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Moody's Talks - Inside Economics
Turnover and Trash Talking
Mark, Ryan, and Cris welcome back two colleagues and regulars on the podcast, Marisa DiNatale and Dante DeAntonio of Moody's Analytics, to discuss the April U.S. employment report.
Full episode transcript
Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis on LinkedIn for additional insight.
Mark Zandi: Welcome to Inside Economics, I'm Mark Zandi, the chief economist of Moody's Analytics. Today is jobs Friday for the month of April. And I've got a number of my colleagues here to help me out and figure this out. We've got the two co-hosts Ryan Sweet, Ryan's director of Real Time Economics. And you were trash talking at me again on Twitter. I thought I-
Ryan Sweet: It's not trash talking.
Mark Zandi: It's not trash talking?
Ryan Sweet: No, but you better get used to it, it's going to be a weekly Thursday night tweet.
Mark Zandi: Yeah. Well, I thought I responded in a pretty clever way. The whole-
Ryan Sweet: You did, I was impressed.
Mark Zandi: Yeah. Oh good. It took me a little longer than I would've liked to come up with that retort.
Ryan Sweet: I was impressed that you knew Latin.
Mark Zandi: [crosstalk 00:01:02] how do I respond to Ryan's trash talking, but anyway, it's good to have you, Ryan. And Cris, Cris deRitis, deputy chief economist. Cris is no trash talker. He doesn't trash talk. He doesn't do that.
Cris deRitis: Just down the middle. How you doing, Mark?
Mark Zandi: I'm doing okay. Not too bad. And we've got Marisa, Marisa DiNatale. Marisa, good to have you back.
Marisa DiNatale: Hi. Hi everyone. Nice to be here.
Mark Zandi: And Marisa has many bonafides, but I think the key one for today is you were formerly from the BLS, the Bureau of Labor Statistics. So you know this data better than anybody, at least that's the rumor.
Marisa DiNatale: Except maybe you're other guest who is also with the Bureau of Labor Statistics.
Mark Zandi: I was going to say, yeah, Dante. Dante DeAntonio. Yeah, Dante generally doesn't come on, unless the ADP really messes up.
Dante DeAntonio: They let me have a little break.
Mark Zandi: ADP was pretty close this month. We'll come back, probably talk about that, but way to go Dante. So did you guys overlap at the BLS in any way? No?
Marisa DiNatale: No. Dante you weren't in Washington, right?
Dante DeAntonio: Yeah, I was. We worked in the same-
Marisa DiNatale: You were okay. Oh, okay.
Dante DeAntonio: Because you did State and Metro Employment, right?
Marisa DiNatale: No, I did the household survey.
Dante DeAntonio: You did the household?
Marisa DiNatale: Yeah. Yeah. The unemployment rate CPS.
Mark Zandi: So Marisa, when you're at BLS, you focused on the household employment survey, which is obviously a big part of today's numbers.
Marisa DiNatale: Right.
Mark Zandi: And Dante, you focused on State Metro Area Employment.
Dante DeAntonio: Yep.
Mark Zandi: Oh, cool. Very cool. Was one division more prestigious than the other?
Dante DeAntonio: The national divisions get more attention obviously than the state.
Mark Zandi: Do they really? How unfair.
Dante DeAntonio: [inaudible 00:02:47].
Mark Zandi: Marisa would get a call from the assistant secretary of labor, and you get a call from someone from Boise, Idaho. Is that?
Dante DeAntonio: Right, like a reporter in Cincinnati.
Mark Zandi: A reporter in Cincinnati. Yeah. Giving you all kinds of grief for, "Why was this number that number?" Yeah.
Dante DeAntonio: Too much, yeah.
Mark Zandi: Yeah. Good. But today's job's Friday, again for the month of April. And Dante, you want to give us a sense of the report? Give us a rundown, what did it say?
Dante DeAntonio: I mean, can we call it business as usual with everything that's going on? But I mean, job growth was dead in line with what it was last month, in line with averages that we've seen. The industry breakdown of employment was maybe a little bit surprising, I think in some cases. Trade transportation was up, I think more strongly than I would've expected. Manufacturing was pretty strong sort of despite all of the other headwinds that are out there. But on the establishment side, I think is right in line with expectations for the most part, maybe not Ryan's expectations, but broad expectations.
Mark Zandi: Yeah. Ryan was wrong this month, wasn't he?
Ryan Sweet: I was.
Mark Zandi: He was overly pessimistic, which is unusual. He usually nails this number.
Ryan Sweet: Just wait till the revisions. Wait for the revision.
Mark Zandi: Oh yeah, the revisions.
Dante DeAntonio: That's what forecasting now? The final revised number is that?
Ryan Sweet: Mm-hmm (affirmative).
Mark Zandi: And the establishment survey obviously is the... So there's a household survey, that's what Marisa worked on when she was at BLS. And then there's a survey of establishments or businesses. And that's what you're referring to that the employment gain there. What was it? 400 and something.
Dante DeAntonio: 428.
Mark Zandi: 428,000. Right. I did notice going back to the revisions, they were down this month. Not big down, but down. And that's a change, right? Because for the last more than a year, I think every single month we get upward revisions to the preceding couple months, this was a little different.
Dante DeAntonio: And sizable. Right.
Mark Zandi: Was it sizable? I thought it was-
Dante DeAntonio: No, no. In previous months the number of-
Mark Zandi: Oh in previous months, right?
Dante DeAntonio: These were relatively small. And down.
Mark Zandi: Yeah. Do you read anything into that? Is there anything, information in that?
Dante DeAntonio: I think the good news is, hopefully it means revisions will be smaller moving forward. I mean, hopefully some of that volatility is getting rung out, response rates get better, they get a little bit more accurate on the first print again, as we had seen prior to the pandemic.
Ryan Sweet: Well the response rate was low again.
Mark Zandi: Was it low again.
Ryan Sweet: For a typical April, low. And also the seasonal adjustment factor was small relative to past April. So I think we were setting out for another downward revision.
Dante DeAntonio: It was pretty close. Wasn't it? It was in-
Ryan Sweet: Mm-hmm (negative), it's 100,000 less than an average April.
Mark Zandi: Well, let's go back big picture before we want to go right into the DNA of the report, confuse the heck out of everybody. But before we do that, and that's fair game. I'm sure, actually with the statistics game we're going to go pretty deep into the bows of this thing. I can feel it, I can feel it right now. But going back to the big picture, so what's the big picture here, Dante, in terms of the job market. It's what? The job market is strong?
Dante DeAntonio: It's steady and strong. Yeah, it rolls on, it keeps chugging along as expected despite everything else in the world.
Mark Zandi: Right. So strong job growth, broad based across industries. Okay. And on the household survey side, there felt like there was a blemish or two there though, right?
Dante DeAntonio: Unemployment rate remains unchanged, a prime age employment population, I think ticked down by a 10th, Ryan you can correct me if I'm wrong on that.
Ryan Sweet: It did.
Dante DeAntonio: The job growth in the household survey was weak, it was down a couple hundred thousand, which in any given month is not all that surprising to see a divergence like that, but certainly keep an eye on it moving forward. But yeah, it's probably not quite as rosy as the establishment side, but still nothing overly concerning, I don't think.
Mark Zandi: So that dip down in labor force participation, it went from 62.4, which is already pretty low. I mean, it's coming back from the pandemic hit, but it's still not nearly all the way back, we got a long way to go. Tick down to 62.2, you didn't read anything into that?
Dante DeAntonio: One month, I'm not going to worry too much about. If it ticks down again or stays low next month and month after that, maybe start to worry, but it may just bounce right back next month too.
Mark Zandi: Okay. All right. So the bottom line, solid, steady as she goes, kind of that's your takeaway from the report?
Dante DeAntonio: It is, yeah.
Mark Zandi: Yeah. Okay. Marisa, what do you think, Dante miss anything? Well, first of all, do you agree with his kind of overall the picture that he painted and anything you want to flesh out?
