INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, chief economist of Moody's Analytics, and I'm joined by three of my colleagues today. Of course there's Ryan Sweet, director of real time economics, looking dapper, not as dapper as Cris deRitis. Cris is the deputy chief economist. No one looks ... I've got my hair combed-

Ryan Sweet:                      You got your tie on.

Mark Zandi:                      ... and my tie on, and I still don't look as dapper.

Cris deRitis:                       Oh, come on, come on.

Ryan Sweet:                      Then Dante dusts off the old tablecloth shit.

Mark Zandi:                      That's our third colleague, Dante DeAntonio, joining us for the, how many times have you been on this podcast, Dante?

Dante DeAntonio:           My third time.

Mark Zandi:                      Third time, and are you going to take that from Ryan? Jeez.

Dante DeAntonio:           He is my boss, so ...

Cris deRitis:                       I think you look great, Dante.

Dante DeAntonio:           Thank you, Cris. I was trying to match you.

Cris deRitis:                       Yeah. I wear those shirts all the time.

Ryan Sweet:                      Yeah. I don't think he looks that good.

Dante DeAntonio:           Thank you. Appreciate that.

Ryan Sweet:                      Look at Cris. He's got a green hoodie thing going now, I think. Is that a hoodie there?

Cris deRitis:                       That is a hoodie, yes.

Dante DeAntonio:           Just in case he gets called. He's ready.

Cris deRitis:                       I'm in the office and I think you're keeping the heat a little low here, Mark.

Mark Zandi:                      Is anyone else in there?

Cris deRitis:                       It's me and Gayle. There's two of us here.

Mark Zandi:                      Yeah. Well, suck it up.

Cris deRitis:                       Hence the hoodie.

Mark Zandi:                      Hey, we're going to talk about jobs, obviously. This is jobs Friday. We're going to take a deep dive into the November employment report and see what it tells us about the economy more broadly and about liberal market issues, and no better person to have here to do that than Dante. Dante, can you just remind us of your background? I think you're a Bureau of Labor Statistics after you, do I have that right?

Dante DeAntonio:           Right of college I worked at the Bureau of Labor Statistics doing state and metro employment estimates, and then I went to grad school and then I came here.

Mark Zandi:                      What did you do with the state and the metro? Did you actually put those data together?

Dante DeAntonio:           Yeah. We put the data together, put the press releases together, answered client questions and things.

Mark Zandi:                      Did I ever tell you guys, the very first thing I did as an economist ... Well, I call myself an economist. When I started calling myself an economist, was to marry the different data sets that had employment in a state and metro area level, because each data set covers kind of a different part of the labor market. There's disclosure holes. Things don't add up, so I work to try to bring all those data sets together and try to make sense of them and make one grand data set. That was the very first thing I did coming out of school.

                                             I learned a lot about the data, about programming. It was a pretty cool project, actually. The really weird thing is, I think we're still doing that, aren't we? A lot of the work is trying to glean information from these various data sets that we collect from government agencies, including the Bureau of Labor Statistics. You impressed, Dante? Did you know I was doing that with your data? You had no idea.

Dante DeAntonio:           I did not know that. No.

Mark Zandi:                      Yeah. I was.

Dante DeAntonio:           Before my time.

Mark Zandi:                      Yeah. Well, it's good to have everyone, and it feels like we just did a podcast because we just did one I believe on Wednesday. Our podcast of the week of Christmas we talked about economic threats and opportunities. We didn't go over any of the statistics, but that's going to air the week of Christmas, but this is our weekly podcast and we are going to do the statistics and we are going to focus on the job market. Who wants to lead the way here in interpreting the job numbers that we got today from [inaudible 00:04:16]? Dante, you want to do that, or you want Ryan to do that, or maybe you go first Dante and let Ryan fill in the holes?

Dante DeAntonio:           I'll let Ryan go first if he wants. I have a few in my pocket, so he can take the first stab at it.

Ryan Sweet:                      Can we start with ADP?

Dante DeAntonio:           I do have a fun stat about that if you want, that, I'm putting the blame on you, Mark.

Mark Zandi:                      Me?

Dante DeAntonio:           Whenever you ask me to be on the podcast, you set in motion a trail of bad things happening.

Mark Zandi:                      You want to explain, for the typical listener who doesn't know what the hell we're talking about?

Dante DeAntonio:           Sure. This is my third appearance on the podcast, and the three times that I've been on, the average miss for ADP, the national employment report, is 386,000. We have missed very large all three times when you've asked me to be on the podcast.

Mark Zandi:                      What we do is we have this relationship with ADP, the human resource company that does payroll records for companies. We get their data for 23 million employees every month, something along that order of magnitude, and then based on that data, we construct our own estimate of what we think the Bureau of Labor Statistics is going to report for that month. We do this a few days before BLS actually reports, and this month we came in at, what, 530,000, I think, for the month?

Dante DeAntonio:           534, yeah.

Mark Zandi:                      534, and the actual BLS number was ...

Dante DeAntonio:           235 for private.

Mark Zandi:                      That's a pretty big miss, and you're right, every time you come on ... Last month, for example, you weren't on. For some reason you weren't on.

Dante DeAntonio:           It was my fault last month. I had to bail, and that was actually a good one, so I guess I'll take the blame for that.

Mark Zandi:                      Yeah, right, and ADP was like on the nose, I believe. It was like 500,000, pretty much on the nose. Yeah, so maybe we shouldn't have you on. We'll see how this [crosstalk 00:06:08]-

Dante DeAntonio:           You have to wait to ask me until after Friday morning. You have to ask me the very last minute, maybe.

Mark Zandi:                      Exactly. Exactly. Okay, so, Ryan, why don't you give a sense of the numbers and what they said about where we are in the recovery?

Ryan Sweet:                      Job growth clearly disappoints. I don't want to give a lot of numbers because we may use some of them in the game, but I think the key takeaway is it's not as bad as it looks. Even at a little over 200,000 increase in nonfarm payrolls, that's faster than the average growth that we saw during the last expansion, which was about 175, so, over 200 is not a bad number. It was just well short of expectations, so I think there was a little bit of a letdown. If you look at the household survey, unemployment rate fell. It fell across demographics, race. It was a clear improvement across the board. Participation was up, which I ignore, but prime age employment to population jumped, so there is plenty of reason for optimism.

                                             It's essentially the tale of two surveys, establishment survey, very, very disappointing. Household survey suggests the economy is booming, which is collaborative with a lot of the other economic data that came out this week.

Mark Zandi:                      I think you need to explain the difference between establishment survey and household survey. Geeks like us know what that means but I'm not sure. I think we have gone over it in other podcasts, but we should go over it again, so what's the difference between those two surveys?

Ryan Sweet:                      The establishment survey is, that's where the nonfarm payroll number comes out, it's estimated from, and that is a survey that's sent out to businesses asking how many people are on their payroll. The household survey is a survey, and Dante, correct me if I'm wrong, 60,000 households and they ask a bunch of questions, like are you unemployed, are you actively looking for work, so you have two different ways of measuring employment, asking establishments and asking households.

Mark Zandi:                      They both come out in the same report every month, and we as economist and media, policymakers, tend to focus on the nonfarm employment number that comes from the establishment survey, the survey of businesses.

Ryan Sweet:                      Yeah. It's a lot less volatile, so if you look at over time, the volatility in the establishment survey measure of employment versus household, is substantially lower.

Mark Zandi:                      We think there's more information, less noise, when you look month to month in the establishment survey than the household survey.

Ryan Sweet:                      Correct.

Mark Zandi:                      Household survey, because, as you said, Dante, is it 60,000 households? Is that what it is?

Dante DeAntonio:           It's between 60 and 70,000. Yeah.

Mark Zandi:                      Yeah. Something like that, and there's, what, 125 million households in the United States? I'm making that number up, but something like that.

Dante DeAntonio:           Yes. It's a small sample size.

Mark Zandi:                      It feels small, and the establishment survey, that is somewhere around, what, 25, because surveys, businesses, establishments that employ roughly, what, 25 million employees, something like that?

Ryan Sweet:                      Yeah. It's about 400,000 establishments that usually cover somewhere in the 25 million worker neighborhood.

Mark Zandi:                      There's 150 million, is it 150 million, yeah, out there working, roughly, something like that, so it's a bigger survey. It's just a bigger survey.

Ryan Sweet:                      Yeah. Each one has their positives and their negatives, like the establishment survey will have double counting, because Dante and I both teach at Westchester so we're on their payroll, but we're also on Moody's, so there's a little bit of double counting.

Mark Zandi:                      What? Hold on. I don't think that's right?

Ryan Sweet:                      Isn't that? That's right.

Mark Zandi:                      No, no, no, no. No.

Ryan Sweet:                      Yeah, it's the establishment survey. If they ask-

Mark Zandi:                      Dante, that's not right.

Dante DeAntonio:           Well, no. The establishment survey, where they're asking businesses, so Moody's would report that Ryan and I are employed and Westchester would also report that Ryan and I are on payrolls. In the household survey, they just ask, do you have a job, are you working, so we would just say yes, so we'd be counted as a person who's working. The payroll survey is counting jobs.

Mark Zandi:                      I misunderstood, but you're not moonlighting are you, Ryan? You don't have another job out there that I don't know about?

