Or is that just noise, do you think? I mean, it feels, it feels important, right? I mean, we've sort of discounted the, the University of Michigan survey over time, but the conference board survey had seemed to be a little bit more reliable and less less noisy. And I mean, it was a sharp drop. I mean, I think it's the lowest that's been in over a decade now. So it doesn't feel like just noise. And it was a big drop in the present conditions part of the index, right? The sort of future expectations had been sort of persistently weak, but the, you know, sort of how people are feeling about their current

situation had been holding up more strongly. And that was the sort of the big contributor to the drop. So people clearly are not feeling great about the current state of the labor market and the economy. Yeah. Yeah. It seems generally consistent with the, with broad sentiment, but, you know, I'm not a big fan of those surveys to begin with. I noticed that. It was a pretty big decline. But anyway, let's move on, come back to the data. And what is the market reaction of all this, Chris? You know, and what does it mean for people's expectations for what the Fed's going to do? Yeah, so interesting market reactions. Even as we are recording this, things have kind of shifted around. The biggest or the most important market reaction is the Fed Funds futures, what investors believe the Fed is going to do at the next meeting in October later this month and then further out. And that has decisively, as a result of today's report, decisively shifted towards a pause. Right. We went from a fairly high probability that they would actually institute another hike. to now 80% as of this morning indicating that they expect the Fed to pause here, given the weakness in the labor market and the inflation report that was perhaps a little bit under consensus, at least not showing accelerating inflation at this point. So that was the main driver.

As a result of that, I think, you saw the stock market show some improvement, right? So not expecting a higher rate. then the bond market, the 10-year bond market, first saw some improvement. So you saw the yield come in, five basis points. Some headlines said that that was a tumble. So I don't know if that's accurate anymore, but yeah, it came in pretty solidly initially.

But then consequently, it's now come back up, right? So it seems like investors are digesting this report and still concerned about other factors that are out there, perhaps more inflation-related or the uncertainty of policy forward here. We are late morning on Friday, October 2nd, and you're saying the stock market is up on the employment report, but the bond market, we haven't really seen any improvement in yields. No.

Really? If you want the latest number, it's actually up two-bases point at this point relative to. So what is it right now? What is it? It's five and a quarter. Okay. Huh. Five and a quarter.

So a dip to something like five, well, point one seven. Interesting. And looking at the federal funds futures, what investors think the Fed's going to do, they pretty much now taken off the table and not another hike in the funds rate at the October. Later this month, the late October meeting. That's right. So December's still in play. So it's about two thirds plus probability of a hike in.

in December, right? So that's still out there, but that even that has come. Wait, so it, you know, that makes sense, the stock market turning around makes sense in that context. So the stock, stock investors are saying, hey, this data suggests that less likely we're going to see the Fed raised rates here, certainly at the next meeting and lowers the probability for future rate increases. But despite that, the long-term bond yields have gone back up, Okay. Okay. All right. Yes. Yeah, a lot going on here.

Oil prices actually fell this morning. So it's not clear what's not clear what's going on here. But the bond market, clearly those bond investors are still nervous about the future this did not. They didn't go far enough to calm their fears of additional inflation or rate hikes to come. Got it. Got it. Hey, just one other thing about the bond market. I mean, we've been doing a lot of work here trying to understand what's driving the run-up and bond yields. And, you know, one explanation, my mind immediately goes to the Iran war and the inflation created by the Iran war. It goes to deficits in debt. It goes to someone increased uncertainty around the conduct of monetary policy given Fed independence and the Chair Warsh's perspective on communicating with the market in a more opaque way than his predecessor.

processors. But one argument that's been given is gross, that the economy is stronger. And, you know, this goes to the AI boom and the demand for credit by AI hypers to fund the buildout of the AI infrastructure, data centers, and everything else. And that's a key factor in the run-up and rates. What do you think of that argument? Or what is your perspective, Chris, on this run-up and long-term? meals was behind it. You're thinking of more of a crowding out impact here, or that the bond investors have this option. They can either invest in AI-related bonds or they can invest in U.S. treasuries.

And right now, there's so much demand. They're all excited about the AI bonds. Therefore, treasury yields have to be higher to attract them. Is that the crowding out? Usually you think of crowding out the other way. But is that the argument you're making or just that. Or just that growth is expected to be riproaring. So inflation is going to continue to be under pressure therefore.

