INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And today is Jobs Friday, and I'm joined by three of my colleagues. Obviously my two co-hosts Ryan Sweet director of Realtime Economics and Cris deRitis, deputy chief economist, and a regular here on job Friday, that is Marisa, Marisa DiNatale. It's good to see you all. How's everyone doing? Okay.

Cris deRitis:                       Hanging in there.

Mark Zandi:                      Hanging in there. Yeah. A lot going on in the world. Russia, Ukraine obviously is still top of mind. Just very disconcerting to watch what's going on there. Has all kinds of economic implications and we will come back to that obviously, because that is key to the economic outlook. But I do think it's important to start with Jobs Friday and talk about the job numbers. They were really good, I'd have to say, curious what other folks think. And then after we talk jobs, Ukraine, Russia we'll go play our statistics game. I think that's appropriate given all the statistics that came out this week, a lot to talk about there. And we'll talk about broader labor market issues. A lot of interesting dynamics in the labor market that would be good to flesh out. Sound like a game plan guys? Sound good?

Ryan Sweet:                      Sounds good.

Mark Zandi:                      Sounds good. Okay. Good. All right. The job numbers for the month of February came out this morning, Friday, March 4th. Who wants to give us the lay of the land? Marisa, do you want to do that? Would you like to go first?

Marisa DiNatale:              Sure.

Mark Zandi:                      Okay, go ahead.

Marisa DiNatale:              I haven't had a ton of time to look at it, but you guys can jump in if I miss anything critical.

Mark Zandi:                      Aren't you up at... You're on the west coast, so... That's right so you're up at 4:30, but it's still... I've already run five miles and swam in the ocean before you get going, okay. All right.

Marisa DiNatale:              Yeah. I was up early. Yes. You and I were just on an hour and a half call that started at my 5:30.

Mark Zandi:                      That's true.

Marisa DiNatale:              So I'm prefacing this whole podcast performance on that, I'll just say.

Mark Zandi:                      Okay. Very good. Yeah. That's fair. That's reasonable. Very reasonable. All right, fire away.

Marisa DiNatale:              So the jobs report came out this morning. Non-farm payrolls rose 678,000 in February which was, Ryan correct me if I'm wrong, well above consensus expectations, I believe.

Ryan Sweet:                      That's correct. Roughly 200,000.

Marisa DiNatale:              Okay. And far more than what my guess was.

Mark Zandi:                      You don't guess though, Marisa. Guess has got to be the wrong word. Your estimate.

Marisa DiNatale:              It's certainly a guess.

Ryan Sweet:                      I would say since the pandemic guessing is an appropriate word. No model is really doing well for itself.

Mark Zandi:                      That's a reasonable point. Okay.

Marisa DiNatale:              Yeah. So it was a really strong report. And the revisions, there were upward revisions to both January's number and December's number that added over 90,000 jobs combined, another 92,000 combined in those months. So very strong report. The unemployment rate, which is the other headline out of this report fell two tenths of a percentage point to 3.8%. So this is a new post pandemic low on the unemployment rate. It was what 3.4 going into the pandemic, so it's still not back down to that, but it's back down to where it was in early 2019. And just scouring through the report, it is very strong. Very big in industrial gains across most industries. It was really only, I think the public sector didn't add jobs and maybe information, but everything else did. And one thing I was noting was the diffusion index of employment. The one month diffusion index, which measures the share of industries, very detailed industries that gain jobs minus the share that are losing jobs. That was the highest one month reading that we've seen since the late 1990s expansion. So over...

Mark Zandi:                      By the way did you see Ryan's face? I think that was statistic Ryan.

Marisa DiNatale:              Yeah. I was wondering if maybe that was...

Ryan Sweet:                      That was my bad... When it comes to Jobs Friday, I have like tiers of numbers, but that one was definitely on my list because that jumped out to me.

Mark Zandi:                      So what was the diffusion index, the one month diffusion index? What was it? What percent?

Marisa DiNatale:              What was it, Ryan? Do you know?

Ryan Sweet:                      76.6.

Marisa DiNatale:              76.6. So yeah, over three quarters of industries had a job gain on that. The other portion of the report, the household data was really strong. So I mentioned the unemployment rate fell two tenths of a percentage point to 3.8%, a couple other things there. The participation rate rose. The participation rate for all workers rose a 10th of a percentage point. The labor force rose 304,000 over the month. And if you look across unemployment rates for all demographic groups, they were down across the board. So men, women, black, white, Asian, Hispanic, all fell. And also with educational attainment, the only exception there is people with some college or associate's degrees, the unemployment rate for them ticked up two tens of a percent, but for every other educational group, it was down. So really good overall report.

Mark Zandi:                      Yeah, really good report. Ryan, any holes to fill in there. And I should ask, any blemishes, anything that was not good in the report?

Ryan Sweet:                      I think the one thing people would say is a blemish is average hour earnings, which caveat, it's not the greatest measure of wages.

Mark Zandi:                      Not the greatest.

Ryan Sweet:                      I don't even pay attention to it.

Mark Zandi:                      It's close to worthless actually, but okay, fair enough.

Ryan Sweet:                      You said it. I didn't. I always view it as worthless but people are going to talk about it and that average hour earnings were basically unchanged between January and February. There's a couple factors behind that are technical. So the payroll reference week, which includes the week of the 12th, didn't include the 15th. And when that happens, historically average hourly earnings are weak. Also the composition of job growth, very heavy in restaurants, leisure and hospitality. Those are typically lower paying industries that biases wage growth lower. And then also cost of living adjustments were a lot larger in January and that set us up for a strong January, weak February. So year over year, average hour earnings are up 5.1%.

Mark Zandi:                      Still very strong, no matter how you...

Ryan Sweet:                      It's a blemish that people are going to talk about, but it's something that you and I are not going to lose sleepover.

Mark Zandi:                      Could it also be the case that we saw these minimum wage increases in January?

Ryan Sweet:                      January, yes.

Mark Zandi:                      Yeah. So the seasonals might.... It could really juice things up in already so you might not get as much in February just because the seasonals obviously don't reflect that.

Ryan Sweet:                      Exactly.

Mark Zandi:                      Okay. I think a lot of states and municipalities across the country raised minimum wages in January, I think.

Ryan Sweet:                      We did.

Mark Zandi:                      They did. Yeah. Okay. Anything else in the report?

Ryan Sweet:                      I don't want to throw out numbers, but we didn't talk about my favorite number,

Mark Zandi:                      Which is?

Ryan Sweet:                      Do you see it? Prime E-Pop.

Mark Zandi:                      Oh yeah. Right. Prime age employment to population ratio, folks that are 25 to 54. That's your best barometer of where we are relative to full employment. So what did that do?

Ryan Sweet:                      It went from 79.1 to 79.5.

Mark Zandi:                      Oh that's a big increase.

Ryan Sweet:                      That's a impressive increase. We got a ways to go. We can still get...

Marisa DiNatale:              You want to get to 80, right?

Ryan Sweet:                      Starting think we got to get a little bit above 80. We can get above 80.

Mark Zandi:                      Your rule of thumb had been 80% is consistent with a full employment economy. If you go back in previous business cycles, every time that's happened, it feels consistent with the full employment economy. But there's some evidence that, the last business cycle, we were over 80 and we didn't quite get the wage pressures you normally typically see in a full employment economy. So it could be a little higher than that. But no matter how you cut it, we're in hailing distance of full employment now.

Ryan Sweet:                      Yes.

Mark Zandi:                      Okay, very good. Chris, anything you want to call out in the report? Good or bad?

