Deep Dive
Shownotes Transcript
Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I'm joined with my trusty co-host, Marissa DiNatale, Chris Dorides. Hi, guys. Hi, Mark. Hi, Mark. And it's Jobs Friday. This is May 2nd, Friday, May 2nd, and we get jobs for the month of April. And so we have Dr. D'Antonio. Hey, Dante. Hi, Mark. How are you? Good, good. It feels like everyone was traveling this week, no? Marissa was just recounting a very long EV trip.
Trek through Southern California. And you said your EV, I asked, but I didn't hear the answer. Did you have to rejuice at some point? No, no. Oh, cool. No, I drove like seven hours on Wednesday. Okay.
Now, were you sweating it out the whole time? No, I wasn't. I, you know, I knew I, I figured it would be okay, but it would probably be close. Right. Which it was, but no, I did it. You didn't use your air conditioner and you didn't turn your. I had the AC on blasting the whole time. Yeah. Okay. Very, very cool. It can be done folks. It can be done with a little planning. It can be done.
Oh, you actually planned. You said, if I need juice, I'll stop here. Yeah, but I had mapped out the mileage and I figured I would be okay. Oh, okay. Yeah. It's California though, right? There's like a charger on every corner. Not in Los Angeles. No? All right. I mean, there's chargers, but there's eight chargers per million people or something. So it's not very...
Oh. It's not great. Yeah. I didn't know that. Yeah, there's not enough chargers at all in LA. Maybe a little better than Carbon County, Pennsylvania. Probably. Well, I don't understand the reference. We have Carbon County...
- Possible fuels is big still. I don't think there are many EV chargers. - Oh, are there any EV chargers? - It's in the name of the county. - Yeah, yeah, the name of the county. I didn't even know Pennsylvania has a county named Carbon. - Yep.
Really? Dante knows it well. I don't know if I know it well, but I've heard of it. I don't, you know, probably been there at some point. And where is that? Is that Western PA? It's got to be. It's not Jim Thorpe. It's more Northern than Western. Oh, nose area. Yeah. Yeah. Pretty country for sure. Beautiful.
Yeah. So Chris, are you traveling this week as well? I was not. Ah, okay. That's why you look so rested. Yeah, exactly. Yeah. Just taking it all in. But you guys are off to Miami next week, right? Oh.
Yeah, we have the big Moody's Banking Conference in Miami. Dante, were you traveling at all? Last week and next week, but nothing this week. Okay. Anywhere exciting? I'm swooping into Miami right after you to do something on the tail end of the summit. So I'll be there after you're there.
Oh, good. Maybe I'll come and heckle you then. That's fine. Yeah. Okay. Really? It's fine? It would be par for the course. I can't really tell you not to. I mean, is that a... Yeah. Good point. Good point. Yeah. I had busy travel week. I'm so glad to be home. Yeah. I was in Chicago for a bit and I was in Boston. A lot of asset managers meeting all kinds of asset managers, equity, fixed income, real estate.
Kind of interesting. We're all very calm at the moment. Well, asset managers are always pretty kind of no matter what's going on. And in fact, some of them kind of like the chaos, right? They like the volatility. So I was at a couple of shops where they were kind of happy about all the ups and downs and all arounds.
I think generally people are confused, but I'd say their mind is exactly where our mind is. And we'll talk about that in the podcast. So what I thought, you know, this was a big week for economic data.
Have you ever seen a week like this past week? We don't typically have. I mean, it felt like everything came out in the same week. That's very rare, isn't it? It happens like twice a year where we get GDP and employment in the same week. Oh, okay. It'll happen again in August. Okay. So it wasn't just my imagination, but it felt like a blizzard. No, it's rare. Yeah. To get all of that. Yeah, a blizzard of data. And I thought what we would do, we'd each go around and pick the
data release that you're most focused on or interested in or you think is most telling. And then we'll kind of bring it all together, talk about what it means for the economy in aggregate. Maybe we do the same summary as we've done in the past, the probability of recession, and then play the game. Although I say that with some intrepidation because if we're talking about the data, we might take everybody's
statistics for the game, but there was a lot of statistics. So I think we'll be fine. I think we'll be fine. Does that sound like a good game plan? Great. Great. Okay, good. All right. So Dante, you're the guest and I'm guessing I know what data release you're going to pick.
Yeah, I'll kick us off with the employment report, although I will say- Oh, yeah, the employment report. I don't know that it's actually the most important labor data because even though it's pretty timely, it still feels pretty out of date already. Right. The reference week was pretty early in April, and given everything that happened in early April, it feels like this maybe is a little bit better than what reality currently is today. Oh, explain that for just a second for the listener. Oh, I'm sorry, Chris. Go ahead. I was going to say, it was right after Liberation Day, right? Yeah.
Yeah, so the reference week is the week that includes the 12th of the month. The 12th was on a Saturday in April, so that means that was the end of the reference week. So it actually went from the 6th to the 12th.
Liberation Day was obviously only a couple of days before that. So it's unlikely that companies were reacting to and making employment decisions that quickly in April that you would see the impact in this employment report. So it sort of looked like you would have expected it to look without sort of the tariff news that came up. And that's largely because I don't think it reflects any of that tariff news that we saw about a month ago. Yeah.
Job growth was 177,000, sort of in line with where it was after revisions in March. Roughly still in that 150,000 sort of trend job growth ballpark over the last three or four months. There weren't a whole lot of changes. Industry composition was largely the same as it's been. Healthcare leading the way, leisure and hospitality, transportation, warehousing, picking up some support.
Government holding up, I think, still a little bit better than we would expect. Overall, government was still positive. Federal government was down just a little bit. But still, we haven't seen any of sort of the big Doge cut related layoffs in the federal government, at least not in this data.
