Inside Economics regular Dante DeAntonio joins us for the Match release of the US employment report. Down the strike zone. In the middle of the uprights. Down the fairway. Sticking to script. All apt descriptions of the job market in the month of March. But this is all before the fallout of the banking crisis has become evident.
Inside Economics regular Dante DeAntonio joins us for the March release of the US employment report. Down the strike zone. In the middle of the uprights. Down the fairway. Sticking to script. All apt descriptions of the job market in the month of March. But this is all before the fallout of the banking crisis has become evident.
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. I'm joined on this Job's Friday with by my three colleagues, two trusted co-host, Cris deRitis and Marisa DiNatale and Dante, you might as well be a co-host, you're on every Job's Friday, so good to have you all. I guess a lot of illness here. We were just talking about this. Marisa's not feeling so well. We won't go into any detail, but not her a hundred percent self. And Cris, it sounds like you got a cold.
Cris deRitis: Yeah, something.
Mark Zandi: Something.
Cris deRitis: Something [inaudible 00:00:56].
Mark Zandi: Dante, how are you feeling?
Dante DeAntonio: Surprisingly, I'm okay. My kids have been sick this week, I'm dodging the bullet so far, so we'll see.
Cris deRitis: Oh, just wait.
Mark Zandi: I'm like you.
Cris deRitis: Just wait.
Marisa DiNatale: I know. My niece and nephew are six and three and they're constantly sick and so I feel like every time I see them I get whatever they have.
Mark Zandi: My wife's got a bad cold too. She was coughing and sneezing all night. Yeah, but so far I dodged that bullet too.
Marisa DiNatale: For you.
Mark Zandi: So yeah, so far so good. But anyway, sorry about that. We'll see how this goes with everyone under the weather, but the jobs report must have cheered everybody up, right?
Marisa DiNatale: The job market is healthy.
Mark Zandi: The job market feels pretty good, right? Dante, you want to give us a rundown on the jobs numbers today? This is for the month of March, 2023. This is Friday, April 7th so we've got the numbers. So they felt pretty good to me, but what do you think?
Dante DeAntonio: Yeah, I would call it maybe the least contentious report we've had in a while. We had some reports that were upside surprises. We had some reports where the surveys tended to diverge a bit and this one felt like it was not really a surprise at all. Job growth has continued to moderate. Top line, non-farm payrolls were up 236,000 in March. The three-month average game is still pretty high at 345,000, that's up from the end of last year, but it's still down significantly from a year ago. In the first quarter of 2022, we were averaging better than 550,000 jobs a month. So still a definitive slowdown in the job market here over the last year. On the industry detail, maybe a little bit of surprise with construction payrolls finally falling. Maybe that was sort of always expected to happen, but it finally did happen here for the first time since the beginning of last year.
Manufacturing fell for the second month in a row, albeit by a very small amounts. Retail was down, although it was up pretty big in the last two months. So just a little bit of buyback there. Information payrolls actually gained a little bit, which is maybe a little bit surprising given sort of the ongoing tech layoff announcements that we keep seeing. The gain was small relative to the declines over the last few months, so still not a positive story there. Healthcare, leisure and hospitality continue to be the primary drivers of payroll growth and that has not really changed. A similar story to last month in terms of earnings and hours, average weekly hours ticked down a little bit again. Earnings were 0.3% over the month again, which was sort of in line with where it's been the last few months. Year over year, wage growth is now getting close to 4%, the lowest it's been in a while.
The household survey of anything was maybe stronger than people would've expected. It's probably the more robust side of the report here. The unemployment rate ticked back down a little bit to 3.5% after it jumped a little bit last month and that was for the right reasons. Labor force growth is still strong. Employment as measured by the household survey is strong again this month, maybe a bit more positive story out of the household survey and maybe a bit more strength than we or the Fed would like to see. But all in all, I think it was probably the least surprising report we've seen in a while, sort of fell in line with expectations.
Mark Zandi: So we've been looking for reports that kind of thread a needle. We want the job market to kind of throttle back here a bit so that wage and price pressures moderate, get inflation back in, but we obviously don't want the labor market to weaken too much or fall apart because that would be consistent with a recession. So in that kind of frame, where does this report land?
Dante DeAntonio: It feels to me like it's in the sweet spot. The labor market's slowing, it doesn't seem like it's crashing too quickly. Yeah, maybe you could argue that it could slow a little bit more quickly and that would be okay. But I think after we saw two sort of upside surprises in the last few months, this was I think a welcome change of pace in terms of what we need to see here moving forward.
Mark Zandi: So you would say down the strike zone in the middle of the fairway...
Dante DeAntonio: According to script-
Mark Zandi: According to script...
Dante DeAntonio: Any one of those, they all fit.
Mark Zandi: They all kind of fit, huh? Yeah, right. Those are all [inaudible 00:05:13].
