Moody's Talks - Inside Economics - Sharing the Angst

Episode Date: March 7, 2025

Moody’s Analytics colleague, Dante DeAntonio joins the podcast to discuss the February jobs report, and the team shares their angst about potential cracks in the labor market. The conversation then turns to the potential impact of DOGE cuts to the federal workforce and the economic implications of the on-again, off-again tariffs that has developed in recent weeks. Finally, Dante celebrates his clean sweep in the stats game and Mark and Cris revise their recession probabilities. Guest: Dante DeAntonio, Senior Director of Economic Research, Moody's AnalyticsHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X', BlueSky or LinkedIn @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, Chris DeReedies and Marissa Dina Talley. Hi, guys. Hey, Mark. Hey, Mark. Good morning. Hi, Chris. Good morning. Good morning. This is Jobs Friday, Friday, March the 7th. We got data for the month of February from the Bureau of Labor Statistics. And as a result, we have our colleague Dante Di Antonio. Dr. Di Antonio, how are you?

I'm doing pretty well, Mark. How are you? Yeah, good. It's been a month since you were on? It has. It's flown by. Yeah. Big change. A lot of changes last month.

A lot of things happening. Any big change in your life in the last month? Just, you know. We got two kittens. Oh, really? You're a cat household? I didn't know that. We are now.

We had a no pet household. Our kids finally broke us down. So we got kittens. Oh, cool. In the names? Pumpkin and Squabod. They're orange cats. Perfectly reasonable names.

We're named by a seven-year-old and a five-year-old. I've noticed maybe it's just me. People are getting, when they get a pet, they get two. And the names are related. Like I just met Harley and Davidson. Two dogs in the neighborhood. I think it's cute. It's kind of cute.

Kind of cute. So pumpkin squash. That's pretty cool. and they came up with it on their own. They did, yeah. My daughter had been set on having an orange cat named pumpkin for a long time. So when we found two orange cats, the pumpkin was locked in. My son was a little more.

He was debating nacho at first, but then he thought, you know, the sort of the combo of pumpkin and squash made more sense. That's pretty cool. Pretty cool. Hey, just an alert. I have my son and future daughter-in-law are here, and you're going to need to leave in a few minutes, and I'm going to, we're going to pause and I'm going to kiss them goodbye and then I'll come back.

So just be prepared for that. Maybe you have someone else to come on and chit chat with us a little bit. Yeah. Yeah. Yeah, he likes the chit-chat. He's up for the chit-chat. He's all into, I'll tell you, he's into this AI thing. We got a, I got stories.

So, you know, we're going to have to embrace this AI more fully. We, you know, we've, we've been dabbling. trying, we're not trying hard enough. You know, there's, we need to think about this more deeply. I'm not, no, can I ask you a cyber security question? Mark? You think I'm the right person to ask a cyber security? You are the only person I can ask because I got this, I got this invite from some Mark

Zandi guy on LinkedIn. Is this legit? Should I click yes? Indeed, I've joined LinkedIn. It's weird. I didn't get the same invite. That's, I feel like, no. been left out of the party, you know.

Blame it on Sarah. I happen to notice that you popped up on LinkedIn the other day, but I didn't see any invite. So I'm not following you? You're not following me? Is that what happens on LinkedIn? I guess I'll have to reach out. I'll have to, you know, I'll make the phone.

Hopefully your invitation will be accepted. Yeah. Yeah, I'll think about it, Dante. That's fair. I'll think about it. Yeah, I'm very selective, you know. It makes sense. Yeah, especially on Twitter, you know, very selective.

Are you still on Twitter? Indeed. Okay. I'm on Twitter, Blue Sky, and now LinkedIn. I don't, it feels like a lot of work to me. I'm just saying it's like, really? No, Substack. I'm thinking about doing something on Substack.

Yeah. Yeah, because I've been reading a lot of stuff. I think that's, I actually like it a lot. There's some really good, we had Robert Reich on and he has a nice substack. What do you call it? What? Substack, his substack. Do you say his, you just say his substack?

Yeah, I think so. Okay, somehow, for some reason I thought there might be another word, but it's substack. His substack, right? So I'm reading a few others, like Jared Bernstein, the former head of the Council of Economic Advisors, who was on the podcast not too long ago, has a great substack. If you want to, like the jobs report, Dante, you should read what he wrote about the jobs report. It rivals what you write.

Yeah, you're going to have to up your game. That's fine. I'll work on it. Maybe AI. But Chris, answer your question, please, sign on the right word or follow or following. I'm following. We are linked. Did I follow you?

Do you know? Oh, I don't know. Okay. That would be appropriate for me to follow you, though, wouldn't it? It would be nice. Okay. Mercer, are you on LinkedIn? Yeah.

I think we are LinkedIn friends. Yeah. We are friends. Okay. That's the right word, friends. Are you friends? I don't know. I don't know what we call it.

But we are. We're friends. LinkedIn or no LinkedIn. We're friends. That's right. We're friends. Virtually and in. Yeah.

Because when I was in Southern California, you drove, drove me around in that fancy car you have. That's right. And it was like your chauffeur. Yeah. That's right. From asset manager to asset man. Who are friends do.

It was a lot of fun. And then I go, now I know why she's in Southern California. This is a nice place. Where were you? Like Newport Beach or something. It was like, you know, pretty nice. Yeah, you're at Dana Point. Dana Point.

Dana Point, right. Dana Point. Anyway, what are we talking? Oh, jobs numbers. The jobs numbers. Yes. Back to the jobs. Okay, Dante.

What do you think? What's your rundown? I think it was okay. You know, job growth was 151,000 in February. Most of that came from the private sector. Not surprisingly, federal government started to shed jobs a little bit. It was down 10,000, probably not because of job cuts yet, but just because of attrition. The hiring freeze had been in place already before February started.