Ryan Sweet:                      Yeah. Dante and I are both teaching at Westchester University. You know about it.

Mark Zandi:                      Oh. I didn't catch that.

Ryan Sweet:                      I think you have to approve it every year.

Mark Zandi:                      Oh, yeah, yeah, yeah. Oh, yeah, that's right. You guys are getting paid for that?

Ryan Sweet:                      We do.

Dante DeAntonio:           Yes.

Mark Zandi:                      You are moonlighting. I didn't connect the dots, so those are two jobs. Yeah. Yeah, you are, but you're only one job in the household survey.

Ryan Sweet:                      Correct.

Mark Zandi:                      Yeah, got it.

Ryan Sweet:                      You scared me for a minute. I thought I was teaching employment to undergrads wrong for 11 years now.

Mark Zandi:                      Well, that still could be true, but not in this case. Not in this case.

Ryan Sweet:                      All right.

Dante DeAntonio:           I don't believe it.

Mark Zandi:                      Believe what?

Dante DeAntonio:           I don't believe he's been teaching properly.

Mark Zandi:                      Oh, of course. No. I jest. That's all in jest. Okay, so, what you're saying Ryan is, okay, a little over 200,000 gain in the establishment survey. That's on the soft side. You had been expecting, I think, 600K. I was expecting something a bit higher than that. Chris, you were expecting higher, too, but you're not really disappointed in the miss, in part because all these other data in the report from the household employment survey, which, by the way, employment by that survey was up over a million, I believe, in the month, a really big increase.

                                             Big decline in unemployment, 4.6 to 4.2. 4.2's the low unemployment rate, and I know you don't like the number, but labor force participation rate increased. Hours worked increased, which is another sign of strength. It all felt pretty good except that top line establishment survey number.

Ryan Sweet:                      Yeah. That top line number is inconsistent with jobless claims, home-based data, ISM surveys, so when things like that happen, that's when I dig into see, is there an explanation. The response rate, so what percent of surveys were responded to, first print, for this number, for November, was the lowest since 2008.

Mark Zandi:                      That's interesting.

Ryan Sweet:                      Mm-hmm (affirmative).

Mark Zandi:                      Wow. What explains that, do you think?

Ryan Sweet:                      We usually get really low response rates in August because of vacations and everything, but November, it's a little odd.

Mark Zandi:                      I think the survey was done early in the month.

Ryan Sweet:                      It was.

Mark Zandi:                      Could that possibly play a role here?

Cris deRitis:                       These are phone surveys, right? Is that the primary?

Dante DeAntonio:           A lot of it's actually online now.

Cris deRitis:                       Online. Okay.

Dante DeAntonio:           Yeah. Some of it's done by phone still.

Mark Zandi:                      Maybe people typically feel like they do it later in the month.

Cris deRitis:                       They forgot.

Mark Zandi:                      Or they just didn't get around to it.

Cris deRitis:                       Maybe.

Mark Zandi:                      Yeah, maybe, but that brings up another point. That is revisions to data, so you want to explain that, what's going on with the revisions to the data?

Ryan Sweet:                      With each report, the prior few months are revised, and on average, the upper revision to employment this year has average 107,000. We got a little bit smaller revisions per month, were a little bit smaller this time around, but they're still quite substantial, though Dante would probably disagree.

Dante DeAntonio:           No, they're big, and with response rates being as low as they were in November, it's just ripe for a big revision, so we're more likely to see a big revision after a low response rate.

Mark Zandi:                      You wouldn't be surprised if next month when we get the December data that the November, 200,000 job gain is revised up to 300,000 or 350,000, something.

Dante DeAntonio:           Yeah. I would not be surprised at all.

Mark Zandi:                      Yeah. Neither would I. I agree with you totally.

Dante DeAntonio:           That's why you don't want to get up in arms about one number, one month of employment data. It bounces around. It's very volatile, and we know that number's wrong. It's going to get revised.

Mark Zandi:                      Right, and I think, if I asked you, abstracting from the vagaries of the monthly data, the ups and downs and all arounds, survey issues, seasonal adjustments, whatever, early survey work, what do you think actual reality is? What is underlying monthly job growth? What would you say it was?

Ryan Sweet:                      555,000.

Mark Zandi:                      Which is the average since the beginning of the year.

Ryan Sweet:                      Mm-hmm (affirmative).

Mark Zandi:                      Yeah. Dante, would you agree with that?

Dante DeAntonio:           Yeah. I was going to say 500,000. I think you're somewhere in that ballpark.

Mark Zandi:                      500K. Cris, are you in the same ballpark?

Cris deRitis:                       Yeah, yeah. I was there. I was going to go a little higher, but, yeah.

Ryan Sweet:                      What about you, Mark?

Mark Zandi:                      Exactly. 525. I'll do a Cris. Right [crosstalk 00:14:48]-

Cris deRitis:                       I'll go 575, there.

Mark Zandi:                      Okay, there you go.

Ryan Sweet:                      Now we're getting into, like, The Price is Right.

Mark Zandi:                      Yeah, exactly, but that's the reality of the labor market, that we're creating 500,000-ish jobs per month, and that's a lot of jobs. That's a boat load of jobs. We're still down, I think, 3.9 million jobs from the pre-pandemic peak back in February of 2020. If you kind of the do the arithmetic, we'll get those jobs, if we stick at 500K, which we got to do definitely talk about in the context of Omicron and everything else. We got to talk about that, but assuming we do then we'll get these jobs back pretty soon and then some.

Ryan Sweet:                      Mm-hmm (affirmative), but if you add in the trend, like, what gob growth would have been pre-pandemic, if you extend it throughout the pandemic, because we would have kept adding jobs if we didn't have a recession. That shortfall's 5 million. Not a big issue, it just maybe delays how long it takes to get back to where we should have been.

Mark Zandi:                      Say it's 5 million, and say we continue to average 500,000 jobs per month.

Ryan Sweet:                      Next year.

Mark Zandi:                      We're there by the end of the year.

Ryan Sweet:                      October.

Mark Zandi:                      Excuse me, the end of 2022, we're there. Yeah, and that's in our forecast, actually. That's what we're saying. Yeah. Dante, anything that Ryan missed or you want to highlight, call out that you think is important in the number?

Dante DeAntonio:           Yeah. I think the biggest point is it really was two completely different stories. A lot of times, the two stories don't completely align, but these were sort of polar opposites. I think it was hard to find anything negative about the household survey this time around. If anything, it was much stronger than expectation, and then you obviously have the payroll survey which was a disappointment and I think there are reasons for that, that revisions are one and response rates are one. Seasonal adjustment, we can talk about, might have been a little bit odd this odd.

Mark Zandi:                      A little? Very, very odd.

Dante DeAntonio:           I don't want to give it away too much. Save it for my number.

Mark Zandi:                      We've talked about a lot of technical things here. One is the low response rate. Two is when the BLS conducted the survey, landing a little earlier in the month. The third is now seasonal adjustment. That's what you're referring to.

Dante DeAntonio:           Correct.

Mark Zandi:                      Where do you see that showing up in the number, the seasonal adjustment issues?

Dante DeAntonio:           If you look at the unadjusted gain in November, it was actually pretty strong relative to prior years in November, but the seasonal adjustment process brought that number down by a lot more than you would have expected based on previous Novembers.

Ryan Sweet:                      You can see it in retail. Retail employment fell. If you look at it unadjusted, it was decent, so for some reason, gearing up for the holiday shopping season, so the seasonal adjustment may have been a little bit too aggressive.

Mark Zandi:                      Yeah.

Dante DeAntonio:           The early reference week can hurt retail too because you're missing out on some of that ramp up and hiring that would happen a little bit later in November, so you're not catching all of that early rampant hearing.

Mark Zandi:                      Retail this week, leisure and hospitality.

Dante DeAntonio:           That was very weak.

Mark Zandi:                      Very weak. I think healthcare was weak. Government, and again, back to schools, education. I think that was weak, weak relative to expectations, and do you think all of those were casualties of problematic seasonal adjustment or roughly so?

Dante DeAntonio:           I think it certainly played a role. I don't know if it's the only factor but I think it certainly played a part in all those.

Ryan Sweet:                      Right.

Mark Zandi:                      Well, you think anything fundamental was going on? It couldn't have been Omicron. That came way too for that to affect the number.

Ryan Sweet:                      Yeah. That came after the reference period.

Mark Zandi:                      Way after the reference period.

Ryan Sweet:                      Mm-hmm (affirmative), which is, for everyone, it's the 12th of the month. The week that includes the 12th is the reference period.

Mark Zandi:                      Meaning that's the week they conduct the survey, the Bureau of Labor Statistics.

Ryan Sweet:                      Correct.

Mark Zandi:                      Yeah, so that can't be it, so it felt like, immediately it to me, my instinct was it was the seasonal adjustment issue, which by the way, if that's the case, we could have some pretty outsized job gains in December, when we get the December number and the January number, because if it's biased lower because of seasonal adjustment this month, you got to get it back seasonally in another month, right?

Ryan Sweet:                      Correct.

Mark Zandi:                      We could get a surprise to the upside next month or the month after. Okay. Okay, Dante, any other things in the report that kind of ... You're landing in the same place Ryan is, that this is more a glass half full than half empty, it sounds like.