Dante DeAntonio: We had a few wild pitches the last few months and now we're...
Mark Zandi: Yeah, we're back in the strike zone. We're back in the strike zone, [inaudible 00:05:20] to the start of baseball season.
Dante DeAntonio: There you go.
Mark Zandi: Oh, the [inaudible 00:05:23] are having a bit of trouble, so I'm not watching at the moment, they got to get back on track. That was a good rundown but Marisa, what do you think? Any gaps there you want to fill in? And I guess also is your interpretation of the report consistent with Dante and my interpretation?
Marisa DiNatale: Yeah, I think it shows a slowing job market, but not cratering, still strength in many pockets of the industries that we look at, some of the more interest rate sensitive industries look to be slowing a bit more, which is something we've been expecting, especially given the housing market, we've been expecting construction to slow. And I agree, the household survey side of it looks even a bit stronger. The labor force had a large increase of over 400,000 during the month. The employment population ratio, the labor force participation rate, both rows sending the unemployment rate down a little bit and unemployment rates fell for most of major demographic groups.
People are still doing well in the labor market, but perhaps not quite as well as they were six months ago. And we combine this with other labor market data we've gotten recently. I think it's pretty clear there is some cooling off here. So I like it. I think as Dante said, the Fed probably wants to see things slowing more consistently and maybe a little more rapidly, but it's a nice pace of slowdown in terms of perhaps avoiding a recession while still getting some relief wage growth slowed year over year, hours ticked down. So it's moving in the right direction in those regards.
Mark Zandi: Yeah. Maybe this is the time to throw in a couple other kind of data points we got this week related to the job market. It seemed consistent, roughly to the jobs numbers. That would be the initial claims for unemployment insurance. That's a kind of a read on the number of people getting laid off. And also on the JOLTS, the Job Opening Labor Turnover Survey, that's a month lag. So that's a window on what happened back in February with regard to open positions, hires, that kind of thing. Did you want to just explain those two numbers, sets of numbers and your interpretation in the context of this jobs number, Marisa?
Marisa DiNatale: Oh me?
Mark Zandi: Yeah.
Marisa DiNatale: Sure. Well, the unemployment insurance claims data is interesting because it actually got revised with this Thursday's release. It gets revised every year when the BLS, or not the BLS, sorry, the Department of Labor who puts out the UI data, redo the seasonal adjustment factors. They redid them this time, but they actually switched the methodology back to what it had been prior to the pandemic. So the methodology used to be this multiplicative seasonal factor whereby they would multiply the seasonal factor to the level of UI claims. They suspended that during the pandemic because the pandemic threw everything off. They started adding the seasonal factor instead, they switched this methodology back and that had the effect of revising up UI claims from... I think it was, Dante, was at the middle of 2021 through present?
And so UI claims now are higher than they were. And the trend shows that they've actually been rising since February of this year pretty steadily. So UI claims, in the latest week, were 228,000, whereas previously we were looking at a level of claims that was just under 200,000. So the trend now shows rising claims, which it did not before. It had been holding at that 190-200,000 level for a long time, and they're much higher than they were before. Still not recessionary, still not in a recessionary territory, but definitely consistent with all the layoff announcements that we've been hearing. We've been scratching our head about this for a long time. Why aren't these layoffs showing up if people are getting laid off? Why isn't it in the claims' data now? It looks like it clearly is. When you look at it by state, you clearly see big uptick in claims in California and other states where we know a lot of these layoffs happened.
Mark Zandi: But still it's kind of consistent with what you'd want to kind of see if you're threading the needle, right? Because 200K, that is exceptionally low and-
Marisa DiNatale: That's right.
Mark Zandi: ... indicative of incredibly tight labor market, not consistent with the idea that wage growth is going to come in and inflation's going to moderate. 225K or 230K, where it feels like where we are now, that's still pretty low.
Marisa DiNatale: Yes.
Mark Zandi: By historical norms. Kind of sort of want to see something around 250, maybe in the current context, maybe even high as 275 because Dante, isn't that your calculation of break-even?
Dante DeAntonio: Yeah, break-even's around 270 and the four-week average right now is about 240. So we're getting close to that ballpark, I would think. The recent week fell a bit from where it had been in the weeks prior. So yeah, I think certainly creeping up in that direction. And my guess would be we're going to be above 250 here pretty soon.
Mark Zandi: Although a little uncertainty there because the banking crisis. I noticed that there was a big jump, the big jump in UI was in the week when the banking crisis really hit, and it came back in last week. So I'll be really curious to see... is this a related to the banking crisis in the fall for the crisis, or is this something deeper, broader going on?
Dante DeAntonio: It was up close to 250 in the last two weeks of March, and then it came back down a little bit here in the first week of April. So yeah, it's hard enough, if that's just volatility or if that's a signal of things sort of settling down a bit.
