This week’s podcast focuses on the jobs report for December. The usual cast of characters discusses the job catch-up (not ketchup) in government and healthcare, and its implications. Everyone agreed that despite the considerable cross-currents in the numbers, it was a good report.
This week’s podcast focuses on the jobs report for December. The usual cast of characters discusses the job catch-up (not ketchup) in government and healthcare, and its implications. Everyone agreed that despite the considerable cross-currents in the numbers, it was a good report.
Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And I'm joined by a few of my colleagues on Jobs Friday, January 5th, 2024. Got Cris deRitis. Hey, Cris.
Cris deRitis: Hi, Mark. Good to see you.
Mark Zandi: Good to see you as well. Marisa, good to see you.
Marisa DiNatale: Hi, Mark. Happy New Year.
Mark Zandi: Yeah, Happy New Year. And Dr. DeAntonio. Good to see you as well.
Dante DeAntonio: Good to see you too, Mark.
Mark Zandi: I see the stone background. You were just regaling us that that is actual, real... Are you in Chester County, Pennsylvania?
Dante DeAntonio: I am in Chester County, yep.
Mark Zandi: Okay, that's Chester County, PA stone.
Dante DeAntonio: That's right.
Mark Zandi: Right there.
Dante DeAntonio: Local stone.
Mark Zandi: Yeah, and that's because a lot of homes, like my home, has a lot of that kind of stone. But it's kind of a thing in Chester County, PA.
Cris deRitis: It's not serpentine, though, right?
Mark Zandi: Serpentine?
Cris deRitis: Yeah.
Mark Zandi: What's that?
Cris deRitis: That's the stone. That's [inaudible 00:01:16]
Mark Zandi: Oh, that's called serpentine.
Cris deRitis: It's a special stone in this area. Anyway ...
Dante DeAntonio: It's news to me.
Cris deRitis: It's another podcast.
Mark Zandi: Well, hold it. I didn't know this. Really? It's called serpentine?
Cris deRitis: There's another type of stone in this area that they used for building, in a lot of colonial era construction here, and they used serpentine stone. Has a distinct look, a little bit more greenish than what Dante has there.
Marisa DiNatale: Cris is the stone expert.
Mark Zandi: Yeah. How you know this?
Cris deRitis: Or I could be making this all up. You never know.
Marisa DiNatale: That's true.
Mark Zandi: Not like your forecasts, though. You never make that.
Cris deRitis: Those are rock solid.
Mark Zandi: Those are rock, rock solid.
Cris deRitis: No pun intended.
Mark Zandi: Serpentine rock solid.
Cris deRitis: Exactly, exactly.
Mark Zandi: Yeah. So serpentine is the name of the stone? The type of the stone?
Cris deRitis: Yes.
Mark Zandi: Oh, okay. I got it.
Cris deRitis: Yeah.
Mark Zandi: I didn't realize that. Oh, that's good to know. All right. Well, Jobs Friday has become tradition that Dante kind of leads the way, gives us the rundown and his perspective on things. So what do you think, Dante? You want to stick with tradition?
Dante DeAntonio: Sure, I can do that. Okay.
Mark Zandi: All right. Fire away.
Dante DeAntonio: Say the December employment report was a little bit confusing just given some of the differing results that we got across the two surveys, but by and large it hasn't really changed my outlook for the labor market moving into 2024. Top line job growth was a little bit stronger than expectations, came in at 216,000, but if you look at three month average growth, it actually slowed pretty sharply from last month to this month, given downward revisions that we saw in October and November. Private growth is only averaging 115,000 jobs over the last three months, which is again, fairly slow relative to certainly last year and even relative to earlier this year or earlier in 2023.
Growth remains fairly concentrated. Government payrolls, healthcare leisure and hospitality or accounting for something close to three quarters of all job growth over the last couple of months. In terms of other industry performance construction picked back up a little bit after a weak November, sort of still bucking an expectation for it to slow down more meaningfully at some point. We've got ongoing weakness in transportation and warehousing. It's been down now for several months in a row after outsize gains earlier in the recovery. Temp help still very weak, which it has been now for probably almost the last year. Not a huge surprise there. Manufacturing is now sort of stabilized after the impact of the UAW strike. It was up slightly in December, a sign that manufacturing is at least holding up in the face of challenges but probably not growing or going anywhere fast.
Confusing on the household survey side, the unemployment rate was unchanged at 3.7%, which is good news. It was sort of unchanged for what we would say the wrong reasons. We had a huge decline in the labor force, a huge decline in employment as reported by the household survey, but a lot of that just looks like volatility. We've had big swings in October and November and now again in December, and so it looks like noise more than anything to really be concerned about moving forward. Wage growth I think, again, maybe causes some angst amongst people. It was up 0.4% again in December after a similar increase in November. Year over year growth ticked a little bit higher. It had been just under 4%. Now it's at 4.1%. Again, again, I think that's probably splitting hairs about whether that really matters a whole lot for the outlook moving forward. So by and large, I'd say it's a good report. It's in line with expectations. The labor market is still clearly moderating relative to a year ago. Still looks like things are headed in the direction we want them to.
Mark Zandi: Good. A lot to unpack there. One thing maybe we can unpack right now before we move on to get Marisa and Cris's take, the job growth, as you pointed out in the last I guess couple months, maybe three or so months have been primarily in government, healthcare, private education. And my narrative on that, I'm just going to give it to you and just see what you think, is that it's just catch-up from the, not ketchup as in tomato-based ketchup, but am I saying it right? Catch-up, catch-up., catch-up. It's catch-up from the pandemic shutdown so that the private, early on, the private sector employers, they caught up quickly. They were very aggressive in going out and hiring and getting people back to work. They paid up, they jacked up wages to be able to do that. Government, healthcare, education, not in a position to do that just given some of it's unionized and its contracts and more bureaucratic, slower, and of course they can't raise wages nearly as aggressively as the private sector can, given the constraints on their ability to do that.