Dante DeAntonio:           Yeah. Would you have liked to see 500,000 again this month? Yes, but I think this is sort of best case scenario. For the top line of 210, I think everything else is best case scenario in terms of making you feel less bad about that.

Mark Zandi:                      Okay, and Cris, what about your take on this? Anything to add here?

Cris deRitis:                       I certainly agree that the seasonals are what stick out in my mind. I think there are some other reasons, though, that may be impacting data. I just think about the churn, all the quits that are going on and people quitting and taking new jobs, I think that can affect how the payrolls are reported, and even who says they're unemployed at any given point in time, so there could be some of that, as well. Just, we have so much churn, much higher than typical.

Mark Zandi:                      Explain that. How would that work? We know quits, the number of people who are leaving their jobs, a great resignation, so-called great resignation, is at a record high, or at least it was in the month of, what's the latest data point, September I think, we had a record high. That's from the job opening, labor turnover survey from the BLS, so how would that impact or bias lower, push lower the measured gain in jobs?

Cris deRitis:                       Just timing, right? Someone quits a job and takes a job but it doesn't start right away. It might start a few weeks out, so they may fall off the payroll on one employer but they don't get added to the payroll of the new employer right away. It takes some time. There's some delay there, so there could be some of that behavior that is impacting the numbers.

Mark Zandi:                      Right, so, bottom line, the pandemic is just creating havoc with everything, including the way we're measuring things, and our instinct is, looking through the noise, the measurement issues that the bureau of labor statistics is having here, that fundamentally the labor market's strong, that 500,000 jobs, unemployment, at that pace, unemployment's falling pretty quickly here, 4.2%. It's coming along here at a pretty rapid clip. That's the bottom line. Anyone disagree with that.

Cris deRitis:                       No. The other thing I would point out is just small business entrepreneurship, as well. We see that at a high level, that would impact, potentially, the payroll survey, right? People starting a business, you might not pick it up in the payrolls. They're not part of the sample, but it should turn up in the household survey. People would report that they're working, so that could be a potential difference that would be consistent with what we're seeing in the data, so that gives me some optimism around the numbers, here.

Mark Zandi:                      Yeah, some more optimism.

Cris deRitis:                       Yeah.

Mark Zandi:                      Yeah. Has anyone looked at the, over time, let's say since the pandemic hit, the difference between the household and the payroll survey? Are they close to each other or is there a gap between them? Do you know?

Dante DeAntonio:           If you look over the course of the year, they're pretty close, but they definitely diverge month to month, so there's actually a similarly large divergence in the other direction in June, I believe, where the household survey was much, much weaker than the establishment survey, and so they sort of net out over time, but they can be quite different month to month.

Mark Zandi:                      Go ahead, Ryan.

Ryan Sweet:                      I was going to say that if you do the cumulative increase since the beginning of the year, they're both 6.1 million.

Mark Zandi:                      Oh, okay, so it's on the nose.

Ryan Sweet:                      They diverged for a period of time but now that gap has closed.

Mark Zandi:                      They're saying the same thing. They're saying, underlying job growth is 500,000, 550,000 per month, something like that.

Ryan Sweet:                      Correct.

Mark Zandi:                      Okay. Okay. Very good. Okay. All right. We're going to come back to the labor market, but before we do, let's play the game. Let's play the statistics game, and everyone knows how to play this game. It's pretty simple. You name a statistic. Hopefully it's one that is not too easy, that it's a slum dunk, not too hard that we'll never get, and is hopefully relevant to the conversation. We do have a debate about the last rule and whether it has to be a statistic that was released in the last week. Everybody has to follow that rule but me. I'm allowed to break that rule regularly, but that's another rule. Okay, and of course, all the rest of us try to ... You got the cowbell. I see the cowbell in the background there.

                                             Oh, it's up front now. Okay.

Ryan Sweet:                      We got two of them.

Mark Zandi:                      You got two different cowbells?

Ryan Sweet:                      Yeah. Well, I have one for you and one for Cris.

Mark Zandi:                      Oh, I didn't-

Ryan Sweet:                      I got to drop them off at the office.

Mark Zandi:                      I didn't know that. Who wants to go first? You want to let Cris go first? I feel bad for Cris.

Cris deRitis:                       I feel bad.

Mark Zandi:                      All right, because he really needs help with this game.

Cris deRitis:                       I absolutely do. I cannot compete with Ryan.

Mark Zandi:                      By the way, guys, I've been very busy. I don't have a statistic, but I will come up with one, and a really good one, by the way, by the time it comes around to me. All right, Cris-

Ryan Sweet:                      Which housing number is Cris going to pick?

Mark Zandi:                      Oh, no. Really?

Cris deRitis:                       That is just rude. That is just rude.

Mark Zandi:                      It is rude.

Cris deRitis:                       What is the back normal in ... Anyway ...

Mark Zandi:                      Oh, jeez. Talk about data problems. No, nevermind, let's not go down that road.

Cris deRitis:                       Yeah, yeah. 5.7%.

Mark Zandi:                      5.7%.

Ryan Sweet:                      Is this wages? Somewhere.

Cris deRitis:                       It is not wages.

Ryan Sweet:                      Okay.

Cris deRitis:                       It is employment related.

Mark Zandi:                      Is it the unemployment rate for some demographic?

Cris deRitis:                       Oh, yes. Wow.

Mark Zandi:                      Okay. Is it the unemployment rate for black Americans?

Cris deRitis:                       No.

Ryan Sweet:                      Less than high school?

Cris deRitis:                       Yes.

Mark Zandi:                      Less than high school.

Cris deRitis:                       Bingo. You got it. That's why he's the champ.

Mark Zandi:                      Wait a second. Should Ryan get credit? We should get, both get awarded [crosstalk 00:25:24]-

Dante DeAntonio:           Half a point each.

Mark Zandi:                      Half a point. There you go, Dante.

Dante DeAntonio:           I'll be the arbiter.

Mark Zandi:                      Okay. Very good. 5.7 for less than high school, so what's the deal? What's the story there?

Cris deRitis:                       Why I chose it, why I stuck out is that it was down 1.7% over the month. It was 7.4% the month before, so we talked about all the data issues, so maybe there is something there, but assuming that's real, that is certainly the greatest increase or the greatest improvement, I should say, in unemployment across the different education groups, and also it would suggest that there are more opportunities being extended to folks with lower education, and certainly from the fed's point of view, that's one of their desires, is to create more employment opportunities across the distribution, so that is certainly positive news.

                                             5.7% is the unemployment rate that this group had in January of 2020, right before the pandemic, as well, so they have fully recovered, versus, the other groups are still a bit higher.

Mark Zandi:                      Wow. That is really interesting, so the 5.7% for folks with less than a high school degree is where it was pre-pandemic.

Cris deRitis:                       In January, that's right.

Mark Zandi:                      Oh, goodness.

Dante DeAntonio:           You talked about the elevator level of churn. That's actually the group where most of that elevated churn is coming from, if you look at job switching rates by educational attainments, most of the other groups are sort of just back to where they were pre-pandemic but that less than high school group is well above where they were pre-pandemic in terms of the rate of job switching.

Mark Zandi:                      That's also where wage [crosstalk 00:27:08]-

Cris deRitis:                       And they're seeing some of the, yeah. Sorry.

Mark Zandi:                      Go ahead. Sorry. Go ahead, Cris.

Cris deRitis:                       I was going to say, yeah, that's where some of the largest wage gains are coming from, as well.

Mark Zandi:                      We know that from the Atlanta wage tracker, the Atlanta fed wage tracker. They have this really great tracker where they follow the same workers and look at their wages over time, so it helps account for mix effects, you know, changing occupations, changing industries. Correct me if I'm wrong, Cris, but I think almost all of the acceleration and wage growth that we've observed recently has been in that group, low skilled workers, less than high school education.

Cris deRitis:                       Yeah. Yeah.

Mark Zandi:                      Is that right?

Cris deRitis:                       Yeah. Certainly largest gains.

Mark Zandi:                      Is that right, Dante? I'm not mis-stating that, right?

Dante DeAntonio:           Yeah. That's right.

Mark Zandi:                      I don't want to mislead your students or anything. Yeah.

Dante DeAntonio:           Okay. Only Ryan does that. It's fine.

Mark Zandi:                      Yeah. Cris, can I ask you this? Sounds like you looked at the unemployment rates across various demographics. Did anything else stand out across race or any other, age or anything else that you noticed?

Cris deRitis:                       This was the one that stood out the most to me. Women, in terms of participating, were still lagging in terms of their improvement compared to men, but still, they are making improvement. It's not that they're still stalling, but, yeah, everything else kind of fit. I don't know what Dante or Ryan, if you saw anything.

Mark Zandi:                      Anything else in the unemployment rate across demographic that you noticed?

Ryan Sweet:                      No.

Dante DeAntonio:           Nothing overly surprising.

Mark Zandi:                      Yeah. Sure. Okay. Okay. Let's go to Ryan. Ryan, what is your statistic of the week?

Ryan Sweet:                      All right, well, Dante, should I use that one, Dante?

Dante DeAntonio:           You can. I'll abstain. I won't guess. It's fine.