Just a sidebar there. I think the BLS called this out. They said if the federal government, if the employee's on paid leave or on, I guess it's a deferral, then it's just not going to show up in the data. That's right. Yeah. They continue to know, right? If you're on any sort of paid leave or you're receiving severance, right, you're not losing your job yet. So that's not surprising, I don't think. But over the next couple of months, I would expect to see a bigger impact start to show up.
in terms of federal government layoffs. Big negative revisions to prior months, which seems like the same story we've had lately. So over the last two months, it was a combined negative revision of 58,000. So even though growth was a little strong this month, the three-month average basically stayed the same compared to last month because you had sort of offsetting negative revisions.
Wage growth was- Just a sidebar there. Sorry, I'm doing these quick sidebars. On that one, my sense is that
When the economy is throttling back or accelerating, then you get the revisions moving in one direction or the opposite. So if the economy is accelerating, you tend to get upward revisions to previous months. And if the economy is throttling back, slowing, you tend to get downward revisions. And we're getting downward. Last month, we got downward, I believe. Last month, we got downward revisions. This month, we got pretty sizable downward revisions.
Yeah, that's right. And I think, yeah, and over the last six or nine months, you've seen many more negative revisions than you've seen positive revisions. I think that, yeah, I agree with that. Okay. Wage growth, there wasn't really any new story there. It did decelerate slightly in April to 0.2% growth in April, but the year over year rate stayed the same at 3.8%. It's still been sort of at or near 4% for the last two years, at least.
Average weekly hours technically stayed the same, although there was a slight upward revision to March. So it stayed the same at a higher level than what we thought last month. But again, that was a pretty minor impact. Sidebar there. Is that the right word to use? Sidebar? I guess. Yeah.
Interruption. Third interruption. I'm interrupting you. Manufacturing hours fell, though, pretty sharply. It's a good question. I actually didn't look. Oh, I should have made that money. I'll trust you. You could have had your stat right there. That was my stat. Yeah. Yeah, I think it fell back. Maybe not surprising given what's going on, but. Yep. Right. Fell by over an hour. No, that's wrong.
Two-tenths. Two-tenths. 40 hours a week. I was looking at the diffusion index. Anyway, sorry about the interruption. No, you're fine. Household survey, again, was strong. I think stronger than we think probably is currently true today. Unemployment rate was unchanged to 4.2%.
And that was actually even though we had a huge increase in the labor force, labor force participation ticked up slightly. There was a big household survey employment gain over 400,000. But other than that, things were most prime labor force participation ticked up a little bit. Can I say on the sidebar interruption, whatever the right thing is, is that –
To your second, third significant digit? I don't want to take your stat, but... I was not going to use that, but yeah. So remember last month we talked about, you know, we went from 4.14 to 4.15. Right. It'll go to 4.19 this month. So, I mean, it's basically been unchanged to two digits over the last three months now. So it still has not moved much at all.
employment population ratio, both overall and prime E-pop were both up again. Again, there had been a little bit of weakness in recent months on participation in an E-pop, and we've seen that sort of reverse here over the last couple of months. So things were on that, I think, pretty strong. But again, I think it's pretty strong with a big sort of butt at the end that
We haven't yet really seen what the impact of the trade war will be, and it's certainly not showing up here yet. And we'll have to wait for the May data to see what impact there is. That's it?
I think that's a, yeah, we got a lot of data to talk about, right? So I was trying to keep it short for you. Yeah. I, you know, I, there was a couple of things in there that made me a bit more cautious about the report. I mean, you take the top of the line, the top line, the 177, 177 case, they had no big deal. We talked about the revisions that kind of shows some weakening and the consistency of the downward revision success, success, the economy's kind of throttling back. The hours worked in manufacturing, you know,
which goes to obviously the trade war and the impact, the disruptions that's having on the manufacturing base. The other kind of cautionary note, I think, and just want to ask you, is if you look at job growth in the transportation distribution and warehousing sector, that was pretty big. And I'm wondering, and it's actually been rising strongly since last October, November. So that feels like that's consistent with the
the surge in imports that we've seen in anticipation of the tariffs. So there's been a lot of front loading of imports and you need to move that stuff around. Therefore, you need people to do it. If that's the appropriate explanation, then that would suggest there's an air pocket on the other side of this in coming months.
Yeah, I would agree. I mean, yeah, I think the growth is certainly not sustainable. And I think you're likely to see a pullback and not to steal any of Marissa's thunder. But I think in the Challenger report, transportation was up there amongst the top private industries for announced job cuts in April. So I think you will start to see some pullback here moving forward. Right. And then, of course, the other thing was the federal government employment that's declining, but in all likelihood, it's declined more than is in the data report.
because of the severance packages and everything else, just delaying when that shows up in the data. Is that fair? Yeah, I think that, yeah, I mean, we think there's been over 100,000 cuts, you know, at least that have been announced and we're pretty sure are coming. And we've only seen a very small decline in federal government employment that's been reported so far. So I think it's certainly more declines to come. Right. So I look at the report and, you know, it's good in that it suggests that the job market
Oh, the other kind of negative was the one you pointed out, early reference week. So it didn't really pick up a lot of what happened after so-called Liberation Day. But I look at the report and the top line number is fine. It's good. Suggests that the labor market continue to hold firm in April through early April. And that's a critical firewall between a continued broader economic growth and a recession. Once the job market collapses,
Once that firewall comes down, you're toast, you know, you're in recession. So that firewall still is up there. But in my mind, it feels like that firewall is just getting fragile. There's a lot of cracks in the firewall and, you know, very vulnerable to if the trade war, for example, were to continue on without any de-escalation. Is that fair, what I'm just saying? Do you come to this from the same perspective?
Yeah, I think that's fair. I mean, right, this, this looked fine, if you sort of ignore the fact that it doesn't account for sort of everything that's happened over the last month. So I think that's a big caveat, obviously, that it looks okay. I'd be more worried if it looked very negative, knowing that it doesn't really pick up what happened in April. But yeah,
I think we still have reason to be concerned that things are going to get much weaker moving forward. Yeah, I guess what I'm saying is if you look at the top line number, you come away, okay, fine, no problem. And that's how the stock market's taking it. Last I looked, the stock market was up quite a bit. But if you look into the bowels of the report like you do, that doesn't give you as much... I don't feel quite as sanguine about the number.