Marisa DiNatale: He's right. I mean, it's a gain of over 400,000 again, so it looks good. And if you take other labor market data into account, like the JOLTS survey that came out this week too, which is for the previous month, [crosstalk 00:08:10] but that all still looks pretty good. Yeah. Yes, you don't want to read too much into one month of data, but there were more blemishes in this report than we've seen in a long time. I feel like every month when we talk about it, we say, "Oh, it's hard to find something negative in this report." This is the first one where you can find some negative things, particularly on the household survey side. I think that decline in the labor force participation rate is interesting just, and I will probably get into this more, but just in the context of reaching full employment and how much excess labor supply is out there. If you look since the beginning of this year, you're starting to see a slowdown in the number of people coming back into the labor force that had left.
So BLS publishes these labor force flows so you can actually break down in the household survey where people are, the categories people are moving between. So the number of people that are not in the labor force to employed, unemployed to employed, employed to unemployed, et cetera. So you can kind of see all of that. The number of people moving from out of the labor force back into it, whether they're getting jobs or they're looking for jobs has been trending down since the start of the year. We saw really strong labor force grow through the end of 2021, that looks like it's weakening. And one of our key assumptions has been, there's a lot of excess labor supply out there. There were a lot of people that left during the pandemic, maybe they retired early and they're starting to come back in again. Or there were a lot of particularly prime age women who left because of childcare concerns, coming back in. We saw that kind of going on through the end of last year. It looks like that's slowing now.
Mark Zandi: How does that-
Marisa DiNatale: We're only a million jobs away from the prepandemic employment peak, if you look at the payroll survey. So we'll get there and we'll get there earlier than we were predicting originally. I mean, probably within the next two, three months, but it looks like that impetus to come back to work may be slowing.
Mark Zandi: How do you square that? Well, maybe it is consistent with, but the number of people not in the labor force that say they want a job, that still remains a bit elevated compared to prepandemic. I think it's, I'm rounding 6 million people are saying that compared to, I want to say 5 million people right before the pandemic. So it's about an additional million people. I've always thought of that as kind of the folks that would come back in at some point, but you're saying, yeah but it seems like that hasn't really happened over the last...
Marisa DiNatale: It's happening, it's just happening more slowly.
Mark Zandi: More slowly.
Marisa DiNatale: There's still people coming in every month from out of the labor force, but the pace of that has slowed significantly this year compared to where it was at the end of last year. So I don't know what's spooking people to come back into the labor force. I mean, certainly if there's households where someone isn't working and has the ability to work, with inflation what it is, if you need another paycheck, this is a great time to come into the labor force, just given the huge number of job openings. But it just seems like that's slowed since the start of the year.
Mark Zandi: Right. Right. One factoid, just to throw into the mix and see what you think. If you look at the participation rate, which did decline from 62.4 to 62.2, all of the decline was for folks with less than a high school degree, that fell, I want to say about a percentage point, a big decline. But labor force participation for everyone else with a high school degree, college degree either held its own or rose during the month. I don't know how you interpret that. My kind of instinct was, "Well, that kind of calls into question the data, it just doesn't feel like something fundamental going on. It feels something more related to measurement, seasonal adjustment, whatever. Any thoughts around that, comments around that, observation?
Marisa DiNatale: You kind of see how that might correlate with the mix of industries that added strong job growth, had strong job growth last month compared to previous months. Financial services added more jobs, but leisure hospitality, again, added a lot of jobs, but less than it normally has. Construction, less than it normally has. So it could just be a industry mix of who's hiring.
Mark Zandi: Right. Right. Okay. That feels like you're saying, "Okay. Reasonably strong report, but maybe not quite as strong as what we've been seeing."
Marisa DiNatale: Yeah.
Mark Zandi: Right. Blemish or two here or there, particularly in the household survey side. Okay. Ryan, anything to add there on the report? I mean, anything you noticed that we haven't talked about already?
Ryan Sweet: Well, if you strip out leisure and hospitality, employment's back to where it was pre pandemic. So really the weakness is isolated to that one segment of the economy. I ignore average hour earnings, but the markets are responding to the softness in average hour earnings, which were up 0.3% month over month. And there's this calendar quirk because the payroll reference or the household reference week and payroll reference week included the 15th of the month. And when that happens, usually average hour earnings are strong. But that didn't happen this month, so I think people are looking into this and saying, "Right, maybe this is a sign that the labor market's starting to cool off."
Mark Zandi: So, I don't remember the data, but it looked like over the past three months wage growth, and again, average hourly earnings is not the greatest number to be looking at because it's affected by the mix of jobs, occupations, industry, so forth and so on. But abstracting from that, the growth in wages over the last three months is meaningfully less than the kind of growth rates we were getting towards the end of last year. So might suggest there's some kind of moderation going on in wage growth at this time.
Ryan Sweet: Yeah. I would agree and markets are getting whipsawed because yesterday we got unit labor costs that went through the roof, and now we have some softening in average hourly earning. So until it shows up in the employment cost index, I don't really buy into the view that wage growth has meaningfully slowed. So we'll have to wait.
Mark Zandi: You've referred to markets. I haven't had a chance. I've been a lot busier than you Ryan this morning. So I haven't had a chance to look at markets. It's nice that you can-
Ryan Sweet: Mark, whatever happened to your Thumper principle? We're on a client call and Mark's like, "Oh I follow Thumper principle."
Mark Zandi: He's right. We were on a call, the Thumper... I've told you about the Thumper principle, haven't I, on the podcast? Does everyone know what the Thumper principle is?.
Marisa DiNatale: I don't know what it is.
Mark Zandi: You do not know what's the Thumper principal?
Marisa DiNatale: No.
Mark Zandi: Okay. Okay. Well, have you seen the movie Bambi? That's not a trick question. That didn't mean... Come on.
Marisa DiNatale: I think I did when I was three, yeah.
Mark Zandi: Yeah. Well, I watched it many times when I was... Well, I was a little more delayed, probably must've been six or seven years old. I don't know. There wasn't a whole lot of choice. When you were a kid, you had a lot of choice. I had no choice. I had to watch Bambi. I came from a big family and I was the oldest. So I'm watching whatever, I had no choice here. Anyway, so you remember Thumper, Thumper's Bambi's friend. Now that I say this, I may have this dead wrong, but this is what I have in my mind. So anyway, Thumper said something that wasn't... It was a little off color and I think it was Thumper's mom or Bambi's mom, I can't remember which that said, "Thumper, if you can't say anything nice, don't say anything at all." Yeah, that resonates with me.
Marisa DiNatale: I didn't know that quote was attributed to Thumper.
Mark Zandi: Oh, well maybe it's maybe it's not. But in my mind I call it the Thumper principle. Yeah. And it applies to everyone but Ryan, I'm just saying. Because he's trash talking me, it's fair game.
Ryan Sweet: It's not trash talking. You think that's trash talking, you just wait.
Mark Zandi: Oh no. Oh no, I'm nervous.
Marisa DiNatale: So markets like this or don't like this?
Mark Zandi: Yeah. So yeah. What happened? What's going on with markets?
Marisa DiNatale: With the average hourly earnings, you said they reacted.
Ryan Sweet: I haven't checked the bond market, but the stock market sold off.
Mark Zandi: Oh, so wouldn't it-
Ryan Sweet: I was surprised, [crosstalk 00:17:07].
Marisa DiNatale: I thought you were going to say the opposite.
Mark Zandi: Yeah. I thought you were going to say the opposite.
Ryan Sweet: The stock market's interpreting it one way. The bond market's interpreting it the other way.
Mark Zandi: Oh, I see. So bond yields came off a little bit then?
Ryan Sweet: You saw the odds of the fed going 75 basis points at an upcoming meeting, that came down after the report. And I think that's mostly average hourly earnings.
Mark Zandi: Got it. Okay. All right.
Cris deRitis: The 10 years up three basis points.
