Chit-Chatting About Jobs
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Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Marissa Di Natale, Chris Dorides. Hi, guys. Hey, Mark. Hi. Chris, you're back. I am back. Good to see you. It's good to see you as well. Yeah? Nice Italian vacation. Italian. I also went to the UK. That was nice. I actually saw some of our colleagues while in London. Oh, yeah. You mentioned that. You mentioned that. Well, it's good to have you back. We missed you. And, you know...

I was going to begin this with a bit of chit-chat, but I was just talking with my son, and he's not a fan of the chit-chat. So we've been down this path before, I know, but I'm calling on all the podcast viewers, listeners, to weigh in on this. Do you like this chit-chat that we do before we really dig into things?

And, you know, you can contact us in all the different venues that we've got. We've got email. We got text. We got LinkedIn. We got, what else do we got? Teams. We got, you know. Don't text me. Don't text? Don't text? Text? What do you mean text? Like, you want people that listen to the podcast to text your personal cell phone?

Now I take that back. Don't do that. Exactly. You know, I've got a question in the spirit of chit-chatting. Are you guys getting to a place where you're unable to respond to everything because there's just so many things coming in from all these different channels? Like, you know, it used to be if someone wanted to talk to me, they'd call and they would leave a message, a handwritten message, and I'd get the handwritten message and I'd call them back.

Now, you know, I get emails, I get texts, I get voicemails, I get LinkedIn, I get social media posts. I mean, I can't, I just, I lose track. Am I the only one? Or is this like a state of affairs? Marissa, do you have the same kind of problem? Do you mean like generally or you're talking about work related? Work. Well, even, well,

It kind of gets mixed together. I mean, are you able to separate those things? That's a hard thing to separate, isn't it? Well, I think being Mark Zandi is different than being Marissa DiNatale. I'm not so inundated with the public's commentary like you. No, I mean, I will say we do have a ton of listener questions that...

You know, we just can't get to all of them, right? Like we have some from over a year ago that we haven't gotten to yet. So there are a ton of questions coming in that we can't possibly respond to all of them. Yeah. But Chris, you know what I'm talking about or not? I mean, is it just me? I mean, is it? Yeah, absolutely. You got, you know, after that phone call stage, there was the email stage, but at least it was just one email box. Right. All these other different things.

And then the expectations are different, right? Someone texts you, they expect that you're going to reply pretty quickly. So it's overwhelming. I'm hoping AI figures it out.

Yeah. Dante, do you have a similar problem or not? No, I try to avoid communication with people outside of work. So yeah, it's not a big problem. Not a big problem. Right. Okay. Okay. There's a solution, Mark. There's a solution. Yeah. Yeah. Don't talk to anybody. That'll do it. Just block everyone. Yeah. Well, anyway, as I said, my, my son is on this, uh, uh, anti chit chat, you know, uh,

phase again. And so weigh in, let us know, do you like the chitchat or do you not like the chitchat? But let us know. I'll say the last time this topic came up, we did get a lot of feedback. Right. And it was unanimously positive that people liked the chitchat. Now, it sounds like you're asking, you're looking for people to say that they don't like it now.

Now since you brought this up. But the last time you brought it up, we got a ton of response. And it said that people liked the chitchat. Yeah, that's what I told him. But he's skeptical. So I want to put a dagger in the heart of this criticism. So...

you know, come back and we'll do this one more time and just make sure we've got this right. But he says, you know, other podcasts that he likes, they get right into it. They don't do all this, you know, back and forth. It sounds like there's some self-selection there. Yeah. Okay. Okay. That sounds right to me. Okay. All right. Well, this is Jobs Friday. We got the jobs report for the month of June and a bit better than expectations, but you know, like,

Most of these job numbers in every economic data set we get, there's a lot going on there. And we always have Dante on. Dante, I'm sorry, I didn't invite, I didn't introduce you, Dante. Dante's on board today. Sorry about that. I just took it for granted. And do you want to walk us through the numbers? You know, what's going on and kind of what your take is of what it all means?

Sure. Yeah, I think similar to last month, I think there's a little bit of a break between the headline numbers of the report and sort of what you read if you dive a little bit deeper. So if you take the one sentence highlight that we added 147,000 jobs and the unemployment rate fell to 4.1%, if you sort of just close your eyes after that, I don't think there's a lot to be upset about or concerned about with the labor market. But I think if you go a little bit deeper, there's certainly some things that are less favorable under the surface.

The composition of that job growth, so 147,000 jobs added, only 74,000 of that was in the private sector, right? We had this huge public sector job gain of 73,000. It was actually even bigger in state and local government with a little bit of a decline in federal governments.

Most of that state and local government gain was in education, right? And there's this perennial problem of seasonal adjustment around the times when school years end and start again. So I think there's a little bit of uncertainty there, whether that's a real increase or not. Outside of that, the private sector gains were concentrated in the same way they've been of late in health care and leisure and hospitality.

The two of those, those two industries accounted for almost 80,000 jobs. So if you look at the balance of all other private sector industries, they actually fell slightly in June. So, you know, a huge amount of concentration in growth and almost half of that growth coming from the public sector and education payrolls, which may or may not be sort of real growth that we can count on.

So let me just get that so I understand. So the top line gain in payroll employment was one, what, $147,000? Okay. And $73,000 of that was mostly state and local education. And you're saying that's probably seasonal adjustment related to the timing of when schools close for the school year, right?

So if I exclude that, I'm now what? I'm down to what?

70, what's 150 minus 70 is 80K. We're down to 80K. Sorry about all my AI helping me out here. 80K. In that neighborhood, yeah. Yeah, 80K. And I guess that's federal government employment fell a little bit. So if you net that out, it says private sector employment fell, rose by 90K all in. So private sector was 90K. And then you're saying,

Most of that, the bulk of that was leisure, hospitality and healthcare. And if you exclude that from private payrolls, it actually declined. Is that what you're saying? Right. Yeah. Right. I mean, you had some small increases, some small decreases in sort of other industries outside of healthcare and leisure and hospitality, but yeah, they net to a small decline outside of those industries. Okay. Oh, that's interesting. Okay. Very good. So the job gains we're getting to your point are very, very narrow. Agreed. Yes. Correct. Okay. Okay.

