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Moody's Talks - Inside Economics

Episode 52
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April 1, 2022

Full Employment and The Fed

Mark, Ryan, and Cris welcome back Marisa DiNatale, Senior Director at Moody's Analytics, to breakdown the March U.S. Employment Report. They also discuss inflation, wage growth, and the current state of the economy.

Full episode transcript.

Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis on LinkedIn for additional insight. 

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics and as is normal on Jobs Friday, I have three of my colleagues. I've got Ryan. Ryan Sweet, the Director of Realtime Economics. He's ready to go, I can see, and Mr. deRitis, Dr. deRitis, Cris deRitis in the office and looking dapper as usual. He's [crosstalk 00:00:37]-

Cris deRitis:                       I think we have the same outfit here.

Mark Zandi:                      Oh yeah. I was going to say we look alike, but you look so much better than I do, so I'm not even in your league. But I'm glad that you noticed that.

Cris deRitis:                       Good that you're so modest.

Mark Zandi:                      Yeah.

Cris deRitis:                       So modest.

Mark Zandi:                      You have a dark sweater on, with a zipper in the front here. So what was I going to say? Oh, you're the Deputy Chief Economist. Very good. And we've got Marisa. Marisa DiNatale. Marisa has been with us on a number of these Jobs Fridays, a great labor market economist in her own right from the bureau ... formerly of the Bureau of Labor Statistics. We grabbed her from BLS, and good to have you Marisa.

Marisa DiNatale:              Thanks, Mark.

Mark Zandi:                      Good to have you all aboard. So obviously Jobs Friday for the ... Here we are talking about the jobs numbers for the month of March, and Ryan take it away. What's your takeaway from the report?

Ryan Sweet:                      Well, there's nothing really to complain about. It was another really solid report. Job growth in March rose 431,000, a little bit less than what the consensus expected, but still anything-

Mark Zandi:                      No wait. It was 435,000, wasn't it? Was it 31? 

Ryan Sweet:                      431. 431.

Mark Zandi:                      I stand corrected. Okay.

Ryan Sweet:                      You're throwing me for a loop there. Trying to catch me off the yard.

Mark Zandi:                      Just testing you, just testing you.

Ryan Sweet:                      Right, because Mark never gets his numbers wrong. Right?

Mark Zandi:                      I just wanted to make sure you had the courage of your numbers. So ...

Ryan Sweet:                      Yeah, okay. So job growth was broad based. I think there was only two major industries have saw a slight decline in employment that was transportation, warehousing, and utilities. But overall, job growth over the last six months is averaging close to 600,000 per month, which is very, very strong. We still have ways to go. I mean the unemployment rate came down. The job market's tight. I mean, the unemployment came down to 3.6%, we're close to where we were pre-pandemic. I think the low pre-pandemic right around three and a half percent. So we're getting there. My favorite number, prime age employment to population ratio. That's 25 to 54 is the share of the population rose from 79.5% in February to 80% in March that's-

Mark Zandi:                      And that's up a percentage point in two months.

Ryan Sweet:                      Mm-hmm (affirmative). So if we keep this percentage current pace going, we could be 81, 81 and a half percent on the prime age employment to population ratio by the end of the year. So that's a good indication. The job market's doing really well. I mean, my takeaway is that it's good, but it's too good. This has got to slow down or we're going to be in a world with hurt. I mean, the economy's going to overheat. Fed's going to panic. And we're going to be facing a recession. 

Mark Zandi:                      Okay. Before we get there though, let's just round this out. Let me ask you, up until a couple few months ago, you were saying 80% on the prime age, 25 to 50 year old employment to population ratio. Your favorite measure of the state of the labor market and where it is, was consistent with full employment. We're now at 80% on the nos, are we at full employment?

Ryan Sweet:                      No, we're close. We're very close. 

Mark Zandi:                      Close.

Ryan Sweet:                      So I think 81, 81 and half percent was what we saw late 1990s, early 2000s. I think we can get back there. And that would probably be ... that would be a slam dunk that we're at full employment. But right now I think we're close. We're barreling towards it.

Mark Zandi:                      Are you moving the goal post? That's what I thought. 

Ryan Sweet:                      Moving it just a little, just a little bit.

Mark Zandi:                      Yeah. Okay. Right. What else still?

Ryan Sweet:                      I mean, employment's still 6 million below where it would be if the pandemic didn't occur in the recession. So ...

Mark Zandi:                      Maybe, maybe not, because ...

Ryan Sweet:                      Oh, trend job growth was around-

Mark Zandi:                      Slower.

Ryan Sweet:                      ... 190,000 per month pre-pandemic. So if you just extend that, we'd be 6 million higher than we are today.

Mark Zandi:                      Although I would throw out that we were at an inflection point for job growth, given the slowing and labor force growth, that was going to happen anyway. And we probably would've been ... If you remember the forecast and there's still a forecast, but go back to the forecast pre-pandemic for now, we were saying break-even in monthly employment growth, meaning consistent with stable unemployment was something like 100K, not much higher than that.

Ryan Sweet:                      Right.

Mark Zandi:                      But okay.

Ryan Sweet:                      But even if you assume 100K, we're still a little bit lower than where we should be.

Mark Zandi:                      Yeah.

Ryan Sweet:                      Not that we won't ... we'll make that up pretty quickly in the next few months.

Mark Zandi:                      Right. Okay. Anything else on the jobs numbers you want to point out?

Ryan Sweet:                      Labor force continues to increase. It was up more than 400,000 in March. This year alone, we're up over 2 million. So that's an encouraging sign that people are coming back into labor force

Mark Zandi:                      Right. Now the participation rate, which is another barometer of whether you're full employment or not, that ticked up to 62.4%, but that's still well below where it was pre-pandemic. It was over 63%, I think 63 and a half, I think wasn't it?

Ryan Sweet:                      Yeah. We won't get back there.

Mark Zandi:                      We won't, why? 

Ryan Sweet:                      No. Because the demographics, we an aging population, people retiring and we're not going to get back to 63% on labor force participation. That's why prime age employment population ratio is much more important in telling.

Mark Zandi:                      Yeah. I mean ... but I look at that participation rate and I think we can get at least a half a point back?

Ryan Sweet:                      Oh yeah. We'll close the gap. I just don't think we get all the way back,

Mark Zandi:                      But a half a point would be consistent with your point that we're not quite at full employment, but we have still some room to go. So a half a point on the labor force, I think that translates into what? A million, million and a half jobs. So that says what we could add in addition to what you typically get to get back to full employment. So that's-

Ryan Sweet:                      And that's about three months,

Mark Zandi:                      About three months-

Ryan Sweet:                      At this current pace. Yeah. This current pace, it's three months of job gains.

Mark Zandi:                      And that sounds about right to you, three months. That would be April, May, June. If I told you June, full employment, that feels ... it feels about right to me.

Ryan Sweet:                      Yeah. Sometime the summer, I think we'd be at full employment. 

Mark Zandi:                      We'll get there.

Marisa DiNatale:              And that's when we would get back to recouping all the jobs that we lost during the pandemic. If we're adding about half a million jobs a month then by June, July, we're back above the employment level in February, 2020.

Mark Zandi:                      And that's the payroll survey you're talking about.

Marisa DiNatale:              That's on the payroll side. Yeah.

Mark Zandi:                      I think on the household survey ... the payroll survey is a survey of business establishments. The payroll survey, which is the basis for the unemployment rate and participation rate and the things ... those things, I think that's already pretty close to being back. I think it's within a few hundred thousand of getting all the way back to where we were pre-pandemic, I can check, but I think that's the case. So Marisa, did you want to add anything to Ryan's perspective, description of the jobs numbers? What did you miss?

Marisa DiNatale:              No, I think he got all the highlights. I mean, we're seeing labor supply kicking in, participation rates were up among most of major demographic groups. Unemployment rates were down among most of the major demographic groups. Job growth was broad based, not quite as broad based as it was last month. I think last month, the diffusion index, which is the percentage of all the detailed industries and the payroll survey that were adding jobs or staying the same was up in the 80%. Now it was like in the 60s. But that's still very broad based. I mean, over about two thirds of industries are adding jobs or at least not losing them. So yeah, it's hard to find anything bad in this. Average hourly earnings were up. The work week was flat. So hours were about the same as they were previously.

