Moody's Talks - Inside Economics - Strength from Weakness

Episode Date: November 4, 2023

Dante joins the podcast to break down the October employment report. With job growth moderating and the unemployment rate edging higher, the Fed’s fight against inflation should get a little bit easier. The team also takes a few listener questions about the definition of the unemployment rate and what impact softening rents will have on single-family housing.  Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by a group of my colleagues, my two co-host, Marissa, Marissa D. Natali, and Chris Teridis, and also Dante D. Antonio. Of course, this is Jobs. Well, I guess this is Jobs Weekend, but... On Saturday. Yeah.

Saturday. But it's good to have you all. Good to see everybody. How's everyone doing? Good. How are you good? I'm ready for this podcast. I know.

No better way to start a weekend. Absolutely. And we're doing it on the weekend because I was at CBO yesterday, Congressional Budget Office, a couple, maybe twice, three times a year. We get together a group of economists to go over their budget and wasn't able to break away for the podcast. And now I'm in London. I'm sitting in London this morning. So good to be with you all.

and we've got our own conference here in London, I think on Tuesday. So, yeah, here for that. What's the mood in London? I don't know. I haven't had, well, I haven't had a chance to take the pulse, but. He hasn't left his hotel room yet. Yeah, I just actually, I flew in, I came to the hotel. I went right to sleep for another two to three hours.

It was a quick flight. It was only six hours. I mean, it was like we had a hurricane blown tailwomen. in, you know, over here. So we got here very quickly, so I didn't have much of a chance to sleep, but just get going here. What was I going to say? Oh, it's gloomy. Typical London gloom. It's like dark outside. I don't know how folks live in love this kind of gloominess, but somehow they do. Anyway, Jop's Friday came out yesterday. Lots to talk about. Lots of talk about.

Action-packed week of data. Dante, you're pretty good at doing the rundown. You want to give us the rundown on the jobs numbers? I can do that. I would say by and large, the October report was pretty good. I think there's certainly more room to sort of pick holes in some weak spots maybe than we've seen recently. But we added 150,000 jobs, which is sort of back to the moderation that we had seen for

most of 2023 after getting a sort of outsized gain last month. Three-month moving average of job gains is still just over 200,000, so still probably stronger than we would like it to be. I think in a good job gains were more concentrated this month. Government kicked in another 50,000 plus. Health care still is the biggest driver of private sector job gains, you know, adding over 75,000 jobs. Manufacturing fell, but that was obviously sort of a one-off impact of the UAW strike, which wallet had already ended before the report came out, obviously impacted the October jobs numbers. So I wouldn't expect that to continue.

That should bounce back, I would think mostly next month. Other than that, job growth was either pretty weak or fell in a number of industries. Leisure hospitality sort of came back down, only added 19,000 jobs after a much bigger gain last month. Construction still holding up, I think, you know, despite all the headwinds, added 23,000 jobs. Again, seems to be much more resilient than I think. we keep expecting it to be some small losses in transportation and warehousing, which has been pretty up and down in the last six or nine months, information down a little bit. But again,

that's been sort of flat to down in the last six months or so. On the wage growth side, I think, yeah, we got more, it was a mix, you know, good news this month, but there were some upward revisions to the prior two months that made it slightly less positive. Your wages were up 0.2% over the month. They're now up 4.1% year over year, which again is moving in the right direction. They continue to moderate and trend lower over time, which is again what we're hoping to see. You know, sort of adding to the weakness in terms of job gains.

We had average weekly hours tick a little bit lower too. So there's clearly some weakening, I think, on the demand side here, which I think comes through sort of across the payroll survey. On the household survey side, certainly more weakness. more things to sort of keep an eye on moving forward. The unemployment rate ticked up to 3.9% from 3.8. And it was for the wrong reasons, right, that we talk about. We had the labor force actually contract a bit in October.

You had a pretty big decline in employment as measured by the household survey. So those two things together, you know, sort of fueled that uptick in the unemployment rate, which is, you know, not ideal. Other than that, I would say, you know, across the board in the household survey, things were just a little bit weak. Labor force participation came down a little bit. Employment to population ratio came down a little bit. It was just a little bit weaker than the payroll survey would have suggested. But all in all, I think, you know, in terms of thinking about a soft landing or, you know, the Fed not needing to raise rates again, you know, I think it sort of

checks the boxes in terms of showing that the labor market is still weakening and not crashing and burning as of now. Did you mention the strike effects? Did you, I miss that if you did. How many jobs were if we lose because of the UAW strike and the other strikes? It was about 30,000 between UAW and there was a smaller strike also in manufacturing. I think it was Mac truck maybe. It's about 30,000. Manufacturing was down 35. So most of that was strike related.

Right. So, you know, you throw in the 35K, you're back up close to 200K. Right. Which is kind of like the average monthly job growth we've been getting, 200K. which is weaker but is still strong. I mean, it's like, that's still pretty strong, right? It is. Yeah, okay.

And it's kind of the bad news is good news kind of thing. I mean, it's not even really bad news, but it's just when you say weak, that's interpreted as, well, that's, okay, we want it. We want it a little weaker, right? Because it takes the pressure off the labor market wages and helps them. the Fed get inflation back in the bottle? I'm kind of leading the witness here, but is that kind of roughly right? Yeah, I think if anything, right, we need more. We need to be more uncomfortable, right?

I think we need some uglier jobs reports in terms of, you know, job growth being weaker. I think we need to get a little more uncomfortable here over the next six months or so, probably. I don't think we should even call it ugly, right? I mean, that's what we need. Right. Be on a sustainable path forward without inflation being a problem. Right. Agreed.

Agreed. Okay. Marissa, what do you think? I mean, I think we have a different bar now, right? I think, like, to us, 150,000 is, oh, that's really, that's really bad. That's really weak. The unemployment rate ticked up a tenth of a percentage point, but we're so used to getting these outsized gains over the last few years that I think this is actually perfect, kind of. It's kind of right where we want to see job growth slowing to. I will say I think the strike effect probably took off about between the UAW. It's not only the UAW, right? This actor's strike has been going on for some time and that's depressed information. Employment.

