INSIDE ECONOMICS

Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined with a few of my colleagues. First up, Ryan Sweet, director of Real Time Economics. Okay, Ryan. Go ahead, gloat. Go ahead. Feel free.

Ryan Sweet: I'm not one to gloat. I'm just saying, you doubted me. You questioned the strength of the employment numbers.

Mark Zandi: Yeah, that's true. So everyone knows, Ryan does deserve more than a pat on the back, maybe a few kudos. I'm not sure what else we should... there we go. I see a happy clapping sign here. Oh, by the way, I should mention, we're on YouTube now, so if you're interested, go to YouTube, search for Inside Economics, and you'll see the happy sign that Cris put up. And you'll also see his red Speedo shirt. He's finally gotten broken free from the Howdy Doody. Speedo. What is that? Oh, swoosh. Wasn't that Speedo?

Cris deRitis: That's the recovery right there.

Mark Zandi: Oh, there is. Yeah, that's right. So just so everyone knows, today's Jobs Friday. We got the employment numbers for the month of July, and we're going to be talking pretty much about that the whole time today. Very strong number, and Ryan, you nailed it. You got it exactly right, I think. What was the number, and what was your-

Ryan Sweet: 943, and I was a little bit above one million.

Mark Zandi: You were a little bit above one million.

Ryan Sweet: The consensus was 850, 860, so even a lot better than many people were expecting.

Mark Zandi: Wait for the revisions, right?

Ryan Sweet: Yeah. Well, we can talk about that later. The revisions to June were really good.

Mark Zandi: They were good.

Cris deRitis: And a million might be right.

Ryan Sweet: And I think, Cris, you were close too. Cris was really close.

Cris deRitis: I said 860. That's close, too.

Ryan Sweet: He always goes with the consensus.

Cris deRitis: No, no. That's above consensus.

Mark Zandi: It was above consensus. That's how he does it. He plays the odds. I'm going to go right a little bit above the consensus, a little bit below the consensus.

Cris deRitis: Price is right.

Mark Zandi: Yeah, that's right. The Price is Right. But anyway, Ryan, good job. Very good. Is this fair? I think I guided you a little bit lower. You were talking-

Ryan Sweet: Yeah. I was above, and then you talked me down a little bit. You put a little sense into me.

Mark Zandi:

Okay. There you go. And of course, we have Dante DeAntonio. Dante is our first repeat participant in the podcast. Way to go, Dante.

Dante DeAntonio: Honored to be here, as always.

Mark Zandi: You deserve a pat on the back or a kudo or something too. I'm not sure what. There you go. What is that?

Cris deRitis: A thumbs up.

Mark Zandi: Thumbs up. Thumbs up. But Dante, what the hell, man? You were so far off. What is going on?

Dante DeAntonio: I'm not sure what forecast you're talking about. 800,000, that was my forecast.

Cris deRitis: You can't have two forecasts. It doesn't work that way.

Mark Zandi: Ryan, explain Dante's mishap here. What happened?

Ryan Sweet: Dante helps create the ADP estimate that we work with ADP on, and he puts it out the Wednesday morning before the jobs number, and he created a lot of unnecessary stress for me this month because what was the ADP number, Dante?

Dante DeAntonio: It was 330.

Ryan Sweet: And this measures private employment, and what was the actual number?

Dante DeAntonio: It was around 700. I'd like to say that the ADP number helped guide you lower also, Ryan, so you can thank the ADP number for bringing you down a little bit from your cloud of 1.3 million or wherever you were originally.

Ryan Sweet: I was too high.

Mark Zandi: He was talking 1.6 at one point.

Ryan Sweet: I was not talking 1.6.

Mark Zandi: I heard 1.6 somewhere.

Ryan Sweet: I wouldn't be surprised.

Dante DeAntonio: There you go.

Mark Zandi: All right. Well, Dante, it's not fair that you're taking the blame. In all fairness though, your estimate, Ryan, is after all the data is in. You can adjust your models and pick which models you think are more relevant given the circumstances that we're in. Dante, and it's not fair to say Dante.

Cris deRitis: Yeah. We can keep saying Dante.

Mark Zandi: We are going to keep saying Dante, but just so everyone knows, I'm part of that team as well. That estimate is actually made almost a week before the actual report, the BLS report. So ADP is a human resource company. They process payrolls. We get data for roughly, I don't know what Dante, 24 million employees? Something like that, which is huge, large. About as big as the Bureau of Labor Statistics sample for its estimate of jobs.

Mark Zandi: And we take the ADP 24 million and then do a number of things to make it comparable to the BLS, and then try to predict the BLS with the ADP. But we do that a week before the BLS actually comes out, so we don't have the benefit of all the other data that comes in the week leading up to BLS. And also, our model doesn't change. Ryan, I'm sure you're just saying, "I'm not using unemployment insurance claims this month because they're bogus for lots of different measurement issues, so I'm not going to use that," whereas ADP, because of the model, is using that information.

Ryan Sweet: The other thing I was going to point out is Dante’s underlying data was soft, and if you look at the unadjusted BLS number for private, it was strong. Total it was weak. It actually fell. It normally falls in July. So maybe there's something going on with the way that a seasonal adjustment... which is very, very difficult to do accurately. If you look at ADP's big misses, it comes in months where you get these seasonal or calendar quirks.

Mark Zandi: I'm sure we're talking over a lot of people's heads right now. We just kind of dove right deep into the rabbit hole immediately, but just to level set, that BLS number we got this morning, Friday morning... What is this, Friday, August 6... This is the data for July. I would characterize that report as being about as good as it gets. Would you say that is the case? Would anyone disagree with that statement?

Ryan Sweet: No. You'd have to really dig to find something to wobble about. It was strong across the board.

Mark Zandi: Yeah. So just what were the most impressive statistics to you in the report? Dante, why don't you list what you think, rank ordered because there's a boatload of statistics in this report, what was the most impressive statistic in the report for you?

Dante DeAntonio: Do you want me to give away my stat of the week, because that was my most impressive-

Mark Zandi: Oh. Okay, let's do that right now.

Cris deRitis: Yeah, let's do that.

Mark Zandi: Go ahead. Fire away.

Dante DeAntonio: All right. Well, I'll give you the number then. It's -560,000.

Cris deRitis: Oh. That was mine. 

Mark Zandi: I guess you know what it is then, Cris.

Cris deRitis: That's the long-term unemployed, 27 weeks or more?

Dante DeAntonio: Yep.

Mark Zandi: The decline in. That's correct. That's right. But we're still I got a backup. I got a backup. 2.3 million. Related, 2.3 million.

Ryan Sweet: That's the increase.

Mark Zandi: No. 2.3 million is-

Ryan Sweet: From the start of the pandemic.

Mark Zandi: Oh yeah. That's right. You're right. Sorry. There's 2.3 million more long-term unemployed by more than 27 weeks in July than pre-pandemic. So even though it came down by 560,000, which is you're saying, Dante, that's the biggest decline ever?

