Moody's Talks - Inside Economics - Within Statistical Spitting Distance

Episode Date: October 6, 2023

Dante joins Cris and Mark to digest the September jobs report. The outsized job gain during the month was surprising, but after Dante’s masterful dissection of the data, the group agrees there is a lot to like in the report. After the stats game, they discussion turns to the recent surge in long-term interest rates and how big a threat it poses to the economy.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 two of my colleagues. Of course, Chris Duretys. Hey, Chris. Hi, Mark. How's going? That's been a bit of an emotional roller coaster this week. It has. Shut down. Shut down, avoided. I was ready to mark down my recession odds. And then the speaker gets ousted. I have to raise them back up. You got all prices, you know, good. going to the mood and then fall into the earth. Not to mention the 10 years. We got everything moving around. Yeah, a lot of volatility out there. A lot of volatility. Yeah. Good.

Well, we'll take a pulse of your, your general view in just a minute, because we want to introduce our other colleague Dante, Dante Di Antonio, and Dante is a regular here on the Inside Economics on Jobs Friday. Indeed, it's Jobs Friday. This is October 6th, the morning of October's Friday, October 6th. Are you doing, Dante? I'm doing well, thanks. Yeah?

Yeah. Okay. Good, because you're going to do the heavy lifting here. I'll do my best. Yeah. You know, I've been following jobs reports for many years, let's say now decades, a few decades. And it always feels like once, twice a year we get a, what I would call an out-of-bounds jobs report, something that's way outside expectations.

and this one was, fortunately it was on the upside, I guess, right? 336,000 jobs created during the month, but this felt kind of out of bounds. But give us the rundown, what your sense of the numbers and what it means. So we're going to give you the sort of the straight rundown first, then we can talk about why I may, you know, have some buyback on some of what's in the report. Okay, yeah, that'd be great. Okay. Yeah, that's called expertise, right?

Yeah. Yeah. You're going to provide your insight into. the numbers, but hey, let me tell you what the real numbers are. Is that what you're saying? That's what I'm saying. Okay, okay. Fire away.

Fire away. So we got a total gain of 336,000 jobs in September, 263,000 of that came in the private sector. We also had substantial revisions in an upward direction to the last two months, which is unusual, given what we've seen recently. Total revisions to July and August were 119,000. So it's a pretty big shift. If you looked at the three-month moving average of gains last month before revisions, it was about 150K. Now with a new month of data and those revisions,

that three-month average is up to 266,000, which seems like a pretty big swing in sort of expectations about where the labor market is going. Obviously, there's a big jump in government payrolls up 73,000 this month. Also some big revisions there, which we can get into a little bit later. Across other private industries, there wasn't a whole lot of notes. You know, small gains in construction and manufacturing, transportation and warehousing moved back positive

after the, you know, the shuttering of yellow corp sort of had a hit last month. You know, healthcare continues to be sort of the biggest steady driver of growth in the private sector. Leisure and hospitality maybe was the one sort of quirk there where growth jumped back up to almost 100,000 after, you know, averaging only about 40,000 in recent months. So it was the biggest.

increase in leisure hospitality since January, a little bit unusual. In terms of hours worked, you know, average weekly hours were flat, didn't change from last month. Average hourly earnings was probably an upside surprise in the sense that it was a little bit weaker than expectations. It came in at, you know, 0.2% for the second month in a row, which is obviously good news in the, you know, sort of fed's view of wage growth that deemed to moderate further. The household survey was uneventful, I would say. There just wasn't. a whole lot going on. You had small gains in the labor force and in employment as measured by the household survey, which left you with the unemployment rate unchanged at 3.8%. Again, that's maybe

a positive news after we had expected that to come back down a bit when it jumped in August. Yeah, household survey, just not a whole lot going on. Participation was flat. Employment population ratio was flat. There just wasn't a whole lot of change there relative to sort of the big surprise on the payroll side. So good, bad, bad, good? What do you think? I think it's hard. I think this whole good is bad right now.

Framing makes this seem bad. I think at the outset, you know, this is a stronger report than we expected, which is probably bad news for the Fed. You know, in hoping that the Fed would be more likely to raise rates. And if they raise rates, more likely to do the economy in at some point in the future, kind of sort of that's the thinking. Yeah. But I think there's enough here to think that hopefully the Fed will sort of see through that headline 336 gain and realize that this isn't really quite as strong a report as it might seem on its face.

Right, right. And should they? Should they read through it? I mean, $336,000, to my earlier point, is that one of these just one-off wacko numbers that are not consistent with other stuff? And we should, it's more noise than signal, as they say? Yeah, I think there's a couple of pretty significant quirks in the numbers, both in the revisions to the past two months, which were big and in the current months. So the revisions to the prior two months I mentioned were up 119,000. If you look at revisions to private payrolls over the last two months, they were actually down 12,000. So that revision is almost entirely driven by government. Government payrolls were revised higher by 131,000 in July and August. Do you know what's going on there? I didn't know that. That's interesting. So I started, I think most of it is in state and local government.

My guess is a lot of it's around seasonal adjustment issues. You know, that time of year is problematic always in terms of state and local government education payrolls. And so my guess is there's, you know, still some issues there and sort of sorting out what's, you know, what's a post-pandemic trend versus what should we expect to sort of go back to what happened in 2019. So I think there's just a lot of noise in the data still and not a lot of, you know, data that's clean, yeah, that isn't sort of hugely impacted by the pandemic. And so, I think there's

just some uncertainty around government payrolls at this point. Just to make sure I got this right, you're saying we had these upward revisions to payroll employment growth in the previous couple months. And that was all in government, excluding government, private sector payrolls actually got revised down again, consistent with the downward revisions we had been getting. Yeah, it was a very small down revision. It was only 12,000. If you look at the industry level, there were some industries that were up. There were some that were down, but they were all pretty minor.