There's about 160,000 people involved in that strike, according to BLS. And that industry has lost cumulatively about 40,000 jobs over the last three or four months since the strike started in July. So there's a little bit coming from that. It's small, but it's probably gets us up to about 200,000, which is probably where we really are in terms of job growth, which is still pretty good. As Dante said, construction keeps rolling along. And I was looking at that. That's across all segments of construction.

It's residential, non-residential, and public infrastructure, heavy construction. So I like this job report and that the slowdown in average hourly earnings is good. The diffusion index slowed, meaning that there were fewer industries that were adding to jobs. So we saw a little bit more job loss across industries, but it's still above 50%. So we still have over half of industries adding to job growth. If you know, we want to talk about weakness or anything we're worried about. I think we'd really have to look at the household survey, but even there, it's one month, and we all know how the household survey can flip and flop from month to month.

So I'm not as worried about that. And if you dissect that decline, that big decline in employment, which was over 300,000, it was pretty much split between agriculture, private industry, wage and salary workers, and the non-ag industries, and the self-employed. So it was kind of, it was widespread, which maybe is. isn't good, but it wasn't all coming out of wage and salary workers. Little decline in the participation rate. It was almost exclusively amongst people that usually work part-time.

It wasn't among full-time workers. Their employment actually rose. So I'm not worried that we're heading for some sort of harder landing. I think this is a good report. Yeah. So just to step. that back a little bit to get people more context. So we've got the payroll survey. That's the surveyed businesses. That was the 150K that's affected by the strike. So if you throw the workers

that were striking back in, you're saying we're closer to 200K. Okay. Then we've got the survey of households, which is another smaller survey and therefore subject to more volatility and data issues and that kind of thing. And that showed that is that showed more weakness. was actually a decline in employment by the household survey. But that thing bounces around all over the place, you know, month to month, given the size of the survey. But it has been weaker more recently. I think in the last, it's like six months or so, haven't really seen much growth in

household employment. And that's shown much more weakness. But you're saying really no big deal, at least not yet. Okay. All right. No, and there's not, I mean, sometimes people talk about the household survey leading the payroll survey, but the evidence for that is pretty thin, if you look back historically. Yeah. Right, right. Dante, do you know what the household survey adjusted for the payroll survey did? I had not looked at it. I can take a look. Okay. Yeah, that'd be good to know. Because I know a lot of the job loss was among the self-employed. So. Yeah. And so your part about, you know, the volatility. if you look over the last 12 months on the household survey,

employment growth is still like $200,000 a month over the last 12 months. I mean, it bounces around a lot more, but it's still strong on average. So after over the past 12 months, the household survey and the payroll survey, are basically saying the same thing. Yeah, right. Okay.

But it would be good to know because the BLF Bureau of Labor Statistics, the keeper of the data, does publish the household survey data on the same definitional basis as the payroll survey, because there are definitional differences here. It was a big difference. So adjusted for payroll concept, it was actually up 188,000 instead of down 348,000. Okay.

So no difference. Yeah, that's basically the same. Okay. That's because over like about two thirds of that decline was farm workers and self-employed who aren't included in the payroll survey. Got it. Okay. All right.

So Dante is pretty sang when, although I use the word weakness a lot, but it's all relative. I'm not going to worry about it. Marissa's sanguine Chris. What do you say? It's okay. It's an okay report. I noticed that we didn't really mention the revisions.

Yeah, you're right. All right. Pretty fairly significant revisions, right? It subtracted 100K over the last couple months. So, you know, as usual, I'd take the top line number here with the grain of salt. Could be revised down. And then I'd highlight a couple other potential warning signs, the number of permanent job loss, number of people on permanent job loss, rose, right, 1.6 million, which was pretty relatively high. You have to go back to 2018 outside the pandemic.

So you do see some cracks in the pavement there. And I also keyed in on number of people with multiple jobs, rose, like 800K over the last year. So potential sign of folks under financial stress having you pick up a second job, perhaps. So again, okay report, positive, sure, but moving in a more concerning direction. Yeah, although, you know, push back a little bit. Sure. It's like to our forecast. I mean, we've been expecting continue to forecast this slowing in job creation and all the things.

somewhat of a tick up in the unemployment rate and, you know, all the things that we're observing, it's kind of like sticking right to script, right? I mean, it makes you nervous when it's actually happening because you're thinking to yourself, well, is it going to be worse than we actually forecasted? But it's actually very close to our forecast, right? I mean. It is. It is.

But I think to your point, right, at this point in the evolution, you know, this trend is either consistent with the script of no recession and we glide through. Or it's consistent with the things that are moving in a more negative direction, they're going to continue to fall down, right? But on that front, what would be driving a more serious weakening in the economy? I mean, what is it that's fundamentally driving? Because now, let's take a bigger step back. All the things we've been worried about, you know, kind of all the headwinds we've been talking about that might hurt the economy, you know, UAW strike would be an example, or student loan borrowers having to start paying again, or the oil prices or long-term interest rates.

You know, there's still the potential government shutdown. You know, there's still, those are headwinds, potential headwinds. But after this week, it feels like all those headwinds are blowing less hard, don't they? I mean, you got oil prices that came back down. we're now instead of 90 plus we're kind of 80 plus kind of sort of where we've been and where we expected long-term treasury yields 10-year treasury yields they were closing in on five they were over five I think intraday points now we're back down closer to four and a half which is kind of sort of okay so it feels like the fundamental things to worry about are less now of course this is one week a couple weeks can move very quickly but on the other hand

these things don't seem to suggest some fundamental weakening in the economy, or there should be some fundamental weakening of the economy. Well, the rates are still high, right? Four and a half is still a high rate. Are they really high, though? I mean, when you think about where, it feels like they're back to where they should be in a well-functioning economy, right? Four and a half, it's not that much different from what we've been calling for, right?

kind of round four. And we have been marking kind of thing about marking up our sort of so-called equilibrium rate. So maybe what would be consistent with a well-functioning economy is somewhere between four or four and a half? So is four and a half really that big a deal? I'm just asking. Yeah.

Well, I think it does have an impact on consumers. And, you know, he talked about student loan. Yeah, we haven't seen any evidence yet, but it's still early days. That's true. We did see Leisure Hospital. What's that? I was going to say on that one in particular, I'm kind of, you'd expect that to show up. Where would you see it?

