Moody's Talks - Inside Economics - Workers, Wages, and Wallyball

Episode Date: November 5, 2021

Mark, Ryan, and Cris dissect the October U.S. employment report and what it says about the state of the economy, wage growth, and inflation. We knew there were Hunger Games and Squid Games. Now add the Zandi Games.Full episode transcript here. 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. It's Jobs Friday, a big day for us here at Moody's. And I've got my two colleagues, trusted colleagues, joining me today. Ryan Sweet. Ryan's the director of real-time economics. Hi, Ryan. Hey, Mark.

How are you? We're counting on you, Ryan, because you have hope, hopefully you've had enough time to dig down into the bowels of this report. And you're going to give us a lot of insight here. I haven't, I've been kind of scrambling a little bit. I haven't had a chance to really dig deep, but. Oh, you're in trouble then. Oh, no. I know.

I know. I know. You know, the thing about the jobs number is a report is that there's so many numbers, right? Yes. Yeah, it's unbelievable. I can't keep them all straight. I'll give you the biggest number of the week. Seven.

Are we going to come back to that or should I think? My oldest son turned seven this week. Oh. Oh. That was the most important number for the week. That's... Well, that is important. That is really important.

Really? You have a son that's seven years old. Wow. Time flies. Is he going to be a Boston Red Sox player at some point? He's really into baseball and he wears his Red Sox. He has a dad. Yeah.

Very good. Well, congratulations on that. And also Chris Deereides. Chris. Chris is the Deputy Chief Economist. Hi, Chris. Hey, Mark. How are you?

And you're wearing? wearing red today, red. Just to get on your nerves. I know it, I know it annoys you, so, you know, you are in my mind, every, every podcast,

Brian, have you noticed this? Every podcast, he's got a different look. I'm, like, I never change. I either have a sweatshirt on

or a white, you know, collared shirt. That's it. Those are, those are my two choices. Today is my white collared. He just like throws curballs.

I know. Look at that. Well, you mention it so often that, you know, now it's in my head. I got to, I got to think about it. You know what? You look like you should be Formula One driver today. Yeah. I'm not kidding, doesn't he?

Like, there's a Ferrari, you know, outside his door there. The funny thing is he doesn't dress differently outside. I ran into Chris at the Y because our kids had swim lessons. And I was like, it looked like he was going to be on the podcast any minute. You know, I'm consistent. Is that right? You look that good. I'll take the Formula One as a compliment.

I wish I could do that. Oh, definitely a compliment. That's like a big deal. Yeah. It definitely could be a Ferrari driver, right? Right? Definitely. Well, they're not doing so good this year.

Are you drinking your bererista coffee there? You got your little... No, I don't see the coffee. No, I already did. I already... Ryan, I do see the cowbells. All right. The cowboys are good.

Yeah, they're there. All right. Well, this is Jobs Friday. This is like my, actually one of my favorite days, well, of the month. I was going to say of the year, but that would be really stretching it. But the same month, her favorite day of the month. And today, this was a great jobs number, wasn't it? It was.

So maybe we should start, Ryan, with you just giving us the basic rundown. and then we'll go into a bit of our statistics game, which I'm sure is going to be centered around the jobs numbers, and you're going to give us some number deep into the bowels that we're never going to get. Not that deep, okay. It did stand out to me, though. Oh, it did. Okay.

All right. So give us the rundown here on the numbers. Well, first, everyone was concerned that we got this sharp deceleration in job growth. And if you look at the revisions for the last two months, they were up revised higher by a net 200,000. So this deceleration, it still occurred, but it was less significant than what was previously thought. So all that concern about, you know,

we're descending into a recession. We can kind of table that talk for now. So we created a- Now, I mean, put a stake in the heart of that idea. For at least the next couple years. Okay. But, you know, this talk that we were hearing from the corners of, I don't know,

aware that we were in a recession. I mean, come on. That was nonsense. I was being polite. Okay, very good. You can put the stake in the- Move forward. Move forward.

All right, so we created more than 500,000 jobs. Private, if you strip out government, we created a little bit more than 600,000 jobs on that. Unemployment rate came down. More people came into labor force. The number of people that were out of labor force for own illness, that's all COVID-related, declined. So the Delta variance imprint or grip on the labor market loosened in October.

And so far, if you look at jobless claims, if you look at other high frequency measures, the home-based data, November should just be as good as October from an employment perspective. So we're back off and running when it comes to the labor market. Okay, a lot to unpack there. But before we do, Chris, any other color you want to add in terms of report, the job numbers, Anything you would say? Yeah, it was just solid all around. And the revisions caught my eye as well.

So that was my backup number. But that was really impressive that, you know, 117, $118,000, more jobs in August and September than originally thought. So just go to show you can't just rely on that first print. Exactly. Particularly now. Yeah.

Let's talk about those revisions first. And just so just the level set here, bottom line, this was a really good report, right? Absolutely. Absolutely. Very good. I mean, and it suggests, like we've been saying on these podcasts now for several weeks, or maybe you've lasted several months, that the economy's performance is tethered to the pandemic. Delta came in July, August, September, really nailed the economy.

September, you know, was a pretty tough month for jobs. August, I think August was in our monthly GDP number was actually negative, you know, for August GDP. But now that the pandemic, now that the Delta wave is winding down and it definitively is winding down. If you look at infections, the economy's revving right back up. And that's the overarching kind of message here in this jobs number. Everyone agree with that? Yes. Yeah, okay.

All right, fine. It's not just the employment data. Let's hope it's lighting down. Yeah. Well, yeah. Oh, okay, we can come back to that. Yeah, but that's a good point. I mean, I guess you're right.

Infections seem to be leveling off at a high level here, 70, 75K per day. So we've got to watch that. And in Europe, they're going back up again, so we need to watch that. Yeah, Germany just said I'm not the record high. So the winter is going to be something to watch out for. Yeah. Okay. All right.

On the revisions, correct me if I'm wrong, but I've noted. that there's been consistent upward revisions for a while now, at least for four, five, six months, maybe even longer. Do I have that right? Ryan? No, that's correct. And there is a bias in the revisions when you're coming out of a recession. So early on in a recovery, revisions typically are biased higher and positive. Well, bias, I don't think that's the right word.

Is that right? No, you're right. That's not the correct word. They have a tendency to be revised higher. Yeah. So typically the first print underestimates the amount of job growth that occurred early in a recovery. And now with the pandemic, with so many people changing jobs, that revision is just now on steroids. Right.

And the seasonals are worse this time around, right? That's my impression at least, right? So what does that mean? The seasonal are worse. The seasonal adjustments are all over the map because of the pandemic. The pandemic had such a different trajectory in terms of. of the recession and recovery period that it's not clear what the seasonal adjustment should be at the moment.

That means that's my interpretation. There's a lot of noise in the seasonals. Right. Because you had all sorts of things going on. You had even tax returns being delayed. You had all sorts of things that could throw off seasonal adjustments. Yeah. Wait until November with the early holiday shopping, retail, you know, already revving up, you

know, FedEx, UPS. They're hiring Amazon well ahead of time, like ahead of normal. So you're going to get a big boost to employment in November. Well, let's come back to just go back to the revisions for a second. And then we'll come back to the season. There's so many different ways we can go here. This is why this is going to be a particularly tough podcast. But back to the revisions to kind of finish off that conversation.