And as a result, they're now catching up. The private sector has caught up, things have cooled off. Their hiring has kind of normalized, slowed, and the healthcare sector, the education sector, the government sector is now able to do that and that's what they're doing. If that's the case, that would suggest once those sectors catch up, employment is back to kind of where it was pre-pandemic, at least, that that's when we'll see another really meaningful step down in job creation. So right now, underlying job growth, abstracting from the figures of the data, feel like they're somewhere 150, 175K per month, something like that. And that once the catch up is over in those sectors, we're going to step down to something like 75K to 100, something like that. And that probably will happen, feels like by midyear, certainly by later this year. What do you think? Is that a narrative that you can buy into?
Cris deRitis: Yeah, I agree. I think that's largely how I view it. Yeah.
Mark Zandi: Yeah. Okay. So this concern that, or the worry that the job creation is just top-heavy in these sectors is, I don't know if that's a worry. That's just the reality of what the situation that these sectors have been in. They just haven't been able to compete with the private sector.
Dante DeAntonio: I think so. I wrote something similar recently. I mean if you look, there's been some concern about the diffusion index, which obviously measures more broadly what sort of job creation looks like. It's obviously fallen a lot over the last 12 or 18 months, but that's also not surprising. If job growth is slowing to any meaningful degree, that almost always comes with sort of less broad-based job gains and you need that. If we expect job growth to be in the 100,000 to 150,000 range, that's not consistent with a diffusion index of 60 or 65, right? Historically you need a D fusion index that's in the fifties to get job growth. It's that slow. And so you can't have every industry adding to payrolls and only have payroll growth of a hundred thousand a month. It just doesn't happen that way. So I think things are largely as I would expect them to be.
Mark Zandi: Hey Marisa, Cris, on that point, anything you'd want to push back on or anything you'd want to say before... I'll give you another chance to weigh in, but just on that particular point about government, healthcare, private education. Cris, anything?
Cris deRitis: No, I tend to agree. I guess one other question for you, Mark, Heinz or Hunt's?
Mark Zandi: Heinz or Hunts?
Cris deRitis: You've been using catch-up a lot. I'm getting...
Mark Zandi: Oh, right.
Cris deRitis: Choose carefully. Are you a Heinz or a Hunt's person?
Mark Zandi: You know what? I don't know.
Cris deRitis: Okay. All right.
Mark Zandi: That's a great question. I'm not sure.
Cris deRitis: I'd have thought Pennsylvania, you'd be all Heinz, all in on Heinz.
Mark Zandi: Where's Hunt's from? Where are they from?
Cris deRitis: I don't even know.
Mark Zandi: You don't know that? You know serpentine, but you don't know where Hunt's ketchup comes from?
Cris deRitis: No, no, I do not. You're my education.
Mark Zandi: Yeah, I'm guessing. I'm guessing we're a Heinz family. I just haven't looked at the label recently, and actually used a little bit of ketchup last night. Don't tell my wife. The chicken was a little, I don't know...
Marisa DiNatale: Ooh.
Cris deRitis: You're still getting your taste back.
Marisa DiNatale: It was that bad, that you had to put ketchup on it?
Mark Zandi: Yeah, that sounds really bad. Well, we've both been kind of under the weather, to be fair.
Marisa DiNatale: Oh, you can't taste anything, anyway, right?
Mark Zandi: I can't taste anything anyway, and maybe that's why I pulled out the ketchup. I thought maybe I could taste the ketchup. No, no such luck. No such luck. Maybe because it was Hunt's catch-up, though. Maybe that's why I couldn't taste it. If it was Heinz, maybe I could taste it.
Cris deRitis: There you go. California, by the way.
Mark Zandi: Oh, is it? Okay. That figures.
Cris deRitis: I had to look it up.
Mark Zandi: Marisa, anything on that point you want to bring up?
Marisa DiNatale: On the ketchup point or the job? What do I want to bring up? Oh, just one thing is that I'll just point out that leisure hospitality is still pretty far from its pre-pandemic peak. So that's one industry that had been making up a good portion of the job growth through most of the recovery over the past couple of years. We saw average monthly job gains around 80,000. That's about half of that right now. We're back down to about half of that on leisure hospitality, and it's still under where it was prior to the pandemic. So that's one industry where we could potentially get more job growth through our "missing jobs" in that industry, or perhaps the industry is just restructured to a point where we're not going to get back up there in the next, I don't know, six months or something. Maybe it takes a little bit longer.
Mark Zandi: That's a good point. So I think leisure hospitality, correct me if I'm wrong, Dante, 40K in the month? Something like that.
Dante DeAntonio: Yeah.
Marisa DiNatale: Something like that.
Mark Zandi: Which is still pretty strong. So another catch up, that's another catch-up sector.
Marisa DiNatale: Right.
Mark Zandi: Yeah. Okay.
Marisa DiNatale: Yeah, and still catching up, right?
Mark Zandi: It's still catching up.
Marisa DiNatale: Because like I said, it's not back. And yeah, I think Dante, I saw you wrote about the diffusion index and then I wrote about the diffusion index, too, in the macro last month. And just to underscore what Dante said, you would expect this to come in as all of these industries have regained jobs back. You're going to have this effect where you're having concentration in a few industries as we move along and job growth slows overall. The diffusion index actually rose a bit over the month, this month in December it was up a couple points it looks like, and it's still above 50.
Mark Zandi: That's the percent of industries, and I think there's, what, close to 300 industries that the BLS...
Marisa DiNatale: 250 that are either adding jobs or keeping payroll steady. So unless that gets down near 50 and looks like it's going to drop below 50, there's nothing recessionary about it, but it's come in quite a bit, as Dante said, over the last year or so.
