INSIDE ECONOMICS

Mark Zandi:                       Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and I am joined by a group of my colleagues. My two co-hosts, Marisa, Marisa DiNatale, and Cris DeRitis, and also Dante DeAntonio, of course this is jobs, well I guess this is jobs weekend.

Dante DeAntonio:           From Saturday, yeah.

Mark Zandi:                       Saturday. But it's good to have you all. Good to see everybody. How's everyone doing?

Dante DeAntonio:           Good, how are you?

Cris deRitis:                        Good, good. I'm ready for this podcast.

Mark Zandi:                       I know.

Marisa DiNatale:              No better way to start a weekend.

Cris deRitis:                        Yeah, absolutely.

Mark Zandi:                       And we're doing it on the weekend because I was at CBO yesterday, Congressional Budget Office. Couple, maybe twice, three times a year we get together a group of economists to go over their budget and wasn't able to break away for the podcast. And now I'm in London. I'm sitting in London this morning. So good to be with you all and we've got our own conference here in London, I think on Tuesday. So here for that.

Marisa DiNatale:              What's the mood in London?

Mark Zandi:                       Well, I haven't had a chance to take the pulse, but-

Marisa DiNatale:              He hasn't left his hotel room yet.

Mark Zandi:                       Yeah, I actually, I flew in, I came to the hotel, I went right to sleep for another two to three hours. It was a quick flight. It was only six hours. I mean, it was like we had a hurricane blowing tailwind over here, so we got here very quickly. So I didn't have much of a chance to sleep, but just get going here. What was I going to say? Oh, it's gloomy. Typical London gloom. It's dark outside. I don't know how folks live with this kind of gloominess, but somehow they do. Anyway, jobs Friday, came out yesterday. Lots to talk about. We have a action packed week of data. Dante, you're pretty good at doing the rundown. You want to give us the rundown on the jobs numbers.

Dante DeAntonio:           I can do that. I would say by and large, the October report was pretty good. I think there's certainly more room to pick holes in some weak spots maybe that we've seen recently, but we added 150,000 jobs, which is sort of back to the moderation that we had seen for most of 2023 after getting a sort of outsize gain last month. A three month moving average of job gains is still just over 200,000, so still probably stronger than we would like it to be. [inaudible 00:02:53] job wins are more concentrated this month. Government kicked in another 50,000 plus healthcare still is the biggest driver of private sector job gains, adding over 75,000 jobs. Manufacturing fell, but that was obviously sort of a one-off impact of the UAW strike, which while it had already ended before the report came out, obviously impacted the October jobs numbers, so I wouldn't expect that to continue. That should bounce back, I would think mostly next month.

                                                Other than that, job growth was either pretty weak or fell in a number of industries. Leisure and hospitality came back down, only added 19,000 jobs after a much bigger gain last month. Construction still holding up. I think despite all the headwinds added 23,000 jobs, which again seems to be much more resilient than I think we keep expecting it to be. Some small losses in transportation and warehousing, which has been pretty up and down in the last six or nine months. Information down a little bit, but again, that's been flat to down in the last six months or so. On the wage growth side, I think we got more, it was a mix, good news this month, but there were some upward revisions to the prior two months that made it slightly less positive. Wages were up 0.2% over the month.

                                                They're now up 4.1% year over year, which again is moving in the right direction. They continue to moderate and trend lower over time, which is again what we're hoping to see. Sort of adding to the weakness in terms of job gains, we had average weekly hours tick a little bit lower too, so there's clearly some weakening I think on the demand side here, which I think comes through sort of across the payroll survey. On the household survey side, certainly more weakness, more things to sort of keep an eye on moving forward. The unemployment rate ticked up to 3.9% from three eights, and it was for the wrong reasons that we talk about. We had the labor force actually contract a bit in October, had pretty big decline in employment as measured by the household survey. So those two things together sort of fueled that uptick in the unemployment rate, which is not ideal.

                                                Other than that, I would say across the board in the household survey, things were just a little bit weak labor before participation came down a little bit. The employment population ratio came down a little bit. It was just a little bit weaker than the payroll survey would've suggested, but all in all, I think in terms of thinking about a soft landing or the Fed not needing to raise rates again, I think it sort of checks the boxes in terms of showing that the labor market is still weakening and not crashing and burning as of now.

Mark Zandi:                       Did you mention the strike effects? I missed that if you did.

Dante DeAntonio:           What was that?

Mark Zandi:                       How many jobs did we lose because of this UAW strike and the other strikes?

Dante DeAntonio:           It was about 30,000 between UAW and there was a smaller strike also in manufacturing. I think it was Mack Truck, maybe. It's about 30,000, manufacturing was down 35, so most of that was strike related.

Mark Zandi:                       So you throw in the 35K, you're back up close to 200K.

Dante DeAntonio:           Right.

Mark Zandi:                       Which is kind of like the average monthly job growth we've been getting, 200K.

Dante DeAntonio:           Right.

Mark Zandi:                       Which is weaker, but is still strong. That's still pretty strong, right?

Dante DeAntonio:           It is.

Mark Zandi:                       Yeah. Okay. And it's kind of the bad news is good news kind of thing, and it's not even really bad news, but it's just when you say weak, that's interpreted as well, okay, we want it a little weaker because it takes the pressure off the labor market wages and helps the Fed get inflation back in the bottle. I'm kind of leading the witness here, but is that kind of roughly right?

Dante DeAntonio:           Yeah. I think if anything, we need to be more uncomfortable. I think we need some of these, we need some uglier jobs reports in terms of job growth being weaker. I think we need to get a little more uncomfortable here over the next six months or so, probably.

Mark Zandi:                       I don't think we should even call it ugly. I mean, that's what we need on a sustainable path forward without inflation being a problem.

Dante DeAntonio:           Right. Agreed.

Mark Zandi:                       Agreed. Okay. Marisa, what do you think?

Marisa DiNatale:              I think we have a different bar now. I think to us 150,000 is, oh, that's really bad. That's really weak. The unemployment rate ticked up a 10th of a percentage point, but we're so used to getting these outsized gains over the last few years that I think this is actually perfect, it's right where we want to see job growth slowing to. I will say, I think the strike effect probably took off about between the UAW, it's not only the UAW, this actor's strike has been going on for some time, and that's depressed information employment. There's about 160,000 people involved in that strike according to BLS. And that industry has lost cumulatively about 40,000 jobs over the last three or four months since the strike started in July. So there's a little bit coming from that. It's small, but it's probably gets us up to about 200,000, which is probably where we really are in terms of job growth, which is still pretty good.

                                                As Dante said, construction keeps rolling along and I was looking at that. That's across all segments of construction. It's residential, non-residential and public infrastructure, heavy construction. So I like this job report and the slow-down in average hourly earnings is good. The diffusion index slowed, meaning that there were fewer industries that were adding to jobs. So we saw a little bit more job loss across industries, but it's still above 50%. So we still have over half of industries adding to job growth. We want to talk about weakness or anything we're worried about, I think we'd really have to look at the household survey, but even there, it's one month and we all know how the household survey can flip and flop from month to month. So I'm not as worried about that. And if you dissect that decline, that big decline in employment, which was over 300,000, it was pretty much split between agriculture, private industry, wage and salary workers and the non-ag industries and the self-employed.