Mark Zandi: Yeah. I think it might end up more, even more before the report came in.
Ryan Sweet: Yeah.
Mark Zandi: Yeah. Anyway. Okay. All right. Anything else on the report, Ryan? Do you want call out?
Ryan Sweet: No, I think Marisa and Dante covered it.
Mark Zandi: Yeah. Just if there's any blanks that we missed here, fill any blanks, anything you'd like to point out.
Cris deRitis: Oh me. Yeah. Sorry.
Mark Zandi: Yeah. Sorry.
Cris deRitis: Missed that. I think they covered it for the most. One thing that stuck out or jumped out as I was reading through the industrial detail is the, looks like all, for the majority of industries, are up above the February 2020 level, except for leisure, hospitality. So now it's quite concentrated there. So that's good. Construction was weak, but there wasn't a decline, but there's no real acceleration there. So that's informative as we think about the housing market, doesn't look like the activity is really picking up to any degree there. One other thing that jumped out, just looking at the demographics, I saw that African American men, that participation rate for them did increase this month. Now those are always little volatile, but certainly I think good to see something like that and certainly could explain some of the weakness perhaps and the unemployment rate overall.
Mark Zandi: That is an interesting point, Ryan made it too, that leisure, hospitality is the only major sector where employment's not back to pre-pandemic levels. I wonder if we're ever going to get back those jobs, because it feels like hotels really have kind of changed fundamentally what they're doing? If you go to a hotel now, you may not get your room cleaned every single day. And you can see the staff is much less, there's much less staff than there was before behind the desk, or at the gym, or wherever you go. So I wonder if we're ever going back to that.
Dante DeAntonio: Do you think that's an intentional change or is that a change out of necessity, because they don't have enough workers? That they would like to restaff completely, and they just can't right now?
Mark Zandi: My sense is that at first they had no choice. But I think they're figuring out how to... Because this is improvement in productivity. I mean, presumably. So I think they'd want to hold folks that operate hotels and motels and other establishments in that industry would like to hold on these productivity gains, I would think. So they're going to fight it. I'm a careful consumer of leisure and hospitality services, I travel a lot. Not as much as I did prepandemic, but it feels reasonable to me. I mean, if I'm in a hotel room for a couple nights or three nights, it doesn't really bother me that my room isn't made up, cleaned every single day, or vacuumed every single day. Nice to get new towels, but I can live with that too.
So yeah. Okay. So let's maybe tackle a couple of broader labor market issues while we're on the topic. Although, before we do that, should we play the game? Should we play the statistics game? Maybe we should do that so that we don't take anybody's thunder. Who wants to go? So the game of course, which by the way, I've been doing quite well at recently, I'm just pointing out for everyone. And that's why Ryan's trash talking me ad nauseam now. So the game is we each state a statistic, the rest of the group tries to figure out what that is through questions and clues and deductive reasoning. The best statistic is one that isn't so easy, we get it quickly, we also don't want it too hard that no one can get it. And then the bonus is if it's related to the topic at hand, which obviously is jobs, but it doesn't have to be, it could be anything that's relevant or most recent. So who wants to go first? There might be a first mover advantage here because.
Ryan Sweet: Maybe we should let Dante or Marisa go first.
Mark Zandi: Okay. Dante, you want to go first?
Dante DeAntonio: I can go first.
Mark Zandi: Did I go first with you first? No, let's go. Marisa. Marisa. You go first.
Dante DeAntonio: That's fine.
Mark Zandi: Yeah. Sorry about that.
Marisa DiNatale: All right. 4,536,000.
Mark Zandi: 4,000,500.
Ryan Sweet: Oh, Cris has it.
Marisa DiNatale: What'd he say? Yeah, you could. That was it. All right.
Ryan Sweet: Wow. Good job, Cris.
Mark Zandi: Oh my goodness.
Marisa DiNatale: A cow bell right off the bat.
Ryan Sweet: There you go. Here you go.
Mark Zandi: Yeah, there you got it. So Marisa, you want to explain?
Marisa DiNatale: Yeah. This is from the job opening and labor turnover survey. It is the highest number of people quitting a job in a single month that's ever been recorded since the inception of the survey, which goes back to the early, early 2000. So kind of showing that the job market is still as Dante said, still really humming along. I mean, people must feel pretty confident still despite the environment of high inflation, in order to quit jobs. So it's a good indicator of people's confidence in their ability to get another job.
Mark Zandi: So is the quit rate, number of people quitting just percent of labor force up across the board, across kind of all industries? I think we have it at a state level too, I don't know if you've looked at the state level data. Is it pretty much up across the board?
Marisa DiNatale: I think so across industries, Dante, you probably looked at it more than I have. I don't know about the regional detail though.
Dante DeAntonio: I know relative to a 2019 average quit rates are higher in every industry than they were prior to the pandemic, still. Some industries obviously much more than others, but yeah, they're definitely up still across the board.
Mark Zandi: Right. And we've talked about this in the past, but what's your sense, are these high quit rates here to stay or is this just a function of the idiosyncratic character of the labor market? What do you think Marisa?
Marisa DiNatale: Yeah, I think it is still an abnormal sort of functioning labor market. And just given the number of job openings, it's an extremely strong job market across the board. And I would expect if the economy does start to slow, we're going to see people stay in their jobs. People also know that if they switch jobs they can get a huge raise. And I'm sure that's factoring into it as well. People are seeing the increases in salary people are getting if they move from one company to another. So that's a huge incentive to quit. So yeah, I can't think of any structurally significant reason-
Mark Zandi: What about remote work? The ability to connect via LinkedIn and switch jobs without leaving your home.
Marisa DiNatale: So you're saying the friction in the labor market is less?
Ryan Sweet: Produced.
Mark Zandi: Yeah.
Marisa DiNatale: Yeah. That's a good point too. I guess if you don't have to pick up and move across the country for a job and you can just stay put that makes it a lot easier to decide to leave your job. Yeah.
Mark Zandi: Or take a job with a employer in Paris, or Dubai or wherever. It doesn't matter, because you can work from anywhere.
Marisa DiNatale: Yeah. That's a good point.
Mark Zandi: Yeah. Hey, the other key, I hope I'm seeing anyone's thunder, is the other key statistics in the JOLTS survey was unfilled positions. I think we at least alluded to it a couple times already. I think they were at record high. It was record high too, wasn't it? 11,5 million, something like that.
Ryan Sweet: Yep.
Marisa DiNatale: Job openings, yeah.
Mark Zandi: Yeah. Job openings, sorry. Unfilled positions. Let me ask you a question about that. And you may not know the answer, but could it be the case that because the labor market has been so tight since the economy reopened a year ago with the vaccines, it felt like every business put up a help wanted sign at the same time as the economy reopened. Businesses just don't want to take those help wanted signs back down again, because they just are nervous that they might not be able to find qualified workers, even if they're really don't need to fill that unfilled position at this point. They just keep it there just in case, because quits are high and maybe someone's going to quit next month, and I just want to keep that unfilled position there. So you sense where I'm going, maybe the record number of unfilled positions isn't quite what it seems to be. It's not the intensity of the demand that seems to suggest isn't quite as high. Does anyone have a sense of that or view on that?
Marisa DiNatale: I would agree.
Mark Zandi: Or am I way off base?
Marisa DiNatale: No. And I've even heard of anecdotally companies hiring people in certain industries and then immediately cutting their hours back, because they don't need as many people as they hired, but they don't want to lay anybody off. However, I would think that would happen normally in a hot job market, regardless of the reason. So if you go back to other times where the unemployment rate has been extremely low and job openings high, I would expect that there'd be some amount of labor hoarding to put it in that way.
Mark Zandi: Well, unfortunately I don't think we have this data back, the last time labor market was really excruciating tight, around Y2K. I think this begins in that.
Ryan Sweet: 2001.
Marisa DiNatale: It does. It begins in.
Mark Zandi: 2001.