Yeah, I agree. I mean, you think about if transportation warehousing starts to pull back, if government starts to pull back, you start to have fewer and fewer industries that are adding to jobs and it makes it harder to get a top line number that's strongly positive. Right. Okay. Okay. Before we move on, Marissa, Chris, anything on the jobs numbers report that we missed? I mean, am I looking at this? Obviously, I'm looking at it with dark colored glasses. Is that appropriate? Or how do you see it? Chris? Yeah, I'd
I'd agree with that. It's still somewhat like all the data we'll be talking about. It's looking in the back or the rear view mirror. So, you know, need to take it with a grain of salt. It's not incorporating all the policy changes that we know of. Right. Marissa, any different views? I mean, I'm glad that it's
I'm glad we're entering this period on this level of strength, right? Because it means it's going to be harder to knock down. But yeah, I just think we haven't seen the impact of this yet. And you can find things that look weak if you look in the data. You know, the number of multiple job holders has been rising for a while. The number of people working part-time for economic reasons, the number of discouraged workers. And that's all consistent with some of the other labor market data that show that
People aren't being laid off necessarily en masse yet, but hiring has become, you know, has fallen to lows that we haven't seen in years and years and years. So it seems like employers aren't necessarily laying people off yet, but they're not hiring either. And I think you can find some evidence in the jobs report for that. Yeah. You know, the other thing from a kind of a broader perspective, if you look at the unemployment rate, it hasn't really budged in about a year.
You know, it's kind of flattish. And that's after, if you go back the year prior to that, it had risen quite a bit. It had risen almost a point. Like we're at three and a half. Well, I guess not a point, maybe six, seven, eight tenths of a percent. We were three, five, three, four. Now we're at four, two. And that all happened, you know, kind of late 23 going into 24. And since kind of mid 24, it's kind of been just flat. Yeah.
And that seems to suggest that, and growth has slowed, you know, growth has slowed and the unemployment rate hasn't, you know, hasn't pushed up. It feels like, you know, kind of the potential growth of the economy is starting to throttle back, doesn't it? I mean, you know. Yeah. And I think some of that is the immigration story too. I mean, part of the reason for that rise in the unemployment rate had been just this massive influx of people
immigrants into the labor force, right? So that has slowed down significantly. So I think that's helped keep a ceiling on the unemployment rate. Yeah. So that suggests that the immigration effects are starting to, it feels like, maybe a bit premature, but it feels like it's starting to show up in the numbers. And it suggests that the economy's potential, that rate at which you can grow without
you know, unemployment changing is now throttling back here. It's slowing down quite a bit. Anyway, Dante, do you agree with that kind of observation? Yeah, I agree. I mean, I think that makes sense to me that there's just less room for growth. Yeah, less room for growth. Okay.
Okay, Marisa, you're up. What do you want to focus on? What data do you want to focus on? Look at the other labor market data that we got this past week. We got a lot. The potpourri? Yep, it's potpourri. So we got unemployment insurance claims as we do every week.
There was a pop in unemployment insurance claims. So they rose 18,000 over the previous week. They're at 241,000 on the week ending April 26. That's still not high, but it's significantly higher than we've seen since, I think, February. So that does suggest that
maybe layoffs are rising a little bit. You don't see it yet in the JOLTS data. You don't see it in the employment report, but this, you know, you would see it here first, right? So that's why we focus on UI claims.
So I don't think it's flashing red, but it's certainly something to watch. It's not heading in the right direction, and it's not unexpected, frankly. I think maybe one of the more concerning things in the UI claims report is the continuing claims. So these are people that are still unemployed. So they've already filed the initial claim for unemployment, and they're still collecting unemployment insurance claims.
This is high, and this is the highest it's been since 2021. And so that, again, is consistent with this story that it's just becoming harder for people to find a job. The people that are being laid off or unemployed are finding it more difficult to find a job. Well, someone told me, because I was traveling, I couldn't look deeply into the UI claims data, that it was...
It was a few states or maybe one or two states where you saw the big jump in initial claims, like New Jersey or maybe it was New York. Is that right? Connecticut and Rhode Island, yeah. Oh, okay. So it was broader than that. So it was kind of the Northeast in general. Yeah, yeah. Oh, interesting. But those are...
pretty volatile when you look at the state level data. I was again looking at Washington, D.C., Virginia, Maryland, because that's been sort of trending up where you would see those doge layoffs. And that didn't really do anything over the month when I look at D.C. I mean, it's higher than it was at the start of the year. You're certainly seeing some of that impact. But yeah, this looks like it was led by the Northeast. Okay. So in general, kind of like the employment report, it
You know, the top line number 241 initial claims, that's still pretty low. Yes. There's no alarm bells and it's just one week. But it's, you know, clearly moving in the wrong direction. And you're saying the continuing claims also signal some stress. So kind of in the bowels of the numbers, you come away with looking at it with dark colored glasses as opposed to rose colored glasses. Yeah.
Yeah, I mean, I think, right, employers, and we've been talking about the impact of tariffs, I wouldn't expect all these mass layoffs immediately during this tariff announcement. I think employers are going to do what they can to avoid laying people off. The first thing they're going to do is stop hiring people, right? And so I think that's what...
that's the impact that we're seeing is just to sort of freeze up in the rates of hiring and people leaving their, people aren't going to leave their jobs when they don't feel great about labor market prospects. So that's the first thing you'll see. The layoffs will come later. Okay. That's one part of the potpourri. What is it? One element of the potpourri? What is that? One piece of the potpourri? A piece, yeah. I think a piece. One dry potpourri.
Flower petal in the potpourri. Yeah. Okay. I like that one. Dry flower in the potpourri. What's the other dried flower?