Mark Zandi: Right, I don't want to put words in your mouth, but I look at that and I say... when you see trend lines like that, you go, oh, I'm a little nervous about where the trend is going. Are these UI claims going to continue to go north and ultimately signal recession? But we've been waiting for this to happen, to rise. So it feels like it's consistent with the script, back to the Zandism, right?
Marisa DiNatale: Yeah.
Mark Zandi: Okay.
Marisa DiNatale: It had been a head scratcher-
Mark Zandi: It had been a head scratcher.
Marisa DiNatale: ... as to why this wasn't budging and it was at such a low level.
Mark Zandi: And just to reiterate, the revision wasn't because they came up with more claims, the revision was because they just changed the way they seasonally adjust the data.
Marisa DiNatale: That's right.
Mark Zandi: What about the JOLTS, the Job Opening Labor Turnover Survey, Dante, is that consistent with the threading the needle narrative?
Dante DeAntonio: I would say it is, but it's a little bit more confusing of a story given some of the different data there. Certainly, the job openings data was what we would want to see, a big decline in openings, back below 10 million was the lowest level of job openings since the middle of 2021. So that certainly is signaling a slowdown in labor demand, which is obviously in line with what the Fed wants to see. The sort of little bit more puzzling data points were that quits ticked back up a little bit, signaling that workers maybe are feeling still pretty good about what's going on and feeling confident in quitting. And layoffs in the JOLT state actually fell a little bit from January, which seems a little bit counterintuitive with what we've seen. And now in the claims' data, neither of those movements were particularly large and it's likely just a little bit of month to month noise in the data. So I think the big drop in openings is probably the headline there, and the rest of it is likely not a whole lot to write home about.
Mark Zandi: And just to put a number on it, and I hope I'm not taking anyone's statistics game number, but 9.9 million unfilled open positions in the month of February. The peak was 12 million unfilled positions, I believe about a year ago, early 2022. And just for context, right before the pandemic hit in kind of 2019, early 2020, we're kind of just north of 7 million. So feels like we're not quite halfway back to where we need to be to be consistent with a strong labor market, but one that's not overly tight. Is that roughly right?
Dante DeAntonio: I think so.
Mark Zandi: Dante, [inaudible 00:14:10], people are listening on their podcast. They don't see your frowns and your...
Dante DeAntonio: I like to make faces-
Mark Zandi: Except people watching on YouTube.
Dante DeAntonio: [inaudible 00:14:19] that people can't see.
Mark Zandi: Yeah. Okay. So Cris, you've heard all this. What did we miss? Anything on the jobs numbers or any of the employment related statistics that came out this weekend? What it means in terms of this narrative about threading the needle between getting growth down consistent with moderating inflation, but not getting growth down so far that it means recession?
Cris deRitis: It all looks quite good as Dante and Marisa suggested. If you dig a little bit deeper into some of the demographics, you can see that men's labor force participation ticked up as well, that's positive. That's something we had been lagging, hard to find any real blemishes here. I guess the one to harp on would be the month increase in average hourly earnings. Is that sufficiently weak for the Fed? Still not where they want it. Yeah, maybe it's trending gradually in the right direction, but it still looks a bit too strong for the Fed's liking would be my interpretation. Although with the banking crisis and everything else going on, I think that their tolerance certainly is a little bit wider here in terms of how they're going to make the decision. I think the CPI report next week is going to have more of a bearing.
Mark Zandi: So you're making the point that because of the potential fallout from the banking crisis on the economy and labor market, which I'm sure we haven't seen yet. The crisis happened I think as Silicon Valley Bank failed on the 10th of March and the survey, the Bureau of Labor Statistics survey was done in the week of the 12th. So it would pick up some of it, but I'm pretty sure not much of it. There's a lot more to come I would expect. And you're saying, look, the Fed got to be thinking the same way and they'll want to see what kind of impact the banking crisis had on business confidence and lending and everything else, and ultimately on jobs.
Cris deRitis: That's right. So I think this is a good report in the strike zone.
Mark Zandi: Even this, the ref would say, the [inaudible 00:16:40] ref would say in the strike zone.
Cris deRitis: There you go. Maybe not right in the middle of the uprights.
Mark Zandi: Pretty close.
Marisa DiNatale: Or the uprights, so now we went-
Mark Zandi: In the uprights now.
Marisa DiNatale: ... from baseball to football in one sentence.
Cris deRitis: I don't know.
Mark Zandi: I like that. I should add that. Talking about the banking crisis, how are you feeling about that in terms of the crisis itself? And then also in terms of are you noticing any fallout here in other data you're following Cris?