Like retail sales, consumer spending? I guess it's early. We don't know. We don't know, right? It's still pretty early there. Delinquencies, right? Delinquencies are still ticking up overall. So there certainly are cracks in the foundation here.

Yeah. Do they develop into something? something larger or not, that's the question. And leisure hospitality, employment, slowing down here, is that suggestive of consumers pulling back on some of the Taylor Swift spending we talked about last week? Right. Right. Okay.

Okay. Well, I don't know. I, which I want to do, I look at that report and I go, that's about as good as it gets. I mean, you know, 200,000 average monthly job growth. Yeah, maybe down in revisions, but I'll take them. I have no problem with that. I mean, because we do ultimately need to see job growth throttle back here because we can't continue to see labor supply increase to the degree that it has been.

The demographics don't support that. Unless, you know, some of this is immigration and maybe we're going to get more, we are getting a lot more immigrants into the country. both legally and undocumented, and maybe we will be surprised with more labor supply. But barring that, we do need to see kind of monthly job growth that's no more than 100K. I mean, that's what we need to be able to support a stable unemployment rate, given where labor force growth, where I think labor force growth is headed. So that all felt pretty good. You know, ours worked. the moderation in wage growth, you know, it just all feels like it's coming together.

It's almost like you couldn't ask for a better script, you know, at this point. And, of course, the markets took it that way. That's the other thing. If you go back a week ago or two weeks ago, I always put too much weight on the stock market. If I see red on the screen, it always makes me more nervous than it really should. And when I see green on the screen, it makes me more optimistic than it really should. But I'll have to say lots of green this past week on screens. I mean, the stock market is like, boom, we're right back to where we were.

So that's the other thing that makes me feel a little bit better about how things are going. So it all, you know, I don't know. Just couldn't ask, hard to ask for a better report. But okay. Anything else on the report that you want to bring up? No one interesting thing I saw. I mentioned being more uncomfortable. If you go back right before the pandemic,

obviously we had a tight labor market. There were six times where in like the year and a half before the pandemic started where we got readings under 100K and we even had one decline in that period. So I think it's not like it's that far in history that we have to think back to imagine a world where there's a tight labor market and job growth is coming in pretty weak. And it's sort of what we want to see happen.

I mean, so I think we never got to see how that played out, obviously because the pandemic happened. But I think we need to see something similar happen here moving forward. 200K is, like you said, too strong to keep going here. It's not sustainable. Although, to my, I'm curious what you think about my previous point about immigration. Is that a possibility?

I think it could help some. I don't know if it gets, you know, does that, I don't know if that means we can sustain 200,000 jobs a month here, you know, sort of perpetually. But maybe it allows us to sustain slightly higher level, maybe. Right. Right. I did want to ask one factual question on the participation rate because we went from 62.8 to 62.7 percent. And in the grand scheme of things, that's no, I don't think that's a means anything of

consequence. But was that a broad-based decline in participation across, no, it wasn't. Was it concentrated? Were you going to say across demographic groups? Yeah, age groups or anything. It was mostly adults. So teen participation rose. It was mostly men.

it was mostly and it was among married men and the decline in employment was abstracting from participation but looking at the decline in employment it was mostly among I think I said people that work part-time yeah so it wasn't it wasn't every group okay and do you view it more as noise than signal I mean it's just more volatility I would want to see a few more months of this before I read too much into it. Read too much into it. Okay.

Okay. Okay. Okay. Okay. Very good. Oh, the other labor market statistic that came out this week that I wanted to highlight, I think it came out on Wednesday, was productivity. Did you guys catch that?

I mean, that's a... I think Dante did. Yeah, yeah. I ignored it because it's pretty noisy, so I'm not going to read too much into a single data point. I'm not going to let it change my worldview, but, you know, it was strong, I will say. It's quite strong. Right. And so we get big in Q3, because we've got that big jump in GDP, the value of all the things

that we produce, and hours worked, employment times hours, the total hours worked, didn't increase nearly as much, productivity jumped. Of course, quarter to quarter, it can move around quite a bit. but it does feel like year over year, we're now solidly 2, 2% plus, too early to conclude that we're enjoying a revival in underlying productivity growth, but it does feel pretty good, right? I mean, it feels, and there are some reasons to suspect maybe some, we're seeing some improvement in underlying productivity gains.

And I know, Chris, you kind of agree with. Yes, I would agree with that, yeah. Right. Yeah, although, you know, to your, point, are we going to stick at 2% or more? I don't know. That's a high bar, but I don't think we're going back to 1%. Right? That seems pretty clear. Is that Dante's forecast? I can't remember. No, no, but that was the pre-pendemic trend, right? I'm not that pessimistic, but that thing. Well, in Dante, to Dante's, in favor of Dante's point of view, if you look at the

growth in productivity since the pandemic, average and, productivity growth. I think it's 1.5, 1.6% per annum. And you look at the kind of the three, four year period prior to the pandemic, it was 1.5, 1.6%. So so far is probably, I think it's premature to conclude that we're in a new world of productivity growth. But it certainly feels pretty good. It feels pretty good. Are you going to say AI? Well, I was going to say AI. It can't be AI, right?

Too early. Too early. And in fact, Carl, my brother, because he's deep in the AI, would argue it's hurting productivity. We're all trying to figure out. We're devoting all these resources and trying to figure out how to use AI. So we haven't reap the benefits yet. We will. I'm sure we will.

But, you know, I haven't reached the benefits yet. No, I don't think it's that. You know, my sense is it might be all those quits that occurred. a year two or three ago. Those folks, a lot of people left their jobs to other jobs that I think are more suited to their education and skills and interests. And you would think that would raise productivity, right? You know, there's that conference board survey about people's feelings about their jobs

and people are feeling about as good as their jobs as they ever have in that survey, which has been conducted over a number of years. and that would suggest that, you know, people are, should, that you would think that would be correlated with an improvement in productivity. If I like my job, I'm going to be more productive at it. And I wonder if the, you know, the shift to remote work that's so prevalent, at least among kind of white collar workers, right, it allows for better job matching because now employers can hire anybody anywhere, theoretically, and employees can go anywhere and they don't have to physically move. So there should be easier to find better fits in jobs now than there was prior to the pandemic. And that should lead to better productivity as well. And lower personal unemployment.