Mark Zandi:                      I think hours per work per week. That did decline. I think that-

Ryan Sweet:                      It fell a little bit.

Marisa DiNatale:              Like ...

Ryan Sweet:                      Barely. Barely.

Marisa DiNatale:              ... 10 minutes or six minutes or something like that. Yeah.

Mark Zandi:                      [crosstalk 00:08:45]. Yeah. Yeah. It doesn't move. Yeah. Okay. All right. So anything in the bowels of the report that was a blemish that made you scratch your head or make you think about what the message is and that? Anything you saw? Doesn't have to be, I'm just asking. That's an opening-

Marisa DiNatale:              No, not really.

Mark Zandi:                      ... That's what they call in the moderating biz, an open ended question. See how good I'm at this? I'm really pretty good.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Tell me what I ... I'm just saying, what didn't I ask you?

Ryan Sweet:                      Daycare [crosstalk 00:09:20].

Mark Zandi:                      Huh?

Ryan Sweet:                      Daycare employment rose.

Mark Zandi:                      Oh, it did. That's a good sign.

Ryan Sweet:                      It's still well below where it was pre-pandemic, but we're moving in the right direction.

Mark Zandi:                      Key to participation. Because you have a lot of young women with young children or I should say women with young children that can't get back in because they have daycare problems. Yeah. Okay. All right, Cris, anything you wanted to point out?

Cris deRitis:                       A couple things. One thing that struck me was there was this phrase repeated a couple times in our report, little different from its February, 2020 level. So many of the indicators as you get further into the bowels of the report are back to where they were or pretty close to where they were pre-pandemic. So it does indicate that it's fairly broad based this employment recovery.

Mark Zandi:                      So I missed that. So you're saying in the ... Somehow I missed that. So in the BLS language, when describe it, the report, they said back to February, 2020 levels?

Cris deRitis:                       Yes. A level different, oh, blah, blah, blah. Let's see, for example, number of permanent job losers is at a level that is little different from its February, 2020 level. 

Mark Zandi:                      Interesting.

Cris deRitis:                       And they repeated that language for a number of the different indicators. So that just stuck in my head reading it. One thing that did stick out was there was a slight decline in the number of workers in oil and gas exploration, which seems counterintuitive.

Mark Zandi:                      I saw that.

Cris deRitis:                       So not a whole lot. We're talking like ... I don't know. 400 jobs or something, but still you would've expected it to go the other way-

Mark Zandi:                       ... the other way. Yeah. Yeah. So maybe seasonal adjustment though. I don't know.

Cris deRitis:                       Could be, could be. We did see ... There was a larger gain in refining though, petroleum products. So exploration may be down, but you do see some job gains in actual transformation of refining crude.q

Mark Zandi:                      Right. Right. Okay. Yeah. I think you guys covered it. I guess the wage growth. And I really don't like using the wage numbers from this report because it's so messed up by the mix of jobs and occupation.

Cris deRitis:                       Hey, you said it best. They're worthless.

Mark Zandi:                      Yeah. They're worthless. But you guys still talk about them, right?

Cris deRitis:                       Yeah.

Mark Zandi:                      I mean ... So we're up year over year five, six, I think so. And if you look at all the other wage measures, the ones that I think are better, like the Atlanta Fed Wage Tracker or the Employment Cost Index, that feels consistent. Somewhere around five, 6%. Is that right Marisa? Is that roughly right in terms of wages?

Marisa DiNatale:              Yeah. Yeah. They're all around five and a half, 5.6, 5.7. Something like that.

Mark Zandi:                      Which is strong, but not inflation. So consumer price inflation, think almost 8% right through February. So right now workers, they're getting big wage increases, but they're not keeping pace with inflation. So their so called real wage, their nominal wage growth less inflation is negative. So they're falling behind here. 

Ryan Sweet:                      Yeah. Yeah.

Marisa DiNatale:              Unless you work in leisure or hospitality, then your wages are up like 15% over the year.

Mark Zandi:                      Oh, is that right?

Marisa DiNatale:              Yeah. 

Mark Zandi:                      Okay. And that's where the wage growth has been most pronounced.

Marisa DiNatale:              Yes.

Mark Zandi:                      And if you look at the Atlanta Fed Wage Tracker data, it does suggest that it's ... again, it's the strongest wage growth is low wage workers in those high contact industries that got nailed during the pandemic. They're scrambling to get people back into their seats. They tend to be younger folks with lesser skills in education. That's who's seeing the biggest wage increases. In fact, if you believe the Wage Tracker data says that folks ... high wage workers, they're not seeing much of a wage acceleration and wage growth at all, pretty consistent with what it was pre-pandemic.

Cris deRitis:                       Yeah. It's also the low income households. So those that are seeing the strongest wage growth are the ones being hurt the most by high inflation. So that's cushioning the [inaudible 00:13:24].

Mark Zandi:                      Yeah. Hey, one thing I want ... I do want to talk about what this all means for monetary policy in the Fed because that's top of mind, but before we do this, Ryan, you've been doing some pretty good work on trying to understand the causality, the relationship between wages and prices. So what's driving what and are they both ... Obviously, there's a great deal of concern, and this goes to monetary policy that we're going to get into this self-reinforcing wage price spiral, where workers see their cost living rise, they demand higher wage growth from their employers. Employers then provide that, pass that along in the form of higher prices, meaning inflation, then you get into this self-reinforcing, very vicious cycle that the only way out of that is the Fed breaking it. And that means, recession in all likelihood. What's your research show you on that dynamic, how's that playing out right now?

Ryan Sweet:                      It's actually the opposite. So we have a price wage spiral where inflation is causing wages to increase. So the causality actually runs just one way, inflation causing changes in wages. It's still a concern. I mean, that's still inflation ... it's causing inflation, but it's less of a problem and things that we lose less sleep over is that it's not a wage price spiral that gripped the economy in the late 1970s, early 1980s that caused the Fed to really clamp down on tightening monetary policy to break inflation's back. Right now, it just seems inflation is driving wages currently. Now that causation can change. I don't know what would trigger it or when, but as of right now, it's less concerning to me that inflation's driving wages higher.

Mark Zandi:                      And that is consistent with this group's thinking around what's causing the approximate cost for the higher inflation, and that is the pandemic effects on the supply side of the economy, supply chain disruptions. The labor market ... People are sick or fearful of getting sick, so they don't go to work. So it is on the good side of the economy where labor costs are much less important in terms of driving price increases.

Ryan Sweet:                      Correct.

Mark Zandi:                      That's where we're seeing ... inflation has picked up pretty much across the board, but the most significant acceleration has been in the good side, vehicles being the poster child and energy prices, that kind of thing. So what you're describing is consistent with that kind of explanation for what's going on here-

Ryan Sweet:                      And yeah. More than half of our inflation problem. So we have 8% inflation give or take, four percentage points of that is energy and supply chains. So a good chunk of the inflation problems are isolated to those two components.

Mark Zandi:                      And of course, desirables too. So you're really talking about the six percentage point acceleration in inflation, four percentage points of that is due to these factors you described.

Ryan Sweet:                      Correct. Yeah. 

Mark Zandi:                      Okay. Hey, Cris, Marisa any observations or thoughts on that dynamic wage price dynamics that we just described? Just curious if you have any thoughts on that, have you done any work in that area?

Cris deRitis:                       I think that's right. But as Ryan said, things can change pretty quickly. That's the nature of the spiral. So you could see prices being influenced by the higher wage costs in short order.

Mark Zandi:                      Yeah. What do you ... Oh, sorry, go Marisa, go ahead.

Marisa DiNatale:              I was just going to say, one way of gauging that is to see how broad based wage gains are. And because we still see this huge disparity among wage growth in these traditionally lower wage industries that were really hit by the pandemic compared to professional service jobs that were insulated from the pandemic, because people could keep their jobs and work from home. It does suggest that there's still that catching up from the pandemic bounce back that's happening. Everyone's not getting 10% wage increases, it really is very isolated to a few industries at this point.