So there's a bunch. I mean, there was the Challenger report, as you like to point out that I love. Yeah. So this is announced job cuts by employers. So this isn't necessarily actual layoffs. It's announced layoffs. That fell quite a bit over the month, fell by 60%, but it's ups over 60% over the year. And you see that announced layoffs, you know,
This is sort of interesting. Over the year, it came mostly in tech and in warehousing. So back to the whole warehousing story about tariffs and imports. It looked good in the jobs report, but here we see planned layoffs increasing in this industry in the challenger report.
So they're up over the year. I mean, certainly you would see some indication of that. They also cite reasons for layoffs. And the people that the employers that said explicitly that the reason for layoffs is tariffs was...
Low so far, over a thousand out of all of these announced layoffs. So over a hundred thousand announced layoffs and only about a thousand of them cited tariffs directly for the reason for layoffs. Mostly it's this uncertainty, souring job market conditions reason that's being given. Oh, interesting. Yeah. Okay. That's the second dried flower. What's, is there a third?
Two other things I would point out. Maybe one is we got the ISM manufacturing survey and that has an employment index component to it that
Once again, is below 50, indicating that manufacturers are shedding workers instead of adding them on net. And it actually rose a little bit over the month. But I mean, it's been below 50 for months.
Really since the pandemic began. I mean, there's been a couple months where it's popped up above 50 here and there, but you have to go all the way back to before the pandemic, before it was solidly at or above 50. So manufacturing has been quite weak for years and it continues to do nothing on the hiring front. And then the other thing I'd point out was back to the wage piece that we were talking about, the employment cost index came out.
And this is a quarterly measure of wages and benefits, total compensation in the private sector and in the public sector. So private wages were up private. Yeah, private wages were up three point four percent over the year and they were up point eight percent quarter over quarter. So that's a slowdown. And we haven't seen a pace that slow since twenty twenty one, I believe.
Is that good or bad? So they're both slowing. Slowing. Yeah. In the current context, do you consider that to be an issue? Because if you go back not long ago, we were worried about inflation. We were rooting for wage growth to kind of cool off. And here we are, it's cooled off. Now we-
Is that a good thing? We're well below the 4% year over year where we kind of wanted it to be below. Right. So I think given the prospect of higher inflation due to tariff policy over the next couple years, it's probably good that we're especially if you're sitting at the Fed, it's probably good that we're starting for a lower pace. It gives you more confidence.
leeway here on wages. And I would expect other policy to potentially push wages higher, including immigration policy. So the fact that it's slowing now is probably a good thing. Okay. Any other dried flowers on the labor market front? Well, we got Jolt's data. Jolt's, yeah. You didn't mention Jolt's. Yeah. Yeah. We got the job opening and labor turnover survey data. That
There wasn't, Dante, I mean, maybe I'm missing something, but not much doing there, really. I mean, actually quits rose a little bit, layoffs fell a little bit, the hiring and the job openings rate. Hiring rate, I think, was kind of flat and the job openings rate continued to fall. So small changes, but nothing dramatic, I don't think.
Yeah, Nikki, I mean, that's even more out of date, right? It's through the full month of March, so it's not into April at all. So it's not surprising that nothing really showed up there in terms of weakness. You know, one thing I've wondered about is when businesses respond to things like uncertainty or even weakening in sales and try to think about their payrolls in kind of the labor market needs they have, it feels like the first thing they would cut back on
you know, if there's some concern about sales or their business is hours worked, right? And we've seen that kind of sort of happen. They grow, at least historically, a lot of other things are going on now, but historically they cut back on temp jobs, you know, temporary help, and that's kind of sort of happened. I know there's a lot of dynamics there that, you know, are also involved.
And then I think the next step is they pull back on open positions and hiring, right? And we've seen that, right? The hiring rate, as you pointed out last month, was kind of stable compared to the previous month, but it's down quite a bit from where it was. And it actually feels like it's on the low side of where you'd want it to be if you look at historical kind of norms.
So that then leaves you with the layoffs. So it's almost like the businesses have done everything they can to avoid layoffs, but here we are. So if anything doesn't stick roughly to script...
and their sales start to weaken, their business starts to underperform, they will start to lay off. That's kind of sort of how I think about the progression here in the labor market. Is that fair, Marissa? Do you think about it the same way? That's the way I think about it. I think layoffs are sort of the last resort, right? Last resort. It's obviously employers don't want to lay people off and it's expensive to lay people off because if you do that and then conditions change, you have to
go through the process of recruiting and rehiring and training and all of that stuff. So yeah, the first thing you would do is just cut back on how much people are working. If you have hourly workers or part-time workers or workers you can shift to part-time and then you would just not fill open positions.
Yeah. Okay. All right. Chris, you're up. What's your data release? It's the GDP. GDP. Yeah. Q1 GDP. Not quite a potpourri. Maybe a thorny rose. Let's see. A thorny rose. A rose. Really? A rose? There's a rose in there? There's some rose. Okay. There's some rose. Okay. Okay.
I don't know if it smells sweet, but there's- I think you got to come up with a better metaphor. Is it a metaphor? Yeah, I think it's a metaphor. Yeah. But anyway, go ahead. It's tough to follow potpourri. Potpourri is pretty good. So the big news on GDP is that we had the first decline in the first quarter since the first quarter of 2022. So that made the headlines down 0.3% on a real inflation adjusted basis.
largely due to the surge in imports that we observed, right? In anticipation of the tariffs, right? So that's the new story. Tariffs grew a lot. I'm sorry, imports grew a lot because of the tariffs, over 40%. And that subtracted about 4.8% from GDP. So that's a significant drag. I believe it's actually the largest drag on record. So it's a big deal.
Now, you did have some compensating effect here, but also due to tariffs where you had business investment actually rise about 20%, a little over 20%. So again, I see that as anticipatory. You had businesses who were maybe buying their computer equipment or other equipment ahead of the tariffs, and that led to some of that increased investment activity we noted.
So, if you look at domestic demand, which is just consumption plus investment, so you ignore the imports and net exports component here. You ignore the inventories, which again tend to be volatile but difficult to measure. Underlying domestic demand actually still looked pretty good, about 3%. But that goes with the forward buying though, doesn't it? Oh, that's with the forward buying.