And the net result was it was down a bit in private payables. And it's not like the state and local governments just discovered they had hundreds of tens of thousands of more employees. You're saying it probably is related to measurement. Seasonal adjustment would come to mind. You don't know for sure, but that feels kind of sort of what's going on here. Yeah, I mean, I started to look into it a little bit before we got on. And if you look at the sort of the unadjusted movements in state and local governments in July and August, you know, they're, it's hard. They've shifted obviously over time. There was big differences in 2020 and 2021 for obvious reasons. And now, you know, sort of 22 and 2023, it's a question of, you know, it looks different than it did in 2019. And is that, you know, a sort of real difference that seasonal adjustment should be accounting for? Or is it still, you know, sort of we're working our way back to some pre-pigant? pandemic trend in the unadjusted data. And so I think there's just, there's not a lot of

information for the BLS to go off of at this point to figure out, you know, what's the right seasonal adjustment factor in some of these industries that move a lot month to month. And so I think there's just still a bit more uncertainty than we're used to. Now, one of the reasons, I think, that we've been getting these, these revisions, you know, to previous months. And they've been consistently down in pretty large. Last month they were downward revisions were, I think one month, like July, got revised down 100K or something, something like that. Our thought was that it goes to response rates, that the response rate, so this is a survey

of businesses, the payroll survey, and businesses are responding at a lower rate, at least initially, and they ultimately respond a month or two later, and thus the revisions, but initially that are low. Do you give a sense here? Was the response rate low again? It was. Yeah. And if you look across the last three months, it's been particularly bad, right? So you go back to July, the response rate for the first release of data was the lowest that it had been since 2008. In August, the actual response rate was below 60 percent, and it was the worst since the early 2000s, I think 2002. and then again here in September, the response rate was better. It was up to 68% roughly, but that's still the lowest for a first release of September

data since the mid-2000s. I mean, response rates are pretty bad across the board right now. They do get better on the second and third release of data, but, you know, that first print that we get is more tenuous, I think, now than it used to be given those low response rates. Right. Interesting. Any other technical measurement issues you want to call out? Yeah, I mean, I would say the other thing, you know, I mentioned,

the leisure hospitality jump in September, that again, if you look at the unadjusted versus the adjusted data, I think you could argue that there again, there's a big seasonal movement that happens in September all the time. There's actually a big decline in the unadjusted leisure hospitality payrolls in September as you get the sort of shift from summer into fall. And that the size of that decline has moved around a lot here since, you know, 2019. If you look at sort of the early pandemic and then now, and I think again, it's a question of what's the right seasonal adjustment factor? right, is the data we're seeing now sort of a true representation of what it is or is it we're

still adjusting back to some normal? So I think there again, that boost that we saw in leisure hospitality could be in part driven by that certain uncertainty in the seasonal adjustment process. You know, if leisure and hospitality was something closer to what has been in recent months, private payroll growth is, you know, close to 200K again, as opposed to 260 and obviously well off that headline, 336. So I think there's reason to think. think that, yeah, if you're just looking at the headline, it's almost certainly overstating the case here for the month. Okay, bottom line, job growth, the job market is strong, no debate, but probably not nearly as strong as the top line, 336K in the upward revisions of previous

months would suggest. I would agree, yeah. You would agree with that. Okay. Okay. All right. Chris, Any holes in Dante's rundown you want to fill in and what's your interpretation of the numbers? No, I think you got it. And my interpretation is similar that directionally, sure, things are strong, but I do fear that there's some measurement error in this number. I'm not taking a face value. And I don't expect the Fed will either. Right. So, okay.

So you're strong, not as strong as the headline number would suggest. Right. Okay. Yeah. Do you take the, do you take the wage number? That face it, it's pretty good. Yeah, I mean, I got to be careful that I don't spend everything positively. But I kind of spin it positively, right? I mean, you know, I want to see jobs. We like jobs. And the other interesting thing about the report, correct me if I'm wrong, Dante, that you didn't mention very broad-based. job creation. A lot of jobs, you're right, in government, health care, hospitality, leisure and hospitality. But it felt like I was looking through, the BLS has this nice table where it shows employment change by month by industry. There's a lot of industries that were up. I, you know, I don't know, there's a diffusion index that, you know, kind of captures that. I hope I'm not taking anyone's stat for the game. But is my sense of the number correct? Was it broad-based? Yeah, it certainly was. And the diffusion index was up a bit relative to where it's been in recent

months. And yeah, I mean, I think if you look at major industries, the only decline was in information, which again, it was the sort of actor strike issue probably still playing out there. But if you look at major industries, there was still growth almost everywhere. It's just, it wasn't huge amounts of growth. But I think in terms of, you know, looking for pockets of weakness or places where payrolls are actually declining, it's still hard to find those, which is a good sign. Yeah. So, I mean, I look at it and I see strength.

And, you know, in some respects, it's not surprising we would see strength. This kind of job gain, yeah, but the third quarter, the just ended third quarter, that was a pretty strong quarter. I say a really strong quarter for the economy. I mean, we do the, you do these tracking estimates for GDP, real GDP. real GDP growth in the quarter based on the data flow that's coming in the monthly data. Where are we? We were at 3.7 last day looked or something like that, 3.7%.