                                                So it was widespread, which maybe isn't good, but it wasn't all coming out of wage and salary workers, little decline in the participation rate. It was almost exclusively amongst people that usually work part-time. It wasn't among full-time workers, their employment actually rose. So I'm not worried that we're heading for some sort of harder landing. I think this is a good report.

Mark Zandi:                       So just to step back a little bit, to give people more context, we've got the payroll survey, that's the survey businesses. That was the 150K that's affected by the strike. So if you throw the workers that were striking back in, you're saying we're closer to 200K. Then we've got the survey of households, which is another smaller survey, and therefore subject to more volatility and data issues and that kind of thing. And that showed more weakness. There was actually a decline in employment by the household survey, but that thing bounces around all over the place month to month given the size of the survey. But it has been weaker more recently, I think in the last six months or so, haven't really seen much growth in household employment and that's shown much more weakness. But you're saying really no big deal, at least not yet. Okay. All right.

Marisa DiNatale:              No, I mean sometimes people talk about the household survey leading the payroll survey, but the evidence for that is pretty thin if you look back historically.

Mark Zandi:                       Right.

Marisa DiNatale:              Dante, do you know what the household survey adjusted for the payroll survey did?

Dante DeAntonio:           I had not looked at it. I can take a look though.

Marisa DiNatale:              Okay.

Mark Zandi:                       Yeah, that'd be good to know.

Marisa DiNatale:              Because I know a lot of the job loss was among the self-employed, so.

Dante DeAntonio:           And to your part about the volatility, if you look over the last 12 months on the household survey, employment growth is still like 200,000 a month over the last 12 months. I mean, it bounces around a lot more, but it's still strong on average.

Mark Zandi:                       So over the past 12 months, the household survey and the payroll survey are basically saying the same thing.

Dante DeAntonio:           Yeah.

Mark Zandi:                       Right, okay. But it would be good to know because the Bureau of Labor Statistics, keeper of the data does publish the household survey data on the same definitional basis as the payroll survey because there are definitional differences here, so.

Dante DeAntonio:           It was a big difference. So adjusted for payroll concept, it was actually up 188,000 instead of down 348,000.

Mark Zandi:                       Okay, so no difference.

Dante DeAntonio:           Yeah, it's basically the same.

Mark Zandi:                       Okay.

Marisa DiNatale:              That's because over about two thirds of that decline was farm workers and self-employed who aren't included in the payroll survey.

Mark Zandi:                       Got it. Okay. All right. So Dante is pretty sanguine, although he used the word weakness a lot.

Marisa DiNatale:              It's all relative.

Mark Zandi:                       Nothing to worry about.

Dante DeAntonio:           Yeah.

Mark Zandi:                       Marisa is sanguine. Cris, what do you say?

Cris deRitis:                        It's okay. It's an okay report. I noticed that we didn't really mention the revisions.

Dante DeAntonio:           Yeah, that'd be right.

Cris deRitis:                        Fairly significant revisions, right? Subtracted 100K over the last couple of months. So as usual, I take the top line number here with a grain of salt, could be revised down, and then I'd highlight a couple other potential warning signs. The number of people on permanent job loss rose 1.6 million, which was pretty relatively high. You have to go back to 2018 outside the pandemic. So you do see some cracks in the pavement there. And I also keyed in on a number of people with multiple jobs, rose 800K over the last year. So potential sign of folks under financial stress, having to pick up a second job perhaps. So again, okay report, positive, but moving in a more concerning direction.

Mark Zandi:                       Although, and I'll push back a little bit. It's like to our forecast, I mean, we've been expecting continue to forecast this slowing in job creation and all the things, somewhat of a tick up in the unemployment rate and all the things that we're observing, it's kind of sticking right to script. I mean, it makes you nervous when it's actually happening, because you're thinking to yourself, well, is it going to be worse than we actually forecasted? But it's actually very close to our forecast, right?

Cris deRitis:                        It is, it is, but I think to your point, at this point in the evolution, this trend is either consistent with the script of no recession and we glide through or it's consistent with the things that are moving in a more negative direction, they're going to continue to fall down. Right?

Mark Zandi:                       But on that front, what would be driving a more serious weakening in the economy? I mean, what is it that's fundamentally driving? Because now let's take a bigger step back. All the things we've been worried about, all the headwinds we've been talking about that might hurt the economy, UAW strike would be an example, or student loan borrowers having to start paying again, or the oil prices or long-term interest rates. There's still the potential government shutdown. Those are headwinds, potential headwinds. But after this week, it feels like all those headwinds are blowing less hard. Don't they? I mean, you got oil prices that came back down. Now instead of 90 plus, we're 80 plus, sort of where we've been, where we've expected.

                                                Long-term treasury yields, 10-year treasury yields, they were closing in on five. They were over five, I think, Intraday points. Now we're back down closer to four and a half, which is sort of okay. So it feels like the fundamental things to worry about are less, now of course, this is one week, a couple of weeks, it can move very quickly. But on the other hand, these things, they don't seem to suggest some fundamental weakening in the economy, or there should be some fundamental weakening in the economy.

Cris deRitis:                        Well, the rates are still high. Four and a half is still a high rate.

Mark Zandi:                       Are they really high though? I mean, when you think about where... It feels like they're back to where they should be in a well-functioning economy, right? Four and a half. It's not that much different from what we've been calling for, kind of around four. And we have been thinking about marking up our sort of, so-called equilibrium rate. So maybe what would be consistent with a well-functioning economy is somewhere between four, four and a half. So is four and a half really that big a deal? I'm just asking.

Cris deRitis:                        Yeah. Well, I think it does have an impact on consumers. And you talked about student loan. Yeah, we haven't seen any evidence yet, but it's still early days.

Mark Zandi:                       That's true. [inaudible 00:16:47].

Cris deRitis:                        We did see hospitality. What's that?

Mark Zandi:                       I was going to say on that one in particular, you'd expect that to show up. Where would you see it? Like retail sales, consumer spending, I guess it's early. We don't know.

Cris deRitis:                        We don't know, right? It's still pretty early there. Delinquencies are still ticking up overall, so there certainly are cracks in the foundation here. Do they develop into something larger or not? That's the question. And leisure, hospitality employment slowing down here, is that suggestive of consumers pulling back on some of the Taylor Swift spending we talked about last week?

Mark Zandi:                       Right. Okay. Well, I don't know what would I want to do. I look at that report and I go, that's about as good as it gets. I mean, 200,000 average monthly job growth. Yeah, maybe downward revisions, but I'll take them. I have no problem with that. I mean, because we do ultimately need to see job growth throttle back here because we can't continue to see labor supply increase to the degree that it has been. The demographics don't support that unless some of this is immigration, and maybe we're going to get more, we are getting a lot more immigrants into the country, both legally and undocumented, and maybe we will be surprised with more labor supply. But barring that, we do need to see monthly job growth that's no more than a 100K. I mean, that's what we need to be able to support a stable unemployment rate given where I think labor force growth is headed.