Cris deRitis:                       I agree. Generally positive, really hard to find something that's negative. One small thing they will watch is the motor vehicles. We did see some job losses in motor vehicle construction or manufacturing. So that might be something that as we talk about Ukraine, Russia and supply chain effects, that might feed in. And then just looking at the demographics, agree with Marisa, lots of positive. You did see a large improvement in unemployment for folks with less than high school. But if you look at men versus women, women actually took a step back in terms of labor force participation and just the labor force size relative to men. So certainly that continues to underline this recession that has fallen harder on women versus men.

Mark Zandi:                      I thought that the gap between men and women had, in terms of the performance in the pandemic, had largely closed. Clearly got women got nailed because they worked in healthcare, government, education where women participation is high relative to male participation. But that had been coming back. No, do I have that wrong? They're still lagging.

Cris deRitis:                       So looking at labor force, men are with the general report... I'm sorry, with the February report, we are now up 600,000 in terms of the labor force for men. And then for women, it's still down about 1.2 million.

Mark Zandi:                      Oh okay. So that's still a big difference

Cris deRitis:                       That's a big gap.

Mark Zandi:                      I got that wrong. Yeah. That's a big gap. Okay. I didn't realize that. Okay. That's in terms of labor force.

Cris deRitis:                       Correct.

Mark Zandi:                      In terms of employment, you do know what that is?

Cris deRitis:                       That was my next thing to check, but ran out of time.

Mark Zandi:                      I just, for some reason I thought they had been... I didn't think the gap had closed, but I think it was closing, but okay. Maybe someone can take a look at some point in the podcast because I'm really curious about that. Anything else about the report you want to call out?

Cris deRitis:                       Not before the game.

Mark Zandi:                      Okay. Very good. Just a couple things for me. I do want to call out on the positive side, the increase in hours worked. That number is a tenth and that's not inconsequential. And also we saw a big increase in temp help. So both those indicators temp help hiring and hours work is an indicator of future job creation. So we might see, it does indicate that this job market is coming into what Russia, Ukraine might do or not do to the labor market was coming into that very, very strong. Very, very strong. The other thing I noticed is that the number of people who weren't working because of the pandemic that rose sharply in January, as we thought it would. Omicron was at its peak at that point. But that came way back in in the month of February.

                                             Interestingly, there's this growing gap between jobs and GDP. Have you been noticing that? You could see it in the productivity numbers for the fourth quarter. So output per employee is essentially productivity, and that took a big jump in the fourth quarter. And year over year, so it abstracts from the quarterly movements, non-farm businesses close to 2%. It feels like that underlying productivity growth is actually probably closing in, if not, not at 2%. You guys agree, disagree with that? Which by the way, that's a big change from where we were. If you go back in the mid part of the last decade, productivity growth was half this. Underlying productivity growth was 1% if we were lucky. At best. And now we're two. And by the way, two is the average rate of productivity growth since world war II.

                                             So if you go back and calculate over the last 60 years or so, is it 60 or 70 years? It's just about 2% on the nose. So we're back to typical kind of rates of productivity again which if sustained, and it feels like they're being sustained, is a pretty big deal. I thought that was pretty significant. I'll have to say, typically, almost invariably in jobs reports, you always find cross currents, some good, some bad. There's always something that doesn't fit the narrative, but that wasn't the case here. Everything was... This is a strong job market. It's almost to the point where you've got to start worrying about... You mentioned full employment that we can't sustain this kind of job growth for... Certainly not through the year. If we get 500,000 jobs per month on average like we did last year in 2022, the unemployment's going to be south of 3% by the end of the year. It feels like even with an improvement [inaudible 00:13:57]

Ryan Sweet:                      Nothing wrong with that.

Mark Zandi:                      But isn't that an overheating economy? What would the Fed do with that? The Fed's going to be normalizing...

Ryan Sweet:                      It'll freak out, but yeah.

Mark Zandi:                      Yeah. Would the bond market freak out with that? I think it would.

Ryan Sweet:                      Yes.

Mark Zandi:                      Yeah. It would freak out. So, when you say what's wrong with that, is that a good answer? That would be wrong with it?

Ryan Sweet:                      Yeah. Yes, the overheating concerns, the policy response, but we got to aim for a low unemployment. because remember the Fed's aiming for an all-inclusive recovery.

Mark Zandi:                      Absolutely, it just has to be sustainable.

Ryan Sweet:                      Sustained, yeah.

Mark Zandi:                      Has to be sustainable. You don't want to push the economy so far that we go back into recession and obviously that will hurt those groups we're trying to help the most.

Ryan Sweet:                      The only way we get 500,000 on average is if labor supply continues to increase. That's the key. It's not a demand like in normal recoveries, it's usually labor demand that drives the job market. This time it's labor supply.

Mark Zandi:                      I don't know about that. I'm not sure I agree with that. Labor demand is very, very significant. We got 500,000 jobs per month on average last year regardless of labor supply. It was...

Ryan Sweet:                      We could have had more if we had less of a labor supply issue.

Mark Zandi:                      I'm actually not sure about that because there's a... It feels like there's a physical cap on how many people businesses can actually hire, bring on board during a given month. Because it was so... After the revisions, we got a lot revisions last month to the data, the monthly job gains last year were incredibly stable. This looked like, it was almost like a machine churning out jobs every single month. So I'm sure labor supply is definitely an issue in some industries, particularly those, leisure, hospitality and retail and that kind of thing. But it felt like demand was driving the train here. I don't know.

Ryan Sweet:                      This year labor supply is supposed to be driving it.

Mark Zandi:                      This year labor supply. Absolutely.

Ryan Sweet:                      Yeah. That's the point I was making. Last year it was demand.

Mark Zandi:                      Oh, okay. Sorry. I was just picking a fight.

Ryan Sweet:                      Yeah, most business cycles... All right. You want to fight. Most business cycles though, the recovery is driven by the demand not supply. this time around this year it's going to be supply.

Mark Zandi:                      Yeah. The reason I am picking a little bit of a fight, we do ask listeners for comments. And one of the comments I get is it would be good if you guys disagreed a little bit more. So I'm just going to...

Ryan Sweet:                      We disagree all the time.

Mark Zandi:                      Do we? Maybe we're just too nice to each other when we disagree.

Ryan Sweet:                      Well, maybe because we've stopped talking about interest rates, the 10 year yield.

Mark Zandi:                      That is true.

Ryan Sweet:                      And your housing starts forecast.

Mark Zandi:                      We're coming back to that at some point that.

Marisa DiNatale:              That was low.

Mark Zandi:                      Yeah, that was low. A low blow. But by the way, I said average housing starts... This is a digression I know but just to make sure that we're on the same page. In 2021 and 2022 the average housing starts would be per annum 1.7 million. Is that right?

Ryan Sweet:                      Is that 1.75.

Mark Zandi:                      I said one... Oh, I did say 1.75.

Ryan Sweet:                      I'm pretty sure.

Mark Zandi:                      Oh, okay. Right. Well I'll stick to my 1.75. And last year we got 1.6.

Ryan Sweet:                      Yeah.

Mark Zandi:                      So we need a 1.85 or something, 1.9. Almost a 1.9, don't we?

Ryan Sweet:                      Not going to happen.

Mark Zandi:                      Okay. Yeah, because the supply side.

Ryan Sweet:                      Yeah.

Mark Zandi:                      All right. We'll see. The shadow housing starts would've been 1.9.

Ryan Sweet:                      Here we go.

Mark Zandi:                      Fair enough.

Ryan Sweet:                      Make up your own statistic if you can't...

Mark Zandi:                      Okay, all right. Okay. So anything else on the jobs numbers that anyone else wants to bring up? Anything else?

Ryan Sweet:                      I thought you brought up an interesting point about the disconnect between the employment data and GDP. There's something I always look at Okun's law relationship between GDP growth and unemployment rate. When there's a discrepancy, people like to bash Okun's law, they say, oh, it's broken down. GDP revisions always realign it. So if anything, GDP is likely going to get revised higher to be more with the labor market data.