Marisa DiNatale: Very early. Yeah.
Mark Zandi: So we only have one other, well I guess we have two business cycles that we can look at, but.
Marisa DiNatale: Yeah, but I mean, even going into the pandemic, the labor market was quite tight. I mean the unemployment rate was lower than it is now.
Mark Zandi: Well, I think unfilled positions peaked out, correct me if I'm wrong, Dante, by seven and a half, 8 million something like that. Not 11 and a half, but it was pretty elevated.
Dante DeAntonio: Right. It was an all-time high before the pandemic, but now it's an all-time high that's sort of stratospheric.
Mark Zandi: The other thing I wonder about unfilled positions is whether it's just easier to post them, everything is chronic, it's just it's easy. There's no costs. It used to be the case back in the day, I have to put an ad in the newspaper, "Help." People forget this, but that was a big business at one point, help wanted ads in the paper. I mean that generated billions of dollars for the newspaper industry, that's completely evaporated. So the costs for doing this are pretty low, I think for employers to post jobs. I don't know, just another thought. But I just wonder whether the underlying level of open positions is just higher now because of these changes that have occurred.
Cris deRitis: To that point, does anyone know how the data is actually collected? I wonder if the same position might be posted on multiple sites. Is there any chance of double counting or how is it? Do they go to the sort, the employer?
Dante DeAntonio: Yeah it's look at the establishment level.
Mark Zandi: Yeah, go ahead, Dante explain it.
Dante DeAntonio: Yeah. So it's based on the same establishment type survey as the payroll report. It's a much smaller survey, but they're going to the source of the posting. So even if you're posting the same position across five or six different services, that should be counted as one open position. The one thing I have wonders, to your earlier point Mark, I would get the sense that companies maybe more inclined to keep evergreen postings up. Because of quit rate being so high, because of turnover being so much higher. Trying to build a pipeline of people, even if you don't have an opening today you still want to collect resumes in the hope that if you have an opening next week, you're sort of ready to go, to try to fill that. It just seems strange to me that openings have stayed essentially the same for a year, despite adding [inaudible 00:30:00] jobs, 5 million jobs of last year. Is labor demand really increasing at that rapid of a rate that openings haven't come in at all, since we've had strong job growth, it just seemed.
Mark Zandi: And so I'm very skeptical. We were talking about this with Jared Bernstein, from the council of economic advisors a couple weeks ago, there's this new way of looking at the labor market, just add up the number of jobs, plus the unfilled positions, and then compare that to labor supply. Just doesn't feel right to me in the context of what we've been discussing. That just feels like the number of unfilled positions is just going to be perennially high as a result of these dynamics we just discussed.
Dante DeAntonio: Yes. I was looking at that measure of labor demand this morning, openings plus employment. And if you take the pre-pandemic level and you sort of grow it out by the 2019 growth rate. We wouldn't be nearly as high as we are today, which feels strange to say that labor demand is higher today than it would've been in the absence of the pandemic. That just doesn't seem to make a lots sense.
Mark Zandi: Yeah, that's a great point. That's an excellent point, actually. That's a fantastic point. Yeah.
Cris deRitis: You guys are good, that was my stat.
Mark Zandi: Which was?
Dante DeAntonio: Sorry, Cris.
Cris deRitis: 5.6 million, that's the jobs to workers gap.
Mark Zandi: Oh, I see. Yeah. Right, sorry about that. Hopefully you have a [crosstalk 00:31:23].
Cris deRitis: I got a backup. I got a backup.
Mark Zandi: Let's go to you next. No.
Ryan Sweet: Cris, we're using a defined labor supply.
Cris deRitis: Oh. Let me check my notes. Yeah. Labor force.
Mark Zandi: Yeah. Labor force.
Ryan Sweet: Shouldn't we add in the number of people that are not in the labor force, but want a job? That's a pool, and when you do that, that gap shrinks.
Mark Zandi: Right. Right. Well, anyway, before we go to the next person in the game, this does bring up another question, which it may be becoming a little bit more academic, but I think still somewhat important is full employment. Are we at full employment? A lot of things would say, "Yeah," I mean the record number of open positions, the record quit rate would all indicate. The strong wage growth would indicate that we're at full employment, but are we at full employment? I mean, can the economy be creating four to 500,000 jobs each and every month, if we were at full employment, that doesn't seem plausible to me. So what do you think? Marisa, do you think we're at full employment?
Marisa DiNatale: No, but I think we're really close.
Mark Zandi: Okay. So it's academic almost is what you're saying?
Marisa DiNatale: Yeah. I mean, I think you're right. I think the month on month pace of sustained job growth that we're seeing suggests that there's a lot of people out there that we can still hire. So until you see that tick down meaningfully, then I don't think we're there yet. If we can still keep creating almost half a million jobs every single month on net, then that suggests there's some slack out there still. I don't think we're going to get back to the participation rate that we had prior to the pandemic, but it seems that there's still a supply of labor out there, particularly among prime aged people that could come back into the labor force. And even though, as I said at the top of the podcast, that the pace at which that's happening seems to be slowing. There's still people out there that I think could come back in.
Mark Zandi: And Ryan, I think you, based on your favorite indicator, which I'll let you articulate, I would guess you don't think we're at full employment?
Ryan Sweet: No, I don't think so. I mean prime age employment to population ratio, so those 25 to 54 tick down in April, not a lot, but it just edged a little bit lower and we're below 80. I think we can get north of 80 on a consistent basis. And then you mentioned those that are not in the labor force but want a job is still a million higher than it was pre-pandemic. And those that are permanent job losers are still higher than it was pre-pandemic. So I think I agree with Marisa, we're close. We'll get there by the end of the year, but we still have a some ways to go.
Mark Zandi: Okay, Dante, Cris, do you disagree with that assessment that we're close, not quite there yet? Increasingly an academic question, I guess, because if we're not there yet, we're going to be there pretty darn soon.
Cris deRitis: Yeah. I would agree. I don't think we're quite there, but yeah, I think it's close.
Ryan Sweet: And the other thing, odds are on our side. I mean, how often is the economy really at full employment at least historically. So safe to the bet that we're not at full employment.
Mark Zandi: Say that again.
Ryan Sweet: I was just saying, if you look historically, it's rare for the economy to be at full employment. So if you're a betting person, it's better to take the odds that we're not at full employment.
Mark Zandi: Oh, I see. I see. I see. Yeah. And you are a betting person. I know.
Ryan Sweet: I am not.
Mark Zandi: You are not a betting-
Ryan Sweet: I am the most risk-adverse person in the world.
Mark Zandi: Is that right? I did not know that. Did you know that Cris? [inaudible 00:35:21].
Cris deRitis: I did not. I assumed he was.
Ryan Sweet: How do I give off the persona that I'm a gambling or waging person.
Mark Zandi: Because you're always talking odds. 75% this-
Ryan Sweet: Because I'm an economist.
Mark Zandi: 3% that.
Ryan Sweet: It's my day job.
Cris deRitis: I guess you're a baseball guy too.
Ryan Sweet: I am a baseball guy.
Mark Zandi: Baseball guy, they're always gamblers the baseball guys. Trash talkers, trash talkers highly correlated with risk on kind of people.
Ryan Sweet: I'm the Pete Rose of the podcast.
Mark Zandi: All right. Well, let ask you one more question then before we move on to back to the game. Again, related to are we at full employment. How do you square that we're not at full employment with a strong wage growth? How can we have such strong wage growth if we're not at full employment?
Ryan Sweet: Because we have high inflation.
Mark Zandi: Okay. Yep, that would've been my answer. So the strong wage growth reflects this very high rate of inflation, and we've been discussing ad nauseam and we've debate it, but largely results supply side shocks, supply chain disruptions. And of course what's going on with Russia invasion of Ukraine and higher oil prices. And so workers are saying, "Look, I got to pay a lot more to commute to work. Cost me 4,40 cents at the local Wawa here to fill my gas tank. And food costs are up, because diesel prices are up. So you, employer, need to pay me more to compensate for that for me to come into work." And businesses say, "Fine. No problem. At least up to this point in time."