One reason why, as you say, Ryan, coming out of recessions into recoveries, the Bureau of Labor Statistics tends to underestimate job creation, at least initially, in this first survey, first print, so-called first print, is that it doesn't pick up a job creation that might be occurring at smaller companies, businesses, maybe even new companies that are forming. And we know that business formation so far this year in 2021 has been extraordinary, right? I mean, if you look at the tax identification, the applications for tax identification numbers by businesses. So if I go start a new company, company, and I got to pay taxes, I got to get an so-called EIN, which is an acronym for a tax

identification number. And those have just gone skyward, you know, since the beginning of you. Am I right about that? I think I am. Right. You're spot on. Yep. Yeah. Yep. And so that would be consistent with these upward revisions. We're getting all this business formation, a lot of activity, you know, ongoing at smaller businesses. And, you know, the BLS just catches up. The survey kind of catches up as more people, as more businesses report in. Is that the idea on the revisions? Yeah, correct. And that's, I mean, that's after, you know, recession, you're, like, that's normal.

At this time, it's different, a little bit different. We have that issue as well, but on top of it, if you look at the number of people that are quitting their jobs, it's, you know, astronomical. So when people are quitting their jobs, the BLS has a hard time catching all this labor market churn. So I think that's another reason why we're seeing such large upper revisions. Also, we get this so-called benchmark revision once a year when the Bureau of Labor Statistics goes back and takes the data based on the survey, this monthly survey, which is an incomplete

survey, right? I think the survey captures what, 30 million businesses that employ about 30 million people? Do I have that roughly? Right? Something like that. And then they come back once a year and they benchmark their estimates based on that survey. to actual employment counts based on unemployment insurance records, which is a complete kind of census of all the jobs out there.

Correct. And they do that with a January report that's released in early February. I've got that right, right? I mean, for the nation. The annual benchmark revision. And they tend to, they historically have come out in the fall and said, this is what the revisions, we think the revision is going to be for that benchmark revision. August.

They come out in August. Did we see that this year? I missed it somehow, I forgot about it. I don't know. Do we see it? We got to go back and take a look. I wonder what those revisions were going to be. Because I'd expect them to be able to do.

Yeah, but I was. Yeah, true. That would be March of 2021, right? I think they were small. Yeah, I don't think they were enormous. Okay, because the economy really hadn't gotten going. That was March of 20. The benchmark was March of 2021.

This August, the benchmark will be interesting. I mean, if I had a guess. Wait, wait, wait. Wait, no, the, the benchmark is as of March. of 2021. They release, I'm sorry. And they release their estimate of what March, 2021 in August.

Correct. And you're saying it was pretty small. And that's probably because, okay, got it. Boy, a lot of nitty-gritty there. Yeah, we went down a rabbit hole real fast. Well, that's okay. The bottom line is, the numbers are good,

and they're actually probably even better than they're saying, because we're in this period when we get these big upper revisions in the data, which is all, you know, very encouraging. So that's very good.

Let's go back to the seasonal adjustment. And the point you're making there, and I think you did an admirable job, is that the pandemic, you know, really messed up the data and historical data because you got this massive blow to the economy back March, April, May of 2020. Things come roaring back temporarily. Then they settle back in, and then the Delta wave. And so all the normal seasonal patterns in the labor market just got completely scrambled. So when the Bureau of Labor Statistics goes back and tries to tease out what those seasonal patterns are, they really, it's difficult to do. And one complication that may be affecting the data now is that the retailers and transportation companies, the FedEx's of the world, the UPS of the world, have been hiring, maybe hiring, sooner than normal for the holiday season because they're fearful, they're not going to get the

people they need. Is that the point you're making? So did we see a big, I didn't notice, did we see a big jump in jobs and retail is up? It's coming. The big boost is going to come in November. Okay. Oh, so with this month, we're going to get much bigger number you're saying than typical because of the seasonals. And then I guess December is going to be the flip of that, right? Yeah, it's going to be awful. of next year when we're just going to see a lot more. Well, I guess that's more difficult. You get the normal layoffs that occur January, February.

All right. Okay, we're getting really deep into the monthly data, vagaries of the data. But the point is that this number today might have been a little juiced by favorable seasonals is what you're saying. At least when it comes to retail. So Chris and I've been going back and forth in stressing the importance of looking at the non-seasonally adjusted data. So you take out these, like, quirks, you know, these, what we're talking about.

I just checked non-seasoned justice private employment in October was up 1.9 million. Really? That is more than, what was that? More than double, what's your typical October? So you can take all these little nuances that we're talking about out, and it's still a blowout number. It's still really, really good. Okay.

Okay, very good. Excellent. Okay. Any other things that we want to alert to a listener to in the report, just to give them a sense of the numbers? I mean, I guess we'll come back. We should come back to this when we get deeper into the kind of what's going on in the labor market, because that's the big topic of the day. Obviously, the job's number is the statistic we're going to focus on, although there were other statistics that came out this week that we could talk about. But that seems to be dominating the conversation. And then we're going to go into the big topic into deeper labor market issues. The one statistic that I found a bit disappointing was labor force participation, which held steady unemployment declined from 4-8 to 4-6, all good. But the labor force participation rate held steady at 61.6.

So that's a little, and that's where it's been, labor force participation really hasn't moved for over a year now, really. You know, someone's up a little bit, someone's down, but not really. I found that a little disappointing. Agreed? Yeah, I agree. Yeah, certainly. Great. So we've got to come back and unpack that one, too, and think about, you know, what's driving that and whether, I guess the question that's starting to open up here is, you know, are we going to see it rise?

Is there something more fundamental going on? It's keeping participation down. I've got a view on that. I'm sure you do, but we'll come back to that. Okay. And, of course, the average hourly earnings, they were strong, again. So year over year, average hourly earnings, the measure of wage growth in this report, the Bureau of Labor Statistics report was 4-9, I think, right?

Yep, that's right. Yeah, that's very strong. That's very strong. Of course, it's affected by the mix of jobs and occupations, but in this case, even the ECI, the other indicators are all. Right, so I don't know. And there's another number came out this week. The employment cost index, which is a better measure, right?

That was strong. I guess that's the other point to make about the number today is the job gains were broad-based across all private sector industries, construction, manufacturing, mining, transportation, retail, leisure hospitality, health care. I didn't know, I didn't notice any week. What about motor vehicles? Was that down or up? Did you notice?

Well, are we going to play the game? Oh, okay. We're going to play that game. Okay. We're going to get through all the numbers. I think the one thing you should explain to the listener, though, is. is we did see a decline in government jobs and all in education. So what's going on there?

Why did we see that decline? It was sizable. It was like down 70, 75K in the month. Right, it was down. Do you know? Yeah, I thought it was going to be down less than that. But, again, I mean. Is that seasonals too?

Seasonals? Yeah. We pulled hiring. So, you know, we were ramping up for the new school year. You know, we had last year, basically, you know, the teachers, faculty were off last year. Bus drivers. They got, you know, they ramping up. up higher earlier than the normal to get ready for the new school year. It typically starts in

late August, September. And over the last couple of months, we've seen, you know, declines and employment just because of, mostly because of seasonal adjustment. Yeah. Okay. So cumulus are still down, though, right? Cummills have changed from February 2020. Yes. It's a good point. So still there's some weeklies there. So there's some room there. How do you interpret that? That we should get some. There's still schools closed because of COVID. So So I believe in September, we had 2,000 schools nationally that were closed or went on to be virtual because of COVID. Okay.