Yeah, that's annualized GDP growth. And just for context, the economy's underlying potential growth rate is probably around two. That's almost double the underlying potential growth rate. So it's not surprising you'd get a solid job number. And also the other data in the job market feel pretty good, right? I mean, UI claims initial claims from unemployment insurance, it remained around just over $200,000 per week, which is very low. So layoffs remain low.

And the joltz numbers we got, job opening labor turnover survey data, we'll talk about that some more, but that looked pretty good. So not surprising that we would get strength. And here's the other thing that I think is really important and comes out when looking at the household survey. So you got the survey of businesses, the payroll survey, and now you've got the survey of households. It's the basis for labor force and unemployment. The supply side of the labor market remains very strong,

even stronger than the demand side that we just talked about, right? I mean, labor force growth is really very good. I mean, year over a year, I was looking 2%. That's kind of double what you would get. I think we think we would get, even more than double, you know, given demographic trends in the aging of the behavior. baby boom generation out of the workforce. And that goes to labor force participation. That goes to immigrant workers coming into the into the workforce. And if you kind of look at the average

monthly change in labor force, it's 275,000 per month over the past year. So, and that goes to the kind of the stable unemployment rate, which is somewhere between, it's been between three and a half, rock solid between three and a half and four percent for all, you know, at least a year and a half, probably coming up on two years. I need to take a closer look. But that's pretty amazing. That's, you know, very strong, you know, healthy labor supply. So yeah, we got, we're getting all this labor demand, but we're also getting a lot of this labor supply and unemployment stable. Other measures of labor market slack, all are strong labor market, but stable, nothing suggesting overheating. And then on top of that, you get, as Chris said, the average hourly earnings,

that's the measure of wage growth in the report. And that was pretty good. You know, it came in, I think, what, two-tenths of a percent increase, you said on the month? Yeah, year over year, what, four point something, two, something like that? Or two, yeah. Four-one-five, yeah. Yeah, and, you know, I mean, everyone's got in their mind, every economist has in their mind. 3.5% is the right kind of number for wage growth to get inflation back to target. That's 2% inflation, and then you add in 1.5% of the underlying productivity growth.

But I never really understood why it's 3.5, by the way. feels like it should be four, right? Two and a half percent CPI inflation plus one and a half percent productivity growth gets to four. Why are we using, I mean, you know what I'm saying? But I'm splitting hairs, but that's the point. We're within spitting distance of, you know, statistical spitting distance. I like that term.

Statistical spitting distance. Right? You know what I'm thinking about that? Yeah, statistical spitting distance of target. So I look at the report, first blush, I go, oh, this is going to be a bad day. Yeah, bond yields are going to rise. And I want to come back and talk about bond yields because that seems to be the biggest threat to the economy, the most immediate immediate threat to the economy. And, you know, stock prices would be down. But, you know, you look at the internals of the report. I just feel a lot better as I look deeper. And now I even feel better at listening to you and hearing some of the technical factors. So I came away thinking, but again, I tend to spend things positive. I got to be careful about that, but, you know, it felt like this could be spun positively. It sounds like even you, Chris, feel the same way.

Yes, yes. I don't, again, you look at it at face value, assuming the data is right, there's very few blemishes here, right? If any, right. Yeah, exactly. Right. Okay. Okay, anything more on the employment report before we move on?

And we are going to keep this a relatively short podcast because the podcast we've been having, I don't know if listeners have been, I'm sure they've noticed this, but they've been very long. I think like an hour and a half long. It's like movie long, you know, kind of podcast. Getting a lot of good feedback, but nonetheless, they're pretty long. So we'll keep this one relatively short. But anything else on the job numbers that you want to call out? I guess you alluded to the jolts and the job openings were up a lot as well.

So this would be consistent. A strong labor demand in the openings report, translating into strong payroll growth here. But I also look at that joltz number and I'm suspicious of the validity there as well, given. I was going to say that's another one where the big jump was almost entirely in a single industry, which always makes me a little bit apprehensive. I didn't know that, Dante. Dante, like a wealth of information. I love to have you on. So what was that? Yeah, so openings were up roughly 700K over the month, but about five. 500,000 of that was in professional business services, which have not been particularly strong in terms of job growth recently.

So I mean, I think that would be the biggest increase ever in a single month for job openings in that industry, I mean, which just feels unlikely. Isn't that where temp help is too? Isn't that temp help? And that's been declining. That seems weird. It seems like a weird fit, yeah. Yeah.

Okay. Yeah. I think the survey response rate there is even lower. Yeah. Yeah. Yeah. It's very bad. Yeah.

But, you know, other than that pop in job openings, which now feels, given what you just said, even less real. Right. But there elements of the joltz felt pretty good, right? For if you're looking at a strong job market that's throttling back, strong low layoffs, that's, I view that as a very positive thing because I just don't see how you get a recession without layoffs. I just don't see it.

You know, consumers are going to keep spending. until they're spooked. And the only thing that really spooks people is that they start losing their job. And then from a wage inflation perspective, the quit rate is, you know, all the way back into pre-pandemic. And not, it is consistent with kind of the average hourly earnings of slower wage, the moderating wage growth that we've been observing. So that all felt pretty good.