Dante DeAntonio: No, the biggest decline so far in this cycle. There was a big decline a few months ago, but this is by far the biggest that we've had since the recovery started.

Mark Zandi: But we've still got a ways to go here. We've still got-

Dante DeAntonio: Yep. Absolutely. Yep.

Mark Zandi: Okay. So did you have a backup, Cris? No backup? I got a backup. Oh, you've got a backup. Okay. We'll come back to you. Hey, you know what? My wife, who listens to the podcast, she really likes the podcast, we listen to it Friday night after dinner or during dinner-

Cris deRitis: A glass of wine.

Mark Zandi: Yeah. Actually, a glass of wine. More than one usually. Actually, well, I was going to say something else but I'm not going to-

Cris deRitis: It's a long podcast.

Mark Zandi: Right. We have a glass of wine. She sits there and dissects it, and now she's really into this game. So she wanted me to give you a statistic. You ready?

Cris deRitis: Oh. Okay.

Mark Zandi: And this is a non sequitur compared to what we've been talking about, so nothing to do with anything. But it does have something to do with Wawa. We talk a lot about Wawa on this podcast, which for people that are listening in the UK, they go, "What the hell are they talking about?" Wawa is a convenience store chain. Would you say that? I that's how I would describe it. And here's the statistic. See if you can figure it out. 195 million. 195 million.

Cris deRitis: Cups of coffee served per year.

Mark Zandi: Damn right. Excellent. Cris got that. He beat you, Ryan. Did you see that?

Ryan Sweet: I know.

Mark Zandi: He beat you. Man, he was fast.

Cris deRitis: Did he get it too? You got it too, Ryan?

Ryan Sweet: I was in the process, and then you jumped right it.

Dante DeAntonio: You have to raise your hand. You have to raise your hand, Ryan. Come on.

Ryan Sweet: What percent of those sales are from the Zandi household?

Mark Zandi: I could calculate that. Oh, that's over a year, right? 195 million cups over a year, so I would do let's say 16 ounces? No, no, 32 ounces a day. This is boring. I'm going to stop right there, but you get the idea. It's pretty boring. Well, anyway, that was her statistic. Okay. Ryan, what was your top statistic, most upbeat statistic in the report?

Ryan Sweet: 13% year-over-year.

Mark Zandi: Ooh. 13%. 13%. Do you know, Cris? Same report? Telework.

Ryan Sweet: Not Wawa. We're going back to the employment report.

Mark Zandi: Percentage that teleworked.

Ryan Sweet: Ooh. That'd been good, but no.

Mark Zandi: Actually, do you know that statistic, Ryan? I didn't look this-

Ryan Sweet: I didn't look at it. I forgot. I was all tied up in all the good things in the report.

Mark Zandi: I would want to know that one. So 13% is not the percentage of people who work from home.

Ryan Sweet: Another hint is that it's the largest on record, and I think we have data back into the early 1970s.

Mark Zandi: Oh my gosh. And that's in the employment report.

Ryan Sweet: It is.

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

Ryan Sweet: It's a segue into we can talk more about it-

Dante DeAntonio: Does it have to do with wages?

Ryan Sweet: It's wages.

Dante DeAntonio: Is it leisure and hospitality?

Ryan Sweet: Exactly. In leisure and hospitality.

Mark Zandi: Oh, I see. It was average hourly earnings growth for leisure and hospitality.

Ryan Sweet: Correct.

Mark Zandi: Year-over-year.

Ryan Sweet: Year-over-year.

Mark Zandi: So it was very depressed a year ago, so there's some so-called base-

Ryan Sweet: Yeah. There's some base effect, but you hear all these anecdotes that restaurants, bars can't find people to work. They're raising their pay, but they're still struggling to find workers. So I think getting lost in the shuffle is maybe the debate that people don't want to go back to work at restaurants and bars. It's a tough job, and they may be career switching, so we could have some labor matching issues down the road.

Mark Zandi: Yeah. Got it. Okay. My favorite statistic, and I'm rounding here just because to be frank, I can't quite remember the third significant digit. But two-thirds.

Ryan Sweet: Is that the share of leisure and hospitality for total employment, or the change in total employment? Do they account for two-thirds of the gain?

Mark Zandi: No, it's more like one-third, because leisure and hospitality's up 380, and total it was up 940, so that's not two-thirds. No.

Ryan Sweet: Oh. I was thinking private because you want to strip out the-

Mark Zandi: It does that. Yeah.

Dante DeAntonio: Well, obviously you should know that, Mark. You're stripping out-

Mark Zandi: Obviously I should've known that. Right. Okay. Well, okay. 348 divided by 700, pretty close, actually. But that's not what I had in mind, but that's not bad. That's not bad. It is the diffusion index. The percent of industries in the report that increased employment during the month. And I think there's like, 250 industries in the report. 250, 260 industries, and that goes to another pretty impressive aspect of July's numbers. Job gains were very broad based across. They were obviously leisure, hospitality, and government, education. Some of that's seasonal adjustment, but it was manufacturing, it was construction, it was professional services, it was financial services, information services. There's really on one sector that was soft. Anyone catch that?

Ryan Sweet: Retail.

Dante DeAntonio: Retail. Yeah.

Mark Zandi: And that probably reflects some giveback, because retailers were out hiring aggressively during the pandemic, particularly Home Depot and Lowe's. We're going back to online having a big impact on brick and mortar. That was the case before the pandemic, but obviously after the pandemic as well. Okay. Other than the retail, the softness in retail employment, were there any other blemishes in the report? We are economists. We tend to focus on the downside, so focus on the downside. What in that report would shade it for you? Anything in particular? I'll let anybody go first. No?

Ryan Sweet: I think we're still not seeing a lot of improvement for the female prime age of employment population ratio, so when you look at it by demographic, it's really African-Americans, Hispanic, and Latina women are just not reentering the labor force.

Mark Zandi: Yeah.

Dante DeAntonio: Along with just broadly, participation in the labor force is just still almost flat from a year ago. And we, I think, expected that to be slower to come back than anything, but it has not moved much.

Mark Zandi: Yeah. The labor force participation is still 61.7%, and it was 63%-ish before the pre-pandemic, so about 1.5 percentage points below. And that has not budged. It has not really increased. Hey, one thing I did notice, I was curious, and maybe this is just mix effects. Average weekly hours, so the number of hours worked per week has jumped in the pandemic and has not come back at all. Is that just mix? Is that just because you got leisure and hospitality, and retail kind of still down, and those tend to have fewer hours per week than say manufacturing or construction? Is there anything else going on there?

Dante DeAntonio: I think the initial jump was probably mix issues, but I think the fact that it hasn't come down at all is probably at least something to do with employers leaning on existing workers more. If you look at the number of workers who are working part-time involuntarily, that's come in a lot, so it certainly seems like they're putting their existing workers to work more hours because they're having trouble filling those open positions. And so it's probably preventing that from coming in a little bit as you get that rehiring happening.