And then there's afford buying and consumption too, consumer spending, right? There is presumably, but the consumption, and although consumption growth was positive, it was lower than it was in the fourth quarter, right? So there's some pullback in that consumption as well. Yeah, but despite the pull forward, you got a pretty soft consumption number. Right, that's what I'm saying. Okay, fine. Right. Okay. Yeah. Yeah.
Yeah, and then, of course, government... So where's the rose? Where's the rose? Well, for now, you know, the rose looks pretty good. It might be wilting, but, you know... Okay, a thorny wilting rose. Okay, that's better. That makes more sense to me. Yeah. Yeah. Okay, so... Largely looking in the rearview mirror here. That's the issue with this report. Right. But it was a negative number, negative 0.3, and, you know, it feels like...
Yeah, it's related to just the anticipation of the tariffs. Also, Doge was in there too, wasn't it? Because federal government spending fell. Yeah, quarter point. Doge cuts, quarter point. Lost in government. So the tariffs, the trade war, and the Doge are fingerprints all over the report, right? I mean, and it was a week. No matter how you slice it, it feels like a week quarter, right? Yeah, definitely. I suspect there'll be some revisions. Some revisions, okay. Maybe it comes in a little, but it's not going to swing the...
Swing the numbers dramatically, right? Right clearly I could I could see it does feel like the inventory So what happened what you would thought of would happen is there's a surge in imports to get ahead of the tariffs those if they're not consumed and we we know consumption was very weak and
Then it has to go into inventory, presumably. And inventory investment did increase, but it didn't increase all that much, not as much as you would have thought, right? And so what you're saying is maybe because that number always gets revised because measuring inventories is tough and it's always lagged.
we might see more inventory accumulation in subsequent GDP releases. And so we might go from a negative to a positive, although it's still going to be soft. It's not going to be negative is kind of what you're saying. That's my expectation. Yeah. It's just very difficult, right? There's estimation, there are lags in how you estimate these things, how you time them, right? Both on the inventories and on the exports imports. It's just a difficult statistical exercise.
Yeah. So in theory, the inventory should have captured the imports, but in practice, you're saying perhaps didn't, probably didn't. Yeah. It looks like something's missing. Something's missing. Right. So what does that suggest for the second quarter then? Does that suggest the current quarter for GDP? Presumably another soft quarter for
It could be negative, but you might see some reversal of these measurement things and you'd see kind of a pop to grow because imports will come down. That's right. Right. That's right. So I think we should be kind of blending these quarters together. Okay. The full picture, right? Right. So again, I think Q2 will also have some quirkiness in it in terms of reversing some of these issues, but I'd expect overall softness across the board. Right. One other kind of a more technical question.
a point question. I don't know if we've talked about it in the past, but Marissa, maybe, or Dante, you guys may know this. The way that Bureau of... This now goes to the Doge cuts and its impact on federal government spending, which declined in the quarter. The way the government calculates government spending
GDP or what's in the GDP report is by looking at the number of federal government employees and their compensation. And they use that as a basis for coming up with that estimate. So if you actually cut people, which was what Doge was doing, then that would show up in a decline in government GDP. And that's what we're saying. Do I have that right? Do you know, Dante or Marissa? Yeah.
Yes, I think that reflects government wages paid. Wages paid, right. Yeah.
Right. Yeah. I mean, it's included in there. I'm not sure exactly how they estimate it every quarter, but I mean, it's definitely there as part of government spending. I think, you know, when they calculate GDP, they, you know, collect data from all kinds of sources, you know, for consumption, investment, net exports. They got a blizzard of data sources there.
And in the case of government, I think the way they do it to make it tractable is they actually look at how many people are working in the federal government, what their comp is, and they use that as a basis for calculating costs.
you know, government GDP, which is, you know, government spending or expenditures that are outlays that are in the, in the report. I think, uh, some, someone out there will correct me if I'm wrong, but I think that's the case because it's more of an accounting exercise, almost an account. If you cut government jobs, you're going to, you're going to hit federal, uh, uh, G G, uh, federal government spending and, or GDP. And it's going to, and you get the kind of effect you saw in the first quarter. Uh, okay. Uh, anything else on the GDP number? Uh,
You know, the corollary to that is the personal income and consumption, consumer spending data that kind of comes out, the monthly data. I guess no surprise there. It looked like that was, it showed pull forward spending, you know, in the consumption data, but anything stand out there, Chris?
No. Okay. Okay. Okay. All right. Okay. All right. I'm going to go and you'll know what it is. It's the Conference Board Survey of Consumer Confidence. My favorite leading indicator of recession. When that declines, typically confidence reflects, sentiment reflects the economy, what's going on with jobs, what's going on with inflation, the stock market, those kinds of things.
But at points in time, the causality shifts and confidence caves, declines. Consumers lose faith that they're going to be able to hold on to their job and their financial situation is going to erode. And they pull back on spending. And that's the basis for recession typically. And the Conference Board Survey of Consumer Confidence, which is a monthly survey done back many decades, says,
I think does a really good job, and particularly in recent years, a very good job of kind of giving us a sense of what consumers are actually thinking and what they're doing. It doesn't feel as biased by political overlays as some of the other surveys do. It just feels like it's more consistent with what consumers are actually doing. And that continues to fall very sharply. We got the data point for April, and it fell, again, more than anticipated, and
And a good rule of thumb historically is that if the index, the consumer confidence index falls by more than 20 points in a three-month period, we're going in, consumers to recession. Consumers have lost faith, they're packing it in and that's the start of an economic downturn a few months later. I think the kind of the average length of time between when you get that 20 point plus decline and you get recession is about six months.