Yeah, that's my view. I mean, I think there's a lot of debate about that, obviously. Yeah. People on the other side will take the other side of that very vociferously. Like many CEOs across the country, I would say that's not their experience. But that feels right to me. And I think that becomes more important over time as new businesses form and they optimize around remote work. They're not going to optimize around, I don't think, an office space, at least in general.

So I think that would become more of the case. But I think that's still early too. We don't. I already know one way. It's a theory. It's a theory, just like my quit rate theory. Any other, Chris, any other reasons to be? I theory, it's more about the workplace flexibility, especially given all the very high level of

women's labor force participation, I at least attribute some of that to the fact that workplaces are just more flexible and accommodating now than they were in the past. Not, you mean separate from remote work? Yeah, yeah. You could still have a company that is not remote, but still allows its employees to, you know, take some time off here or there, you know, run errands, pick up children. I think that mentality has shifted versus, you know, pre-pendemic times. And you push back there, Dante. I know you focus on the age distribution of the population

and the fact that the older workers are less, or constraining productivity growth of younger workers are kind of our, going back to our previous work. Yeah, I mean, I would disagree with Chris's point. I think that certainly probably has some positive impact. You know, it's a question. of how big is it and is you know does that that that doesn't sustain us at a higher level of productivity growth I don't think probably it might give us a little bit of a boost here in your term but I still think yeah age composition will will play a role here in the near term at least and you know could there be an AI revolution one day maybe but I'm still

not sold that that you know is enough to drive significant productivity growth you know maybe it boosts us a couple tens of a percent but I'm not sold that it changes changes the game that much. Okay. All right. Well, that debate's going to be ongoing. Very important one, though, because if we are getting a revival with regard to productivity, and by the way, if we're getting we can continue to get good solid labor force growth, maybe because of more immigration, that helps to lift the supply side of the economy, allows the economy grow more quickly without generating inflationary pressures. And that's all very positive. So we need to watch that very closely. Let's play the game.

statistics game. We put forward a statistic. The rest of the group tries to figure that out through cues and deductive reasoning and clues. 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. So tradition has it.

We go to Marissa first. So therefore, I'm going to go to Dante first. No, only kidding. Let's go, Marissa first. He's getting spicy on a 7.2%. 7.2%. 7.2% in the jobs. Oh, U6.

Is that U6? Oh. Oh, ding, ding, ding, ding. That is U6. Yeah. Wow. Nice job, Chris. Thanks.

Saturday morning. I'm energetic. He's ready to go. You're ready. You're good. Yep. Yes. It is the.

so-called U-6 unemployment rate, which is the broadest measure of labor underutilization that the BLS puts out. So when we talk about the unemployment rate, right, 3.9 percent, we're talking about what they call U-3, which is a narrower definition of unemployment or labor underutilization. So the U-6 includes all the people that are counted in the traditional unemployment rate, which is people that don't have a job, people that are available to take a job if one were offered to them, and people that have actively looked for a job in the four weeks prior to being surveyed. So it includes all those people, but it also includes people that are working part-time for economic reasons, which means that they would rather be working full-time, but they either can't find full-time work or their employer

cut their hours back because there's not enough work to do. and it also includes people that are what the BLS calls marginally attached to the labor force. So these are people that are available to take a job if one were offered, but they haven't looked for a job in the prior four weeks, but they looked in the past year. So they looked sometime in the past year, but they hadn't actively looked in the past month. So it includes all of those people as a proportion of the labor force and the marginally attached. So that's 7.2% and I picked it because it is the highest rate since early February 2020. And it's now at or slightly above where we were prior to the pandemic. So in like the months prior to the pandemic, it was 6.8, 6.97. And now we're at 7.2.

It was about 7 right before the pandemic. So it does suggest cooling off in the labor market, we can debate what the degree to that is or how quickly it's happening, but it does suggest that the labor market is loosening up significantly from where it has been over the past couple of years. Yeah, that's consistent with all the other reduction in hours, fewer temp jobs, the employment to population ratio. I noticed that for the prime age workers that came in a little bit. It's still very consistent with a strong labor market, which is what we had prior to the pandemic. That's right.

Yeah. So, you know, in 2019, prior to the pandemic, that was a very good labor market. So the fact that we're U6 is back to where it was in 2019, you know, still pretty, still very good. Still very good. So, oh, that's a good one. And then Chris, boy, that was impressive. I was got that right away. And I should say it's been, the U6 has been, you know, if you smooth it out.

for the volatility in the household survey. If you take like a three-month moving average, it's pretty much been trending up all year since the start of 2023. Right. But that brings up the so-called Sam's role. Remember that? Yeah, I was just looking at that to see where we were.

Yeah, where are we on that? She's a former Fed economist. I think she has her own consulting firm now that came up with his regularity. I believe, and this is my interpretation of the Sam's role, I don't know if it's right or wrong, but if the unemployment rate rises by a half a point or more over a period of a year compared to a year ago, you're in recession.

You know, at that point, you're in recession. The economy's falling apart. Is that roughly right? It's the, I believe it's a three-month moving average. Yeah. Oh, you take the three-month moving average of the data, and then the year over a year. Yeah. Okay.

Okay. We've got to be up a little bit on the unemployment rate because we were at 3.9. That's up a little bit, but certainly nowhere close. to signaling recession? I saw 0.33. A 0.33? Yeah, from the low. Really?

From the lowest point in the, right, because we were 3.4 unemployment in April. Right. Right. So just to give you context. Oh, I see. And we're 3 at 9 today. So with that moving average. Oh, I see.

So it's from the low point. It's not like a year-over-year thing. No, well, no, it's the lowest point. within the year. Oh, within the year. Oh, within the last 12 months, I should say. Okay.

Okay. Boy, that sounds high, though, 0.33. Okay. Yeah. Yeah, because the lowest, it was right, it was at 3.5 as a three-month average, and now it's 3.83 over the last three months. Oh, okay.

Yeah, so we're not. Yeah. Okay. Not there yet. Right. Cunning, though, right? Yeah, but yeah. But we're moving,

we're moving out of that year, right? So you have to go back to, when was it three point? Well, I guess it was three point, last three point five in April. And actually it was 353 in May, one, two, three, four. So that's five months. So yeah. Yeah. Another couple ticks here.