Mark Zandi: That's a good sign in the sense that at some point, you would expect employers, when they can, hire more people. It's a leading indicator for future jobs, presumably. [crosstalk 00:16:38] Have you noticed there's this conversation going on, or at least I've noticed tangentially. I was in the car driving. I heard an NPR story about people wanting to work four days a week as opposed to five days a week. Have you been listening to this?

Cris deRitis: There's some companies that have said they're going to adopt a four day week schedule.

Mark Zandi: Yeah. And the thinking is that it actually will result in greater productivity. Even though people are working fewer hours, they're happier and they're more productive. Does that resonate at all?

Dante DeAntonio: I'm just waiting for the email from you, telling me to take Fridays off.

Mark Zandi: Oh, really? About that email. Actually, you're still working right now, but I think there are some Moody's execs, are they working now? I think on Friday afternoons in the summer, don't we have off? I haven't been following closely.

Dante DeAntonio: You're not supposed to schedule meetings. I don't know if tit's technically vacation, but you're not supposed to schedule meetings and things.

Mark Zandi: Oh, I see. 

Ryan Sweet: You can take Friday afternoons off. I think so.

Mark Zandi: Say that again?

Ryan Sweet: I think if you work an extra hour Monday through Thursday, you take part of Friday off. I think that's how it works.

Mark Zandi: Oh, I see. I see.

Ryan Sweet: Kind of like [inaudible 00:17:52] does.

Mark Zandi: I see. I got it. All right.

Ryan Sweet: Hey, Mark. I got your statistic. The percent of employed workers that teleworked in July, 13.2%-

Mark Zandi: So that's down from what-

Ryan Sweet: Down from-

Mark Zandi: Hey. Cris got that, actually. Didn't he say 13? He nailed that.

Cris deRitis: I said 13.

Cris deRitis: No. I had 13%. This is 13.2. It's different. But it's down from 14.4. But remember, this is asking are you teleworking because of the pandemic? So it's more people working from home I think in general.

Mark Zandi: Yeah. And I would expect that might start to go back up because of the Delta variant. Start watching that, because there has been a lot of announcements by large corporations that they're not going back to work, or they're not asking their people to come back to work as quickly as they thought they would because of the new variant, so we might see that start to rise. Okay. Also, one thing I think is always useful is to let people know, because there's a lot of ups and downs in the data, and as the listener can tell, there's a lot of measurement issues, technical issues that affect the numbers from month to month.

Mark Zandi: So this month was a good month, but probably overstated that seasonal adjustment that Ryan mentioned are affecting government, education, leisure and hospitality. And that's temporary. That's going to come out of the data next month and the month after, that kind of thing. So what do you think underlying job growth is? And when I say underlying, I mean abstracting from these monthly vagaries of the data? I suspect it's not 940,000, but do you have a sense of that? Do you have a view on that? I'm just curious, just to give people a benchmark or some context.

Dante DeAntonio: I'll give a nod to you, Mark. I think our forecast for a little while has been for about six million jobs we added this year, and I think that five, 600,000 a month is probably about where it is underlying. I think that makes sense to me. That's what I'm thinking. Ryan disagrees, based on his smirk. I don't know.

Ryan Sweet: Oh no, I was smirking about something else.

Dante DeAntonio: Okay. All right.

Mark Zandi: So you're thinking 500, 600K per month, give or take. So there's some months you're going to be higher, like July, maybe August you're going to be a little lower because you're on the backside of these seasonal adjustment factors and the Delta, and we'll come back to the Delta variant shortly.

Ryan Sweet: Since we're on YouTube, we have some charts. To your point about the volatility of the employment numbers, blue bars show you the change between months, and then the green line is the cumulative increase since February 2020.

Mark Zandi: Oh, okay.

Ryan Sweet: Cumulative change.

Mark Zandi: And it looks like, to my mind's eye, if I do an average of months over the past say six, seven months, almost since the beginning of that year, that feels like that would come in somewhere around 600K or something.

Ryan Sweet: Yeah.

Mark Zandi: Okay. So you would say that's kind of sort of underlying job growth in the current economy? Yeah, I think that's about right.

Ryan Sweet: That sounds right.

Mark Zandi: And I guess if that's the case and everything sticks to script, and the economy continues to generate that, and I suspect that it will more or less, that would mean we would recover all of the jobs we lost in the pandemic recession because we're still down despite everything. We're still down 5.5, 6 million jobs. We'll get all those back a year from now, and then it feels like with that kind of job growth, unemployment should be south of 4%, getting back into the mid threes by early 2023, so that would be probably consistent with full employment. Right? Something like that. So that feels like the track we're on at this point. Anybody disagree with that kind of perspective? I think that's our baseline forecast, roughly speaking.

Dante DeAntonio: I mean, the caveat there is obviously what happens with participation, right? If you get it to 3.3% unemployment and the participation's still very low, what does that really mean?

Mark Zandi: Yeah. And that brings up a great question. How do you think about full employment? That's obviously the bogey here. We want our economy to get back to something we consider to be full employment, which I think most people would say we were prior to the pandemic. Oh, there you go. So Ryan put up his favorite-

Ryan Sweet: I don't want to influence anybody. I'll go first. This is my metric for reaching full employment, which is the prime age employment to population ratio, and I think Mark pointed out at least historically, if you get to 80% that's an economy at full employment.

Mark Zandi: Yeah. So what about people who are listening to our podcast and aren't on YouTube? What happens to them when we're talking about it? I guess they're out of luck. They've got to get on YouTube.

Ryan Sweet: I think we're allowed to... Are we able... We're going to have to get Ben to chime in, but I think you can post slides on podcasts.

Mark Zandi: You can? Okay.

Ryan Sweet: I think so.

Mark Zandi: So your point is that historically, at least through the last few business cycles, a good benchmark for a full employment economy is a prime age employment to population ratio, and prime age is you said 25 to 54?

Ryan Sweet: Correct.

Mark Zandi: That is at or above 80%. So if the number of prime age employed relative to prime age population is over 80, that would be consistent with low unemployment, high labor force participation, a full employment economy. Wage growth is accelerating, that kind of thing. Yeah.

Ryan Sweet: Correct.

Mark Zandi: Right, right. But still, generally when people think about how to evaluate where the economy is relative to full employment, at least most people are still focused on the unemployment rate as their benchmark. So you would think that'd be what, about 3.5% would be full employment? In that ballpark, mid threes? Something like that. Cris? Are you closer to four?

Ryan Sweet: Whoa, whoa.

Mark Zandi: You're going to go the other way?

Ryan Sweet: I was going to say we don't know until we get there, but I would say my gut is below 3.5.

Mark Zandi: And when you say until we get there, what are you looking at to make a judgment that we're at full employment?

Ryan Sweet: No. I mean, looking at using the unemployment rate to gauge full employment, because economists did the same thing in the 1990s, they did it during the last expansion. "The unemployment rate's coming down. We're at full employment. Labor supply issues are going to build," and they never did. I think that's why, I don't know what Dante thinks, but I lean toward the prime age employment to population ratio.