Okay. Okay, great. I guess let's play the game. Huh? Yeah. I don't feel good about this at all. You should. I shouldn't feel good.

No, because, I mean, you're tied up with presentations. I know. You just didn't have the time to prep. I didn't have time to really. And I know you're going to kill me on this. Chris, did you prepare? I've got one. Did you?

It is non-BLS. It is non-employment related, just to mix it up. Okay. So you might stand a chance with that one. If it's housing, I'm going to throw you out. No, no, it's not housing. Yeah. There's no housing data that came out this week.

Oh, really? Last week. Just check what Bitcoin prices did. Bitcoin prices. Oh, by the way, I want to come back to the 10-year treasury, old, Ryan. That's, you know, the market. reaction today's numbers was, well, stock market was up. Okay, they liked it. Bond yields were, long-term bond yields were down, right? So I don't know. We'll come back to that.

All right. Okay. Let's go, Ryan, we'll go with you first, so far away. So I got two numbers for you. Are they related? They're related. Okay. All right. So the first is 75.6, and that's a diffusion index. And then 60,000, which is a net change. Are these, I mean, are these like two different statistics or related statistics? Different reports, but they're related to, they're tied together. Okay, so 75.6% diffusion index, and you said 60K? 60K. So, well, so many diffusion index, the only diffusion index I'm familiar with in the BLS.

No, that one's not BLS. I think earlier in the week. Oh, we're not talking about the information. report. It could be, well, one number could be in the employment number. Oh, the 60K is in the employment report. Correct. Yeah, you'll get that one.

Oh, okay. The 75.6 is not in the employment report. Correct. But it is a diffusion index. Correct. Oh, man. It's so hard for me to remember back earlier in the week, right? You can't remember Monday?

Yeah. What's that? Number was on Monday. Damn. We were all focused on the election on Monday, right? Can you give us another hint? It's tied with, it's a big top of mind issue. I think of all the supply chain.

Oh, is it your supply chain index? Your supply chain. No, it's not our index. Okay. You're close. I'll give it. Oh, I know what it is. I know what it is.

Don't tell me. Don't tell me. Don't tell me. Don't tell me. Don't tell me. All right. ISM manufacturing, survey,

supplier delivery index. Very good, Mark. Get the cowbell out, buddy. I'll get the cowbell. You got to get the second one. Why, you guys,

you know, talk amongst yourselves see if you can get the second one. Okay, all right, all right. I know that, that was a little painful

to get out. So he's getting his cowbell. There you go. You have any kids home today or sleeping or anything going on? Oh, okay. You can't hear you.

All right. So 60K, 60K. All right, so think about this. Transportation Warehouse. You can't hear me. Close.

You're close. Employment, no? Employment? All signs point towards supply chain issues. Yes, exactly. But this number of employment was surprisingly strong. I think Chris said it, didn't he? I couldn't hear him.

Oh, go ahead. I said transportation warehouse. Oh, employment. Manufacturing. Manufacturing. Manufacturing. Oh. Yeah.

Oh, that's not it. It's not it. So manufacturing was up $60. thousand and within manufacturing autos, which has been just crushed from the supply chain issues, employment was up 27,000, which is a good sign. Interesting. I find a little confusing because I was just talking to Mike Brisson, who's our auto guy, auto economist.

He was saying that production is still down. Yeah, okay, but this would suggest auto production schedules point towards a little bit of a pickup. Okay. For the rest of the year. Seasonal factors. I guess that's going on. Usually I'm the one that screams seasonal factors. This is the first go-to when you can explain something.

Seasonal factors. I was encouraged, though. I think it's an early indication that maybe, you know, they're going to be a little less binding. I think they're still going to be problematic for the next year, but hopefully they cut less into growth than what they've done most of this year. Right. So do you think we're kind of at the worst of the supply chain? It just sounds like you think we're at the worst of the supply chain issues. I guess it would make sense in the context of Delta winding down.

Correct. I think that's what the Toyota CEO said earlier in the week that we were at the peak here, but things should get better. Slowly. Right. Yeah, the one indicator I would love to get my hands on, and I think we can, is the number of ships that are out. out in LA Long Beach port, you know, that are just waiting to be unloaded.

Which, uh, have you had a chance to take a look at that at all, right? Yeah. So they're coming down a little bit because of Biden's, uh, he, he, I don't know if it was an executive order, but the longshoremen have to work 24 hours a day, seven days a week to offload these, these container ships. Yeah, I heard. And they're, they actually are working those 24, seven hours. Okay.

One interesting thing to keep in mind for next June or July, the longshoreman contract in the West Coast expires. So we could have a port strike like we did back in 2015. That would be a problem. Okay. So Delta wave is winding down here globally, Germany aside. I guess Europe's on a different kind of trajectory here. but certainly in Asia, it's been winding down.

Activities picking back up, factories reopening, ports reopening in China. Here in the U.S., we're responding by going 24-7, at least partially going 24-7, trying to make some efforts here. And it feels like that the worst of the supply chain issues are at hand or just behind us and we're starting to see some improvement here. And you're saying there was an indication of that in the job. number with the increase in jobs at motor vehicles and you don't think that seasonal adjustment you think that is something that's legit okay it's a small

step a small step in the right direction yeah we still have a long way to see well just to get people context around there vehicle sales which obviously have been depressed because there's no vehicles to sell here's the other statistic Mike Brisson told me found amazing there's about 75,000 vehicles on dealer lots you know, as of last week. Typically, there's 500,000 on dealer-laws. That gives you a sense.

I mean, record low inventory. So we're not getting sales. Sales hit 12.2 million annualized in September. They're back up to 13 million in October. And you're saying, okay, that indicates maybe, perhaps indicates that the supply chain issues are ironing up and the manufacturers, vehicle manufacturers are getting it together again. Yep. Absolutely.

And here's the other point. Typically, typical cells are 17 million units per annum, right? So that would suggest there's a lot of juice coming, right? As we go from 13 million to 17 and production picks up again as we get those chips, you know, admittedly that's going to take some time and overtime. But that's going to add to growth in a very significant way. Yeah. I'm sorry, Chris, I interrupted you.

No, a question for you. Do you think this lean inventory, lean inventories on dealer lots is going to be a new normal? Our automakers are going to take this opportunity to, you know, they kind of like having lean inventories allows them to control the prices a bit more. Do they coordinate here and people are adapting to the online environment to order cars? Is this something that's going to be permanent or do you think next year we're going to be right back to, you know, 500K? Well, I can't imagine they want 75K because they're losing sales. They can't sell them. Well, that might be, yeah, maybe too low, but do they go?

all the way back to the inventory levels of the past. Yeah, that's a good point. Or the thought is completely the opposite and is, oh, I got to have a cushion here if something goes wrong. Because look, I lost a lot of sales because I had no inventory. I've been managing my inventories so leanly that, you know, if anything goes wrong in the world, then I got a huge problem. I'm losing, I'm destroying sales, you know, even at these higher prices.

So I'm not sure how that cuts, to tell you the truth. That feeds perfectly into, I had a client ask me what the catalyst for the next recession is going to be. What do you think? The catalyst for the next recession? Well, I think the biggest threat is kind of a classic business cycle. Inventories. Yeah, two lean. labor market's too tight.

Prices, you know, inflation remains too elevated. Fed has to respond more aggressively than anyone's anticipating at this point. Obviously, asset prices, stock values, housing prices, crypto, everything becomes, you know, very vulnerable in that kind of scenario. And that's kind of a classic business cycle. That's how I would have responded to that. Is that what you would say? I pinpoint inventories.