Job growth is, in one sense, broadening out. There's fewer industries that are losing jobs, but it's also sort of narrowing, in a sense. It's pretty concentrated in health care right now. up until a couple months ago we had healthcare, leisure and hospitality, the public sector, which seemed to be driving gains month over month now, leisure and hospitality has pulled back two months in a row.

The public sector only added 11,000 jobs. Health care is sort of the lone big producer of jobs right now. So in that sense, I think it's a little bit troublesome. Goods producers actually had a pretty good month in February. It was the strongest gain that we've seen in a while, positive for manufacturing, construction, and mining. I don't expect that to be a huge lift throughout 2025, but it's nice to see them turn around a little bit.

Outside of job growth, wages, came back to normal. Although construction's been adding all along, right? You're saying manufacturers and... Construction was a little bit weaker than it had been. You know, last month it only added 2,000 jobs. Oh, I see. A little bit and it sort of picked back up again in February. Yeah, manufacturing has been down, you know, for quite a while now.

and turned around a little bit. Mining has been sort of flat-ish to down. But yeah, stronger month, sort of with those three combined than we've seen in quite a while. Right. Wage growth is basically the same as it's been. On a monthly basis, it's slowed from January, but on a year-over-year basis,

it's still right about 4%, which is where it's been for more than a year. You know, there's not really a big story there on wage growth. I don't think hours are still low. Average weekly hours didn't change in February, but they remain, you know, sort of as low as they've ever been outside of a recession. So I think it's still something to watch there.

On the household side of things, it was not quite as pretty of a picture. The unemployment rate ticked up to 4.1%, which in and of itself is not all that problematic, but the labor force declined. There was a big decline in household survey employment. Participation rates were down in large part. Employment to population ratios were down. So it was not a great report on the household survey side of things.

I think the bigger question is obviously what happens from here, right? We know that a lot of the federal government impact hasn't shown up yet. It looks like there's some weakness elsewhere in the private sector. And so are we able to maintain job growth here over the next three to six months, I think is the more important question versus what happened in February. What about any revisions to previous months? It's basically nothing. We had a one was up 18,000.

The other month was down 16,000. I might have had that reverse, but it was basically negligible total impact. So anything in the report just feels like it's right down the middle of the fairway here, you know, kind of sort of. Yeah, I think on the payroll side of things, I mean, it was basically what you would expect. The household survey was a little weaker, but, I mean, that's also could just be volatility month to month, you know, that don't read too much into that. Right.

Okay. Okay. So what do you think underlying monthly job growth is right now? Coming into today or moving forward from today? No, just, you know, as of right now, as of February, what do you think it is? I mean, I think it's around 150. You do? Okay.

I think the risk is that it is going to keep trending lower here, for sure, moving forward. Right, right. You see some clouds, which will come back to, you know, in the context of doge cuts and trade war and that kind of stuff. But let's come back to that. Okay. Mercer, what do you think? Anything you want to fill in there? You know, I think if you just look at the time, you know, I think if you just look at the

top line number, it doesn't look bad. You know, when I first saw the 150, I thought that sounds about right to me. But I think when you dig in a little bit, especially as Dante said on the household survey side, you definitely start to see signs of weakening. And job growth is weakening in some key industries like professional business services, retail, leisure hospitality, for several months in a row now, all things that are consumer-driven and big parts of the economy. So I'm increasingly worried about the trajectory of the labor market. Now, I think if you just look at the data that we have right now that is now from a month ago, things aren't that worrying.

But I think it's sort of signaling that things might weaken here fairly quickly. I mean, we got jobless claims and they fell back to where they were after rising in the previous week. So that still looks okay. But yeah, I think the jobs report is actually a little bit weaker than the top line would suggest. Right. In the survey for the March data is next week, I think, right? That's when the Bureau of Labor 6 conducts the survey for both the household and the payroll survey, the week of that includes the 12th, and I think that's next week.

You mentioned while we're on the topic of unemployment insurance claims, UI claims, which, you know, historically we've used as a good barometer of layoffs and where just a good sense of the labor market real time because it's weekly data from the BLS. That has remained low. I think last week was, what, 220,000, which would be consistent with a very, very few layoffs, so a pretty solid labor market. How does that square with, you know, what's going on with federal government jobs with the Doge cuts? Why aren't we seeing more?

And I think you pointed out last week or the week before, there's also UI claims for federal government employees that's broken out. Right. What's going on? How come I'm seeing more there? Well, I think a couple things. One is that it seems like most of these people that have been laid off. off. Actually, they're getting paid, right? By the way, she used air quotes. I did. Oh, yeah, I used air quotes. If you're on YouTube, you saw my air quotes. Well done with air quotes, though. I thought they were,

yeah, very well done. So if you're still getting paid, so you're not going to work, but you're getting a severance payment, or the government is still going to pay you through September, in D.C., Maryland and Virginia, which is where most federal employees work, you're not going to get, unemployment insurance benefits if you're getting severance or unless you're getting a very little bit amount of severance, your UI benefits are going to be reduced by the amount of severance that you're getting. So for most of these workers, if they're being paid, if they're on administrative leave, they're being paid, they're not going to file for UI claims. I mean, they could file, but they're not going to get them. But presumably most people aren't even bothering to file, right? So I think that's the

main thing that's going on is most of these people that are being laid off because of Doge are still getting paid for the foreseeable future for the next few months. And therefore, they're not going to get unemployment insurance. Now, would they show up as unemployed in the household survey? I mean, they're not working. I guess they need to be looking for work. That's right. Right. As long as they've looked for work in the month prior to when the Census Bureau asks them, and they've taken some active job-seeking activity, then they will be counted as unemployed. Yeah. So we could theoretically see very, no significant pickup in UI claims or, you know, more modest,

but an actual pickup in the unemployment rate as a result of it. of this. That's right. And this is a common question that I remember when I worked at BLS and I worked on the current population survey, we would get this question like every week. People would always think that the unemployment rate was tied to unemployment insurance claims. It's not. So if you're getting UI or you're not getting UI, that has nothing to do with your status in the household survey as being employed or unemployed. They're totally separate measures that aren't related. they don't even ask about unemployment insurance in determining your status. So that's right.