Um, wage growth was slower, you know, had been a little bit hot the last couple of months. It was up 0.2% in June, uh, year over year growth is 3.7%. That's about as low as it's been this cycle. I think it was three, six in one month last year, but that's, you know, sort of it's at its lower bound here.

Uh, hours worked also, you know, sort of a negative sign, average weekly hours fell slightly, but also aggregate hours worked declined. Right. So even though we had job gains at the top line, overall hours worked actually pulled back a little bit. Um,

So I think that's on the payroll side of things, that's the primary story. On the household survey side of things- So just to make that more concrete. So when you say aggregate hours, you're saying I take the number of, increase in the number of jobs multiplied by the change in the hours worked per job or worker. And that overall number of hours actually declined during the month, right? So that's kind of a measure of

I guess output, you know, gives you a sense of GDP more broadly. And that was, that actually was down during the month. Okay. Yeah. Okay. Got it. Right. Okay.

So the household survey. Yeah, so the household survey, again, the headline, the unemployment rate fell. That sounds like a good story, but it largely fell because the labor force contracted again in June for the second month in a row. The contraction was much smaller this month than in May. The labor force fell by 130,000. The total contraction over the last two months, I think, is about 750,000. So a lot of that came in May, but it continued to fall again.

In June, that brought the participation rate down even further to 62.3%. Household survey employment did increase a little bit. So I guess there is maybe some positive story there. But most of the other measures here were not overly optimistic given that decline in the unemployment rate. So again, it's not signaling great strength in the labor market. It's just signaling that we're losing participants.

So it's almost like the payroll employment numbers suggest that demand for labor is still positive, but it's weakening. And it's been steadily weakening. And now it feels like it's on the borderline of being just weak. And I ask you this every month. What is underlying job growth, payroll job growth, abstracting from the vagaries of the data, including that seasonal adjustment issue? Last month, you said it was 100K. What do you say this month?

Yeah, I still think it's probably 100K. It's certainly not. The last three months average is 150. I don't think that's underlying job growth. I think it's much slower than that. Much slower than that. So labor demand is weak, but the unemployment rate hasn't risen because labor supply is equally as weak. That's what you're saying. Yeah, that's my read. Okay. All right. Okay. Okay, so bottom line...

You'd say the job market is, well, what do you say? I won't put words in your mouth. How do you characterize the report? I mean, I still say the job market is softening, right? That's what it still reads to me, even though sort of the headline number says otherwise, it still reads to me like we're getting sort of soft, a softening trend in the labor market. But would you say it's soft or we're not there quite there yet?

I'm not sure that I would call it soft just yet, because I think we're still relatively in balance, right? Like you said, I think it's easier to tolerate when you have that supply and demand both weakening at the same time. So there's, in some sense, that's okay, right? If labor force growth is going to be weak, and there's not a whole lot we can do about it, then we have to expect the job growth is also going to be softer than it would be otherwise. So to me, that's more sustainable that way. Well, okay. But I mean, it feels like it's,

Soft, right? Because, I mean, it's not growing. I mean, the labor force is not growing. So that suggests that the underlying potential growth rate of the economy is lower. We just can't grow as fast, right, as we were. So that feels like the reason it's characterized as soft. But anyway, you say you wouldn't characterize it as soft. You say softening.

Yeah. Okay. All right. Fair enough. Marisa, anything to add there? What's your take? How would you characterize the report? I would say it's soft. But I think what's happening is that you have, at the same time demand is weakening, we're seeing this contraction in supply. So that's why you're not seeing the unemployment rate rise, right?

I would say it's soft simply because the industries that are adding are few and far between. I mean, the diffusion index fell below 50 again this month. So you're really talking about a pretty narrow segment of the economy that's actually adding jobs. The rest is doing little to nothing.

That feels soft to me. You're right. I mean, the one thing that surprised me a little bit on the, well, maybe I'll wait. Let me ask you, Chris, before I kind of opine and weigh in here, anything to add and how would you characterize the report? I'd say soft-ish. Soft-ish, okay. Right down the middle. Right down the middle. Yeah, it's hard to say soft when it is 4.1% unemployment and you do have some factors that are still...

Moving in a more positive direction. One fact, one statistic that jumped out at me though, was the rise in long-term unemployed. That's worrying. Right. And again, suggest that it's consistent with the story that maybe we don't have large scale layoffs going on, but we also have certainly very weak hiring. Right. And that seems to be consistent. People are losing their jobs. You're starting a harder time finding another job. What if I told you that employment was falling and,

labor demand was going negative, but the labor supply was also falling equally, is therefore unemployment was stable. You wouldn't characterize that as soft? That's a matter of degree. That seems pretty soft. I mean, that seems pretty like that's not a great labor market, right? Not great, but is it? Because of why the labor supply is constrained. The labor supply is constrained in significant part because of immigration policy, right? Right.

So given that, you wouldn't characterize – if you started getting negative numbers on jobs but unemployment stayed where it was, you wouldn't characterize that as a soft economy? That's definitely a soft economy. Would that be a recessionary economy, by the way? Historically, if you get negative job numbers, that's invariably consistent with recession as dated by the National Bureau of Economic Research, the arbiters of recession. They use payroll employment.

