Inside Economics discusses the December jobs report, which left Mark feeling “giddy”, Cris “cheerful”, Dante “happy”, and Marisa “great”. The team considers the jobs numbers in the context of other recent labor market indicators which show a resilient but moderating job market. And they end with an assessment of whether the recently boomy labor supply and strong productivity growth are sustainable.
Inside Economics discusses the December jobs report, which left Mark feeling “giddy”, Cris “cheerful”, Dante “happy”, and Marisa “great”. The team considers the jobs numbers in the context of other recent labor market indicators which show a resilient but moderating job market. And they end with an assessment of whether the recently boomy labor supply and strong productivity growth are sustainable.
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, my two trusted co-hosts, Marisa DiNatale, Cris deRitis. Hi, guys.
Cris deRitis: Hi, Mark.
Marisa DiNatale: Hi, Mark.
Mark Zandi: I'm absolutely giddy, but you'll know why in just a few minutes, but I'm feeling pretty good. Actually, feeling very good. We also have Dante, Dante DeAntonio, and that might give you a clue as to why I'm so giddy.
Dante DeAntonio: Hi, Mark. How you doing?
Marisa DiNatale: Because Dante's here?
Mark Zandi: I always like Dante. I always like Dante on Jobs Friday. This is Jobs Friday, December the 8th. We've got the November employment report, so we're going to definitely dive into that. Boy, was that... Well, I'm not going to bias anyone's perspective on that. Boy, was that good?
Cris deRitis: You can't help yourself.
Mark Zandi: I can't help myself. I'm giddy.
Marisa DiNatale: He can't contain his giddiness.
Mark Zandi: Well, we've had kind of a good week. We had Moody's kind of holiday event last night. Cris, you were there.
Marisa DiNatale: How was that? How's everyone feeling today?
Mark Zandi: Cris is drinking so much. I couldn't believe how much he was drinking. I'm not kidding. He tried to fool everyone by drinking cider. I don't know what that means, but I'm drinking cider, and then he was off and running, all these weird Italian drinks-
Marisa DiNatale: Wow.
Cris deRitis: I don't know, maybe you drank a little too much, because I was stuck with the cider.
Mark Zandi: I couldn't get past the beer. I had a Stella. I don't drink beer very often, but boy, did that taste good. That beer tastes good. Dante, I didn't see you there. Were you there?
Cris deRitis: I was there, yeah. There was a horde of people around you all the time. I figured I was going to get a chance to talk to you this morning, so-
Mark Zandi: Right, right. Oh, good. Well, I'm glad you were there. Of course, Marisa, you're in California, so-
Marisa DiNatale: I was not there.
Mark Zandi: You could not partake, even virtually.
Marisa DiNatale: No.
Cris deRitis: We even got to meet Alana and Franco in-person.
Mark Zandi: Yeah.
Cris deRitis: Our producers here.
Mark Zandi: Our producers here. Our silent producers that keep the train on the tracks. That was good. Alana was regaling as of her previous employer. We won't go into that though, but-
Cris deRitis: We should have a separate podcast just for that.
Mark Zandi: Explore that a little bit with her. Yeah, absolutely. I should say, we have two podcasts for this week. This one we're recording right now, obviously, we're going to focus on the job numbers and the labor market more broadly, and we'll play the game, of course, but we have, let's call it a bonus podcast. We taped that earlier in the week with Mark Donovan, who founded Denver Basic Income Project. I think I have that right. But that was a really interesting conversation around universal basic income or guaranteed income. He's got a program that he established in Denver, and is now kind of scientifically designed and getting some results. Pretty cool conversation, I thought, so you can avail yourselves with that, as well. Anything else?
Cris deRitis: Can I give a shout out to Marisa, as well? Because we also did a webinar yesterday about different risks, and I thought she was masterful in covering social and political risks to the economy. Any listeners who are interested in not just the baseline, but other potential risks, I'd encourage you to take a listen there.
Mark Zandi: I would concur.
Cris deRitis: You walked that tightrope really well.
Marisa DiNatale: Thanks, Cris.
Mark Zandi: I would concur. We did a survey of all the participants of the webinar and said, "What are you most worried about?" And then we took the top six responses, and it felt like those were the top six. I said, "Okay, guys, which ones do you want to take?" And of course, Cris raised his hand first and said, "I want to do CRE and housing," which is absolutely positively the right thing.
Marisa DiNatale: It makes sense.
Mark Zandi: It makes total sense. And then I said to Marisa, "Well, what do you want to do?" And she goes, "Well, it probably makes sense for you to do the Fed and the banking financial system." That makes perfect sense. But that left you with two really tough ones, geopolitical threats and social and political unrest. I'm going, "Oh, whoa. I can't wait to see what she comes up with," but I thought you did a great job. You really did. Very good.
Cris deRitis: Masterful.
Marisa DiNatale: Thank you.
Mark Zandi: Actually, that webinar, I thought that webinar was, it could have been the best we've ever done, I thought.
Marisa DiNatale: Well, it will be interesting to get the feedback on it because we did it a little differently than we normally do, so I'm curious to see what people think.
Mark Zandi: Really curious. But I actually enjoyed it, so really a lot of fun. We had tons of questions, so it was really good. Well, let's get to the meat of the matter. We got, as I said, the employment report from the Bureau of Labor statistics today for the month of November. This is the morning of Friday, December 8th. Dante, you want to give us the rundown and give us a sense of how you're thinking about the numbers?
Dante DeAntonio: Sure. Maybe I'm not quite as giddy as you are, but I think it was a good report. I think there certainly are pieces of it that people could pick out to make a headline that makes it seem not so favorable.
Mark Zandi: Boo.