Okay. Let's go on with the game. Marisa, I'd have to say your statistic was pretty weak.
Marisa DiNatale: Thanks Mark.
Mark Zandi: Yep. It was weak, because it was [crosstalk 00:37:11]-
Ryan Sweet: Ouch.
Mark Zandi: And easy.
Marisa DiNatale: Weak, because why? Because it was too easy?
Mark Zandi: Too easy, too easy, too easy.
Ryan Sweet: See here's the trash talking.
Cris deRitis: [crosstalk 00:37:17].
Ryan Sweet: Thumper principle just goes through the window.
Mark Zandi: I got it. Oh, damn I forgot the Thumper principle.
Ryan Sweet: You need to re-watch Bambi.
Dante DeAntonio: It doesn't feel like a very strong principle.
Mark Zandi: I am going to re-watch Bambi. All right, Dante you're on.
Marisa DiNatale: I had two and I went with that one. You would probably not like the other one I picked either.
Mark Zandi: Oh, we can come back to that if we got time, but Dante, you go next.
Dante DeAntonio: I'll see if I can make it even worse, then I'll try to lower the bar further, 7.5%.
Marisa DiNatale: [crosstalk 00:37:42].
Mark Zandi: Is it negative 7.5?
Marisa DiNatale: The number of people that are teleworking because of the pandemic, the percent of people teleworking because of the pandemic.
Dante DeAntonio: I think it's close to that, but that's not what I'm thinking about.
Marisa DiNatale: No, I think it's exactly seven. No, it's negative.
Dante DeAntonio: It is negative, I left the negative out on purpose because I didn't want [inaudible 00:38:04].
Mark Zandi: Well hold it, what? No, now I'm totally confused.
Dante DeAntonio: Negative 7.5%.
Ryan Sweet: Wait, is this productivity? It's productivity.
Dante DeAntonio: Yeah, quarter to quarter.
Ryan Sweet: Yeah, you lowered the bar. Yeah you're now in the basement, that is the worst. That is terrible.
Mark Zandi: He's really lowered the bar, man.
Dante DeAntonio: [inaudible 00:38:20] took the largest decline since the late 1940s.
Ryan Sweet: Yeah, 1947.
Dante DeAntonio: Largest annualized decline since the late 1940s. So I'm just throwing it out there for our conversation later.
Mark Zandi: Dante, I'm just saying you got to bring your A game to this thing.
Dante DeAntonio: Sometimes you got to throw an overhand softball.
Mark Zandi: We know a quarter to quarter changes on productivity. No, I'm only joking.
Marisa DiNatale: He also left the negative sign off.
Mark Zandi: Yeah, I believe-
Dante DeAntonio: Intentionally. That was intentional because I didn't want Cris to [inaudible 00:38:45].
Marisa DiNatale: Oh, it was intentional.
Dante DeAntonio: Yeah, that was intentional.
Mark Zandi: Now I'm totally confused.
Dante DeAntonio: That was the point. That was the point.
Mark Zandi: Oh, and Marisa's right, actually, I think 7.5% is the number of people that said they teleworked because of COVID this month, didn't they? If it's not that-
Dante DeAntonio: That was a pretty good decline, I think too. Wasn't it? That was a pretty big drop from.
Marisa DiNatale: Yeah it was 10 and a half.
Ryan Sweet: It was 10, yeah.
Marisa DiNatale: I think that's statistic's meaningless.
Mark Zandi: Oh really?
Marisa DiNatale: Yeah.
Mark Zandi: Yeah. Why? Why do you think it's meaningless?
Marisa DiNatale: Because if you look at the question, the way they word the question, I think it's very, at this point, very open to how you interpret that question. If somebody asked you why you're working from home.
Mark Zandi: I see. Okay. Good point.
Marisa DiNatale: And is that because of COVID what would you say at this point?
Mark Zandi: At this point? I'd say not because of COVID, but it's a good question. I could have answered it the other way.
Marisa DiNatale: Yeah, because that's why you're able to work from home originally.
Mark Zandi: Got your point.
Marisa DiNatale: But at this point it's not really directly because of COVID.
Mark Zandi: That's a great point. So the number of people who are actually working at home is many, many times higher than that in all truth.
Marisa DiNatale: Absolutely. Yeah.
Mark Zandi: Yeah. All right. I think some of the data I've seen are 20 percentish, even a size 25%.
Marisa DiNatale: Yeah.
Mark Zandi: Yeah. Oh, so Dante back to you seven and a half percent decline in quarter to quarter in productivity, Q4. No, was that-
Dante DeAntonio: Q1.
Mark Zandi: Q4 or Q1?
Dante DeAntonio: Q1.
Mark Zandi: Q1, sorry. Okay. So what's going on there? Why is that an important statistic?
Dante DeAntonio: Well, it's for our ongoing debate about what productivity growth is going to look like moving forward, it just adds to the support for my case of weak productivity growth. As I said to you earlier, last night, coming out of this recession productivity growth is weaker than it's been coming out of the last three recessions already. And over the last six quarters it's basically been flat, it was only really up the first two or three quarters. And that was almost certainly compositional. You've lost all of these jobs in sort of low value added industries, which boosted up productivity. And then over the last year and a half, it's basically done absolutely nothing. So Ryan keeps telling me to just hold on and wait, that it's coming, it's coming, but I don't. How long do we wait before it's not coming anymore?
Ryan Sweet: Well with productivity, you got to wait a lot more than six quarters. I mean, that data is really volatile.
Dante DeAntonio: With the number of job openings and how much incentive there is for firms to find ways to increase productivity. Shouldn't we be seeing something a year and a half in?
Ryan Sweet: That's what I mean, [inaudible 00:41:17]
Dante DeAntonio: It could happen sooner, yeah.
Ryan Sweet: Yeah, look at business investment in intellectual property, it has gone through the roof. That's I think a better indication than productivity.
Mark Zandi: Because that drives productivity?
Ryan Sweet: Yeah.
Mark Zandi: Okay. Dante, you would, I'm sure agree that 7.5% down was kind of an outlier because of the wacko GDP number we got. So, productivity basically is, I take GDP output, the growth in that, and I subtract the growth in labor hours, the number of people working and their hours. And businesses are just like a machine hiring close to 500,000 people a month trying to fill all those positions, but output, at least as measured by GDPs going up and down and all around quarter to quarter, and given Omicron and Russian invasion and that kind of thing, inventory swings and stuff. So it was up big time in fourth quarter of last year, down big time in the first quarter. So it probably overstates the weakness, but nonetheless, you're saying even abstracting from that doesn't feel like we're in this new world of productivity growth.
Dante DeAntonio: Yeah. Down 7.5& isn't where we're headed, but I think abstracting from that month quarter to quarter volatility, it's just feels like it's very flat or very slow growing compared to what we would've thought it might be.
Mark Zandi: Okay. Two things just to push back a little bit. And I do agree with Ryan's point about investment spending, that does feel like it suggests that we should have stronger productivity. Not that it's proof positive, it doesn't mean that it necessarily translates. But the first, if I take a five year moving average of productivity growth, kind of abstracting, certainly from the quarter to quarter movements, but even from the business cycle movements, productivity growth is 1.7, 1.8% annualized. And that is definitively up from where it was back in 2015, 16 when it was well south of one, it's up at least a full point on that basis. So that makes me feel, and by the way, productivity growth has averaged since World War II 2% almost on the nose. So it feels like we're coming back to something that is more typical. So how do you react to that?
Dante DeAntonio: Well, as I say, so it was already coming off of that bottom before the pandemic. I mean, it was averaging 1% for [crosstalk 00:43:31].
Mark Zandi: Yeah, yeah.