We get to four one. One more, this time is different, you know. This period is blown away all, everything. All the indicators are blown away, leading indicators of recession are blown away. Okay. We'll have to write a new textbook. Yeah.

There you go. Well, she herself recently discounted it. I don't know if you saw that. No. Article in the journal or the New York Times or something. She didn't discount it, but she said she wouldn't be surprised if this time was different. Oh, is that right? Yeah.

Yeah. We'll have to get her back on the podcast. Yes. Yeah, definitely. Yeah. It reminds me a Campbell Harvey with the yield curve. Yep. He walked away, but now he's back.

Now he's back in the recession camp. Oh, he is? Yeah, well, he's saying that the Fed is making a mistake here, that they're misreading the inflation figures. They should be cutting, right? They're going to keep the rates too high, and that's going to push us in. Okay, so Campbell Harvey is the Duke professor, finance professor, who we had on as well, who popularized the shape of the yield curve as a predictor recession.

So if the curve invert short-range rise above long, that historically has presaged recessions. And he, when he was on our podcast, he said, this time is different. It's not. And then now you're saying he changed. Yeah, shifting back. Oh, okay. All right. Okay.

Interesting. Okay, Dante, you're up. Let's go with which one to show you. go with 1%. Which one should I use? That's a clue. You had more than one stat? Well, I had, I had, but on, we covered a few of them.

So I had to, I was trying to figure out which we haven't talked about yet. Yeah. Oh, it's from the ECI. It's not the ECI, no. I thought about that, but yeah, it's not the ECI. It's not the jobs report. It's not from the jobs report now, but it is labor market related. Joltz, the job of the libertaries?

Joltz, yeah. What was 1% in the, in the, in the, in the layoff related layoffs it's the layoff rate yeah oh it is layoff right 1% okay it's back down to one it was 1.1% for a little while it's back down to 1% it's been you know basically flat for the last year and I think we've talked about it before but I just think you know how do we how does the how does the labor market really deteriorate if layoffs are just flat right UI claims are basically flat layoff rate from jolts is basically flat right we haven't seen any sort of sustained uptick in layoffs. And so if we get some weakness in hiring, I think that's, that's okay. That'll help

ease job growth down. But if we don't see layoffs pick up, then it's hard to see a world where the labor market sort of falls apart. Yeah, totally. By the time layoffs do pick up, right? Aren't you already toast? Yeah. Well, but we're, I mean, our claims are at 210,000, $215,000. You've got some room for them to tick up and not. Yeah. We were sitting at $250,000 or 260,000 weekly claims, I might be a little more concerned that you're sort of on the precipice and, you know, anything above that might signal a problem. But we're, I feel like we're so low that even if you, you have some room for a little bit more weakness to come through before I would really start to get worried. I don't. I guess, no, go ahead, Chris. I was going to say recessions

typically are shut. There's some shock event and then it jumps up, right? So, sure. I agree that it's, I think we, this is what we've been claiming that it's hard to see a slow movement into recession. Right. We would tick up and eventually get into the 300,000 layoff rate. I mean, it's possible, but there has to be something else happening, you mean. Right. Yeah. Right. I kind of the rule of thumb I use is 250K and UI claim. When I think about layoffs in recession, I think about, on a weekly basis, over 250,000 or close to two before I, alarm bells go off in my mind.

Is that reasonable, Dante? Yeah, I think so. And I think that's even probably at the low end. I think we were, I mean, we were basically there for a while over the summer. You know, we were at 240, 250, even above that a few times. Yeah, that's a good point. And things have come back down and sort of settled back down. The only caveat on the UI claims is the seasonal adjustment, I think, is a real problem.

It's hard to interpret, you know. Especially post-pandemic, yeah, it's been even noisier than usual. And, yeah, it's a tough thing to do on a weekly basis. Yeah, but I take a lot of solace in the, to like, of being so low. It's just hard to imagine consumers pulling back in any significant way unless there's a lot of layoffs. People are really nervous about their jobs and there's a lot of layoffs. And unless consumers pull back, it's hard to see recession. Now, shocks, obviously if a shock comes along, you know, who knows, but barring something on that unknown unknown, it doesn't feel

like that happened in here. Okay, that was a good one. Chris, you want to go next? Sure. 6.6%. In the jobs numbers? No. Labor market related?

No. Housing related? Yes. Okay. There's a bunch of housing. Oh, I know what it is. Of course. Renovacists.

Ding, ding, ding. Very good. There you go. I can't believe I beat Mirza on that one. It doesn't happen a while. You are, you're fast. It's, you know, it is 7 o'clock in the morning on a Saturday for me. So I'll just say, you got to handicap it.

Look how nice it looks. Sunny. Sun rising. The sun just came up. Oh, it's beautiful there. It looks great. I was thinking your background was actually one of those Zoom backgrounds, like the staged. Perfect.

This is your home. This is it. This is my reality. Well, this is a renovated home, right? You got your home renovated home. or something. Didn't you? Well, the renovation I did was exterior, this one.

But yes, this was renovated since I bought it. Yeah. Oh, okay. Very nice. Just renovating left and right. Yeah. Like everyone else, apparently. Finish now?

Would you say, Chris? You're finished now? Renovations. Oh, yeah, yeah. Okay. I know it took a while. There's nothing else to renovate. I've been solar panels?

No. I didn't. No solar appellant. Electric car plug? I did. Yeah. Ready for that. Very good.

All right. 6.6% rental vacancy rate is the highest since the pandemic started. So if you go back, you have to go back to Q1 2020. So there is more supply of housing available on the rental side that is putting downward pressure on rents. And that will, as we've mentioned before, we'll eventually feed through into lower CPI inflation. So should take some of the pressure off the Fed having to raise rates, certainly. So we're moving the right direction. So this is my optimism here that the rental market, housing market, seems to be adjusting.

It's still a lot of pressure. Affordability is a real issue, of course, for home buyers. But on the rental side, we should be getting some more relief here. Yeah, I mean, it's going to go higher, isn't it? The rental vacancy rate? I would expect it to because there's a lot of supply still under construction, a lot of multiple-thalmy apartments still under construction, close to a million. Right, which is a record number of units under,

and that goes back to the pandemic and all the supply chain issues and labor market issues. That's right. So, and if you look at market rents, you know, there's different sources for this. they're flat to down. I mean, increasingly down, aren't they? You sent me an email from apartment listings, I believe. Yeah. Yeah.