It's more neutral rate that the kind of the underlying growth rate of the economy is stronger and expectations for it to be stronger in the future have risen. AI driven. You know, AI is behind that shift in expectations. And so that's what's pushed. That's a factor or a key factor driving up long-term interest rates. And the reason why this is an important debate, just to make it clear, is if the run-up in yields is due to growth expectations, then the damage of the higher yields to the economy in aggregate should be modest or none at all. If the run-up in yields is more related to things like the war, inflation expectations and deficits in debt and monetary policy, uncertainty, then the higher yields are going to do more damage. So I guess I'm asking broadly, where do you stand on that kind of debate?

Yeah, I'd be more in the second camp. I think there certainly could make that argument that for growth resetting the bar, if you will, but I don't see that as the major or the most significant driver here. The more likely story seems to be all the above in terms of the concerns that bond investors may have. And it may be different bond investors with different concerns, but collectively, my sense is that's much more the fear than the growth story that you put out. I agree with Chris. I think it's sort of the bad things that are driving yields higher. I think it's more of this concern around debt sustainability, inflation, the war, not really knowing what the Fed is considering when they're looking at, you know, at these meetings, just more uncertainty, I think, around rates. I just think the timing of the run-up in the 10-year yield, to me, it's more consistent with concern

about all of these things than with this expectation that AI is going to drive growth higher. The simplest explanation is the... Yes. Started, right, right. Because it's really been since the war started, right? if you look at when this began. Right. Dante, do you have a different perspective where you want to add anything to that?

No, I would agree. I think the timing is hard to ignore in terms of the sort of the negative story. Right. Okay. Okay. All right, guys. We cover a lot of ground. Anything else we want to cover before we call it a podcast? Chris, anything, Marissa, Dante?

Mark, you didn't ask me for your favorite stat that you ask me every month that I'm here. Oh, yes. What is the unemployment rate to the second? excuse me, the third significant digit. You know, I spend time calculating it, so I might as well get it on the air, you know. It was 4.18%.

So it was only up from 4.14. So we were just below 4.2 unrounded last month. We crossed the threshold and we rounded up to 4-2 this month. Four or two. Okay, so not that big an increase. Okay. Yeah, how can I have forgotten that, Dante? Jeez.

That is my favorite statistic. Yeah. Good. Anything else, Chris, anything you want to add before we call it a podcast? I did get one listener reaching out asking if maybe we would consider a preview of the next week at the end of each of our podcast. Now, I probably should have told you this before. But if you have any thoughts on what to watch or what you're thinking about as we go into next week, certainly that'd be appreciated. I looked at the calendar.

It's pretty light. FOMC minutes come out next week. that might be of interest, but I don't know. Any thoughts on your end? I don't know. A week is a long time. Things happen. Have you noticed?

I don't think we're going to have a problem. Some weeks feel longer than other weeks. There's no data point or anything. There's no major data coming on. Okay. You're not waiting for the UMIS consumer sentiment on Friday. But, you know, assuming nothing happens between next Friday, which is not going to happen, but assuming that is the case, maybe we should talk about indicators, you know, that we really like and really don't like. You know, we each pick one and talk about it.

Because I think listeners, I suspect listeners would find that of some real interest, you know, going back, did we do that? I don't. We didn't do that already? Did we do that already? No way. Really? I think we have, but there's always more. Maybe it's something I can always add to the list.

Really, we've done that and I just don't remember doing it? You guys are making this up. I feel like I was here when we did that once, yeah. No? All right. All right. Well, then I don't know. No.

But there's always new indicators, right? You can go deeper onto your hate list. Yes. But if you're top three, you can do your top 10. All right, well, we'll have to give that sums up. Now, this is getting down to the kind of the, you know, the nuts and bolts of how we do the podcast, right? Because often, if we don't have a guest, we get on and then we decide right then and there

what we're going to talk about and then we talk about it, right? Exactly. Yeah, that's the deep dark chicken. Which I think is actually part of the secret sauce, right? Giving away the secrets. The big. We don't prepare at all. Yeah.

Because then you have to really deep, you know, You have to, it's more extemporaneous, right? It feels like a real conversation, you know, that kind of. Well, what we could do, since we don't have a guest, is do some listener questions, which we need some good, good, underscore good ones. She's imploring you, dear listener, to come forward with some. Should they send it to Inside Economics at Moody's.com? Yeah.

Okay. All right. Well, there you go. All right. Well, we're going to call this a podcast, I think, at this point. I hope everyone has a wonderful weekend, and we will talk to you next week. Take care, dear listener.