                                                So that all felt pretty good. Hours worked. The moderation and wage growth, it just all feels like it's coming together. It's almost like you couldn't ask for a better script at this point. And of course, the markets took it that way. That's the other thing. If you go back a week ago or two weeks ago, I always put too much weight on the stock market. If I see red on the screen, it always makes me more nervous than it really should. And when I see green on the screen, it makes me more optimistic than it really should. But I'll have to say, lots of green this past week on screens. I mean, the stock market's like boom, we're right back to where we were. So that's the other thing that makes me feel a little bit better about how things are going. So I don't know. Hard to ask for a better report, but, okay. Anything else on the report that you want to bring up? No?

Dante DeAntonio:           The one interesting thing I saw, I mentioned being more uncomfortable. If you go back right before the pandemic, obviously we had a tight labor market. There were six times where in the year and a half before the pandemic started where we got readings under a 100K, and we even had one decline in that period. So I think it's not like it's that far in history that we have to think back to, imagine a world where there's a tight labor market and job growth is coming in pretty weak, and it's sort of what we want to see happen. I mean, so I think we never got to see how that played out, obviously, because the pandemic happened, but I think we need to see something similar happen here moving forward. 200K is, like you said, too strong to keep going here. It's not sustainable.

Mark Zandi:                       Although, I'm curious what you think about my previous point about immigration. Is that a possibility?

Dante DeAntonio:           I think it could help some, I don't know if that means we can sustain 200,000 jobs a month here, sort of perpetually, but maybe it allows us to sustain slightly higher level maybe.

Mark Zandi:                       Right. I did want to ask one factual question on the participation rate because we went from 62.8 to 62.7%, and in the grand scheme of things, I don't think that means anything of consequence, but was that a broad based decline in participation across... No? It wasn't. Was it concentrated?

Marisa DiNatale:              Were you going to say across demographic groups?

Mark Zandi:                       Yeah, well, age groups or anything.

Marisa DiNatale:              It was mostly adults. So teen participation rose, it was mostly men and it was among married men. And the decline in employment was, abstracting from participation but looking at the decline in employment, it was mostly among, I think I said, people that work part-time.

Mark Zandi:                       Part-time.

Marisa DiNatale:              Yeah. So it wasn't every group.

Mark Zandi:                       Okay. And do you view it more as noise than signal? I mean, it's just more volatility, probably?

Marisa DiNatale:              I would want to see a few more months of this before I read too much into it.

Mark Zandi:                       Read too much into it. Okay. Very good. Oh, the other labor market statistic that came out this week that I wanted to highlight, I think it came out on Wednesday, was productivity. Did you guys catch that? I mean, that's a-

Cris deRitis:                        I think Dante did. I think.

Dante DeAntonio:           I ignored it because it's pretty noisy, so I'm not going to read too much into a single data point. I'm not going to let it change my worldview. But yeah, I will say it's quite strong.

Mark Zandi:                       And so big in Q3, because we've got that big jump in GDP, the value of all the things that we produce and hours worked, employment times, hours, the total hours worked didn't increase nearly as much. Productivity jumped, of course, quarter to quarters, it can move around quite a bit, but it does feel like year over year, we're now solidly 2% plus, too early to conclude that we're enjoying a revival and underlying productivity growth, but does feel pretty good. And there are some reasons to suspect maybe we're seeing some improvement in underlying productivity gains. And I know Cris, you would kind of agree with?

Cris deRitis:                        Yes, I would agree with that, yeah.

Mark Zandi:                       Right.

Cris deRitis:                        Yeah. Although to your point, are we going to stick at 2% or more? I don't know. That's a high bar, but I don't think we're going back to 1%. Right. That seems pretty clear.

Mark Zandi:                       Is that Dante's forecast? I can't remember.

Cris deRitis:                        No. But that was the pre-pandemic trend, right?

Mark Zandi:                       It's pre-pandemic.

Cris deRitis:                        I'm not that pessimistic about that.

Mark Zandi:                       Well, in favor of Dante's point of view, if you look at the growth in productivity since the pandemic, average annual productivity growth, I think it's 1.5, 1.6% per annum. And you look at the three, four year period prior to the pandemic, it was 1.5, 1.6%. So far it's probably, I think it's premature to conclude that we're in a new world of productivity growth. But it certainly feels pretty good. It feels pretty good.

Marisa DiNatale:              Are you going to say AI?

Mark Zandi:                       Well, I was going to say AI. It can't be AI, right?

Marisa DiNatale:              Too early.

Mark Zandi:                       Too early. And in fact, Carl, my brother, because he's deep in the AI, would argue it's hurting productivity. We're all trying to figure out, we're devoting all these resources to try to figure out how to use AI. So we haven't reaped the benefits yet. We will. I'm sure we will. But we haven't reaped the benefits yet. No, I don't think it's that. My sense is it might be all those quits that occurred back a year, two or three ago. Those folks, a lot of people left their jobs, took other jobs that I think are more suited to their education and skills and interests. And you would think that would raise productivity. There's that conference board survey about people's feelings about their jobs, and people are feeling about as good about their jobs as they ever have in that survey, which has been conducted over a number of years. And that would suggest that people are, you would think that would be correlated with an improvement in productivity. If I like my job, I'm going to be more productive at it.

Marisa DiNatale:              And I wonder if the shift to remote work that's so prevalent, at least among white collar workers, it allows for better job matching. Because now employers can hire anybody, anywhere theoretically. And employees can go anywhere and they don't have to physically move. So there should be easier to find better fits in jobs now than there was prior to the pandemic. And that should lead to better productivity as well and lower frictional unemployment.

Mark Zandi:                       Yeah, that's my view. I think there's a lot of debate about that, obviously. People on the other side will take the other side of that very vociferously, like many CEOs across the country who would say that's not their experience, but that feels right to me. And I think that becomes more important over time as new businesses form and they optimize around remote work, they're not going to optimize around, I don't think, an office space, at least in general. So I think that would become more the case, but I think that that's still early too. It's hard to know one way or the other.

Marisa DiNatale:              It's a theory.

Mark Zandi:                       It's a theory. Just like my quit rate theory. Cris, any other reasons to be...

Cris deRitis:                        My theory, it's more about the workplace flexibility, especially given the very high level of women's labor force participation. I at least attribute some of that to the fact that workplaces are just more flexible and accommodating now than they were in the past.

Mark Zandi:                       Oh, interesting.

Marisa DiNatale:              You mean separate from remote work?

Cris deRitis:                        Yeah. You could still have a company that is not remote, but still allows its employees to take some time off here or there, run errands, pick up children. I think that mentality has shifted versus pre-pandemic times.

Mark Zandi:                       Any pushback there, Dante? I know you focus on the age distribution of the population and the fact that the older workers are less or constraining productivity growth of younger workers are kind of our, going back to our previous work.

Dante DeAntonio:           Yeah, I mean, I would disagree with Cris's point. I think that certainly probably has some positive impact. It's a question of how big is it? And that doesn't sustain us at a higher level of productivity growth, I don't think. Probably might give us a little bit of a boost here near term, but I still think, yeah, age composition will play a role here in the near term at least. And could there be an AI revolution? One day, maybe. But I'm still not sold that that is enough to drive significant productivity growth. Maybe it boosts us a couple tenths of a percent, but I'm not sold that it changes the game that much.