With showing rent on a year-over-year basis down over 1%. I mean, that's not a lot, but it has a negative sign attached to it. That's right. That's right. Now, you want a couple of caveats there. Yeah. Of course, their geographic differences. Some markets are still very tight.

Others are looser. And then in particular, at the high end versus the low. end of the market. We're getting more significant rent reductions at the higher end than there's still lots of competition, of course, for more affordable apartment rent. So we're not seeing quite the declines that you're seeing. But overall, things are moving in that downward direction. So. And you would expect if vacancy is going to continue to move higher here, we could see even more negative numbers on the rent side, right? That's right. That's right. And that would put even more downward pressure under the cost of housing services and measured

inflation. Correct. Right. Yeah. That's a question of time, though, right? These things also, you know, overnight. These leases are longer. So that's why our forecast, in part, has that gradual reduction to back to the Fed's 2% target.

Right. Right. But certainly gives you some meaningful confidence, right, that, you. inflation is going to come back to the target because at this point, the biggest difference between where we are on inflation and the target is the cost of housing services. There's other things going on, but that far and away, the biggest gap, the thing that explains the difference between where we are and where we need to be. And it feels like that that's going to resolve itself over the course of the next year or so. Yeah. That's right. That's right. Okay. This is actually Campbell Harvey's

point. He points to housing. He says, look, housing is a third of the CPI index. You know, you look at these market-based measures and they're suggesting, you know, we're at the Fed's target. If you were to exclude housing, right? Inflation's at the Fed's target already, maybe even below. So that's his rationale for why the Fed may be actually making a mistake by keeping rates too high for too long. Yeah, it's interesting. I can't remember who I was doing this with, maybe it was one of our, one of our other colleagues. We were looking at inflation across metropolitan areas. So the Bureau of Labor Statistics constructs the Consumer Price Index and does that for a bunch of MSAs, metropolitan statistical areas. And you can see since the pandemic hit, you know, we saw this large jump in inflation in a number

of metropolitan areas, really across all areas, but in some areas a lot more than in other areas, even though unemployment and other measures labor market slack, you know, really didn't change. So this was the shift in the so-called Phillips curve, the relationship between labor market slack unemployment and inflation. And if you look at the areas where you saw the biggest jump, you know, shift up in the Phillips curve, it wasn't as metropolitan or the, you know, areas that, you know, were all juiced. The housing market was all juiced and rents were rising very rapidly in the south and the west. So that would suggest that as these markets cool off and they are now definitely cooling off, the biggest rent declines are in areas where we saw the

biggest rent increases back when people, you know, in the wake of the pandemic, you're going to see that inflation come right back in. And that's what we're observing. So a lot of this is explain a lot of what we've been observing and with regard to inflation is related to the cost of thousand services um okay well my problem and that's my problem is my stat everyone's taking my numbers i did right it's like i go oh geez so all right i'm going to i'm going to i'm going to make a little hard i think uh 8.5 million 8.5 million 8.5 million and another way of measuring the same thing, sort of 5%. So 8.5 million and 5%.

Any ideas? Is it from the jobs report? It is. We did talk about it. That's a big clue. Is it multiple job holders? Oh, yeah. Yeah, yeah, yeah.

Oh, my gosh. Holy macaroni. I thought that was going to be impossible to get. Yeah, wow, yeah, exactly. 8.5 million. Chris, you brought this up. I did. Did you actually say 8.5 million?

You might have. You might have said 8.5 million. Well, I think I said 800,000, the increase. Oh, the increase. Yeah. I don't say the level. Yeah. It is up a lot.

I will point out, though, the 5% is multiple job holders as a percent of total employed. That 5% is almost precisely what it was before. the pandemic. So it has recovered. The number of multiple job holders has picked up and recovered. And we did see a big jump, particularly last month. We'll see how much of that's noise and how much of that is reality. But nonetheless, it's still, as a percent of the size of the labor market, it's just back to where we were like everything else. We're back to 2019, you know, consistent with what happened back in 2019. Okay, that was good. Boy, we're. You know, the problem is we've been doing this now for the podcast for two and a half years.

We're getting to know each other pretty well. It's getting hard to come up with a really good statistic. But that was great. Okay, maybe we're going to keep this a relatively short podcast too because it's Saturday morning 7 a. A.m. West Coast time. And I'm in London. And I got to do some other stuff. So we've got to get going here.

But let's take a few listener questions, two or three listener questions, if we can. I've got one, but maybe, Mercy, you can go first. And are there any good questions that folks have asked? Yeah, let's take a couple about the housing market. So there's a couple questions related to how big of a factor have institutional buyers been, you know, people that are just going in to buy and flip. Is that a big factor? and what happens if, as we say, so multifamily prices we're expecting to come down, rents come down,

does that have an effect, a chilling effect on the single family market as potential buyers would move to rent and potentially slow prices on the single family market? How does all of those price interactions happen? Okay, so those are two questions, I guess. One is related to housing. Of course, I'll turn to you on an investor because we actually do calculate the shares, home sales that are two investors of different types. What's the role of the investor in the current market?

Yeah, so the investor volume or share had risen over the course of the pandemic. You did have investors coming in. More recently, I believe, though, it's backing off the activity. I think higher rates are certainly a deterrent as well. And house prices remain high. The rents are coming in. So not as attractive, perhaps, for an institutional investor as it was in the past. What's unique, you mentioned flips this time around versus, say, the 2008 period,

flipping is not the major activity that's going on. Explain a flip. What's a flip? Oh, a flip is a purchase with a subsequent. sale of a home within a, by our definition, a 12-month period. So it's an investor coming in, purchasing a home, maybe rehabbing it, improving it. Maybe not. Maybe not, right, in some very hot markets.