The change in payroll employment is their key metric. And if that goes negative, that always is recession. Yeah, with some persistence, right? With some persistence, yeah. If it's a month or two, you know. Yeah, yeah, absolutely. But yeah, yeah, certainly. If it's persisting for a while and increasing. And broad-based. It's not just one sector. It's a bunch of sectors, industries. But, you know, are you saying, do you think we could have a situation where,

We have declines in payroll employment, consistent decline in payroll employment, and unemployment stays roughly where it was. Maybe it notches a little higher in that, but would that be characterized as a recession? I don't know the answer. I'm just asking. Again, it's a matter of degree, but yeah. It probably would be. Probably would be, because the economy is contracting, both on the demand side and the supply side. It's contracting. Isn't that a recession? Yeah. Yeah.

Yeah. Right. It's actually it's actually a more pernicious recession. Right. It feels even more pernicious because it's not just demand, it's supply. Your underlying as well. Yeah. Potential is weaker. You know, that's worse, I would think. Right. Because that you know, what does that mean? Longer run. But but anyway, unless you have productivity kicking in, what's the yeah.

Yeah, okay, well that's actually interesting. It's a whole other part of the puzzle, right? Yeah. Which could happen in the context of AI, right? Right. So what does that mean? So you could have a labor market recession, but growth expansion, right? But it feels like in the current context, that hasn't happened. That's not what's going on. No, no, I'm not saying that that is what would. Because GDP is actually falling, aggregate hours are falling, right? So, Mercy, you were going to say something? Yeah.

I just said that that would be unusual, but very unusual. But possible. Yeah. Possible. I mean, I think if you start seeing negative numbers on the payroll side, right, that is saying that we can look at what the composition is doing underneath that, but that implies that employers are actually laying people off. Yeah.

I would expect to see rising unemployment insurance claims and all these other indications that there are actually cuts to payroll unless you have the net is just that the growth is not there. So maybe there's still a little bit of, I feel like we're almost there, really. Well, let me ask you this though. What if this is the situation and this is a very possible could happen.

Payroll job growth actually declines. Unemployment stays roughly where it is. Labor force then will have to do is declining.

Right. And layoffs don't really pick up. But the reason why payroll employment is falling is because businesses completely stop hiring. You know, you get you know, you just they're just not hiring at all. And you could get negative job numbers without, you know, pick up in layoffs. Right. Then what is that? Is that a recession? Right.

But do you think you can get negative job numbers without a downward spiral, right? Because I would basically argue that consumers don't react to the negative job numbers, right? Because if consumers start to pull back on spending, then firms are going to have to move. Then you get the layoffs. Yeah, okay. Then you get the layoffs. Historically, it feels like when either unemployment rises or you get negative job numbers, you get that reaction to it that then causes things to get worse. Maybe that's the distinction here. It has to be kind of a self-reinforcing, vicious kind of situation for it to be an actual recession. Yeah.

you know, where you get some weakening in the labor market, less hiring, may even get some negative job numbers. And if it doesn't cause consumers to pull back, then, you know, maybe that's not a recession, you know, maybe not. Although, you know, consumers are pretty cautious here. I mean, we'll talk about that in just a second. But, okay, it feels like we're going to,

be in a very kind of Alice in Wonderland world here in the not too distant future in the labor market. It just feels that way. We're headed in that direction. Okay. Let's talk about another topic, and that is related. You know, there's been this widespread expectation since the beginning of the year and the tariffs and the immigration policy and Doge and, you know, the reconciliation package, all the things that are going on,

that we are going to start to see higher inflation and weaker economic growth. That, you know, all these policies, or at least the bulk of them, tariffs and immigration, are pushing the economy towards a kind of a so-called stagflation environment. Again, higher inflation, weaker economic growth. And, you know,

So on the growth side, maybe you can argue, and I would argue that we are starting to see some weakening, but perhaps not to the degree that has been widely expected. Today's job numbers would be a case in point, at least the top line numbers. But inflation hasn't really picked up, at least not in aggregate, in a significant way. So we haven't gotten there yet. And so now you hear this growing chorus of,

and it's kind of reflected in the stock market's action, we're back to a record high, that maybe we're just not going to see that scenario unfold, that we're not going to see kind of a stagflation-ish kind of scenario unfold.

What do you think, Chris, about all that? I mean, do you think we're just being impatient that it's coming or perhaps it's been delayed by certain circumstances? You know, the fact that, well, we can talk about the tariffs and the fact that all the front loading and so forth and so on. Or is it, should we be really at this point questioning our forecast, our expectation that this stagflation kind of

dynamic that we've been anticipating just won't happen. Where do you stand on all that?

I find the delay argument sympathetic that you've just had a lot of cross currents in terms of the tariff policies and the exemptions, the pauses. And then on the business side of things, just, you know, businesses not wanting to push through prices just yet, given that uncertainty, right? They don't want to lose the market share. And then also there's some political aspect as well.

in terms of trying to push through prices. So I think that that's the current state, but that doesn't hold forever. At some point, those higher costs will be pushed through. And so I'd say perhaps more of a delay here than we might have expected originally, but I think it's still coming. Okay. So impatience, delay, delay.

Not happening. You're voting for delay. Delay. Delay. And you're saying delay in significant part because the front loading of the imports and the fact that

Those were non-tariffed product. And until you work that down and get to the tariffed product, you're not going to see the price increases. And also kind of the political dynamics here where certainly larger retailers and companies are very nervous about getting into the political spotlight. And as such, they're just delaying, you know, with the price increases. That's right. They're even avoiding the topic on earnings reports or...

right yeah they're not even mentioning it right now right yeah there's the uncertainty around what the policy ultimately will look like right right and i guess it you know could also be that uh there's still uncertainty around the tariffs a lot of you know where's this going to land and you know they may go away right so if i'm a business i might decide you know maybe i'll eat the higher tariff costs for a while and we we know

They're paying tariffs because you can see the tariff revenue. I mean, you can go look at the data monthly from the Treasury and tariff revenue is flowing in. So someone's paying the tariffs. Americans are paying the tariffs. You know, you know, if it's not the consumer, it's got to be the business. It's not like.