Cris deRitis: Yeah, so I would say, at this point it looks like the worst of it is behind us because all the measures that the Fed and others have taken would quash any type of additional contagion. At least that seems to be the case at this point. So may still very well, and they still see some additional bank failures, but the likelihood that they would spread to the same degree and cause the same amount of angst, I think has been taken off the table here. I don't think we've seen the fallout in the data quite yet. Everyone is talking about the lending standards tightening up, and I did see one data point from the Dallas Fed, they do have banking conditions survey that they collect, that actually was collected after the Silicon Valley Bank failure and it did look as though there was some tightening on lending standards, particularly for consumer loans, but still early days.
Mark Zandi: That's the Dallas Fed survey, banking survey?
Cris deRitis: That's right. But still early days, so I don't think we've seen the full brunt of this yet, and I think it's going to take a long time for this to play out in terms of the lending standards, the credit crunch, at least a credit shock is going to be going on throughout the next few quarters.
Mark Zandi: Well, we should be getting the Equifax credit file data for the month of March pretty soon. That'll be interesting to see because we can see what's going on with the growth and outstandings across different kinds of consumer and mortgage products. I would expect the fallout to be much larger on businesses, and that's harder to measure real time, but it will be interesting to see what that March data says if there's any meaning. It was already the growth that I think was already slowing, right?
Cris deRitis: Yes.
Mark Zandi: Because lenders had been starting to tighten in response to an erosion in credit conditions, delinquency rates. But it'd be really interesting to see if there's anything that shows up there.
Cris deRitis: But even that, right? That's partial. Part of the month was-
Mark Zandi: Part of the month.
Cris deRitis: ... susceptible to the bank failures, right?
Mark Zandi: Yeah, totally agree. I guess the other channel through which the banking crisis can impact the economy, the first being through lending standards and loan growth and credit availability, that kind of thing is sentiment and... excuse me. Oh, hopefully I'm not getting sick too. Oh, no. I'm good.
Cris deRitis: [inaudible 00:19:45].
Mark Zandi: Everyone's monitoring their body every 30 seconds.
Marisa DiNatale: This could be a very interesting podcast.
Mark Zandi: It should be. Yeah, we're going down. I noticed the ISM survey for...
Cris deRitis: Oh, you did? Now you liked it.
Mark Zandi: Well, it was back down the services side, that was a pretty meaningful drop. And the ISM survey is a survey of purchasing managers and it's based partially on hard data, but it's a lot of its sentiment, it's how people are feeling about things. And that took a pretty meaningful nose dive in the month of March. And that surveys conducted through the entire month. And according to the ISM folks, most of the respondents wait until the end of the month to respond. So it would be more fully reflective of their thinking about what the bank crisis might mean. And that does suggest that businesses are on edge.
Cris deRitis: Yeah, for sure.
Marisa DiNatale: Wasn't it the largest decline since the financial crisis or something?
Mark Zandi: I think for the orders component of it.
Marisa DiNatale: That's right. It was the new orders component.
Mark Zandi: And I think I'm stealing Dante's analysis now, which I...
Dante DeAntonio: It's probably Bernard's if it's-
Marisa DiNatale: That's what it's there for.
Mark Zandi: Yeah, careful consumer of it. The overall index fell more sharply in the month of December and that was felt bogus because it just bounced right back up. So I'm not sure whether this has the same kind of issues, but we'll see. I guess the one thing, it feels like it's saying is people are on edge. If anything kind of doesn't stick to script, they get very nervous very fast. And maybe that's the message here in these surveys that people are very nervous about things.
Cris deRitis: We also got the factory orders for February this week and they were down, so it was already suggesting slow down even before.
Mark Zandi: Right. Although those numbers I always am hesitant to read too much because they're so volatile-
Marisa DiNatale: Pretty volatile.
Mark Zandi: ... month to month, right? Yeah. But you're right, certainly consistently-
Cris deRitis: Plus two consecutive months, right?
Mark Zandi: Yeah, two consecutive months. Okay, we got a few things I want to do during the podcast. One is the game, the statistics game. Maybe we'll do that next. Then I want to take listener questions. So we've been soliciting listeners to the podcast for their questions. And here I'm soliciting again, please fire away. We're collecting them and we're going to respond to a couple three of them here today. And then I think I want to come back at the end, we haven't done this in a bit, probability of recession. Maybe broaden that discussion out a little bit. We've been focused on the next 12 months. Maybe we should start thinking a little longer run, but we'll do that as well.
Sound like a good game plan going forward? Everyone good with that? Okay. Let's turn to the game. The statistics game. Just a reminder, we all put forward a statistic. The rest of the group tries to figure out what that is through questions and clues, deductive reasoning. The best statistic is one where it's not so easy, we get it immediately. Not so hard, we never get it. And if it's apropo to the topic at hand, I guess that would be banking and job market and released this week by the agencies or trade groups, that would be desirable. Tradition is we begin with Marisa. Marisa, you're up. What's your statistic?
Marisa DiNatale: My statistic is 172,000.