Hiring rates, but that's back to pre-pendemic, you know, that felt pretty good. So I thought, you know, that one was, you know, a pretty good. report altogether as well. I didn't mean to ask on the jules while we're on the topic. The job openings. I've kind of been making this argument that it doesn't really cost businesses anything to keep open job positions. I mean, historically, the cost might have been greater because if you have an open position and you start advertising, you'd have to pay help, you know, the newspaper, the local newspaper for help wanted ads. And they were expensive back in the day before online help wanted. But now there's really no, very little cost to, you know, keeping an open

position. And if you're a cautious business person who's been through a lot of labor shortages over the years, pre-pandemic, during the pandemic, post-pandemic, you know, you have an incentive to keep those positions open, even though you might be slow walking the hiring. So I kind of downplay the informational value in the open positions. Dante, would you concur with that perspective? Yeah, I think certainly in the noise of the data and I think just in the sort of level today relative to, you know, 2020, I think there's a reason to believe that we shouldn't make too much out of the fact that openings are higher than they were three years ago, four years ago. And certainly the month-to-month volatility, I think, is, you know, probably large. usually driven by low response rates.

You know, if you look at the openings from Joltz compared to like, you know, Indeed publishes a measure of job openings as well. And they, they trend mostly the same. It's just that the Joltz data is just all over the place. You know, it jumps 500K and then falls 600K and then, you know, so it's just very noisy relative to the Indeed measure. But they both have been trending down, which I think makes sense. And, you know, they're both generally moving in the same way.

But they're still higher than they were pre-pandemic, which again, I don't know that I read much to that for the argument that you make. It's just not that expensive to keep positions open. And firms might just be sort of hedging their bets a little more than they used to in terms of, you know, leaving positions out there. What do you think, Chris? Do I, do you feel the same way as I do about the job openings numbers? Yeah, that's right. It's maybe directionally helpful, but there's some measurement there as well. Measurement issues. Hey, one other measurement technical issue, just to get it on, get it out there, strikes. I mean, we've been having a lot of strike action seemingly, UAW, the actor, writer's

strike, hospital, Kaiser Permanente. Did that have any impact on the numbers today, Dante? So no impact today because the, you know, the actor strike was already ongoing last month. And so, you know, the adjustment was essentially the same. So the net effect for September would be nothing. and then the UAW and the Kaiser Permanente strikes were too recent. They weren't, you know, they didn't encompass the full reference period in September. So those won't, you know, if they continue, they could end up showing up and impacting the October data.

But there was no effect on this report from strike activity. Okay, okay, very good. Okay, let's play the game, the stats game. The game is we each put forward a statistic. The rest of the group tries to figure that out with questions, deductive reason, and clues. the best stat is one that's not so easy. We get it immediately, one that's not so hard. We never get it.

One bonus if it's apropos to the conversation at hand. So, Dante, you want to go first? Sure. Let's go with 3.4%. Okay. In the jobs report? In the jobs report, yeah. Household survey?

Not household survey. Okay, that means it's the payroll survey. Is it related to wage growth? It is, yes. Oh, wow. Is that, oh, I know what it is. Chris, you're going to bow to me. Please.

I have to bow to me. It's the three-month annualized change in average hourly earnings. I served it out with me. It's one of your favorite. You love it. You're saying, you're saying that was an easy one. For you, because it's in your wheelhouse. It's one that you think about.

You can floor. In your wheelhouse. Oh, my gosh. I, that was well done. That was well done. Oh, thank you. Great job. That's what I wanted to hear. You just wanted a pat on the back. There you go. I was thinking, yeah. I was in year over year growth rates, you know, it was. Yeah. It's all in the right, wrong place. And you went right to the wages.

Well, and that's a really good statistic, right? Yeah. Okay. You know, explain Dante, why? That's very encouraging, actually. Yeah. I mean, we talked about the year over year growth rate is still 4.2 percent. But If you look recently, right, August and September, you know, month over month growth was only 0.2%, you know, back in July. It was slightly higher. It was 0.4, but I think it was actually a little under that unrounded. So if you take that three month annualized rate, you know, it's down below three and a half percent. And, you know, we talked a little about should we trust the wage number in light of everything we just talked about with the report. And I think, you know, there's a couple of things. One, the wage number for August actually didn't really move much. And two, you know, this, we talked about all the issues. with government, but the wage numbers that we're referencing here are for total private payrolls, right? So any issues that are happening in government aren't going to necessarily affect the wage measure that we're looking at. So I think there's more reason to think that this, you know, is a number that we can rely on a little bit more heavily. And obviously that 3.4%,

you said there's, you know, maybe we shouldn't be worried about 3.5% being the target that we need to get to, but certainly this is signaling that we're moving in the right direction, that wage growth is, you know, likely to come under 4% year over year here pretty quickly. maybe get to three and a half percent, maybe not, but I think it's going to be in that range that we're talking about where the Fed is going to feel more comfortable with wage growth here pretty quickly if things continue. And of course, the wrap against average hourly earnings, the wage measure in today's numbers is that it can be influenced by the mix of job growth by cross-industry, cross-occupation. So you have to be careful in using it.

But having said that, the best measure, or at least the one that we feel is best, the employment cost index, ECI, that's quarterly. That'll come out, what? A couple weeks from now, two, three weeks from now. That also has been moderating, too.

I think it's kind of four to four and a half percent is. In fact, in fact, I think in Q2, in that quarter analyzed, it was four percent, I believe. Yeah,

it's definitely come in. You probably remember the exact number better than I do, but yeah, it's definitely been showing us similar trend. We just don't get the update as frequently. Yeah, and certainly the mix could be, you know, we had a big jump in leisure hospitality payrolls.

Those tend to be lower paying. So there's some reason to think that maybe that's weighing a little bit on it. But we got a good number last month as well when leisure hospitality growth was pretty sluggish. So, yeah, certainly there are, you know, issues there, but I think it's still a fairly good measure of what's going on. And so bottom line, your sense is we're within statistical spitting distance of where we need to be on wage growth. to make everyone comfortable that the Fed can hit its inflation target of 2%. Yeah, that's the way I read it. I think it gives another, you know, again, if you're thinking about how the Fed's reacting to this report,

I think it gives another notch to say, hey, hopefully they don't overreact to that top line number. Yeah. Okay. Got it. Good statistic. Chris, you want to go? Sure. $411,000.