Mark Zandi:                      Interesting point. The employment data got revised, their benchmark revision to actual unemployment insurance data last month. And you're saying the GDP, that comes out in August, the revision, I believe. You're saying that likely will get revised up, interesting. By the way we've been to doing these... Started most of these data deep dives, we talked about the jobs numbers in detail. We're going to do GDP next.

Marisa DiNatale:              Yeah. I listened to your CPI one.

Mark Zandi:                      Oh, did we do CPI? I thought we did jobs. Or did we do

Ryan Sweet:                      CPI.

Marisa DiNatale:              You did CPI.

Mark Zandi:                      Oh, okay. So we got to do jobs too then. Okay. All right, let's turn to what's top of mind obviously, and critical to the outlook is what's going on in Russia and Ukraine, the invasion of Ukraine by Russia. And of course these job numbers we got today for the month of February were before all of this mess really got going. What do you think? How big a deal do you think the Russian invasion is going to be to the job market going forward and to the broader economy here in the United States? Anyone want to take a crack at that? We've been talking a lot about this. We've had a couple podcasts on this already. We've had a webinar. We're going to have another one next week. So a lot of discussion, but in the context of today's job numbers, how worried should we be about Russia, Ukraine? Is that going to have an impact on the jobs numbers or the economy more broadly? Marisa do you have a view?

Marisa DiNatale:              I can go first. Well, Chris mentioned the auto manufacturing sector and that had lost 18,000 jobs just in February. And this is before the invasion. That's one of the two obvious ones that stick out to me that could be impacted by supply chain issues, although it's not clear to me. That's clearly happening in Europe already that automakers in Europe are being impacted by the lack of, or supply chain issues around metals that go into autos. I don't know if we are dependent on... If our automakers in the US are dependent on the same kind of supply chain that European automakers are. Certainly rising oil prices is the other transmission of this. That could go two ways.

                                             I actually would expect maybe more shale production to kick in in the US as oil prices go higher here and it makes it actually profitable to extract very expensive oil out of the ground. So we could see a bump in oil production here. But it could be damaging to the auto sector, not only because of supply chain issues, but also if oil prices remain above a hundred dollars a barrel, it could kill demand for certain types of vehicles, at least. And then there's obviously the confidence, if you continue to see corrections in the stock market and people are just generally worried, it could maybe we have some secondary effects of pulling back on hiring, but we certainly don't see any evidence of that. And if anything, it seems like employers are just trying to hoard as much labor as they can because the job market is so tight.

Mark Zandi:                      Yeah. Let's pick that apart. So you outlined three channels through which Russia Ukraine could affect the economy. Oil, let's lead with that, because that I think is the most important. Second supply change and you focused on the impact on the vehicle industry, because that obviously was an industry that got very disrupted when Delta hit and shut down chip production. Russia does, and Ukraine produce things that go into the chip manufacturing process that could reverberate around the world. And as you said in Europe, there are a number of European vehicle makers that get other parts from factories in Ukraine and they can't get them. Volkswagen, I believe is an example of that. That was in the Wall Street Journal or FT. And then the third channel was through sentiment and that can be reflected through the stock market.

                                             So let's take each one of those in turn. And I think that's a pretty good summary of the key... There's lots of other channels that are, I think, less significant, but those are three key ones. The first is oil and gas prices. And there the impact net to the US economy is a small negative. Ryan, I know you've done a lot of simulations of our global model to try to assess that impact, that small negative impact. Can you describe those results and maybe give a little more granularity around and how that works and how it impacts our economy?

Ryan Sweet:                      Yeah. So what I did is I ran two, which at the time were hypothetical scenarios. One were West Texas Intermediate Oil prices averaged a hundred dollars per barrel this quarter and next and then reverted back to, our baseline forecast. Typically, that's what you see when oil supply shocks. It's, several months, it's not just really quick. And then I did one where it's $150 per barrel on average. So in the first scenario where we average a hundred, which we're currently above that right now, it shaves a couple tens to percentage point off GDP growth this year. But the economic costs increase quite significantly as you go from a hundred to 150 and it really bites into consumer spending. But that's offset by an increase in business investment, like Marisa pointed out, more she production, investment in mining shafts and wells. That's going to offset some of the hit to consumer spending. So when you net it all out, it's going to sting, but it's not going to derail the recovery.

Mark Zandi:                      So oil before this mess was measured by West Texas Intermediate or Brent was 75 80 bucks. And now I looked this morning, we were over 110, I believe.

Ryan Sweet:                      Yeah, 115.

Cris deRitis:                       115 for Brent.

Mark Zandi:                      Brent for one 15. But you're saying if we settle in... Obviously that's a risk premium built into price in anticipation of a potential disruption to supply, which hasn't happened yet, but it could. But let's say we don't actually see a disruption and the risk premium comes in a little bit and you settle in around a hundred bucks a barrel, which is close to our baseline view of how this is all going to play out. You're saying that for the US economy that shaves a 10th or two off of GDP growth in calendar year 2022, something like that?

Ryan Sweet:                      Yeah. A couple tenths because there's a hit to spending, but the model is not going to capture the 2.5, 2.6 trillion we have in excess savings. So there's a little bit of a cushion there for consumers. But it does pick up, the boost to business investment in energy related segments.

Mark Zandi:                      So prices for oil go up, gas prices go up that hits real income. Meaning if I have to shell out more money to fill my gas tank, I have less to spend on everything else. So particularly lower income households that don't have much of that cash cushion you just talked about, would probably have to pull back a bit on their spending, at least relative to what it would have been. That's a clear negative for those groups, obviously, and then for the economy. But the higher prices means that these frackers, shell companies can make a boatload of money. They are ramping... You could see, they were ramping up before all this, the rigs out there in operation. That's going to now take off and it increases activity.

                                             And the net of all of that is a small negative for the economy. But you're saying if we get into, for whatever reason, a darker scenario here and prices go to 150 per barrel, which would be a new... I think the all-time high, I think it was 140, wasn't it? Maybe on a quarterly basis, maybe on a daily basis, it got to 150 back during the financial crisis. That would be a different kind of ballgame. The impact would be much more significant. And of course, if you get to 150, it's not just about oil prices, something caused those oil prices to rise that is probably undermining sentiment, equity prices leading to more global supply chain disruptions and everything else.

Ryan Sweet:                      Yeah, I think Marisa brought up a good point about sentiment and we can get there. But if you look back, the impact of hitting $3, $4 per gallon diminishes because the first time we hit it, there was a big psychological impact because we hadn't seen it before. But we've hit it before in the past so the impact on consumer confidence is muted.

Mark Zandi:                      That's a good point. So a hundred bucks a barrel feels like the gas, the cost of a gallon of regular and [inaudible 00:27:22] it's going over $4. I think we're sitting at $3,70 now nationwide

Ryan Sweet:                      Oh in Westchester we're over four. I filled up at Wawa.

Mark Zandi:                      Is that right? No, really?

Ryan Sweet:                      $4 and 14 cents at Wawa.

Mark Zandi:                      At Wawa, $4 and 14 cents. That's unusual that were so far ahead of the national price. I saw the national price at 3,73 or something last week. The AAA.

Ryan Sweet:                      There it is.

Mark Zandi:                      Oh, Cris just pulled out his iPhone. He took a picture. Whoa.

Cris deRitis:                       This morning.

Marisa DiNatale:              Not even going to tell you what gas prices are in Southern California.

Mark Zandi:                      Well tell us

Ryan Sweet:                      Yeah, we want to.

Marisa DiNatale:              Well, I paid... Let's see, I paid on Saturday 4,96 here. And then I went up to the central coast of California to visit friends over the weekend. There were two gas stations across the street from each other. I paid 4,76 at the one on the one side of the street. Across the street was a Chevron and it was 5,15. And this is for 87 regular unleaded. And there was someone there getting gas which was very strange.