Mark Zandi: In the jobs numbers today?
Marisa DiNatale: It is
Mark Zandi: Household survey?
Marisa DiNatale: Yes.
Mark Zandi: Okay, is it related to the labor force?
Marisa DiNatale: Well, no. Yes, it's related. Everything is related to the labor force and the household survey.
Mark Zandi: Okay, that was too broad. Well, I was thinking is it related employment or I guess it's a bad question... and everything's related to the labor force. Is it a demographic cut of the data?
Marisa DiNatale: No.
Mark Zandi: Is it a change in?
Marisa DiNatale: It is a over the month change, yeah,
Mark Zandi: Over the month change and it's not a demographic cut. What do you think guys?
Cris deRitis: Is it one of those marginal workers, permanent job losers, something like...
Mark Zandi: Not in the labor, something related [inaudible 00:24:34].
Marisa DiNatale: Yeah, it is something like that.
Dante DeAntonio: Is it an increase or a decrease? Did you say that?
Marisa DiNatale: It's an increase.
Dante DeAntonio: Okay, just checking.
Mark Zandi: Increase in what? In the marginal?
Dante DeAntonio: The plus 172,000 over the month. Yes.
Mark Zandi: I'm sorry, I missed that. So it's related to an increase...
Marisa DiNatale: Cris just said it. He said a bunch of different unrelated things and one of the things-
Cris deRitis: Change in marginal worker, marginally attached?
Marisa DiNatale: No, it's the other-
Cris deRitis: Permanent job losers.
Marisa DiNatale: Yes. So it's the increase in the number of people who permanently lost a job in March. And that's significant because in the prior month in February, that number rose by 123,000. So over the past two months, that's risen by nearly 300,000, which would be the biggest consecutive month on month gain that we've seen since the teeth of the pandemic. And then you'd have to go back much for... I'm going back and I'm still not seeing it years and years and years to get to a two-month number like that, you'd have to go back into like 2009 to see a two-month increase in the number of permanent job losers that big. So this is also consistent with what we're seeing with the hearing about the layoffs and the increase in UI claims and the slow-down in hiring and just overall cooling in the job market.
Mark Zandi: Got to be off of pretty low levels though, right?
Marisa DiNatale: That's true, yeah. It's-
Mark Zandi: It's got to still be incredibly low, I would think. No?
Marisa DiNatale: Yes, it is. Yeah, I was trying to find it, but I can't find it right away.
Mark Zandi: Oh, okay. So you're saying-
Marisa DiNatale: I thought the over the month change was pretty significant. We haven't seen a big increase in that series in a long, long time.
Mark Zandi: So you think there's information there? You do think there is information there?
Marisa DiNatale: I think it's consistent-
Mark Zandi: It's consistent with-
Marisa DiNatale: It's just consistent with this other data showing that yeah, perhaps layoffs are ticking up and the job market is cooling.
Mark Zandi: Right, okay. So the number of people who permanently lost their job has increased meaningfully over the last couple of months. Still low-
Marisa DiNatale: That's right.
Mark Zandi: ... but it has increased and consistent with these other data suggesting and easing up of the labor market.
Marisa DiNatale: Yeah, and this is the BLS reports, why people are unemployed? The reason for unemployment. So the other reasons could be they're on temporary layoff, they quit a job. So this isn't people voluntarily leaving. This is basically a layoff. And we haven't seen this kind of movement in that series in quite some time.
Mark Zandi: All right. I think I bring this up every jobs report, I bring it up because it bothers me. The idea that the labor market's well beyond full employment. If you look at the data, it all is consistent with a job market that's at full employment. The unemployment rate's three and a half percent, that's where it's been for an entire year. And that's where it was prior to the pandemic. The employment to population ratio, it's high and rising. I think it's 80.7%. I hope I didn't take anyone statistic, but 80.7% for prime age workers, 25 to 54. But that's pretty much where peaked out prior to the pandemic. You look at all of the numbers in the report. It doesn't seem to suggest that we're operating well beyond full employment. Am I wrong? I don't know that that's consensus view. It's certainly not the view of at the Fed, I don't think. They view the labor market as beyond full employment.
Cris deRitis: Because they're looking at the wages, right?
Mark Zandi: But even on the wages-
Cris deRitis: The wages are the signal.
Marisa DiNatale: But they're slowing now.
Cris deRitis: Slowing but they're still faster than historical average.
Mark Zandi: Okay. I'm going to go. This is the moderator's prerogative, I'm going to go next in the context of this conversation. This may now be too easy a statistic, and if it is, then I'm going to give you a second one. 3.75%.
Cris deRitis: Is this the three-month moving average of-
Marisa DiNatale: Average [inaudible 00:29:01].
Dante DeAntonio: [inaudible 00:29:01] wage growth?