I think businesses are double ordering, triple ordering now, because we have all these supply issues, they're going to get caught maybe with too much inventory in a couple of years. And then, you know, traditionally, inventories have caused recessions in the U.S., and they're going to have to, you know, but we call it with too much to get that inventory correction, you know, short recession, boom-bust type cycle in the U.S. So what you're saying is that inventories get too lean, you know, going and you get inflationary pressures? No, no, no.

So they're lean right now. Like, they're very, very lean. Oh, you're saying, oh, I see what you're saying. Over the next couple years, they double book. We're going to glut. Yep, they get a glut. Exactly for us. Well, also a lot of capacities coming on, going to come online too, right?

Because every manufacturing, every industry seems to be planning for additional capacity, you know, chips and everything. You know, expanding up. Yeah, it's not going to hit. Yeah, we overshoot. Yeah, we overshoot. Interesting. So this is the cobblet model, right? Yeah, the cowboy model.

Yeah. which is well known in the agricultural circles, right? All right. Prices, you have a shortage, prices go up for whatever the ag commodity is. Farmers respond to that, plant too much stuff, and because it all happens with the lag, they get surprised and get into this kind of circular kind of mess. Okay, so you're arguing the opposite of what Chris was just arguing,

that, you know, we're in store for excess inventory down the road, that that's the risk. Not too mean inventory. Couple years down the road. Yeah. Okay. Yeah, interesting. Okay, Chris, what's your number?

66.7. And this is non-employment related. Not employment related. Chris's probability that he's going to win the Formula One race. He's about the two-thirds probability. I think he violated the first rule of Fight Club. What's that? Not to pick something that's too obvious.

Yeah. All right. Oh, so you know, how come I don't, so obvious to you that what that number is? It's related to the other one. Yeah, it's related. You just went over. You have manufacturing. What's the sister survey?

Yeah. Oh, no, he didn't go there, did he? Yeah, he did. The ISM non-man survey? Yes, he did. Supplier deliveries? Yeah, services. Services PMI.

Oh, okay. It was a good number. Yeah, it was a good number. It was actually the top line number was a record number. It was a great number. Yeah, Chris, you're surprised. You didn't know that? It was a surprise.

66.7. Okay, is that the, that's the top line number? Not the supplier deliveries. It's a top line number in the ICA That's the top line number. Yeah, the composite index. Yeah. Okay, and that was a record high, all-time high.

And that survey's been, how long's, the purchasing manager's been doing that one? Early 2000s. Early 2000s. Yeah, the ISM manufacturing survey that goes way further back, but ISM not. man was early 2000, I believe.

You know, guys, you know, we were talking like a recession four weeks ago. Now feels like boom. Boom. Doesn't it? So all these guys talking about recession, the economy was actually booming. That coin was the recession. I want to make a change. My 10% probability of a decline in GDP in the fourth quarter is now zero.

And not happening. It's not happening. Yeah, I agree with you. I mean, what's our tracking estimate for GDP? I know it's early, early days. It's early. The estimate is we take all the real-time statistics, monthly statistics, and translate that into what it means for GDP growth, the valuable things we produce in the current quarter.

We're now in Q4. What is our tracking estimate for Q4? 7.7. Okay. That's boom. Yeah. We're back. Yeah.

There's a couple of other folks that do this, and they're really good at it, like the Atlanta Federal Reserve. Have they come out with a number yet? They have. They're closer to, they're above eight and a half, maybe close to nine. Oh, they're eight. Okay. even stronger than we are. Okay, very good. Okay, all very good. Anything else in that, I think you

do justice in pointing to that ISM non-man survey because that was a blowout survey. Anything in the bowels of the survey, Chris, that stood out to you? It was pretty strong across the board. I believe employment. Employment was a little weak, but all the other components were strong. It points to the post-Delta environment here, right? Orders are up. Very positive, yeah. Okay.

All right, okay. So I guess it's my turn, right? Mm-hmm. Okay, I got one for you. And this might, because there's so many numbers, this might be a little unfair, but this is a pretty important number, I think. The CNN, back to normal.

$3.8 million. $3.8 million. It's in the jobs report. It's in the jobs report. I'll go far as to tell you it's actually in the text the Bureau of Labor Statistics provides, 3.8 million. It goes to, you know. Oh, is this the number of people that? Go ahead.

Go ahead. People not working because of the pandemic? Yeah, exactly. Very good. Yeah, that's exactly a. Were you going to get that, Ryan? Of course. For sure.

You weren't going to, oh, okay. He's being modest. Yeah, there was, according to the BLS, 3.8 million people that are unable to work because their employer closed or lost business during the pandemic, 3.8 million. And the reason I bring that up, well, but lots of reasons for that. But one of the interesting things is that's almost precisely the number of, people were down in the labor force today compared to pre-pandemic. So if you look at the size of the labor force today, look at what it was pre-pandemic, we're down, you know, about four million, you know, something like that. So that would suggest that, you know, as we get to the other side of the,

well, it suggests two things to me. I'm curious, you know, if you agree. First, as we continue to work through the pandemic, hopefully get to the other side of the pandemic. pandemic, these folks will get back to work, come back into the labor force, and everything start to normalize in terms of labor force and labor force participation. But the other thing that suggests to me is it's not going to be quick. It's going to take time because these are people who've lost jobs at employers that have actually closed, so they're gone. You know, they failed, and now you've got to go find another job somewhere else. And that, you know, there are plenty of jobs out there. Openings, but it's going to take some time. Is that a fair?

kind of read on things, guys? Yeah, I think it sounds reason. The only thing gives me hope is that there are a lot of startups and small business openings, as you mentioned earlier. So that could certainly accelerate things. If that wasn't the case, it would be even longer, right, for people to try to find new jobs. Yeah, and I thought in our macro meeting,

or our monthly meeting where the whole stack is together, I thought you brought up a very interesting point about the long COVID. So if you look at the number of people that were employed, but not at work, because of own illness, it's still above a million, which is, you know, elevated. 1.3 million. Yeah. 1.3.

Yep. 1.378 to be exact. But there you go. It's been above a million since the pandemic began. I think I think that's a point that this is going to linger for some time. It's going to take some time. Okay. And this now leads us into kind of some of the broader labor market issues I want to talk about

as our big topic. And the one that's really top. of mind here, and I think came to the fore with this report today, is labor force participation. So just to provide context, pre-pandemic, labor force participation, this is the percent of the, of the, this is the ratio of the number of people who are working or looking for work relative to the working age population. So it's the percent of the working age population that's. out there working or looking for work, unemployed and looking for work.

That was 63.5%-ish, you know, give or take, you know, pre-pandemic. And now, and of course it got crushed in the height of the pandemic back in the early part of 2020. It's made its way back. But as we said earlier, it's sitting at 61.5%ish, actually 61.6%, to be precise, in October. So we're still down two percentage points from pre-pandemic. And, you know, you do the arithmetic, that's about four, you know, kind of four million people-ish, you know, something like that. So the question is, and we've been stuck there.

I mean, you know, 61.5, 61.6, 61.7, 61.5, you know, really for more than a year now, I think you go back to the summer of 2020, we've been kind of stuck there. So increasingly the question is, is it going to rise? Is it going to go, you know, are we going first? Are we going back to pre-pandemic levels? I think the answer is no. We can talk about why. But is it going to start normalizing? Are we going to see any increase here from 61.5 percent?