Dante DeAntonio: I'm not going to do that, but I think there certainly are some pieces that people could cherry pick and try to paint it in a more negative light. But at a high level, added 199,000 jobs in November. If anything, that's a little bit overstated. You've got the positive impact from the UAW strike ending, which is lifting that by somewhere between 30,000 and 40,000 relative to what the sort of job growth was, just like we had a down weight on October job growth for the same reason. Private sector, payrolls were up 150,000. The average over the last three months in the private sector is right around there. It's about 145K. It's definitely slowed quite a bit since the beginning of the year, although over the last three or four months things have been largely stable in terms of a three-month average of growth. Public sector keeps cranking out jobs that seems to be their turn to shine here after a slow initial recovery. Public sector added almost 50,000 jobs again. It's averaging almost 60,000 over the last three months, so that's really propping up that headline jobs number quite a bit. Construction-
Mark Zandi: Can I stop you just right there real quick?
Dante DeAntonio: Yeah.
Mark Zandi: Because I followed the tweeting a little bit this morning, and one of the criticisms or blemishes people are trying to nitpick, in my view, but they're focused on the fact that a lot of the job growth is in government, and of course, healthcare, those two sectors, and therefore somehow that's not quite as good as job growth in other parts of the economy. How do you think about that?
Dante DeAntonio: I don't think it's a problem that we're adding a lot of jobs in government and healthcare. Obviously, you'd like to see job growth everywhere, but we didn't see big job losses in many industries. That would be more concerning to me. There were a couple pockets that looked a little bit weak, but I think by design, we expect that job growth is going to be slowing across most industries if we expect overall job growth to be slowing here, so you're going to end up with some uncomfortable readings in some places, I think. The fact that healthcare, there's still strong demand there, I don't think that's a problem. Government, again, I think is really just a timing thing. There was really weak recovery in the public sector for the first two years, and so they're just catching up now that some of that private sector demand has slowed down a little bit, so they're sort of taking advantage of that situation. I don't read it as a negative.
Mark Zandi: I'd say healthcare, too, same dynamic. The healthcare sector was kind of boxed out because the rest of the economy was saying, "I'm going to pay you whatever it takes," and the healthcare sector couldn't do that, and government couldn't do that, obviously, as well. They had to wait their turn, and now's their turn, so they're adding to payrolls and just restoring the lost jobs during the pandemic. That's my interpretation of what's going on.
Dante DeAntonio: Yeah, I agree. The strength there doesn't bother me. If we saw a lot of weakness everywhere else, that would be more concerning to me, but that's not how I read this report, at least, that there's not a ton of weakness all over the place.
Mark Zandi: You make another good point, and we just get this on the radar screen, job growth, at some point, it's got to slow. It doesn't have to slow right now because we're getting tremendous labor force growth that I'm sure you're going to come back to, but that's not sustainable, I don't think, and we will see slower job growth. If we get job growth that's where we think it's going to be, around 100K per month, maybe a little south of that, that means some sectors can't experience job growth, and may even experience some declines. That's the point you were making.
Dante DeAntonio: Agreed. Yeah, that's what I was going to-
Mark Zandi: Sorry, I interrupted you.
Dante DeAntonio: That's okay. Construction was weaker than it's been. It was only up 2,000, the weakest reading since March. There, again, it's been a lot stronger, I think it's held up a lot better than we expected it to, so seeing some weakness there is probably not all that surprising. Manufacturing was up 28,000. That doesn't really mean a whole lot, given the strike impact. Abstracting from that, it was probably slightly down. The strike impact was probably a little over 30K, so manufacturing more broadly was probably down a little bit over the month. Transportation, warehousing, again, has been weak recently. It was down another 5,000. This is not a concerning development to me. Information was up 10,000. I think there, there's a little bit of positive impact, probably from the resolution of the SAG-AFTRA strike. We had seen some weakness in information over the last couple of months as a result of that, and so I think we got a little bit of a payback there.
Professional business services has been very, very weak, sort a surprising turn in the second half of the year. That's one where it had been pretty strong in the first half of 2023, and has really weakened. Some of that is temp help services falls into there, and that's been weak over the last 12 or 18 months, so that's obviously causing some of that headwind. Healthcare, as you mentioned, incredibly strong. Over 90,000 jobs added, averaging over 80,000 jobs a month over the last three. Leisure and hospitality, still doing pretty well. 40,000 jobs there, averaging slightly better than that in the last three months. One of those data points I mentioned that somebody could cherry-pick, wage growth was up 0.4%-
Mark Zandi: Before you go there, let me just ask on jobs. Abstracting from the vagaries of the monthly data, strike effects, seasonality, everything else, what do you think the underlying rate of monthly job growth is?
Dante DeAntonio: I think very recently, it's 175.
Mark Zandi: 175. Would you concur with what I said earlier, that at some point in the not too distant future, we're headed closer to 100K, maybe a little south?
Dante DeAntonio: I think we have to be. To your point, labor force growth has been strong, but it certainly doesn't seem like there's fundamental to support labor force growth remaining that strong for very long.
Mark Zandi: Although I want to come back to that point. We can talk about that, but anyway. Okay, proceed. Go ahead.
Dante DeAntonio: I think somebody could make a headline that wage growth was up 0.4%. That's the strongest reading since the middle of the year. That could seem concerning. The reality is year-over-year growth is still down. The November reading from last year was even stronger than the one we got today, so year-over-year wage growth is still moderating. It's back right around 4%. It hasn't moderated quickly here in recent months, but the trend has been pretty consistently down to a slow degree. On the household survey side of things, again, here I think you can obviously sort of paint whatever story you want to. If you just focus on this month, you could make it seem like the labor market is booming and that could be a problem, but that's ignoring the overly weak reading we got in the household survey last month, so I think if you take them in aggregate, you get a much more accurate and less concerning story about what's going on.