Dante DeAntonio: I think you just have to be careful if you're just looking at the unemployment rate. It can be misleading, especially I think coming out of this recession. If we get below 4% and the participation rate comes back somewhere close to where it was, then I think we can feel pretty good about where we are. If the unemployment rate gets below 4% and participation's still where it is today, then I don't think that's something to celebrate.

Mark Zandi: Yeah. No, absolutely. Okay, so if I said to you, "Hey, unemployment's 3.5%, labor force participation is 63% back to where it was pre-pandemic, and the prime age employment to population ratio is 80%, and I guess wage growth is strong. It's certainly not decelerating. It looks like it is perhaps accelerating, and real wage growth is accelerating so nominal wage growth, less inflation is accelerating," you'd say, "Okay, we're at full employment." That sounds about right to you.

Dante DeAntonio: Yeah.

Cris deRitis: Wage growth's the telltale sign, right?

Mark Zandi: I think so. I mean, ultimately, at end of the day. Although right now, wage growth is pretty solid.

Cris deRitis: Okay. Fair enough. Looking at a test point, you can't just use one.

Mark Zandi: But today, the unemployment rate, despite the great jobs numbers, was 5.4%. Labor force participation rate was 61.7%, and what was the prime age employment to population ratio? It was 77-

Ryan Sweet: Point eight.

Mark Zandi: Point eight.

Ryan Sweet: It was up a lot.

Mark Zandi: Up a lot. Again, good news about July, but taking all of that, it still says we got a ways to go here until we're back to full employment.

Ryan Sweet: And I don't know about using the labor force participation rate. Shouldn't we use the prime age labor force participation rate? Because demographics are going to continue to put downward pressure on the overall labor force participation rate.

Mark Zandi: I think that's fair. I guess in a short period of time, that's not going to really affect things, so a poor man's way of doing it or an easier way to do it is you don't need to account for that. But over a five, 10, 15 year period, that demographics matter a lot, obviously, in terms of participation because of the aging of the population. Okay. So, we're on our way, but I think it's important for everyone to realize that we got a ways to go. But people are starting to worry about... Before I go there, I wanted to ask about labor supply. If you go back a couple months ago when we were having our podcast, and we did another labor market podcast, I think the subject at that time that was at the top of the discussion was around labor supply.

Mark Zandi: The economy was opening really very quickly coming out of the pandemic, we had a lot of open job positions, but job growth was still very weak. Well, it wasn't very weak, it was not what we expected. It was three, four, 500,000 per month. It wasn't the 900,000 or one million that we're getting right now, and labor supply was constraining the ability of the economy to create more jobs, to fill more jobs. Does anyone think labor supply is still an issue in terms of job creation? Is that playing a role here at all, in terms of our ability to add to payrolls?

Dante DeAntonio: I think the pace is pretty good already. I think it's going to become an issue, getting those millions of jobs back that are still missing. We need to get those people back in the labor force eventually, but would we have seen 1.5 million this month if labor supply wasn't a problem? I don't think so.

Mark Zandi: Yeah. I mean, it feels like to me that there's a cap on how many jobs can be created in a given month, because just simply business operational issues, HR issues, human resource issues. And if you think about the hiring process, maybe not in small companies but in mid-size and larger companies, there's a process. You get resumes, you interview people, now we do it over Zoom, and then there's a negotiation and then they say, "Okay. I have to leave my current employer and I'm going to come to you." That could take some time.

Mark Zandi: So the whole thing takes time. Not days or weeks, it can even be months. I think if you look at the change in employment month to month, not seasonally adjusted, it feels like the cap is about a million per month. Just very difficult for businesses to hire more aggressively, add to payrolls more aggressively than that. If that's the case, it feels like we're there. We're at the cap. No matter what else is going on, it's going to be pretty hard to get monthly job gains that are much stronger than what we're getting right now. Does that resonate with anybody? Does that make sense to people, the way you're thinking about things?

Cris deRitis: To some extent I would say so, and businesses do indicate that quality of workers, hiring qualified workers, is their biggest issue, so from that standpoint, I think businesses are still being picky and want to ensure that they have a good match before they just hire anyone to fill a role, so I think there's some truth to that.

Ryan Sweet: Don't you think it also varies by industry?

Cris deRitis: Sure.

Ryan Sweet: Just in professional service, of course you're going to take your time. But you see there's restaurant that are hiring mass quantities. Same thing with Amazon. Didn't they recently have a big hiring event, and they're going to try and fill thousands of positions in a very short period of time?

Dante DeAntonio: That was going to be my caveat. I think if you're talking about leisure and hospitality, I think that those frictions that you described, Mark, probably aren't quite so important. I think restaurants are more willing to hire people on the spot or very quickly, and maybe the labor supply issues are actually holding back overall hiring there. But I think in a lot of particularly white collar industries, and even something like manufacturing, the hiring process just takes a little bit more time.

Mark Zandi: Yeah, that makes sense. Well, even in some nonprofessional occupations, we've got things that just slow down the process. If I'm getting hired in the transportation industry, I probably have to take a drug test. You got to wait until the drug test comes back, and so forth and so on.

Dante DeAntonio: Right. Background checks, drug tests, all those things take time.

Mark Zandi: Yeah. It takes some time for that to really kick in. Of course, sticking to the labor supply issue, there's been a lot of debate about supplemental unemployment insurance. So as part of the American Rescue Plan, that's the relief package that was passed into law last March, adding that tacked on $300 a week in additional support to people receiving unemployment insurance. And the concern was that... still is, I guess... that extra money reduces the incentives for the unemployed go back to work, at least go back to work quickly.

Mark Zandi: And so we have had a number of states, I think it's up to 26 states, that ended that $300 supplemental unemployment insurance early. Under the American Rescue Plan, it was supposed to expire in early September, and a number of states ended it in June, some in July. I know all of us have been looking at this issue. Is there any evidence out there in the data or circumstantial or anything, anecdotal, that seems to suggest that supplemental UI has had a meaningful impact on labor supply, and job creation, and economic growth? Has anyone seen anything?

Dante DeAntonio: Nothing definitive. I think it was Indeed that did a study looking at job search activity in states around when those benefits were ending, and in some states where they ended it looked like maybe there was as little bit of an increase in search activity right afterwards, but in other states where it ended, it didn't look like there was anything, or even a decline. And that obviously doesn't signal completed job applications and you actually hiring, and employment, it's just signaling the first step of the process. 

Mark Zandi: Yeah. I don't know if you noticed, but Cris and Ryan have been kind of smiling, smirking. I don't know what the hell's going on.

Ryan Sweet: I'll let Cris explain.

Mark Zandi: They're texting back and forth.

Ryan Sweet: I can't get in any more trouble.

Cris deRitis: Me neither. Me neither.

Ryan Sweet: All right, back to your point about labor supply in UI, I have a chart for you.

Mark Zandi: Oh, okay. Good. Great. I like this whole YouTube thing.