And I guess that's an open question to either of you. You know, how are you thinking about future participation? I should say in our forecast, our baseline forecast, where we put pen to paper, we have participation going back up to 62.5%. So we're down two points from where we were pre-pandemic. We're going to get one point back. We're not going to get the other point. We're going to get one point back.

And, you know, I'm just wondering how you're thinking about this and where you think that's a reasonable outlook and what's going on here. I'll start with you, Chris. Do you have any views on this? Yeah, absolutely. So I do think there's a cyclical and a structural component here. So on the cyclical side, right, we've been talking about the pandemic itself, right? People sick are taking care of people who are sick, children not able to go to school.

So you do have a number of parents in particular who are not in the labor force who would come back in once things, you know, clear up here. So I think we will get that component back in hopefully relatively short order. But then I look at the demographic shift that we're seeing in terms of people taking early retirement. and that was accelerated during the pandemic, I don't think we get many of those folks back. We might get some, like as flexible work arrangements, but we shouldn't count on it.

So it sounds like a 50-50 split is what's baked in the forecast. I'm perhaps a little less optimistic. I think some folks are not coming back in, and so I would probably put it closer to 62, maybe 62 in a quarter. Okay. But I think it's a reasonable,

assessment. And those people not coming back, you mentioned the boomers. Yeah. Okay. So they were going to leave anyway, but what we're saying here is that they just left early. That's right. They lost their job in the pandemic, hard to get back in. And I guess the other reason they might not come back is they're financially in a much better spot, right? That's right. So I think you have those two groups. Some are, yeah, taking early retirement because they did their jobs and it's too late to restart, let's say, and then others who are, who benefited and able to take advantage of higher house prices and stock prices and take early retirement. And then I guess the other factor, which Ryan mentioned was in this one, we, it's pretty

hard to gauge, but it feels intuitive, is long COVID that you've got people who got sick and it's just taking a long time for them to get healthy. I mean, healthy enough to go to work or healthy enough to go back and work the same hours that they were before. Or, you know, they're maybe working, maybe putting in the same hours, but they're just not as productive, right? Because, you know, if you're sick, it's hard to work. Yeah. So I guess that's hard to gauge. It's kind of a wild card here.

We don't really know how big a deal that is, right? Yeah, absolutely. I think it's real, though, certainly. I think. Yeah. Well, we just don't know the consequences. It's uncertain. You know, you know, loved ones who got this problem. Absolutely. Any other group that would be in that category that just aren't that have left aren't coming back? So there's the boomers. There's the long COVID.

I guess the other issue might be here. And this is kind of between cyclical and structural. Cycical means very near-term structural means longer run. is the mandates for vaccination? How big a deal do you think that is? I feel it feels like that might be more of a deal than, you know, people are, you know, even if it's 10, 15, 20 percent of the labor forces says I'm not getting the vaccination, no matter what you say, or even if I lose my job, that might be an issue.

Yes, I use the census polls data, and they have the question people that are employed and by vaccination status. And there's the two cohorts I focused on those that said they're absolutely not going to get vaccinated no matter what. And those that are, you know, most likely not going to. So looking at the universe of people that these mandates could affect, you know, the impact on employment, it's pretty significant. It's two to six million people, two to six million people. Is that many? Yeah.

Yeah. I guess we're going to figure this one out pretty quickly here because over the next few months. Right, because I saw, I think it was yesterday, the executive order January 4th that large employers are all, I think it's employers with over 100 employees. Is that right? Yes. Yeah. Need to have all their folks vaccinated, all their employees vaccinated. Or at least they're not vaccinated.

They have to take a test, I believe, once a week to show that they're COVID-free. So that testing should reduce the impact. impact on employment a little bit. And it doesn't mean like that two to six million estimate. I mean, it's a huge range. But that doesn't mean that's the amount of jobs we're going to lose. I mean, these are people that, you know, may quit, you know, working for an employer that has over 100 employees and work for a smaller company or, you know,

start their own company. So I don't think, you know, it's going to be hard to tease out the effect. But in the end, shouldn't it be a net positive? You know, we talked about all the people that are, you know, don't feel comfortable going back to work because of COVID. you know, if you know all your coworkers are vaccinated, you're more likely going to reenter. That's a good point. Yeah. And maybe a near-term hit to labor force, but ultimately it's a positive because it makes everyone feel confident that they're safe when they go to work.

Right. And I know you and Chris are, you guys kind of get stuck in your ways. I don't even pay attention to the labor force participation rate. The total one. All I focus on is a prime age. Sure. Prime age employment. And that went up from 78% in September to 78.3%. percent in October. Oh, that's an interesting point. So if we keep this trend going, we'll be at 80%, which we've talked about on the podcast before, is our threshold for full employment by the end of next year.

This is the employment to population ratio. Correct. Yeah, not the labor force participation. Right. I don't even pay attention to that. Okay, so you're looking at the employment, the number of employed people 25 to 54 divided by the population of those prime age workers. Correct.

And you're saying that historically, if you look at past business cycles, if it gets over 80%, that's consistent with a full employment economy. Correct. What was it in October? 78.3. And that's up from 78 in September? Correct. Oh.

And I guess at the low, as I recall, at the low it was like 70 or something. So we've, 69.6. 69.6. So we've, oh, okay. So by that measure, we're, you said we're at 78.8.8. So we're. 78.3. Oh, sorry, yeah, right.

78.3. So we're 1.7 percentage points away from full employment. That doesn't give us a lot of room, actually, does it? I mean, it's about a year. I think that's the case. I mean, how many people do that? Can you multiply 0.1.7 times the number of people 25 to 50, 25 to 54?

I can do that, but I can't do it all right now. I can't, okay, I was hoping you could. Yeah, that's interesting. That is very interesting. Really interesting point. I was going to say something. Oh, about the testing. Just an anecdote.

So I had to go to a business function, and to be able to participate, I had to take a COVID test. And so they sent me a COVID test. And first thing I'll say, it's really easy. I don't know. I hope they're accurate. I think they're accurate. But, you know, it's like no big deal. You take a swab, you know, circled up.

Everyone's probably had a test now. But you do it yourself. You put it up your nose. And you put it into a vial with a little bit of solution. And it's like a pregnancy test. If, you know, you get a blue line, you're good. You're not pregnant. If you get a red line, you're pregnant.

So, you know, very, very easy. That's the first thing I'd say. Here's the really funny thing. So I open up the package, get the instructions out, and I'm reading the instructions, and I go, I get to the end of the instructions. I go, I don't know how to do this. They missed the step of taking the swab out of a pack and putting it up your nose. That was not in the instructions. I am not kidding.

It was professionally done. One, two, three, four, five is here's what you do. I go, well, when do I put the swab up my nose? You know, what do I do? And I'm telling you, I'm not, I wasn't the only one, because then I get an email from the group that I was speaking at, or participating at, and they said, oh, by the way, they were missing a step. Here's the step.

So I just, I thought that was really, you know, almost funny, you know, but anyway, bottom line, these tests are easy to take. And they're accurate. So our, my son's school will accept a home negative COVID test. And he can return. Like it doesn't have to quarantine or anything like that. Yeah, so maybe this concern about taking vaccinations may not, may not up. And the impact on labor force may not be that big a deal.