Mark Zandi: Okay. The other thing I want to unpack before I move on to Marisa and Cris that you said, Dante, is about wage growth. It feels like it's kind of settling in around 4% year over year, which is a little higher than kind of the rule of thumb that most economists have been using, that we need 3.5% wage growth to be consistent with 2% inflation because underlying productivity growth has been 1.5, so 1.5 plus 2% is 3.5. If we're at four then that might be inflationary, it might be putting pressure on businesses. Their margins will come under pressure and put pressure on businesses to raise their prices more aggressively. I don't know. My sense is that 4% might be the right number, right? Because it feels like underlying productivity growth may be, at least, I don't know forever, but in the recent period closer to two than one and a half, so maybe four is just fine. It's not inflationary. What do you think?
Dante DeAntonio: I agree. I made the same case today when I wrote about it that I think three and a half might not be the right number and it's also still, I mean there's a lot of noise in the wage data. It's still definitively come in right at the end of 2022. Wage growth I think was at 4.8% year over year. Now we end 2023 at 4.1%. So there's nothing to say that it's not going to continue to come in a little bit further and get back under 4% over the next six months or so. But to your point, I think maybe there's some evidence that we can sustain wage growth at something closer to 4% as opposed to three and a half. So I don't think there's anything to be concerned about right now.
Mark Zandi: Yeah. The other thing I've always wondered is in that calculation I just did, we use 2%, which is the consumer expenditure deflator because the measurement differences, the CPI, the consumer price index is probably going to be two and a half, not two. So two and a half plus one and a half is four. So maybe why are we using the consumer expenditure deflator in this calculation? Right?
Dante DeAntonio: Agreed. I don't think there's a good reason. And I also think part, I mean wage growth was just so weak for so long prior to 2020 that I think people see 4% wage growth and it feels like something is wrong, but I think wage growth was obviously a little bit depressed prior to the pandemic for the decade prior to the pandemic. So I don't think there's necessarily anything wrong with wage growth at 4% right now.
Mark Zandi: And if it is 4%, that's a very positive thing, right? Because CPI inflation now is three, I think it's close to three, even core is coming, core excluding food and energy, is coming in close to three. So if you're at four and inflation's at three headed south and you're a rock solid four and 3% inflation headed south, that means real wages are rising, after inflation wages are rising, and that means more purchasing power, that's good for consumers and other reasons to be more optimistic. Cris anything, Marisa anything on that you want to weigh in on or pushback on or...
Marisa DiNatale: If you look at the whole trajectory since before the pandemic of inflation and wages? Wages just popped up again above inflation, just in the past year or so. So it's not like real wage growth is, there's this huge gap between wages and inflation. I mean, we've been through quite a bumpy ride with both over the past four years, so wages are just outpacing inflation if you look at it over a longer period of time, say if you go back to early 2020. The other thing is there are 22 states-
Mark Zandi: Okay, just to make sure I got that right, what you're saying is that real wages, wage growth less inflation really over the past three years or so has been basically flat. It hasn't gone anywhere.
Marisa DiNatale: Right. I mean, the way it's shaped out now, it's kind of ended up right just above inflation. There's not this huge gap. The other thing I was going to say is that there's 22 states that are raising their minimum wage as of the first of the year, and those minimum wage gains vary quite a bit from a few cents additional an hour to a few dollars an hour. I don't think this has any real implication for inflation. It usually doesn't, especially because the minimum wage is one that never keeps up with inflation over time. That's, talk about catch-up, that's a lot of catch-up. But that's just something to keep in mind, too, as we look at average hourly earnings over the next few months that we might see some influence from these minimum wage increases that went into effect this week.
Mark Zandi: That's not in this number, because this is for December, but you're saying when we get the number for January next month, that may be in there.
Marisa DiNatale: It could.
Mark Zandi: It could be in there, yeah. Okay. Cris, anything on that?
Cris deRitis: I guess I'm not terribly worried about the average hourly earnings growth, either. The fed's on the lookout for a wage price spiral and we just don't have any evidence of that at this point. So yeah, they keep an eye on the wage growth, but really what they're focusing on is on prices and we're not seeing that those wage gain increases that we're observing are really translating into service sector acceleration of inflation. So as long as that maintains, I think the productivity story holds, we could certainly continue to benefit from higher wages without necessarily tripping and inflationary spiral.
Mark Zandi: Okay. Okay. All right. Marisa, do you want to fill in any gaps, holes in what Dante said and give us a sense of how you think about the report?
Marisa DiNatale: Yeah, I don't really think there were any major gaps in what Dante reported. I mean just going to the household survey quickly because it was-
Mark Zandi: There's never any major gaps. I mean, that's a little rude. Major gaps. You almost said gaffes there. There's no major gaffes in what he said. Yeah, come on. No one's talking about-
Marisa DiNatale: There weren't any. There never are.
Mark Zandi: Okay. Never are. There might be some minor gaffes or gaps.
Marisa DiNatale: Possibly.
Mark Zandi: Possibly. But major, geez.
Marisa DiNatale: No, I think he did a fantastic job, as usual, summarizing the jobs report. What else can we say? I guess if we look at the household survey where there were very large declines in employment in the labor force, I was looking at the demographic makeup of that and it's pretty broad based. Usually we found that we can maybe point to one or two categories where it's coming from, but this is pretty broad based across ages, race and ethnic groups, all up and down the educational attainment spectrum. It is a bit more severe for women than men, but both women and men's labor force and employment both fell. But really pretty much every group I looked at, except for African-Americans, employment was down. So that's kind of what I want to say on the household survey. I guess on the-
Mark Zandi: Can I just ask on that? I mean, should we pay any attention to the household survey this past month? I mean it felt really just weird, bizarre, big decline in labor force, big decline in labor force participation, these big swings and measured unemployment across demographics. I don't know. Oh, maybe-
Marisa DiNatale: They did redo the seasonal adjustment factors in the-
Mark Zandi: Did they? Okay.
Marisa DiNatale: ... household survey, but yeah, they did, but it didn't change. Dante, you may have looked at this probably more closely than I did. I don't think it changed any rate calculations, like the unemployment rate or the labor force participation rate, but they did introduce new seasonal factors. Could that play some role here? Maybe, but this is a standard thing they do every year.