Mark Zandi:                       Okay. All right. Well, that debate's going to be ongoing. Very important one though, because if we are getting a revival with regard to productivity, and by the way, if we can continue to get good solid labor force growth, maybe because of more immigration, that helps to lift the supply side of the economy, allows the economy to grow more quickly without generating inflationary pressures. And that's all very positive. So we need to watch that very closely.

                                                Let's play the game, the statistics game. We each put forward a statistic. The rest of the group tries to figure that out through cues and deductive reasoning and clues. Best stat is one that's not so easy, we get it immediately. One that's not so hard, we never get it. And if it's apropos to the topic at hand, all the better. So tradition has it. We go to Marisa first, so therefore I'm going to go to Dante first. No, only kidding. Let's go, Marisa first.

Marisa DiNatale:              He's getting spicy on a Saturday morning. 7.2%.

Mark Zandi:                       7.2% in the jobs report?

Cris deRitis:                        Oh, U-6. Is that U-6?

Mark Zandi:                       Ding, ding, ding, ding. Wow. That is U-6. Yeah. Wow.

Marisa DiNatale:              Nice job, Cris.

Mark Zandi:                       That's impressive.

Cris deRitis:                        Thanks. Saturday morning. I'm energetic.

Marisa DiNatale:              He's ready to go.

Cris deRitis:                        Get lots of prep time. You're ready, you're good. Yep.

Marisa DiNatale:              Yes, it is the so-called U-6 unemployment rate, which is the broadest measure of labor under utilization that the BLS puts out. So when we talk about the unemployment rate, 3.9%, we're talking about what they call U-3, which is a narrower definition of unemployment or labor under utilization. So the U-6 includes all the people that are counted in the traditional unemployment rate, which is people that don't have a job, people that are available to take a job if one were offered to them, and people that have actively looked for a job in the four weeks prior to being surveyed. So it includes all those people, but it also includes people that are working part-time for economic reasons, which means that they would rather be working full-time, but they either can't find full-time work or their employer cut their hours back because there's not enough work to do.

                                                And it also includes people that are what the BLS calls marginally attached to the labor force. So these are people that are available to take a job if one were offered, but they haven't looked for a job in the prior four weeks, but they looked in the past year. So they looked sometime in the past year, but they hadn't actively looked in the past month. So it includes all of those people as a proportion of the labor force and the marginally attached. So that's 7.2%, and I picked it because it is the highest rate since early February, 2022, and it's now at or slightly above where we were prior to the pandemic. So in the months prior to the pandemic, it was 6.8, 6.97, and now we're at 7.2. It was about seven right before the pandemic. So it does suggest cooling off in the labor market. We can debate what the degree to that is or how quickly it's happening, but it does suggest that the labor market is loosening up significantly from where it has been over the past couple of years.

Mark Zandi:                       Yeah, that's consistent with all the other reduction in hours, fewer temp jobs, the employment to population ratio. I noticed that for the prime age workers that came in a little bit, still very consistent with a strong labor market, which is what we had prior to the pandemic.

Marisa DiNatale:              That's right.

Mark Zandi:                       Yeah. So in 2019, prior to the pandemic, that was a very good labor market. So the fact that U-6 is back to where it was in 2019, still very good. Still very good. Oh, that's a good one. And then Cris, boy, that was impressive. Got that right away.

Marisa DiNatale:              And I should say it's been, the U-6 has been, if you smooth it out for the volatility in the household survey, if you take a three-month moving average, it's pretty much been trending up all year since the start of 2023.

Mark Zandi:                       And that brings up the so-called Sam's Role, remember that?

Marisa DiNatale:              Yeah, I was just looking at that to see where we were.

Mark Zandi:                       Yeah. Where are we on that? She's a former fed economist. I think she has her own consulting firm now that came up with this regularity. I believe, and this is my interpretation of the Sam's Role. I don't know if it's right or wrong, but if the unemployment rate rises by a half a point or more over a period of a year compared to a year ago, you're in recession. At that point you're in recession, the economy's falling apart. Is that roughly, right?

Cris deRitis:                        I believe it's the three-month moving average.

Marisa DiNatale:              Yeah.

Cris deRitis:                        Yeah.

Mark Zandi:                       Oh, you take the three-month moving average of the data and then the year over year?

Cris deRitis:                        Yeah.

Mark Zandi:                       Okay. We've got to be up a little bit on the unemployment rate because we were 3.9, that's up a little bit, but certainly nowhere close to signaling recession.

Cris deRitis:                        I saw a 0.33.

Mark Zandi:                       A 0.33?

Cris deRitis:                        Yeah, from the low.

Mark Zandi:                       Really?

Cris deRitis:                        From the lowest point in the... Because we were 3.4 unemployment in April.

Mark Zandi:                       Right.

Cris deRitis:                        So just to give you context.

Mark Zandi:                       Oh, I see.

Cris deRitis:                        We're three at nine today. So with that moving average, 0.33.

Mark Zandi:                       Oh, I see. So from the low point.

Cris deRitis:                        Correct.

Mark Zandi:                       It's not like a year-over-year thing.

Cris deRitis:                        No, well, no, it's the lowest point within the year.

Mark Zandi:                       Oh, within the year. Oh, okay. That makes sense.

Cris deRitis:                        Within the last 12 months, I should say.

Mark Zandi:                       Okay. Okay. Boy, that sounds high though. Point three three. Okay.

Cris deRitis:                        Because the low, it was at three five.

Marisa DiNatale:              It was 3.5.

Cris deRitis:                        There's a three-month average, and now it's 3.83 over the last three months.

Marisa DiNatale:              Yeah. So we're not...

Mark Zandi:                       Okay.

Cris deRitis:                        Not there yet. Trending though, right?

Marisa DiNatale:              Yeah. But we're moving out of that year, right? So you have to go back to, when was it three point? Well, I guess it was last 3.5 in April, and actually it was 3.53 in May. 1, 2, 3, 4. So that's five months, so yeah.

Cris deRitis:                        Another couple ticks here, we get to four one.

Mark Zandi:                       Yeah, just one more, this time is different.

Cris deRitis:                        There you go.

Mark Zandi:                       This period is blown away all, everything. All the indicators are blown away. Leading indicators of recession are blown away.

Cris deRitis:                        Okay. We'll have to write a new textbook.

Mark Zandi:                       Yeah.

Cris deRitis:                        There you go.

Mark Zandi:                       Indeed.

Marisa DiNatale:              Well, she herself recently discounted it. I don't know if you saw that.

Mark Zandi:                       No, I didn't.

Marisa DiNatale:              Article in The Journal or the New York Times or something. She didn't discount it, but she said she wouldn't be surprised if this time was different.

Mark Zandi:                       Oh, is that right?

Marisa DiNatale:              Yeah.

Cris deRitis:                        [inaudible 00:35:05].

Mark Zandi:                       We'll have to get her back on the podcast.

Marisa DiNatale:              Yes. Yeah, definitely.