                                             And also the other thing, the Atlanta Wage Tracker tracks, and I think you've mentioned this before is the difference between people that switch jobs, get new jobs and people staying in their jobs. And you see one of the largest gaps between those two now. So people that are getting new jobs and switching jobs and able to negotiate new wages are getting significantly higher wage gains than people staying in their current jobs. That's always the case, That's always how you get the biggest wage gain is by leaving a job and getting a new one. But that gap between the two is larger than it's been in a very, very long time. 

Mark Zandi:                      Oh, you noticed that?

Marisa DiNatale:              Yeah. It's maybe about one and a half percentage points higher for people that are switching jobs.

Mark Zandi:                      And just to remind everyone, the Atlanta Fed Wage Tracker and you can Google it, go Atlanta Fed Wage Tracker, you'll go right to it. It's a nice little tool there. Cool data, very timely through February of 2022 that tracks the same worker through time. So it's controlling for those mix problem that I just articulated was a problem with the average hour earnings data that's in today's jobs number. So why it's so useful to look at. Okay. Can you see anything in the report that might connect back to the Russian invasion of Ukraine? I mean Russian invaded Ukraine back ... I think it was now late February, right?

Ryan Sweet:                      Yep.

Mark Zandi:                      And of course we all had ... there was growing evidence that they were going to do that for at least a few weeks before that. And of course the March employment data we're looking at today was based on a survey done by the BLS mid-March. That was now well into the Russian-Ukraine. We had seen oil prices spike at that point and there's already a lot of concern about what Russia-Ukraine means for global commodity markets and the global economy. Anything in the report at all that connects ... that gives you a sense that businesses are worried about Russia-Ukraine and its impact on their business and on their hiring or layoffs? Anything? I didn't see it, I'm just ...

Ryan Sweet:                      I didn't see anything.

Mark Zandi:                      Nothing. Yeah. Marisa, Cris, did you guys see anything at all?

Cris deRitis:                       No.

Mark Zandi:                      Okay.

Marisa DiNatale:              Employment in ... Remember we had that big decline in auto manufacturing employment last month and it didn't fully reverse itself, but there was an increase in auto manufacturing employment this month. So these sectors that are really sensitive to consumer spending or consumers substituting one good away from another high gas prices that doesn't really seem to be showing up in a compelling way.

Mark Zandi:                      Yeah. Okay. Cris, you're a maven of LinkedIn, aren't you? I think you're well known on LinkedIn. 

Cris deRitis:                       Well known. Yeah. Yeah.

Mark Zandi:                      Oh, you're not on LinkedIn. Are you Ryan?

Ryan Sweet:                      No, I'm on there.

Mark Zandi:                      Oh you are? 

Ryan Sweet:                      Yeah.

Mark Zandi:                      Yeah.

Ryan Sweet:                      [crosstalk 00:20:51]-

Mark Zandi:                      I hear Cris is all over LinkedIn.

Marisa DiNatale:              Cris is a frequent poster.

Mark Zandi:                      Yeah. He's a frequent poster, [crosstalk 00:20:56] just beeps because Cris is posting things on LinkedIn.

Marisa DiNatale:              Yes. He's tagging you and stuff.

Mark Zandi:                      Yeah. It's unbelievable. 

Cris deRitis:                       Yeah. Yeah. Yeah. Nothing else to do. So ...

Mark Zandi:                      Don't say that. What was I going to say? Oh, so I was listening to this researcher from LinkedIn and they contract real time engagement from people on the LinkedIn site and with regard to looking at job postings and applying for jobs and that kind of thing. It's global, it's all over the world. And she was saying that on the day of the invasion, I guess, going back to late February and you look at engagement in the US, there was no change, the same level of engagement in the day before and the day after, no one was really ... at least in terms of job search, paying any attention to Russia-Ukraine, but you a very noticeable effect on engagement job search in Europe, which makes I guess perfect sense. But you know is interesting. So it does seem to suggest that Russia-Ukraine is going to have a much bigger impact on the European economy than our economy. And again, that's what we've expected, but it is interesting to see that it's actually already showing up in anecdotal data. I'm sure we'll see it in the economic statistic soon. So very interesting.

Ryan Sweet:                      Yeah. Cris [crosstalk 00:22:17] ... he's got to get off LinkedIn, might improve his employment forecast.

Mark Zandi:                      Do a little bit more modeling. Is that what you suggesting [crosstalk 00:22:27]-

Ryan Sweet:                       ... more time dig into it.

Mark Zandi:                      Ouch. Right. Ouch. That's [inaudible 00:22:31]. Yeah. [inaudible 00:22:34].

Ryan Sweet:                      Sorry Cris. We're all ...

Mark Zandi:                      Yeah.

Ryan Sweet:                      I mean ... 

Mark Zandi:                      Remember revisions. Revisions are coming, so ...

Cris deRitis:                       Exactly, good point. 

Mark Zandi:                      Okay. So let's now talk about what all this means for monetary policy and-

Marisa DiNatale:              Actually if you ... I don't think you mentioned the revisions.

Ryan Sweet:                      Yeah. That's a good point.

Mark Zandi:                      Oh, good point.

Marisa DiNatale:              But if you add in the revisions to the previous couple months, then you're over 500,000 jobs. So we had 431 in March, but then January and February combined were another 95,000 jobs.

Mark Zandi:                      Yeah. So I think that's three for ...

Marisa DiNatale:              Got it. I think so ... [crosstalk 00:23:13] for those of us who said there'd be over half a million jobs added.

Mark Zandi:                      Yeah. No, that's a great point. And we've been consistently getting upward revisions each and every month for the past, more than a year. I mean ...

Marisa DiNatale:              Yeah. I mean the January job gain is over 700,000 with these revisions alone.

Mark Zandi:                      Yeah. Pretty amazing. Okay, so let's talk about ... Obviously really strong job growth, rapidly falling unemployment. Rapidly increasing employment to population ratios, very strong wage growth. I don't know. What does it mean for monetary policy? I mean ...

Ryan Sweet:                      Watch out.

Mark Zandi:                      Watch out. I mean ...

Ryan Sweet:                      Green light.

Mark Zandi:                      Yeah, So ...

Ryan Sweet:                      Yeah. They're close to breaking glass like that panic button. They're about to hit it.

Mark Zandi:                      Yeah. And what does that mean exactly?

Ryan Sweet:                      Progressive rate heights. So 50 basis points in May, 50 basis points in June.

Mark Zandi:                      So half a percentage point in May, that'd bring the funds rate target the key rate they control to 75 basis points, three quarters of a percentage point. Then you're saying another half percentage point in June ... when they meet in June. Okay, that makes you at 1.75%. And then what?

Ryan Sweet:                      And then 25 for the remaining meetings this year. So [crosstalk 00:24:34] end the year, two and a quarter, two and a half percent on the Fed Funds Rate.

Mark Zandi:                      Which is pretty close to the so-called I guess neutral rate, our star [crosstalk 00:24:45] rate where everyone thinks the funds rate should be in the long run if everything is functioning properly.

Ryan Sweet:                      Yeah. And they won't stop there. Yeah, they'll go higher. So then that puts monetary policy restrictive. So when you hit the neutral rate, it's kind of ... it's neither stimulating or slowing down the economy, but when you go above that, that's when you know the Fed's pushing hard on the brakes.

Mark Zandi:                      Yeah. So that's the so-called terminal rate, that's where they ultimately push the funds rate too at the peak. And what do you think that is in this rate cycle?

Ryan Sweet:                      Well, the feds own forecast, their summary of economic projections have it 2.75. So [crosstalk 00:25:26]-

Mark Zandi:                      Just above neutral.

Ryan Sweet:                      Yeah, I think we probably get to three.

Mark Zandi:                      Okay. So is this what you think they should do? This is what-

Ryan Sweet:                      No.

Mark Zandi:                      This is what they will do.