Mark Zandi: The seasonals, also, I mean just felt a lot of seasonality affecting the numbers. Even there's a large decline in employment among couriers in December. That's the FedExs, the UPSs. That felt weird, too.
Marisa DiNatale: On the payroll survey, you mean.
Mark Zandi: On the payroll survey, survey of establishments, businesses. So it just feels like there's a lot of this season- And I guess this is the time of year where the seasonal factors could be pretty messed up.
Marisa DiNatale: They could be a kind of wonky.
Mark Zandi: Big swing factor. Yeah. Okay.
Marisa DiNatale: Although the whole transportation category has been weak over the past few months, kind of up and down that category. So I don't know, maybe it is real.
Mark Zandi: Yeah. Okay. Okay. Okay. So in general, pretty good rapport, reasonably good, what do you say?
Marisa DiNatale: Yeah, I guess. I mean, yeah, job growth, the headline number. I was surprised when I saw it. It was stronger than what I thought it was going to be, but digging into it, I think I agree with Dante, it's pretty good. It's okay. The household survey kind of detracts, makes me a little bit more nervous about it, but not really.
Mark Zandi: Didn't change your forecast or-
Marisa DiNatale: No.
Mark Zandi: Your view, or views on anything?
Marisa DiNatale: No, and I think the point Dante made underscored about, if you just take the private sector, private sector employment growth is actually just right above a hundred thousand a month, averaging now, which is kind of where we think job growth needs to be for our soft landing to occur over the course of the next year. So I think that's probably a good number to keep our eye on as we move forward here.
Mark Zandi: Yeah. The other thing I noticed talking about weird, if you look at the native-born labor force and the foreign-born labor force, foreign-born increased again, native-born, as we know, the overall labor force fell very sharply in the month. And as Dante pointed out, that's after several months of very strong labor force growth. So it looks like some statistical giveback. But where you see the giveback occurring, it's among the native-born, not among foreign-born, which is interesting. It adds to my suspicion a little bit about the data. This feels a little weird, but anyway. Okay. Cris, what do you think? Anything to add?
Cris deRitis: A good report. As usual as I've been saying now for a while, ignore the headline because it's likely to get revised and we had big revisions for the last couple of months in the report. October knocked down to 105,000, right?
So it does suggest that this 216 might not hold. It could be a bit lower. But still even with those revisions, if it's what, 170, 180, still a very solid report when it comes to employment growth. So yeah, I thought it was a good report.
Mark Zandi: So I said the underlying rate of payroll, job growth, underlying meaning, abstracting from the vagaries of the data, the seasonals, everything else, these revisions you just mentioned, because these numbers are based on surveys and ultimately they get revised as we get more survey responses, and ultimately benchmark to actual employment counts from unemployment insurance records, abstracting from all that, it feels like it's 150K to 175K per month. Agree, disagree?
Cris deRitis: Yeah.
Mark Zandi: Sound right to you?
Cris deRitis: That sounds about right.
Mark Zandi: Okay. Yeah, when I saw the report, I was sitting down to have my cereal, hit the button, saw 217K, oh, that's stronger than, and 3.7%. That's the headline. I go, "Oh, that's stronger than I expected." And then you read just another minute down, oh, these revisions and it's basically what we expected after the revision. I took a lot of solace in that.
Cris deRitis: Are you going to revise some of your giddiness from last month?
Mark Zandi: No. I will say this, last month's report was unambiguous in my mind. There was no-
Cris deRitis: Household survey issues.
Mark Zandi: Yeah, there was no measurement issues there. I can't think of a single blemish in the report. I mean, we debated a little bit about whether we should be concerned about the strong job growth in government and healthcare, but as we discussed, I don't think that's an issue. So I didn't see a single blemish in, I've been following job reports for 30 plus years. That's rare. Rarely do you see... When I say rare, I mean like really rare. Once every 10 year kind of rare where you see no blemish in the report. Maybe I'm exaggerating, maybe it's once every five years or something like that. But this one is more typical, although this felt like a little more than typical in terms of the weirdness. It feels, I think Dante used the word noise. It feels like there's a lot more noise in it.
Cris deRitis: Yes. Some mixed signals.
Mark Zandi: So harder to interpret, to feel giddy about. Right. You can't feel giddy because the data is the data, but I'm not sure I believe it.
My optimism about the economy is unaltered by this. In fact, it's just consistent with the script. You want a resilient labor market that's creating jobs. And by the way, you're right, it's right that the bulk of the jobs are in government, healthcare and private education, but we got manufacturing added to payrolls, construction added to payrolls. Those are sectors that typically when you got a problem in the economy, they're headed south in a big way. They're laying off lots of workers and we're not seeing it. We're just not seeing it. So I take a lot of solace in that and I think the economy's... So my point is the economy's resilient, but it is steadily slowly throttling back. I do want to reinforce a point, though, because I think this is going to become an issue, is that job growth is going to slow.
It's going to slow. I mean, we've been able to digest so many jobs because labor force growth has been robust, but that's going to throttle back, too, given demographics, given the aging out of the workforce by the boomer generation. And I think we should all begin to recognize that six months from now, 12 months from now, we're going to be at 100K, south of 100K on a consistent basis. And that's going to be hard for people to get their minds around, I think, in the context of the kind of job growth we've been getting in the last couple three years, and I think concerns that we're going into recession are going to mount again at that point, as people say, "Oh, things are slowing way too much."
No, that is totally expected. In fact, I think this is true. If you go back and you look at our forecast for job growth at the current point in time, let's say before the pandemic, go to our forecast we did in December or January, let's say January of 2019, and looked at what we thought, Dante's doing it right now, you go to job growth, what we thought job growth would be currently, I think it was probably south of 100K. Maybe, Dante, you can take a look. I'd be very curious if I've got that right.
Dante DeAntonio: I'll work on it.