Mark Zandi: Yeah, the Q1 annualized wage growth, average hourly earnings wage growth, 3.75%. So I don't know, that's exactly where it was pre-pandemic. We've talked about wage growth and why it was so elevated, in my view, not because of extraordinarily tight labor market. Certainly you couldn't get that kind of wage growth without a tight labor market, a full employment economy. But it goes to other things like inflation expectations. And 3.75% is, I'd say that's pretty consistent with or close to what the Fed would want to see given their inflation target. So 2% inflation, one point a half percent productivity growth gets you to three and a half percent. That's 3.75 is within spitting distance. So again, I'd say it's pretty consistent with the idea that the economy's at full employment, but not beyond fault. Cris, would you push back on that? Do you think we are well beyond full employment?
Cris deRitis: I don't think we're well beyond, no. We might be beyond.
Mark Zandi: Beyond, okay. And Dante?
Dante DeAntonio: Yeah, at the risk of burning another statistic, over the last three months we're adding almost 600,000 people to labor force every month. So it's hard to feel like you're well beyond full employment if you're still bringing that many new workers.
Mark Zandi: That's the other thing I forgot to say. Yeah, exactly. Okay, here's my second statistic in the context of that, because you wouldn't have got that 3.75 as easily if it wasn't in the conversation the way it was put in, correct?
Cris deRitis: Oh, now we don't know. We don't know.
Mark Zandi: [inaudible 00:30:44] counterfactual. That's true. All right, here's another one. This one's harder, but you've got context. Two numbers, 2.43 million, 2.05 million. What do you think those numbers are? 2.43. And it's a change over the year in the context of the-
Cris deRitis: Labor force growth-
Mark Zandi: Labor force growth, 2.43 million. So divide by 12, that's a couple of hundred thousand a month. That's your labor force growth. No one mentioned labor force participation increased again, or maybe I missed it.
Marisa DiNatale: I did.
Mark Zandi: You did, okay. So another increase. 2.05 million. What's that? You got labor supply.
Marisa DiNatale: Is it the civilian non-institutional population?
Mark Zandi: No, it's increase in labor demand. That's the change in employment plus the unfilled position, it's labor demand. 2.43 million in supply. This is through year over year through the month of March, 2.05 million labor demand. I'm using a little bit of slide of hand here because I'm using the JOLTS data, and that ended in February. So I just assumed that March is going to be the same as January to get to that number. I think that's a reasonable assumption to make. This is the first month since right in the teeth of the pandemic that labor supply is greater than labor demand, this month, in the month of March on a year-over-year basis. I think that's encouraging, again, in the context of we are threading the needle here between... we want the job market to ease up so that it eases wage pressures, but we don't want it to ease up too much. Actually, I have a great chart, I'll send it all around to you guys showing that. I'm going to tweet it out probably on Sunday. Don't take it, okay? Cris, I know you-
Cris deRitis: [inaudible 00:32:52].
Dante DeAntonio: Easter Sunday tweeting about the labor market.
Mark Zandi: Is that inappropriate? No?
Dante DeAntonio: Defines the priorities.
Cris deRitis: It's a bit of an Easter egg.
Mark Zandi: It's an Easter egg. Right. Okay. Dante, you're up.
Dante DeAntonio: I'm digging deep into the stats that I had on my list here, -0.1
Mark Zandi: And it's in the jobs numbers?
Dante DeAntonio: It's in the jobs numbers.
Cris deRitis: It is a percent?
Dante DeAntonio: It's not a percent.
Marisa DiNatale: Is it a change in an unemployment rate for a specific demographic group?
Dante DeAntonio: It is not.
Mark Zandi: That would really be digging deep, wouldn't it? But it's a change in month to month.
Dante DeAntonio: It's a month to month change in... but there's no units.
Marisa DiNatale: There's no-
Dante DeAntonio: It's an index.
Mark Zandi: It's a change in a ratio?
Dante DeAntonio: Not a ratio.
Marisa DiNatale: It was a -0.1?
Mark Zandi: Declined. Yeah, it declined. Household survey?
Dante DeAntonio: No, payroll survey.
Mark Zandi: Payroll survey.
Marisa DiNatale: Is it the diffusion index?
Dante DeAntonio: It's not. That was actually up slightly. It's been down a lot. It was back up a little bit.
Mark Zandi: Oh, it was.
Dante DeAntonio: Yeah, a little bit.
Mark Zandi: Quick tangent, explain that and what that is and what it's saying.
Dante DeAntonio: So the diffusion index measures the breadth of job creation. It looks basically at the percentage of detailed industries that are adding to payroll. So a diffusion index, which it was 60.2 in March, that means that 60.2% of the detailed industries they look at were adding to jobs versus 40%, which were losing jobs with some middle ground there for industries that didn't change at all. It was 57.4 last month and that was the lowest that had been in a long time. It's been down very large over the last year. So if you look back to February of 2022, that was the peak of this cycle and it was above 80, which is historically high.