Dante DeAntonio: Recession. And it was already coming off of that something like 1.5% and so I don't think we're going back to 1%. I think my argument is that we're not headed higher, we're going to stay at that 1.5, maybe 1.6%. I don't think we're going back to that 2% average.
Mark Zandi: I see, we're still above that.
Dante DeAntonio: We're going to get this big boom coming out of the pandemic, and to the intellectual property in my mind, isn't some of that just necessary investment, because of the pandemic I had to invest in software and other things to make remote work possible, which could lead to productivity gains, but it also could just change the way companies were working and not really lead to a whole lot of gain and productivity. It was just a necessary investment to be able to make that shift to remote work for a lot of people. So I don't think it necessarily guarantees we're going to see a boost of productivity moving forward because of that.
Mark Zandi: Right. The other thing I kind of just caution is that, that GEP number, my guess is that it's going to get revised higher. Because if you look at GEP compared it to gross domestic income, and Ryan was pointing this out in some of email exchanges earlier in the week, GEP has been a lot weaker than GDI and generally GDP gets revised to GDI. Gross domestic income is just another way of measuring output is looking at people's incomes and profits, kind of the income side of the accounts. GEP as we talk about it, is really the consumption side of the accounts or the output side of the accounts. And my guess is I'd be pretty surprised if we don't see GEP, maybe not in Q1 of 2022, but over the past year or two, when we get all the revisions in, that gets revised higher.
Here's the other thing I want to just point out, not again, I don't know that would know the answer, but it's confusing me a little bit. If you look at the productivity gains for non-financial corporations. So the data you were referring to is non-farm business, so it's a very broad measure. But if I do non-financial corporations, it's been much, much stronger.
Cris deRitis: Booming, yeah.
Mark Zandi: Have you noticed that?
Cris deRitis: Yeah.
Mark Zandi: And I don't know if that means anything to you, any reaction to that except to say, "Mark you're right," but okay other than-
Dante DeAntonio: I don't have any bigger reaction, Cris reacted, I don't know if he has anything more to say on it.
Mark Zandi: Well Cris is shaking his head, yeah, absolutely.
Cris deRitis: Absolutely.
Mark Zandi: Yeah. Yeah.
Cris deRitis: Well your difference there is larger companies, right? Isn't that the...
Mark Zandi: I think so
Cris deRitis: ... Primary difference.
Mark Zandi: And non-financial, financials might swing things around, certainly quarter to quarter quite a bit.
Cris deRitis: Right. Yeah. But I was interpreting that as the large versus small business productivity growth differences, which I think is interesting. We probably should take a closer look at that. Who's driving the investment? And then who's driving the productivity gains? It could very well be the larger companies that have been able to capitalize and have had the larger incentive to find more productive ways to deal with higher up wage costs or input costs.
Mark Zandi: Yeah. Well, I guess that Dante's got a point, the burden of proof is now shifted.
Cris deRitis: Yes he does.
Mark Zandi: I mean, the data is definitely in his camp at the moment, productivity growth is going to be more pedestrian.
Cris deRitis: It's volatile though.
Mark Zandi: [inaudible 00:47:03] yeah, there you go. [crosstalk 00:47:04] I keep expecting remote work to show up in the data, but maybe it's one of those things that takes a while to show up in the data. Like computers, it took a long time.
Cris deRitis: Like computers.
Mark Zandi: Chips to show up in the data.
Ryan Sweet: Yeah. You always tell that story about how, I forget who said it, but they said, "Productivity is everywhere except in softwares." Yeah.
Mark Zandi: Yeah, Robert Solow said that. I believe.
Cris deRitis: Yeah. That's economic folklore. You got to memorize that.
Mark Zandi: Okay. Let's move on. Cris, you want to go next? As you can see, I'm setting up a real battle between Ryan and I here.
Ryan Sweet: Well, I was just going to say for the listener, if you're keeping the score at home Mark's O for two.
Mark Zandi: I have to win every single one. And actually I have my standards, I will not chime in. No, I'm going to stop there. Thumper principle.
Ryan Sweet: Yep.
Mark Zandi: All right, go ahead Cris.
Cris deRitis: All right, so my backup was productivity. So now I'm going to have to go to my second backup.
Mark Zandi: Oh my goodness gracious. No way.
Cris deRitis: We're on the same wavelength, which I like. But I'll give you the, overhanded the softball here, Mark. 4.26, 4.26.
$4.26.
Ryan Sweet: Oh, you're doing copper?
Cris deRitis: Yep.
Mark Zandi: Copper prices?
Cris deRitis: $4.26 or?
Mark Zandi: $4.26, yeah.
Cris deRitis: $4.26 yes, per pound.
Mark Zandi: Oh, okay. Well, we haven't talked about copper prices in a while, but yeah, they've come in a little bit. They're still high. Anything over four bucks is pretty high. Well, way to go, Ryan. Good job. I think that's a cowbell for Ryan.
Ryan Sweet: No, that's easy.
Mark Zandi: That was too easy? Oh, okay.
Marisa DiNatale: Where is the cowbell?
Mark Zandi: I actually think we are getting so good-
Ryan Sweet: It's right here.
Mark Zandi: At this game that it's hard to come up with a statistic that isn't too easy.
Ryan Sweet: Interesting.
Cris deRitis: Well, I got another one, but it's way off.
Mark Zandi: No, but why'd you pick that one? So what's your thought process there on the?
Cris deRitis: It's been a while since we revisited our recession indicators, we do touch on unemployment insurance claims once in a while, they're still low. Little bump up this week, but nothing major. And then we always talk about the 10 year and the yield curve, but we haven't talked about copper in a while, which is your favorite stat.
Mark Zandi: Yeah. Yeah, it seems to suggest.
Cris deRitis: It is weakening, it's down 10% over the year.
Mark Zandi: Yeah. Maybe it's not going to be quite as useful as a business cycle barometer because all commodity prices been shifted higher because of Russia, Ukraine, and disruptions to commodity markets. So maybe although copper shouldn't be that affected by Russia, Ukraine, they don't produce copper?
Cris deRitis: No.
Mark Zandi: I'm not sure.
Cris deRitis: I do think the bar is set higher now because of electrification.
Mark Zandi: Oh, okay.
Cris deRitis: I don't know if $4 is the right...
Mark Zandi: Benchmarking.
Cris deRitis: Yeah.
Mark Zandi: Yeah, that's a good point. Okay. Okay, Ryan, you're up.
Ryan Sweet: All right. So this one's going to be a little more difficult.
Mark Zandi: Ooh.
Ryan Sweet: You're going to have to think a little bit outside the box.
Mark Zandi: Is it an economic statistic? It's still economics?
Ryan Sweet: Yeah, we're sticking with economics, yeah.
Mark Zandi: We're not going to baseball or hockey or?
Ryan Sweet: Nope. No, no, no. We're staying with economics.
Mark Zandi: [Cal's 00:50:14]...
Ryan Sweet: Batting average?
Mark Zandi: Batting average. Okay. Right.
Ryan Sweet: He was one for three last night though.
Mark Zandi: Oh. Nothing better than that when your kid's playing well.
Ryan Sweet: Yeah. All right, minus 65,000.
Mark Zandi: Minus 65,000, is it in the employment data?
Ryan Sweet: It is.
Mark Zandi: Is it employment for some sector of the economy?
Ryan Sweet: No, it's a measure of employment, but not industry.
Mark Zandi: It's not industry.
Cris deRitis: Is this just demographic.
Ryan Sweet: No, it is not.
Mark Zandi: Minus 65,000, is it something in the household survey?
Ryan Sweet: It is.
Mark Zandi: It is. And it's some measure of labor market utilization. Some kind of measure of...
Ryan Sweet: No. No, it's that yeah. 65,000. It's not a percent, it's down so just minus.
Mark Zandi: Yeah, right.
Ryan Sweet: 65,000.
Mark Zandi: Pandemic related?