Cris deRitis:                       Not Ryan's fancy...

Ryan Sweet:                      Here we go.

Mark Zandi:                      Not Ryan's what?

Cris deRitis:                       Not? Ryan's fancy schmansy, high octane gasoline.

Mark Zandi:                      Oh yeah, right. Yeah.

Ryan Sweet:                      Did I tell you, I got to the bottom of this?

Mark Zandi:                      Yeah, no, you didn't tell us. Well, you didn't tell me.

Ryan Sweet:                      I didn't. Yeah, so you didn't tell was misled that you can put any type of gas. I can go to Wawa and put it in the car.

Mark Zandi:                      Is that a nice way of saying you were duped?

Cris deRitis:                       Bamboozled

Ryan Sweet:                      Yeah, I was bamboozled.

Mark Zandi:                      I was bamboozled. By who?

Ryan Sweet:                      I'm not going to say... Just people that work on the car, the mechanic.

Mark Zandi:                      Okay. They wanted...

Ryan Sweet:                      But they specifically work on this car, the dealership, and they're like, oh, you do not go to Wawa Gas. And then I asked somebody else and they're like, no, it doesn't matter.

Mark Zandi:                      Oh yeah.

Cris deRitis:                       My brother-in-law has gas station down the road here. Not Wawa.

Ryan Sweet:                      Right, exactly. Yeah.

Mark Zandi:                      Do you understand what they're talking about, Marisa? Brother-in-law? What are they talking about?

Marisa DiNatale:              I think Chris is

Cris deRitis:                       Making a joke. Trying to make a joke.

Marisa DiNatale:              The auto dealer said, oh, go to my brother-in-law's gas station down the street.

Mark Zandi:                      I am so slow on the uptake.

Ryan Sweet:                      Did you have your Wawa coffee today?

Mark Zandi:                      I did. And actually I got a 20 ounce right here. See that?

Cris deRitis:                       What's the price increase there. Coffee prices are up. Any flow through?

Mark Zandi:                      I didn't...

Cris deRitis:                       You don't really pay attention.

Mark Zandi:                      I have no price elasticity [inaudible 00:29:52]

Marisa DiNatale:              Yeah. There's no... It's completely inelastic demand.

Mark Zandi:                      It doesn't matter. They could charge me 25 bucks for that coffee. I'm drinking that coffee. It doesn't matter. I don't want to look. Okay. So let's talk about sentiment in the stock market. Ryan makes a good point, Cris, that we've been at $4 and we're going to go there now, it feels like, with a hundred dollar a barrel oil. If we get the 150, then that means least... Well, that's 5,50, something like that if you do the back of the envelope calculation per gallon. That feels pretty scary, at least in terms of what it means for... And you in California will be paying eight bucks for a gallon of gasoline.

Marisa DiNatale:              Yeah. I can't even imagine. Oh, by the way I looked up the previous high in July of 2008 was 146. 145,66. And that's WTI, not Brent.

Mark Zandi:                      Yeah. And Brent's usually three, four five bucks higher just because it's... Yeah. So Cris, any comments about that? What it means for the... I'll tell you one thing, that surprised me a little bit on the equity market, at least so far, the stock market is that, some days it's up some days it's down. And when I say up or down, a big up, a big down and actually intra day, because I look intra day, the swings are massive, massive. And it's like this pitch back at all between the Bulls and the Bears it feels like at times.

                                             But yet when you look through the volatility, I think stock prices today are not that much different than they were a week or two ago. They maybe today are down a little bit, but they're not that much different. So I think the stock market or investors are where we are, that so far, at least this isn't going to be that big a deal for the economy, I think. Is that consistent with your thinking, Cris? How big a deal do you think the stock market is in terms of overall the economy, consumer spending the economy and the prospects for growth?

Cris deRitis:                       I think it's a big deal. Well, first I'll push against Ryan's claim that 4,20 oil doesn't... Or 4,20 gas doesn't matter. My experience yesterday was, because I passed by the gas station multiple times a day, taking [inaudible 00:32:20]

Mark Zandi:                      So you got more depressed every time you passed by, is that what you're....

Cris deRitis:                       Yeah. So AM 3,80. I come back home 3,99. Four bucks. And then this morning 4,20. I think that...

Mark Zandi:                      What's that about? That's really....

Cris deRitis:                       Maybe it's my local station just catching up, but it was really within a day you saw this significant jump and it was changing throughout the day. So I think that wears on consumers much more than... Yeah, sure. We've been at $4 before, but we haven't been there for a while. And seeing that acceleration I think that is going to happen effect on people's behavior and spending patterns going forward. If it continues, certainly. And then the stock market. Oh, go ahead.

Mark Zandi:                      Go ahead. No, go ahead. Oh, before you do the stock market on that point, I argue, and I'm curious whether you think this is a reasonable argument, that gasoline prices play an out sized role in people's thinking about future inflation and people, they literally forecast with a ruler. Meaning they take the price they just saw, they remember the price they saw the last time they looked. In the case of you, it went up a lot. And then if they have another... If they can think back one more time, they'll take that data point. And then you got two, three data points you just draw a line through that. And then you look out into the future. And of course, no one's doing this on a piece of paper. They're doing it in their mind as they're doing everything else. And they say, oh my gosh, I'm going to be paying a lot higher prices therefore inflation is... Their inflation expectations start to rise and that's when we get into a big... That's when things really can go off the rails because that's interest rates, that's monetary policy and everything else.

Cris deRitis:                       Yeah. And you're seeing that there, and you're seeing it at the grocery store too. Food prices are rising rapidly as well. So I think the confidence hit... I don't think this is a normal shock either. So I worry that this is going to have a bigger bite than what we might expect based on previous data. And the same goes for... Yeah, go ahead.

Ryan Sweet:                      Oh, I was just going to push back that the relationship between confidence and spending in the short run is very, very loose. People can say that they're pessimistic, but they'll continue to go out and spend.

Cris deRitis:                       Yeah. I guess I'm assuming some type of revealed preference. I think as these prices go, you are going to see people pulling back and thinking twice about spending on another activities. They've got the savings cushion so it might not be immediate, but I worry that's going to be a bigger bite here. And then the stock market, same thing. I do think there's this push and pull, but I don't know that we've fully digested the... It largely depends on what your outlook is for the conflict itself. But I see it as a long term siege that goes on for long. And I think that is eventually going to weigh on investors. And I do expect the bears are probably going to have their day here.

Mark Zandi:                      Oh, I see. So you, expect... Go down.

Cris deRitis:                       So I think it's going to... Yeah. Go down. And that would take the spending down with it.

Mark Zandi:                      Right. So you're painting a picture, our model would say a hundred dollar oil, GDP declines one, two tenths of a percent compared to what it would've been otherwise. You're saying, it feels like in the circumstances that we are in today, given everything that's going on, this can be meaningfully more than that is what it feels like to you?

Cris deRitis:                       That's my... You want to spice this up a little bit. That's the opposing view here that I don't know we fully digested it yet.

Mark Zandi:                      Yeah. And of course I'm assuming a hundred dollar oil, if it's 110 or if it stays where it is now 115, then you know, that just adds to it. Okay. Third channel Marisa mentioned was supply chains, a poster child for potential problems within the vehicle industry. Any comments on that? How are people thinking about that? Any other views?

Cris deRitis:                       So I worry more about, from a Russian export perspective, I worry more about the other non-energy commodities. So palladium is a large component in catalytic converters. Russia is the main supplier of that. So any disruption there I think is going to translate through and affect all manufacturers. So we might have some inventory, I don't know. Like Marisa, I don't know how much inventory we have on hand, but I think that would start to impact production going forward.