That's record high for the share of industries adding to payrolls and it's been falling precipitously, and as you start to get down below 60 into that sort of mid-fifties range, that tends to be the area where you can see job losses in aggregate start to happen. So the fact that it seems to have plateaued and picked back up a little bit as a good sign in terms of not seeing things to the bottom fall out of the labor market, it is volatile months to month so it's hard to read too much into single month movements back and forth. But certainly something to keep an eye on to see if the breadth of job losses keeps spreading out here over the next couple of months.
Mark Zandi: Okay. Going back to your statistic. I think I know what it is. -0.1. The decline in hours worked per week.
Dante DeAntonio: The aggregate index of hours worked. So I thought Cris would get it because I think he actually cited it last month or the month before. So this is the second straight month that it's fallen. So even though we have huge payroll gains happening, we've had declines in average weekly hours. And that in aggregate total hours have been down now for two months in a row. It's just another signal that demand here is softening. Even though we're getting job gains, the total number of hours being worked are falling.
Mark Zandi: Actually average weekly hours also fell -0.1.
Dante DeAntonio: They did, that's true.
Mark Zandi: 34.5 to 34.4, I think.
Dante DeAntonio: That's right, yeah.
Mark Zandi: And 34.4 is like we've come full circle because when the pandemic hit, we saw a big increase in hours work in part because I think all the people leaving the labor force, people were in the labor force, were working more. And it's mixed effects too, given where the job growth is happening across sectors, but it's now come all the way back in. So it's 34.4 is exactly where it was pre-pandemic. So your point is, look, we saw this increase in employment, but we saw this decrease in hours work. So the aggregate hours work, which is jobs average weekly hours, that actually decline, which is consistent with the idea that the economy is moderating. The demand here is moderating.
Dante DeAntonio: Right. If you look at job openings from JOLTS and you look at sort of total hours being worked, both of those are signals that demand is certainly softening here.
Mark Zandi: Yep. Very good. Okay, Cris, you're up.
Cris deRitis: All right. So you've mentioned all of the labor market statistics that I had selected. So I'm going to go off script here.
Mark Zandi: Off script.
Cris deRitis: And this is a tough one.
Mark Zandi: Okay.
Cris deRitis: But I think it's relevant. It's Q1 number, the number is 183.
Mark Zandi: 183,000?
Cris deRitis: Nope, 183.
Mark Zandi: 183. There's some units though?
Cris deRitis: Yes.
Mark Zandi: Okay, so we have to guess the units.
Cris deRitis: Yes. If I tell you the units...
Marisa DiNatale: Is it job market related?
Cris deRitis: No, it's business credit related.
Mark Zandi: Oh, business credit related.
Marisa DiNatale: 183 banks?
Mark Zandi: 183 billion?
Cris deRitis: What's that? 183 what?'.
Mark Zandi: Billion?
Cris deRitis: No.
Marisa DiNatale: Banks?
Cris deRitis: Nope, not banks. Some other entity.
Mark Zandi: Credit [inaudible 00:38:09].
Cris deRitis: 183 businesses.
Mark Zandi: 183-
Marisa DiNatale: [inaudible 00:38:15].
Mark Zandi: 183 businesses, oh goodness.
Cris deRitis: Something happened to them in the first quarter.
Mark Zandi: Oh, okay. Do you have any idea Dante, Marisa? 183, something happened-
Cris deRitis: Corporations, more specific. 183 corporations.
Mark Zandi: Oh, announced layoffs?
Cris deRitis: No.
Marisa DiNatale: Bankruptcies?
Cris deRitis: Yes.
Mark Zandi: Oh.
Cris deRitis: 183 corporate bankruptcies in the first quarter. That's the highest in 12 years.
Mark Zandi: Really?
Cris deRitis: Yeah. So obviously, SSVB, Silver Gate, banks that were in there. But there were other corporations, consumer discretionary companies especially that filed for bankruptcy in the first quarter.
Mark Zandi: Oh wow. That's interesting.
Cris deRitis: That's [inaudible 00:39:02] weakening.
Mark Zandi: Yeah. So 183 corporations filed for some form of bankruptcy in Q1.
Cris deRitis: That's right.
Mark Zandi: And that's the largest number of bankruptcies, quarterly bankruptcies since when?
Cris deRitis: Back to 2010.
Mark Zandi: 2010 coming out of the financial crisis.
Cris deRitis: Yeah, that's right.
Mark Zandi: Do you have any granularity on that? What industries?
Cris deRitis: I'm so glad you asked.
Mark Zandi: Just curious. Are they maybe tech? Would it be tech and banking I guess?
Cris deRitis: So 23 were consumer discretionary. 14 were financials. 14 were healthcare. 13 industrials. And then... energy, [inaudible 00:39:46].