Ryan Sweet:                      Because I emailed-

Mark Zandi:                      What, are you guys colliding? Is that what's going on?

Ryan Sweet:                      No. I emailed a colleague.

Mark Zandi:                      That's the other rule, the fifth rule. I thought it was unspoken.

Ryan Sweet:                      It is unspoken.

Mark Zandi:                      We'll do no collusion.

Ryan Sweet:                      I emailed one of our colleagues.

Mark Zandi:                      You emailed him. That's collusion, Ryan.

Ryan Sweet:                      No, not him. I emailed her. I was like, "This really jumped out," and then she replied and CCd Dante on it, and I was like, "Oh."

Mark Zandi:                      Got it. In advertent collusion, the SEC would still be after you, by the way.

Ryan Sweet:                      All right. You ready?

Mark Zandi:                      Yeah.

Ryan Sweet:                      1.9 million.

Mark Zandi:                      1.9 million. Is that the number of people said that they weren't working because they were ill?

Ryan Sweet:                      No, but that's over a million. In fact, there was 1.2 million people that were unable to look for work in November because of the pandemic, which is little change from October.

Mark Zandi:                      Oh, is that right?

Ryan Sweet:                      Yeah. There are still a lot of people who can't look for work.

Mark Zandi:                      Did it come down from, like, September when Delta was at its peak?

Ryan Sweet:                      Yeah. It's down a little bit, but still.

Mark Zandi:                      Okay, so it was high in September, it came down, 1.2 million in October and did not improve in November.

Ryan Sweet:                      Correct.

Mark Zandi:                      The number of people that said, "I'm not working because,"

Ryan Sweet:                      No, I'm unable to look for work because of the pandemic.

Mark Zandi:                      Unable to look for work.

Ryan Sweet:                      Mm-hmm (affirmative).

Mark Zandi:                      Okay. Oh, interesting.

Ryan Sweet:                      This is 1.9 million, my number.

Mark Zandi:                      Okay, but I'm assuming we're in the ballpark, right? This is a job related-

Ryan Sweet:                      Mm-hmm (affirmative). I'll give you a clue.

Dante DeAntonio:           You know you're going to get called out. This is impossible, Ryan. There's no way anyone's going to get this.

Mark Zandi:                      Now the gauntlet has been laid down, Cris.

Dante DeAntonio:           I feel safe in saying that, that you are not going to get the-

Mark Zandi:                      Listener, buckle in, because we're going to be at this for a long time.

Ryan Sweet:                      No, it's in the household survey, and I look at this every single month.

Mark Zandi:                      Oh, it's in the household survey, and you look at it every single month, and it's impossible for us to guess.

Ryan Sweet:                      Correct, but it's a very telling number.

Mark Zandi:                      You've never talked about it before? You have talked about it.

Ryan Sweet:                      No, I haven't talked about it, but this gap is enormous.

Mark Zandi:                      Oh, really? 1.9-

Ryan Sweet:                      You look at Dante just chuckling over there.

Cris deRitis:                       [crosstalk 00:31:15], like marginally attached or part time?

Mark Zandi:                      It's in the household survey.

Ryan Sweet:                      Think about our earlier discussion about the differences between the household survey and the establishment survey.

Mark Zandi:                      Oh, is that the number of part timers that are ...

Ryan Sweet:                      You're on the right track. We take those out, right? I don't want you guys to suffer, so-

Mark Zandi:                      Two jobs.

Ryan Sweet:                      I'm not going to let you suffer.

Mark Zandi:                      What's happening here is we're getting close enough that you don't want us to get it.

Ryan Sweet:                      Dante, do you think they're getting close?

Dante DeAntonio:           You can let them flail for another two minutes if you want.

Ryan Sweet:                      All right, I'll let you guys-

Cris deRitis:                       All right. No, go ahead, that's it.

Mark Zandi:                      It's getting very awkward now.

Cris deRitis:                       Yes.

Ryan Sweet:                      All right, so, 1.9 million. That's the increase in the adjusted household employment. An adjusted household employment is a better apples to apples comparison to the establishment survey, so they strip out ag, what is it, self-employed?

Dante DeAntonio:           Self-employed. Yeah.

Ryan Sweet:                      Private household workers, things like that, so when we get these big misses like this, or big discrepancies between the household survey and the establishment, I always go to the adjusted household number.

Mark Zandi:                      Oh, you're saying, "Okay, I take the household employment survey. We know that is conceptually, there's some differences with the establishment survey. Let's make changes, adjustments to the household survey to be comparable conceptually to the employment survey, and if I do that for the data in the month of November, employment increased by 1.9 million."

Ryan Sweet:                      Correct.

Mark Zandi:                      Whereas, the actual establishment survey was up 200,000.

Ryan Sweet:                      Correct, so just the household employment number had been lagging behind the establishment number, but now they've caught up, so I think there was some catch up in November. I think we created 1.9 million jobs, but the discrepancy or the difference is just, it's enormous.

Mark Zandi:                      Has it ever been that large? That sounds [crosstalk 00:33:06].

Cris deRitis:                       Yeah. What is it, typically?

Dante DeAntonio:           I'd have to look it up.

Ryan Sweet:                      I don't know. I can't remember a time it was this big. Maybe during the pandemic, but pre-pandemic, I don't think it was this big.

Dante DeAntonio:           There was a big swing in self-employed workers. I know, Mark, you and I had talked about, there had been a big increase in self-employed, and that actually fell quite a bit in November, which is contributing to why that adjusted number is so high.

Mark Zandi:                      There's definitely some statistical noise in this. There's no doubt.

Ryan Sweet:                      Oh, yeah, yeah, no. Yeah.

Cris deRitis:                       What is the sample error in the survey? They're both surveys, right? It might be useful for the listener just to know, on average.

Ryan Sweet:                      The establishment, I believe, is plus or minus 100,000. Household survey, I don't know. Maybe Dante knows.

Dante DeAntonio:           Well, I don't know what it is for the employment number out of the household survey. I think the unemployment rate is a tenth of a percent, I think, in terms of significant change.

Ryan Sweet:                      Yeah, but what's nice is the BLS puts out these tables which tell you if a change in components of the household survey are statistically significant, so that's kind of helpful.

Mark Zandi:                      Hey, Ryan, is that data in a data bank that I can get at?

Ryan Sweet:                      Yeah. I can send you the mnemonic.

Mark Zandi:                      Can you send me the mnemonic?

Ryan Sweet:                      Of course.

Mark Zandi:                      The mnemonic being the code that I would use to print it out, because I might want to tweak this, actually. You don't mind if I tweak it, do you? Oh, by the way, @markzandi, @markzandi. That's my Twitter handle. I'm usually quicker on the draw there.

Cris deRitis:                       Yeah. 39 minutes.

Mark Zandi:                      39 minutes in. It took me 39 minutes.

Dante DeAntonio:           Are you tracking that week to week, Cris?

Mark Zandi:                      In all fairness-

Cris deRitis:                       It's going to be on the [inaudible 00:34:51]. Yeah.

Mark Zandi:                      Go look at the Twitter feed. I'm now plugging the podcast, so it goes both directions. It goes in both directions, Michael. All right. I'm working hard on both sides, here. Okay. Very good. Ryan, kudos. Yeah, kudos. See how it's done, Dante?

Dante DeAntonio:           Oh, there it is. Cris has a makeshift cowbell.

Ryan Sweet:                      That's like a dinner bell.

Mark Zandi:                      Yeah. Come to dinner, Cris. The wine is on. All right.

Dante DeAntonio:           All right.

Mark Zandi:                      Dante-

Cris deRitis:                       That was great. Dante, yes.

Mark Zandi:                      Yeah, Dante. You weren't colluding with Ryan on this one, were you?

Dante DeAntonio:           Yeah. Ryan, you may have seen this. You weren't responding to the conversation. I was also having a conversation with a former colleague.

Ryan Sweet:                      I did not look at those emails.

Dante DeAntonio:           I don't Ryan actually was paying attention to the thread.

Mark Zandi:                      Okay. Okay.

Ryan Sweet:                      The sheer amount of emails that they had going back and forth, I was like [crosstalk 00:35:52].

Dante DeAntonio:           The number is 568,000, and this is also a continuation of our sort of initial conversation.

Mark Zandi:                      Around the household payroll survey?

Dante DeAntonio:           Correct.

Mark Zandi:                      The discrepancies between the two?

Dante DeAntonio:           Yeah. Issues with the number that's [inaudible 00:36:12].

Mark Zandi:                      This would not be right. It's back to the self-employed, is it?

Dante DeAntonio:           No.

Mark Zandi:                      Okay.

Cris deRitis:                       Is that just the difference between non-seasonally adjusted and seasonally adjusted?

Dante DeAntonio:           It is. There you go.

Mark Zandi:                      Ring the bell.

Dante DeAntonio:           You get the real cowbell.

Cris deRitis:                       That's nice.

Dante DeAntonio:           Yeah. I mentioned it was unusually large. That is by far the largest difference in the non-seasonally adjusted versus seasonally adjusted in a November in the whole history of the series. Compared to recent years, that's about 200,000 higher in terms of the negative adjustment in November.

Mark Zandi:                      Hold it. I missed something. I missed something. This is in the household survey, you're saying, now?

Dante DeAntonio:           No. In the establishment survey.