In the month of April, the index is down 19.3 points compared to its three. So not quite there. That's sort of like our forecast, right? I mean, it's kind of like our forecast. Not quite recession, but it feels like we're awfully close and things have to start going right here. Otherwise, we'll go into an economic downturn. The other indicator in there is the job that we watch very carefully, or at least I do, the jobs forecast.
easy to, how easy are jobs to get and how hard are they to get? And you kind of look at that, the differential, and that tends to be a very good measure of unemployment. It does a pretty good job of predicting unemployment and it is consistent with stable to slightly rising unemployment here. So that's what we're saying. So all in all, that's a pretty downbeat report as well.
Guys, I know you look at that data too. Anything else to add on the conference board survey? Dante? I'm sort of more curious what you think. Obviously, if you just look over the last three months, it's not down 20 points, but it's been declining ever since November. So if you look, the total decline since November is much higher than 20 points. So it's not a sharp three-month decline, but it's a sort of prolonged five-month decline at this point. So I'm not sure how you...
read that. You know, I stick to my rule of thumb because I think if I, if you do, you're saying go look back four months or look back five months. If I look back five months, you know, since the peak, the peak was November, the election, the peak, and then since then it's been sliding. It
It's down, I think I did the calculation this morning, 26 or 27 points, something like that. But it's not quite consistent with the rule of thumb. And I think if I look back historically, there are periods when you might see a kind of a more attenuated decline and it doesn't result in recession. So I'm sticking to my rule of thumb, but this reinforces the point. This is not something that just happened. It's been happening. People are getting nervous. Yeah.
Yeah. Okay. Chris, Marissa, anything on that? No? Okay. Sounds consistent. All right. I guess I'm just trying to think, were there any other, I think we got all the data. There's a lot of housing data. We even put out our house price data. Oh, that declined too, right? Right, Chris? The house price data declined for the month of April, I believe, or March, excuse me. It'd be March. Right. Right.
So that's some weakness. Anything else out there that week? That's enough, but just asking. Okay. All right. So I don't know. Let's bring it all together. And what does it all mean in terms of your thinking about the economy and the way we've been kind of summarizing our perspective on that is we've been doing this for quite some time. What is the probability of recession beginning at some point this year and
Let's go around the group here and get what your current probability is and how that's changed, if it has at all. Marissa, what's your probability? I'll go with 55%, which is down 5% from where I was a week ago. Oh, okay. And despite all this data, you brought it down by five points? I did, yeah. Why?
I just see the administration backing off a lot of this and I think uh if they continue to do that and if they do that soon enough then this might be salvageable I think if this vacillation continues for a lot longer then I think it's going to be very hard to avoid a recession but
You know, they seem to be getting spooked by some of the data that's coming in. And I think you have a lot of CEOs whispering in the ears of administration officials, warning them about the effect of the tariff policy. So I think perhaps we have a serious pullback coming soon.
Okay. So what you're saying is the key to whether we go into recession or not are the tariffs and the trade war. And if the administration is able to take an off-ramp here and de-escalate, bring down the tariffs with China and others, and they do it soon, in the next few weeks, month or so, that would be potentially sufficient to avoid recession. Even though you're over 50%, you feel less nervous about this because-
the folks in the administration are, and I guess overseas, the Chinese today, for example, have been saying that they want to talk about this. And so that gives you more confidence that they will come to terms. Yes, yes. But I think it has to happen soon because I think there's a real risk that even if there is a pullback, maybe the damage is already done, right? And then it just becomes this sort of...
negative momentum that's building on itself. But I think if they can hammer this out in the next couple weeks, month, then we might be able to salvage things. I know this is impossible, but I'll ask it anyway. How much time? Are we saying Memorial Day? Are we saying July 4th? Are we saying Labor Day? What do you think? I think in the next...
two to three weeks, we have to have some real clarity. Yeah. When is Memorial Day? Yeah. Yeah, sure. Memorial Day. Yeah, yeah. Right? Yeah, I think so. Okay. Okay. Fair enough. So you're 55 down from 60 because you're feeling a little bit better that the tariffs are going to come down here. Yeah. The trade war is going to deescalate. Yeah. Okay. Dante? Dante?
I always struggle to remember where I was last month when we talked. I think I was at 50% and I'm going to stay at 50%. I don't feel any better than I did a month ago, but I don't feel worse yet. I think...
I think like Marissa, this time next month, I think we'll have a better sense of which direction things are headed. One, because we'll have data that's starting to show some of the initial impact of, you know, sort of the initial announcement of tariffs. And then two, we'll have a better sense of, you know, is the administration going to walk any of this back in a meaningful way? And I think a month from now, if they have not done that, I think that, you know, there's more serious damage to come. So I'm going to hold it 50 for now and
See what happens a month from now. So kind of a similar story to Marissa. You're looking at the tariffs and the trade war. And are you saying if we don't get a de-escalation, say by Memorial Day, then your recession odds will rise? Yeah, I'm saying at 50, but I think I'm going to go one direction or the other next month. They're either going to rise if nothing has happened or come in. Got it. Makes sense. Chris? I was at 55. I'm going to drop it to 50. Joining Dante's party.
um some very similar reasons i do see some hints at least of uh progress on the on the share front in terms of memorial day i think we need something by memorial day but it not necessarily a finished trade deal it's enough just to have an announcement that you know we're getting close or you know identify some specific country i think that would
Certainly take some of the pressure off. Doesn't it almost have to be China? Yeah. China doesn't it? I mean, don't the tariffs have to come, you know, they can be at some kind of deal or, you know, an arrangement with the Japanese or the South Koreans or the Indians. It sounds like those are the Vietnam. Those are the countries that might be first, you know, up in terms of.
getting the tariffs back in. But that seems a little like a sideshow compared to China. At 145, we have tariffs on their product of 145. They have tariffs on our product of 125. And that means there's no trade. Trade is collapsing. And we're the two largest economies on the planet. And if trade's collapsing between us, it feels like that's recessionary by itself. So doesn't it have to be with China? Yeah, certainly you have to get down from 145 with China down.