The foreigners are paying this. We're paying it. It's just right now it hasn't showed up at the consumer level. And it could be the case that that, you know, that these companies are just saying, hey, look, if this is going to be another month, two or three, I'm just going to eat it for that period of time. I don't want to raise prices and then kind of lose market share as a result. Does that make sense to to you?

It does. It does. Yeah. Okay. All right. Where are you on this, Marissa? Impatience, a delay, or it's never happening? I think it's a delay. It's a delay. Yeah, it's a delay. It'll happen. I think the big companies you mentioned that you just discussed about not wanting maybe to pass on prices or be transparent that they're

passing on prices. They're probably also the companies that have the wherewithal to eat the tariffs and absorb some of that cost themselves for a while. I think it's probably the smaller businesses that are less likely to be able to do that. And so it's going to take a little bit longer for that to show up in the aggregate inflation data. But I think it will happen, particularly if tariff policy plays out in the way we think it will, which is that we will see double digit

a double digit tariff rate here in a few months. Right, right. Well, I guess I could say another point. I mean, the actual increase in tariffs actually hasn't been as high as you might think, given all of the announced tariffs, right? I mean, we're talking about this in our macro meeting. We have a meeting every month to discuss the U.S. macro outlook and the assumptions. We were talking about the tariffs and the actual increase

so-called effective tariff rate is that we're calculating it to be 8%. So if you look at the kind of this, what we call the static tariffs or the stated tariffs, what has been announced, they're much higher than that. But because of trade diversion and other efforts to get around the tariffs, the actual effective tariff rate is 8%. So we've gone

Pre all this, we're at two, a little over two, two and a half. Now we're at eight. So that's an increase, but it's not the 15% or the 20% or the 40% on China. So the actual tariff. Now, the expectation is that ultimately the effective tariff rate, even with the trade diversion, is going to settle in somewhere around 15%. 10% on the rest of the world, closer to 40% on China. Yeah.

And the net of all that will be something around 15%. But we're not there yet. We're closer to eight. So the actual tariff increases haven't been that large or as large as, you know, certainly would appear when you listen to the president and the administration talk about it. Okay. Dante, where do you stand on this?

Yeah, I mean, I think it's a delay. And I think we are, we haven't seen much impact on prices, but I think we are seeing some of the impacts in the labor market, right? I mean, if you look at some industries, manufacturing is down over the last three months, you know, wholesale trade and transportation warehousing are basically flat to down slightly over the last three months. So I think...

Those are industries that were growing up until the beginning of this year. So I think you are starting to see it. It's just that the effects aren't big enough yet to sort of outweigh strong growth in healthcare and strong growth in leisure and hospitality. But I think we are seeing it in the numbers. It's just, it's a slow buildup to what the ultimate impact will be. Yeah. Well, I agree it's a delay, but I also think it's impatience. You know, I think economists...

And I don't think it's just economists. I think everybody, once they have come to the conclusion that something's going to happen, they think it's going to happen immediately. You can kind of see this with technology. We can all see the driverless car. We know that's coming. It hasn't come as fast as anyone thought it would before.

I think just because we have in our minds it's going to happen, therefore it should happen right away. But that doesn't take account of all of the steps involved, all the frictions involved, all the things that actually have to transpire before you get a driverless car. And my sense is that's the same kind of dynamic that's playing out here, that we're just –

We see it. We know it. We just think it should happen really fast, and it never does. It always takes time to kind of play out. So I think I'm with you. I think it's delayed, but I think that's also just kind of typical impatience. The other thing I'd say is

You can kind of see it starting to happen in the data. If you go look at prices for different types of goods, and obviously it's on the good side of the economy where the tariffs would show up, you can see it. You can see it in the inflation statistics for the month of May, the latest day that we have. You can kind of feel it. But you can really see it on the growth side. Dante, you mentioned jobs and the labor market clearly happening there, but

You can really most vividly see it when you look at consumer spending, right? If you look at aggregate consumer spending, real consumer spending all in, we have data through May. It hasn't budged since last December. And prior to that, coming out of the pandemic, spending was steadily rising. We were getting very strong growth rates, 2%, 2.5%, 3% real growth year over year.

And the year-over-year growth rate still remained high because you got a lot of growth in the second half of last year. But if you look at the last five months, you know, since December, it is flat as a pancake, even down a little bit.

And so feel and that that that's in a period when you already had was a lot of forward buying. Right. Consumers were buying forward in anticipation of the price increases related to the tariffs. Vehicles would be the poster child for that. A lot of surge in vehicle sales back and, you know, earlier in the year.

And despite that, you have this kind of flattish to down kind of real consumer spending. And historically, it's been the consumer that drives the train. So, you know, the consumer feels like, the American consumer feels like they're not pulling back, but they are very, very cautious. And you've got two things coming dead ahead. One is the price increases for the tariffs are coming, and that's going to weaken real purchasing power and start to...

you know way further on the ability of consumers to spend uh and the other is the back side of the forward buying so if i bought things forward you know if i bought that vehicle in march or april that means i'm not going to buy it in october or november of this year and that's yet to come so those two things are coming on top of the weak consumer spending and that just feels like the prescription for a week in a much weaker soft economy a softest economy

And, you know, recession risks will rise at that point. Does that, Chris, does that narrative make sense? Yes, that's it does. You wouldn't push back on that at all? If you force me to, I could. But OK, right. OK, you're on board with that dynamic. OK, Dante, Marissa, any pushback on that at all?

No, yeah. I think sometimes we forget how little time has passed, right? It feels like it's been forever since Liberation Day, but this labor market data is only through early June, right? That's only two months after the initial announcement of tariffs. And when they first happened, there was a huge amount of... There's still a lot of uncertainty, but a huge amount of uncertainty. So it's like, how quickly did we expect firms to react to that situation, right? We're still very early in the process of digesting those tariff announcements and all the changes since then. So it just...