Ryan Sweet:                      Right. I mean, our job in forecasting is what the Fed will do. Not what they should do. I don't think they should [inaudible 00:25:44]-

Mark Zandi:                      You always say that, but the way I think about it is what should they do? And then ... because they generally do what I think they should do. That's therefore what they will do. It's rarely different. Is it different this time? I mean, are you saying what they should do and what they will do is different?

Ryan Sweet:                      Yeah. Just like in 2015, I didn't think they should have raised rates in 2015, but they did so ...

Mark Zandi:                      So they're going to make a mistake.

Ryan Sweet:                      Yeah. They're going to make a mistake by [inaudible 00:26:13] too aggressively.

Mark Zandi:                      Okay. Okay, so-

Ryan Sweet:                      I mean they described the [inaudible 00:26:20] like Powell described the labor market. So [inaudible 00:26:22] as unhealthy. That's panic to him is you, we have high inflation, we have unemployment rate that's plummeting. So they're going to really slam enough the brakes.

Mark Zandi:                      Okay. So you're saying what they will do is half a point in May, half a point in June, quarter point rate hikes after that, until they get to two and three quarters percent sometime in what? Early 2023?

Ryan Sweet:                      Correct.

Mark Zandi:                      And that'll be too much meaning ... What does that mean exactly? What does that mean too much?

Ryan Sweet:                      Means the economy is going to come ... Well, won't get close ... I mean it could be.

Mark Zandi:                      Okay.

Ryan Sweet:                      I mean-

Mark Zandi:                      So you're saying if they do that, if they stick to that script [crosstalk 00:27:09]-

Ryan Sweet:                      There's no soft landing.

Mark Zandi:                      Then it's going to be hard to have a soft landing.

Ryan Sweet:                      Correct.

Mark Zandi:                      Okay. All right. Interesting.

Ryan Sweet:                      If you were sitting on the Fed, what would you do? 

Mark Zandi:                      Yeah.

Ryan Sweet:                      And that would be interesting. See what Marisa and Cris would do?

Mark Zandi:                      Well, of course I don't have to put in stone what I'm going to do for the next year because I'll adapt and adjust. The only thing I have to make a decision about right now is what I'm going to do at the next meeting. And I think-

Ryan Sweet:                      So would you go 50?

Mark Zandi:                      Yeah. Absolutely, I would go ... I would raise it a half a percentage point and the other thing I would do, and so I would announce that I'm going to start to allow my balance sheet to wind down. So as everyone knows, the Fed up until March was buying treasury bonds and mortgage securities. That was quantitative using bond buying to try to bring down interest rates, long term rates. They stopped buying in March, but my sense is by May, they'll say, "Okay, let's allow the treasuries and mortgage securities on my balance sheet to run off as they mature." Or in the case of mortgage securities they might prepay. Although I don't expect a lot of that in the current rate environment, and allow the balance sheet to come down, which is adding to the rate increases. So I would do both those things. What you call passive quantitative tightening and a half a point increase in the fund rate target.

Ryan Sweet:                      Well, that's what they're going to do. Yeah, they're going to [inaudible 00:28:33].

Mark Zandi:                      Okay. So that's what I was saying, usually what I think they should do, they will do. It's rare. But you wouldn't do that if you were on the FOMC?

Ryan Sweet:                      No, I'd go 25.

Mark Zandi:                      [inaudible 00:28:46]-

Ryan Sweet:                      I'd go 25 and let the balance sheet run on. I'm afraid it's too much all at once. Especially with the yield curve flat as a pancake. I'm concerned.

Mark Zandi:                      Right. We'll come back to that in a second, Cris or Marisa, any different perspective on this?

Ryan Sweet:                      Or what's your view? [crosstalk 00:29:05].

Cris deRitis:                       I agree on the short term, certainly 50 and I would actually ... If it was me, I would start to unwind the balance sheet now. Why wait? Actually send even a stronger signal that, we're really concerned about this. I don't think they're going to be quite ... I don't think they're going to be able to be quite as aggressive later in the year. I think some other factors will pop up here. We still have other risks to growth. So I don't think we'll get all the way to Ryan's trajectory here, but certainly the path is upward. It's just a question of speed.

Mark Zandi:                      I forgot to ask Ryan. So the Fed in their forecast says the terminal rate, the peak funds rate is going to be two and three quarters. What's your terminal rate. What?

Ryan Sweet:                      Yeah. Right around there. Right around [crosstalk 00:30:01]-

Mark Zandi:                      ... more slow.

Ryan Sweet:                      Cris has a great point. Like markets could push back. And I mean, if you look at the markets implied path, they're already pricing in a policy misstep, they're penciling rate cuts towards the end of next year and into early 2024.

Mark Zandi:                      Hey, can I ask you about that? Because I got a tweet by the way @MarkZandi, I'm just saying, @MarkZandi. And Ryan, what's your Twitter handle?

Ryan Sweet:                      @Realtime_account

Mark Zandi:                      @Realtime. Okay. So I had a Twitter follower tweet a question and they said, "You guys talk about these probabilities of the Fed doing X, Y, and Z. So now you're saying you we're going to have a half a point increase in the funds rate target at the May meeting. Can you tell us what's, what's the market probability of that happening? And can you just tell everyone how you arrive at that? How do you know that?"

Ryan Sweet:                      So there's something called Fed Funds Futures where people ... It's investors putting money where their mouth is and buying what the ... Futures contract for each FOMC meeting for the rest of this year are. And out of that price, you can back out, the probability of different outcomes at the FOMC meeting. So with a May contract currently where it's priced at is implying a 73% probability of a 50 basis point

Mark Zandi:                      And that's in the month of May.

Ryan Sweet:                      Correct. That's the May contract for the Fed Fund Futures.

Mark Zandi:                      May contract. 73% ... I'm surprised is not higher than that, 73% probability. Okay. What about June? Do you know that offhand?

Ryan Sweet:                      I don't. I can look it up.

Mark Zandi:                      No worries. Just curious.

Ryan Sweet:                      It's probably north of 50.

Mark Zandi:                      Yeah. Okay. Why-

Ryan Sweet:                      So good rule thumb is 70%. That's like historically leading up to FOMC meetings if the probability of 25 or 50 basis point rate hike is more than 70%, the Fed usually follows through, because they don't want to surprise markets. So as May gets closer, if the probability of a 50 basis point hike is north to 70%, they're going to go 50 basis points.

Mark Zandi:                      Right. Okay. Marisa, you're now on the FOMC, you're a Fed member. What would you do with regard to setting the policy? The decision is what's going to happen in May, at the May meeting.

Marisa DiNatale:              Yeah. I mean, I think they have to take it meeting by meeting because things are changing so rapidly. If nothing major happens between now and May, then 50 basis points seems reasonable. They have so much to play with on the balance sheet that I would maybe do more there. And I also ... I wonder if letting the balance sheet run off has a different psychological effect on the market than announcing an outright rate hike. I don't know if you know the answer to that, Ryan, but they've got such an enormous balance sheet. I think they can certainly wind that down, which they haven't done yet. But announcing a raid hike might have a different effect on investors and markets in general.

Mark Zandi:                      Yeah. Well, think the ... Correct me if I'm wrong, Ryan, but the evidence suggests that the most significant impact of the Fed's balance sheet policy on financial conditions and on the economy is through the signaling effects. 

Ryan Sweet:                      Correct.

Mark Zandi:                      Not just so much the actual purchases. So they're using that as a signaling mechanism to investors that, "Hey, I'm going to be very aggressive in easing or tightening." And that's really where the juice comes from mostly, I think. Is that right, Ryan?

Ryan Sweet:                      That's correct.

Mark Zandi:                      Yeah.

Ryan Sweet:                      Yeah. You can see, like when you look at ... you can do event studies, looking at the impact on interest trades or financial market conditions when they make announcements versus actually following through with changes to the balance sheet policy and the largest impact is when they make these signaling through the signaling channel.