And we saw in the payroll survey that federal employment fell by, what was it, 10,000, I think. And that was a pretty big decline. We haven't seen a decline in federal agreement like that in years. So you will start to see it show up in these two surveys, even if it's not showing up in UI claims because of severance. Got it. Got it. Okay. Okay.

So kind of sort of like Dante, the report was fine, but there's some warning signs in the report, and looking forward, you've got some angst. Definitely. Yeah. Yeah, definitely. Okay. Chris, what do you think? I share the angst.

I think the report does. If you look at a household financial situation, I think there are some warning signs there as well. not something that's immediate in terms of the stress. But if you look at the number of workers who are working part-time versus full-time, that increased self-employment is down, which is interesting as well. And then just multiple job holders are up and up pretty significantly from a year ago. So again, not at crisis levels, not terribly unusual, but the trend is certainly moving

in the direction of perhaps more financials. stress, people having to take extra jobs to compensate. Yeah, the other thing I noticed was involuntary part-time. So people are working part-time because they can't find a full-time job. They want a full-time job, but they can't find it. Because I think the so-called U-6 unemployment rate or under-employment rate, that's a broader measure of under-utilization, it includes the straight-up unemployment rate, but a bunch of other stuff, that actually increased pretty significantly, didn't it,

in the month? Yeah, that was my stat. Oh, sorry. That was my stat. Oh, that is the stat then to have. That is the stat. What was it and what did it jump to? It was 8%.

And that's the highest it's, that's the highest it's been since October of 2021. Oh, wow. So went from 7.5% in January to 8% in February. Is that what I heard? Chris? Yeah. Yeah. Oh, wow.

Okay. That is a big job. That is a big job. Was that your stat too, Dante? That was not my stat. You know, I'm a pre-thinker. Free thinker over here, you know. I'm a payroll survey guy at heart.

That's the problem. That's a clue. That is a clue. That's good to know. Or I'm just trying to throw us off, guys. Not, Dante. Yeah, that's pretty good. Yeah, I'm with you guys.

I think it's the calm before the storm. you know, I think there's some signs of stress developing in the report. The decline in federal government employment's telling, but there's a lot more coming. And I would soak this number to be the best number we have for a while here. You know, I think it's going to take a while. Let's talk about the reasons why we're there's so much, we're sharing this angst. And by the way, that might be the title of the podcast, sharing the angst. That feels like a good podcast title.

but Dante, do you want to give us a sense of what, I mean, we have put, we have to, as I've said in the past, put pen to paper, we have to do an explicit forecast. So we have to have explicit assumptions around things like how many doge cuts are going to be here. Do you want to talk about that and your, you know, what your sense of the cuts that have already occurred and the cuts that will occur over what period of time? Sure. I think, you know, obviously getting the, getting a sense of the cuts in real time is a little bit dicey just because there's lots. of dues reports about cuts in different places and trying to figure out what's actually happened versus what's potentially going to happen. I think as of our latest count, we had, we think about 100,000 total federal workers impacted so far, with the overwhelming majority of those so far being people that took the deferred resignation, deferred buyout offer that was offered by the Trump

administration. We think that's somewhere in the neighborhood of 75,000 workers that signed up for that program so that we'll continue to be paid through the end of September and then come off federal government payrolls at that point. And then we think there's around 25,000 workers who have actually been laid off so far. Again, I think that number is a little bit nebulous. It could certainly be a little bit higher than that today. How many? Dante, I missed that. 25,000 that have actually been laid off so far. So again, that's a relatively small number in the grand scheme of things. And part of the reason why we haven't seen a bigger increase in UI claims, even for federal government workers. We've seen it pick up a little bit, but we haven't seen any huge movements because,

again, a lot of the action so far has been on the deferred resignation program, not actual cuts. I think we're still expecting around 400,000 total payrolls to come off the federal governments throughout the course of this year and early next year. That's really a combination of, you know, Doge plus these resignations plus just attrition, right? So we still have a hiring, freeze at the federal government, which in and of itself would cause a pretty good reduction in the workforce. I think the estimates that the federal government hires something like 20 or 25,000 workers every month just to sort of maintain itself.

And so just by freezing hiring, you could see payrolls decline. I mean, that decline we saw in the month of February, the 10K could just simply be a freeze. Yeah, I think it's almost certainly just attrition, right? Because the layoffs didn't really even start until the sort of the back half of the reference week in February. And so there shouldn't have been any real impact there. And even the hiring freeze only went into effect, obviously, a couple weeks before

the reference week. So even that, you're not seeing probably the full effect of the hiring freeze in February. So, yeah, I think there's obviously still a lot more action to come here. I mean, it certainly sounds like the focus is going to shift from a doge, you know, Doge taking an axe to head counts, to different agencies, to the agencies themselves, being a little more self-directed about cuts. I think the goal here is obviously still to cut the workforce, but it sounds like at least they're maybe shifting gears here a little bit and giving a little more power to the agencies to have discretion about who gets cut and when, which I think is a positive in the sense of,

you know, trying to keep the right people in the right places if you are going to cut. Yeah, okay. So 400K in total is our working or the assumption embedded in our baseline forecast. Right. And remind me, is it 3.2 million non-military government employees or so that 400K mostly out of that 3.2 million? I believe that's the number. Is that right? Yeah, I think that's the right number. Okay. All right. I thought it was 2.2 X military and ex-postal service. Oh, okay. Well, maybe. That sounds low to me. I thought there were 600K postal.