within this year to avoid a recession. But in terms of the staging here, my assumption is we'll probably announce some deals, whether they're finalized or not prior to that. China's also the toughest nut to crack. And with China, I think already some indication that, yeah, we're at least starting to think about talking to each other. Even today was viewed as a very positive sign. So
I think we'll move in that direction. Maybe there'll be some pause or some extension, if you will. That could be a very positive sign to help rebuild some of the confidence. But you're right, if we don't deal with these very high tariffs on China, that is going to be fodder for recession. And I'd say we have a month or two maybe before it really sinks in. Yeah, I guess just to make it more concrete, what I'm saying is all these other deals, all these other arrangements-
outside of China don't really matter, you know, in terms of what it means for whether we go into recession or not. If we continue to maintain the same tariffs on China and they can maintain the same tariffs on us here going forward. So that's what I'm asking. That's kind of my view. I'm asking, is that consistent with your view? If we don't get any movement on China,
Do you still think there's a chance we're going to be able to avoid going into a recession? Extremely unlikely. Okay. Fair enough. Yeah. Right. It feels like it's all about China, doesn't it? To me, to a large degree. Unless, I guess you could drop tariffs on everybody across the globe and all you're left with is China. And maybe, I guess. But even there, I think it's going to be very difficult, right? Because of the supply chain effects. Right. In the short term, right? Yeah. Yeah.
Yeah. All right. Well, I'm I'm it's I mean, I was at 60. I'm still at 60. And I think it's all about China. And that's why I'm still very nervous. You know, this other stuff seems like a sideshow to me. You know, any kind of arrangement with Japan, you know, it's meaningless in terms of, you know, what it means for global trade, the economy and everything else.
But for China, that's massive. I mean, and the Chinese feel like they're dug in. I mean, it doesn't feel like they're going to relent in any way. It feels...
tit for tat. So if the U.S. raises tariffs by X, the Chinese are going to raise tariffs by X. We're now at a cap. It can't go any higher than this because these tariff rates were effectively shutting off trade. Conversely, if the U.S. cuts by Y, the Chinese will cut by Y. They'll just follow us down. But it's just about...
It's just tit for tat. And so if that's the case, if it's all about China and they're dug in and the dynamics are much more vexed, it's not just quite clear how the administration is able to get those tariffs down in a way that they feel comfortable with. It just feels like the probability that they don't get a deal or they don't get an arrangement or they don't bring down the tariffs by, and I think Memorial Day is the day, kind of in the future, it feels like we go into recession. Yeah.
Oh, no deal with China by Memorial Day for you is the trigger. I think that's the trigger. Okay. Right? Because I think at that point we're going to see...
Not only higher prices for a lot of things, we're going to see shortages of things. I just, I saw this one statistic where, I didn't realize this, but I believe 80 to 90% of all the ibuprofen that we consume in the United States comes from China. Comes from China. Really? Yeah. Acetaminophen, which I think is, isn't that Tylenol? About, I don't know, I'm making this up, but 60, 70%. Can you imagine if you can't find Motrin on the store shelf?
Right? Advil? I'm a daily Advil popper. Oh, well, don't tell me that. I hear you, though. You don't see exemptions coming for those things, though? I don't.
The things that were the shortages, where you might see shortages? I don't know. Where it's so acute, where it's so lopsided. Okay, well, then I think if they put on exemptions like that, then yeah, then you're moving in the right direction. That's a de-escalation. It satisfies my... Okay. If they do that, if they do that. But even then, I mean, the time lags are long here, right? So if you wait until...
the shelves are empty to make a move. You're still talking about two months at least, right? I mean, it's usually 60 to 90 days of transit, logistical time to get things from China to store shelves in the US. So it's like you can't... If you wait until things are gone, you've already waited too long, right? That seems to be the biggest concern. It's like, yeah, there's no impact right now, but if there's no flow happening,
you're you're leading to an inevitable shortage of things at some point and if you don't restart that flow quickly you're going to get to that point even if you do make a deal in the interim and then what does that do to consumer confidence and you know what impact does that have even if you've now made a deal but you're still sort of seeing the ramifications of it that's i think what i'm concerned about yeah good point good point uh but i guess oh sorry go ahead chris stock up now i think is dante's uh
I feel like that's the news back. It seems like COVID all over again where you start hoarding what you need because you don't know if it's going to be there in a few months. Yeah. The next thing I'd watch is if there's any runs on different products. People start hoarding stuff. Yeah. I mean, I know I still have toilet paper from the pandemic down in my basement. I actually have...
What's that tape? Duct tape. I have duct tape from 9-11 down in my basement.
I'm sure it'll come in handy at some point. I don't want to know. Yeah. You're too young. You're too young to remember. But back then they were telling everyone to have plastic sheathing and duct tape just in case, you know, there was some kind of nuclear fallout. You don't remember that, do you? I'm not too young to remember, but I don't.
I don't remember. I don't remember hoarding after nine 11. No, I don't. Well, you were young. He thought, Oh, nothing's going to happen to me. Yeah. Yeah.
I mean, I had my first child. We were pretty nervous at that point. Chris, do you remember that? Am I making that up? I was in D.C. and I don't remember. So was I. You don't remember the duct tape and the classic shooting? I must have missed out on that. I'm not going to say where I was because I don't want to make you feel bad. So I won't tell you where I was. In utero? That wasn't that. I was in high school. In high school. Yeah. Yeah.
That's funny. Well, I'm certainly going to go out and buy Advil now. I had no idea. Yeah. There you go. There you go. Hey, guys, do you want to play the game? I mean, we've already...
I'm not sure. You want to play a couple rounds of the game and call it quits? Or what do you want to do? What's the mood of the group? I'm always up for the game. Okay, let's play. There's so many good ones. There's so many good ones. But okay, Mercy, you're up. Okay. Can I say? I'm sorry. My fault. The stats game. We each pick a stat. The rest of the group tries to figure it out with clues, deductive reasoning, and questions. The best stats won that...
well you know what i'm going to say so go ahead marissa 8.1 percent 8.1 percent um is it in the employment report no job the gdp report it's a corollary of the gdp report oh income in the income or or consumption consumer spending or getting the consumer spending report is that a growth rate yep in a category is it yeah the category spending
One of the categories was up 8%, 8.1%. Okay. Okay. Well, I think motor vehicles were up. It's got to be one of the hoarding. You got it. It's motor vehicles and parts. Oh, motor vehicles and parts. Okay. So real consumer spending on motor vehicles and parts was up 8.1% over the month. And it was up 10.5% on a year over year basis, which is...