The labor force expanded by over 500,000 this month, but again, that's against a big decline last month. The reality is it's averaging about 150,000 people added to the labor force over the last two months, which is pretty much in the ballpark that we've been in, so there's really not a whole lot of new information there. Labor force participation ticked back up to where it was after declining a little bit last month, so there again, if you take the two months in total, there's not a whole lot to write home about. The unemployment rate, again, there's one of those headlines, it dropped from 3.9 to 3.7. You can certainly get worked up about that if you want to and say, "Hey, we want the unemployment rate to move in the other direction. We want it to be going up a little bit if anything. We don't want it to be coming back down," but there, again, it was at 3.7 pretty recently, it was as low as 3.5 in July, so it's still up off of that bottom over the last couple of months.
Mark Zandi: It seems like it's steadfastly between 3.5 and 4.
Dante DeAntonio: Right, and we get month-to-month movements there that no one should pay all that much attention to, I don't think, and so again, not overly concerning to me. Employment in the household survey was up almost 750,000. Again, you could say, "Oh my god, it's a huge gain," but over the last two months, it's averaging 200,000, which is exactly in line with the payroll survey. Again, not a whole lot to write home about, I don't think so. By and large, I'm in your camp. I think it's a positive report. I think it gives us most of what we were hoping to see. Could it have been slightly better? I think maybe you expect job growth to slow a little bit faster, maybe you get wage growth that comes in a little bit more, although we might talk about how that might not be necessary anymore, so I read it as a good report. Like I said, I think you can nitpick at it maybe a little bit more than some of the past ones that we've had, but I don't know that I'd buy into that.
Mark Zandi: Really? I'm really hard-pressed to nitpick.
Dante DeAntonio: Cris's face tells me he's going to try in a minute.
Mark Zandi: Really? Even the job growth, you're saying your nit is maybe it's too strong, that's your nit, but in the context of this labor force, growth, it's actually just right. You're getting a lot of labor force growth and wage growth continues to moderate. Why wouldn't you want 175 or 200K? Why is that a nit? That's, what's the opposite of a nit?
Dante DeAntonio: Is there an opposite? I don't know.
Mark Zandi: Whatever it is, nit times -0.1 or -1. That's what that is.
Cris deRitis: An anti-nit.
Dante DeAntonio: Anti-nit, there you go.
Mark Zandi: Anti-nit. It's an anti-nit. Ooh, I think we've got a title for the podcast. Somehow we've got to get that in there. Man, anti-nit is cool. Cris is so good with this.
Marisa DiNatale: No one will have any idea what the podcast is about.
Dante DeAntonio: But they'll be intrigued.
Mark Zandi: They'll be intrigued. I've got to listen to this, an anti-nit. This sounds like artificial intelligence somehow, AI, and then they'll listen. Anyway, bottom line, you step back, you say what? You're feeling good?
Dante DeAntonio: I'm happy, at the end of the day. I think it's going-
Mark Zandi: You're not giddy. We've established that.
Dante DeAntonio: I'm not giddy. I'm happy.
Mark Zandi: You're happy. You're happy.
Dante DeAntonio: Our forecast was good, so that makes me happy, and there you go.
Mark Zandi: We're going to go around the horn here. I'm giddy. We're going to do this as you each get a chance to talk. I'm giddy and I haven't had a chance to talk, but I'm still giddy, and Dante is happy. Now, we move forward. Marisa, any holes there?
Marisa DiNatale: I think it's great, and kudos to Dante for nailing the forecast almost to the number.
Mark Zandi: That's a good point.
Marisa DiNatale: I have nothing negative to say about it. I think it's great. I think it's exactly what we want to see. Job growth is slowing, but it's not coming at the expense of layoffs, a bunch of people being laid off. It's coming from slower hiring. I don't know. I don't have anything bad to say about it. What are the negative things you were reading about it? That people think it's too strong?
Mark Zandi: The one I saw was this point about the composition of job growth, that you excluded government and healthcare, then the job growth is much weaker. The implication is you're getting to underlying job growth, which just doesn't resonate with me at all.
Marisa DiNatale: The composition even within government, I don't know, is it bad to add jobs in those industries? It's state and local government jobs, both in education and outside of education, that were added. Federal government was zero, I think. We got a huge gain in healthcare that was pretty broad-based, which we need, as Dante alluded to. As you said, we want to see private employment growth slow, and we saw that, so I don't have anything negative to say. The big gain on the household side, if you adjust it for the payroll survey concept, it's much smaller. Still big, it's about 480,000, but even that looks good to me, too.
Mark Zandi: Yeah. Bottom line, take a step back, your adjective is great?
Marisa DiNatale: Great.
Mark Zandi: Great, great, great.
Marisa DiNatale: Great.
Mark Zandi: Great with the emphasis on the gr.
Marisa DiNatale: Yeah.
Mark Zandi: Got it. I'm giddy. I'm telling you, this is what happens when I'm giddy.
Cris deRitis: I can tell.
Mark Zandi: Maybe it was that beer from last night, too.
Cris deRitis: Yeah, it could be.
Mark Zandi: Anyway, Cris, what do you think?
Cris deRitis: Cheerful.
Mark Zandi: Cheerful.
Cris deRitis: Yeah. You're giddy. I'm cheerful.
Mark Zandi: Where does that land, though, in the spectrum from giddy to happy to great?
Cris deRitis: Probably it's you, Marisa, me, and then Dante.
Mark Zandi: Got it.
Cris deRitis: That's how I would think. Cheerful is-
Mark Zandi: It's not quite happy.
Cris deRitis: It's more than happy.
Mark Zandi: That's what I'm saying. Well, you're right.
Marisa DiNatale: But it's not great.
Mark Zandi: But it's not great.
Cris deRitis: But it's not great.
Mark Zandi: Now that we've got that established-
Marisa DiNatale: These are technical terms, by the way.
Mark Zandi: Technical terms, right.
Cris deRitis: It was all good-
Mark Zandi: This is how we define recessions, by the way, the same kind-
Cris deRitis: I think that's how the committee operates.
Mark Zandi: That's how it operates.
Cris deRitis: The secretive committee.
Mark Zandi: Right. Go ahead, Cris.