It feels like it's been forever, but it hasn't actually been that long. Right, right. Marissa? Yeah, and working through the inventory that was brought in earlier in the year. And the other dynamic is if demand, if consumer demand is weakening, that's downward pressure on inflation, right? So there could be a little bit of just weaker demand coupled with that may be independent of the tariffs and just more about the uncertainty around policy and the anticipation of...

higher prices and weaker growth, and we see it in the job market. So it could be offsetting any increases for a little bit, too. Right. Okay. You know, the one thing that is kind of transpiring in Washington that might change the dynamics here a bit, you know, particularly next year in 2026,

I don't think there's anything that's going to change the trajectory for the economy and inflation here in the next six months through the end of the year. It does feel like we're going to see higher inflation, weaker growth, a more stagflation-ish kind of scenario transpire.

But as we move into 2026, the one thing that feels like it's kind of moving and might have an impact and might lift growth is fiscal policy. I mean, you know, what's going on with the so-called big, beautiful bill, the BBB, the reconciliation legislation that's making its way through Congress.

You know, sitting here today, it hasn't gone past into law yet, but it certainly will. And coming out of the Senate, it does look like there's more fiscal stimulus there. You know, bigger tax cuts made, corporate tax cuts made permanent, kind of spending cuts, but not until...

there's a 10-year budget horizon, and those spending cuts don't really kick in until the second half, if they ever kick in. But on paper, if they're going to kick in, they could kick in in the second half of that 10-year budget horizon. So if you look at the numbers...

and do a little bit of a calculation, it looks like we're going to get some stimulus in 2026, maybe as much as a half a percent of GDP. So that could change dynamics here. Any commentary around on that? Chris, anything to add to what's going on? I know you've been in Italy, so maybe you're not watching the ins and outs of all this as carefully, but anything to add on that? I'm definitely watching. You're watching.

Yeah, it's interesting to watch from afar. Yeah, no, I think that's a very important point, though, in terms of the, you know, there's a lot of emphasis on the deficit aspect of it, certainly a very large deficit regarding the bill overall, and that could certainly have impact on rates. But in terms of the immediate impact, right, the tax cuts are going to be stimulatory. Yeah.

At least for a short period of time, it could offset some of the weakness or actually lead to some faster growth potentially. Yeah. And there's actually spending increases, I think in the near term on defense and Homeland Security, right? That's right. I mean, I think actually spending actually increases. I don't think it actually decreases. I mean, all those cuts to Medicaid, I don't think they kick in for a while. Again, second half of the 10 year budget horizon. So we get more spending in those tax cuts that provide some juice.

Marissa, anything on that, on the reconciliation package as it makes its way through here?

Yeah, just that, as you just mentioned, there will be cuts, particularly to kind of the bottom third of households in the income spectrum. It just won't happen right away. We're looking at quite large cuts to Medicaid, to food stamps, to other transfers from the federal government to states that eventually will hurt lower income households. And

That may have economic impact eventually. But yeah, I mean, in the near term, tax cuts, particularly on the corporate side, could be stimulatory. Yeah, you know, it does feel like now I had the kind of the narrative in my mind had been that the reconciliation legislation was kind of neither here nor there in terms of fiscal support and in terms of deficits and debt.

that it would neither increase the deficits in debt or reduce deficits in debt, which would leave us with deficits in debt. We still have a lot of deficits in debt. It's not just, it just doesn't change anything. And that's not a good thing because our fiscal situation looks pretty dark. You know, our deficits are six, 7% of GDP and that's in a full employment economy. You know, the debt, that means that debt,

burden will continue to increase and go from 100% ish on publicly traded debt to GDP to something close to 130% 10 years from now. And of course, our interest payments on that debt, which are already pretty close to a record high as a percent of GDP will be there. But now it feels like if this, with these changes in the Senate, if they're not scaled back in the House and feels less likely that that's going to happen,

I you can't that narrative doesn't work anymore because we're going to get a little bit as I said some fiscal stimulus here in the near term about a half a point of GDP in 2026 and we are going to get even bigger deficits in debt going forward yeah that you know and and and by the way I think

there's some, all of this assumes that some of the tax provisions will expire, you know, at some point, you know, in that 10-year budget horizon. And that feels like a pretty difficult assumption to make as well, given what's happening, you know, right now with this piece of legislation extending the tax cuts that individuals got 10 years ago. So it just feels like our fiscal situation will get any worse, which will get worse. So, you know, that brings me to another, you know, question that

you know, listening to you guys and, you know, I'm right there with you. How does this all square with what's going on in financial markets? I mean, the stock market today is,

They're looking at the same job report we're looking at, and they're taking a different kind of view of it, I think. I mean, I guess bond yields are up, so that would be consistent with the idea that this is a strong report. The stock market is up. That would be consistent with, at a record high, that would be consistent with the idea that this is a strong report. So, you know, what's going on? Dante, what's going on? Are you a stock investor? Are you buying that stock? Are you a...

What's going on? I'm certainly no day trader, but I don't understand what's going on. I mean, some of it, I assume, is just surface. I mean, if you read all the headlines of the employment report, I look at all the headlines after I write the release in the morning and, you know, resilient job market, things are stable and strong. You know, just the amount of positive headlines that I've been reading. Just it seems like a lot of people look at one hundred and forty seven thousand jobs, four point one percent unemployment, and they stop. And that's that's the whole story.

To me, even if you just do the simple arithmetic to say, okay, it was 147, but over 60K of that was state and local government education, which is not a real gain. So if that top line number was 80K or 85K, how much differently would people be reacting to it just from that one small change? Yeah.

I think it'd be a big difference, right? You go from an above consensus 147 to a below consensus below 100K, you know, sort of not that it'd be the end of the world, but I think it'd be a much different reaction just from that one change to that headline number. Yeah, I don't know. Chris, how do you explain it?