I mean, why would, who knows, but why would people object taking the test? I'd do that. Well, I guess it depends on who pays for the test, I suppose. Yeah, maybe, hopefully the government's paying for that. I don't know. The next few months is going to be you have the vaccine mandates, but you also have five to 11-year-olds are now able to get vaccinated. So maybe that takes some of the strain off parents. You know, they're more comfortable sending their kids to daycare to school and everything.

So, okay. So Chris says, so in our forecast, the Moody's Analytics most likely scenario, we have the participation rate going from 60. This is the overall participation rate. I know caveat, Ryan doesn't pay attention to this, but, you know, that caveat. Everyone else does. 61.5. We're going to 62.5.

That's the new normal. We're not going back to 63.5. Chris says, well, well, maybe 62. And Ryan says, I don't even have a forecast for any that because I don't care about it. Don't pay attention to it. I'm an employment to population. Doesn't matter. Are we going back to 80% employment to pop on primary age?

He says yes. Yes. Okay. It's all cyclical. Right? This is... We're mostly sickable, yeah. Of course, the real problem might be in the non-prime-age workers

where we see the real problems in terms of getting people back to work, right? Could be. But we had the same debate after the Great Recession, you know, the male labor force participation where it wasn't coming back, and some people speculated, you know, they're living in their parents' basement

playing video games. Like, that wasn't true. It came back. It's going to come back. So once crypto crashes, they'll have to come back in, I guess. Oh, well, that's the trigger. That's a good point. Well, that's the other point.

You know, I've been making about excess saving. You know, another reason to expect participation rates to pick up here in a more meaningful way relatively soon is that I do think there's evidence that there's a lot of excess savings. People have been able to save above which they would typically do if there was no pandemic. And, you know, for high-income, high-net-worth households, that's mostly the result of those households sheltering in place and not spending, and they've been saving. And for lower middle-income households, that's probably mostly government support, stimulus checks. We had three rounds of stimulus checks, unemployment insurance, rental assistance, food assistance. And it could be the case that that's just slowing when,

workers go back to work because they have a financial cushion. They have that cash they can use to pay their bills. But here's the point that if you do the arithmetic and take a look at spending patterns, certainly pre-pandemic, many of those low-income households are going to blow through that excess saving here pretty quickly over the next month, two, or three. And that would argue that there's going to be more financial pressure on those workers to actually get back to work. So that would be a reason to think we're going to start to see the participation rate, E-pop, you know, rise even more here over the next three, four, five, six months.

Again, that's embedded in our kind of forecast, but, you know, very much a forecast. Also, I just put in a plug for the legislation that's being debated in Washington today. There's two pieces of legislation, one around public infrastructure, the other around social programs. And I do think that some of the policies in that social program legislation, particularly around helping with child care and housing and elder care, will be important for lifting labor force participation longer run. It doesn't really help here. It certainly doesn't help in the next year or two,

but longer run, that could be very helpful in getting people back to work, particularly lower income, less educated workers, that potential workers that, you know, just can't afford the child care and the elder care and, you know, need the help, the housing. They need housing that's closer to their jobs, that kind of thing. So just to, I think that's going to become increasingly important that we do that. Where was the plug? I say, that's a reason for the legislature. Yeah, vote for that legislation, please. I didn't know, because there's a good reason for it, you know, going back to the later. I didn't know if you're testified or had a TV commercial. I'm just curious. I'm preparing.

I'm preparing. Yeah. I'm preparing. Yeah. Actually, I wrote a nice Bernard Jaros, you One of our other colleague who's been on the podcast before, we wrote a update to our analysis of the macro consequences that's up on EV economic view. So people might find that interesting. They can go take a look. So what odds do you place, what odds do you place in the legislation now, actually passing? And what size? Well, on the table is $1.75 trillion over 10 years.

That's the social program tax credit. And then $550 billion in additional. funding on public infrastructure. That's the other piece of legislation. With public infrastructure, that's going to get past. It could get past today, right? Absolutely. Because the House is going to vote on it. The Senate's already voted on it. The president's going to sign it. I put a, you know, 60, 65 percent probability that the $1.75 trillion dollar package gets through. I mean, I think it depends on what lesson Democrats took from the election results. And I think the lesson they took, and this is President

And Biden made it, made, this was his point after he talked about this after the election results, was that they need to show results. They got to get something done. And this, if they don't do anything here, I think, you know, people are going to think, well, you know, why did we elect you, you know, back in 2020? So we're not going to reelect you in 2022. So that'd be my sense of it. Although I can, I've heard counter arguments, you know, to the other side. Do you have a view on that, Chris? Do you have a probability? I think it gets skinnyed down. Even further? Even further, right? Because what was the, well, because it's the, the, the tax assessment, no, the tax, I can't remember the acronym now. Tax Committee assessed at 1.5. Yeah, thank you. Yep. Thank you.

I think it was assessed at $1.5 trillion, right, for the tax revenue. If I'm not mistaken. So it still be deficit positive if it passes. On a static basis. Correct. Well, that's what matters, so right? I guess. So, Chris, do you support it?

Would you vote for this? I think if it was skinny down, I think then. I think it has to be skinny down, as my point. I don't think Manchin is going to go over it. From 175 to 1.5 to 1.5, that makes the difference to you? I think so. Well, I think it's all the optics of deficit spending, right? But it's dynamically going to be paid for.

And, I mean. I get it's the spin. It's the spin, right? Really? Okay, but I hate this. We'll see. Hey, there's one other big topic I want to talk about with regard to the labor market to dig in deeper here. First was off his participation.

The other is around wage growth and inflation. You know, this obviously comes to the fore today's number. The average average average earnings, as we discussed earlier, was up 4.9% year over year. That's pretty strong. And then you guys mentioned the employment cost index, the ECI, which is another measure of wages compensation that's better than the average hourly earnings because it controls for the mix of jobs, the occupations and industries, which can really mess with, you know, the numbers. But that's also, Ryan, can you fill us in on the ECI numbers?

You watched, you followed them pretty carefully. They were up a lot. Yeah, they're very strong. And even if you adjust for incentive pay, which is less sticky, the ECI private wage growth is very, very strong, well above what we saw prepan. pandemic. One thing we do is, you know, there's all these different wage measures. You have the Atlanta Fed. You have the ECI unit labor costs, which came out on Thursday, which were up 8 percent, more than 8 percent annualized. A lot of different messages. So we kind of take them all

together and create a wage tracker. So like our Moody's analytics wage tracker. And year over year, that's around three and a half percent, which is stronger than what we saw pre-pandemic. So wage growth is definitely picking up. Yeah, and a lot of it I notice is among low-wage workers, which is entirely intuitive. Yeah. The Atlanta Fed, that's part of your tracker, too, I think. The Atlanta Fed creates a wage tracker based on following the same workers over time, so it controls for these mixed issues.

And they can cut that data by lots of demographics, including the wage of the worker. And if you look, the wage growth for folks in the bottom, I think quintile of the wage distribution, that's where a lot of the wage growth is really occurring. Which makes sense, because, I mean, that's where we're having these, the most labor supply issues. It's in leisure and hospitality. It's in retail. Right. So I guess there's this leads to a bunch of questions. And one is, is this acceleration in wage growth temporary, transitory, as the Fed would say, or are we here to stay? guys didn't have any view on that one?

I mean, what do you think? Are we going to be here at 5% or higher going forward? For wage growth or inflation? Yeah. Yeah. Which one? Wage growth. Oh, wage growth?