Mark Zandi:                      Oh, in the establishment survey.

Dante DeAntonio:           The unadjusted number was 778,000. Adjusted was 210, so in November, the adjustment's always negative, but this adjustment was particularly large for some reason, much, much larger than it has been in recent years.

Mark Zandi:                      Oh. Oh, okay, so that's the largest you said in history?

Dante DeAntonio:           In November, yeah.

Mark Zandi:                      In the month of November, the largest difference between seasonally adjusted and unadjusted employment gain in the month of November in history, this month.

Dante DeAntonio:           Right. If the seasonal adjustment had been similar to the last few years, the top line number would have been, like, 450 instead of 210.

Mark Zandi:                      Oh, okay. Well, all right. This is a lot.

Dante DeAntonio:           Yeah.

Mark Zandi:                      Yeah.

Dante DeAntonio:           That's why, don't get hung up on this number.

Mark Zandi:                      Really don't get hung up on this number.

Dante DeAntonio:           Yeah. Just ignore it.

Mark Zandi:                      Just ignore it. Say something else, Ryan.

Ryan Sweet:                      Just turn off the podcast. Is that what we're doing?

Mark Zandi:                      Turn off the podcast. No, don't turn off the podcast. All right. I guess I got to go. I'm just not up to it. I'm going to fail. Somehow I feel inadequate, here. All right. I got to go, but-

Cris deRitis:                       You always got one.

Mark Zandi:                      Huh?

Cris deRitis:                       You always got something.

Ryan Sweet:                      You can always go to copper prices.

Mark Zandi:                      I got one. It's related, but it's not in the employment survey or in the employment data that we got. I would say 69.1%.

Ryan Sweet:                      Oh, that's the highest of non-men.

Mark Zandi:                      Yeah, highest of non-men.

Ryan Sweet:                      Yeah. That, record high.

Mark Zandi:                      But I had to say it, right?

Ryan Sweet:                      Yeah. That is a record high.

Mark Zandi:                      How could we not say highest in non-mans? Just so everyone knows, ISM, Institute for Supply Management, non-manufacturing. These are kind of purchasing manager folks and they get surveyed every month and asked a range of questions about everything from orders for what they produce, output, employment, pricing. There's also supplier deliveries. That's a good window into supply chain issues, and overall index came in at 69.1% for the month of November. That came out today, with same, just a little bit after the employment report, and that was an all-time record high, all time, never higher, and that survey's not quite as long as the manufacturing survey, right?

Ryan Sweet:                      No. I think it goes back to early 2000s.

Mark Zandi:                      It doesn't go back further? I thought it did.

Ryan Sweet:                      Maybe it goes back ... ISM main goes way back.

Mark Zandi:                      Goes way back. Obviously, everything was strong. On the supplier deliveries, the index was 75.7. That is roughly what it was the month before, and it's still, that's high. It's not the highest it has been in recent months, but it is very high. It does indicate that the supply chains still remain quite muddled. They're moving in the right direction. They're improving. Shipping rates are down from the China to the US, and number of ships in LA, Long Beach Port that need to get offloaded, that's come way in. I notice that's come way in, but this would suggest that the supply chains remain still a little bit scrambled.

                                             Anything else on that survey, Ryan? Because I know you looked at that very carefully. Anything else there?

Ryan Sweet:                      The employment index. You mentioned the employment index went up.

Mark Zandi:                      Employment index was up.

Ryan Sweet:                      I think, just to keep in mind, the ISM, non-manufacturing, and the manufacturing surveys, they measure the breadth of improvement, so it suggests that the improvement across non-manufacturing is broadening out, which is a good thing for the outlook.

Mark Zandi:                      Yeah. Yeah, and it's kind of sort of like a sentiment index, to some degree, right? I mean, folks that are filling this out base it on what they're observing in their business, but it's not all numbers. They're kind of giving you a sense of how things are going, and so it's part actual data, part actual sentiment, I think.

Ryan Sweet:                      Yeah. For the manufacturing survey, you can tease out the sentiment component by mapping the hard data on, like, factory orders, manufacturing employment, to the components. I haven't looked at it recently but I can send you that chart, too.

Mark Zandi:                      Yeah, that'd be great.

Ryan Sweet:                      How about that gasoline chart I sent you?

Mark Zandi:                      That was fantastic. By the way, I tweeted that. People loved it. Yeah. People loved it. I was actually on CNN earlier today and they called that out, so it went viral. Thank you. I appreciate that.

Ryan Sweet:                      Anything I can do to get you to go viral.

Mark Zandi:                      Yeah, and just for the listener, this is pretty amazing. Why don't you describe it, Ryan? What are you referring to?

Ryan Sweet:                      The chart I sent you and Cris is a wholesale gasoline prices, a two week lead, and there's a very strong relationship between that and retail gasoline pries, so, because wholesale leads retail, we have an idea of where prices at the pump are going, and just based on the drop in wholesale prices over the last two weeks, we could get down to $3 per gallon in a couple weeks.

Mark Zandi:                      Yeah. Right.

Dante DeAntonio:           It dropped again today.

Ryan Sweet:                      It did.

Mark Zandi:                      What, the wholesale prices dropped again today, or retail?

Ryan Sweet:                      Yeah. 195.

Mark Zandi:                      Okay. Very good, and of course, it feels like this might be an esoteric number, but it really isn't. My sense is that gasoline prices may be the single most important variable people are focused on when trying to gauge the health of their finances in the broader economy. If they see gas prices are high and rising, no matter what else is going on, it doesn't matter. Unemployment could be low, wage growth could be strong, stock prices are record right, housing values are at ... By the way, that sounds like the current time, doesn't it? They don't care. It's like, I'm depressed because I'm spending this amount of money to fill up my gasoline tank, so if it heads south, it it starts declining and goes below three, if that characterization of how people think is right, then we should start to see people start feeling a little bit better about things here pretty soon. Yeah.

Ryan Sweet:                      Kind of wrapping up the whole disappointing November employment number, our GDP tracking model, which takes all the source data that's released that goes into GDP, increased this week to 8.7% at an annualized rate for Q4.

Mark Zandi:                      Yeah. Boom.

Ryan Sweet:                      We're likely not going to get that number, because Omicron will likely take a little bit of a bite out of it, but the economy's booming.

Mark Zandi:                      Yeah. We also put a monthly GDP number together. The GDP is released quarterly by the Bureau of Economic Analysis, but we have underlying data that goes into the construction of GDP and based on that we can estimate what we think GDP did in the month, and I noticed in the month of October, that increased 2.2%, not annualized. If you annualized that, that's a big number. Close to a double digit number, so, gives you a sense of how strong, and that was the month of October. November feels like that's going to be strong, pretty strong, despite the job [inaudible 00:44:23]. Yeah. Okay. Very good.

                                             I do think we need to talk about the elephant in the room, and that's this Omicron variant. I have a frame for thinking about it but I'm curious how you guys are thinking about this. How would you put this into perspective for people? Anybody got a view on that? How are you thinking about it, in terms of what it means for the economy and the outlook? Ryan, you want to go ...

Ryan Sweet:                      I would let Cris go first.

Mark Zandi:                      Okay, Cris.

Ryan Sweet:                      He's been the epidemiologist or some [inaudible 00:44:59] guru.

Mark Zandi:                      He has. He's done a pretty good job. Yeah. How are you thinking about this, Cris?

Cris deRitis:                       Yeah, well, it comes back to psychology, again. I use Delta as the benchmark, so, what happened under the Delta wave, except that I think we do continue to adapt and therefore, while I do expect to see a jump in cases, we already see a jump in cases due to Omicron, the severity is unknown but so far, indications seems to be that it's at least not substantially worse than what we see for Delta, but that is to be determined, so my sense is that it certainly has an impact on the various sectors that we saw impacted under Delta, so travel, leisure, hospitality, certainly, but then, overall, I'm not expecting to see much of a dramatic impact and I think the impacts that we saw under Delta become even lessened here as people adapt and adjust to this wave, and I think we're continuously doing that, and there will be future waves and we'll continue to adjust, so I'm cautiously optimistic, I guess you would say, but certainly there is some impact. There's some cause for concern, but at least right now, I'm not overly concerned that the numbers are going to be impacted materially.

Mark Zandi:                      Let me ask you this just to kind of get a little bit more context around what you're saying. If I go back and I look at the peak of the Delta wave, I think that was early September, and early September, if you look at the seven day kind of moving average of confirmed cases of infection, it peaked out at around 175,000. I think that's roughly right.

Cris deRitis:                       Yeah. I think that's right.

Mark Zandi:                      Yeah. We then fell through perhaps early, mid-November, bottomed out at around 75,000 per day on a seven day a week moving basis, and then now, more recently, I think we're back up to 100K, and maybe that does reflect some Omicron and we don't even know. We thought that was Delta, but maybe also Omicron's kicking in here. If we get back to, say, 175K, like, early January, and the virulence of Omicron is similar to the virulence of Delta, we'll say the next wave, the Omicron wave is very similar to Delta. Do you think the impact on the economy will be the same, and again, Delta, in my view, did a lot of damage.