It seems an awful lot like irrational exuberance, right? If it had been a weak number, then the rate cut would have been in play and you'd see a monster rally as well. It seems like people just want to own stocks for, you know, they'll rationalize it. Right, right. Does that mean...

the stock market is losing its value as a indicator of the economy, the outlook for the economy. I mean, it's just disconnected, at least for the moment. It's never been a great indicator, right? But yeah, it certainly seems awfully frothy, right? Yeah. It just seems anytime there's a number that comes in that's above whatever the consensus expectation is, even if that

Consensus expectation is extremely low and you get a weak number. It's like this, it's this rally, right? Every single headline from every single mainstream publication is about how great the jobs report is and how it defied expectations.

So to Dante's point, it's like they're just they're just looking at the headline and reacting to the headline with no investigation of what's going on under the surface. I don't think it's a great jobs report. And you wouldn't buy stocks better than the 110, which was consensus. Right. But you wouldn't you wouldn't be buying stocks based on this.

She's selling. She's selling. Yeah, she's selling. No, I wouldn't. But yeah, I just don't think it makes much sense. I can't.

Square it. Square it. No. You know, I suppose you could make the following argument that what's going on in the stock market is less about the economy and more about other stuff. So, you know, businesses, corporations are going to get a tax cut. Right. That's in the data. So, you know, that's almost by definition.

meaning that we should drive up stock prices, right? So if you have the same price earnings multiple, PE multiple, and now you're saying my after-tax earnings are going to be higher, that means higher stock price, right? Your stock price will go up. The 899 provision, which was going to put a tax burden on foreign investors,

That's out of, I think, out of the bill. So, you know, the other thing that could be going on is the foreign investors are, you know, buying stock. And in fact, I think the, I saw some data showing that the share of stock ownership held by foreigners is actually, you know, steadily on the rise here. And I guess the other thing is it keeps going back to the tech industry.

an AI kind of craze, you know, those companies are on their own dynamic, have nothing to do with the economy, you know, certainly in terms of signaling of where the economy is headed. So that's just a whole different, you know, ballgame. So, you know, maybe you can explain or square the circle here that, you know, what's driving the stock market isn't really about the economy. It's about these all these other things that are playing out here. Yeah. And I think if you take the Magnificent Seven out of the S&P, the S&P would be flat.

over the year. Oh, is that right? Is it that? The last time I looked at it, which was maybe a couple weeks ago, that was true. Right. Right. Yeah, but I'm having a hard time squaring those things. Yeah. Okay. Well, anything else on that? Anything else we want to talk about before we play the game, the stats game? Dante, anything? No, I think we're good. No, you're good? Chris, you're good? Yep. Let's do it. Marissa, you're good? Okay, let's play the game. The stats game, we each put forward a stat.

statistic. The rest of us tries to figure that out with clues and deductive reasoning and questions. And the best stat is one that's not so easy. We get it right away. One that's not so hard. We never get it. And if we get it, if it's apropos to the topic at hand, and we've been talking about a lot of different things, then all the better. And we always begin with Marissa. Marissa, what's your stat?

God, I have three really good ones. Oh, okay. Okay. But I'll pick one. Okay. It's 907,000. In the jobs report? Is it in the jobs report? Yep. I mean, it's derived from the jobs report. Yeah. Is it a household survey? No. So therefore payroll survey. Correct. Correct.

Is it jobs? Is it a measure of jobs? Yes, it's a measure of jobs. Jobs added so far this year? No. No. Okay. 907,000. Is it sector? Is it jobs in a certain sector of the economy? No. Okay. Payroll employment. Private sector. The private sector. I'm sorry. What are you referring to? Yeah.

You said, is it in a certain sector? It's in the private sector. Private sector. Oh, in the private sector. Yeah. That makes me even more confused. Chris, Dante, any ideas here? It seems like we should be able to get it. That's why it's so good. $907,000. Is it a change in employment or is it a level? No. It's a level. It's a difference. Oh. Difference. Okay. Yeah.

Geez, I don't know. You guys give up? I give up. I give up. I give up. Okay, Marissa, what is it? This is the difference between private sector employment as measured by the payroll survey and the QCW through December of last year. So this represents the potential downward revision that we're going to see when the benchmark revision starts.

gets released. So we're talking almost a million job difference between what the payroll survey has been telling us over the past year versus what the actual count of employment from unemployment insurance records is going to tell us. And I think, is it next month? We're going to get the preliminary benchmark from the...

BLS. From the BLS, yeah. It's actually in early September this year for some reason, but it's normally like end of August. Oh, it's with the August. Okay, it'll be with the August numbers. We'll get this preview, but the preview is likely to show that there's a potential downward revision coming that's very, very large. And this is an answer to an email that you sent me and Dante a couple weeks ago and no one answered you. Right. I just realized this. Well, here we are. It was still in my inbox. That was good. Thanks.

Okay, so there's a lot to disentangle there. But so what you're saying is the QCEW is quarterly census of what employment and wages. That's based on unemployment insurance records. And that's a full count of jobs. Yeah, we got the data for December of 2024.

And what you're saying is that count as of December 2024 is 907,000 jobs lower than the current estimate of employment, payroll employment from the Bureau of Labor Statistics. Yep, in the private sector. And you're saying also that come early September, the BLS is going to give us a sense of what the revision is going to be through March of what, 2024, right? March of 2024. Yeah.

From April of 24 through March of 2025. Oh, I'm sorry. Yeah, 2025. Through March of 2025. And we don't know what that is, but what you're saying is based on the QCEW being so far below the actual payroll number that we should expect a pretty sizable increase.

downward revision in the data through March of 2025. We're missing the first quarter, right? We're missing the first quarter of 2025. We have data through December. What we know so far based on data through December is that it looks like the payroll survey has been overstating actual employment by almost 900,000 over the past year.

That's a lot. Yeah. I mean, that would roughly subtract about 75,000 jobs a month from the payroll survey numbers. You know, if you just take that difference and you divide it by 12, right, you'd get a downward revision on average in each month of about 75,000.