Cris deRitis: If you want nits, you can dig into the demographic data, but as we've said in the past, that's subject to some volatility because it is a smaller sample. African American men saw an increase in their unemployment rate. Asian also saw an increase in their unemployment rate. Less than high school educated also saw some weakness there, so there are-
Mark Zandi: Is that because of labor force, or was that because-
Cris deRitis: Well, it's a combination. You did see unemployment rise in those categories, but you saw a big increase in the supply, so again, how do you-
Mark Zandi: And then when you take a step back, not just the last month, but if you look kind of over the last year or two, is it still in the same boundary?
Cris deRitis: Yeah, exactly. It's not skyrocketing. It's something to watch maybe, if the trend were to continue, but it's, again, really searching for the nits. This whole idea of the composition. I look at leisure and hospitality as my example. I looked it up today, leisure and hospitality employment is still not back. It's getting close to where it was in 2019, but it's not all the way back to where it was, so we still have some gaps in the market to be filled here.
Mark Zandi: So?
Cris deRitis: Cheerful.
Mark Zandi: Feels pretty good. Well, let's just broaden out the camera a little bit. There's a lot of labor and market data that came out this week. We've got the Job Opening and Labor Turnover Survey. That's where you get the open and unfilled positions, quits, hires, that kind of thing. We've got unemployment insurance claims, we've got Challenger report. I'm not sure else. There may be other things. Anything in those other reports that color our thinking around what the message is in today's jobs numbers, Dante, or is it all very consistent?
Dante DeAntonio: I think it's pretty consistent. If you want a unicorn positive report, it was the JOLTS report early this week. Basically, everything held steady, but job openings fell by a lot to basically come back to the trend they were on a couple months ago. They had jumped a few months ago for no real apparent reason, and now they're back to that moderating trend. But hires were basically unchanged, quits were basically unchanged, layoffs basically stayed the same, indications that the labor market is still healthy, but labor demand keeps cooling, which is I think exactly what we hope to see. We're still adding jobs, layoffs aren't picking up, but it's clear that firms are reducing labor demand, to some degree, which should help see that moderating job growth moving forward. I read that as almost entirely positive, and I think, again, still consistent with the claims data that shows layoffs are still low, everything is positive in the sense that it all points to layoffs holding steady, but job growth moderating anyway, which is, I think, the best we can hope for.
Mark Zandi: Marisa, Cris, anything you saw in the other labor market data that came out this week that was inconsistent or caught your eye or anything? No, Marisa?
Marisa DiNatale: No. It's all consistent and it's all good. It's showing what we were hoping for, slowing job growth without rising layoffs.
Mark Zandi: Yeah. It's just amazing to me, the job market is... I think I've gone from giddy to amazing. It's just amazing, isn't it? Come on, think about it for a second. The job creation is gargantuan and the labor force is keeping up with it, and unemployment is low, stable, under 4%. Wage growth is moderating. Wage growth is at 4% year-over-year, and you might argue that that's too high to be consistent with the Fed's 2% inflation target. I would take umbrage with this. Can I use the word umbrage with that? I would take exception to that, because productivity growth has picked up a lot, and we're going to come back to that, so 4% may be disinflationary, I don't know, given the current rate of productivity.
Obviously, we have to make sure that the productivity gains are sustainable, but nonetheless, I can't think of a single thing I'm looking at, not one thing I'm looking at, and I'm saying, "Oh, that bothers me." That's just really bizarre. It's unprecedented, I have to say. Usually, I can see something in the da... Now, of course, maybe I have confirmation bias. I don't know, maybe, maybe, but I'm looking at this data and I'm going, wow, this is pretty darn incredible. We've got to take a snapshot of this point in time. It's like this is a rip-roaring perfect labor market when you get right down to it. No? Really, it is. It's unbelievable. Unbelievable.
Marisa DiNatale: I think for me, the rebound in the labor force after the pandemic that included all demographic groups has really been surprising and welcome. You've seen prime-age women's participation rate come back quickly. We thought there may be a lot of people that just wouldn't come back into the labor force or participate to the same extent after the pandemic, and you really see it across all demographic groups. It's amazing that there is that much labor supply out there. I think I underestimated that.
Mark Zandi: Yep. Well, let's play the game, the statistics game. We each put forward a statistic, and the rest of the group tries to figure that out with questions and clues, deductive reasoning. The best stat is one that's not so easy we get it immediately, and one that's not so hard we never get it. If it's apropos to the topic at hand, bonus, but it doesn't have to be. Marisa, you want to go first?
Marisa DiNatale: Sure. Oh, can I just say one more thing about the jobs report that you just mentioned?
Mark Zandi: Yeah, sure.
Marisa DiNatale: You mentioned this morning, we had a macro meeting, the growth in the labor force was either predominantly or almost all among foreign-born workers last month. We talked about perhaps there was more immigration than is being measured, and a lot of the labor force growth of the past year has been among foreign-born workers. It doesn't mean they're new immigrants into the country, it means they weren't born in the United States, but that has been an enormous source of supply in the labor force, once again.
Mark Zandi: I'm going to come back to supply side after the game, because I want to explore it in a little bit more depth.
Marisa DiNatale: Oh, okay. We're not done talking about it?
Mark Zandi: No, no, no. We'll come back, but let's play the game. What's your stat?
Marisa DiNatale: My stat is 3.1%.
Mark Zandi: I know what that is.
Cris deRitis: Michigan inflation.
Mark Zandi: That violated the first principle of-
Marisa DiNatale: Wait, what did you say? I didn't hear what you said.
Cris deRitis: University of Michigan inflation expectation.
Marisa DiNatale: No. That may be-
Mark Zandi: Oh.
Cris deRitis: Is it from today? Is it from the employment report?
Marisa DiNatale: No, it's not.
Cris deRitis: It's not? Oh.
Mark Zandi: Both Cris and I got heads baked here, because we just got the University of Michigan survey for the month of, I guess, December, they publish inflation expectations one month ahead, and it came in at a very low 3.1%.