Ryan Sweet: This comes from the labor force flows data, so it tracks people when they're not in the labor force, how had they transitioned from employed to unemployed, et cetera. This is just showing people that are not in the labor force, move dot employed. So they jumped from being out to having a job, and it jumped pretty noticeably, I think, in July, and that was towards the end. It was about 500,000, maybe a little bit more than that. But if you look at the number of people that went from unemployed to employed, there wasn't this big surge that you would think would be the UI benefits. This, the jump from not in the labor force to employed, is probably reopening because you have to be actively looking to receive UI benefits, so they wouldn't be counted as not in the labor force.

Mark Zandi: Okay. So just to reiterate for the folks that don't have the benefit of the chart, what we're saying is that in the month of July, a relatively large increase in the number of people that went from being not in the labor force at all, so that means they're not unemployed, they weren't looking for work, obviously if that's the case they weren't receiving unemployment insurance, to being employed. So that feels like it could be parents who were staying home with kids, taking care of them while schools were online. Now they have summer school in person or camp in person, they're going to work.

Mark Zandi: So that might be an example of that, but if the supplemental UI was having a meaningful impact on these decisions, then you would expect to see a large increase in the number of people who went from being unemployed because they were getting unemployment insurance to employed, taking a job. And you're saying no, we're not observing that. We did not see that. [crosstalk 00:36:18] Yeah. Okay. Okay, so bottom line, it's still circumstantial because the jury's out here. We need more data, a lot more data, and more time to collect the data, but at least so far, the impact of supplemental UI on decisions made by unemployed workers to work or not work. Is that fair? We're all kind of on board with that? Okay. Cris?

Cris deRitis: That's right.

Dante DeAntonio? You're being stoic over there.

Dante DeAntonio: I would agree with that. Yeah.

Mark Zandi: You would agree with that. Okay. All right. Okay. Fair enough. But again, this is a script being written. We'll see. We'll get more data points. I guess the next set of data that we get, that will be helpful here, is the state employment data for the month of July. I did look at the state employment data for June, because there were some states that ended the supplemental UI pretty early on in June, not a lot, I think there were four or five states, and then a number of states that ended in July. And you would think that if you're going to end in July, then people might start going back to work. If this is going to have an effect, it starts showing up in June, people start taking jobs. But you can't see it. This is not in the state employment data. I couldn't discern it, but we'll see.

Ryan Sweet: I know we need more data points, but we're running out of time. We'll get the August employment report, and then September is when they're going to expire anyway, so it's going to be very, very difficult to discern early versus just regular scheduled.

Mark Zandi: Yeah. Yeah, right. Yep.

Dante DeAntonio: And I think that just goes to there was a lot of hand-wringing about something that probably didn't matter all that much, because we're talking about a couple of months of benefits. You weren't talking about benefits that were going to go on for another year, you were talking about a few months, so it wasn't really going to make that much of a difference anyway.

Ryan Sweet: In the belly of this report, you look at the number of people that are not in the labor force but want a job by reason why they're not in the labor force. And in July, the number of people that are not in the labor force but want a job or not looking is because they're sick or disabled. That jumped, so that's COVID most likely, and then people are out of the labor force because of family responsibilities.

Mark Zandi: Oh, that's interesting. I didn't-

Ryan Sweet: So I think those are much more significant for the labor supply problem than UI benefits. Some people are going to have to drop out of the labor force soon because summer camps are over.

Mark Zandi: Are you dropping out of the labor force, Cris? This is news to me.

Cris deRitis: I found a camp for next week, so at least one more week.

Mark Zandi: We're good. Okay, so another issue that's come up that I'm just curious what your perspective is on this is of course wage growth has been very strong, and a lot of concern about inflation. You've got now the economy doing well, lots of job growth, unemployment's starting to come in very rapidly. We're talking about full employment by early 2023, and wage growth is already pretty strong. If you look at the average hourly earnings that are in the BLS report, I think it's four and a half to 5% year-over-year, which is obviously overstated because of mix effects, but nonetheless.

Mark Zandi: The employment cost index, which is a better measure of wage growth because it controls for the mix of jobs across industries and occupations, that's kind of sort of in the mid threes, which is pretty strong, and really didn't show any weakening during the pandemic. Inflation is kind of a worry, a concern. What do you guys think? Are we headed to an inflationary problem here because of what's going on in the labor market? How are you thinking about that? Do you think people are just too much drama around this, or is there real reason to be concerned? I'm curious to hear what your perspectives are. Dante?

Dante DeAntonio:

I think it's wait and see right now. I think the labor supply issues obviously play hand in hand with what's going on with wage growth. Wage growth isn't strong right now because the labor market is super tight, it's strong because firms are competing for a limited pool of workers. So I think if we can get to September, October and you get some of those workers coming back, that should take some of the pressure off of wage growth, at least temporarily until you get to an actual tight labor market. So I think I'd wait and see. I'm not concerned yet, but if you don't see that slow at all in the next few months, and you see it continue to accelerate, then I think that could be signaling a problem.

Mark Zandi: Yeah. Cris, any concerns about inflation?

Cris deRitis: I'd agree with that. Certainly, inflation's on the risk matrix, but it's not cause for red flag just yet, I would say. I'm still a believer in the productivity story, so I think some of the productivity gains stick, and that supports higher wages without leading to inflationary pressure. But wait and see is probably the best strategy right now.

Mark Zandi: The point you're making is okay, we've got strong wage growth. Maybe it is going to accelerate, but look, we've got also stronger productivity growth, so that's the impact of the stronger wage growth on business' profitability, and thus the pressure on them to actually raise prices more aggressively. That's not going to mean inflationary pressures.

Cris deRitis: That's right.

Mark Zandi: Yeah. And you guys... When I say you guys, I mean Dante and Cris, you guys have been working on a paper, which I haven't seen, by the way. You've been threatening to show me this paper... It must be a masterpiece or something, at this point in time... on productivity growth. Right? Is that right? You guys are working on this paper?

Cris deRitis: We are.

Mark Zandi: Want to give us a preview? What's the preview? I heard there was a bit of a disagreement. Maybe that's why I haven't seen it yet. You guys haven't come to a consensus. Is that what's going on?

Dante DeAntonio: We're not trying to come to a consensus. We're arguing with each other in the paper on purpose.

Mark Zandi: Okay. So let me ask you, let me frame it. Productivity growth between World War II and the financial crisis was 2% per annum. This is nonfarm business productivity growth. 2% per annum. Obviously, some years higher, some years lower, but on average, 2%. And actually, I think it was pretty close to 2% on the nose. Since the financial crisis up until the pandemic, so that 10 year economic recovery or expansion, it was closer to 1%. Early on it was below one, later above one, but one. So that's a pretty large step down in productivity growth, and that's a big deal if sustained.

Mark Zandi: And I should say in the pandemic, since the pandemic hit, it has increased significantly. Some of that is definitely measurement issues related to the pandemic, but it feels like it's more than that because it seems to be going on for longer than you would expect if it was simply a measurement issue. So the key question is, where are we going? Are we going from the 1% back to the two, or are we going to something less than that, something more than that? What's your opinion on that? Where are you landing on that question? Is that the right way to frame it?