Ryan Sweet: We've talked about it before. It's a difficult, I'll give you a hint. You have to adjust this number in the household survey.
Mark Zandi: Oh yeah. I remember him talking about this before, slips my mind.
Dante DeAntonio: It the employment change adjusted to the payroll survey definition? Is that-
Ryan Sweet: Exactly.
Mark Zandi: Oh.
Ryan Sweet: That's a good job, Dante.
Mark Zandi: Good job Dante. Yeah.
Dante DeAntonio: That's a little devious, because the regular number was down three or 400,000, something like that.
Ryan Sweet: Right. But that can be used-
Dante DeAntonio: [crosstalk 00:51:52] count adjustment.
Ryan Sweet: That's the first decline since December 2020. So I was kind of looking for indications that job growth or the labor markets losing a little bit momentum. And this one, if it holds up and declines again, may indicate that the job market is losing a little bit of momentum.
Mark Zandi: So for the listener, explain this. What's the six down, 65k? What is that?
Ryan Sweet: Right. So Dante and Marisa may have to chime in as well, because I may forget one or two things. But you take household employment and then you subtract out... So you're trying to make household employment an apples to apples comparison with the employment numbers in the establishment survey, so that 428,000 increase. And to do that, the household number, you have to subtract out agriculture, self-employed, unpaid home workers I believe is also excluded.
Marisa DiNatale: Family workers.
Ryan Sweet: Yep. Family workers.
Marisa DiNatale: People working in a family business. Yeah.
Ryan Sweet: And now you have a more of an apple to apples comparison. I mean this adjusted number, the household survey is still volatile, more volatile than the employment data, but typically they kind of move, directionally in the same way. And that didn't happen in April.
Mark Zandi: Right. I had noticed though, since the pandemic hit, so if you go back and look at employment since the pandemic hit, the household survey has been stronger than the establishment survey. Employment is measured by the household surveys being stronger. And that doesn't last generally for very long.
Ryan Sweet: No, it doesn't.
Mark Zandi: [inaudible 00:53:26] they converge. So maybe this is just part of that.
Ryan Sweet: It could be.
Mark Zandi: ... Process that's going on. But that's interesting. So it was down 65K on the household basis compared to up for 29 among the establishment survey.
Ryan Sweet: Correct.
Mark Zandi: Yeah. Got it. Okay. That was good. That was a good... I'm going to have to file that away, into you're go-to statistic.
Ryan Sweet: I'll send you the pneumonic so you can-
Mark Zandi: Okay. Okay. That'd be great. Yeah. I'd like to see that. Okay. I've got one and this is a hint, got to think more broadly than the employment report. So I'm now going beyond the employment report and in Marisa's honor, it's a negative $7.4 trillion. 7.4 trillion.
Cris deRitis: And Dante too now.
Mark Zandi: Yeah. Now Dante-
Marisa DiNatale: He claims to have done that on purpose though.
Ryan Sweet: I don't think he did.
Mark Zandi: Yeah. I'm not sure he did. Yeah.
Ryan Sweet: I mean, Mark, aren't you getting concerned that a lot of our economists, our colleagues are reading positive and negative signs and we're economists?
Mark Zandi: I do that all the time, so no, not really. Yeah, no, it's okay. As long as they fess up or crack.
Marisa DiNatale: Well, sometimes you have in your head, this is a decline. What was the decline? 7.4% decline. So sometimes you just-
Mark Zandi: Marisa, just-
Marisa DiNatale: That's the unsaid part.
Mark Zandi: Just give it up, Marisa. Give it up.
Marisa DiNatale: I would like to give it up, Mark. I would very much like to give it up.
Mark Zandi: Good point.
Marisa DiNatale: Someone won't let me.
Mark Zandi: We will never let you give it up. That's hilarious.
Cris deRitis: [crosstalk 00:55:08] Sometime you'll have to tell the story about swapping the X and Y axis, Mark.
Mark Zandi: I'm sure I've told you that many, many times.
Cris deRitis: Yeah. I don't know on the podcast.
Mark Zandi: On the podcast? All right. So I'll tell it because it's a great story. And this is why, Marisa, no harm, no foul. So this is early days when we started our company, Carl and I, my brother who's runs the business now. We're sitting in front of a terminal and looking at data and he plots this data. I can't remember what it was. And I'm looking at it and I'm giving, "Oh, I know why this is happening. Here's five reasons why this is the case." And then he goes, "Oh, I forgot to multiply by negative one." So everything was flipped on its head. So I had explained actually quite elegantly why this was the case, but it was obviously just the opposite of what I was saying. So just goes to show, okay. Back to my statistic, this is serious business, minus seven... Did I give you the statistic? Yeah. Minus $7.4 trillion. Minus 7.4 trillion.
Ryan Sweet: And this came out this week?
Mark Zandi: This is coming out all the time.
Marisa DiNatale: Oh, it's the treasury report.
Ryan Sweet: I know where he's going.
Mark Zandi: Yeah. So I'll give you hint, it's market related.
Ryan Sweet: Is this the loss? I'll let other people, I think I know where you're going.
Mark Zandi: No, go ahead, Ryan. No, go ahead.
Ryan Sweet: This is the decline in household wealth because of the drop in stock market?
Mark Zandi: Yeah, that's right. Yeah, exactly.
Ryan Sweet: I didn't explain it right.
Mark Zandi: Yeah, no, no. Yeah, that's exact. I had to dissect with the way you said that, but yes.
Ryan Sweet: I was kind of changing my mind as I was answering it.
Mark Zandi: Oh, is that right? Okay. Yeah. It's the decline in market cap, the capitalization of the equity market based on the Wilshire 5000. This is really interesting. I didn't realize it until I went and calculated it this morning. The stock markets all time high was the first trading day of this year. January 3rd, 2022 is the all time high in U.S. stock market. And it was in terms of market capitalization, the value of the stocks that being traded was about $49 trillion, $49 trillion. And now we're down, I didn't look today, but based on yesterday's action, which obviously was pretty negative. We're down about 15% from the peak and that's $7.4 trillion.
That's starting to be real money, we talk about the need for financial conditions to tighten in response to the Fed's actions to slow the growth rates in the economy. And financial conditions include everything from long term interest rates, to the value of the dollar, to credit spreads, mortgage yields, but arguably most importantly, the equity market and the equity market is down quite a bit. So something to watch. Let me ask you a question. One thing that I'm getting a little nervous about is this is another key recession indicator, right?
Ryan Sweet: Yep.
Mark Zandi: I mean the first one is the yield curve, that on the 10 year, two year basis that inverted. Two year yields rose above 10 year yields a few weeks ago. That's a kind of a indicator of future recession. And then another really important one is the stock market, that's down. I don't know if 15% is enough of a signal, but what do you guys think of that? Any worries, nervousness about. By that, let me also give you a little more context around that. This goes to the monthly GDP estimates that, Ryan, you construct based on monthly data. We got the March number, the March number was down a lot. And if you look, March GDP is no higher or is marginally higher than what it was back in last August. So GDP has actually not gone anywhere since August of last year. So you tie that into all these recession signals. I don't know. Anybody's alarm bells going off yet or premature? What do you think Cris?
Cris deRitis: Well, Ryan's, bell's already been going off.
Ryan Sweet: Yeah mines... yeah.
Cris deRitis: For a while, right?
Ryan Sweet: Yeah.
Mark Zandi: Yeah. Has it been going off?
Ryan Sweet: Yeah, it has been going off.
Cris deRitis: Is yours going off now? That's the question.
Mark Zandi: Well, I'd say so far, this is all still consistent with my probabilities, one third this year 50 even odds over the next two. It's not quite screaming recession.
Cris deRitis: Only even odds, you're not bumping that up?
Mark Zandi: No, not yet. Not yet. You're at 60% or something.
Cris deRitis: What's it going to take?
Mark Zandi: Probably a recession actually though, for real.
Dante DeAntonio: It might change zones, maybe.