Mark Zandi:                       Yeah.

Cris deRitis:                        It reminds me of Campbell Harvey with the yield curve. He walked away, but now he's back. Now he's back in the recession camp.

Mark Zandi:                       Oh, he is?

Marisa DiNatale:              Is he?

Cris deRitis:                        Yeah. Well, he's saying that the Fed is making a mistake here that they're misreading the inflation figures. They should be cutting or they're going to keep the rates too high and that's going to push us in.

Mark Zandi:                       Oh, okay. So Campbell Harvey's the Duke Finance Professor who we had on as well, who popularized the shape of the yield curve as a predictor recess. So if the curve inverted short rates right above long, that historically is [inaudible 00:35:48] recessions, and when he was on our podcast, he said, this time is different. And now you're saying he-

Cris deRitis:                        Kind of shifting back.

Mark Zandi:                       Oh, okay. All right. Okay. Interesting. Okay, Dante, you're up.

Dante DeAntonio:           Let's go with, which one should I use? Let's go with 1%.

Cris deRitis:                        Which one should I use? That's a clue.

Mark Zandi:                       You had more than one stat?

Dante DeAntonio:           Well, I had, but we covered a few of them, so I was trying to figure out which one we haven't talked about yet.

Marisa DiNatale:              Oh, it's from the ECI.

Dante DeAntonio:           It's not the ECI. No. I thought about that, but yeah, it's not the ECI, 1%.

Mark Zandi:                       It's not the jobs report?

Dante DeAntonio:           It's not from the jobs report. No, but it is labor market related.

Mark Zandi:                       JOLTS? The Job Openings and Labor Turnover Survey?

Dante DeAntonio:           It is JOLTS, yeah.

Mark Zandi:                       What was 1% in the-

Cris deRitis:                        Layoff?

Mark Zandi:                       Is it related to layoffs?

Dante DeAntonio:           It's the layoff rate. Yeah.

Mark Zandi:                       Oh, it is layoff rate. 1%. Okay.

Dante DeAntonio:           It's back down to one. It was 1.1% for a little while. It's back down to 1%. It's been basically flat for the last year, and I think we've talked about it before, but it's, I think, how does the labor market really deteriorate if layoffs are just flat? UI claims are basically flat, layoff rate from JOLTS is basically flat. We haven't seen any sort of sustained uptick in layoffs. And so if we get some weakness in hiring, I think that's okay. That'll help ease job growth down. But if we don't see layoffs pick up, then it's hard to see a world where the labor market sort of falls apart.

Mark Zandi:                       Yeah, totally.

Cris deRitis:                        Although by the time layoffs do pick up, aren't you already toast?

Dante DeAntonio:           But claims are at 210,000, 215,000, you've got some room for them to tick up and not be... If we were sitting at 250 or 260,000 weekly claims, I might be a little more concerned that you're sort of on the precipice and anything above that might signal a problem, but I feel like we're so low that even if you, we have some room for a little bit more weakness to come through before I would really start to get worried.

Cris deRitis:                        I guess.

Mark Zandi:                       No, go ahead, Cris.

Cris deRitis:                        I was going to say recessions typically are, there's some shock event and then it jumps up, right? So I agree that, I think this is what we've been claiming, that it's hard to see a slow movement into recession. We would tick up and eventually get into the 300,000 layoff rate. I mean, it's possible, but there has to be some trigger.

Dante DeAntonio:           Without something else happening, you mean, right?

Cris deRitis:                        Right.

Mark Zandi:                       The rule of thumb I use is 250K in UI claims. When I think about layoffs in recession, I think about it has on a weekly basis over 250,000 or close to two before alarm bells go off in my mind. Is that reasonable, Dante?

Dante DeAntonio:           Yeah, I think so. And I think that's even probably at the low end.

Mark Zandi:                       Low end.

Dante DeAntonio:           Because we were basically there for a while over the summer. We were at 240, 250, even above that a few times.

Mark Zandi:                       Oh, that's a good point.

Dante DeAntonio:           And things have come back down and sort of settled back down.

Mark Zandi:                       The only caveat on the UI claims is the seasonal adjustment I think is a real problem. It's hard to interpret.

Dante DeAntonio:           Especially post pandemic, yeah, it's been even noisier than usual. And yeah, it's a tough thing to do on a weekly basis.

Mark Zandi:                       But I take a lot of solace to layoffs of being so low. It is just hard to imagine consumers pulling back in any significant way unless there's a lot of layoff. People are really nervous about their jobs and there's a lot of layoffs, and unless consumers pull back, hard to see recession. Shocks, obviously if a shock comes along, who knows? But barring something that unknown, unknown doesn't feel like that's happening here. Okay. That was a good one. Cris, you want to go next?

Cris deRitis:                        Sure. 6.6%

Mark Zandi:                       In the jobs numbers?

Cris deRitis:                        No.

Mark Zandi:                       Labor market related?

Cris deRitis:                        No.

Mark Zandi:                       Housing related?

Cris deRitis:                        Yes.

Mark Zandi:                       Okay. There's a bunch of housing. Oh, I know what it is.

Cris deRitis:                        Of course you do.

Mark Zandi:                       Rental vacancy rate.

Cris deRitis:                        Ding, ding, ding. Very good.

Mark Zandi:                       There you go. I can't believe I beat Maris on that one. That hasn't happened in a while.

Marisa DiNatale:              You are fast. It is seven o'clock in the morning on a Saturday for me, so I'll just say.

Cris deRitis:                        You got to handicap it.

Mark Zandi:                       Look how nice it looks. She's sunny.

Marisa DiNatale:              The sun just came up.

Mark Zandi:                       Oh, it's beautiful there. It looks great.

Cris deRitis:                        I was thinking your background was actually one of those Zoom backgrounds, like the staged perfect.

Marisa DiNatale:              Oh, no.

Cris deRitis:                        This is your home.

Marisa DiNatale:              This is it.

Cris deRitis:                        It's gorgeous.

Marisa DiNatale:              This is my reality.

Mark Zandi:                       Well, this is a renovated home, right? You got your home renovated or something, didn't you?

Marisa DiNatale:              Well, the renovation I did was exterior this one, but yes, this was renovated since I bought it, yeah.

Mark Zandi:                       Oh, okay. Very nice.

Marisa DiNatale:              Just renovating left and right. Yeah, like everyone else apparently.

Cris deRitis:                        Finished now?

Marisa DiNatale:              What'd you say, Cris?

Cris deRitis:                        You're finished now? Renovations?

Marisa DiNatale:              Oh yeah. Yeah.

Cris deRitis:                        Okay. I know it took a while.

Marisa DiNatale:              There's nothing else to renovate.

Mark Zandi:                       Did you get solar panels?

Marisa DiNatale:              No, I didn't.

Mark Zandi:                       No, solar paneling.

Cris deRitis:                        Electric car plug?

Marisa DiNatale:              I did, yeah, ready for that.

Mark Zandi:                       Very good.

Marisa DiNatale:              All right, so.