Mark Zandi:                      Right. `Marisa, Ryan. Anything else that on supply chain issues?

Marisa DiNatale:              You mentioned, was it in the podcast last week about neon being used in semiconductor chips. And again, you said 70% of the global supply comes from Russia.

Mark Zandi:                      Yeah, that's right. I also learned that 90%-ish of so-called semiconductor grade neon, the US semiconductor plants use come from Russia, Ukraine. So they rely very, very heavily on what's coming from Russia, Ukraine. And interestingly enough, I always say Russia, Ukraine, because apparently the neon is produced as a byproduct of steel production and many Russian factories, steel factories, capture the neon that is produced. And then they ship it to Ukraine where it's processed into something that can be used. And it's used... Neon is really important for lasers and lasers are used for lots of things, obviously, but particularly important for chips to etch the chips, to create the circuit, to actually create the circuit, the integrated circuit. And of course the chips go everywhere and are key to the vehicle industry. So that's why it's so important.

                                             It turns out that retrofitting steel factories to capture the neon is not all that easy. It's a process. It takes some of energy and time and investment. So it's not something you can solve very quickly. So that is seemingly a vulnerability here in terms of the supply chains. Okay. Very good. Any other channels we should be... There are many to think about, but any other things that you think... It's one of those... This is an open ended question. What out there could we be surprised by, any thoughts on that? Not that I expect that there would be any, but I'm just throwing it out there just in case anyone thinks there's something else we should be thinking about here.

Cris deRitis:                       In relation to the labor market?

Mark Zandi:                      No, Russia, Ukraine. Any impact.

Cris deRitis:                       Okay. Any impact.

Mark Zandi:                      Any impact, yeah.

Cris deRitis:                       Go ahead, Marisa. Yeah.

Marisa DiNatale:              I was just going to say what China does. There's the, how this is effect is going to affect our other trading partners in the world. Obviously this has a huge impact on Europe, but China's the big question mark. They're going to stick to the side of Russia and I don't know. That's an outstanding question in my mind.

Mark Zandi:                      Yeah. Clearly that's the most important economic relationship on the planet. US/China, that's been pretty vexed. It's hard to say how what's going on in Russia Ukraine can affect that relationship. But yeah, something to watch. Cris, anything? Ryan, anything else on this issue?

Cris deRitis:                       I guess India, I'd throw that in. And then it's just a question of the timing here and how long the conflict goes on in one form or the other. And then how long the appetite for sanctions, the resolve of European nations and the US holds out. That's going to play a key role in terms of the price of oil and all the other economic impacts we talked about. Europe highly dependent on energy. Already, even before the conflict prices were high for consumers. If they're paying even larger amounts for their utility bills, you have to wonder what the outlooks is going to be.

Mark Zandi:                      Yeah. Well, very sobering and very disconcerting to watch. Hopefully this gets resolved sooner rather than later for everyone's sake, particularly the Ukrainian people's sake. Obviously a very, very catastrophic situation. Okay. But let's move on to... We'll liven it up a little bit. I think it's appropriate to end on a more positive note. Let's do the game. Let's do the statistics game. We've got a lot of statistics and who wants to go first? Should I pick somebody? Ryan, you go first. You're good at this.

Ryan Sweet:                      All right. So second consecutive week, I'll give you guys a twofer. So this is two numbers related to the same topic in the same report.

Mark Zandi:                      Oh, could I say Ryan, maybe I just took it for granted people who are listening, know this game inside and out but just quickly.

Ryan Sweet:                      Oh yeah, go ahead.

Mark Zandi:                      I got to explain it. I guess this is a statistics game. So each of us put out a statistic, the rest of us try to figure out what that is through questioning, deductive reasoning. The best statistic is one that is not so easy, that it's a slam dunk. Not so hard that no one's ever going to get it. And it would be very nice if it's related to statistics that came out this week and to the topic at hand, in this case labor market. But we've already talked a lot about the labor market, so not necessarily. You don't necessarily have to do that. So with that as a preface, Ryan, go ahead.

Ryan Sweet:                      All right. Here are your two numbers. 1.573 million. And the second one is 4.2 million.

Mark Zandi:                      Okay. Job. Related to jobs.

Ryan Sweet:                      Yes.

Mark Zandi:                      In the employment survey?

Ryan Sweet:                      It's in the numbers that came out today.

Mark Zandi:                      In the numbers that came out today. In the employment or excuse me, sorry, in the household survey?

Ryan Sweet:                      Yes. The household. Well, one's a household survey. The other one is...

Mark Zandi:                      The payroll survey?

Ryan Sweet:                      It's in the write up.

Mark Zandi:                      What?

Ryan Sweet:                      I don't actually know where if it's household or... I think no, it would be household. Yeah.

Marisa DiNatale:              Oh is the 4 million part-time for economic reasons.

Ryan Sweet:                      It is not.

Mark Zandi:                      That's close though. It's one of those statistics that [inaudible 00:43:45]. It's actually 4.1 though.

Marisa DiNatale:              It's four something, right?

Ryan Sweet:                      It's not the 4.2 I'm thinking.

Mark Zandi:                      Oh, well, okay. But that's a good guess though, Marisa.

Ryan Sweet:                      No, that's a good one.

Cris deRitis:                       That's a half a cow bell, at least.

Ryan Sweet:                      Oh yeah. Speaking the cow bell. You guys keep debating.

Marisa DiNatale:              Oh no. He doesn't have the cow bell.

Ryan Sweet:                      I got it over here.

Mark Zandi:                      I actually see two of them over there. There he goes. So 4.2 and he was very precise, maybe there's some information in the fact that he said 1.5371 or something.

Ryan Sweet:                      1.573. So for context, normally in February it'd be around a million, 1.1 million.

Mark Zandi:                      Oh.

Ryan Sweet:                      You want another hint?

Mark Zandi:                      Is it seasonally... Is it... You said it was a household survey though. The household.

Ryan Sweet:                      I'll give you a hint.

Mark Zandi:                      Yeah. Give us a hint.

Ryan Sweet:                      It's a strong sign that Omicron's grip on the labor market is easing.

Marisa DiNatale:              Oh, is it the number of people with a job not at work?

Ryan Sweet:                      Because of...

Marisa DiNatale:              Because of sickness.

Ryan Sweet:                      Correct.

Mark Zandi:                      Oh, so it was at 4.2 now it's 1.57?

Ryan Sweet:                      No, no, no. 1.573 million is the number of people that were employed, but not at work because of an illness.

Mark Zandi:                      Okay. So 4.2 is million is totally different.

Cris deRitis:                       Something else.

Ryan Sweet:                      Something else. It's related to Omicron.

Mark Zandi:                      It's got to be related. Yeah, okay.

Marisa DiNatale:              Number of people working at home because of Omicron.

Ryan Sweet:                      Ooh. That's another excellent guess. Close, but no. We've talked about before on the podcast.

Mark Zandi:                      Do you know, Cris?

Ryan Sweet:                      Is it right up your alley, Mark. This is one number you always ask about.

Mark Zandi:                      I do? I always ask about this number? This is not... I don't know. What is it?

Ryan Sweet:                      All right. It is the number of people that were unable to work because of the pandemic. Down from 6 million in January.

Mark Zandi:                      I get confused because there's a lot of... Seems like...

Ryan Sweet:                      So this is business closures or reduced hours. This is a more comprehensive measurement, not just people that are sick. Your company closed down or they cut your hours a lot, so you weren't able to work.

Mark Zandi:                      Oh, so the 1.57 is the number of people who couldn't work because they were sick.

Ryan Sweet:                      Correct.

Mark Zandi:                       And the 4.2 million includes those folks but also... I don't know if it does.

Ryan Sweet:                      I don't know.

Marisa DiNatale:              The 4.2 million is the special COVID questions that they're asking, specifically about COVID. The 1.5 they've always asked that.