I think that's right, but the standard federal government series includes postal service. I mean, we're assuming the cuts don't come from there. Yeah, that's right. That's why I was excluding them. Yes. Yeah, I will check,

but I think it's 3. I thought it was 3.2 million non-military. So that would include the postal. That might be. Okay. Yeah. Okay. You know, 400K out of that base, that's not inconsequential.

That's consequential. Yeah. So how do you think about, maybe I'll turn to you, Marissa, how do you think about there's the near-term effects, you know, of the loss and of the job losses, which are, you know, negative to growth and to jobs, obviously, and to growth, and it adds to unemployment. But the argument is that that means less government spending and will help address our long-term fiscal issues. that's kind of one take, which would be a more positive take on this, that ultimately, yeah, there's some pain here, but we need to go through it. We get to the other side, and, you know, we have a leaner government that's more efficient, and therefore, and it helps address our long-term fiscal issues.

And the kind of the countervailing perspective is, well, you know, these folks, they do real stuff. You know, they do, you know, they, they track hurricanes. They make sure the, the air system is working properly. They, they provide mortgages to veterans and folks in rural areas. I mean, I can go on and on and on. And if you cut these, these positions that, you know, you run the real risk, particularly in the way where they seem to be being cut, you know, it's not, this is not happening over a period of time.

judiciously weighed and trying to consider what the unintended consequences are. These are big cuts all happening all at once that something's going to break, you know, metaphorically somewhere because, you know, something's not going to get done. How do you, what do you, how do you weigh those things? How do you think about that, Marissa? I think, first of all, I think government, the compensation of all these workers will make a difference, but it's still a small dent in the federal

budget, first of all, right? It's really kind of marginally trimming around the edges of the budget. Second of all, okay, to your point about these people do real things, some of these people also do revenue raising things. I mean, take the announcement the other day that the Doge folks want to cut half of the people who work for the IRS. So you're talking about 50,000 job cuts at the IRS. were in the middle of tax season, you know, that could seriously limit the government's effectiveness at collecting tax revenue. I mean, if you remember when President Biden added a lot of funding to the IRS and hired a lot of people into the IRS to go after people that were evading taxes, there was an estimate put out by the CBO, which I'm not

remembering what the number is now. It's not really that important, but it was talking about how that could raise revenue for the government. So now we're looking at cutting half of that workforce. I mean, that's going to have the opposite effect, right, that they want in terms of revenue. So that's just one example, but I'm sure there's others that are revenue raising, revenue enhancing. Take national parks for another example, right? If you cut all these people that work at national parks, that's a big revenue

raiser over the summer for the federal government. I mean, seeing headlines about parks having to close or limit services and that sort of thing. So it's definitely not just saving money. It's also impacting the revenue side of the ledger, too, in some of these instances. So, Chris, this brings up a comment that Commerce Secretary Lutnik made about GDP, you know, gross domestic product, the value of all the things that we produce. He argued that it would be. be a better measure of what's going on if we take GDP and exclude government spending. You know, as everyone, most people know, GDP is consumption, business investment, government

spending, and net trade. There's different ways of adding it up. That's kind of the most common way. So he's saying, look, exclude government spending because, and he gave this example about tanks. I hope I get this roughly right, but basically, you know, if the government is spending on a tank, you should include that. But if it's spending on, I think he said, the thousands of people, federal government employees that are thinking about buying a tank, we shouldn't include those. That was the example.

So, you know, how do you think about that? How would you respond to that comment? It's an odd accounting system. Odd accounting. Because the government is part of the economy. It's part of everything is part of output. Those government workers are contributing to the economy. It's a right to consider them as part of that broader measure.

And if you don't want to focus on the private sector, you can look at an other number, right? You can add up the components. You don't have to focus on GDP. And certainly when we dissect the GDP numbers, we're looking at those different components We're considering the effective trade and, oh, maybe inventories this month, right? It's not that the numbers are wrong. It's just we're providing that context. So I don't know why you would want to rip out this history of GDP and decide that, you know,

let's exclude government from now on for whatever reason. It doesn't change the reality of government still contributing to the economy or having impact on the overall output. So, yeah, it seems like a redoubt. hair here. Red herring. Yeah. What do you think, Dante?

I agree. It just seems, it seems like a silly debate to have. I mean, you already have the ability to see the different components like Chris said. If you want to focus on the component without government. Come on. Come on. Right. The measures already exist.

If that's what you want to focus on, fine. But the idea that we should just forget about government as a component here seems silly to me. Yeah. Marissa, you want to take the other side of this? No. I think you do. No? I'm not going to take the other side.

Okay. Yeah. I mean, I think you use the word silly. I concur. The one thing that is not silly, though, that makes me a bit nervous, maybe more than a bit, is what this might suggest about the attitudes towards what government does, right? I mean, are you saying that government isn't providing a service? I mean, really? I mean, think about the folks in the federal government that do the weather forecasting. Now, you can have a reasonable debate about whether that should be done in the government or in the private sector, I guess. But at the end of the day, that's real output. I mean, we have to know, think about all the businesses that rely on the consumers that rely heavily on those weather forecasts. You know, it's not only just hurricanes and thunderstorms and, you know, the thing, the dry weather and the wind and the cause forest fires and that kind of thing. Amazon relies on the weather reports to determine how to get stuff to us. Think about the airlines and the hotels and the transportation distribution companies and school systems.