Mark Zandi: Okay. Okay. Very good. Okay, anything else on the job numbers? Anybody? Did we miss anything? Do we want to say anything more about them? No. Okay, let's play the game, the statistics game. The game is we each put forward a statistic. The rest of the group tries to figure it out with questions, deductive reasoning clues. The best stat is one that's not so easy. We get it immediately. Although we're getting pretty good at this, now this time it will take us forever. But we're getting pretty good at this. And not so hard and we never get it. And one, if it's apropos to the topic at hand or a recent stat, that's all the better. Marisa, you're up. What's your stat?
Marisa DiNatale: My stat is 2.2%.
Cris deRitis: Oh, that's the quit rate.
Marisa DiNatale: My god.
Mark Zandi: That was my stat.
Marisa DiNatale: I have another one. Should I do another one?
Mark Zandi: You better do it. I mean, that was embarrassing.
Marisa DiNatale: The quit rate was actually my second choice. All right.
Mark Zandi: But, we should come back to the quit rate because-
Marisa DiNatale: Yeah, we should. I'll give it- Okay. Yeah. Cris, are you-
Mark Zandi: Why don't you explain the quit rate right now and then give us another one, while I scramble and look for another, yeah, right.
Marisa DiNatale: Why don't you take it Cris, why don't you do-
Cris deRitis: Oh, go ahead, go ahead.
Marisa DiNatale: So I picked it because the JOLTS, the Job Opening and Labor Turnover Survey came out this week as well for the month of November. And it was kind of surprising because it showed that the hires rate fell back to a level that we haven't seen in years and years if you abstract from the pandemic months, but so did the quit rate. So if you take out 2020, the quit rate is now back to where it was in March of 2018. So things are kind of normalizing there as well. The job openings rate is still elevated, but we've talked about that before that we think that there's some funkiness going on in that. But yeah, just the overall underlying churn in the job market and the job numbers that we don't see for the payroll in the household survey is kind of interesting to look at because it shows that things really have fallen way back to pre-pandemic levels here.
Mark Zandi: Cris, were you going to say anything different than that?
Cris deRitis: The only other thing I was going to add is that this is another reason why I'm not particularly concerned about the wage growth numbers that we're seeing. Right? With quits coming down, I'd expect that wage growth is also going to moderate.
Mark Zandi: Yeah, I mean there's a very close correlation between high quit rates, high wage growth. Part of that's just people who switch jobs tend to get much bigger pay increases. They don't tend to switch unless they get the pay increase. And so now the quit rate is backed down to something more typical, that suggests wage growth shouldn't be an issue, it shouldn't be a problem. The other positive with the quit rate, it was because of all the switching that people did back a year or two or three ago.
That may be one reason why underlying productivity growth feels stronger now because people moved into jobs that are more suited to their skills and talents and interests. And it might've taken them a little time to get up the learning curve in their new job, but at this point they probably are in full swing. And that might be one reason why we're getting some of these good productivity gains. And we know from surveys, like the conference board survey of worker attitudes that people feel really good about the jobs they have now. I think as good as they've ever felt in the survey, that's been done for a lengthy period of time. Okay. That was a good one. Okay. Marisa, you said you had another one?
Marisa DiNatale: I do.
Mark Zandi: Okay.
Marisa DiNatale: Minus 753,000.
Mark Zandi: Is that the change in the labor force in the month?
Marisa DiNatale: No.
Mark Zandi: Oh, I think that was-
Marisa DiNatale: It was close. Close.
Mark Zandi: It felt pretty close. Is it in the jobs numbers?
Marisa DiNatale: Yeah.
Mark Zandi: Is it in the household survey? Wow. It's either the payroll survey or the, oh no, it's something else.
Cris deRitis: The different, not the difference.
Marisa DiNatale: Yeah, it's the household survey.
Mark Zandi: She always does this. Do you know that? She always does this.
Marisa DiNatale: I'm trying to keep you on your toes.
Cris deRitis: Is that the employment change if you adjust it for payroll concept?
Marisa DiNatale: Yes. Yes.
Dante DeAntonio: That's the only reason you couldn't answer, because it's a mix between the two.
Mark Zandi: Oh, is that, oh, now I get it. And there's always a good reason why she does that. Yeah. Okay.
Marisa DiNatale: Right.
Mark Zandi: You want to explain?
Marisa DiNatale: Yeah, sure. So minus 753,000 is the change in household employment, if you adjust it to be on the same methodological, conceptual definition as the payroll survey. So you take out agriculture workers, you take out the self-employed, you add back multiple job holders. When you do that adjustment, the decline in employment is even bigger this month in the household survey than it would've been if you don't do this adjustment. And that's mostly because there was actually an increase in self-employment over the month. So most of that decline in the- Cris, what, did I take it again?
Mark Zandi: No, really? Oh, he was going to do self-employment.
Cris deRitis: All right, all right, I'll figure it out.
Marisa DiNatale: Cris and I are on a, we're having a mind-meld, I guess.
Cris deRitis: Yes, yes. The jump and self-employed was interesting.
Marisa DiNatale: Yeah, yeah, right. There was a big increase in self-employment, so all the decline in the household survey last month was among wage and salary workers, mostly in the private sector. And this difference, again, if you abstract from the pandemic months, this is the biggest decline since October of 2013.
Mark Zandi: Whoa.
Marisa DiNatale: Yeah.
Mark Zandi: Really interesting. Okay. Maybe just for the sake of the listener, there might be some folks that out there that aren't watching the data nearly as closely. Just quickly, payroll versus household survey. Just explain that.
Marisa DiNatale: Yeah, sure. The payroll survey is a monthly survey of employers, so of companies, and they are asking about half a million companies. It's a sample-based survey and they're asking how many people were on your payroll during this month, middle week of the month. So it's just a count of the number of people on an employer's payroll. The household survey is a primarily telephone-based sample survey of 60,000 households where the Census Bureau is calling people up in their homes and asking them about their employment status and their job hunting activities over the course of the past month. So it's based on the person, not the job, if you understand. So the payroll survey is asking about the jobs. The household survey is asking about the employment status of individual people. So this conceptually makes employment counts a bit different.