It was in the jobs report? Nope. Oh, geez. Jesus. Now, I'm like, I'm totally, you know. Is it labor market related? So disoriented now. It is.

That was my plan. It is labor market related. Is it from the jolts? It is not from the jolts. Okay. And is it from UI initial, from the unemployment insurance? No. No.

Okay. Is it a report that came out this week? Yes. Ooh. It comes out continuously, so it's summarized. And you said it's labor market oriented. No, it's not labor market oriented. It is labor market oriented.

It is labor market. It's from the BLS data. Oh, it's real time? It's kind of continually coming out. As, well, as events transpire, wow, that should be a big hint. Something related to strikes. Yes.

Okay. You're there. You're there. 411,000. That sounds like a lot of strikers. Could that possibly be right? I mean, it is up to 411,000? It's the number of,

of people involved in a labor action involved in strikes this year, year to date. Oh, year to date. Okay. You're to date. Yeah. Yeah. Exactly. Not once.

Yeah. That makes sense. Oh, that's interesting. And I guess it's up a lot quite a bit from where we've been historically. It's up a lot from certainly where we were in the last few years. It's about three times the average over the last decade. So it's a lot. But at the same time, we have.

had in 2018, 2019, there were also big years for strikes. We're also in these 400,000 range. Oh, is that right? Yeah. And if you go back to the 90s, right, we were in this range as well. So I think there's a lot of strike activity going on. Certainly, it's having impact, but I think the anomaly might not be so much that it's higher now. The anomaly might have been that it was just so low over the last decade. So like all things we're seeing, there may be a reset in our in our baseline, right, as we talk about the 10-year or other rates as well. Yeah. I just wanted to call it out as. Yeah, no. There's a lot of talk about labor actions. I don't see them as being the real driver of some of the statistics we're seeing in the,

in the economy when it comes to wages and whatnot. So it's still a relatively small share. Yeah, that makes sense to me. It would be surprising if we didn't see more labor market. I mean, the labor market is strong. And so the kind of the power dynamic between workers and their employers is more balanced than it has been in a long time. So not too surprising. And actually, the actions have been less kind of disruptive than I had thought. Like a good example, is the UAW strike, at least so far. Obviously, that's still ongoing. But when it first started, you know, the fear was it would be that there'd be broad-based, strikes, shut down the activity of all,

all activity of the big three automakers. And we're not even close to that, right? I think we had a macro meeting this morning, and Mike Briss and our auto analyst was saying, I think it's 17,000 workers that are now out at the UAW, and they have 145,000 all in. So it's still very modest by that standard. Yeah.

Okay. Yeah, it'll be interesting to see. how these actions play out. Is this the better strategy for both sides, right? Kind of more of limited versus kind of the other option. You just go all out. So, we'll see. But you're right. The other strikes this year for, with some exceptions, of course, they seem to have been resolved in fairly short order. Well, like the, the, is the, I've lost a little bit of track. The, the, the, the actors' writer's strike is that, it's been settled, right? The writer's strike has, the writers has, but not the actors. Right. Right. Okay.

Okay. All right. Ready for mine? Yeah. 80.8. Some participation rate. It's not a participation rate. That employment population ratio?

It is indeed. Prime. Prime. Yeah. Too easy. I knew it was going to be. Damn. That was down a little bit?

Yeah. Okay. Yeah. It ticked down. And it's no higher than it was from the beginning of the year. So it's kind of where you would think it should be by looking at history consistent with a full employment economy, but no higher than that, no lower than that feels really good. And it's stable, you know, very, very stable since the beginning of the year along with the unemployment rate. So another indication that is consistent with the idea that the labor market's strong, but not overly strong, not, you know, blowing past full employment.

and kind of where you'd want it to be. It's like a really good labor market, you know. Feels very good. Okay. And I like looking at the prime age. That's 25 to 54 because that's kind of the teeth of the labor market, you know, right there. Okay. Let's, I do want to talk a little bit about something you brought up, Chris, earlier, about at the start, your emotions getting swung around here by all kinds of things going on.

And one thing that's moving around a lot is long-term interest rates. In fact, do you know at the beginning of the day when the numbers came out, bond yields really took off? I think they were up at some point, 15 basis points, 0.15 percentage points. That's a big move in the long-term interest rates. Do you have any sense of where we are right now? And also, in that context, has there been any change in more? market expectations for a Fed move, another rate hike at the next meeting in November? Yes.

So real time as of, what, 1130 on Friday here. We're at 4.78 on the 10-year. Oh. So you're right. They've come back in. They've come back in. They're still up about six basis points. Six basis points, okay.

From yesterday. And then on the Fed, I did notice this morning that the odds of a, a hike in November or December have gone up based on the ECME Fed Watch tool, right? Somewhat, it still the majority of about 69, 70% is still calling for a pause. But it's about a 10% increase in the part of the market that believes there will be a 25 basis point hike. Well, while you're looking at your screen, What about stocks? Because they were, there was a lot of red early on after the release.

Yeah. What was it? It's turned green. Turn green. Yeah. A little bit. It's not screaming green, but yeah, it was down, but now they're back up a bit. Okay.