Marisa DiNatale: Oh, okay. I didn't look at it. That's not what this statistic is.
Dante DeAntonio: Is it the quits rate?
Marisa DiNatale: No.
Mark Zandi: Is it from the JOLTS report?
Marisa DiNatale: No.
Mark Zandi: Is it from the employment report today?
Marisa DiNatale: No.
Mark Zandi: Oh, jeez Louise.
Dante DeAntonio: Labor market-related?
Marisa DiNatale: It's not.
Mark Zandi: Is it related to the economy?
Marisa DiNatale: It's not.
Mark Zandi: It's not related to the economy?
Dante DeAntonio: You're faking us all out.
Mark Zandi: What the heck?
Marisa DiNatale: Yes, it's related to the economy. It's not related to the labor market, though.
Mark Zandi: Oh, it's not.
Marisa DiNatale: No, which I know I'm violating kind of a rule here, but I-
Mark Zandi: No, no, that's fine. That's fine.
Marisa DiNatale: I kind of want to make it harder for you guys.
Mark Zandi: Is it a release that came out this week?
Marisa DiNatale: Yeah.
Mark Zandi: And it was a government statistic?
Marisa DiNatale: No.
Mark Zandi: Oh, not a government statistic. ISM surveys came out, that can't be it. We had the Challenger report. It's not from that, is it?
Marisa DiNatale: Nope.
Cris deRitis: It's not job market-related.
Mark Zandi: Oh, not job market-related, right. What else came out from-
Cris deRitis: Productivity? Well-
Mark Zandi: No, that's government, right?
Cris deRitis: Yeah, that's government.
Mark Zandi: That's government. Wow. I was about to berate poor Marisa, this is too easy, but now I'm going to berate her because it's too hard. Jeez Louise.
Dante DeAntonio: A roller coaster of emotions over here.
Marisa DiNatale: Do you give up?
Cris deRitis: Consumer-related?
Marisa DiNatale: Aha. Yes.
Cris deRitis: Consumer credit.
Marisa DiNatale: Yes.
Cris deRitis: The growth in consumer credit-
Marisa DiNatale: Yes.
Mark Zandi: But that's a government release, isn't it?
Marisa DiNatale: No, it's the Fed.
Mark Zandi: That's not part of the government? I'm just saying.
Marisa DiNatale: Quasi-government.
Mark Zandi: I don't know. I consider it part of the government. I don't know. An independent government agency. You're saying it's independent-
Marisa DiNatale: Is it?
Mark Zandi: Yeah.
Cris deRitis: Yeah.
Mark Zandi: It's charted by what, the 1913 Federal Reserve Act, right?
Dante DeAntonio: There you go.
Marisa DiNatale: Fine.
Mark Zandi: It doesn't matter. It doesn't matter. That's fine. No worries. No worries.
Dante DeAntonio: We wouldn't have gotten it, anyway.
Mark Zandi: We wouldn't have gotten it, anyway.
Marisa DiNatale: It's the year-over-year growth in consumer credit outstanding in October. This was much slower than we were expecting credit growth to expand by, it expanded by about $5 billion over the month, and this is the slowest rate of growth that we've seen since April of 2021 in credit. It's been coming in quite quickly, probably because credit has gotten a lot more expensive with rising rates, demand is falling off for a lot of both revolving and non-revolving forms of credit.
Mark Zandi: Cris, do you know, is the Equifax, because we get all the credit files on country, and I view the Equifax data as being kind of the Bible for this data, and it's more timely. I think we got November data. Any chance you were able to look at that data? No?
Cris deRitis: I haven't seen it.
Mark Zandi: But I think broadly consistent with what Marisa's pointing to in the Fed data, the growth in a consumer credit outstanding is slowing pretty sharply here. Last I looked for bank cards from the Equifax data, so this is credit cards issued by banks, we're down into the the, I want to say 4 or 5%, something like that, year-over-year, which means on a monthly, three-month basis, six-month basis, sequentially, it's in the low single digit, probably close to the rate of inflation, something like that.
I look at that and I think, that's probably explained in part by the tightening and underwriting in the wake of the banking crisis, it's partly demand side, I think, because inflation has moderated and the pressure on people to borrow because their real incomes are rising has abated, and also the interest rates on cards, they're extraordinarily high, I don't know, they're record-high, and hat makes it very costly to borrow, and I think people respond to that, to some degree. Inflation is back in, so that plays a role, but I look at that and I grow a little less nervous about what's going on with regard to consumer credit quality, which we all know we've seen some erosion there. Delinquency rates have started to rise. Cris, because you look at these data very carefully, does that narrative I just laid out resonate with you? Is it consistent with the way you're thinking about things?
Cris deRitis: It does in terms of the aggregate, if we're thinking macro and broad economy. If you look a little bit below the surface, you see some different trends by credit score, and also you have the buy now, pay later, so you have some other alternative credit sources out there that we may not be capturing, but those are still relatively small in the grand scheme of things. They do cater, though, to lower-income, lower-credit borrowers, though, so I think you'd want to be a little cautious there. You do see delinquency rates rising still, so that's something to watch. But in terms of the broader economic impact, I agree, you don't see evidence of a wide swath of consumers overextending themselves or potentially getting into trouble here, so I think in moderation, it is a positive.
Marisa DiNatale: Yeah, and I guess real credit outstanding is basically zero, right, if you account for inflation?
Cris deRitis: Right.
Mark Zandi: That 3.1% is the year-over-year growth in October for all consumer credit, revolving and non-revolving?
Marisa DiNatale: Yes.
Mark Zandi: Do you know offhand, was the non-revolving, which is like auto and student loans, was that weaker or stronger?
Marisa DiNatale: Than-
Mark Zandi: Than 3.1? Were they both about the same, about 3, around 3?
Marisa DiNatale: Well, non-revolving was much weaker.
Mark Zandi: Much weaker?