So for example, the easiest way to think about this is people that have more than one job. If I have two jobs, those two jobs will both be counted in the payroll survey because I have two different employers. And those employers are going to say, "Yeah, she was on my payroll here, she was on my payroll there." When the household survey asks me about my employment activity, I can tell them that I have two jobs, but I only count as one employed person. It doesn't matter how many jobs I have. So they do this adjustment, it's not official, it's kind of a research series that they put out, it's not in the press release, to make these concepts similar so we can do an apples and apples comparison of the numbers.
Mark Zandi: Got it. Okay. And you said how many people are surveyed in the household survey?
Marisa DiNatale: It's about 60,000 households.
Mark Zandi: Yeah, so it's small. That's one reason why economists-
Marisa DiNatale: Yeah, it's got a bigger margin of error for sure.
Mark Zandi: Yeah, there's a lot more, that's not a lot of households. There's what, 135 million households in the United States, something like that. 60K isn't a whole lot. Okay. Dante, what's your stat? I'm giving Cris a little bit more time to conjure up another one.
Dante DeAntonio: Let's see, which one should we go with? I'm going to go with 5.47 million.
Mark Zandi: Is that in the JOLT survey?
Dante DeAntonio: It is from the JOLTS.
Mark Zandi: Is that hires? I can't remember.
Dante DeAntonio: It is hires.
Mark Zandi: Oh, there you go.
Dante DeAntonio: I went away from the rate thinking it might stump you a little bit.
Mark Zandi: Yeah, yeah, it might fool us.
Dante DeAntonio: Everyone's thinking rates. Yeah, I think, again, I think this is a number that people are going to latch onto a little bit because it's down significantly. The hiring rate is now the lowest that it's been since well before the pandemic started. I think back in the mid 2010s. I mean the math here, the arithmetic says that the hiring rate has to come in. Layoffs have stayed very low. The quit rate is coming down. And so if you want job gains to slow, something has to give. You can't have a very strong hiring rate and very low layoffs and very low quits and have job growth that's moderating.
So, I don't view it as a problem. I think this is what we would want to happen. We'd rather see job growth slow because hiring is coming in versus it's slowing because layoffs are picking up. I mean, so in my mind I view it as a positive. Job growth is slowing for the right reason. It's not because companies are getting anxious and laying people off, it's because they're just pulling back on hiring. And so I think I wanted to reiterate it because I don't see it as a problem. Again, I think there's probably some noise in there, too. It's probably a bigger decline than is real, but I do think hiring, it's definitively slowing and I think that we should view it as a good thing, not a bad thing.
Mark Zandi: Yeah. The hiring, I'm sorry, go ahead Marisa.
Marisa DiNatale: Well, could it also be, I mean employers may just eventually have more trouble finding people because the unemployment rate is so low, people aren't really getting laid off. We now know the quit rate is really low, so there's just sort of fewer available people out there as we absorb them into the workforce.
Cris deRitis: Yeah, agreed.
Mark Zandi: Although you would expect wage growth to be, would pick up if that were The reason. That's a good question, though, is the weakening in the number of hires and the lower hiring rate, and hiring rate is actually now a little bit below what it was pre-pandemic. It's still good, but it's still now a little bit below. Is that because of less demand from, or the lack of supply? It feels like- What's that, Cris?
Cris deRitis: The openings came down a bit.
Mark Zandi: Openings came down a bit.
Cris deRitis: So it does suggest that it's, the demand is softening.
Mark Zandi: Demand, right. Not supply.
Marisa DiNatale: Could be both. Could be several issues.
Cris deRitis: Could be both. Certainly.
Mark Zandi: Yeah, certainly. I'm sure some sectors has got to be.
Marisa DiNatale: Yeah. Right.
Mark Zandi: But I think, in general, it feels more like demand to me than supply. But that's an interesting question. And you made another interesting point, Dante, which is important. Layoffs remain incredibly low, right?
Dante DeAntonio: Yeah, by any measure. I mean in the JOLT survey, they're very, very low. UI claims are still exceedingly low, close to 200K in the most recent week that we got. I mean there's just been no evidence at all that layoffs are picking up even a little bit.
Mark Zandi: So all of the slowing in job growth we're observing is hires. The hires are down, not that layoffs are up, right?
Cris deRitis: Yeah, and if anything, there's been a little bit of disagreement in the second half of 2023. From the JOLTS data, you can get a sort of implied job growth measure if you look at the difference between hires and separations, and if anything, it's been overstating sort of reported job growth in the second half of 2023. Now with this most recent JOLTS data, they're more closely aligned. So if anything, I think the JOLTS data might've been overstating the case a little bit on the hiring fronts in recent months, and now it looks like it's more in line with the payroll growth that we're actually seeing.
Mark Zandi: Did you happen to look at the hiring rate or the number of hires by industry? Was it broad-based, the weakening?
Cris deRitis: I'm pretty sure, I had looked. I think hiring slowed almost everywhere. Yeah, it was not a huge drop in one industry. It was a modest decrease almost everywhere.
Mark Zandi: Right. Interesting. Okay. Okay. Very good. Cris, what's your stat?
Cris deRitis: 208,000.
Mark Zandi: You sound a little disappointed in your stat.
Cris deRitis: Yeah.
Mark Zandi: In the employment data?
Cris deRitis: No.
Marisa DiNatale: No.
Cris deRitis: Oh, I thought you were going to-
Mark Zandi: Claims? The UI claims, four-week moving average of claims?
Cris deRitis: You got it. You got it. That was very gracious-
Mark Zandi: I was being a little generous to buy you a little time.
Cris deRitis: And Dante already mentioned it as well. Just extremely low still, in terms of new unemployment insurance claims, layoffs very low. So [inaudible 00:43:06] the labor market.
Mark Zandi: That's the number of unemployment insurance claims filed weekly, but on a four-week moving average basis.
Cris deRitis: Correct.