Mark Zandi:                      Is illness.

Marisa DiNatale:              It could be illness for any reason.

Mark Zandi:                      I see.

Ryan Sweet:                      That's why you always look at past Februaries just because this is flu season. So we got that on top of the pandemic.

Mark Zandi:                      Oh, okay. So I'm sorry because I'm just... I've had a time getting my mind around what we're measuring, but the 1.57, what is that typically in February?

Ryan Sweet:                      One to 1.1 Million.

Mark Zandi:                      Okay. So we're about 400 K above four, five hundred K above. And the 4.2 million, well of course that's COVID related and that's businesses that are closed or disrupted. What is that down from?

Ryan Sweet:                      6 million in January.

Mark Zandi:                      So that's Omicron, right. Okay. And we never figured out why Omicron didn't show up in the top line employment gain. We never really figured that out.

Ryan Sweet:                      Well, we were hypothesizing. I think Cris and I, maybe Marisa, we were going back and forth that right around the timing of the payroll survey in January, the CDC reduced the quarantine period from, I think it was 10 days to five days. So I think that left a mark. Limited the impact of compared to Delta.

Mark Zandi:                      Yeah because that made it more likely that the person, even though if they got sick...

Marisa DiNatale:              Went to work.

Ryan Sweet:                      They went to work.

Marisa DiNatale:              Eventually.

Mark Zandi:                      Or at least got an hour in

Ryan Sweet:                      Right. That's the threshold. You just have to work one hour.

Mark Zandi:                      Right. Okay, got it. Marisa, your statistic.

Marisa DiNatale:              Okay. First I'll say Cris scooped my statistic that I picked. He didn't exactly say it, but he talked about it. So I'd like to come back to it. We could delve into it a little bit more. My statistic was female labor force participation, which was 56.5 in February. And that was down to tenths of a percentage point.

Mark Zandi:                      Does this mean we're not playing the game?

Marisa DiNatale:              Yeah, we are. I have another one.

Mark Zandi:                      I was looking forward to the game.

Marisa DiNatale:              I'm just saying we can come back to that because it's a good conversation. And you asked about the gap between men and women.

Mark Zandi:                      Okay, got it.

Cris deRitis:                       So my statistic is 48.5.

Ryan Sweet:                      And you're sure it's positive? We never forget Marisa.

Mark Zandi:                      Side joke.

Marisa DiNatale:              I'm sure it's positive.

Ryan Sweet:                      All right.

Mark Zandi:                      Marisa tends to just miss the minus signs before numbers.

Ryan Sweet:                      All right so what was it again?

Marisa DiNatale:              48.5 in February.

Mark Zandi:                      And it was related to the jobs... It was an employment report.

Marisa DiNatale:              No.

Mark Zandi:                      No. Oh, okay. Is it related to jobs?

Marisa DiNatale:              Yes.

Ryan Sweet:                      NFIB?

Marisa DiNatale:              Nope.

Mark Zandi:                      Did it come out this week?

Marisa DiNatale:              Yes.

Mark Zandi:                      Oh, okay. Was it in the...

Marisa DiNatale:              I though you guys would get this right off the bat.

Mark Zandi:                      Was it in the ISM surveys?

Marisa DiNatale:              Yes.

Mark Zandi:                      So it's employment measure in the, I think it was non-manufacturing.

Marisa DiNatale:              Yeah. So it's the employment diffusion index in the ISM non-manufacturing survey, which is often a pretty...

Mark Zandi:                      Hold it. I got that.

Marisa DiNatale:              Yeah. You did. You got it.

Ryan Sweet:                      Yes.

Mark Zandi:                      Okay. There you go. And I got a pretty fast too. Did you see that?

Ryan Sweet:                      Yeah.

Marisa DiNatale:              Can I get a cowbell for the 1.57 million that I said?

Mark Zandi:                      No.

Marisa DiNatale:              Why?

Ryan Sweet:                      No.

Mark Zandi:                      Okay, she can. She can. Okay, she can.

Marisa DiNatale:              You're so stingy with the cow bell.

Mark Zandi:                      My Natural reaction is to say no.

Cris deRitis:                       We need more cowbell.

Mark Zandi:                      Yeah. So, okay. ISM, purchasing managers, they have this survey comes out every month for manufacturing and also for the non-manufacturing sector. [inaudible 00:49:58] came out, they asked questions around employment. It came out at 48.5, which is below 50. How do you interpret that?

Marisa DiNatale:              Yes. So this means that compared to the previous month, there was a decline in employment among the surveyed service sector participants. And if you delve into the commentary in the report, it was pretty interesting because all the comments were around. We can't hire anybody. We're trying to hire people. We can't find people. This is pervasive across manufacturing, it's pervasive across service sectors. So it looks like... It's not that anyone's getting laid off it's just that hiring has slowed because it's just becoming so tight it's difficult to find people.

                                             This is why I thought today's report was going to be weaker than it was. And you see it in the jolt state. The jolt state is older, it's lagged a couple months. But you see hiring rates have been flat to falling for the past several months. It just seems like we're going to run up against a situation where it's just... We're going to start to see, I think, weaker job growth simply because it's becoming increasingly difficult to find workers. And this is the first sub 50 reading on this index since July of 2021 when it dipped right below 50. But it's the lowest since August of 2020.

Mark Zandi:                      That's interesting. And do you know, what is the question the purchasing managers are actually answering? Is it, did you add to payrolls last month?

Marisa DiNatale:              Yeah, I believe, and Ryan you may know this better than I, but I believe what they do is they look at the change over the month in employment among all of the respondents. Is that right?

Ryan Sweet:                      And it's relative to the prior month.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Oh, so relative to the prior month.

Marisa DiNatale:              To January.

Mark Zandi:                      So you can still have an increase but it's not as large as...

Ryan Sweet:                      Correct.

Mark Zandi:                      Oh, that's interesting. Okay so that's good though.

Ryan Sweet:                      And 50 is neutral. I don't know if we mentioned that.

Marisa DiNatale:              Yeah, 50 is the threshold. So below 50 means lower employment or slower employment.

Mark Zandi:                      Yeah. I never actually thought about it. I thought the 50 was, if I'm below 50, I'm actually reducing payrolls, but it's not that you're saying. You're saying it's I added less than I added last month. Is that right?

Ryan Sweet:                      Correct.

Mark Zandi:                      Oh, okay. For some reason, I didn't know that

Ryan Sweet:                      ISM puts in there what exactly the index reading has to be that's consistent with either an increase or a decrease in employment.

Mark Zandi:                      Oh really? So do you know what it is?

Ryan Sweet:                      Not off the top of my head. And you can do it. We've done it econometrically and the warning to Marisa is that the ISMs aren't great at forecasting BLS's employment numbers.

Mark Zandi:                      But still that's interesting. And you ascribe the soft number, although it could be a strong number it's just not as strong as what was in January. But you ascribe that to labor supply issues not... Going back to Ryan's point earlier that it's supply not demand.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Okay.

Marisa DiNatale:              Because they solicit comments from the respondents and there were a lot of comments about being unable to find sufficient number of people.

Mark Zandi:                      Well, it stands the reason. At 3.8% unemployment, the employment to population ratio is closing 79.5. Labor force participation has improved quite a bit and you're creating a lot of jobs so at some point it's just going to run out. You're literally going to run out of people to hire. Yeah. Okay. Good. That was a good one.

Ryan Sweet:                      A good one.

Mark Zandi:                      Yeah. It was really good. Cris? And it's really good because I got it. Great satisfaction.

Marisa DiNatale:              That's the most important criteria.

Mark Zandi:                      Go ahead Cris.

Cris deRitis:                       Let's see if you get this one. 39.1%

Mark Zandi:                      39.1%. Is it related to jobs?