Marisa DiNatale: Yeah.
Mark Zandi: That may go to the student loan debt, there's a lot of debt forgiveness, and there's also putting people in income-driven repayment plans, although that wouldn't affect the amount outstanding, would it? It might, if there's some forgiveness attached to that, but that might be playing a role.
Cris deRitis: It could be the decline in used cars.
Mark Zandi: Oh yeah. That might be used car prices.
Cris deRitis: Used car prices [inaudible 00:33:14] balances.
Mark Zandi: Good point. Good point. Great. That was a great statistic. Very good, Marisa. Dante, you're up.
Dante DeAntonio: I'm going to go pretty deep in the weeds here, just so I'm giving a forewarning. -38,400.
Mark Zandi: Was this in the employment report?
Marisa DiNatale: This is an industry change?
Dante DeAntonio: It's in the employment report, yeah.
Marisa DiNatale: Payroll employment change in the industry?
Mark Zandi: It's employment for a certain industry?
Dante DeAntonio: That I conveniently left out of the rundown at the beginning, yeah.
Mark Zandi: Ah, okay. What fell 38,400 jobs? Wow. That is a big number.
Dante DeAntonio: It's one of those things that somebody could call a blemish, right?
Mark Zandi: Yeah, or a data problem, depending on your perspective, especially one who's giddy. Don't throw cognitive dissonance my way. I think I'm using that word correctly.
Marisa DiNatale: You said you left it out of the rundown?
Dante DeAntonio: I don't think I mentioned it, no, because I knew I was going to use it.
Mark Zandi: Is it in the service side of the economy?
Dante DeAntonio: Yes.
Mark Zandi: Is it the retailing part?
Dante DeAntonio: It's retail trade. Retail trade.
Mark Zandi: Is it department stores?
Dante DeAntonio: It's overall retail trade, is 38.4.
Mark Zandi: Oh, overall retail trade.
Dante DeAntonio: I brought this up because I think it'll actually make your case stronger, because I think that was the biggest single decline of any industry, obviously, but I think it's almost purely a seasonal adjustment problem. It's not an actual decline. If you look last November, it actually declined by over 45,000, and it's just there's been a shift in the seasonal pattern. The ramp up in hiring and retail is much lower in November than it used to be, and so you're getting these big negative prints in November that aren't real. We still added lots of jobs in retail, a couple hundred thousand jobs, but that gain is smaller than it had been in prior years, and so it's reading as a negative in retail trade. Again, so that's a pretty big weight on that top line job number. If you erase that, private sector gains are closer to 200K instead of 150, so again, I think if somebody's headlining that as a problem with the report, it's not really a problem at all. It's just a quirk.
Mark Zandi: Well, also, correct me if I'm wrong, but I believe if you go back pre-pandemic, retail trade employment was consistently declining, because I think that goes to online e-tailing. You were seeing a shift in jobs away from straight-up retail into wholesaling and transportation and distribution, UPS, FedEx, that kind of thing.
Dante DeAntonio: Yeah. I think if anything, over the last couple of years, I think retail has recovered better than I think maybe we expected it would when the pandemic first happened, so I think it's actually been a more positive story than we might have thought it would be.
Mark Zandi: Good one. Cris, you're up.
Cris deRitis: Mine is deep in the bowels of the employment report, and required a calculation.
Mark Zandi: Well, that's all helpful. Thank you.
Cris deRitis: 59.3%, but it makes a point, so 59.3%.
Mark Zandi: It's a ratio of two things.
Dante DeAntonio: Is it household or payroll side of the report?
Cris deRitis: It is household.
Mark Zandi: Oh, interesting. Is it related to part-time, full-time employment?
Cris deRitis: No.
Mark Zandi: No. Is it related to some composition of unemployed?
Cris deRitis: No.
Dante DeAntonio: Is it an employment population ratio for some demographic group?
Mark Zandi: That's interesting.
Cris deRitis: It is not employment, but the population is in the denominator for a demographic group.
Marisa DiNatale: Participation?
Mark Zandi: Labor force participation?
Cris deRitis: What's that?
Mark Zandi: Labor force participation?
Cris deRitis: No.
Mark Zandi: No? Oh, you said population.
Cris deRitis: And the opposite of...
Dante DeAntonio: Nonparticipation?
Mark Zandi: Nonparticipation? Oh. Oh, really?
Cris deRitis: It's the percentage... You give up?
Mark Zandi: Yeah, go ahead.
Cris deRitis: Percentage of people over the age of 55 who are not in the labor force, don't want a job.
Mark Zandi: It's 59.4%?
Cris deRitis: 59.3%.
Mark Zandi: 3%. Oh, interesting. Why didn't you just look at the labor force... Why did you do the nonparticipation rate as opposed to the participation rate? Just to mess with us? He's messing with us. You're just messing with us. Go ahead. Fair enough. Go ahead, so-
Cris deRitis: I can't have you constantly giddy.
Mark Zandi: You're right. You're right. It's good point. It's good point. Fair enough. You've got to cut that game.
Cris deRitis: The reason why I chose this is I'm trying to understand where are these people coming from? Where's the supply coming from? Marisa mentioned immigrants, certainly, but maybe there's some untapped folks on the sideline, as well. This number is up from what it was prior to the pandemic. Prior to the pandemic, we had 58% of the people over the age of 55 not looking for a job, so this has gone up so you've seen some people stepping out, but the number got as high as 60.5% earlier this year, so you've seen some of these older folks coming back in, so they have been providing some of the supply. If we went all the way back down to 58%, so we returned to the pre-pandemic rate here, that's another 1.3 million people that could rejoin the labor force from that 55-plus cohort, so this could go on for a while. There's still other folks out there that could still be pulled in off the sidelines.
Mark Zandi: What do you think the explanation is for why the participation rate is lower and the nonparticipation rate is higher in the post-pandemic period? What's going on here, do you think?