Dante DeAntonio: I think it's framed around our forecast. Our forecast is for it to settle at about 1.5%, and so we're basically arguing should our forecast be higher, lower, should it stay the same? That's framing it around a 1.5% target as where we might land.

Mark Zandi: And so Crisis taking the-

Cris deRitis: High.

Mark Zandi:... high side, something north of 1.5% per annum. So Cris, what would you say? Go back to two?

Cris deRitis: Back to two. Yeah.

Mark Zandi: Back to two. We're going back to two. Are we back to two? We're already back to two?

Cris deRitis: We're actually above two right now, based on the latest measurement.

Mark Zandi: The underlying. The underlying.

Cris deRitis: Underlying, I think we were back to two.

Mark Zandi: Back to two. And Dante, you're not just doing this to disagree, are you? Or you actually believe that we're not going back.

Dante DeAntonio: I'm not doing it just to disagree. I'm not saying we're back to one, but I think we fall somewhere below 1.5%. I certainly don't think we're at two, I think we're at 1.5 or maybe a little bit below that, when this is all said and done.

Mark Zandi: The listeners should know, Dante, he's not ADP fiasco. He's very argumentative. He's always taking the other side. Always taking the other side.

Dante DeAntonio: And I'm generally not a pessimist, so this is an unusual take for me. I think I'm usually optimistic than this.

Mark Zandi: Okay. It's a little bit of a tangent, but it's not that much of a tangent. Cris, quickly, why are you thinking we're going to be back closer to two? What's the logic behind that, the economic rationale?

Cris deRitis: It's the technological investments that we've made, and the fact that during the pandemic, there's been widespread adoption of these technologies. The cloud, machine learning, I'll work from home. It's not just within the technology industry, but now it's every industry adopting those technologies, and I see that as a real game-changer in terms of additional productivity growth going forward. And other reasons, but that's the main one.

Mark Zandi: That's the main reason. It's technology. The pandemic has incented-

Cris deRitis: Jump started.

Mark Zandi:... Jump-started. Yeah. Businesses have been investing in these things, but not fully incorporating them into their business practices because if it ain't broke, why fix it kind of logic. But in the pandemic, Cris deRitis' mode, I'm going to do something. I've got to make big changes, and they made these changes and the productivity gains are starting to flow through as a result, something like that.

Cris deRitis: Yep. That's the argument.

Mark Zandi: And Dante, you're on the other side because why? What's the economic logic?

Dante DeAntonio: I'll give you two quick ones. One is to sort of argue against the tech argument. Like you just said, people are making fast decisions, throwing money at a problem in the middle of a pandemic, and so there's clear evidence that firms are spending more money on IT and things. The question is, are they making the right investments? If they had time and planning, would those investments have been made better? Instead of saying, "Hey, we're in the middle of a pandemic, everyone's at home. I need to figure out a way to make this work," is that the best way to be investing for the future? I don't know. Sure, there's evidence that we're spending more on what could be productivity-enhancing technology, but are we getting the most bang for our buck? Is that money going to get wasted? Is some of that going to go by the wayside because we're making these decisions too quickly and off the cuff? So that would be one. I would argue against the benefit of the tech part a little bit.

Dante DeAntonio: And then the paper we did a few years ago I think still stands. The aging of the workforce isn't going away. Demographics are still a factor. When we did work with ADP's data, looking at the share of workers over 65, that share is still rising. That still is going to be a weight on productivity growth. Again, that weight will start to reduce a little bit, but it's still a headwind for at least the next decade. And so I think those two things combined get us. I still think we're going from one to something higher than one, but I don't think there's all that much reason to be optimistic that we're going to get back to two.

Mark Zandi: Good. Okay. Ryan, which argument convinced you?

Ryan Sweet: I'm with Cris.

Mark Zandi: You're with Cris, because you also think inflation's going to be low.

Ryan Sweet: Right.

Mark Zandi: Right. I see the thumbs up. There's a thumbs up.

Ryan Sweet: Cris and I are usually on the same page.

Mark Zandi: Is that right?

Cris deRitis: Pretty close.

Mark Zandi: I didn't notice that. Dante, I have to say, I'm sympathetic to the alternative you hear that's being expressed. Yeah. I appreciate the non-consensus view that you're expressing, but I-

Dante DeAntonio: I'm just glad this is on video, that way if a couple years from now I can come back to it in case I'm right. If not, I'll make sure no one ever sees this again.

Mark Zandi: By the way, that paper we did on productivity and related that to aging, that's a classic. That is a classic piece we did with Adam Ozimek, who's now the chief economist of Indeed, who we've had on the podcast on remote work. And my interpretation of that was, though, that the headwind due to the aging, the increase in the workforce that's Boomers, it's still a headwind, it's just starting to blow less hard. Is that fair? I think that's right. No?

Dante DeAntonio: Right. We basically showed he headwind peaked, or is about at peak, right before the pandemic, and then it starts to subside, and that's part of my logic for not saying we're going to go back down to 1% again, I think we're going to see some improvement from where we were pre-pandemic because that headwind is starting to lift a little bit. But it's still there at least over the next decade.

Mark Zandi: Okay. So would the logical conclusion of what you're saying be that you are more concerned about inflation because wage growth is accelerating, and if we don't have the productivity gains, that would be more inflationary? Is that fair?

Dante DeAntonio: I think that's fair. I don't think that wage growth is going to continue to accelerate. I think wage growth is going to come back in once we fix those labor supply problems, so I don't think wage growth is going to continue to accelerate from here on out, and so I don't think that's going to contribute to as many inflationary concerns as maybe other people might.

Mark Zandi: Yeah. Hey, one other thought I had was around productivity, was that a lot depends on the cost of labor. If the cost of labor is rising quickly, then businesses say, "Hey, I got to figure out how to improve productivity, and therefore, I'm going to invest more. Either I'm going to shift investment or I'm going to increase my investment dollars towards figuring out how I'm going to do what I'm doing with fewer labor hours, or at least cheaper labor hours." And so it's kind of endogenous.

Mark Zandi: It's not completely an exogenous thing, and my sense is it feels like, to me, businesses are increasingly focused on their labor costs because they know this is going to be an issue. By the way, the tight labor market was businesses' number one problem before the pandemic, and it feels like all that's happening here is we're going back to the same problem we had before the pandemic with the tight labor market. Does that resonate? I see Cris saying yeah.

Cris deRitis: Absolutely. That's why I think the national rate of unemployment is actually a bit higher than what you were stating earlier, because of the productivity.

Mark Zandi: That is interesting. That's very interesting.

Cris deRitis: At least it's internally consistent.

Mark Zandi: And interesting. Yeah. Okay. All right, so bottom line though, we feel pretty good about despite the strong job market, despite the economy coming into full employment quickly, wage growth's strong, not overly concerned about inflation at this point. No.

Ryan Sweet: If you look at the June core PC deflator, it was up 0.4% between May and June. The reopening of the economy, all those very sensitive industries plus used and new car prices accounted for 3/10 of that. So strip out those one-time events or temporary events. Even with strong job growth accelerating, very strong wage growth, core inflation still only ticked up 0.1.