We all rely on that. That's real honest goodness economic output. Now could you exclude that and think you got a better representation in the reality? And that the thought that you could makes me nervous that maybe. that's you know you're laying the foundation for well there's no value there therefore let's just cut it let's just cut it yeah and by the way on the tank example i even find that a little bizarre i mean every a major corporate every company in america hires people to do procurement because procuring things like a tank or a paperclip or anything in between is complicated

as we know we all know we're in this we're business people we deal with this and we deal with the procurement people. And their job is to make sure that what we buy is bought in an efficient way at the right price, competitively bid, and there's no fraud. There's no fraud. And that's why you need those people that are in that. It's a profession. It's a very sophisticated activity and to say that that is not providing economic output or implicitly suggesting that, you know, I find again, I was going to say a bit worrisome, but I'd say it's just plain worrisome. I mean, it makes me nervous, you know, about thinking about this. Anyway, so the doge cuts, the initial effects of that, or at least the effects that we're going

to feel here over the next few months next year or so are going to be related to the cuts that are dead ahead. Okay, what about the other factor? And this goes back to the calm before the storm, you know, nervousness about where we're headed. in terms of job growth and economic growth is the trade war, the tariff war. How are you thinking about that? How big a deal is that in your thinking? Chris, let me turn to you first on that one, on the tariff war.

It's huge. It's all consumers, businesses I talk to want to talk about, right? It's the on-again, off-again process here that is so disconcerting. You can't plan. Even if you delayed a month, what does that mean? It's not as though I can as an automaker or manufacturer can make long-term plans based on on policy that's changing so rapidly. So the natural response to that type of uncertainty is to pause, is to pull back.

And that could certainly lead to slower growth and even eventually recession if it starts to spiral out of control, right? If consumers start to really pull back on the spending, businesses pull back on their hiring, on their employment, you know, that leads to lower income and so on and so forth. So I think there's a real risk here that this, the uncertainty injected by the tariffs, even beyond the tariffs themselves, that that could do some real economic damage here. Yeah, Mercer, any perspectives on the trade war? And, you know, I'm going back between tariff war and trade war. It feels like we're now, this feels like a trade war to me. You know, tariff war might be,

we raise tariffs and everyone else kind of sits on their hands. The rest of the world sits on their hands. But that's not what's happening here. You know, the rest of the world is now responding. So that to me, China is definitely responding in kind. Even the Canadian said they're not taking their tariffs off despite President Trump's decision yesterday to scale back. The tariff increases for a month on trade on USMCA product, the free trade deal product. Yeah, even with Canadians refusing American products now. Yeah. Independent of the tariff, it's the, I just don't want to buy those products. I'm trying to avoid those products. So yeah. So I think the right term is this is a trade war.

It feels like a trade war. Okay, so I'm going to say it called a trade war. So any perspective on the trade war in economic consequences in the calm before in the storm? Yeah. I mean, I'm just looking at the stock market and the bond market reacting to this. I mean, it's just all, it's so chaotic. I mean, it's every day the policy changes. That's what we've seen so far this week, right?

Every day there's been some reversal, some new thing, go back on it, tweak it a little bit. I mean, I just think this is whipsong businesses. And you can see it in financial markets. Eventually, you would think if this continues like this, this is going to show up in the real economy, that businesses will stop investing. They'll stop hiring. They don't know how to plan. They don't know what trade policy is going to be six months from now.

They don't know what trade policy is going to be next week. So exactly what Chris said. I mean, eventually this just sort of freezes everybody in their tracks until they can figure out what's going on here. So I think right now the impact of, well, there is a real impact. I mean, we actually saw it in the trade data that was released. So businesses are and perhaps consumers are buying a. pulling ahead some spending in the anticipation that there's going to be increase on tariffs and prices are going to rise. So we saw a big increase in imports in the latest trade data.

So there's that. That's having a real impact on the economy. But then I think it's just sort of this uncertainty that is going to be what's really damaging. Yeah, Dante, so far, everything, everything, of Chris and Marissa said I second. do you say? Yeah, I think that last bit of what Marissa said is what really resonates with me. I think we've long talked about what are the economic implications of the tariffs themselves and they would be negative. But I think even more so right now, it's just the uncertainty that's even more problematic, right? It'd be one thing if you just put tariffs in place and left them there and everyone sort of could adjust to a new normal. But now you can't do that because one

day you've got tariffs and the next day they come off for some things and then they're on something else. And now we're talking about April 2nd as the next day when things might happen. And so it's just this constant day-to-day uncertainty of what's happening that I think is even more problematic than the tariffs themselves. Yeah, I think someone, I heard someone call it the stroke of the pen risk that with a stroke of the pen, meaning executive order, the president can change whatever it is on the tariffs. And if there's stroke of the pen risk, that means I'm not going to take a risk. I'm not going to take a chance because I have no idea, you know, how this is going to play out. And it goes back to the motivations for the tariffs in the trade war in the first place.

I can't tell you what that motivation is. I don't know. I mean, you know, maybe it is cutting specific deals with specific countries over certain grievances. I mean, that would apply to immigration and fentanyl with Canada and Mexico. But really, I mean, fentanyl and immigration with Canada? Maybe Mexico, I don't know. Canada? I mean, I read a New York Times piece saying that the biggest problem with regard to immigration at the border is that there's Americans crossing over into Canada illegally as opposed to the other way around. So, okay, if that's the case, I actually, I would I would take solace in that because then that would suggest maybe the tariffs are going to be short-lived. You know, you have these, you know, demands, you settle them, you declare victory and things calm down and, you know, get away from this mess. But then I hear other motivations, efforts to reduce the U.S. trade deficit.

Of course, a trade war isn't going to do that at all. And I'm not even sure that's an important deal anyway. The U.S. trade deficit has been unchanged vis-à-vis GDP for more than a decade. It's not affecting growth to any meaningful degree. But okay, that's not going to work. But then there's the idea that the trade war, the tariffs are going to incent businesses, both foreign and demand. to produce more in the United States. Really?

Do you think that's going to be the case? I'm not so sure. I think it's going to be just the opposite case. The people are going to say the U.S. is unreliable. I don't know what the terrorists. I don't know what the terrorists are going to be. I'm going to go to a place on a planet where I can have some clarity with regard to what the rules of the road are.