Mark Zandi: That might change something. No, no. Look, if the stock market goes down 20, 25% and stays down, it doesn't go down for a day or two, or a week or two. Is down for a quarter or two, I'd say that's a pretty strong signal, something's up. Then I start watching consumer confidence because that's the next thing that'll go if we're on the path to recession. But something very, very clearly to watch.
Okay. There was one other question I wanted to ask before we call it a podcast, going back to labor market is, and this is a question Ryan and I got on a call we did with a large client. What do you look at to gauge whether we are suffering a wage price spiral? So dreaded wage price spiral, wages, inflation drives wages. We already talked about that already happening, but then wages start driving inflation. So service based companies where labor costs are high, see the higher wages and start passing that through to their customers thinking that, That's okay because customer will pay it, because they're going to get a bigger wage increase. And you get into this kind of self-reinforcing negative dynamic, which is the fodder for stagflation scenarios and certainly recession, because the Fed's going to be all over that. And just raising interest rates aggressively to kind of short circuit that wage price spiral.
We've argued, and we argued on this podcast already that we're not in a wage price spiral. That so far it's mostly inflation driving wages, but we don't see evidence of wages driving prices. But what is it that you look at to gauge whether that's actually the case or not? Any views on that? Ryan, how would you answer that question?
Ryan Sweet: Well, one thing I've been looking at, and I don't know if I'm thinking about it the right way is that the conference board, consumer confidence survey, they have that labor market differential, which is the percent of consumers that say jobs are plentiful minus hard to get and that's among the highest on record. In the same survey, they have income expectations. So what percent of consumers expect their incomes to be higher in the next six months minus lower. And that's among the lowest. So consumers are really optimistic about the labor market, but very pessimistic about their future incomes, which would argue that maybe they don't feel that comfortable asking for a higher wages. So that would argue against a wage price spiral.
Mark Zandi: What do you think of that Cris? Does that resonate with you?
Cris deRitis: That's reasonable. I guess more fundamentally I would look at the prices of the various services versus goods. Are we seeing faster price increases in the service sector versus goods sector?
Mark Zandi: Right. And so far you'd say, no, that's not?
Cris deRitis: So far I say no.
Mark Zandi: But maybe changing.
Cris deRitis: I think by and large, the service providers have been eating the increased cost to some degree. So they're not passing all over the prices through.
Mark Zandi: Right. Okay. Dante, Marisa what would you look at to gauge whether wage price spirals is starting to unfold? Anything?
Dante DeAntonio: I think it takes some time, we need to see how things unfold over a little bit longer horizon, especially as some of the other factors influencing inflation get rung out a little bit, hopefully. If those factors start to weigh in and you see inflation still staying elevated, and with wage growth seemingly leveling off that would sort of lend some credencey that we're not going to see that spiral happen. But if you'd see some of those external factors get rung out of inflation, but overall inflation's still ticking up higher, then certainly that would set off alarm bells for me. But that's just going to take some time to see that.
Mark Zandi: Yeah. So inflation is juiced because of these one off spiking oil prices, vehicle prices. They come in, but we don't see wage growth come in with it. But in that case, if wage growth is up because of the inflation you would think as the wage growth moderates we'd see wage growth moderated. Well, but I guess what you're saying is if that does not happen, then that's a bad sign.
Dante DeAntonio: Yeah.
Mark Zandi: That's a bad sign. Okay. Marisa, anything that you would point to?
Marisa DiNatale: Those are all really good. I would just say how broad based are wage gains, once you start to see it spreading from a few key industries where we know that the market is very tight, to kind of just an all over. Right now there's a huge differential say in restaurants, hotels, leisure, hospitality, wage gains over the year are 15% or something like that. The last time I looked, which was a month ago. Whereas on average for other industries, it's four or 5%. So until you start to see kind of everything moving up, I'm less worried about it being a pervasive problem.
Mark Zandi: That was the answer I gave, right, Ryan? On the call.
Ryan Sweet: Yeah.
Mark Zandi: And I brought up the Atlanta Fed's Wage Tracker, which again, I keep touting. Go Google Atlanta Fed Wage Tracker, they follow the same workers and track their wages to, it corrects for the mix effects or accounts for the mix effects. And if you look at wage growth across the wage distribution, most or vast majority of the acceleration and wage growth has been in for jobs in the bottom half of the distribution of wages. In the top half, it's not been the case. And you look across age, older workers like me that are boomers, their wage growth is not accelerated to any significant degree or maybe a little bit on the margin, but nothing major.
The other thing I brought up and maybe Ryan, you can explain this. Ryan does this really cool Granger causality test, this kind of a statistical test that looks at leads and lag relationships between variables to see who's causing who, or not. And correct me if I'm wrong but, Ryan those causality tests that you run continue to show that inflation prices are driving wages, but wages, at least up to this point not been driving prices?
Ryan Sweet: That's correct. And I use the proxy for wages is the Employment Cost Index. So, so far inflation's leading changes in the ECI, the Employment Cost Index by one to two quarters.
Mark Zandi: Right. Okay.
Ryan Sweet: And the causation runs one way, because you can have instances where there's a causal relationship that goes both ways, but so far it's inflation driving wages.
Mark Zandi: And you should be pretty proud of me, because on that call, Ryan correct me if I'm wrong. But I think I did a pretty good advertisement for Inside Economics on that call.
Ryan Sweet: You did, you made a very good pitch.
Mark Zandi: I think we picked up a few listeners along the way. And I don't know if you guys are doing that or not, but I think you should if you're not. I take advertisement breaks in the middle of these presentations that I do, to talk about that and Twitter. My Twitter handle is @MarkZandi, follow me. And Mr. Sweet what's your Twitter handle?
Ryan Sweet: @realtime_econ.
Mark Zandi: Yeah. And that's where he trash talks me by the way. Really got to keep up with that.
Ryan Sweet: I think we need another opinion of trash talking. Marisa may have to look at it and tell me if I'm really trash talk-
Marisa DiNatale: I've seen it. I've seen it. You're really enjoying Twitter, I see. Yeah.
Mark Zandi: Well, isn't that trash talking? [inaudible 01:07:45] doing?
Marisa DiNatale: Yeah, absolutely. Absolutely. He's goading you into a argument over Twitter.
Ryan Sweet: It's all in fun.
Marisa DiNatale: Of course it is.
Mark Zandi: I know. Yeah, isn't trash talking all in fun, generally?
Ryan Sweet: Not all the time.
Mark Zandi: Yeah. Oh, so Marisa you're on Twitter?
Marisa DiNatale: Yeah.
Mark Zandi: Do you tweet?
Marisa DiNatale: No.
Mark Zandi: Oh.
Marisa DiNatale: No, I just follow people.
Mark Zandi: Okay. Alrighty. And Dante, are you on Twitter? You don't strike me as a Twitter fellow, but.
Dante DeAntonio: Like Marisa, I'm an observer, I use it to [crosstalk 01:08:14].
Mark Zandi: You're a observer.
Dante DeAntonio: Use information.
Mark Zandi: Of course Cris is LinkedIn, the LinkedIn Maven.
Okay, good. Very good. Well, I think any other things anybody wants to bring up at this point? No. Okay.
Ryan Sweet: Well besides watching Bambi.
Mark Zandi: Watch Bambi.
Dante DeAntonio: Homework for next week for sure.
Ryan Sweet: On Netflix, watch the Hunt for The Crypto King.
Mark Zandi: Oh yeah, you mentioned that.
Ryan Sweet: It made me think of Cris.
Marisa DiNatale: Is that a biography of Cris deRitis?
Ryan Sweet: Yeah, that's right.
Mark Zandi: That's the rumor. That's what we've heard. Yeah.
Ryan Sweet: The Hunt's going to end in Chester County.
Cris deRitis: Geez. So on that dark note…
Mark Zandi: We're going to call this a podcast. It was a very good podcast, thank you listener for tuning in and we'll talk to you next week. Take care now.