So markets are kind of digesting it the same way we are. It sounds like. Yeah. Yeah. Okay. Okay. And I'm looking through. So they're looking through it and saying, okay, there's stuff.

going on here. And I'm looking at the wage growth and that feels like that's what we need to get inflation back in the bottle and keep the Fed at bay. Okay. Okay, well, that's good. If you want oil to, oil's flat. Oh, yeah. Oil is down too. Yeah. Flat. Flat. It's $80. And of course, that's down like $10 a barrel, right, in the last week or something. Yeah, yeah, which is good news, right? Okay. So, so let's talk about the run-up and interest rates. And by the way, Six basis points, that's still a lot, but that's not, this bond market's been moving six basis points every 30 minutes. It's highly volatile. Yes.

How, so the 10-year treasury yield is what, 4.8 percent, something like that? Probably if it's up six basis points. And, you know, that's up, what, 100, over 100 basis points, more than a percentage point over the past. couple three months, I would think. We were kind of in the mid, mid to high threes back in, back in spring, summer. Now we're up, let's say, 100 basis points, maybe a little bit over that. How worried are you about that, Chris, in terms of what it means for, you know, economic growth, for the economy? How big a threat is that to the economy? I think it certainly will weigh on consumers and businesses.

The most obvious channel, the one I've been getting asked the most about this week, is the mortgage market. With the spreads on mortgages have been averaging around 300 basis points, so this puts us on track for something close to 8% mortgage, assuming the tenure does rise to about 5% here. And that's a big movement. That continues to eliminate the population that can actually afford a mortgage or reduce the population that can actually afford a mortgage at the prevailing rate given the level of house prices. And it's not just the existing home sales that we're seeing. It's increasingly more the new home sales that are getting, taking on some of this decline. and that goes right to, you know, builders and GDP and jobs potentially. So I don't think it's, you know, crisis moment yet, but certainly if we continue down

this path, it's going to continue to impact that sector. And then more broadly, right, the higher borrowing costs are going to impinge on the ability of businesses to hire, to expand as well. So I think it's going to slow things. Again, it seems as though there's enough. dry powder here to offset some of the, um, the effects.

So it doesn't push us right into recession, but it certainly slows things down. Yeah, I, I'm a hard pressed though to get overly worried about it. I mean, you, you put your, you pointed to the one sector of the economy that's the most rate sensitive sector of the economy.

Mm-hmm. Single family housing. And, you know, you look at single family housing and it feels like it's kind of sort of navigating this. gracefully. I mean, home sales are down, right, a lot because of all the interest rate lock. So the fixed mortgage rate at closing on on eight, the average coupon in an existing mortgage,

you know, if you look at all the mortgages out there that people have, it's 3.5%. So people have no economic, there's a strong economic extent of not to move, right? Because I've got the three and a half percent mortgage. If I sell my home to go buy another home, get another mortgage, I'm going from three and a half to an eight, my monthly payments is going to be unaffordable, so I'm not moving. So home sales are in the deep freeze, but they weren't the deep freeze back at 7%, you know, so I'm not sure. In terms of its economic impact, that's relatively modest.

And then you look at home. That's on the supply side, right? On the supply side. Yeah, so you don't, yeah, yeah, I wasn't going to move at a 6.5% mortgage. I'm not going to move at 7.5. I'm not going to move at 8. Yeah, yeah. Yeah.

But on the demand side, right, the affordability side, you know, those renters who potentially could have come in to purchase homes, well, they're increasingly are just set to the sidelines. They're really locked out of the market. Oh, sure. And I'm not arguing. Yeah, I'm not arguing that's good. It's bad. I mean, it's ways on homeownership.

But I don't know that as a near term threat to the economy, it's that big a deal. I mean, the big deal would be if you sell a big decline in housing construction, single-family housing construction. And as you pointed out, we have not seen that yet because builders have responded to the increase in interest rates and weakening in affordability by effectively cutting, I think this is right, effectively cutting their price on the home, right? One way of doing that is buying down the mortgage, right? So buying down meaning, I, the home builder will cover, you know, a point or two of the mortgage rate increase for a year or two to keep the effective cost down, the effective price down to make this more affordable for you.

And that's helped to keep new home sales up reasonably so and kept single family housing construction from caving. And that would be the, I think, probably the biggest, most significant channel through which interest rates, would affect the housing market, which would affect the economy? Is that fair? Yeah, I guess we can debate how much more room they have to give in terms of the incentives. But, yeah, right. Right, but so far, they've cushioned the bar here, right, to the economy. Yeah. Right. You can actually go back to the jobs report, look at construction employment. Obviously, a lot of different things going on there, but the weakening in single family home building hasn't been a nut. even enough to offset the job growth and the other parts of construction, you know, part of that's

fiscal policy, part of that's multifamily, and you're still getting positive construction employment growth. And that's the most rate-sensitive sector of the economy, right? Yeah, yeah. Yeah. So far. So far. Yeah, so far.

Yeah, so far. You're right. So far. I mean, but doesn't, I guess if that's the most significant channel through which higher long commercial going to affect the economy in the near term, it doesn't feel like it's that big a deal if it's, you know, 4% or 4.5% or even 5% on the 10-year yield. Now? Well, I guess we've made this point in the past on its own. Sure, it might be able to digest the labor market stays relatively robust, but we've got some other headwinds here potentially as well. So that's, I think.