Mark Zandi: Yep. Okay. There's a couple of other topics I want to get to that are related to the labor market, and for the careful Inside Economics podcast listener, you have noticed that I didn't break apart the conversation between statistics... And by the way, we didn't actually go through all our economic statistics, did we?

Dante DeAntonio: I don't think Cris ever got his.

Mark Zandi: Okay.

Cris deRitis: It's a big day.

Ryan Sweet: We were just so excited about the employment report.

Mark Zandi: We were too excited. So we're going to table that for this week, but I kind of melded together the statistics and the big topic, which is obviously the labor market. So this is a little bit different for the careful listener of the Inside Economics, but we'll go back to the traditional way of doing things probably next week. And I have a little bit more to say about what's going to happen next week. We've got a really good guest for next week. Not as good as you, Dante, but a good guess.

Dante DeAntonio: Good save.

Mark Zandi: Yeah. Good save. I do have a couple of other issues I want to tackle before we call it a podcast, and that is okay, so it feels like the economy's really doing pretty well here. That job number was about as good as it gets. We're recovering quickly. What does it mean for monetary policy, and maybe fiscal policy? I know Ryan, you are advocating for a change in our forecast around monetary policy, and this is a big deal because this would mean that Ryan was wrong.

Ryan Sweet: Wait, wait. Whoa. We got to separate our conversation about when they're going to raise interest rates versus beginning to taper their $120 billion in monthly asset purchases.

Mark Zandi: I don't see any distinction between these two things, but okay. Fair enough. No, I'm only teasing you.

Ryan Sweet: I knew I was going to be wrong. I thought it was going to be January when they actually begin to taper, but if August employment is just above trend that we talked about, I think they're going to start tapering in December of this year.

Mark Zandi: Okay. So taper means?

Ryan Sweet: Reduce the size of their monthly asset purchases. So right now it's $120 billion per month. They'll likely cut it by $15 billion, and it's going to be on autopilot all the way down to zero, and then they're going to maintain and invest the proceeds to make sure their balance sheet doesn't contract for a period of time.

Mark Zandi: Yeah. So you're saying in our forecast, and it's been this way since the beginning of the year, really, we've been assuming that the fed would actually taper their quantitative easing, pull back on their bond buying as of the January FOMC meeting-

Ryan Sweet: January 2022. Correct.

Mark Zandi: January 2022. And now you're saying we should pull that forward to December. Is there a meeting in December?

Ryan Sweet: I believe so.

Mark Zandi: Wait a second. I don't know. We should take a look.

Ryan Sweet: Is there a meeting in December? I should know this.

Mark Zandi: I don't know offhand.

Ryan Sweet: I'll look it up. You guys can talk amongst yourselves.

Mark Zandi: Okay. And so you're advocating for us to bring that in and that makes sense to me, bring that in. But you're also saying don't change. We should not change the date of the first increase in short-term interest rates, which we expect at this point, January 2023.

Ryan Sweet: Correct.

Mark Zandi: So no change there.

Ryan Sweet: Because it gets back to this broad and inclusive recovery, and it's not going to be just the unemployment rate that triggers them to tighten. They want to see the unemployment rates across all demographic cohorts come back to where they were pre-pandemic.

Mark Zandi: Okay. Got it. Okay. That makes sense, so I think we'll need to make that change.

Cris deRitis: So the tapering starting in mortgage, or equally split between MBS and treasuries?

Ryan Sweet: It's not going to be equally split, but they got $15 billion. Most of it will be treasuries, and then the rest will be in MBS. Maybe you disagree. I don't know why they would focus on MBS first, because it's not like that's juicing the housing market.

Cris deRitis: There's been a lot of chatter about it juicing the housing market.

Ryan Sweet: Yeah. In the last minutes, Powell's kind of pushed against that idea.

Mark Zandi: I think the bond market agrees with your assessment Ryan, because didn't the long-term, 10 year treasury yield rose quite a bit today.

Ryan Sweet: Correct.

Mark Zandi: We're back up to 1.25% on the ten year bond, I believe, so up seven, eight basis points.

Ryan Sweet: And there is a meeting December 14 and 15.

Mark Zandi: Oh, is there? Okay, fine. Okay. That makes sense. Okay. What about fiscal policy? The Congress is in the middle of negotiations over an infrastructure package. That infrastructure package is $550 billion over 10 years, and then the next up would be the $3.5 trillion budget reconciliation package of social investments. Do you think this strong economy is going to affect that at all, in terms of right now we're assuming that we're going to get that infrastructure package and a pretty good sized reconciliation package later this year, probably sometime in October. Do you think this changes the dynamics there and we get something different? Any change in terms of fiscal policy?

Cris deRitis: Just on the infrastructure package, has your view, your odds, have they shifted at all after the CBO report?

Mark Zandi: The Congressional Budget Office, they score all of the budget proposals, so they determine what is the impact on the budget for these different tax and spending proposals, came out and said yesterday I believe, Thursday, August 5, that the $550 billion package will result in a budget deficit of $250 billion. Of course, this is over the 10 year budget horizon, so $550 going over 10 years. And that was I think more than people expected. It probably makes the conversation more difficult, but I still think they pass it. What actually happened was that the CBO said they could not use repurposed CARES Act or other relief money that wasn't going to be actually used. It was appropriated, but was not going to be used as using it for this, so reducing the cost of the $550 billion, and they said, "No, you can't do that." I don't know. That's a close call, whether that's appropriate or not, but no, I haven't changed my view. I think they're still going to pass it-

Cris deRitis: As it, no changes?

Mark Zandi: Yeah. I think so. Maybe they can come up with another pay form, I'm not sure, but I think they will. The train has moved too far down the track, I think. I think. It's in our forecast at this point. But any sense that these strong job numbers are going to change that dynamic in any way? I don't think so, but okay. Fair enough.

Cris deRitis: Not on the infrastructure, but on the other package maybe, right?

Mark Zandi: Maybe. I think it might. Yeah. It might.

Ryan Sweet: You already have some Democrat Senators asking the fed to reassess monetary policy because they're worried about inflation.

Mark Zandi: Democratic Senators?

Ryan Sweet: Mm-hmm (affirmative).

Mark Zandi: Oh yeah? Who's that? Can you recall who? No?

Ryan Sweet: Do you want me to say?

Mark Zandi: Yeah, I'm curious.

Ryan Sweet: Oh, Manchin.

Mark Zandi: Oh, Joe Manchin.

Ryan Sweet: Yeah. He was saying immediately reassess monetary policy, so to your point, I think the conversation's going to get more difficult around the second package.

Mark Zandi: Yeah. Okay. All right. I want to wrap up with the Delta variant, and get your sense of how big a deal you think this is, or whether it is going to be a big deal. And maybe, Cris, we'll begin with you because you spent a lot of time looking at the epidemiology of this virus, and how that's progressing. What is your sense of things? How significant is this going to become?