Cris deRitis:                        Yeah, rental vacancy, 6.6%. Rental vacancy rate is the highest since the pandemic started. So if you go back, you have to go back to Q1 2020. So there is more supply of housing available on the rental side that is putting downward pressure on rents. And that, as we've mentioned before, will eventually feed through into lower CPI inflation. So should take some of the pressure off the Fed having to raise rates, certainly. So we're moving in the right direction. So this is my optimism here that at least the rental market, housing market seems to be adjusting. It's still a lot of pressure. Affordability is a real issue of course for home buyers, but on the rental side, we should be getting some more relief here.

Mark Zandi:                       Yeah, I mean it is going to go higher, isn't it? The rental vacancy rate?

Cris deRitis:                        I would expect it to because there's a lot of supply still under construction, a lot of multifamily apartments still under construction, close to a million.

Mark Zandi:                       Right. Which is a record number of units under, and that goes back to the pandemic and all the supply chain issues and labor market issues.

Cris deRitis:                        That's right.

Mark Zandi:                       And if you look at market rents, there's different sources for this. They're flat to down. I mean, increasingly down, aren't they? You sent me an email from apartment listings, I believe.

Cris deRitis:                        Yeah.

Mark Zandi:                       Yeah. Which showing rent on a year-over-year basis, down over 1%. I mean, that's not a lot, but it has a negative sign attached to it.

Cris deRitis:                        That's right. That's right. Now you want a couple caveats there. Of course, there are geographic differences. Some markets are still very tight, others are looser. And then in particular, at the high end versus the lower end of the market, we're getting more significant rent reductions at the higher end. Then there's still lots of competition, of course, for more affordable apartment rent. So we're not seeing quite the declines that you're seeing, but overall things are moving in that downward direction.

Mark Zandi:                       And you would expect if vacancy is going to continue to move higher here, we could see even more negative numbers on the rent side, right?

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

Mark Zandi:                       And that would put even more downward pressure under the cost of housing services and measured inflation.

Cris deRitis:                        Correct. Right.

Mark Zandi:                       Yeah.

Cris deRitis:                        That's a question of time though, right? These things also, you know, overnight. These leases are longer. So that's why our forecast in part has that gradual reduction back to the Fed's 2% target.

Mark Zandi:                       But certainly gives you some meaningful confidence that inflation is going to come back to the target. Because at this point, the biggest difference between where we are in inflation and the target is the cost of housing services. There's other things going on, but that far and away the biggest gap, the thing that explains the difference between where we are and where we need to be, and it feels like that's going to resolve itself over the course of the next year or so.

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

Mark Zandi:                       Okay.

Cris deRitis:                        This is actually Campbell Harvey's point. He points to housing. He says, look, housing is a third of the CPI index. You look at these market-based measures, and they're suggesting we're at the Fed's target. If you were to exclude housing, inflation's at the Fed's target already, maybe even below. So that's his rationale for why the Fed may be actually making a mistake by keeping rates too high for too long.

Mark Zandi:                       Yeah, it's interesting. I can't remember who I was doing this with. Maybe it was one of our other colleagues. We were looking at inflation across metropolitan. So the Bureau of Labor Statistics constructs the consumer price index and does that for a bunch of MSAs, metropolitan statistical areas. And you can see since the pandemic hit, we saw this large jump in inflation in a number of metropolitan areas, really across all areas, but in some areas a lot more than in other areas. Even though unemployment and other measures of labor market slack really didn't change. So this was the shift in the, so-called Phillips Curve, the relationship between labor market slack, unemployment and inflation. And if you look at the areas where you saw the biggest jump, shift up in the Phillips curve, it was in those metropolitan areas that were all juiced. The housing market was all juiced, and rents were rising very rapidly in the south and the west.

                                                So that would suggest that as these markets cool off, and they are now definitely cooling off, the biggest rent declines were in areas where we saw the biggest rent increases back when people, in the wake of the pandemic, you're going to see that inflation come right back in. And that's what we're observing. So a lot of what we've been observing with regard to inflation is related to the cost of housing services. Okay, well my problem, and that's my problem. It's my stat. Everyone's taking my numbers. I did it right. It's like I go, oh geez, all right, I'm going to make it a little hard, I think. 8.5 million. 8.5 million. And another way of measuring the same thing, sort of 5%, so 8.5 million and 5%. Any ideas?

Marisa DiNatale:              Is it from the jobs report?

Mark Zandi:                       It is. We did talk about it. That's a big clue.

Marisa DiNatale:              Is it multiple job holders?

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

Mark Zandi:                       Oh my gosh. Holy macaroni. I thought that was going to be impossible to get. Yeah. Wow. Yeah, exactly. 8.5 million. Cris, you brought this up?

Cris deRitis:                        I did.

Mark Zandi:                       Did you actually say 8.5 million? You might have. You might've said 8.5 mil. I can't remember.

Cris deRitis:                        I think I said 800, 000 about the increase.

Mark Zandi:                       Oh, the increase, yeah.

Cris deRitis:                        I didn't say the level.

Mark Zandi:                       Yeah, it is up a lot. I will point out though, the 5% is multiple job holders as a percent of total employed, that 5% is almost precisely what it was before the pandemic. So it has recovered. The number of multiple job holders has picked up and recovered, and we did see a big jump, particularly last month. We'll see how much of that's noise and how much of that is reality. But nonetheless, it's still as a percent of the size of the labor market, it's just back to where we were.

                                                Like everything else we're back to 2019, consistent with what happened back in 2019. Okay. That was good. The problem is we've been doing this now for, the podcast for two and a half years. We're getting to know each other pretty well. It's getting hard to come up with a really good statistic, but that was great. Maybe we're going to keep this a relatively short podcast too because it's Saturday morning, 7:00 AM West Coast time, and I'm in London and I want to do some other stuff. So we got to get going here, but let's take a few listener questions, two or three listener questions if we can. I've got one, but maybe Marisa, you can go first. And are there any good questions that folks have asked?

Marisa DiNatale:              Yeah, let's take a couple about the housing market. So there's a couple questions related to how big of a factor have institutional buyers been, people that are just going in to buy and flip? Is that a big factor? And what happens if, as we say, so multifamily prices, we're expecting to come down, rents come down. Does that have a chilling effect on the single family market as potential buyers would move to rent and potentially slow prices on the single family market? How does all of those price interactions happen?

Mark Zandi:                       Okay, so those are two questions, I guess. One is related to housing. Cris, I'll turn to you on investor because we actually do calculate the shares, home sales that are two investors of different types. What's the role of the investor in the current market?

Cris deRitis:                        So the investor volume or share had risen over the course of the pandemic. You did have investors coming in more recently. I believe though it's backing off the activity. I think higher rates are certainly a deterrent as well. And house prices remain high. Rents are coming in, so not as attractive perhaps for an institutional investor as it was in the past. What's unique, you mentioned flips. This time around versus say the 2008 period, flipping is not the major activity that's going on.

Mark Zandi:                       Explain a flip. What's a flip?

Cris deRitis:                        Oh, a flip is a purchase and with a subsequent sale of a home within, by our definition, a 12-month period. So it's an investor coming in, purchasing a home, maybe rehabbing it, improving it.

Marisa DiNatale:              Maybe not.