Well, in my mind's eye, I have for 2024 calendar year, average monthly job growth was like 165, 170. So you're saying if you take a literal interpretation of this data, that would suggest that average monthly job growth, payroll job growth in 2024 is probably 100K, maybe? Yeah. Yeah.

Wow. And this is all an estimate, right? Because this isn't the number that we're going to get in a couple months. We're going to get more complete data, but what we have so far suggests that this is roughly the magnitude of what could be the downward revision. Well, then that would suggest coming into 2025, we were much weaker. We were already weak. That's right. And so we could already be well below 100K. Yeah. Yeah.

I don't know. I do recall vaguely in the recesses of my aging mind that we've had these kinds of QCEW scares in the past, meaning they come out with a big decline and it kind of gets all revised away, seasonal adjustment. I don't know what. I can't remember. And, you know, that scare never materializes. Dante, do you remember this as well? Am I making that up?

No, you're not making that up. I mean, because QCW can be a little volatile quarter to quarter. So it's possible that the Q1 data that isn't out yet comes in much stronger and closes that gap considerably. But we don't know if that's going to happen. So I think, yeah, it's always a little bit murky this early on to know for sure what's going to happen. But last year, it was the biggest downward revision we've had. Yeah. Like ever or I mean, it was pretty accurate last year. Yeah. Right. Okay. Okay. Very interesting. Yeah.

Now, it doesn't really square with the unemployment rate, though, then, does it? I mean, that would suggest- Well, I think that goes back to the supply side of the economy. I don't think it's necessarily incompatible with a low unemployment rate if you have a falling labor force. But we know labor force, or I mean, based on the data, the labor force, and based on the immigration flows, labor force growth was strong in 2024.

Right. But it started weakening at the end of the year. It did start weakening at the end of the year. OK, so we don't know what the timing of all this, you know, how is this going to be distributed? Right. I mean, it could be that things really started weakening in the second half of twenty twenty four. Right. We know what immigration policy. Right. We know what happened under President Biden closing, basically closing off the southern border in the middle of the year. So, yeah.

I think a lot of it is going to be skewed toward the second half of 24. But even then, I mean, it takes a long time before, you know, that executive order that Biden put in place that did have an impact on asylum seekers was this time last year in the middle of the year. But there's a long lag between that and the effect of unemployment, right? Because, I mean, at least six, nine, 12 months. So 2024 has to have been a year of

Good labor supply. And then if you have that kind of weakening in the job numbers, you would expect unemployment to rise. I don't know. There's a lot to square there. We'll see. But that's a great number. We'll see. Oh, interesting. That's very interesting. And you have two other good ones like that? Yeah, but let Chris and Dante go and you. Okay. We might come back. That was a damn good one. Yours is better than mine. Yeah.

Let's go to Dante. Dante, what was yours? What's your stat? I got a lot to live up to now. That's a high bar. Let's see. I'm going to go with negative 542,000. Is that your favorite household employment based...

You're picking the household numbers? No? Okay. I thought about doing that, but that's... What was that number by the way? The household... It was hugely positive. It was up like 750,000, but that basically just offsets last month. What happened last month? It was down by about 750. Okay. So net, okay. So what was the number again? Down 500 and what?

Negative, yeah, 542,000. I'm rounding slightly, but- Is this the decline in foreign-born labor force or employment over the past few months? No. I mean, I guess it could be, but it's not what I'm looking at. Is it in the household survey? It is not. It's payroll survey. Payroll survey. Boy. Is it an industry? It is an industry. Cheap motive? Temp help.

Not temp help, not cumulative. It's a single month decline. Oh, what? In June? In June, this industry declined 500,000. Correct. What? I'm not commenting on the seasonally adjusted status of this number. Oh, okay. Education? Education?

Or local government or something? Yeah, so it's state and local government education declined by 542,000 in June, right? So just highlighting how hard every year state and local government education falls by about 2 million jobs spread out over May, June, and July, right? The timing of that decline changes almost every year because it depends on when universities and school calendars let out and when teachers come off payrolls.

And so we got that almost 64,000 increase in state and local government education, but that's, it's an increase only because the decline in June was a little bit smaller than normal for June. But that doesn't mean that we won't just get a bigger decline than normal in July and sort of offset any impact. Right. So it just trying to highlight how, how complicated that series is to seasonally adjust, right. Because it does move a lot every year and the pattern does shift because of calendar changes. So.

Right, right. So what you're saying, just to reinforce the point, is that the state and local government, 73K in state and local government, which was mostly education, is take it, you know, you don't believe it. You don't believe that's what happened. Yeah, I mean, it's been trending higher over the last couple of years. You know, it has still been growing. But yeah, that one month gain, I would take with a pretty big grain of salt because it's just hard to get right on a month to month basis. Right, right. Okay. All right. That was a good one. Chris? All right.

It's an easy one compared to Marissa's. Or Dante's. They're both hard. Minus 0.3%. In the employment numbers? Nope. It's not a labor statistic. It's not labor related? Is it a... Oh, the decline in house prices. No. Was it construction spending? It was construction spending. Yeah. Yeah. That's a good one. Yeah. You want to explain?

Yeah, it's down. It's been trending down now for seven months, month over month decline. So it's about three and a half percent down from last year. So that's certainly not a great sign. Of course, construction is an important part of the economy. Most all of that was private. The public sector construction actually eked out a positive gain.

But that's likely to change or decline if the Inflation Reduction Act spending is pulled, right? If some of the energy infrastructure- And the reconciliation legislation is scaling that back. Scaling back those tax subsidies that were in the IRA for development. Yeah, that's right. Yeah, so builders are really sour about the current environment. So I don't see this changing anytime soon, so-

Yeah, linking that back to the job market, I mean, construction has been adding overall to their payrolls. I mean, I think that Dante, didn't construction actually increase in June again? It did. It was up 15K. Yeah. Yeah. So that doesn't feel like that's going to continue, right? I mean, given the slide here in construction spending that we're observing. Yeah.