The strongest year over year growth we've seen since like 2016. I think you have to go back to see a number like that. Yeah. And this is just the it's the buying ahead of the tariffs. And as you two can attest to, people went out and bought cars thinking that cars are going to be a lot more expensive in a few months. Yeah. Yeah.
Hey, let me go next, okay? Okay. Is that okay? Okay. I'm generally a gentleman and let everyone go, and I don't do it, but I got a good one. 44. The number is 44. Are there units on the 44? It's an index. An index? Think of what? From the conference board? It's not from the conference board. Oh, is it from the ISM? It is. ISM Manufacturing. Is it? So it's something 44. Is that New Order's?
Not new orders. Capital studying plans? No. Production. Production. Production. So the production, the ISM survey, which we talked about earlier, in aggregate was, I think, I'm making it up, 48, I think. So below 50 threshold for contraction. But the components, if you look at the components-
actual production, which by the way, if you look at the coincident economic indicators, the very best coincident indicator is jobs, employment. So the day, the month that employment goes from positive to negative is the month that the recession will be dated by the National Bureau of Economic Research. The second
Most significant coincident indicator is manufacturing production, industrial production. So this is not that, but this is a window into that. So this is the production component of the ISM survey goes to production. 44 is incredibly weak. I think it got that low, barely that low in the teeth of the pandemic shutdown. And I think every recession...
going back because this this thing's been done for many years decades you get recession every time you're at this level i mean it's just screaming i got a problem you know in the manufacturing but there's so much irony around that right because the terrorists are designed supposed to be about helping the manufacturing base it's just crushing the manufacturing base just crushing it so uh at least in the near term um so i thought that was a pretty telling statistic right
Don't I get any pat on the back for that one? It was a great number. Congratulations. Yeah, very good. All right, Dante, you're up. Let's go with 26,000. Is that the number of jobs created in the transportation and distribution sector? It's not. It's close to that. It's not that. That was 29,000, but that was a good guess. Oh, man. Is it an increase in jobs in the sector?
It's not in a sector. It is an increase in jobs, I guess, technically. Oh. Oh. That's weird. Technically. Technically. What the hell does that mean, technically? It's technically an increase in the number of people employed, not in the number of jobs. So we're talking about the other survey here. The household survey? Yeah. And what's the number again? 26,000? 26,000. Is it like the number of...
It's not an industry? Is it a class of worker? It's not an industry or a class of worker.
I don't know. I give up. What is it? What is it? So it's the adjusted household survey measure. So the household survey employment was up 436,000. But if you adjust the payroll survey concept, it's only up 26,000. He held out on me because I was looking for the dark side of the employment. I almost said it in the video. And he wouldn't even give it to me. He didn't give me that one. That's a good one. That is a really good one. Holding it in my pocket. So yeah, if you look at the adjusted measure measure,
household survey employment, it's only up by an average of, I think, about 40,000 over the last three months. So, you know, it's quite a bit weaker than the payroll survey. You know, again, there can be some noise in the household survey, but it's certainly reflecting even, you know, we, it had been weak for the last couple years because of the, you know, sort of population control issue, and they weren't capturing immigration effectively. But
I think that story is harder to make now. So I think, you know, it's more likely that that's reflecting some true weakness in the labor market. So do you know what, what was the big adjustment? Was it self-employed or? I do not know off the top of my head. I didn't, I didn't dive into it. I saw it right before we jumped on. That's a good one. That's a really good one. Okay. Chris, you're up. You're the, you're last. All right. This is a tough one.
Widely covered in the media though, so maybe our listeners will get this. Reported this week, 10.3% decline in the month of March compared to the previous year. Oh, 10.3%. Is it a price? Nope. Is it jobs?
Is it GDP related? No. Nope. It's people. Oh, it's people. People. Down 10.3%. People. Widely reported. Widely covered in the media. Yep. Is it Doge related? Nope. Is it immigration related? No. We're going to kick ourselves when we hear it, I know. 10.3%. Down. People. All right, we give up. What is it, Chris? It's international arrivals to the U.S. Oh.
They were down 10.3% in March, which got a lot of headline play. But if you dig a little bit deeper, it's largely due to the timing of Easter this year. We had a late Easter. Oh, I see. I just want to highlight that we've got to be careful with some of this data that's coming out as well. Right, right, right, right. Well, was it still weak, even accounting for Easter? It's a bit weak. It was extremely weak for Canadians, right?
Canadians are not coming to the United States and have no plans to. But for Western Europeans, it's a little bit down, but not major. Right. Okay, well, that's a good one. Okay, I'm glad we did the game. Before we call it a podcast, anything else anybody wants to bring up? Any other issues, concerns, worries? FOMC meeting coming up.
What's your... Yeah, next week? Yeah. What's your thought? I can't imagine they'd do anything, right? They're going to sit on their hands. They told us that that's what they're going to do until they get some clarity around all this tariff policy and other economic policy. So anyone disagree with that? I don't think so. No, I'm sure they're happy about this jobs report, right? Because it gives them some more cover to just wait and see. Wait and see. I think if this had been really more negative, then they would have had this...
What do we do? Do we wait for more inflation data and see how that pans out? Or do we have to start cutting? Yeah, that's a great point. I'm sure you're right. Certainly the pressure on the Fed would have been pretty intense if it was a soft number. Yeah. Okay. All right. Well, we got something to talk about next week for sure. Already on the docket. Very good. Okay. I think we're going to call it a podcast. I hope you guys and listeners enjoyed it and we'll talk to you next week. Take care now.