Yeah. Well, what's the other one? The E.C. I thought, if you're asking, like, are we at 5% nominal wage growth for the foreseeable future or 5% inflation? Well, I'll get to the inflation. I'm kind of stuck on the wage growth, because then, Then we'll kind of tie that back into inflation, which, yeah, you're right.

That's also 5%. Which, by the way, may not be an accident. You know, workers are getting pay increases that are consistent with the acceleration and inflation to some degree. But, you know, my sense is the ways where this is temporary, just like everything else we've been talking about. It's pandemic-related, right? I mean, the labor market's been all supply chains were all jumbled because of the pandemic. labor markets all jumbled because of the pandemic. All these severe, as you say, there's secular and cyclical elements to it, but there's definitely a cyclical element to this, you know, related to the pandemic.

And so, you know, wages are getting jacked up because of the labor shortages that we're experiencing now due to the pandemic. As the pandemic winds down, as Delta winds down, as people get back to work, as the participation rate starts to rise, then that takes some pressure off. when we see wage growth moderate, you know, not 5%, you know, 3.5% to 4%, something like that. Again, it depends on which wage measure you're using, but if we're using average average earnings, that's kind of how I'm thinking about it. Any disagreement on that perspective? No? No, I think that's right.

You have people coming back. The other factor is productivity, which actually came out this week as well. One quarter, Chris. It's one quarter. It's not a good number. Yeah, yeah. I'm not clicking in my boots yet. Well, this now connects the dots between wage growth and inflation, right?

Exactly. Exactly. The wall between strong wage growth and higher rates of inflation, you know, the thinking is, oh, wages growth is going up. Businesses are going to have problems with that because their profitability is going to weaken. Their margins are going to narrow. Therefore, they're going to raise prices more aggressively for the stuff they produce, and you get into this kind of wage price spiral.

But the break, is it the break wall? Is that what they called? Firewall. What's it called? The firewall. The firewall. The firewall. Yeah, the firewall.

I like breakwall too. But the firewall is productivity growth. So productivity growth accelerates, you know, that allows businesses to produce the same amount of stuff with fewer labor hours. So the higher wages per hour doesn't cause their margins decline. and that doesn't put pressure on the raise prices more aggressively. And the question is what's going on with productivity growth? And we got a data point this week on that too, right?

And you're saying that was bad. There was a largest decline since the early 1980s. Right. And that was for Q3 when... Supply chain. Yeah. Well, yeah, growth got creamed by the pandemic, by the Delta wave. Correct.

So, but... Too bad we don't have Dante on right now. Oh, by the way, Dante usually comes on Unemployment Friday, but he had something come up. It couldn't participate. Unfortunately for him, though, because the ADP number, which is what he works on, he nailed it, didn't he this month? ADP said, what? $570,000 private sector workers, and that's pretty much what we got, I think. That's $600, yeah.

Right? So, poor Dante comes on every time the APP misses. he deserves a lot of, but I will remind him, I was closer. You were? That's because you have the luxury of using the ADP number in your...

Actually, the ADP number made me sweat this month. I was like, wow, we're really close to one another. And that's usually not a good thing. I'm just kidding. No, Dante. Oh, shit. That's rude. That's a rude.

No, I think ADP is going to be... It's gotten, a bad wrap over the last several months, but if you look at the errors, they're usually large when you have like this different waves of COVID. And maybe how BLS versus ADP measure employment, but I think it's going to be more accurate going forward as long as we don't get these another wave of COVID. I should say for the listener, ADP is the human resource company. They processed a lot of payrolls. And we put together an estimate of the BLS jobs numbers on the Wednesday before this Friday based on the ADP number. And Dante, we've been doing this for a long time. Dante's

leading a charge on that right now and takes great pride in that, as he should. He nailed it this month, but unfortunately, he wasn't on. And Dante, but I brought up Dante because he's a productivity growth skeptic, isn't he, Chris? You guys. Yes. Yeah. What's his argument? What is he saying, what's he saying about productivity growth and what's the logic behind it? Now, we have a very strong demographic headwinds, right, aging of the population. And also just if you look at previous recessions, the pattern is large productivity gains during the early stage of the recovery and then those fall by the wayside as things normalize and from start to higher up again.

So based on that track record, you shouldn't get overly excited by the productivity gains we've seen so far. I guess the data point that came out this week would support that argument. I think it's temporary, just a blip, but, you know, something to consider. And you're the evangelist, as I understand it. I am the event. He's the skeptic, and you're the productivity event. So what's your argument?

My argument is that these, that the technological changes and other changes in organization that we've adopted during the pandemic are actually going to be more long-lived, that they're more structural in nature. We've been putting off a lot of these changes for a while, but now, you know, we all adopted this video conferencing, cloud computing, machine learning, AI, robotics, everything is coming online,

and I see those as having a much longer tail going forward. So I don't think it predictability screams, you know, from here. It doesn't go up to 5% or anything like that, but, you know, we were at 1% predictivity growth prior to the recession if we are prior to the pandemic, if we're closer to 1.7,

I think that's a huge gain. That sounds pretty precise to me, doesn't Chris? I mean, Ryan, I mean, that's unusual for Chris. He usually takes... Well, one point says we're at right now, so that's where I... Oh, okay.

But, yeah, if we're closer to 2%, if we're closer to 2%, that's a significant increase. So, Ryan, are you more a skeptic or a product of a skeptic or more... of an evangelist or neither. You're kind of agnostic. I was just about to ask you the same thing.

I'm an optimist. Of course, I'll tell you what my view is, but I wanted to hear your view first. So I'm optimistic about productivity growth. You're optimistic. Particularly over the next five years, we should see productivity growth, trend productivity growth. You know, ignoring these quarter to quarter fluctuations, trend productivity growth is going to be well ahead of what we saw pre-pendemic. So we were, as Chris said, one percent trend productivity growth. growth prior to, what are we going to be?

Two. And that's kind of sort of where, well, I think it's exactly where we were between World War II and the financial crisis. I agree with everything Chris said, but also businesses are investing a ton in intellectual property in software and equipment. That leads productivity growth. So these little wiggles now, don't stress about it. It's going to pick up over the next couple of years.

Yeah, I totally, I'm a flaming evangelist. Yeah, I mean, I think, I think productivity growth is going to be very strong. And for the reasons that you guys gave, I'm less, you know, I hold out less on technological changes because I just don't know. I mean, it's hard to gauge that. You know, AI, you know, I was on a panel. I think I said this once before. I'm with Mark Cuban, and he's saying, we're going to see very strong. strong productivity growth, meaning so strong it's going to be dystopic for the labor market.

We're going to have so many unemployed people because AI, machine learning is going to wipe out all these jobs. You know, okay, maybe, I guess. That's a forecast of a scenario, but I don't put a lot of weight in on. I just say, okay, the rate of technological change is going to remain, you know, what it is, what it has been. And it's not only about the rate of technological change, it's about the rate of incorporating that technology into business practices, which is probably the more difficult thing and

really makes it more difficult, you know, for that dystopic view to ever come to pass. I'm more in line with Ryan's perspective on investment, both IP, which is a lot of that software and also equipment, information process and equipment. And there's very strong relationship between what investment happens today and what happens with productivity growth three, four, five years down. We have a great chart. By the way, maybe you can update that chart, Ryan. Maybe I'll do it.