And then turning around and selling it rather than occupying the home or renting it out. So that activity is really diminished compared to what we saw last time around. I think part of the reason is just the expense, their building costs. We had the supply chain issue, so it wasn't particularly attractive to purchase a home and put a lot of investment into it and turn around because of the cost of building materials. Also labor, especially in the height of the pandemic as well, was difficult to get. So the institutional investors that have been entering the market have really been focused on a more longer term portfolio. of rental properties, right? So single family rentals certainly grew in certain markets, particularly in the South. They contribute certainly to the ecosystem here. And there's a lot of

discussion and debate about whether or not they are actually driving out first-time homebuyers. By and large, I don't see that as a very significant factor. Certainly, you know, they create some competition, but, you know, really it's the lack of supply that has been a, driving up the prices more than this additional set of buyers out there. Speaking nationally or globally, right? Certain markets, clearly you have a higher percentage of these institutional buyers and you could make another argument. But overall, I don't see them as being a root cause of the higher home price appreciation

we've experienced. I don't know, is it, Mark, if you agree. That all makes sense. I mean, I did what I found interesting. Because we get all the transactions, housing transactions, transaction by transaction in the country. And we can identify, you know, who's buying the home. And if they have a corporate identifier, like a Ness Corp or C-C, we consider them to be investors. and the actual volume of sales transactions by investors has fallen like all other transactions

but as a share of total transactions, I think it's maybe down a little bit, but it's still pretty elevated by historical norms, I think. But the actual volume is way, way down like the entire market, the entire market is way off. But I agree with what you said. I don't think it's played that meaning, certainly not nationwide, you know, in certain markets, as you say, but not nationwide. It's not that big a deal. The other question was around the what's going on in the multifamily market and rents and what that might mean for the single-family market and house prices. Chris, you want to weigh in on that as well?

Sure. The housing market is integrated, right? So it's, you know, what happens in multifamily. It does have an impact on. single family and vice versa. So to the extent there are more multifamily properties coming online and that's going to depress rents, they could put some downward pressure on the single family market as well. But really, you know, there's still ample competition in the affordable segment of the market.

So there is some distinction, I should say, there is distinction between the multifamily and the single family when we get to those price tiers, right? Where the multifamily really has most impact is on that more affordable single family property. So there might be some substitution effect there, but still, there's so much demand for single family more affordable homes out there that I don't, I don't expect even with these modest rent declines that that's going to really resolve or cause those prices to fall substantially anytime soon more around the margins than anything. The only, I guess, caveat would be that the weakness and house prices is really the high end of the market.

Right. And these apartments, the million units are coming to completion are mostly high end, you know, the big multifamily towers in bigger, but areas. So it could be the case that that supply in the multifamily side and the weak, rents could put some additional downward pressure on prices in the high end of the single family market. But I don't think, you're right. I don't, you know, the rest, that's a, that's probably no more than the top 20% or 25%

of the market. The rest of the market, very undersupplied. The, the, the rental that's coming in isn't going to be competition for that. Tennessee. I don't think. It might be, it might be a little bit over time. You get things pushed down, but I think it's on the margin. I don't think it's a catalyst for big declines in housing values, single family housing value.

Yeah, I'd say it helps prevent prices from rising or accelerating even further, right? Because if those markets really get out of equilibrium, right, if the rents are so much cheaper than the single family home, you will see people switching. But to your point, I don't know that it really puts significant downward pressure. prices maybe just keeps them from rising appreciably or accelerating. I've got a listener to question too, housing related, and I'll throw that out there. It's interesting. The question is because people are not buying and selling homes, we've got this lock-in effect, you know, in home sales or rock bottom, I think we're, what are we, total home sales of

five million or something, annualized, something like that. typically it's like $7 million, I believe. Just skip for context. I mean, sales are about as low as they've been. You only see it in the teeth of the pandemic during the shutdown or in the teeth of the financial crisis. I mean, really, that's the one part of the economy has taken it on the chin with the higher rates, the higher mortgage rates, a really weak home sales. And the question is, is that lifting consumer demand, consumer spending?

because if people aren't buying homes, maybe they're not saving for the down payment and they're using that extra cash to help them spend on other things. So could the strong consumer spending be in part related to the fact that they're just not spending on housing? Interesting question. I've got a view, but I don't know if others have a view on that. Well, it's not just new home buyers too, right? It's people who are not upgrading a home, right? because they're locked into a current home, and so they're not, you know, putting more of their budget towards a bigger mortgage because they don't want to take on higher rates.

Yeah. That's the question. Yeah. Yeah. Of that five million, I'm making up five million. I think that's the right number. I think four million or, is that right, Chris? I think four million is, four, is existing and the rest of it is new, you know, something like that,

new home sales. And that's even low. All right. I think it's under, I think it's under five million at this point. It's probably under five million at this point, right? Or eight or something like that. Yeah. I don't, I don't, that doesn't resonate with me. No, I mean, generally, you know, you get a lot of spending with home sales. You go buying a home and then you buy stuff. You know, you, a lot of people buy a car for their furniture. Furniture. They do home improvement like you did, Marissa, you know, that kind of thing. So the fact that home sales are down, I think probably me has been a constraint on spending, not, you know, it's not. And I, and I don't, and I don't, and I don't, you know, know that people are saving any less. I don't think they're giving up on homeownership. I think

they're probably, they're having a hard time saving because they're spending more on rent, but, you know, I don't think, I don't think they're rating their down payment fund to increase their spending. That wouldn't be my sense of thing. In the GDP report, housing-related expenditure was one of the strongest spending service category. that we saw in Q3. Oh, that's right. Yeah. Yeah.

So it's not right. It was like homeowners insurance and other housing related insurance, renters insurance. Rents are, yes, they're coming down now, but they've been really high. So people are spent, if they're not spending on a house, a down payment, maybe they're paying a lot in rent, more in rent that they, than they'd like to spend, which is also harming the ability to save for, down payment.

Yeah. Okay. Any, Mercia, any other questions? Non-housing-related? Yeah, there's some labor market questions, which would be apropos. One question was actually about the U-6, and it was asking, why don't we focus more on that? Why do we focus on the U-3, the traditional unemployment rate?

Why don't we focus on this broader measure? Why does the unemployment rate? Why is that the thing? Why is that the statistic? instead of a broader measure. That's an interesting question. I think I don't know the answer. Maybe Dante you do,

but I suspect this is sort of like a history kind of question where maybe the U6, you know, the current population survey was redesigned in 1994. And it could be that this was added after sort of the traditional metric of unemployment was added. And, you know, it's just just sort of historically the the traditional measure of unemployment has been there for a long time and then these sort of other metrics were added later. Do you know if that's true?