                                             GDP growth in Q3 in the US was 2%, and that was all inventories. It spiked inflation. It scrambled supply chains. It messed up the job market. It hurt consumer confidence. It caused people to shift again. They were spending away from travel and restaurants to stuff, goods. Do you think we're looking at the same kind of impact in Q1 because of Omicron Q1 of 2022, that we saw in Q3 of 2021 because of Delta, or something less than that?

Cris deRitis:                       I think it's less than that. Certainly, and I think about it in two ways, one is the direct impact within the United States, and I think the US consumer has adapted and will continue to adapt, as I said, so I think that the impact in terms of their behavior actually is lessened. A bit of a wild card is what happens in Southeast Asia because of the supply chain issues. There, too, I think they've adapted, but the tolerance levels in some of the countries is much lower, so, China shuts down at the first sign of infection, so there I could certainly make a story around the supply chain issues getting impacted once again, and there could be some of the knock-on effects around that.

                                             My working assumption though is that even there, countries are adapting, or at least they have a playbook now based on what they experienced during Delta, so the impact should be lessened.

Mark Zandi:                      Yeah.

Cris deRitis:                       That's my take. I don't know if others-

Mark Zandi:                      Ryan, what do you think about that? Are you in the same camp as-

Ryan Sweet:                      Yeah. My biggest concern, back to Cris's point about supply chains and the potential inflationary implications, Europe, Germany's tightening their social distancing requirements. There's vaccine mandates rolling out across Europe, so, it all depends on how governments respond to this, so I'm not worried about the domestic economy. It's the knock-on effects in APAC, in Europe, in Latin America.

Mark Zandi:                      What you're saying is you think there's a possibility, in my scenario where Omicron is similar in contagion and virulence to Delta, the concern would be that countries overseas get hit really hard and they lock down to a more significant degree, which reverberates around the world through supply chains and all kinds of ways, and it reverberates back on us, trade, trade flows, or trade deficit would widen out again, probably, that kind of thing.

Ryan Sweet:                      Right, and the other thing I'm worried about is the stock market and investor sentiment, they're fickle. They're a fickle bunch, and when you get these news about Delta variant and now Omicron, that could be a catalyst for a drop in stock prices.

Mark Zandi:                      By the way, that reminds me, and this is, we might want to do this next week for the podcast, if we don't have a guest, is bubbles and asset markets, again. I think in our first podcast, was around bubbles, we all concluded, no big deal. I don't know. We should come back, because there was another chart you sent us last night, Ryan?

Ryan Sweet:                      Yeah. That one's going to give me nightmares.

Mark Zandi:                      Yeah. Describe that.

Ryan Sweet:                      All right.

Mark Zandi:                      Listen, we're taking a bit of a quick tangent here. We'll come back. Don't worry.

Ryan Sweet:                      No, it's all tied to-

Mark Zandi:                      We want to call this out. Yeah. Yeah.

Ryan Sweet:                      If you look at, and this is data from the Federal Reserve, the margin accounts that broker dealers, says the value of margin accounts is 595 billion, which is twice what it was pre-pandemic.

Mark Zandi:                      I just say that's margin debt. That's how people are borrowing to finance purchases of stock. That's the leverage that-

Ryan Sweet:                      Right, so I'm worried that if you get a garden variety correction, which is inevitable, it's going to happen. Happens roughly every two years since 1970, that this one is on steroids and turns into something worse, because there's going to be margin calls, and if you don't have the cash to put up for the margin call, you're going to have to sell your assets, so this reinforcing cycle kicks in.

Mark Zandi:                      Yeah, okay.

Ryan Sweet:                      That's how Dante's buying all his meme stocks.

Mark Zandi:                      Really? Dante is a speculator?

Dante DeAntonio:           I am very much not a speculator, no.

Mark Zandi:                      No, you don't speculate.

Dante DeAntonio:           I leave that to Cris. [crosstalk 00:51:51].

Cris deRitis:                       He shifted to crypto, right? Bit more secure.

Mark Zandi:                      Well, anyway, that's a big deal. That looks like a big deal, so we're going to come back to that maybe in the next podcast, and talk about all asset markets, because everything feels like it's somewhat more frothy than it was just not too long ago, a few months ago.

Ryan Sweet:                      The fed releases a semi-annual financial stability report and they're calling out all these assets as being of concern, they're froth.

Mark Zandi:                      They've released that report? I missed that?

Ryan Sweet:                      A couple weeks ago.

Mark Zandi:                      Oh, really? I missed it. I got to go take a look. Dante, going back to the question around Omicron and how to think about it in terms of its economic consequence, what do you say? Do you think, if Omicron is similar in contagion and is as contagious, get the same number of infections and we get the same kind of virulence, the economy will navigate through more gracefully or not?

Dante DeAntonio:           I think so. To your point about the outlook, I think, thinking about the labor market, I don't know that it changes my expectation of where we'll be a year from now. I think maybe it reshuffles how that plays out. Maybe we get weaker job gains over the next few months, and then you get slightly stronger job growth in mid, second half of 2022, versus sort of a steady 500,000 pace or something. Maybe it resorts the magnitudes a little bit, but I don't know that it changes where we are a year from now.

Mark Zandi:                      Yeah. Okay. That's the way I think about it. My sense is that we're going to have waves. Omicron may in fact be, obviously, the next wave. Even if it's not, there's another one coming. Almost need to count on it, pollyannish not to, and that each new wave will be less disruptive to the healthcare system and the economy than the previous wave, that on the healthcare side, we've got vaccines. We're better at engineering the vaccines to address the variants that are forming quickly with mRNA technology. We've got the antiviral COVID drugs. Come up with different ways of mitigating the risks. We're getting more coordinated globally in trying to cordon off where the infections are located, and then on the economic side, I think we're just going to get increasingly more inert to all of this.

                                             Certainly here in the United States, I can't see a scenario, unless things really go off the rails with this pandemic, with the Omicron, that we shut things down again or even, to a significant degree, ask businesses to curtail their operations. Hospitals will have to be significantly overwhelmed for that to happen, I think.

Dante DeAntonio:           Mm-hmm (affirmative).

Mark Zandi:                      All right, so, we're kind of on the same page, but obviously, who knows, right? I mean, who knows?

Ryan Sweet:                      Absolutely.

Dante DeAntonio:           I think a big difference, even though the waves are pretty close together, a potential wave is pretty close together, is vaccines for kids, right? When Delta came, we didn't have really any kids under 12 vaccinated. The impact to school age children should be much smaller even if we do get sort of a full blown wave here, because you do have all those kids vaccine eligible, and so, the knock-on effect to parents should be much smaller than we saw with Delta.

Mark Zandi:                      Right. Okay.

Cris deRitis:                       Great point.

Mark Zandi:                      I want to talk about a few labor market issues that we've been discussing, debating now since the pandemic hit. I want to just state a position on each of these debates and then see if anybody wants to push back or disagree or add color. Okay, so, and this is in no particular order. First, on why we have this disconnect between the number of unfilled job positions, but the number of business have put up a lot of help wanted signs. They're coming in. The peak was back a couple of months ago, but they're still very elevated, and we still have a fair number of people who are unemployed, and more importantly, they've stepped out of the workforce and are not looking for work, so there's this kind of Alice in Wonderland situation where you've got a lot of unfilled positions and what seemingly looks like a relatively high level of unemployed, underemployed people.

                                             There's a lot of reasons, I think, that are behind that, but I want to throw out one that I think is most fundamental, and that is policy, and that goes to, and this is hearkening to the difference between how we here in the US address the pandemic from a labor market perspective and how Europe and Japan did. We basically said, other than the PPP program, the Paycheck Protection Program for small business, which expired a long time ago, let workers lose their jobs and go onto unemployment insurance and we'll help them out there. Whereas in Europe and Japan, I think a couple of other Asian countries, they decided to pay employers, businesses to hold onto their workers and not lay them off, so instead of pushing them into unemployment insurance, they remain on the payroll.

                                             This is a massive difference in policy with huge implications, back to the Alice in Wonderland situation we're in, because in the United States, since we pushed those folks off payroll and put them in unemployment insurance, the workers' link to their employer got severed and workers became disenfranchised from their previous employer, and getting them back into their seat, so to speak, has been very hard, but in Europe and Japan, because they had these labor market retention schemes, that never happened. Workers still there, the relationship with employer is intact, and unemployment, even as the schemes have come off, have remained relatively low.

                                             What do you guys think of that argument? Do you buy into that perspective, or how big a deal do you think that is, in terms of explaining what we're observing here?

Ryan Sweet:                      I'll give you a number to support that.

Mark Zandi:                      Yeah.

Ryan Sweet:                      In today's November employment report, 3.6 million people reported that they were unable to work because their employer closed or lost business due to the pandemic. 3.6 million. That's down a little bit from 3.8 million in October.

Mark Zandi:                      That's a good point.

Ryan Sweet:                      That's a boat load of people.

Mark Zandi:                      Yeah. I bet you if you add up the increase in the number of unemployed today compared to pre-pandemic and the increase in the number of people that stepped out of the workforce compared to pre-pandemic, it's probably four or five million, and so, you're saying, in the data, 3.6 million are saying, "I'm not working because my employer is no longer with us, or they laid me off."

Ryan Sweet:                      Correct. Yeah. That makes sense.