I do worry about the higher rates in the context of the second thing you said, but this is more, you know, down the road. It's not like in your face. And that is, now, rates are higher. So any debtor, whether you be a business person or a household, a commercial real estate owner, you know, with a loan that's coming due, it's maturing. And now you've got to re-up your mortgage or your loan. And it's going to be at a much higher interest. rate, probably under more onerous terms because the banks have tightened down, given what happened back in March, that raises the risk that, you know, the business or the household or the property owner can't manage the higher interest payments and therefore defaults. And that hasn't happened yet, but it feels like if rates stay high for too long and more debt starts to roll over, you could see that happen. And that's, to me, the real concern. But that's not a concern for the fourth quarter or the first quarter. That might be a concern over the next couple of years, depending on how high rates remain

and how long they remain there. Is that fair? That's right. So for the existing borrower, that's true. But the constraint is on the new borrowing, of course, right? Any new activity I need to borrow to start a new business or expand my business, right? I'm going to face this higher rate. So it certainly could restrict additional spending or investment activity.

But it feels like this is a corrosive, not a cliff. You know, it doesn't feel like this is a stake in the, a dagger in the heart of the economy. It's one of those things that it's just like a weight on the economy. At some point, the economy breaks underneath, but it's not one of those things that does this in, it's not a catalyst for recession, I guess is what I'm saying. On its own right. Yeah. I'd agree with that.

you need to combine it with something else. Yeah. Dante, you've heard the conversation around long-term rates. Anything you want to weigh in here on or say? I've got one more thing I want to say, but before I say it, I want to just pass it over to you. No, I mean, I would agree. I don't think it's not a signal of a cliff event coming. I think it's that headwind and it's the question of, you know, how long can we run against that headwind?

And does that eventually cause us to stop moving forward, right? Is that eventually enough to sort of cause the economy to roll over? or does something else happen at the same time that sort of adds to that headwind. So, yeah, I agree it's not this sort of singular event that's going to cause everything to fall apart, but it adds pressure and eventually over time that could cause problems. Right. Okay. You know, obviously raises the cost of capital and business investment gets hurt.

And, you know, it's not good. I'm not arguing it's not a headwind, but it doesn't feel like a headwind that can blow us over here in the near term. Here's the other thing. And that is, if you look at the... the reasons why long-term rates have risen. The kind of frame, and I think we've talked about this before on the podcast, the framework I use is I decompose the tenure yield into three parts.

Part one is inflation expectations. You know, what do bond investors think inflation is going to be in the future? They need to be compensated for that. Two, you know, what do they think the Fed's going to be doing? That goes to short-term interest rates, particularly after inflation, expected real short-term interest rates. And three, the so-called term premium, which is the difference is the amount of yield interest rate, an investor in a long-term bond needs to compensate for taking a risk compared to investing in a short-term

bond, given all the things that can, you know, affect interest rates between here and the long run. And if you look in the recent run-up in long-term rates, none of it is related to inflation expectations. that's been stable as a rock to the Fed's credit, you know, right where you'd expect it to be, right where you'd want it to be. The run-up in rates is largely around the Fed in real short-term interest rates and the so-called term premium. And I feel less worried about that than if it were inflation expectations. You know, if it were inflation, because one reason we yields are up is because bond investors

say growth is going to be stronger, therefore the Fed's got to keep rates higher for longer. So it's almost like saying rates are up because the economy's strong. Therefore, it's less likely the higher rates is the thing that's going to do the economy in. Am I making any sense at all? Do you see what I'm saying? I mean, if it was inflation expectations, you'd go, oh, my gosh, that's a problem. Yeah, yeah. The Fed's got to go on the warpath, jack up interest rates even more, and we're going.

This is going to push us into recession. But if it's not inflation expectations, I feel less worried about it. And here's the other thing on the term premium. It's a milagia stuff. It's hard to disentangle all the things that are driving that term, that term premium. I'm sure some of it is concerned about the fiscal situation or budget deficits. And, you know,

that came to the fore after the debt limit debacle later earlier this year because the Treasury had to issue a lot of debt to kind of catch up. And that kind of conflated with the Fed's quantitative tightening, meaning they're allowing the Treasury securities and mortgage securities on their balance sheet to run off. That kind of adds to the supply. You know, all those things, you know, are part of it. But it's also just speculation in the bond market. You know, the bond market is a market. It's a financial market like the stock market. And it's, it's affected by, you know, momentum players, speculators, technical factors, short sellers,

you know, all kinds of wacko, weird things going on that are not fundamental. They can drive a market for a while, but they can't drive it forever for very long because the fundamentals will ultimately prevail. And I suspect a lot of this run up and yield is those momentum players, you know, like the Bill Ackman's of the world, you know, they're tweeting about this or the, you know, Larry Fink or Jamie Diamond talking about long-term rates kind of fans the kind of the speculation and the momentum players in that market. So I worry less about that. So I guess my point is I'm less concerned about the run-up in interest rates because of the reasons why interest rates have risen. Okay, I'll stop.

I went on a bit of a rant. Chris, does that resonate at all? It does. It does. I guess one point I would kind of push back a little bit on is just the inflation expectations. You're right, they are anchored, and they've been very, the run-up in volatility that we had has seemed to be dissipated. But they are higher than they were prior to the pandemic. So that would suggest that this is a new old regime of some sort.

Oh, rates are going to be higher now. I mean, I would say that's just normalization. That's right. The weird thing was before. Exactly. Back to my earlier point, right? So I think you agree there that we're not going back to 2, 3%, right, as the normal. That's not the path.