And that one strength of the American economy was that you had clarity around the rules, terrorists being one of those. And now that you don't have that, do I really want to be producing in the United States? I don't think so. And then the other, the final motivation I can think of, which scares me the most, is revenue, right? This is a tax. You're taxing consumers and businesses and you're raising revenue. And, you know, once you start to do that, then other countries are going to say, oh, this isn't temporary.

This isn't politics or performative. This isn't, you know, this is here to stay. if these tariffs are here to stay, I'm going to respond. You know, I'm going to put in my own tariffs and other trade restrictions. And, you know, then, you know, the whole world goes in the wrong direction here. That's the fodder for an economic downturn or recession. So, but bottom line, the fact that I can't tell you what the motivation is, I can't tell you, I can't give you, we don't have a sense of this is going to play out. You know, everyone involved can't tell you how it's going to play out.

that means that maybe I don't cut right away, but I will sit on my hands, right? And by the way, the Federal Reserve basically said that, right? They said, we're not cutting rates any further until we have clarity around economic policy. You could go read it in the minutes, the FOMC minutes, you know, for the last two meetings that are worried about. So it's already having an impact. So, you know, I think the uncertainty is a big deal. And then if you actually see the tariffs go up by 25%, 30% on China, Can you imagine the impact that's going to have?

I mean, that's going to be, that's significant. That's a big deal. This leads to another comment by Commerce Secretary Lutnik about the weakening in economic growth. And now it's becoming clearer to everyone, including those in the administration, the economy is weakening, that this has nothing to do with anything other than Biden's economic policies, that this is a leftover. What we're feeling now is the residual effects of Biden's economic policies. Dante, how would you react to that to that comment?

What policies are we talking about? What changes had happened in the last two years of the Biden administration that would cause a shift all of the sudden in the economy, right? Things had looked pretty good up until the end of last year. And now all of a sudden, you've got consumer confidence that's tanking. You've got business sentiment that's falling. You've got issues around uncertainty and tariffs. And it feels like this is a self-made problem, not the resurgence. residual effect of a policy from three years ago.

Yeah. Anyone disagree with that, Chris, Marissa? It's on the same page. My favorite comment is that the egg prices are due to Biden's. Oh, I saw that, yeah. Oh, I didn't see that. Around the avian flu, right? Really?

Oh, boy. Yeah, when does the clock start for the next administration? When does the clock end for the last administration, I guess, is the question. Right. When we were preparing for the, right before the podcast, you said there was a couple or a number of questions from listeners around the tariffs. Did you want to pose one or two of those if there's not something we haven't already covered? Yeah, I think there's a couple things that are relevant here. So some of the questions were around the labor market and unemployment insurance benefits.

I think we answered those about, you know, how does that relate to the unemployment rate and how does severance package? impact them. So I think we answered those. There was a question, and I'll have to find it, but I remember it so I can kind of paraphrase, I think. There's been this talk about perhaps one of the motivations of tariffs is to correct the trade deficit. There was a question about the trade. And you had mentioned the trade deficit has been sort of a stable share of GDP for a long time. Is a trade deficit, this is the question, is a trade deficit inherently bad? Is it something that needs to be corrected? Yeah, great question. I got an answer. Dante, you want to take a crack at it? I mean, in my mind, I think it depends on whether you think there's unfair trade practices

that are leading to the deficit, right? If you think there's some unfair advantage in another country that they're exploiting to be able to produce things more cheaply and, you know, and, you know, sell them more cheaply to other countries, then, then, yeah, I think there might be some inherent issue with a trade deficit that's sort of, you know, generated on the back of, you know, some unfair, whether it's labor practice or anything else. But outside of that, I don't see the trade deficit as in and of itself a bad thing, right? We're, we're getting things more cheaply than we could produce them ourselves. We're exporting things that we have a comparative advantage in. So I think some of those things just naturally play out, but I don't see it as an inherent problem. Chris, I'd agree. There certainly are reasons you

might be concerned along the lines of unfair, unfair practices, you know, on a level of playing field. But there are strategic reasons why you may want to locate industries in your country, right? military reasons, for example. You want to ensure that you're not wholly dependent on another country for certain essential goods. So there are a reason, but those come at a cost and you recognize the cost. This is more of a risk management, right? I can perhaps I'm going to have to produce something more at a more high at a higher cost, but it's worth it because I have that that security or that diversity. But otherwise, you know, trade deficit. You can talk about the trade deficit. We can also talk about the capital surplus, right? There's a, there are two sides of the coin here. So there

are some benefits from having that trade deficit alone. So it's not just something we can look at in isolation and declare bad or good. We have to look at it more holistic. Yeah, I think, I think the answer, like the way I would answer it is kind of source in the same way. But the way I'd frame it is there's the deficit in specific goods and with specific countries, and then there's the deficit, listen to its totality and in the aggregate. You know, with specific countries, yeah, I mean, the bilateral trade relationship with China might be vexed. You know, they might be not playing fair, and there's a lot of evidence that they're not,

and there we should address that. Now, to be frank, I think tariffs is a poor man way of doing that. We had an opportunity to enter into a free trade deal with the rest of the Pacific Rim that excluded China because they didn't play fair called the Trans-Pacific Partnership, and that was blown up the executive order after getting out of the Paris Climate Accord. That was making that up. It was one of the early executive orders. But I thought that was a good way to address, the better way to address it.

But, okay, that didn't work out. So maybe strategic tariffs on specific products and make a specific point. I get that. But in the aggregate, no. I don't get it at all. I mean, what really matters for economic growth is the change in the trade deficits. But if that were ballooning out, then I take a close look at it and say, well, hey, what's going on? But if it's stable, like it has been more or less abstracting from the ups and downs in the business cycle,

then it's not affecting growth in any meaningful way. The other thing that consider is, look, we are, the trade deficit by definition means we are consuming more than we're producing. So if we're able to maintain that because, say, the rest of the, of the world wants our treasury bonds. You know, they, that we, so we're in aggregate saving less. We issue in the government's dis-saving deficits, issue bonds. And let's say the rest of the world says, oh, I want those bonds.