Mark Zandi:                      Yeah. Hey, one thing that no one's talking about, and I'm wondering if they should, is the Fed has another tool or tools and that is regulatory policy. I mean, one thing I've noticed is in the housing market rates have jumped in anticipation of what the Fed's going to do and the higher inflation. So mortgage rates, correct, If I'm wrong, Cris is on the Freddie Mac 30 year mortgage is now 4.65, I believe last week. That's still low by historical centers, but that's up a lot in a very short period of time. Market feels like it's starting ... The housing market feels like it's starting to freeze up because these higher mortgage rates are conflating with the high house prices and affordability is getting crushed.

                                             And you're starting to see lenders, and this is completely typical. They say, "Oh my gosh, I can't originate loans." To keep things going, they're starting to lower their underwriting standards. They're becoming more aggressive and accepting borrowers with lower credit scores or higher debt to income ratios, higher loan to value ratios. I guess first question to you, Cris, is, have you observed that yet? Or are you hearing that, is that something that's going on?

Cris deRitis:                       I haven't really heard much of that happening. So it's possible certainly with refinance volumes going off a cliff, you certainly want to keep your operations, but there's just not ... the number of sales is also quite low as well, because of the limited inventory. So it's possible. But I don't know that we'll see that dynamic play out this cycle just because of what happened last time around.

Mark Zandi:                      Well, I guess I bring that up because that dynamic of lenders easing at the same time the Fed's tightening is pretty classic and that generally creates problems because some of those bad lending that weaker underwriting gets caught in the subsequent economic slowdown or recession and it exacerbates the recession and downturn and maybe the Fed should use its regulatory ... put on its regulatory hat and say, "Hey ..." For example, they could juice up capital standards for banks and say, "Hey, you need to hold more capital because you're taking more risk here and ... or at least we're concerned that you're going to take more risk," or, "simply, I want things to slow down. I want things to slow down." But what do you think? That's like a [inaudible 00:36:44] when you need a scalpel, I guess.

Cris deRitis:                       Possible, but the banks are over capitalized. Well, I expect them to sail through CCAR this year, the stress testing exercise and no problem. So they would really have to ramp it up substantially. And I don't know if that's on the agenda. So I do think that they'll be mindful. I don't think they're going to let things loosen up here significantly, but I don't see them going down that route necessarily. I think the rates themselves are going to be enough.

Mark Zandi:                      Yeah. Yeah. Okay. All right. 

Ryan Sweet:                      Yeah. The Fed puts out, every January, their long run policy objectives and they reinforce the idea that the Fed Fund Rate, the target Fed Fund Rate is their primary lever. So to Marisa's point about using the balance sheet, they'll use it, but the Fed Fund Rate is their primary tool. So they're going to lean on pretty heavily.

Mark Zandi:                      I guess the other argument against the Fed actually turning to regulatory policies. They don't have a person on the Fed to manage supervision. So there's a Vice Chair of Supervision. The Biden administration had nominated Raskin to do that and she didn't make ... she [inaudible 00:38:03] to get through Congress. And so that position is still empty. So that might make it more difficult to use that as a tool, I think in the current environment. Okay. 

                                             Hey, you mentioned the yield curve, Ryan, because you were saying, "Look, one reason why I think the Fed might be overdoing it here and raising rates too quickly is the shape of the yield curve, it's gone flat." Do you want to just describe what that is and what's going on there? This goes back to another question, a person who tweeted to me asking, what kind of indicators should we be watching to gauge where the economy's headed? And the thing that comes to my mind immediately is the shape of the yield curve.

Ryan Sweet:                      Yeah. So the yield curve is the difference between long term treasury securities. So the 10 year treasury yield, versus a measure of short term interest rates. So right now all the attention is on the difference between the 10 year treasury yield and the two year treasury yield. That's one measure of the yield curve. And that temporarily inverted earlier today. And I think it inverted earlier this week. An inversion, typically is an indication that investors are worried about the economy's near term prospects. The yield curve has a pretty good track record. I'm skeptical of it ... a pretty good track record in predicting recessions. But this inversion that we've gotten today and earlier this week is a soft ... it's a simple blip. You need a hard inversion, probably 30, 60 days of a yield curve being inverted. Also, the 10-2 has sent false signals.

                                             The best measure of the yield curve is the 10 year minus the three month treasury bill yield. But that's being anchored by the Fed Fund Rate that's keeping that three month treasury bill yield really, really low. That's going to start to increase and flatten out that yield curve as the fed, begins to dial back on, or begins to increase interest rates going forward. So all in all the yield curve is going to continue to flatten out and that ... So the Fed has the yield curve on its mind because again it's track record in predicting recessions. And when the Fed is tightening and the yield inverts, that's a recipe for an economic downturn.

Mark Zandi:                      You said it's falsely predicted recessions when?

Ryan Sweet:                      Yeah. The 10-2 has.

Mark Zandi:                      Oh, it has. When I didn't realize that

Ryan Sweet:                      1960s. I want to say '67 or '69.

Mark Zandi:                      Yeah. Yeah. Okay. You're really stretching, buddy. You have to go all the way back to 1967.

Ryan Sweet:                      It's false signal. It's not perfect. It's not perfect, Mark.

Mark Zandi:                      Okay. Yeah. Was it a hard inversion back in '67?

Ryan Sweet:                      Yeah.

Mark Zandi:                      Okay. Because I tend to only look back to like the late '70s. And since the late '70s, I don't think it's ever falsely predicted a recession. I don't think. Right, Cris?

Cris deRitis:                       I mean, you got to put an asterisks on the 2020 recession. There was no [inaudible 00:41:00].

Mark Zandi:                      Why, why?

Cris deRitis:                       A pandemic? Yield curve did not predict a pandemic that is false.

Mark Zandi:                      No, but it was predicting a recession and I think- 

Cris deRitis:                       if it wasn't for a pandemic-

Mark Zandi:                      ... there may be very well been a recession in 2020.

Cris deRitis:                       ... there would not have been a recession without a pandemic.

Mark Zandi:                      Not because of the pandemic, but because the approximate cause would've been the trade war, but it was signal something. The pandemic just came along. No? Okay. All right. I think so.

Ryan Sweet:                      We'll never know.

Cris deRitis:                       We'll never know. That's the problem. We'll never know.

Ryan Sweet:                      This could be the end of the podcast. The yield curve.

Mark Zandi:                      What do you mean?

Ryan Sweet:                      It's going to cause some tensions between the three of us [inaudible 00:41:40] cause a lot of ... Marisa is going to have to chime in.

Mark Zandi:                      The podcast is ...

Ryan Sweet:                      It will survive

Mark Zandi:                      Yeah. Oh yeah. This podcast, There's no way they break us apart. Not the yield curve.

Marisa DiNatale:              Like tension. People are here for the tension.

Mark Zandi:                      Yeah. There're here for the tension. They're here for the tension. Okay. Let's-

Ryan Sweet:                      [crosstalk 00:41:57] inversion in-

Mark Zandi:                      You thought I forgot ... Oh, sorry, Cris. You wanted to say something.

Cris deRitis:                       I was going to say the inversion in 2019 was September, wasn't that large. And it wasn't that long. So ...

Mark Zandi:                      I don't even know it qualified as a hard inversion. I don't know. Did it actually invert from ...

Ryan Sweet:                      All right, so there's another false alarm.

Cris deRitis:                       I think it was like a week. It wasn't ...

Mark Zandi:                      No. That what I'm saying, you need at least a month or two, I think to get some kind of signal. 

Ryan Sweet:                      Maybe that's a yellow flag-

Mark Zandi:                      Yellow flag.

Ryan Sweet:                      ... inversion. And you're saying the red flag inversion is when it's more than [crosstalk 00:42:29] calling a hard inversion. [inaudible 00:42:31].

Mark Zandi:                      But with all the caveats though, wouldn't you agree that if you had to look at one indicator, you had one indicator to pick, to try to gauge which way the economy's going in a period like this, when you're trying to gauge whether it's going to go into recession or not would be the yield curve. Right?

Ryan Sweet:                      I'd actually go with ... We'll see Marisa says about this one. [inaudible 00:42:53]. I know it's backward looking, but historically if the unemployment rate increases by 25 or 30 basis points on a three month moving average basis, it's over, a recession always follows. There's no false signals there.