Cris deRitis:                        Maybe not, right? In some very hot markets and then turning around and selling it rather than occupying the home or renting it out. So that activity is really diminished compared to what we saw last time around. I think part of the reason is just the expense. They're building costs. We had these supply chain issue, so it wasn't particularly attractive to purchase the home and put a lot of investment into it and turnaround because of the cost of building materials. Also, labor, especially in the height of the pandemic as well, was difficult to get. So the institutional investors that have been entering the market have really been focused on a more longer term portfolio of rental properties.

                                                So single family rentals certainly grew in certain markets, particularly in the south. They contribute certainly to the ecosystem here. And there's a lot of discussion and debate about whether or not they are actually driving out first time home buyers. By and large, I don't see that as a very significant factor. Certainly they create some competition, but really it's the lack of supply that has been driving up the prices more than this additional set of buyers out there, speaking nationally or globally. Certain markets, clearly you have a higher percentage of these institutional buyers and you could make another argument, but overall, I don't see them as being a root cause of the higher home price appreciation we've experienced. I don't know. Is it Mark, if you agree?

Mark Zandi:                       Yeah, no, it all makes sense. I mean, what I found interesting because we get all the transactions, housing transactions, transaction by transaction in the country, and we can identify who's buying the home and if they have a corporate identifier like an S corp or C corp, we consider them to be investors and the actual volume of sales transactions by investors has fallen like all other transactions in the sense [inaudible 00:53:16]. But as a share of total transactions, I think it's maybe down a little bit, but it's still pretty elevated by historical standards, I think. But the actual volume is way, way down the entire market. The entire market is way off. But I agree with what you said. I don't think it's played that, certainly not nationwide in certain markets, as you say, but not nationwide in that big a deal.

                                                The other question was around what's going on in the multifamily market and rents and what that might mean for the single family market and house prices. Cris, you want to weigh in on that as well?

Cris deRitis:                        Sure. The housing market is integrated, so it's what happens in multifamily, it does have an impact on single family and vice versa. So to the extent there are more multifamily properties coming online and that's going to depress rents, they could put some downward pressure on the single family market as well. But really there's still ample competition in the affordable segment of the market. So there is some distinction, I should say. There is distinction between the multifamily and the single family, when we get to those price tiers, where the multifamily really has most impact is on that more affordable single family property. So there might be some substitution effect there, but still, there's so much demand for single family, more affordable homes out there that I don't expect even with these modest rent declines that that's going to really resolve or cause those prices to fall substantially anytime soon, more around the margins than anything.

Mark Zandi:                       The only, I guess caveat would be that the weakness in house prices, really on the high end of the market and these apartment, the million units that are coming to completion are mostly high end, the big multifamily towers in big urban areas. So it could be the case that that supply in the multifamily side and the weak rents could put some additional downward pressure on prices in the high end of the single family market. But I don't think, you're right, that's probably no more than the top 20% or 25% of the market. The rest of the market very undersupplied. The rental that's coming in isn't going to be competition for that [inaudible 00:55:49], I don't think. It might be a little bit over time. You get things pushed down, but I think it's on the margin. I don't think it's a catalyst for big declines in housing values, single family housing value.

Cris deRitis:                        Yeah, I'd say it helps prevent prices from rising or accelerating even further, because if those markets really get out of the equilibrium, if the rents are so much cheaper than the single family home, you will see people switching. But to your point, I don't know that it really puts significant downward pressure on prices. Maybe just keeps them from rising appreciably or accelerating.

Mark Zandi:                       I've got a listener question too, housing related, and I'll throw that out there. And it's interesting. The question is, because people are not buying and selling homes, we've got this lock-in effect, and home sales are rock bottom. I think we're, what are we? Total home sales of 5 million or something annualized, something like that. Typically, it's like 7 million, I believe. Just get for context, I mean sales are about as low as they've been. You only see it in the teeth of the pandemic during the shutdown or in the teeth of the financial crisis. I mean, really that's the one part of the economy that's taking it on the chin with the higher rates, the higher mortgage rates, really weak home sales.

                                                And the question is, is that lifting consumer demand, consumer spending? Because if people aren't buying homes, maybe they're not saving for the down payment and they're using that extra cash to help them spend on other things. So could the strong consumer spending be in part related to the fact that they're just not spending on housing? Interesting question. I've got a view, but I don't know if others have a view on that.

Cris deRitis:                        It's not just new home buyers too, it's people who are not upgrading a home because they're locked into a current home and so they're not putting more of their budget towards a bigger mortgage because they don't want to take on higher rates.

Mark Zandi:                       Yeah, that's the question. Yeah. Yeah. Of that 5 million, I'm making up 5 million. I think that's the right number. I think 4 million, is that right, Cris? I think 4 million, low over four is existing and the rest of it is new. Something like that. New home sales.

Cris deRitis:                        And that's even low, I think it's under 5 million at this point.

Mark Zandi:                       It's probably under 5 million at this point.

Cris deRitis:                        Or eight or something like that.

Mark Zandi:                       That doesn't resonate with me. No, I mean, generally you get a lot of spending with home sales. You go buy a home and then you buy stuff. A lot of people buy a car for their [inaudible 00:58:35].

Marisa DiNatale:              Furniture.

Mark Zandi:                       Furniture. They do home improvement. Like you did Marisa, that kind of thing. So the fact that home sales are down, I think probably has been a constraint on spending. And I don't know that people are saving any less. I don't think they're giving up on home ownership. I think they're probably, they're having a hard time saving because they're spending more on rent, but I don't think they're rating their down payment fund to increase their spending. That wouldn't be my sense of things.

Marisa DiNatale:              In the GDP report, housing related expenditure was one of the strongest spending service categories that we saw in Q3.

Mark Zandi:                       Oh, that's right.

Marisa DiNatale:              Yeah, so it was like homeowner's insurance and other housing related insurance, renter's insurance, rents are, yes, they're coming down now, but they've been really high. So people, if they're not spending on a house, a down payment, maybe they're paying a lot in rent. More in rent than they'd like to spend, which is also harming the ability to save for a down payment.

Mark Zandi:                       Yeah. Okay. Marisa, any other questions non-housing related?

Marisa DiNatale:              Yeah, there's some labor market questions, which would be apropos. One question was actually about the U-6 and it was asking, why don't we focus more on that? Why do we focus on the U-3, the traditional unemployment rate? Why don't we focus on this broader measure? Why does the unemployment rate, why is that the thing? Why is that the statistic instead of a broader measure?

Mark Zandi:                       That's an interesting question.

Marisa DiNatale:              I don't know the answer. Maybe Dante, you do, but I suspect this is sort of like a history kind of question where maybe, the U-6, the current population survey was redesigned in 1994, and it could be that this was added after the traditional metric of unemployment was added, and it's just sort of historically, the traditional measure of unemployment has been there for a long time and then these sort of other metrics were added later. Do you know if that's true? I'm making that up.

Dante DeAntonio:           That sounds right to me, it feels like legacy. Because unemployment rate's been around since the beginning of time, go back to the twenties. Right?

Marisa DiNatale:              Right.

Mark Zandi:                       Even before that, I think, we measured the U-3. I'm sure [inaudible 01:01:15] changes.