I like the return. They're safe. They're AAA. Give me all those bonds that you can possibly give me. And we give them the bonds. In exchange, we get goods. We get stuff. And I like, everyone likes the stuff.

You know, everything from washing machines to cars to consumer electronics to avocados to the best coffee in the world to chocolates to apparel to great shoes to, you know, give me, I want, why wouldn't I want that? What's wrong with that? That's a good thing. That's a good thing. That's not a bad thing. That's not a bad thing. So we're benefiting from the fact that we, the rest of the world wants our treasury bonds, our securities, our investments. We are the safest. up to this point in time, the safest place on the planet. So it's worked out quite well. Now, we can't abuse that. We can't run large deficits forever in debt because ultimately they'll say, I don't want your bonds anymore. And that's not a good thing on every level. So we don't want that.

But I don't know. Is a deficit bad because we're consuming more than we're producing when the rest of the world says we're fine with that? Bring it on. I say, yeah. And let's not forget that we run a trade surplus in services, right? So we're importing goods. We're importing stuff, but we export, we are a net exporter of services to the rest of the world.

So everything from accounting to tourism to education, the world is paying us more than we are paying them for those things. So it's all about, as Dante said, it comes back to comparative advantage. I want to talk about another, I apologize, but there's another comment that has been made by that Treasury Secretary Bessent, he said something to the effect or basically to the effect that, look, cheap imported goods is not part of the American dream. The American dream is about opportunity and the ability to succeed based on your skills and how hard you work and the merits of what you do. How would you respond to that statement, Chris, that comment?

that cheap imported goods is not part of the American dream. Therefore, we shouldn't be worried about it. You know, terrorists, we shouldn't be worried about tariffs. That's effectively what he's saying, because they're not going to be cheap anymore. Yeah, opportunity is the American dream. And certainly I can't dispute that. But it seems conflating to vastly different things. Part of our opportunity is the ability actually to make things cheaply, to optimize,

to use all the resources, not only within the United States, but across the globe, access the talent, access the materials to come up with new and exciting products or services, right? So that's, that I see as the American dream, that focus on the opportunity. It's also the ability or opportunity to export to provide services and goods to other people around the world in exchange. So, yeah, I think it may not be the main objective, but, having good trade relationships with everyone. Open trade should be the ultimate goal, right? Every economic model we put down suggests that free open trade, that's the perfect, that's the nirvana, right? So that's what we should be moving towards and trying to break down more of the

barriers, right? We should be calling out other countries for higher tariffs and trying to, you know, come down to a zero tariff regime if we can because that creates opportunities for everyone, ultimately. And that's what I see. So I think, again, it's just conflating two very different ideas and trying to justify a tariff with something that's completely underrelated. Right. Yeah, you know, you said this, but let me reinforce the point. I mean, there's all kinds of different aspects to consider here of what a trade war means for the economy. We've been mostly focused on the near-term effects, you know, the uncertainty effects.

the effects on the stock market and the economy. But there's many longer-term consequences that are really important. I mean, one of the true benefits of free trade, global trade, free global trade, zero tariffs is competition, enhances competition. I think we can all agree that if we have more competition, that makes for a better economy. We're all working to strive to compete and be more efficient and more productive and deliver the goods and services that we produce at a lowest price possible to our consumers and to our customers. And it also enhances productivity because it is an incentive for us to invest in things that improve our productivity growth going forward and innovate.

So there's a lot of longer-term consequences here that are also important to consider, you know, not just the near term. Does that make sense? Anybody just push back on that? Okay. All right. We've already covered a lot of ground. Let's, let's end the conversation by playing the stats game. The game is we all put forward a stat. The rest of us try to figure that out through clues, questions, deductive reasoning. The best stat is one that's not so easy. We get it immediately, one that's not so hard. We never get it. And if it's apropos to the topic at hand, all the better. And we always begin with Marissa. Marissa, what's your stat? Okay. We already took like my number one and my number two stat in the discussion up front about the jobs report. So here's my, here's my number three stat. 59.9%. Is that the diffusion index? No. No, but it's close. Is it household survey or payroll survey? That sounds like a E-pop ratio or? It is the E-pop ratio. Yeah. It's the first time.

it's fallen below 60 since July of 2022. Oh, interesting. Just further showing that there's, I think, some weakness here. Yeah. Yeah. So participation rate is down, hour down. We talked about involuntary part-time. That's up.

New 6 is up. And now you're saying employment to population, another measure of labor market slack. is down, is down. So everything's pointing to. And increasingly, there's some softness developing in the labor market now, some slack developing in the labor market. Yeah, and we kind of, you know, when we were looking at this coming out of the pandemic,

we were kind of looking at 60% as sort of a key benchmark for the E-pop ratio, just like we were looking at 80% for the prime age E-pop. And now these things are faltering below those thresholds. The prime age hasn't. but this one has. Yeah. Okay. And you confused me when I said the diffusion index,

that's the percent of businesses that are adding jobs, less businesses that are reducing jobs. You said I was close. Because it was something like in the high 50s. Oh, it was similar number. It was a similar number. It was close to that. Yeah.

Oh, I see. Yeah. Got it. Okay. Well, that was a good one. That was a very good one. Dante, you want to go next? I can.

And I'll give you a hint up from. Mine's somewhat related. to the conversation we just had. So 38.1%. In the jobs report? Yes. Payroll survey? Not payroll survey.

Household survey. So 38.1% in the household survey. It has to do with labor market slack. Yep. Yeah, sort of. Hmm. Is it an index for a particular? particular industry?

Is it, is a participation rate? It is a participation rate. Uh, for some group, some demographic group. Yeah. You're, you are a member. Over the age of 65, over the age of 65. There you go. It's the participation rate for 55.