Mark Zandi:                      Fair. Fair. But that gives you no warning, because once that happens, you are actually in recession.

Ryan Sweet:                      Right exactly. Yeah. But I'm just saying you want to tested measure. That's it.

Mark Zandi:                      Okay. Again, because the listener asked, just describe that other measure you just mentioned.

Ryan Sweet:                      The unemployment rate?

Mark Zandi:                      Yeah.

Ryan Sweet:                      Yeah. On a three month moving average basis, if the unemployment rate increases by 25 or 30 basis points, a recession always follows because the self-reinforcing cycle kicks in, you see unemployment going up, people start to get pessimistic. They cut back on spending, that leads to more layoffs and that drives the unemployment even higher. So you just go around and around.

Mark Zandi:                      And that also is consistent with the observation, the lower the unemployment rate goes, the more likely it's going to rise. And when it rises, watch out, because this bad dynamic takes hold.

Ryan Sweet:                      Yeah. That's why I watch jobless claims.

Mark Zandi:                      Yeah.

Ryan Sweet:                      Because that gives you an early warning on what the unemployment-

Mark Zandi:                      Okay. There's a third one. You're really good with this. 

Ryan Sweet:                      We can spend hours.

Mark Zandi:                      I know we could. Yeah. Okay. All right. 

Cris deRitis:                       But if you had to pick one, it's the [crosstalk 00:44:15].

Mark Zandi:                      If you had to pick one, he saying the unemployment rate. I still say the yield curve, but anyway.

Ryan Sweet:                      I'll go with jobless claims.

Mark Zandi:                      Oh geez. Okay. We got to play the game. You think I forgot about the game, the statistics games. So just to remind everyone, this game is we each announce a statistic, the rest of us, try to figure out what that is, through questioning deductive reasoning. We're allowed to quiz the person who put it forward. And the best question or the best statistic I should say is one that's not too easy that it's a slam dunk. One that's not too hard, that will never get it. One that's related to recent performance, generally something that happened in the past week or related to the topic at hand, which obviously today is the job market. So with that as a preface or a description, Marisa I'm going to turn to you first, what's your statistic and Marisa, she's had a checkered past with this game as I recall, something about positive negative signs, I can't [crosstalk 00:45:20]-

Cris deRitis:                       ''' let's let her go.

Ryan Sweet:                      She's a has a love-hate relationship with this game.

Mark Zandi:                      A love-hate relationship.

Marisa DiNatale:              [inaudible 00:45:25].

Mark Zandi:                      By the way, this is April 1. This is where April 2, is the first year anniversary of our podcast. The very first podcast we did was April 2nd, 2021. And Marisa you weren't on the first podcast, but you were one of our initial podcasts I believe-

Marisa DiNatale:              Within the first month. 

Mark Zandi:                      Yeah. And I think that first time you were on you got the negative with the positive sign

Marisa DiNatale:              Right.

Mark Zandi:                      Okay.

Marisa DiNatale:              Yes. A year later and we're still talking about it.

Mark Zandi:                      We're still talking about it a year.

Ryan Sweet:                      [inaudible 00:46:04].

Mark Zandi:                      Okay. I promise I won't bring that up again, but Ryan definitely will.

Ryan Sweet:                      I will. I will.

Mark Zandi:                      All right. So what's your number?

Marisa DiNatale:              Thanks for letting me go first, because I was afraid someone would steal it. Okay, my number is 5.5 million in March.

Mark Zandi:                      Okay. Labor market data statistic?

Marisa DiNatale:              Yes.

Mark Zandi:                      Okay. In today's numbers, employment report?

Marisa DiNatale:              Yes.

Mark Zandi:                      Okay. In the household survey?

Marisa DiNatale:              Yes.

Ryan Sweet:                      The number of unemployed.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Oh wait. That's pretty close though. The number of unemployed is six ... is five six ... About 6 million, unemployed. No, I think it's lower than that. I think it's 5.7-

Ryan Sweet:                      [crosstalk 00:46:52], 5.9. I think.

Mark Zandi:                      Someone look it up because

Ryan Sweet:                      I'll look it up right now.

Mark Zandi:                      5.7. That's my number

Ryan Sweet:                      5.5.

Mark Zandi:                      Okay. [crosstalk 00:47:02] anyway, that's not your number-

Marisa DiNatale:              Five point. Yeah. That's not the number. The number of unemployed in March was 5.9.

Ryan Sweet:                      Is it the number of people not in the labor force, but want a job?

Marisa DiNatale:              You are correct, sir. That is it

Ryan Sweet:                      Watch out.

Marisa DiNatale:              Yep. Good guess.

Mark Zandi:                      Okay. So what is that again?

Ryan Sweet:                      It's not a guess.

Marisa DiNatale:              So it's the number of people that aren't in the labor force, but say that they want a job.

Mark Zandi:                      Okay.

Marisa DiNatale:              So the reason I picked that is because we're talking about participation rate rising, labor supply starting to kick in, the EPOP ratio coming up. I think it's interesting because a lot of the people in this category, they're saying that they want a job, but they haven't looked for a job in the last year and that might be or they might have looked, but they may not be available to take a job, which are two of the requisites to be counted as unemployed. There is a disproportionate share of that group that are women versus men that are in this "want a job" group. And it's about half million higher than its pre-pandemic low. 

                                             So it was right around 5 million, excuse me, in February of 2020. So I think that represents more labor supply that's out there. And we've seen the participation rate in the past few months and since the start of the year in particular rising a prime aged women. And if a lot of these women are in this "want a job, but I haven't looked or I'm not available to take one right now" category that could represent ... If we get down to that pre pandemic level, that's another half million people that could potentially come into the labor force over the next few months.

Mark Zandi:                      Can I ask you? Sorry, go ahead. 

Marisa DiNatale:              Yeah, yeah, yeah. No, go ahead. 

Mark Zandi:                      So in trying to gauge how much labor supply is left before morale.

Marisa DiNatale:              Yeah.

Mark Zandi:                      What we're doing is we're comparing all these numbers to pre-pandemic numbers and I think that's reasonable. We don't have a better option. And if you do that, as you say the number of people that are out of the workforce that want a job that feels like labor supply and it's a half million or so above what it was pre-pandemic. So that's a half million at the current rate of job growth, by the way, that's one month we can-

Marisa DiNatale:              That's right. Right. 

Mark Zandi:                      We can absorb those folks. And then the unemployment rate is at three six. And I don't think there's anything left really, because pre pandemic unemployment rate was 3.5.

Marisa DiNatale:              3.5. Yeah.

Mark Zandi:                      So maybe, I don't know, 100,000, 200,000, something like that. Where else would you get labor supply based on that arithmetic that I'm doing? It's either the unemployed or I'm not in the labor force because I'm not looking. That's the number of folks that are not in the labor force, but want a job. So is there any other source of supply here?

Marisa DiNatale:              I think it's going to come mostly from people that are not in the labor force at this point. I mean, even if you look at all the other statistics around unemployment, people unemployed long term, like 27 weeks or less, that's actually below now, I think where it was prior to the pandemic or people that are losing jobs, layoffs. I mean, look at jobless claims in the past few weeks. I mean they've fallen into the extremely low territory. So people aren't getting laid off, even the number of people that left jobs last month, according to the household survey fell. 

                                             So it seems to me, it got to be people that left the labor force during the pandemic and are starting to come back. We've even seen ... we talked about the great retirement or the great resignation or whatever people have called it. There's even been some upturn in older people who had left the labor force during the pandemic coming back. So maybe these people that we thought left the labor force and said, "Okay, this is a good time to retire. Seems like some of them are even beginning to come back a bit." So-

Mark Zandi:                      Well, I saw that statistic, it's called the exit rate from retirement. And if you look at the exit rate from retirement, it actually collapsed early in the pandemic. No surprise, but now it's completely normalized, meaning back to where you would've expected to be without the pandemic. So it's almost like can't even look to that for any additional ... unless it rises above the trend, the pre-pandemic trend. I'm trying to figure out where do you get the people? I mean, right? I mean-

Ryan Sweet:                      We have people are in school, people that are not in the labor force because they're worried about getting sick now with the pandemic hopefully winding down, they'll come back in.