Oh, yeah. No, no, no, no, no, no. Right. In fact, I would argue that two, three percent was the one thing that abnormal was unhealthy. It was not, that's when people said, is the economy back to full swing after the financial crisis? I would always say, I would argue no, because inflation had not normalized and interest rates had not normalized. But now they feel like they've normalized. Yeah. Yeah. Okay. And here's the other thing, you know, and you can attest to this, Chris. We have had in our outlook for the for long-term interest rates kind of a four percent and 10-year treasury yield that's kind of been the stake in the ground in our forecast and you know if you go

back pre-pandemic we had that forecast and of course back then rates were a lot lower and we came under withering criticism consistently withering criticism from from clients and others saying what are you talking about we're never going to get back to 4 percent but we had the 4 percent and for right now we're 4-8, which is a little, you know, it's higher than four, but, you know, going back to my, I think this is going to be the title of our podcast. It's within statistical spitting distance of 4% given that the bond market moves 10 basis points in an hour, right? I mean, am I wrong?

Yeah, yeah. When the 10 year was 4-1, just like a month ago, the beginning of September, it was basically a 4-1s. I mean, you're talking about a huge movement in a month, and so you'd expect some of that could easily come back off just as quickly. Yeah. So, you know, I think I don't get, I don't get hair, I certainly don't get hair on fire. I'm not even sure how much, how worried I should be at a 4-8.

You know, if it goes to 5 and above and stays there, then, yeah, we got, you know, that's going to be a problem ultimately. But if it, you know, 4-8 goes down to 4-5, 4-and-a-quarter over the next few months, I'm not sure big deal. Agreed? roughly so, no? I guess it's the speed and duration, right? Okay.

We can adjust to anything, right? Pretty much. I can't. I can't adjust to anything. Everything's got to be exactly the same for me. I got to get my Wawa coffee every morning. If I don't have my Wawa coffee, I got a problem. So nothing's got to change.

Nothing can change. Fair enough. I can't adjust to anything. But anyway, I get your point. I get your point. I get your point. Now, Dante, he can adjust to anything. That guy, you know,

he's dynamic. Nothing bothers that guy. I'm telling you. He's like, even keel. I can't, that's why I shoot. I know.

Yeah. I got to meet your wife. I mean, she must be bouncing off the walls. It's not as even keel as I am. That was true. Really? Oh,

that's scary. Scary. What about your kids? They must be, they're the guy, they're bouncing off the walls, I'm sure. Well,

yeah. I think age has. has more of a role in that than their actual personality. But, you know. Okay. All right. Okay, very good. Hey, one last thing, Chris, oil prices.

That's the thing that had been really making us nervous. Are you less nervous now that oil prices are down or not? It's just too early to feel good about that. Because oil was, I think it was just last week we were talking about this. Oil was 90, 95 bucks and it felt like it was going to 100. Now it's 80, 85 bucks. And at our macro meeting, again, we're talking about. talking to Chris Lafacus and Juan Pablo.

Oh, Juan Pablo wasn't there, Crystal Faccus. And he's saying, he thinks this is real that we're going to be in the 80s. Does that make you feel better? If it's true, it makes me feel better. I'm still nervous, though, right? That market, of course, was subject to all sorts of movements. I know. I know.

Okay. But I'll take it, right? Yeah, absolutely. I'll take it. If we can stay in this range, I think we can manage. If we can keep the tenure in this range, I think we can manage. Well, the other good point he made that hadn't resonated with me until he was telling me this a few days ago, gas price, gasoline prices have actually remained, even though oil prices have gone up, gas prices have not.

And that goes to, you know, the fact that we're in a seasonally weak period of gas demand, you know, less driving. and the so-called crack spread, the kind of spread between refiner's charge for the refined product and the crude is very, very wide and probably going to come in, and that's going to keep gas prices down. Gasoline, diesel, jet fuel, cheaper relative to oil than,

at least for the next few months. That's going to be the case, and that's also very positive. Yeah. Okay. I think I saw a statistic that we were actually using less oil, or less gasoline. today than we were back in 2019.

Yeah, I think that's definitely true. Yeah. I mean, yeah, oil consumption here in the U.S. is about a million barrels a day less than what it was pre-pandemic. Yeah. So, yeah, moving in the right direction. Okay, let's, let's end with the probabilities of recession. I don't think I've done this with, well, since you were last on Dante.

What is your probability of recession? Let me tweak it a little bit now because we're now in October. What is the probability that a recession will start at some point between now and the end of 2024? So on the other side of the presidential election? I don't think it changes my expectation. I mean, I think a month ago, I was at a third, and I would certainly nothing today has changed that.

And I don't think, you know, I think things have settled enough over the last couple weeks that I would still say a third. Okay. Okay. And Chris? I'm going to stick with 45. 45. Okay.

Yeah. Just too many things moving around. shut down, still on a table here. So, yeah, a lot to worry about. Okay. Now, I'm still at one third. I was, you know, just to be clear, I was at 30% in the coming year. And then if you add in that one additional quarter end of next year, so one,

just probabilistically, you know, one, one third. Okay, very good. Anything else, guys, before we call it a podcast? I think this one was, turned out to be at least an hour or so. No matter what we do, it's going to be at least an hour. Yeah, keep it under an hour. Yeah. But anything else you want to bring up?

Look forward to having Mercer back. Yeah. I can't wait to hear about her trip to Japan. I mean, that'll be really interesting. Hopefully she's having a good time. Dante, anything? No, I'm good. Okay.

It's a pleasure being here. Thanks for coming. Really appreciate it. And I'm going to be on the road, hopefully, the next couple, three weeks, really for the next month or so. I'm kind of the Asian, European, Middle Eastern tour. But I'm dedicated, no matter where, no matter when, I do the podcast. I haven't missed this podcast for two and a half years plus, and I don't plan to miss it, miss it anytime in the near future.

It's one of the funest things we do every week. So with that, dear listener, we're going to call this a podcast. Take care now, everyone.