Mark Zandi: Yeah. To smooth out a bit of the volatility. And anything around 200 is a strong labor market. And I keep saying this rule of thumb, I'll just say it and make sure you guys agree. 250K, yellow flares should start going off, 300K, that's when the red flares go off. That's kind of recession. Does that feel like a good rule of thumb, Dante?
Dante DeAntonio: Yeah, certainly. When we get to 250, I start to pay more attention and then if we start to go above that, you get a little more concerned. And we got to 250, maybe even 260 earlier this year for a little while and then came back down.
Mark Zandi: And it's got to be consistently 250K plus because of the... Talk about seasonal adjustment issues. There's all kinds of seasonal adjustment issues with this particular series. Yeah. Okay. All right. I'm going to mix it up a little bit. 15.5.
Marisa DiNatale: Is it from the jobs report?
Mark Zandi: No, that's the mix-
Marisa DiNatale: Is it job market-related?
Mark Zandi: Nope.
Marisa DiNatale: Oh.
Mark Zandi: I knew it. I knew, I was thinking, "Oh, you guys are going to take all my stats." I knew it.
Cris deRitis: You're going to give some units on that or-
Mark Zandi: Do I have to?
Dante DeAntonio: I was wondering the same thing.
Cris deRitis: Okay.
Marisa DiNatale: Is that going to give it away?
Mark Zandi: I think so.
Cris deRitis: All right.
Mark Zandi: Let's say it's units. That's a big hit.
Dante DeAntonio: That's not vehicle sales is it?
Mark Zandi: It is indeed vehicle sales. Over, for what period?
Dante DeAntonio: I was going to say, it's not the last month, because it was a little bit stronger than that. A three-month or a six-month or even the 2023 average. Something that-
Mark Zandi: There you go. 2023 average.
Dante DeAntonio: I'll just name them all until I get it.
Mark Zandi: Three months, six month, 12 months.
Marisa DiNatale: So, it's 15.5 million.
Cris deRitis: Yes.
Mark Zandi: What did I say? Oh...
Marisa DiNatale: You just said 15 point-
Mark Zandi: I should have said 15.5, if I said, yeah, you're right. That was a little unfair. But even with being unfair, Dante got it.
Marisa DiNatale: He knew what you were doing.
Mark Zandi: Yeah. 15.5 million was the number of light vehicles that were sold in the US in the calendar year 2023. That's pretty good. That's as strong as it's been since before the pandemic. In 2019, we sold 17 million units, which before the pandemic, I think that was our estimate of the underlying trend level of sales. And we've been well below that. 15.8 million in December. And we do expect it to continue to improve. I mean, one thing that clearly has weighed on vehicle sales is the effect of the pandemic on supply chains. You may remember back in 2020 and going into '21, we had a couple waves of the virus that knocked out chip plants all over the world, which meant the vehicle producers couldn't produce their cars and inventories collapsed. And we've seen vehicle prices go skyward.
But now we're beyond the other side of the pandemic. North American production is back to pre-pandemic. Japanese, German production is picking up nicely. We're getting more inventory and it feels like prices are now finally rolling over and coming down. Used vehicle prices have been declining and now new vehicle prices are starting to decline. And hopefully with the recent decline in interest rates means auto financing rates might come in a little bit and you combine all that, it might get more sales. And we're expecting more sales in 2024.
And this is another big difference between now and other periods when we've suffered recessions. One of the sectors that always leads the economy into recession is the vehicle industry, because you have all this generally spent-up demand, bought-forward demand during the good times. And when the Fed jacks up interest rates, that really crushes, demand sales fall and that contributes significantly to the recession that ensues. And that's just not happening. Just the opposite this go around, because of the pandemic. And we have a lot of, so-called pent-up demand. People have been putting off purchasing, because they just couldn't find a vehicle. There's no vehicles out there and prices have been really high. And so that's a good reason to think that, again, we're going to continue to see growth in 2024. So good statistic, I thought. Goes to the reason for some optimism.
Okay. I know there was a question or two from listeners. I think maybe Marisa, you know what they are. Maybe I'll turn it back to you. You want to pose a couple questions, then we'll call it a podcast. We'll keep this one short.
Marisa DiNatale: Sure. I actually only have one question on-
Mark Zandi: One question?
Marisa DiNatale: ...tap. And this will probably take up some-
Mark Zandi: Good hour?
Cris deRitis: I've got a question, too, I can-
Marisa DiNatale: Oh, okay, good. All right.
Mark Zandi: So we're going to hit our average, an hour and 10 minute podcast, no matter what.
Cris deRitis: Yes.
Marisa DiNatale: That's right.
Mark Zandi: That's what you're telling me. Okay, fair enough.
Marisa DiNatale: All right, so Mark, this came to you via Twitter, or X as it's now called. This is from David. And he wants to know should the Fed get credit for the soft landing? Given that we now know that the service-based economy seems less sensitive to interest rates than previously thought and supply chain issues caused most of the inflation, would inflation have come down regardless of what the Fed did with rates?
Mark Zandi: I've got an answer to that question, but maybe... Does Cris, Dante or Marisa, do you want to take a stab at it? Cris, you want to take a stab at it?
Cris deRitis: Sure.
Mark Zandi: I'm curious.
Cris deRitis: I would say the Fed deserves partial credit?
Mark Zandi: Yeah.
Cris deRitis: Yep. I think the listener is correct, that supply chain issues were a big part of this, right? And we needed to resolve, and that was a key step in getting inflation down. But Fed was instrumental, as well, in terms of the rate hikes slowing things down to prevent inflation from only taking off and getting, if anything, the inflation expectations down. I think that was really the key contribution that the Fed made.
Mark Zandi: Yeah, what do you think, Marisa?
Marisa DiNatale: Yeah, I agree. I think mostly it was their communications and keeping financial markets in line with what to expect over the next few years. If they had just done nothing and said, "Oh, this is all supply side, we'll just let this play out," I think expectations would've been really untethered and you would've seen some really wacky stuff going on with financial markets, not knowing what to expect, not knowing which way this was going to go, and perhaps expecting higher inflation for longer, which would've exacerbated this whole thing.