I'm making that out. That sounds right to me. It feels like legacy. I mean, because the employment rate's been around since the beginning of time, right, before the go back to the 20s, right? Right, right. Before that, I think we had a we measured the U3. Well, there are measurements of unemployment back to the 20s, but they weren't actually collecting the data back then. They sort of extrapolated it back. I think it was the 40s that we actually started collecting data. I suspect it's just legacy because we have more historical data. The other thing is U6 includes things that I think are pretty hard, maybe a harder to measure,

you know, more volatile month to month. I'm making it's totally up, but I could be right. It is more volatile month to month. If you look at the data, it is. If it's more volatile, you want to use a series, you want to do something that, because you don't want, it's signal, I keep saying signal and noise.

You want something that's more signal than noise. And if it has month to month, so it's more volatile, it's just less valuable, you know, not that we shouldn't be looking at it. And we do, you know,

very carefully, because it is a measure of labor market slack. But, but I get, Dante, I don't know. Do you have any other theories? No, I mean, I think part of it is just, yeah, I mean, in times of stress, we tend to look at it and how it relates to you three.

In times when things are sort of now, like there just isn't a huge amount of movement between, you know, the gap between the two tends to stay pretty stable when the economy is doing pretty well. So there's not a whole lot of reason to focus on it month to month at a time like right now. But I think right, if things start to deteriorate or if you're coming out of a recession, right, obviously that gap tends to get a lot more attention, a lot more focus than it does now. Okay, let me ask you this. If you, each of you, if you could pick only one, one measure of labor market slack that gives you the best sense of what's going on in the labor market and what it means, what would that be? Okay, I'll give you a second to think about that. Dante, you first. I mean, I feel like it's probably prime age employment to population ratio.

Yeah, okay. That's exactly what I would have said. Right, right. Because we've done so much work showing how closely that relates to wage growth. Yeah, okay. Well, it gets rid of the noise. I mean, that's the goal is to get rid of noise if you only have one measure. Employment to population for prime age workers, 25 to 54 years old.

Yeah. Okay. And that's showing the market is strong but not overly tight, consistent with 2019 at this point. Yeah. Yeah. Okay. Marissa, what would you pick? Well, I guess if I wanted to know what was happening very quickly, I'd look at UI claims, right?

I mean, I think the problem with all economic statistics is generally that they're lagged. So we're often finding things out that happened one, two, three months ago. The nice thing about UI claims is that it's what happened with layoffs last week, right? So you can easily identify quickly moving stress. And to Chris's point earlier, it tends to happen pretty quickly. So you tend to go from a low level to a high level and start moving up really fast. So if I wanted like the pulse of what's going on right now, I think I'd look at UI claims. Yeah.

Okay. That's another really good one. Chris, do you have one? I would have selected the EOP. EOP would be. And certainly UI claims for more high frequency. I've noticed no one's picking vacancy, the job openings, which is kind of like the, it's kind of like the flavor du jour, right? I mean, if you talk to other labor market economists, they look at the vacancy number of job openings relative to the number of unemployed, you know, and that's what they've been using.

But no, I mean, I personally think that isn't a very good measure for lots of it. I don't think we can measure job opening your vacancies very well. If we could measure it properly, I think it would be. If you could measure it. In theory, it makes sense. Yeah. But, yeah. Okay.

So is the U3 versus U6 kind of analogous to using core inflation versus headline inflation? How so? Yeah, you're focusing on the less volatile core. Yeah, okay. You want to focus on the less volatile later market. Yeah, that makes sense. Yeah, that's a good way thinking about it. Yep, for sure.

Okay. Mercer's not convinced. Because I think food and energy prices are really important to consumer spending, and they're actually a big chunk of what people spend their money on. So I do think it's useful to look at overall inflation to kind of gauge how people might be thinking about spending in the very near term. I mean, yes, like longer run taking out that volatility is important for, monetary policy and what to do about it, right? But I do think if you're looking at the financial health and spending patterns of a household, energy prices and food prices matter a lot.

Well, I think maybe this is the right analogy. So we look at core inflation because it gives you the best forecast of future inflation, right? Because it abstracts from things that are jumping up. Yeah. So that's why central banks fed looks at core because they're trying to forecast inflation. Everything you just said, Marissa, totally right. What they're trying to do is forecast in the core. Here, probably the same thing. If you're trying to forecast where we're going, you know, in terms of labor market conditions,

the U3 probably is just easier to use than the U6 because it's less volatile. But I'm stretching, I think. But, you know, I think that's a good explanation as to why we, another good explanation why we focus on U3 as opposed to U-S. Can I ask another listener question that I think is really good? Yeah, far away. If you could have any statistic that doesn't exist today, what would it be? You know, like, what do you think would be really helpful to have that we don't have?

And that could be either from a government collection or it could be some sort of like big data, you know, residual from private sector data. Holy cow. That is a great, great question. I've never even thought of that. Yeah, this might require some thought. Maybe we take that up next week. I have to think about that.

There's a, in some degree, I'm like, my mind is overloaded. because there's so many things. But on the other hand, which one would I think? I don't know. Does anyone have a view on that? We could take that up next week. We'll give it some thought. Because that's a really interesting question.

Chris, do you have anything you want to bring up? My head is spinning. I mean, it depends how far you could go into the science fiction realm and say, well, if I could understand everybody's individual preferences. Right. Yeah. risk tolerance. Yeah.

I don't think that's what they meant, though. Yeah, I don't. Like, you know, really studied. But outside of that, you know, I think my immediate answer. I could know what everyone was thinking in the world and then I could add it all up. I would, I really like that. Or some version of that. Some version of that.

From a credit perspective, if we really, income's always been the holy grail. if we actually just measure people's income on a real time basis more accurately than we do currently, that would give us a lot of insight. I don't know. I've got to give that some thought. I've got to get some thought. Okay. I think we're going to call this a podcast because we, you know, this is a Saturday.

I think Alana's thing, guys, let's cut this. Wrap it up. Wrap it up, boys. She's about to play the outro music. she's saying so i think with that unless anyone's got uh anything else they want to say going going on no okay we're going to call this a podcast thanks everyone talk to you next week take care now