Mark Zandi:                      What do you think, Dante, about that theory, or that explanation for what's going on here, or partial explanation for what's going on here?

Dante DeAntonio:           yeah. I think that makes sense. My question is what would have happened if we would have used a scheme where you keep workers attached to their employer. I don't know what happens with, go back to the parent dynamic, all the kids that were out of school and people that are sort of hesitating or delaying coming back to the workforce. What would that look like now as firms are reopening and expecting workers back? If you remained attached and a firm says, "Okay. We're back open for business," but you're not ready to go back yet, would you still have those attachments happening, just later down the road, because a firm eventually is going to want those people actually back in their seats, and if people are staying out for health reasons, childcare reasons, whatever the case may be, would that still cause those attachments to happen, just later on than they did.

Mark Zandi:                      You're saying, right now it looks like the Europeans and Japanese did the right thing, but maybe not, down the road.

Dante DeAntonio:           I'm just not sure how much ... I assume by now, if you had used a scheme like that here, firms would have expected workers to be back in large part by now, and as we see, there's still several million people that are out of the labor force that aren't looking for jobs for one reason or another, and so what would have happened to those people? If they had remained to their firm, would they have decided to go back, or would they have still decided to ultimately leave their job anyway?

Mark Zandi:                      But why would Americans workers behave differently than European workers? That doesn't appear to be happening in Europe, right? They appear to be going back.

Dante DeAntonio:           I don't know that it would be different, but I think there's a risk to how well that would work here.

Mark Zandi:                      It's an open question, you're saying. Who knows?

Dante DeAntonio:           Yeah.

Mark Zandi:                      Americans are different, so, who knows? Yeah, possibly, yeah. What about you, Cris? What do you think of that?

Cris deRitis:                       Let me push back a little.

Mark Zandi:                      Yeah. Go ahead.

Cris deRitis:                       We did have a PPP program, Paycheck Protection Program, so, we did support a lot of businesses through the pandemic to maintain their payrolls, so there was support. Are you arguing there just wasn't as much support provided?

Mark Zandi:                      Yeah. Well, I think two things. The PPP program was for small business. You had to be fewer than 500 employees, which is about half the labor force, and in fact, if you look at the ADP data, because we have ADP employment by size class, company size, it actually seems to have worked. If you look early on in the pandemic when the PPP program was in place, small businesses laid off many fewer workers than the big guys, particularly companies with over a thousand employees. It was actually quite linear, meaning the small businesses laid off the fewest, and then the mid size next, and then the big guys laid off the most, and of course, then, the second thing is PPP expired kind of early on.

                                             There was two tranches of PPP, but it expired well before we've gotten through the pandemic, and it hasn't been a consistent source of support all the way through, but you're right. We partially tried to do it. We just didn't do it to the same degree as in Europe or in Japan. Actually, I proposed an employee retention tax credit. Do you remember this? The employee retention tax credit. That was small part of the CARES Act and I think there was a small expansion of it in the American Rescue Plan. That, in my view, would have been very similar to the retention schemes in Europe and Japan and would've made a big difference here. Sorry, Cris, you were going to say something?

Cris deRitis:                       Another point I would make is, I guess it's the perennial question between Europe and the US in terms of creative destruction and the dynamism of the US economy versus what these firms, there have been structural changes with firms have gone out of business, anyway, so we were just delaying, keeping zombie firms alive for a while, and are people actually better off to be forced to innovate and change versus having firms that are kept alive for a while?

Mark Zandi:                      Yeah, yeah, yeah. I think that actually is a good point. I agree with that. What I'm saying is not wrong, but what you're saying, there is a downside to it, and a downside potentially to it, and that downside might be you perpetuate bad business models, business models that are no longer relevant in a post-pandemic world. Think carnival, well, I shouldn't say carnival. Say cruise lines. Think cruise lines, something like that, or, also, when you, it's the creative destruction part. If people lose jobs, they go start other ones, and as you point out, you can see, Americans are starting companies at a very prodigious rate, so you might not have gotten that same kind of, let's go try something new here, if they had been on payroll and not pushed out into the wild, so there is a potential downside to it. I think that's right.

Cris deRitis:                       I think you need to strike a balance, ultimately. Right.

Ryan Sweet:                      I think the other thing that perhaps limited the impact or the benefit of PPP is that you had this dual track of benefits. You created PPP but at the same time you also enhanced unemployment insurance benefits which could have created mixed incentives for a lot of workers where we know that when unemployment insurance benefits were enhanced at their highest level, there were a lot of workers who would get paid more on unemployment insurance than they were getting paid by their employer, so if you're one of those people and your employer is getting PPP to retain you, you have an incentive, in a lot of cases to have them not retain you, to actually lay you off so you can collect benefits and maybe go back later, maybe not, but I think, not to say that having the unemployment insurance benefits was a bad thing, but I think it did probably weigh against some of the benefit of PPP.

Mark Zandi:                      Yeah. Right. Okay.

Cris deRitis:                       That's a good point.

Mark Zandi:                      Okay. Here's another one that we've been discussing, debating, and that is around wage growth, and we talked a little bit about this earlier. There's this sense out there that we've seen this very significant acceleration in wage growth, and that this is one of the sources of the higher rates of inflation that we're observing right now. You know, the simple idea that if businesses have to pay workers more then they got to pass that through to their customers in the form of higher prices, and that's one of the contributing factors to the high rates of inflation we're observing now.

                                             My sense is that, again, that narrative isn't necessarily wrong. It might be playing something of a role, but in the grand scheme of things, in terms of explaining this high rates of inflation, that's really on the margin, but the wage growth that we've observed is really among a small group of workers, particularly at the low part of the wage distribution, lower skilled, lower educated workers, that middle wage workers, high wage workers have not seen the same type of acceleration, so it's not been broad based. Then, more over, that we have seen some improvement in productivity that should help to offset the effects of higher wage growth, at least in terms of what it means for business margins, profitability, and ultimately, prices, what they charge for their goods and services.

                                             That's the way I'm thinking about the wage growth and what it means for inflation. Does anyone want to push back on that one or do they have anything you want to add to that? Anything else to say about that?

Dante DeAntonio:           I think, to date, I would say I 100% agree with that, and the question is what happens six months from now, a year from now. Do we see continued, strong wage growth, and is that matched by stronger productivity growth? if you see productivity growth come back in, and I know I'm pessimistic, and you see wage growth sort of accelerating at the same time, does that eventually lead to a little more pressure on prices? I don't think that's happening today, but could it build to more pressure down the road?

Mark Zandi:                      Yeah. I guess that gets to another question, and that is, full employment, if we're at 4.2% unemployment rate, we're at 61.8% participation. That's still a point and a half off its pre-pandemic level, but that's-

Dante DeAntonio:           We're never getting back tot hat.

Mark Zandi:                      ... That's never going to go back, right?

Ryan Sweet:                      No. Did you see prime age, employment to population ratio?

Mark Zandi:                      I was going to say, yeah. You had pointed that out. The employment to population ratio for 25 to 54 year olds, prime age workers, that's, what, 78.4%?

Ryan Sweet:                      I thought it was 78.8.

Mark Zandi:                      78.8, and, oh, no, really? 78.8, okay.

Ryan Sweet:                      Yeah. Dante, didn't you go up half a point, half a percentage point?

Dante DeAntonio:           I think so. I think it was a pretty big jump this month. Yeah. Yeah, 78.8.

Mark Zandi:                      Wow.

Ryan Sweet:                      We're 1.2.

Mark Zandi:                      What do we think of small employment?

Ryan Sweet:                      At least historically, it's 80%.

Mark Zandi:                      80%, so, as you said, we're 1.2% points away, and that's rising pretty quickly, so are we getting to full employment here pretty quicklY?

Ryan Sweet:                      End of next year. Why do you think the fed's starting to panic? The fed is starting to panic.

Mark Zandi:                      Yeah. That's why the [inaudible 01:08:18] in this week's testimony told everyone, "We are going to wind down our bond buying quicker than we said earlier."

Dante DeAntonio:           Mm-hmm (affirmative), which opens the door for earlier rate hikes.

Mark Zandi:                      Right, so you guys think we're not at full employment but we're getting within spiting distance of full employment, and we're getting there pretty fast, it feels like. No? Yes?

Ryan Sweet:                      I don't know. What happens if we get to 80% prime age employment to population ratio, but there are still a million people that are unable to work because of the pandemic, which is still possible.

Cris deRitis:                       Yeah.

Ryan Sweet:                      Is that full employment? I would probably say no.

Mark Zandi:                      Right.

Dante DeAntonio:           Yeah. I think there's still a way to go. The unemployment rate's 4.2, but that doesn't mean a whole lot right now. You have to account for all the people that are still out of the labor force. It's significantly higher than that, so there's quite a bit of room to run yet, I think, whether by this time next year, I think you might be talking about approaching full employment, but certainly, I don't think we're there yet.

Ryan Sweet:                      Consumers think we're close. If you look at the conference boards labor market differential, which is the difference between, [crosstalk 01:09:36] jobs are plentiful, versus jobs are hard to get, that's at a record high.

Dante DeAntonio:           Yeah. It keeps setting new records month after month.

Ryan Sweet:                      Yep, month after month.

Mark Zandi:                      What do you think, Cris? Are we within spitting distance of full employment, or do we got a ways to go here?