Cris deRitis: The cases are rising, and they will continue to rise. Under our baseline forecast, we had them rising over the next couple of weeks and then starting to gradually slow down and actually turn the corner as we get some immunity from infections versus just vaccination. The good news it, vaccinations are up too, so that's driving that. However, in terms of the economic impact, I see very little. I see people still going about their lives, still wanting to eat at restaurants. You do have certain cities like New York City putting in more restrictions, so that certainly will have some impact on the economic activity, but I'm not seeing the type of widespread lockdown, certainly, that we had last year. So I think there will be some bumps in the road here, but I don't see this as really changing our trajectory substantially at this point. But hospitalization... sorry, go ahead?

Mark Zandi: I was going to say, what would it take for you to say something different?

Cris deRitis: Hospitalizations are the key, at least that's what the government officials have always identified as an issue of why they have to impose lockdowns, is to really protect the hospital system. You do have certain communities who will certainly be affected, but again, by and large, most hospitals have capacity and we have better treatments at this point for people who do get infected with COVID. For that reason, I don't see it as a major risk, but certainly if things were to deteriorate or if the Lambda variant that is now coming to the floor should take off, then certainly that would change things.

Mark Zandi: Yeah. I have noticed, we put together, and I've talked about it in the past on these podcasts, a back to normal index, which is a compilation of government statistics, third party data, and more real time data like Google mobility and OpenTable, and restaurant bookings and TSA, the number of people who go through TSA pre-checks and home-based hours data and that kind of thing, and we have it at a state level. The variant seems to be having some impact there. Florida, southern states, Midwest states are seeing some weakening in economic activity. I don't know, so far it hasn't risen to a level where it's starting to affect the aggregate macroeconomic statistics, jobs. Probably still room for that, but feels like it's having an impact.

Cris deRitis: I definitely would agree with that at a local level, certainly. Certain areas are hard hit, but in terms of the aggregates, I don't see it.

Mark Zandi: Do you think it's going to show up? I know this is an unfair question because a lot of uncertainty around this, but do you sense it's going to show up in the August employment data? Do you think it'll have an impact on jobs in August? Because that's survey's coming up pretty fast here. I think if it's not next week, it's the week after. The BLS survey that they use to construct the August employment data is not too far away.

Cris deRitis: I think it might have some impact, but it's just going to be somewhat slower growth. We're not going to see declines, certainly, in leisure and hospitality, so it'll be hard to really parse out how much of this is just some of the other factors that we've talked about, in terms of slowdown and perhaps in the rate or the pace of hiring. I don't think we'll see a significant impact at the national level. There are also some substitution effects, so people won't go to the restaurant but they'll continue to order take-out, so there might be some of that going on.

Mark Zandi: Yep. And have you guys changed your behavior at all as a result of the Delta variant? Has it affected the way you're doing anything or thinking about anything? Are you wearing masks again when you walk into Wawa?

Ryan Sweet: I've always worn a mask, since the pandemic began.

Mark Zandi: Oh, really? Oh, you've never taken-

Ryan Sweet: I still do, because my situation, I got young kids and they can't be vaccinated. Even though I'm vaccinated, I want to be extra careful, so any precaution I can take, that's what I do.

Mark Zandi: Dante, are you the same?

Dante DeAntonio: Yeah. We haven't done much to-date anyway, so there hasn't been that much to change at this point. I think my point was going to be about labor shortages and schools, and I think those are the bigger potential issues from Delta. Not so much the top line economic damage, but do we get schools that don't fully reopen? Do we get those same people that are concerned about COVID, do those same issues linger longer than they might have and create those labor supply issues for longer than we would've expected? I know we're anticipating sending our kids back to school in September, and hopefully that still happens and goes well, but we'll see how things turn out. So that would be my bigger concern, is on the labor supply side.

Cris deRitis: And to Dante’s point, my son's elementary school already sent out a survey about do you want to be remote because of Delta variant? Do you want all the kids to wear masks? They're already starting to think about it, so I think Dante makes a very, very good point.

Mark Zandi: The thing that worries me is what's going on overseas, and it is having an impact on production at the start of these large global supply chains. The chip industry's a great example of that. There's some Southeast Asian chip plants that just shut down because people are just sick, they can't go to work. And those chips are critical. I just saw GM, I think it was GM, shut down, or decided to close a number of light vehicle factories down for a longer period of time because they can't get the chips to produce the cars. It could be the case that this delta variant and other variants have reverberated back on us not directly, but more indirectly in the disrupt of global supply chains and the supply issues, and make them much more severe than anticipated and last for longer, so bears close watching. Okay. Anything else that you guys want to talk about on the labor front before we call it a podcast? Anything I missed? We covered a lot of ground there. Anything you want to bring up? Okay. Again, kudos to Ryan. Dante, you need to work a little harder. Cris, I have nothing to say for you. You're fine. No problem.

Ryan Sweet: It can all flip. Next month, Dante could be right and I could be very, very wrong.

Mark Zandi: That's what I like about Ryan. He's humble.

Dante DeAntonio: You notice Mark didn't call my number last month when ADP was right on the money. I didn't get the call to the podcast then to celebrate, I just get called in to get drug out for the bad one.

Ryan Sweet: It's very true.

Mark Zandi: Someone has got to be picked on.

Dante DeAntonio: It can't be a celebration for everybody, somebody's got to be the scapegoat? All right.

Mark Zandi: And you know how much we respect you, Dante.

Dante DeAntonio:

I know. I know.

Mark Zandi:

Because you are the first guest that's been invited back. That is saying something. That is saying something.

Dante DeAntonio:

I don't know what it's saying, but it's something. I'll take it.

Mark Zandi:

It's big. It's huge. There we go. Whatever they are, he's doing it. Those two have been smirking the whole time. Have you noticed, Dante? It's like they've got something going on behind our backs. I have no idea.

Ryan Sweet: No, we're not doing anything.

Dante DeAntonio: I think I've got a read on it, but-

Mark Zandi: Oh, is that right? Is it three of you against me?

Ryan Sweet: We can talk about it after the podcast, but I think we have a new game down the road that we can incorporate into our podcast.

Mark Zandi: Oh, really? Okay. We've got to hear more about this. Anyway, I did want to mention, I mentioned this earlier but I want to reiterate, we have a great guest next week, Dan Rosen. Dan founded a company called Rhodium Group. Rhodium is a consultancy, and they do a lot of work monitoring overseas risks, and particularly focused on China. And we do have this ability for all you listeners to give us your vote for what topics you want us to talk about. You can go to Economy.com, click on Inside Economics, and then vote. Tell us what topics you're interested in, and China's U.S. relationship is at the top of the list.

Mark Zandi: That's what the majority of people want to talk about, and so we've got Dan on next week. And I highly recommend, this is a little bit of homework, he wrote a great essay in foreign affairs, so if you want to get kind of a sense of what he's thinking and his purview and his perspective, I would highly recommend that piece. A very well written and articulated, and we're going to have a very good discussion next week. So with that, I want to thank everyone. Have a good week, and we'll talk soon. Take care, now.