Cris deRitis: I think you saw a lot of the older folks stepping out of labor market because they saw their house value rise, stock portfolios increased. They may have had certainly some stimulus on the lower end of the spectrum, so I think that certainly allowed people to step out, but you do see some coming back in. I suspect you'll see some more coming back in.
Mark Zandi: Mostly financial, so you're-
Cris deRitis: Yeah, that's my guess.
Mark Zandi: Everyone's, well, net worth increased quite dramatically since the pandemic hit. Stock prices are up, housing values are up, and you're saying they just don't need to work, so therefore-
Cris deRitis: Yeah.
Mark Zandi: But now with time passing, they may need to do so, and/or I guess lifestyle-
Dante DeAntonio: Or want to.
Mark Zandi: Or want to.
Cris deRitis: That's right.
Mark Zandi: They take a bit of a break and they say, "I've got to get back. I've got to do something here," that's what you're-
Cris deRitis: Yeah.
Dante DeAntonio: Is there a reason to think that'll normalize, though, because isn't there some demographic shift within that group, too? The 55 and older group has gotten older over time, and that's going to continue to happen, so you would think that would put downward pressure on the share of people who are going to be looking for work as that group as a whole starts to age. Do you think there's a reason it will get back to where it was before?
Cris deRitis: Well, that assumes that their finances are in shape, right? I'm not convinced that that's the case. They will be older, but I think [inaudible 00:40:37] people under pressure will have to come back in. But I agree, I don't know that it goes all the way back to 58%. Maybe it's 58.5 or something.
Dante DeAntonio: But even there, it still leaves room for more people to come back.
Cris deRitis: Yeah. I'm just trying to understand where all these people are coming from who continue to join the labor force, continue to take jobs.
Mark Zandi: Well, it could be significant. If you go from 59 to 58, that's one percentage point. If I do my arithmetic right, that's like 1.7 million people into the labor force. That's consequential if that were to happen. I got one. I'm not sure if it's too easy or too hard. I always think it's too hard, but you guys are so good at this, particularly Marisa. Every time I think it's hard, she gets it right away, but here goes.
Dante DeAntonio: No pressure.
Mark Zandi: No pressure. Do you see how I'm playing a mind game here?
Marisa DiNatale: He's messing with me.
Mark Zandi: I'm getting into her mind.
Marisa DiNatale: Yeah.
Mark Zandi: Now, she looks like she's got a bit of a headache. Shut up, Mark. Just tell me this statistic. Two years. Two years. Dante, I can't hear you. I think-
Dante DeAntonio: That's a stat, two years? That's it?
Mark Zandi: Two years, that's my stat. I stand by it.
Dante DeAntonio: The time since December 8th, 2021. Is that the-
Mark Zandi: Oh god, you should think about it in that context. That's a good way of doing it.
Dante DeAntonio: There you go.
Mark Zandi: In that context, two years.
Marisa DiNatale: This is job market-related?
Mark Zandi: Job market-related. It goes to the amazing job market.
Cris deRitis: Two years of continuous job growth?
Mark Zandi: No. We've had more than that, right?
Cris deRitis: We have had more.
Marisa DiNatale: Two years that the unemployment rate has been-
Dante DeAntonio: Below 4%.
Marisa DiNatale: Yeah, basically where it is.
Mark Zandi: Yes. Very good. See, I told you. I told you. That's amazing. She's great at this. Two years. We dipped below 4% December of 2021, and now we are here in November 2023, two years of sub 4% unemployment. That is amazing. Good reason to be giddy. Pretty incredible, and it's rock solid. It's rock solid. Here's another interesting statistic. I'll ask you this. What do you think real GDP growth per annum has been over that two-year period with stable unemployment, unemployment rock solid between 3.5 and 4? Which, by the way, the reason I ask is because that would probably be a pretty good guesstimate of the underlying potential growth rate of the economy during this period. What do you think it is?
Dante DeAntonio: Somewhere between 2 and 2.5%?
Mark Zandi: Yeah, exactly. 2.35% per annum. That feels like to me the underlying potential growth rate of the economy. Actually, over the last year, unemployment has been stable. I think it was 3.6 November of 2022, it's 3.7 November of 2023, so basically unchanged, and over that period, real GDP growth has been 3% on the nose. It just feels like the underlying potential growth of the economy is... Economists talk about the real potential growth of the economy as if it's a constant. It's not. It goes up and down and all around. It just feels like in the current context, I'm not saying this is underlying, long-run, real potential growth. I'm not saying that, but I'm saying in the recent period, in the recent year, recent two years, it's not 2%. It's higher than that. It's higher than that. It's closer to 2.5%, and even stronger than that over the past year. Does that make sense? Am I making sense, or am I missing something?
Marisa DiNatale: Do you think that the full employment unemployment rate is 3.6% or something? What do you think NAIRU is?
Mark Zandi: Yeah. It's between 3.5 and 4. Yeah, I do. If you had asked me in 2019, before the pandemic, "What's the full employment unemployment rate?" I'd say, "Between 3.5 and 4." Somehow, someway, people's thinking around this changed and they said, "Oh, it's 4 to 4.5." And of course that's what the Federal Reserve is saying in their forecast that that's underlying full employment and unemployment. But I just think it's 3.5 to 4, consistent with what we're observing with everything that's going in the labor and market, wage growth and everything else. If 3.5 to 4% was below full employment, meaning we're operating beyond full employment, wage growth would be accelerating. It wouldn't be decelerating. It wouldn't be decelerating.
We're at full employment. We're not beyond, and we have a lot more room to run than we think we have, because the underlying potential growth of the economy is stronger. That goes to the point you were making, Marisa, about labor force and immigration. I suspect, and of course, Cris made another good point I didn't even think about, we may have a lot more juice coming from folks that are above the age of 55, we might see further increase in participation or decline in nonparticipation in that group, but if you look at the... See how you messed me up, Cris? Now I've got to say nonparticipation-
Cris deRitis: I got your mind.