If it's about me, it's about the, over the age of 35 is what you're saying. Yeah. There you go. Yeah. So participation rate for 55 and over is 38.1%. That's the lowest that's been this cycle, right? So that's below the, the pandemic lows. It's the lowest that's been since 2007.

So I think that's, you know, part of the conversation risk was having about, you know, E-pop and overall participation. A lot of that's being driven by older workers leaving the workforce. You know, some of this is just natural demographics. You know, baby boomers are continuing to get older. And so, you know, they're likely going to continue to put more downer pressure on those headline participation rates and E-pop rates. But I think, again, and sort of within the conversation around changes to immigration policy, I think we have to think about, you know, it's just another reinforcement that we're going to have weakness in labor force growth here. And if we don't do something else to help juice labor force growth, the sort of

natural forces are going to be to cause the labor force to have some problems here over the next few years. I also wonder if that can be related to Doge a little bit too, because we know the federal government workforce trends older. It's got a much, I don't remember. I don't remember. because it's been a while since I looked at it, but I know it has an older age profile than the private sector. And I wonder how many of these people that are being put on administrative leave or let go and taking these buyouts will just leave the labor force altogether. There might be a significant number that just do that and just decide to retire. Yeah. So there's the supply side and demand side.

Marissa just gave us a demand side reason why the participation rate might be down. But you were arguing, Dante, it's more of a supply-side thing? Well, yeah, I think some of it is just pure demographic, right? I mean, that group of people who are 55 and over, you know, that group is aging, right? It's aging. The baby boomer component of that is getting older, and that's the biggest group. So the whole age group is getting older. Yeah, got it.

So I think that'll naturally push it lower over time. Right, right. Okay. Chris, what's your stat? Well, it was taken. So this is back up. So let's see who get, who ran. thinks the buzzer first.

172,017. Challenger job cuts. Yeah. Nicely done. Very nicely done, Dante. That's a good stat, though. You want to explain? It is extremely high.

It's the highest for the month of February since 2009, right? So it jumped up. Just context in January was closer to 50,000. So a huge jump, largely due to the Doge efforts, the federal job cuts. but some weakness elsewhere as well in retail and tech, right? So another sign of, you know, potentially some weakness in the labor market. Yeah.

And we should note that those are just announced job cuts. That's right. Right, right. Okay, very good. I'll give you mine. It's hard. Minus $4.6 trillion. minus 4.6 trillion.

And what we've been talking about this being down, down, down, down. That's the minus sign, obviously. Related to the stock market? Stock market? What would 4.6 trillion be, rough? What do you think? So, like total valuation or something?

Yeah, yeah, that's the loss in market cap, market valuation so far. Not, not, I think I just did a quick calculation, the market's down another 1% right now, so it includes that decline. So 4.6 trillion. And, you know, if you do kind of the wealth effect calculation, let's suppose it's down 4.6 trillion. This is the, we stay here for a while. We don't keep going south. And it stays here. It doesn't go bouncing right back up. And we stay here for the next, say, couple, three, four months. Then the so-called wealth effect would apply. And that would, for every dollar to,

client in wealth, you lose two cents in consumer spending, you kind of do the arithmetic here. That adds up to real economic growth. You know, the high-end consumer will pull the well-to-do, who owns a lot of stocks will feel less wealthy. They are less wealthy. Many of them, by the way, are over 55, either in retirement or approaching retirement. So they're really fixated on the value of their stock portfolio. That's key to their retirement. So if they see that down, they see a lot of red, they start to pull back. You know, that's another reason to be nervous about You know, that goes back to sharing the angst. There's a lot of angst around that.

Okay. All right, very good. Let me, let's, we're going to now do this every week. Probability recession in the next 12 months. Last week, Marissa and was at 30, both Marissa and Chris were at a third, and I was at 30%. Marissa, Chris, any change this week? Are you still at a third? Still at a third.

Chris? I'll bump it up to the third. 35. I knew you were going to do that. I knew he was going to do that. 35%. Yeah. So 35, a third. Dante, what's yours? Before I give my answer, can I take a second to pat myself on the back for clean sweeping the stats game today? I mean, that was all three of yours that I got. So I'm just going to give myself credit for that. I'm not, I don't appreciate the hubris. I think it's the first time it's ever happened to me. So I'm going to take it. Oh, yeah. You deserve. Actually, you did quite well. I should

have recognized that. Yes, you did. I'm just patting myself on the back. You deserve it. You deserve it. You deserve it. Unfortunately, it does not impact my recession odds. I think I'm still at 30%. That's roughly where I was probably a month ago. Months ago, 30. Chris, you were going to say something about why did you mark yours up?

Why did you go from a, I mean, it's a small markup, but it's symbolic. Why did you do it? Yeah, I just see more cracks in the pavement here, right? Yeah. Right. I was at 30. I'm out at 35. I'm at 35%.

Oh. Yeah. Uh-oh. You agree? That makes you nervous. Oh, gosh. I may have to go to 40 now. Yeah, yeah, I know.

I know. I'm with you. I'm with you. I'm getting more nervous. You know, the reason being, it just feels like this trade war is a real, is a trade war. It doesn't feel like a temporary thing. It feels like this is, this is, we're in this. You know, we're going to see on again, off again, and then ultimately on again tariffs,

higher tariffs. And other countries are going to retaliate. It just feels like we're on the. trade war path. And I think if we go into a kind of full-blown trade war with Canada, Mexico, China, and the EU, hard to avoid a recession, I think. It's going to be very difficult. So I think the odds are rising here. Anyway, on that sober note and the angst, I think we're going to call this a podcast unless anyone objects. Anybody object? No? No. Okay. All right. Dear listener, we're going to call this a podcast.

Keep the questions coming. We'll try to answer them. And I hope you enjoyed this. We'll talk to you next week. Take care now.