Marisa DiNatale:              There are measurements of unemployment back to the twenties, but they weren't actually collecting the data back then. They sort of extrapolated it back.

Mark Zandi:                       Okay. But I would guess-

Marisa DiNatale:              I think it was the forties that we actually started collecting data.

Dante DeAntonio:           I suspect it's just legacy because, and we have more historical data. The other thing is U-6 includes things that I think are pretty hard, maybe harder to measure, more volatile month to month, I'm making this totally up. But I could be right.

Marisa DiNatale:              It is more volatile month to month. If you look at the data, it is.

Mark Zandi:                       Because it's more volatile, you want to use a series, you want to use something that, because you don't want, it's signal. I keep saying signal and noise. You want something that's more signal than noise, and if it has month to month, so it's more volatile, it's just less valuable. Not that we shouldn't be looking at it, and we do, very carefully because it is a measure of labor market slack. But Dante, I don't know. Do you have any other theories?

Dante DeAntonio:           No, I mean, I think part of it is just, yeah, I mean, in times of stress we tend to look at it and how it relates to U-3. In times when things are sort of now, there just isn't a huge amount of movement. The gap between the two tends to stay pretty stable when the economy's doing pretty well. So there's not a whole lot of reason to focus on it month to month at a time like right now. But I think if things start to deteriorate or if you're coming out of a recession, obviously that gap tends to get a lot more attention, a lot more focus than it does now.

Mark Zandi:                       Okay. Let me ask you this. Each of you, if you could pick only one measure of labor market slack that gives you the best sense of what's going on in the labor market and what it means, what would that be? Okay. I'll give you a second to think about that. Dante, you first.

Dante DeAntonio:           I mean, I feel like it's probably prime age employment population ratio is the...

Mark Zandi:                       Yeah, okay. That's exactly what I would've said. Because we've done so much work showing how closely that relates to wage growth. Yeah. Okay.

Dante DeAntonio:           I mean, it gets rid of the noise. I mean, the goal is to get rid of noise if you only have one measure.

Mark Zandi:                       Employment to population for prime age workers, 25 to 54 years old. Okay. And that's showing the market is strong, but not overly tight, consistent with 2019 at this point.

Dante DeAntonio:           Yeah.

Mark Zandi:                       Okay. Marissa, what would you pick?

Marisa DiNatale:              Well, I guess if I wanted to know what was happening very quickly, I'd look at UI claims. I think the problem with all economic statistics is generally that they're lagged. So we're often finding things out that happened 1, 2, 3 months ago. The nice thing about UI claims is that what happened with layoffs last week, so you can easily identify quickly moving stress. And to Cris's point earlier, it tends to happen pretty quickly. So you tend to go from a low level to a high level and start moving up really fast. So if I wanted the pulse of what's going on right now, I think I'd look at UI claims.

Mark Zandi:                       Okay. That's another really good one. Cris, do you have one? What would you expect?

Cris deRitis:                        I would've selected the [EBOP 01:04:34], EBOP would been, and certainly UI claims for more high frequency.

Mark Zandi:                       I've noticed no one's picking vacancy, the job openings.

Marisa DiNatale:              It's too lagged.

Mark Zandi:                       It's kind of like the flavored du jour. I mean, if you talk to other labor market economists, they look at the vacancy, number of job openings relative to the number of unemployed, and that's what they've been using. But no, I mean, I personally think that isn't a very good measure for lots of, I don't think we can measure job openings or vacancies very well.

Cris deRitis:                        If we could measure it properly. I think it would be.

Mark Zandi:                       If you could measure it, in theory, it makes sense. Right?

Cris deRitis:                        So is the U-3 versus U-6 kind of analogous to using core inflation versus headline inflation?

Mark Zandi:                       How so?

Cris deRitis:                        Yeah, you're focusing on the less volatile core, [inaudible 01:05:29] you want to focus on the less volatile labor market.

Mark Zandi:                       Yeah, that makes sense. Yeah, that's a good way of thinking about it. Yep, for sure.

Cris deRitis:                        Marisa's not convinced.

Marisa DiNatale:              Because I think food and energy prices are really important to consumer spending and they're actually a big chunk of what people spend their money on. So I do think it's useful to look at overall inflation to gauge how people might be thinking about spending in the very near term. I mean, yes, longer run, taking out that volatility is important for monetary policy and what to do about it. But I do think if you're looking at the financial health and spending patterns of a household, energy prices and food prices matter a lot.

Mark Zandi:                       Well, I think maybe this is the right analogy. So we look at core inflation because it gives you the best forecast of future inflation, because it abstracts from things that are jumping up in the world. And so that's why central banks, Fed, looks at core because they're trying to forecast inflation. Everything you just said, Marisa, totally right.

Cris deRitis:                        Totally right.

Mark Zandi:                       What they're trying to do is forecast, and the core here, probably the same thing. If you're trying to forecast where we're going in terms of labor market conditions, U-3 probably is just easier to use than the U-6 because it's less volatile. But I'm stretching, I think. But I think that's a good explanation as to why we, another good explanation why we focus on U-3 as opposed to U-6.

Marisa DiNatale:              Can I ask another listener question that I think is really good?

Mark Zandi:                       Yeah. Fire away.

Marisa DiNatale:              If you could have any statistic that doesn't exist today, what would it be? What do you think would be really helpful to have that we don't have? And that could be either from a government collection or it could be some sort of big data residual from private sector data.

Mark Zandi:                       Holy cow. That is a great, great question. I've never even thought of that.

Marisa DiNatale:              Yeah, this might require some thought.

Mark Zandi:                       Maybe we take that up next week. I have to think about that. In some degree, I'm like, my mind is overloaded because there's so many things. But on the other hand, which one would I think, I don't know. Does anyone have a view on that? We could take that up next week. We'll give it some thought because that's a really interesting question. Cris, do you have anything you want to bring up?

Cris deRitis:                        My head is spinning too. I mean, it depends how far you could go into the science fiction realm and say, well, if I could understand everybody's individual preferences and risk tolerance.

Mark Zandi:                       Yeah. I don't think that's what they meant though.

Marisa DiNatale:              Yeah, I don't...

Cris deRitis:                        Like really study. But outside of that, I think my immediate answer-

Mark Zandi:                       If I could know what everyone was thinking in the world, and then I could add it all up. I'd really like that.

Cris deRitis:                        Or some version of that.

Mark Zandi:                       Sorry?

Cris deRitis:                        From a credit perspective, if we really, income's always been the holy grail, if we could actually just measure people's income on a real time basis more accurately than we do currently, that would give us a lot of insight.

Mark Zandi:                       I don't know. I've got to give that some thought. I've got to give that some thought. Okay. I think we're going to call this a podcast. This is a Saturday. I think Alana is saying, guys, let's cut this.

Cris deRitis:                        Wrap it up. Wrap it up.

Marisa DiNatale:              She's about to play the outro music.

Mark Zandi:                       So I think with that, unless anyone's got anything else they want to say? Going, going, gone. No? Okay. We're going to call this a podcast. Thanks everyone. Talk to you next week. Take care now.