Cris deRitis:                       Yes.

Mark Zandi:                      Was it in the employment report?

Cris deRitis:                       Yeah.

Mark Zandi:                      The BLS employment report. Okay. Is it in household survey?

Cris deRitis:                       Yes.

Mark Zandi:                      Okay. It's 39.1%.

Cris deRitis:                       Yes.

Mark Zandi:                      Okay.

Marisa DiNatale:              Is this a calculation you did?

Cris deRitis:                       No, it is not. It is reported.

Ryan Sweet:                      A reported number.

Mark Zandi:                      It is actually reported. Okay.

Ryan Sweet:                      It's demographic related?

Cris deRitis:                       It is. And Marisa took my education statistic.

Marisa DiNatale:              Oh, well we swapped.

Cris deRitis:                       Fair play.

Marisa DiNatale:              Yeah. You took mine.

Mark Zandi:                      Is it related to race?

Cris deRitis:                       Nope.

Mark Zandi:                      Age?

Cris deRitis:                       Yes.

Mark Zandi:                      Okay. Is it a participation rate?

Cris deRitis:                       It is, you're so close.

Mark Zandi:                      39.1%. That's pretty low...

Ryan Sweet:                      Is it teenage?

Cris deRitis:                       Nope.

Marisa DiNatale:              65 and older?

Mark Zandi:                      Oh, that's what it is.

Cris deRitis:                       55 plus.

Mark Zandi:                      65.

Ryan Sweet:                      55 Plus?

Cris deRitis:                       Yeah, 55 plus.

Marisa DiNatale:              55 and older.

Cris deRitis:                       Yep.

Ryan Sweet:                      You get a half cow bell.

Mark Zandi:                      Who got it. Who got the cow bell?

Ryan Sweet:                      Marisa, didn't you get it?

Marisa DiNatale:              I said 65.

Mark Zandi:                      No it's fair. I'd say half cow bell.

Marisa DiNatale:              Thanks.

Cris deRitis:                       Even three quarters.

Mark Zandi:                      So, why?

Cris deRitis:                       Significance? So 39.1% is an improvement from the low of 38.2%, which was last year. Still below 40.3%, which was what we had in February. And what it signifies to me is that you have people coming back into labor market from early retirement. So we have actually 1.1 million more people who are 55 plus than we did 12 months ago. So that might help the previous statistic that Marisa reviewed. If we have a shortage, we do have this pool of folks who had stepped out of the labor market, maybe they're they're going to come back in in higher numbers. I had given up hope on the boomers, but they might save us.

Marisa DiNatale:              And that might indicate just the sensitivity of that group in particular, to what's happening now. To higher inflation or fears about their 401ks or stock prices. That maybe they left earlier than they had planned and now they're rethinking that decision. Because one thing I noticed when I was looking at the female participation rate is that actually where it was down the most was in 65 plus women. So the 45 to 55 was way up. And that includes what you just said, but the 65 plus was down.

Cris deRitis:                       Yeah. I also wonder if it's a small business effect here that we had that big spike in entrepreneurship. Maybe folks tried it for a while, but the labor market is improving so it's more advantageous to come back in. I don't know. A theory. It's encouraging that we're getting some people back.

Mark Zandi:                      The household survey is based on a small sample of household so it can be volatile a month to month. Are you observing that this is something you've seen in recent months? Is it not a month it's the past several months or something.

Cris deRitis:                       That's right. It's been steadily increasing over the last year.

Mark Zandi:                      Oh, it's over the last year.

Cris deRitis:                       Yeah, the bottom was 38.2% last March. And it's been increasing steadily since then.

Mark Zandi:                      So I missed that. Okay. So 38.2. And what was it pre pandemic?

Cris deRitis:                       40.3

Mark Zandi:                      40.3. Okay. That feels like that's a trend. And I guess now with the stock market down and the volatility in stock prices, that might also say to some people, Hey, my nest egg isn't quite as big as I thought it was. I might need to get some work here. Interesting. Okay. That was a really good statistic. A really good one. Okay. I'll give you mine. Down 1%. Down 1%.

Ryan Sweet:                      All right. So this is a calculation that you did

Mark Zandi:                      No.

Ryan Sweet:                      Or is it a reported number?

Mark Zandi:                      Reported number.

Marisa DiNatale:              In today's jobs report?

Mark Zandi:                      No.

Ryan Sweet:                      Is it labor market? Are you going back to neon?

Mark Zandi:                      It's not directly related to the labor market, no. But it's an important statistic.

Cris deRitis:                       It's not a back to normal.

Mark Zandi:                      No, back to normal index.

Marisa DiNatale:              Copper prices, lumber prices.

Mark Zandi:                      No

Ryan Sweet:                      Lumber prices are up a lot.

Mark Zandi:                      Yeah, they are.

Ryan Sweet:                      Are. It's a good thing you started your construction on your home, Marisa.

Marisa DiNatale:              Yeah. Great. About to build a deck.

Mark Zandi:                      Although I'm sure they put a clause in there that they could raise the...

Marisa DiNatale:              Yeah right.

Mark Zandi:                      Yeah right exactly. Okay. That was...

Marisa DiNatale:              Kind of labor market that related you said?

Mark Zandi:                      That was for the month of January. So it's a little bit lagged. I'll give you the month of December, minus 0.2.

Ryan Sweet:                      Oh, I should know this. I wrote it. I calculated it.

Mark Zandi:                      What is it?

Ryan Sweet:                      I'll let the other two try.

Mark Zandi:                      The other two do it.

Ryan Sweet:                      You will hurt my feelings significantly if you can't get this number.

Mark Zandi:                      And in November it was minus 0.4 or minus 0.35 to be precise. Okay I'll go back one more month. In October, it was up 1.8%.

Ryan Sweet:                      Here's a big hint. Not many places have this. We're very unique.

Marisa DiNatale:              Oh, it's the back to normal. Is it back to normal?

Mark Zandi:                      No, not back to normal.

Cris deRitis:                       Monthly GDP?

Mark Zandi:                      Monthly GDP, which if you look at the... We calculate GDP on a monthly basis, based on all of the statistics. Ryan does this. Obviously GDP is released by the government, BEA Bureau of Economic Analysis every quarter. But we calculate it every month. And actually some countries around the world actually do Canada produces, UK produces monthly GD. We don't do that here for some reason, but we take it upon ourselves and we do it. And I find it very informative and valuable because you can get a real good sense of what's going on in more real time. And January was really weak in terms of GDP. We've got that big job number, but GDP was really weak. December was weak, November was weak. In fact, if you go back GDP, the level of GDP in the month of January is no higher than it was in August of last year. Basically going flat.

Cris deRitis:                       Oh wow.

Mark Zandi:                      Yeah. And the other thing is all of the GDP growth has been or almost all, I'm exaggerating obviously, but almost all inventory accumulation. So that gives you a sense that Delta and now Omicron actually did damage, I think to the economy. It did a fair amount of damage. It's just that businesses don't care. They know that the pandemic is going to go away at some point and they're going to be left with a very tight labor market and unfilled positions. And if they stop hiring, regardless of what's going with sales, revenues, whatever their output, they got to hire. They got to keep hiring.

                                             They got to keep moving. Because if they shut down the hiring machine, then getting that back up is going to be really painfully hard and they're going to be left out without... They're going to have a very serious labor shortage. And that goes back to the productivity growth. Productivity growth in the fourth quarter, we just got that, that was almost 2% year over year. Feels like we're going to get a, in the case of... The first quarter's going to be very weak. We're going to get a lot of jobs and no GDP so they're looking right through it.

Ryan Sweet:                      GDP is looking really bad in the first quarter. We're...

Mark Zandi:                      Do you think Ryan, we could get a negative? I don't think so because feels like February and March are going to be a lot stronger. Feels like it in terms of output.