Mark Zandi:                      So you're saying those are folks that are not in the labor force, but don't want a job at this point in time. 

Ryan Sweet:                      Correct.

Mark Zandi:                      Because they're still-

Ryan Sweet:                      That's where you're going to get it.

Mark Zandi:                      Okay. Fine. Okay. That [crosstalk 00:52:06].

Ryan Sweet:                      Some immigration too. There was just announcement of a increasing number of visas. So ...

Mark Zandi:                      So you're saying the rate of underlying labor force or of a working age population is going to grow ... is accelerating here because of easing up on immigration laws as the pandemic fades, we'll get more immigrants coming into the country. That'll increase in help. Okay. Yeah. All right. Okay. So we've got a little bit more to go on the number of unemployed, we've got half a million or so labor force ... not in the labor force, but want a job. We've got folks that are probably still out there waiting for the dust to clear or the dust to settle on the pandemic before they come in. We'll get a little bit more juice as immigration picks up here. And if you add all of that up, we might have a million, half or 2 million jobs left to go before we're tight as a drum like we were pre-pandemic. That's the arithmetic. Right? Okay. All right.

Marisa DiNatale:              Yeah. And I agree, just back to what Ryan was talking about earlier. I don't think we're going to get back to the participation rate that we saw prior to the pandemic. I mean, you'd need to get back to that participation rate with the current population, you need a couple million people to come into the labor force and that's just ... given what we just talked about, where do you get a couple million people unless immigration really picks up. I mean, that's really the marginal gain. And I don't think that it's going to be that large.

Ryan Sweet:                      That large.

Marisa DiNatale:              Just demographics. I just don't think ... just given baby boomers aging out of the working age population, I don't think we're going to get back to that.

Mark Zandi:                      Okay. All right, Cris, I know you need to leave in 10 minutes or so. So let's get your statistic.

Cris deRitis:                       [inaudible 00:53:57] you.

Mark Zandi:                      Minus 274,000.

Ryan Sweet:                      Are you sure it's minus?

Cris deRitis:                       I'm positive it's minus. Positive [inaudible 00:54:06].

Ryan Sweet:                      A decrease ... How about a decrease of 274,000?

Cris deRitis:                       Okay. There you go. 

Ryan Sweet:                      It's in the employment numbers?

Cris deRitis:                       Yes.

Ryan Sweet:                      It's in the household survey.

Cris deRitis:                       Yes.

Marisa DiNatale:              Oh, is it the number of ... Is it in number of unemployed people? Is it in the unemployment-

Cris deRitis:                       Yeah, it's a-

Marisa DiNatale:              ... categories.

Cris deRitis:                       Yeah. A demographic-

Marisa DiNatale:              Permanent job losers? 

Cris deRitis:                       You referred to it earlier, Marisa.

Marisa DiNatale:              27 weeks or longer unemployed.

Cris deRitis:                       Yep. That's right. That's right.

Ryan Sweet:                      Good job, Marisa.

Cris deRitis:                       Good job, [crosstalk 00:54:38].

Ryan Sweet:                      There's definitely a cow bell. She gets a cowbell.

Cris deRitis:                       That was good.

Mark Zandi:                      That was a weak cowbell, but okay. 

Ryan Sweet:                      Oh my God. [inaudible 00:54:46]. You can you now do the cowbell going forward.

Mark Zandi:                      Well, you know ... I have an idea. We should all get together in the office and do this podcast together, that'd be kind of cool.

Ryan Sweet:                      Office is open so-

Mark Zandi:                      [crosstalk 00:54:59] mind blowing if we did that.

Cris deRitis:                       Yeah. Marisa, you have to fly out.

Marisa DiNatale:              I will gladly fly out.

Mark Zandi:                      Oh, Marisa you got to fly out for this. [inaudible 00:55:05] way out. Are you flying out by the way anytime soon. 

Ryan Sweet:                      No plan. 

Marisa DiNatale:              No. No. 

Ryan Sweet:                      [inaudible 00:55:12].

Marisa DiNatale:              Not to sit in an empty office.

Ryan Sweet:                      All right.

Mark Zandi:                      So what was your statistic, Cris? It seems a little lame to me.

Cris deRitis:                       The decline in long term unemployed.

Mark Zandi:                      Oh long term.

Cris deRitis:                       274,000 to ... so there's 1.4 million long term unemployed now. That's still about 300K above what it was in February, 2020. So not quite back all the way yet, but making progress. And this is usually the toughest segment to get reintegrated into the labor market. So ...

Mark Zandi:                      Can you say that again? How far away from pre-pandemic levels for folks that are more than 27 unemployed? Long term unemployed?

Cris deRitis:                       About 300K. 307,000. 

Mark Zandi:                      307,000. And it fell with 273K last month?

Cris deRitis:                       Yeah. 274. Yeah.

Mark Zandi:                      Okay. So we could be there next month or the month after.

Cris deRitis:                       Easily.

Mark Zandi:                      Easily. Goodness gracious. Okay. That's-

Ryan Sweet:                      How do you square that with the beverage curve? So the beverage curve is the relationship between job openings and the unemployment rate. So an outward shift in the beverage curve, which we have today suggests that the labor market is less efficient where there's structural unemployment in the short run. That's Cris' number and that long term unemployed, which is a proxy for structural unemployed, it's coming down pretty quickly, but the beverage curve is still shifted way out.

Marisa DiNatale:              Don't you think that's pandemic related weirdness with the labor force? I mean ...

Ryan Sweet:                      Maybe.

Marisa DiNatale:              I mean, it's a supply side recession where ...

Ryan Sweet:                      Yeah, whenever we calculate it by industry, wonder if like a leisure and hospitality has been the biggest outward shift in the beverage curve.

Mark Zandi:                      This also happened after the financial crisis, remember? Same exact thing. And we were also like, "What's going on? What's going on?" And then it just came right back into where it had been historically. This things settle in. I suspect that's the case here. Okay, Ryan, what's your statistic?

Ryan Sweet:                      All right. I'll give you a hint. It's close to Marisa's, but ... All right, I'll give you three numbers, 11 ...

Mark Zandi:                      You seem a little hesitant with-

Marisa DiNatale:              Nervous.

Ryan Sweet:                      I know I'm nervous, about-

Mark Zandi:                      Yeah, seem a little nervous. You're like fidgeting and ... What the F?

Ryan Sweet:                      I know. I know. All right. Three numbers, 11.263, 5.952 million-

Cris deRitis:                       Openings.

Ryan Sweet:                      ... Cris got openings. Very good.

Mark Zandi:                      What did you say? 11.2 million openings [crosstalk 00:57:31]-

Ryan Sweet:                      5.952 million. And then 11.689 million. They're all related.

Mark Zandi:                      Are they all in the jolts? The job opening labor turnover server.

Marisa DiNatale:              5.9 is hires.

Ryan Sweet:                      The first one's jolts. That's it. [crosstalk 00:57:46]-

Mark Zandi:                      ... the first one. Okay.

Ryan Sweet:                      So job openings is 11.2 or 11.3 million.

Mark Zandi:                      What's the second one?

Ryan Sweet:                      5.952 million.

Marisa DiNatale:              That's the number of unemployed.

Ryan Sweet:                      Exactly. Very good.

Mark Zandi:                      Yeah.

Ryan Sweet:                      And then what is 11.689 million.

Mark Zandi:                      And you're saying it's only related because it's a job statistic?

Cris deRitis:                       Is that the U6?

Ryan Sweet:                      No.

Mark Zandi:                      11 point. Huh? It's in the household survey data?

Ryan Sweet:                      It is

Mark Zandi:                      Okay.

Ryan Sweet:                      You got to do a little bit of a calculation.

Mark Zandi:                      Oh, you got to do calculation. Something plus something.

Ryan Sweet:                      Correct.

Mark Zandi:                      Okay. I don't know. You guys know?

Marisa DiNatale:              Oh is it ...

Ryan Sweet:                      Marisa, you can get this one.

Mark Zandi:                      Saying, I can't get this one. Is that what you're saying?