Yeah, that relates information processes equipment a few years ago to productivity growth today. And it's been, you know, over history, it's been very, very, very strong relationship. Here's the other thing. I don't think people recognize. A trend underlying productivity growth, you know, extracting from the vagaries of the data, quarterly data, was actually accelerating well before the pandemic. Right? It wasn't just a pandemic thing. If you go back and look, you know, we were at 1%-ish below.

We were like a half a point in productivity growth back in mid. mid-last decade, 2015, 2014, 2015, 2016, we were like over one before the pandemic hit. So we were already trending a lot higher. And the other thing I'd say is, and this goes to a study that I did with Adam Ozemeck, who's now over at Indeed, their chief economist. And who was Dante in that? Dante was part of that, too, wasn't he? That study?

You guys remember? Yeah, Dante helped off. Yeah, Dante. And this is maybe coloring his view. demographics, the aging of the population, the large number of boomers in the workforce. And that's still a drag on productivity growth? I mean, older workers tend to keep productivity down because they don't incorporate new technologies into their own work.

They're very resistant to do that because, well, they're not going to be in labor a force that much longer, and they just don't want to change what they're doing. It's, you know, painful to do that. Except for me, guys, I embrace technologies when someone. tells me I have to adopt them, right? I'm on Twitter, by the way. There we go. I knew it.

Perfect time. I knew it. Perfect time. Perfect time. To plug my Twitter handle at Marks, Andy. Follow me. I'm tweeting good stuff. See?

I've adopted new technology. Are you going to enter the Metaverse? Exactly. That one really creeps me out a little bit. Because I know the Matrix movies all too well. That feels very Matrix.

It's getting close. It's getting close. It really feels that way. I don't know. That makes me a little... Yeah, that squirrel scene in the Matrix creep me out. The squirrel scene?

I don't remember that. Remember we were talking about your favorite movie was Groundhog Day and you described Groundhog and squirrel. Gotta keep up, Mark. Gotta keep up. Sorry, this was an actual squirrel.

Well, sing is no one, well, maybe careful listeners will know what the hell you're talking about. No, I know. You have to go back to a podcast. Yeah, my sarcasm. There is a podcast labeled, and it was a groundhog, not a squirrel or something like that. So you can go find it. Anyway, where was I? Oh, so I'm with you on the productivity growth.

But that's key, right? Because even with, if wage growth starts to come back in from 5%, I don't. I don't think it's coming way back in because labor markets are going to be perennally tight here. We talked about labor force participation, but we didn't even really talk about growth in working age population, which is going to be weaker too, right, because of less foreign immigration and what's going on with birth rates and death rates. I mean, there's a lot to be anxious there about. So, we, you know, wage growth is going to continue to be quite strong here. We need that stronger productivity growth. otherwise we have an inflation problem.

And, you know, that's a different kind of environment, you know, down the road compared to what we think is the world going to look like and what others, you know, certainly what the Federal Reserve thinks the world's going to look like. So very, very important. Anything else on the wage, productivity, inflation angle that you want to bring up? I think we covered it, but no. Everything's playing out so far to our script. Yeah, pretty close.

Yeah. So that's why I'm, you know, some nights I get, a little worried about inflation, but I think with productivity growth, we're okay. And I'd say it's sticking closer to my script than your script. That's something just saying, you know, someone's got to go back and look at all these bets we made.

So speaking of the tenure, we have years. Oh, speaking of the tenure, let's end on this one. What the heck? So the Fed says we're going to begin ending quantitative easing, winding down QE, bond buying to the tune of

about $15 billion per month. So we're at 120 billion a month. We're going to take that down by 15 billion per month. And if everything kind of hangs together, we'll be done bond buying by June of next year. And long-term rates did seem to go up. I mean, the 10-year treasury yield went from 1-5 to 1-6, maybe, 1.6. Not a lot. But that would be consistent because everyone knew the Fed was going to do this. It wasn't a big surprise. But today's number, last dialogue, maybe it's changed. I've noticed that's moving around a lot. we're back down below

156 we're at 146 right now so I don't know I don't expect you to know the answer or there is an answer who the heck knows but you know Ryan because this is your

your statistic that you always go back to anything there that you can point to what's going on why would that happen today when the job number is so good so strong I mean I mean I don't know there could be some technical

issues going on I mean, the Treasury announced that they're going to cut their coupon issuance in the fourth quarter. So there's a lot of moving parts. Bank of England yesterday surprised everybody by not raising interest. There could be some knock-on effects of that that maybe markets are getting ahead of themselves with the hawkest expectations for central banks to tighten. Powell, he's been cool as a cummer saying, you know, I don't worry about inflation. Like, get the job market back to full employment, then we'll raise rates.

So, yeah, I think there's a lot going on. You may be more comfortable of your inflation forecast, but Chris and I are still looking good on their tenure. I know. I know. I hear you. And clients are asking about it. Yeah. All right.

Anyway, okay. Before we wrap up. Yep. Go ahead. I promise Dante, I would ask you this. Oh, okay. What goes on at the Zandi household on Thanksgiving? What are these Zandi games?

We play the game. We play games. Is it like hunger games? Like, what goes on? Squicky. No. Not the squeaky. Because apparently everybody knows about this.

I just sort of like the Hunger Games, yeah. Well, what we do, we play, have you heard of Wallyball? Wallieball is volleyball in a kind of a racquetball court. And this is a great game for getting everyone involved, women, men, guys like that. like me who are in their 60s and young guys that, you know, we've got guys, andy guys that are playing professional soccer. And, you know, how do you play? And we've been playing games.

We've been playing, you know, physical games for 30 years, maybe 35 years. I don't know. Every Thanksgiving, the Friday after we, all morning long, we were playing some physical game. We would play kickball. We played tag football. We many years played soccer. and we had to figure out what we were going to do with all this distribution. Like, you know, how am I going to hang with the professional soccer player?

Wallyball does that. It's a great game. Fantastic game. We have major injuries. He was curious. He was curious because apparently it's famous. It's famous. He used it on email, and he fors it to me.

He was like, you know, all these people know about the Zandi games. Like, what are they talking about? I'm like, we'll bring it up on the podcast. Right. I'm not sure you want to be invited because. You know, I'm sore for three weeks afterwards, though. Yeah, a lot of leave, you know, get the last. We missed that last year, obviously, with the pandemic.

So we're very, very excited about, you know, getting back to those games today's, this Thanksgiving. So how do you draw the teams? Is this team marked versus team Carl? Well, you know, like, you would in high school or elementary school, you know, you take the two best players, one on this side, one on the other side, and they pick. and, you know, we try to, we care about the quality of the game. So if it ends up where we think it's the teams, and this is a collective decision after a lot of screaming and yelling 15 minutes where we might divvy up a few players to make it even

because we want it to be, you know, to the death even. And, you know, it always works out generally works. So it is the squid games. Pretty close, I guess. It's got some flavor. We can get pretty messy out there. A lot of injuries. So I said, yeah.

How'd you do that? Last year. Pardon me? How did you do last year? Did you win? We didn't have Thanksgiving because of the pandemic, right? I mean. Oh.

Right. We didn't get to get. No, no volleyball. That's right. Yeah. So we're back out of this year. Anyway, we've lost all our listeners at this point. But anyway.

I think we've gained them. I think, oh, you think so? Okay. All right. Well, anyway, I do want to say thank you for listening in. And please give us a rating on Apple. go to economy.com.

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So please listen us what you want us to hear about. So with that, let's call it a podcast. Thank you, everyone.