Ryan Sweet:                      Yeah. Right now our tracking estimate is barely positive, but to your point February should be a lot better and March. But this jumping oil price is like Cris pointed out that could be a concern.

Mark Zandi:                      I just found that very, very interesting that that was down and the fact that we do that. Ad from an economic view, it's like a headline statistic from an economic view that summarizes a lot of what's going on.

                                             Okay, that's the game. We've already chatted for quite some time here. Is there anything on the labor market front, a broader picture issue that you think we should dive into or discuss? One thing I did notice, this is some research that Matt Kohlier and others in our organization did, was around calculating inflation by different income groups, which is interesting in the context of wage growth by income groups. Ryan, do you want to summarize that research? I thought it was pretty cool what they did and what they came up with.

Ryan Sweet:                      Yeah. So this actually stems from our podcast discussion when Cris brought up his personal CPI. So everyone's basket is different. So Bernard [inaudible 01:04:20] who's been on the podcast, Matt Kohlier it took upon themselves to go by income quintile. And you can get this data from the consumer expenditure survey. And then calculate what the growth in the CPI is across the income distribution. And I think the results were very interesting. I thought there would be a lot more dispersion but there really wasn't. And it just shows that everyone's feeling the pain of inflation, no matter if you have a similar consumption basket to Marisa or Cris or I, everyone's feeling the hit from inflation.

Mark Zandi:                      So, I saw there was a nice chart where it showed month to month CPI, consumer price index inflation across the different... I think it was the quintiles of the distribution.

Ryan Sweet:                      Correct.

Mark Zandi:                      Yeah. And it's really surprisingly not any meaningful difference as far as I can tell.

Ryan Sweet:                      Yeah. I was surprised by that.

Mark Zandi:                      Yeah. I was surprised. The only thing that stood out a little bit to me, and I'd like to see a longer time series, is the folks in the top quintile saw lower rates of inflation. If you had to say what stood out, that was the one thing that stood out.

Ryan Sweet:                      And I think that's energy. I have to double check. I think it's their share of energy that's in their basket.

Mark Zandi:                      And of course on the wage front, we know from the Atlanta Federal Reserve wage tracker where they track the same individuals over time and therefore can calculate wage growth by different demographic. We know from that that most of the acceleration and wage growth has been in the bottom part of the wage distribution. The bottom quartile. The bottom half of the distribution. So that would suggest that real wages for high income households, middle income households is really under a lot of pressure. For low income households it's under pressure, but less. Is that a fair characterization?

Ryan Sweet:                      Yeah, I think that's fair.

Mark Zandi:                      Fair. Okay. All right. I thought that was very interesting work. We should continue to update that. Maybe calculate it because the consumer expenditure of survey data has lots of good demographic data. Maybe we can calculate CPIs for other groups and see if anything stands out. That would be really interesting.

Ryan Sweet:                      Yeah. We discussed that.

Mark Zandi:                      By age. I think you can do it by age, for example.

Ryan Sweet:                      You can do it by age. Yep.

Cris deRitis:                       Retirees.

Mark Zandi:                      Yeah, I think that'd be really cool. Really interesting. Okay. Marisa you're our resident labor market expert. Any other big topics on the labor market you think we should bring up? You don't need to I just was asking if anything struck you that we should talk about.

Marisa DiNatale:              Well, just coming back to the question about how women have been doing. It is Women's History Month and it was International Women's Day, the other day. And we're doing a joint study at Moody's. I don't want to scoop it. But part of my study was looking at labor force participation among women, which is why wanted to talk about that statistic. And you asked how it was going, women versus men. So men have now regained, if you look at male labor force, they're back above where they were prior to the pandemic. Women are still about a point and a half below where they were. About one and a half percentage points below the pre pandemic level of the labor force. So there's still gap there.

                                             It was narrowing throughout most of 2021. The last few months, it's widened again between men and women. I'll note, I looked at, as part of the study that I did, I looked across the developed world. Women in the US have one of the largest gaps between... particularly if you look at prime age women, one of the largest gaps with men in their country. And the gap has widened in the US, between men and women since the start of the pandemic. Whereas in a lot of other countries, I looked at European countries, Australia, it's narrowed. And there's all kinds of policy reasons, differences between US and Europe and other developed countries that support families more. So we're getting back there, but women are still in a deficit in terms of the labor force and men are not any longer.

Mark Zandi:                      Interesting. I guess the child care issues we brought up earlier. Elder care, taking care of sick family members, elderly parents. And of course the fact that women are employed in education, in healthcare, the sectors that obviously have been hit very hard here. And there's a lot of burn out too, I guess, in a lot of those professions, just because they've been on the front lines for so long.

Marisa DiNatale:              And another thing to note is there's disparities even among women. So white women are doing a lot better than black women or Hispanic women too. And a lot of that all also goes to the industrial structure and the industrial composition of the jobs that were lost during the pandemic and who's really on the front lines.

Mark Zandi:                      Let's just keep watching that every month to see what's going on there because I think that's an important issue and critical to Ryan's point that we want a labor market that when it gets back, it's inclusive. That everyone gets back. We're not quite there yet. Okay. Very good. I think we're going to call this a podcast. A lot going on. @markzandi.

Ryan Sweet:                      There it is.

Mark Zandi:                      Ryan, what's your handle?

Ryan Sweet:                      @realtime-econ

Mark Zandi:                      An I've been noticing Ryan's been tweeting a lot, so he is really into this. That's good. Marisa, are you on Twitter?

Marisa DiNatale:              Yeah, but not in an official capacity.

Mark Zandi:                      Can I ask, are you following me MEA?

Marisa DiNatale:              I am following you. And I'm following Ryan. Yeah, of course. Mark, also I noticed that you're following Wawa.

Cris deRitis:                       You are.

Mark Zandi:                      I am following Wawa.

Ryan Sweet:                      Wait, Wawa has a Twitter?

Mark Zandi:                      Wawa has a Twitter.

Ryan Sweet:                      Oh.

Mark Zandi:                      Yeah. Although I haven't noticed any tweets from them. They must be tweeting, but I missed it somehow.

Marisa DiNatale:              They're busy hiking gas and coffee prices.

Ryan Sweet:                      We're just joking. We love Wawa.

Mark Zandi:                      Wawa.

Cris deRitis:                       Unofficial sponsor of Inside Economics.

Mark Zandi:                      Unofficial sponsor, that's funny. And Cris, he's not a Twitter fellow, but he's a LinkedIn maven. So if you want to follow Cris, follow him on LinkedIn.

Cris deRitis:                       I do want to wake one point before we end, on a more positive note. I've been tracking this closely. Every time we have Marisa on for the job report, we have an upside surprise. So I hope she joins us in the future just for the sake of the economy.

Mark Zandi:                      Well, you know every time Dante joins on Fridays it's down. Have you noticed that?

Cris deRitis:                       I didn't want to go there, but...

Mark Zandi:                      So we got to get them back based on our forecast of whether jobs are going up or down.

Cris deRitis:                       There you go.

Mark Zandi:                      Yeah, there we go.

Marisa DiNatale:              Have us on together and see what happens.

Mark Zandi:                      The universe will be screwed up. Oh my God.

Ryan Sweet:                      Hey and Cris was closest of all four of us.

Mark Zandi:                      Yeah. But we were within 25,000 of each other, right?

Marisa DiNatale:              Except not me. I thought it was going to be weaker.

Ryan Sweet:                      Well weren't going to bring it up.

Mark Zandi:                      We're not going to bring that up. I think we're like all around 500 K something like that. Pretty close. But strong job numbers. Okay. Very good. And again, any comments, suggestions, very helpful, we do listen. Go to economy.com. Let us know. And with that, we'll call this a podcast. Take care everyone.