Mark Zandi: Dante, you take a different position?
Dante DeAntonio: No, I would agree. I mean I think you can quibble with did they need to raise rates as high and as fast as they did, but I think they deserve credit for making a move. I think definitively things are better today than they would've been if the Fed just sat on their hands and did nothing. So I certainly think partial credit makes sense.
Mark Zandi: Yeah, I'd say I say 75/25, to be precise. I'm always precise. I could go to the third significant digit, but 75% has nothing to do with the Fed. Just the fading effects of the pandemic and Russian War. At the end of the day, the inflation was largely the result of the supply shocks, the disruption to supply chains and labor markets caused by the pandemic and the surge in oil, natural gas, agricultural prices as a result of the Russian War in Ukraine. And those two things kind of conflated, started to drive up wage growth. And that wage price spiral that Cris mentioned earlier felt like it might kind of kick into gear, and that gets to the Fed, the 25%. They made sure that that didn't happen. They jacked up interest rates to make sure that inflation expectations, people's views of future inflation, which goes into wage contracting and everything else, remained stable and low.
And by so doing, made sure that the inflation caused by the pandemic and Russian War didn't metastasize more broadly to inflation. So I'd say inflation would've been down anyway, I think without the Fed being as aggressive. But I think the Fed does deserve some credit for what happened, what's happened here. So 75/25. Does that sound, everyone agree with that? About 75/25? Okay.
Marisa DiNatale: Yeah.
Mark Zandi: Good. Cris, you said you had a question?
Cris deRitis: I guess related to that then, just based on the employment report today, what do you think the Fed's reaction will be? Or does this change their view in terms of rate cuts going forward? Is this in line, does this make them more aggressive, less aggressive? Any thoughts there?
Mark Zandi: Historically, I've always, whatever my view of a report or an event and what it meant for monetary policy, whatever I thought it was, I thought would be consistent with what the Fed thought about it, because I'm kind of cut from the same cloth in terms of the way I view the world and the models I use in my mind to think about things. And the models we actually use in our work, very similar to what the Fed uses in their work. So always very aligned. There's been points in time though recently where that's not been the case. And this is one area where the Fed did make a mistake, certainly in hindsight. They were slow to raise interest rates back in early 2022. And that's a point when I was kind of out of sync with them and I was getting to be a little out of sync with them with the rate increases. I thought that they pressed on the brakes more than they really needed to.
But I think we're back in sync. I think we're all on the same page. Again, thank goodness the Fed got back to thinking the same way I do. I think that's a good thing. And so I'd say no change here, that this report doesn't change any forecast. It doesn't change any perspective on the threat posed by inflation or the economy's growth. And so if they had an FOMC meeting today and decided what to do, what the dot plot would look like, what their forecast would be, it would still be for three rate cuts in 2024, quarter point each time. You concur? What do you think? Cris?
Cris deRitis: Yeah, I'd agree. I don't think today's report changes that.
Mark Zandi: Change any minds?
Cris deRitis: The acceleration of the earnings has been pointed out. It's a cause of concern. But as we've mentioned, I think it's temporary and unlikely to change their opinion.
Mark Zandi: Marisa, any?
Marisa DiNatale: I think if you abstract from the household survey, it's kind of the same report we got last month. It's not that different. So I don't think it changes anything. And then add in the household survey and it just makes it look weaker, which is kind of what they want, anyway. So I don't think it changes anything.
Mark Zandi: Dante.
Dante DeAntonio: Yeah, I think logistically there was never really a chance they were going to do anything in January when they meet. And so by the time they meet again in March, we'll have a few more data points. So this one doesn't really move the needle in terms of what they're going to do next.
Mark Zandi: Yeah, I mean we have been debating a little bit internally whether... We have four rate cuts in our forecast for 2024, and we've been debating when would be the first rate cut. And right now it's in May, so we have a cut in May, June, July, and in September. But I think markets have five or six, although I don't know, Cris, have they changed? You know, did they change today as a result of the report? Did market participants change their mind about the rate cuts?
Cris deRitis: I looked earlier today, it's very volatile as it keeps going around. Still consensus was for March, but a little less. The probabilities had shifted a bit more towards May being the first cut.
Mark Zandi: Okay. Because I think-
Marisa DiNatale: Oh, that's interesting.
Mark Zandi: They've been two third probability March, one third not. And now you're saying it's-
Cris deRitis: Yeah, I think they moved up to 70% chance in March and now they're back down to two third. So it's-
Mark Zandi: Okay.
Cris deRitis: It's hovering around there.
Mark Zandi: And I don't think I'd argue with anybody that says March, May possibly, but my sense is the Fed wants to be very cautious and does not want to cut rates until there's, in their minds, they're positive that inflation's going back to target, these rates. And that might take a little longer than just March, I think. But again, I don't know. I'd argue too much about that. Okay. Anything else folks want to bring up before we call it a podcast?
Dante DeAntonio: I did go back and look at our forecast. Oh yeah, at the beginning of 2019. So you were expecting job growth beginning of 2024 at that point to be around 75K, which-
Mark Zandi: What did I tell you?
Dante DeAntonio: I don't think is all that different from what our expectation is now.
Mark Zandi: Didn't I tell you, 50 to 100K, and 75, right?
Dante DeAntonio: There you go.
Mark Zandi: There you go.
Dante DeAntonio: I wanted to make sure I gave you credit.
Mark Zandi: Yeah, absolutely. Appreciate that. I do want to just remind listeners, we want reviews, so you want to give us a review. We'd be very happy to receive it. And we are, Sarah Rodriguez who kind of helps organize and manage and has a lot of strategic vision around the podcast was on maternity leave, so we hadn't been posting to social media very much, but now we're doing that again. So please feel free to avail yourself of that. And if you have any questions, love to hear them. You can see we do take them and enjoy responding to them. So please feel free to do that as well. And with that, dear listener, we're going to call it a podcast. Talk to you next week.