Cris deRitis:                       Within the next year, so by this time next year. Yeah. I don't think it's next quarter, next six months. I don't think the fed's going to react very quickly here for that reason, but we're certainly making good progress, so it's closer than where we thought we would be-

Mark Zandi:                      At this point.

Cris deRitis:                       ... early on. Yeah.

Mark Zandi:                      Yeah. Of course, again, there's a lot between now and the finish line, and that is Omicron and the next wave and the next wave after that, so, another reason, if you're the fed, to be cautious here in pushing us down the path to normalization until we're pretty clear we're on the other side of this pandemic.

Ryan Sweet:                      That's right. They're more concerned about the next wave being further inflationary rather than [inaudible 01:10:43]. Wait till you get to CPI next week.

Mark Zandi:                      Really?

Ryan Sweet:                      Yeah, they're going to be, year over year?

Mark Zandi:                      That's got to be coming in here pretty soon, right? The energy prices got to be coming in.

Ryan Sweet:                      Not in November.

Mark Zandi:                      Okay.

Cris deRitis:                       You got a forecast for us?

Mark Zandi:                      Energy's going to be up again in November, right?

Ryan Sweet:                      Year over year, we will be just a hair south of 7%.

Mark Zandi:                      Really? Okay. I didn't realize it was going to be that bad, because it's still base effects, I guess, going back to last November.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Yeah. Okay. Meaning, last November, prices were still very weak and businesses had slashed prices, so, relative to that, it's up a lot.

Ryan Sweet:                      But that chart that we have that separates out what's driving inflations, to energies, contribution, supply chains, the reopening, even in November, it's going to be mostly energy and supply chains.

Mark Zandi:                      Yeah. What about vehicle prices? Have they come in at all?

Ryan Sweet:                      Nope.

Mark Zandi:                      Not yet.

Ryan Sweet:                      Not yet.

Dante DeAntonio:           They've plateaued though, right? They're not still rising [crosstalk 01:11:42]-.

Ryan Sweet:                      Yeah. Yeah.

Dante DeAntonio:           They're not accelerating.

Mark Zandi:                      In the month of November, they are probably up.

Ryan Sweet:                      They were up. Production was weak, still.

Mark Zandi:                      I think November's going to be another, you're right, ugly number, and that hopefully will be the end of it.

Ryan Sweet:                      Hopefully.

Dante DeAntonio:           What's the change in prices relative to pre-pandemic? Do you know that, Ryan, off the top of your head?

Ryan Sweet:                      Mark, didn't you say it was like 3 and a half percent over the last two years?

Mark Zandi:                      Yeah. If you look at the core consumer price index. I'm thinking from memory, but I think I got this right, core CPI. I just looked at that. October this year compared to October last year, October this year being the last data point, 4.6%. If you look at October this year compared to October of 2019, so two years, and you annualize 3.1%, so, 3.1 is higher than what I would consider to be the fed's target of two and a half, but no one would be talking about it if it was 3.1.

Dante DeAntonio:           Right. Okay.

Mark Zandi:                      Okay. One more. One more, because we are getting a little long in the tooth here, as I am wont to say. This is like red meat to the group. Productivity growth, so, I know Dante was [crosstalk 01:12:57] a little bit with that Q3 number. GDP was weak. Jobs were strong, but, hey, Dante. It looks like Q4 is going to be just the opposite, my friend, so where are we on this productivity debate? Are you sticking to your guns, Cris? The productivity?

Cris deRitis:                       Absolutely. Absolutely.

Mark Zandi:                      You are. You feel pretty good about it.

Cris deRitis:                       Yep.

Mark Zandi:                      Any other data points that you want to throw into the mix that supports your view that productivity growth is improving on trend basis, on a secular basis? Anything else you've observed out there? No?

Cris deRitis:                       Not yet.

Mark Zandi:                      Not yet. Okay.

Cris deRitis:                       It's still early days.

Mark Zandi:                      Yeah, and Dante, you're still on the other side here, right? You're still a pessimist.

Dante DeAntonio:           I am. Yeah. I think there-

Mark Zandi:                      Any data points to support your view?

Dante DeAntonio:           Not a data point, but I think there's still a bit of compositional effect here to be played out. The jobs that we're going to get back in lager numbers are still tending to be lower productivity jobs, so I think once you get sort of the full, you know, this time next year when you're back to sort of a more normal labor market mix, I think that is going to be some headwind on productivity. How big that is relative to gains because of investment, that's up for debate, but I think there is still some headwind from that.

Mark Zandi:                      I saw Cris, you raised your finger.

Cris deRitis:                       I do have-

Mark Zandi:                      It's a debate. Is it a debate [crosstalk 01:14:15]?

Dante DeAntonio:           He's going to scold me.

Mark Zandi:                      Yeah. Yeah.

Cris deRitis:                       No. I was just recalling, my data point is Wawa related, so you'll appreciate this. I went to the Wawa.

Mark Zandi:                      Oh, Wawa related, okay.

Cris deRitis:                       Yes. Wawa over Thanksgiving.

Mark Zandi:                      Favorite convenience store here in PA. Yep.

Cris deRitis:                       That's right.

Mark Zandi:                      Not far away.

Cris deRitis:                       Self serve kiosks, so there you go.

Mark Zandi:                      Really? I missed this.

Cris deRitis:                       Yes. I know. Shocking.

Mark Zandi:                      Wait a second, self serve kiosks. Really?

Cris deRitis:                       Yes. I go in, I get a coffee, I get a receipt for it. I don't have to wait in this long line to check out. I go to the self serve kiosk, bar code flash it, pay with a credit card. I'm out. I see that as a productivity play.

Mark Zandi:                      Yeah. That's huge. Dante, [crosstalk 01:14:58].

Cris deRitis:                       That's a game changer.

Dante DeAntonio:           I'm not sweating over one machine at Cris's Wawa. I'm not sweating it yet.

Cris deRitis:                       Wawa is the predictor, as we've come to assume.

Mark Zandi:                      Oh my gosh. That is huge, man. That is huge.

Ryan Sweet:                      I know we're going to make a field trip to the First Federal Reserve Bank in Philadelphia, and on the way, I think we got to-

Mark Zandi:                      ... stop at Wawa.

Ryan Sweet:                      Oh, no. I was going to say we should take the podcast to Wawa since we talk about it so much.

Mark Zandi:                      We should. We should.

Cris deRitis:                       We should. They're just down the road. Headquarters.

Mark Zandi:                      Maybe I'll send them an email. Yeah. I spoke at a function where their CEO and CFO was, and I didn't know they were in the audience and I was raving about Wawa, and I got a bag full of Wawa tchotchkes, and, from Moody's compliance, well below 50 bucks. I'm not even sure you could put them on eBay, but from my perspective, it was huge. Very nice. I got a hat. I think I got a mug. That kind of thing, a Wawa whistle, I think.

Cris deRitis:                       Nice. There you go. I think Ryan's got some questions about their gas, too, so, good field trip. Yep.

Mark Zandi:                      Yeah. Test that out. All right. Okay. I think we've played this one out. Any other issues that you want to bring up on the labor market? Anything we missed? Dante, I know you're a critic of these podcasts, so anything you want to bring up here?

Dante DeAntonio:           You mentioned that we had a little bit of improvement in labor force participation, and I know Ryan disowns it entirely, but we'll say most of that improvement was in 16 to 24 year olds. There was very little improvement anywhere else in the spectrum of age cohort, so it's certainly good that it's rising, but it'd be better to see it rising across a broad spectrum of people, not just young workers.

Mark Zandi:                      Yeah, for sure. I didn't notice that. It had to be a pretty big increase to get you two tenths of a percent, though.

Dante DeAntonio:           It was about four tenths in the young group, and it was only up, 55 and over was basically flat. It was up one tenth in the prime age group.

Mark Zandi:                      Oh, okay. I'll take that.

Dante DeAntonio:           That's still only getting back, prime age is now back to what it was a couple months ago, whereas the young workers are almost fully back to where they were pre-pandemic.

Mark Zandi:                      Well, thank you for that, Dante. Yeah, but, you're right.

Ryan Sweet:                      We always try to end on a positive note.

Mark Zandi:                      We do. That's true. We always try to end on a positive note, Dante.

Ryan Sweet:                      Here's a positive note. If you look at the labor income proxy, so, average hour earnings times hours worked, that points to very strong wage growth in November.

Mark Zandi:                      Oh, okay. Very good, so we're going to get a lot of income in November from the labor market. Excellent. Good. Excellent. Well, this was really good podcast, one of my favorites each month. We get a real window into what's going on in the job market, and of course, by extension, the broader economy, and thanks, Dante and guys. Till next week. We have to think about what we want to do for next week-

Cris deRitis:                       That sounds like inflation, right?

Mark Zandi:                      Yeah. Yeah, and listener, that reminds me. If you've got suggestions, you know what to do. Where should they go, Ryan? I can't remember.

Ryan Sweet:                      Economy.com, and then you'll see the banner right there for podcast suggestions.

Mark Zandi:                      Yeah. Please. [crosstalk 01:18:28].

Ryan Sweet:                      You can vote.

Mark Zandi:                      Yep. Thank you so much. Take care now. Bye, everyone.