Yeah, and in terms of, we had Ivy Zelman on last month and felt like she's pretty bearish about home building as well. Feels like we're going to get less home building also. So, okay. Oh, interesting. So another reason for some pessimism, consistent with the view that growth is going to slow here. Okay. I don't have a stat. Sorry. Sorry.

So maybe we'll go back. We'll do one more with Marissa. She has two good ones. I probably wouldn't have admitted that if she hadn't said she had three good ones. She has three good ones and gave up one. Let's do one more, Marissa. Okay. 0.7 percentage points. 0.7 percentage points. In the jobs numbers? Yeah. Payroll survey? No. Household survey? Yeah. Did it change in an unemployment rate of some kind? Yes. Okay.

Okay. Some demographic group saw an increase. Yeah. I know teen unemployment went up. Is that teen unemployment? You're close. Young people, like the 25. That's right. So this is the increase in the unemployment rate for 20 to 24-year-olds over the past year. It's up by seven-tenths of a percentage point.

And that's big compared to how other unemployment rates have, except for teenagers. Teenagers' unemployment rate is up over 2% tidge points over the past year, but they have a high unemployment rate always, right? So...

Everybody else's unemployment rate is either down or it's up slightly like one, two tenths of a percentage point. And I think this goes to the tough job market that we were talking about, that it's just harder to find a job, that people aren't necessarily being laid off en masse, but job opportunities.

seekers are finding it very difficult to find work. And we see that in the jolts data, right? We see it in the job openings data and the hires data. Um, we see it in the fact that people that are unemployed or are being unemployed for longer and longer periods of time, it's just taking them longer to find work. And it seems like a particularly tough job market to graduate into right now. Yeah, that's a good one. Yeah, that's a good one. Well, um,

This is July 3rd, so everyone's getting ready for July 4th. And maybe we'll call this, we'll shorten this podcast up a little bit, unless you want to do your third one, your third staff. Okay. Okay. Yeah, sure. Minus 735,000. You want to do it? Okay. Minus 735,000. Say that again? Minus 735,000.

Jeez. And this is in the employment data. Yep. Household. No. Oh, household. Payroll survey? Household survey. Household survey. Minus 735. Oh, geez. These are big numbers. Yes. Big numbers for a big impact. Is it a cumulative change? A year-over-year change? It's a change since the start of the year. Start of the year. Okay. Yeah.

Not temp help. That can't be temp help. Household survey. Oh, household survey. Is it the labor force change at the beginning of the year? It is a labor force change. I actually mentioned it earlier.

Oh, you did? Yeah. Oh, yeah. Foreign-born, foreign-born. You're saying foreign-born labor force minus 730. And that's from January? From January. Okay. So the population controls. Yeah. Right. That's a really good one. So you're saying foreign-born labor force is down 735,000 people. Since the start of the year. And it had been going straight up.

Obviously, given the surge in immigration earlier. Yeah. Right. And on the flip side, native-born labor force is up. It's positive. So it's really only falling for the foreign-born.

Right. And the net is, I think, flat, right? The labor force is flat to down, I think, in total since January. I didn't even look to see what. Yeah, yeah. No, yeah. Yeah. I don't think after you abstract from the population control, you know, every January, they BLS benchmarks to new population estimates. And you've got to take that into consideration. But if you do, I don't think the labor force has grown at all for almost a year, almost a year. It's basically been flat. Yeah. Going back to labor supply. Yeah.

Okay. Oh, that's a good one. Those are really good ones. Yeah. So, okay. But we are going to, now that's it. We're going to call it quits. We're all going to go enjoy July 4th weekend. Got any plans? Well, Chris, you're back. So I don't know. I probably don't have any plans. Marissa, you have any plans? Chris is back so that I can leave. I'm not, I'm actually not going to be on the podcast until the next jobs report. No way. Yes. Oh, wow. I know. Wow.

Wow. Who's going to go first? Who's going to go first? Yeah. Who's going to go first? Yeah. Wow. That's a, that's a big burden on us, Marissa. Well, we carried the burden while Chris was away. So just tag teaming.

Well, have fun wherever you're, whatever you're doing and wherever you're going. We'll miss you. Absolutely. And you have a Zandy Palooza is going on there. Oh yeah. At the beach. Yeah. We played up. I played pickleball for the second time. I'm, you know, for an old man, I'm not bad. Not bad. I got a, I got a wicked serve. Yeah. Was it just you versus Carl or what? Is there any? Oh no. Oh no. We got, you know, all the. Cause I'd pay for a ticket to that event.

It was a lot of fun. We found a great, I won't tell you where I am, but we found a great pickleball court indoor because it was raining. Oh, it was indoor. It was a lot of fun. We had a real blast. Good workout. Did it for a couple hours. It was a lot of fun. That's right. You play pickleball. That's right. Marissa plays pickleball.

Play is a, is a hard word. Uh, I, yeah, I attempt it. I actually went to a professional pickleball tournament last weekend, like watch the professionals play. I was like, Oh, that's what it's supposed to look like when you play. Is it fun to watch? It was really fun. Yeah. Yeah. And to watch. Yeah. You know, I really enjoyed it. It was a lot of fun. Um,

Okay. Well, I think with that, Dante, you're hanging out? You were already at the beach, I think, weren't you? I was cruising. I was on an Alaskan cruise a few weeks ago, so not the beach opposite of the beach. Oh, wow. I got to talk to you about that. I'm curious if you recommend that. You recommend it? Yeah. It was a good time. I had a lot of fun. Good time. Yeah. Very good. Good. Okay. Well, I think we're going to call this a podcast. We did a plenty amount of chit-chat just to irritate my son.

So again, listeners, let us know. You like to chit chat or no chit chat? We want your view on this because a great debate here. And I think with that, we're going to call this a podcast. Your listener talk to you next week. Take care now.