Marisa DiNatale:              That's what he said.

Mark Zandi:                      Yeah. That's what he is implying. Now, I got to think about this because now that's a challenge. He laid down the [crosstalk 00:58:45]-

Cris deRitis:                       It's gauntlet.

Mark Zandi:                       As they say.

Ryan Sweet:                      The challenge has been ... I'll give you a hint.

Mark Zandi:                      Okay. Give us a hint.

Ryan Sweet:                      It's unemployed plus something.

Mark Zandi:                      Was it?

Marisa DiNatale:              Yeah.

Mark Zandi:                      Is it the U6 unemployed?

Marisa DiNatale:              I got that.

Mark Zandi:                      U6?

Marisa DiNatale:              Discuss that.

Ryan Sweet:                      Nope. No.

Mark Zandi:                      Discuss that-

Ryan Sweet:                      Earlier conversation.

Mark Zandi:                      I don't know. I don't know. Cris, do you know?

Ryan Sweet:                      Like Cris is looking down-

Marisa DiNatale:              Is it a subset of not in the labor force?

Cris deRitis:                       I'm writing. I'm trying to figure it out. I'm trying to do some math. 

Marisa DiNatale:              Is Ryan? Is it a subset of people that aren't in the labor force?

Ryan Sweet:                      Yes.

Marisa DiNatale:              Because it's close to that. Want a job marginally attached. Now, that's ...

Ryan Sweet:                      No, you got it. It's unemployed plus those not in the labor force that want a job.

Mark Zandi:                      Okay.

Cris deRitis:                       So a lot of attention, you look at job openings, 11 million, north of 11 million. And everyone's saying, well, that gross exceeds the number of people that are unemployed, which is roughly 6 million. So if you add in the people that are not in the labor force, but want a job, we have 11.7 million. So there's not a labor supply shortage. It's a tight labor market, but people are there. You just got to find them. 

Marisa DiNatale:              Yeah.

Mark Zandi:                      Okay. All right. That's pretty tough. You have to admit. Well, I guess the first one was pretty easy and ...

Marisa DiNatale:              Well, it was my statistic plus the number of unemployed.

Mark Zandi:                      Yeah.

Marisa DiNatale:              Yeah.

Mark Zandi:                      That's a little tough.

Ryan Sweet:                      You should have gotten that one. Mark.

Mark Zandi:                      Yeah. Okay. Okay, whatever you say, buddy.

Ryan Sweet:                      What's yours?

Mark Zandi:                      Well, I'm a little embarrassed by mine too, to be Frank, because you'll never get it, but it's a really good one and it and I'll give you ... I'll give you a big, I'll give you a big hint. Has nothing to do with the employment report, because I knew all you guys would be all over the employment report and I'd be the last to go and I'd have a hard time coming up with the statistics.

Ryan Sweet:                      Did you learn this number on your conference call with the New York Fed?

Mark Zandi:                      I did not. 

Ryan Sweet:                      Okay.

Mark Zandi:                      But I will give you a huge hint, huge, is on EV, economic view, which is the website-

Marisa DiNatale:              Is it labor market related or not directly?

Mark Zandi:                      No, not at all related to the labor market.

Ryan Sweet:                      All right. So here we go, Cris. [crosstalk 01:01:03]-

Mark Zandi:                      Ready? And I'm going to give you two numbers. I'm going to give you two numbers.

Ryan Sweet:                      Here we go.

Mark Zandi:                      7.4%. Ready? And the other one is 25.6%. And I'll give you another big hint. The 7.4% is the month to month percentage change. The 25.6% is the year over year percentage change. These are big numbers. So what do you think that number is? Any-

Ryan Sweet:                      All right is it US related or are we going- 

Mark Zandi:                      It's US. It's US.

Ryan Sweet:                      Okay.

Mark Zandi:                      It's obviously related to inflation and it does connect the dots back to the Russian-Ukraine invasion, I think to some degree. That's also a big hint.

Ryan Sweet:                      Is this gasoline prices?

Mark Zandi:                      Gasoline prices? No, that would be too ... no, this is better than that, but you're in the right ballpark. You're [crosstalk 01:01:57].

Ryan Sweet:                      Is it [inaudible 01:01:58] oil?

Mark Zandi:                      No. No.

Marisa DiNatale:              Was it in the ag price report that came out this week?

Mark Zandi:                      Yes. The ag. Man, she's good. Ag.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Wow. Marisa. Ag prices. Yeah. She's very good. Very good.

Ryan Sweet:                      Is it all ag prices?

Mark Zandi:                      Yeah all agriculture. It's prices received by farmers, all agricultural goods. So that would be crops and livestock. And in the month of February, which is ... I think it is February, the last data point. Let me just check. Yeah. It's February. That increase was almost ... that was crops not livestock. But year over year, livestock prices are up 35%, crop prices are up 17. And this goes to lots of things, obviously, including the higher cost of fuel, which is an energy which is key to production of agricultural products. But it's also, I think maybe partly related to what's going on in Russia-Ukraine, because not only did that disrupt energy markets, oil, natural gas markets, but it's been a huge disruptor to large parts of the agricultural ... global agricultural export market for wheat, for corn, for soybeans, for sunflower oil and fertilizer. Fertilizer is a big export and that's been also quite disruptive. And obviously this goes to just another source of overall inflation and I don't think it's over. I mean, I think we're going to see much more pass through here in higher food prices. And food prices actually matter more. See you, Cris, we're almost done by the way.

Cris deRitis:                       All right. Thanks.

Mark Zandi:                      But you go ahead, go do what you needed to do. In the consumer price index, I believe energy, which includes the cost of gasoline and home heating. Everything is probably what, Ryan? 7% of the CPI and food prices are I think 13, 14% of CPI. So almost twice as much. So this is very, very important and obviously a big concern around the world. Okay, sorry about that. I knew that was a little hard but-

Ryan Sweet:                      No Marisa. That was impressive that you got that.

Mark Zandi:                      That was impressive though.

Ryan Sweet:                      That was ...

Mark Zandi:                      Yeah. That was pretty good. Very good.

Ryan Sweet:                      Hat tip to you.

Mark Zandi:                      You could tell she's a careful consumer of your work Ryan on economic-

Ryan Sweet:                      I would never [crosstalk 01:04:20]-

Marisa DiNatale:              Very much so.

Mark Zandi:                      Yeah. Very good. Okay. Okay. Cris has left. I think we'll keep this a short podcast. There's a lot of other topics to discuss in the labor market. Maybe we'll keep them for next Job Friday. I think at some point we got to go back, talk about remote work. I'm curious what your thoughts are there on that and productivity, talk a little bit out the great resignation or reshuffling, what's going on there. We talked around that, but not right to it. And talk a little bit more about the wage dynamics and what that means for overall inflation. So there's a lot to talk about, but we'll have you back and we'll do that.

                                             Before we sign off. Anything else? Here's another open-end question for both of you. Any other things we should be talking about or things I should be saying? I should mention Sarah mentioned to me that I should let everyone know that we are going to have a bonus podcast. We've been having a few of these along the way here. And this one is to answer all of the listeners questions and we're going to have Emily Mandel, one of the other economists at Moody's to help moderate that. So I won't be the moderator for that one. I'll be an answerer if that's a right term. So won't be doing that. But anything else, Ryan, you want to mention, Marisa?

Ryan Sweet:                      I think we covered it.

Mark Zandi:                      We did. Okay. Marisa, we covered it?

Marisa DiNatale:              Yeah, I think so.

Mark Zandi:                      Okay.

Ryan Sweet:                      Next time we can talk about some of the special questions that BLS does, related to the pandemic. They all improved [crosstalk 01:05:52]-

Mark Zandi:                      They all improved too.

Ryan Sweet:                      ... much. 

Mark Zandi:                      Yep.

Ryan Sweet:                      The number of people that weren't able to work because of the pandemic that fell. So we should make further progress in April.

Mark Zandi:                      Okay. We'll talk about that. We'll put a pin in it. Okay. With that. We're going to call this a podcast. Thanks everyone. Talk to you next week.