Mark Zandi: You got in my mind, it's like I've got to say both of those things now. But on immigration, there's growing evidence that there's a lot more immigrants coming into the country, and that creates all kinds of issues. You can see that in the crowded hotels in New York City, but it's also, it feels like they're finding jobs and it's helping with the strong labor force growth. And then on the productivity side, I just want to bring this up and maybe we can talk about it a little bit, because I know both Cris and Dante have done a lot of work in this area, the productivity growth feels like it's got some life to it. Again, it ebbs and it flows, and maybe this recent flow turns into an ebb, I'm not sure, but it does feel like we've got some real underlying juice here. Dante, what do you think about that?
Dante DeAntonio: I'm going to answer with a question to you. What do you expect GDP to grow by in the fourth quarter of this year? We obviously had a huge, outsized gain in Q3, which is part of what's fueling that big productivity number, so what do you expect GDP growth to be in the fourth quarter?
Mark Zandi: 1.5, 2%, something like that. Below potential.
Dante DeAntonio: Right, so if you get below potential GDP growth in the fourth quarter, we know the labor market is still strong, we're still adding lots of jobs, so it's almost certain that productivity is going to slow dramatically in the fourth quarter. Arithmetic tells us that it's got to slow a lot, it may even go back below where we... I don't know. Obviously, it's great to have strong productivity growth in the third quarter. I'm just not sure that... It's one of those I think we need at least a two-year average to really smooth out the... It's one of the more volatile things that we see and it's only quarterly, so I'm not buying it yet, I guess is my answer. I like to see the strong number. I don't want to see weak productivity growth, but I want to be wrong, ultimately.
Mark Zandi: Right. Year-over-year, it's 2.4%. Non-farm business productivity growth is 2.4.
Dante DeAntonio: Right, which would be great. If that holds up over the next couple years, that's impressive.
Mark Zandi: That would be spectacular, because between World War II and the financial crisis, it was 2 between the financial crisis, and now I think it's what, 1.5, maybe a little lower than that?
Dante DeAntonio: Yeah, probably even a little lower.
Mark Zandi: It's a little lower than that. I'd take 2. Going back to 2 would be pretty good. If it was other than that, it would be spectacular. What do you think, Cris? Do you think something fundamental is going on here with productivity, or are we just reading too much into these quarterly movements?
Cris deRitis: No, I do think something is happening, but I agree with Dante. I think one quarter doesn't make a trend, so I expect things will moderate here, but I am convinced it'll be stronger than it was prior to the pandemic and that Great Recession to 2019 period. I think there have been some innovations, even just in terms of organization, the remote work and just how we are working, I think there are lots of organizational improvements. And then you throw in on top of that some of the technological changes with the potential of AI and other technologies, I think there's going to be some lift here.
Mark Zandi: I'm going to end on that positive note, I think. Because We started off giddy, we've got to end up positive, even though Dante is trying to bring us down.
Dante DeAntonio: Can I ask you one trivia question based on your stat?
Mark Zandi: Oh yeah.
Dante DeAntonio: You said it's been two years since the unemployment rate was below 4%. Do you think that's the longest stretch that it's ever been below 4%?
Mark Zandi: I want to say no. I want to say in the late '60s, maybe it was longer than two years.
Dante DeAntonio: It was definitely longer than late '60s. It was almost, I'm just eyeballing it, it looks like about four years straight in the late '60s.
Mark Zandi: Four years in the late '60s.
Dante DeAntonio: Depending on how you measure it, right before the pandemic, if it's at or below 4%, we basically had exactly two years, from March of 2018 to February of 2020, that was at or below 4%, and late '60s.
Mark Zandi: Oh, really?
Marisa DiNatale: Right before the pandemic.
Mark Zandi: Right before the pandemic, we had two years?
Dante DeAntonio: Yeah. It wasn't below 4% for two years, but it was at or below 4% for two years.
Mark Zandi: That doesn't count. That doesn't count.
Dante DeAntonio: I wasn't sure if you were including 4% in your-
Mark Zandi: You've got to be below 4%, my friend.
Marisa DiNatale: Maybe it's 3.95%.
Dante DeAntonio: That's right. I didn't look at the unrounded number, so maybe that was done.
Mark Zandi: Very good. Oh, that's interesting. Well, I do think the late '60s, though, you might argue that that was unsustainable, that that was beyond full employment, because that really was the beginning of that period of out of control inflation, and that was a period of, I'm speaking from memory, so I think I've got this right, I may not, it's like my wife's adage, I don't know what I'm talking about, but I could be right, that adage, that during that period, there was tremendous fiscal stimulus, because you had the Vietnam War, a lot of defense spending, and then you had the Great Society, a lot of non-defense spending, so the government was really juicing stuff up. Actually, there was, I think, if I recall correctly, a lot of evidence that the Federal Reserve was accommodating all this stimulus. It wasn't raising interest rates, it probably should have been, but had been somewhat politicized.
I think that's the history of that period, and that laid the foundation for the rapid inflation that ensued in the 1970s into the '80s. Of course, other things happened, like the oil embargo and the fact that the Fed didn't completely understand inflation expectation dynamics, and we got into a wage price spiral, so there was a lot of stuff going on, but I think that period probably we were too juiced for too long. I don't sense that at all in the current period, but anyway. Anything else folks want to bring up before we call this a podcast? I think that was pretty informative. No? Cris?
Cris deRitis: Listen to the bonus episode.
Mark Zandi: Listen to the bonus episode. Marisa?
Marisa DiNatale: No.
Mark Zandi: No?
Marisa DiNatale: Covered it.
Mark Zandi: Mr. DeAntonio? Dr. DeAntonio?
Dante DeAntonio: No. I'll let you end on a positive note. I won't try to bring you down anymore.
Mark Zandi: Well, I hope everyone has a great weekend. Go Eagles. I'm just saying, go Eagles, and we'll call this a podcast. Take care, everyone.