Mark Zandi: No tech? Or tech is one of those categories? No tech?
Cris deRitis: Tech, unless it's a... no, nothing... well, there's communication services, I think they'd be in there.
Mark Zandi: Okay, yeah.
Cris deRitis: Only four and they weren't very large.
Mark Zandi: That's interesting. Could I go back to business formation? Because business formation in the pandemic has been extraordinarily strong. And of course, a lot of businesses that formed fail. So could it be that? Is what's going on? As opposed to any kind of... it just feels weird that you'd see... well, maybe not. By Q1, I guess you would start to see some stress here. Interesting. What about personal bankruptcy? That also is released, isn't it? With that data?
Cris deRitis: Oh, I didn't see that.
Mark Zandi: You didn't see that?
Cris deRitis: I think that has been trending up as well though. I think it's still very low, but yeah, I think the trend is up. Part of this could be just a bounce back, right? Because the bankruptcies were very low during the pandemic, so maybe this is just catching up.
Mark Zandi: Catching up.
Cris deRitis: [inaudible 00:40:54].
Mark Zandi: But worth watching for sure. Yeah, interesting.
Cris deRitis: Early sign of some stress here.
Mark Zandi: Yeah. Okay, very good. Let's go to listener questions. And I know Marisa, you've been kind of following those. Are there any ones you want to post to the group?
Marisa DiNatale: There's only a few, so I have to... again, send a reminder to people if you have a question, you can tweet them to Mark on Twitter or Cris on Twitter.
Mark Zandi: @markzandi.
Marisa DiNatale: And Cris, your Twitter handle is...
Mark Zandi: He's on LinkedIn.
Cris deRitis: I'm more on LinkedIn. [inaudible 00:41:30] on Twitter.
Marisa DiNatale: Okay. Yeah, and I'm on LinkedIn and Cris is on LinkedIn. And you can also send an email to helpeconomy.com. That's where most of these questions come in because we're running out of questions. I'm going to have to start making them up. So let's see. This is a kind of an interesting one. This was back during Jerome Powell's press conference testimony in front of Congress as he does every time the Fed meets and the senators get together and question him. And I guess I did see part of this listener to the podcast was watching this back and forth between him and Senator Elizabeth Warren. And she was sort of...
Mark Zandi: Oh, I saw that. Yeah.
Marisa DiNatale: Going after him saying, you're going to cause a recession, you're going to cause harm to the economy, all these people are going to be put out of a job. What other tools does the Fed have to, if any, to fight inflation? How do they tow this line between trying to fight inflation and keeping the economy at full employment? Is there anything else they can do other than raise short-term interest rates? What would be the alternative if she's saying raising rates this high, this fast is detrimental to the economy, what else could the Fed do?
Mark Zandi: Yeah, before I answer that question, maybe others would like to crack at it as well. I watched that exchange and I was thinking to myself, how would I respond... if I were Jay Powell sitting there listening to Senator Warren, I respect both of them a lot, how would I respond to that question? Because she was going after him saying, look, you're going to push the economy into a recession here with your policies, that's going to hurt a lot of people. And why do that? You shouldn't do that. And I would argue... and Jay Powell said something, well, inflation is bad too. Everyone hates inflation. We got to get that back in, that caused a lot of damage as well. That was his response. My response would've been that he could have said that, that's true.
But the other thing I would've said is, look, I'm trying to keep unemployment as low for as long as possible, and if we don't get inflation in, we may have low unemployment in the immediate future, but we are ultimately going to have much higher unemployment for a longer period of time. So if your goal here is to keep unemployment as low as for long as possible, the best policy is one to get that inflation rate back in as fast as possible, that's kind of how I would answer that question. In terms of the tools, that's part of the problem and why it's so difficult, they don't have many tools. They have a couple. The one is monetary policy, that's interest rates and that is traditional kind of short-term interest rates, federal funds rate targeting, that kind of thing. Then there's the non-traditional QE, QT to try to get long-term interest rates down, but that's a very blunt instrument to address inflation and obviously [inaudible 00:44:55].
The second broad set of instruments is around regulation of the banking system. If you wanted to bring down growth and demand and quell inflation, you can use your regulatory oversight to make banks more cautious, extending credit. And of course that second tool, they didn't need to use it all because we had the banking crisis in part because they raised interest rates so aggressively. So it's a very difficult thing for them to do and why threading this needle, kind of the frame I've been using here through this podcast, is so difficult to do. It is literally threading the needle, really hard to do because you just don't have the explicit tools to get it done.
I guess a third tool, and I'll just throw it into the mix just to try to be complete, but I don't think it has much impact, is through [inaudible 00:45:54], what he's doing and all the folks on the Fed are doing is they're talking tough about inflation. They said we're going to do whatever it takes to get inflation back in to target. And by so doing, if you can convince people that in fact is what you're going to do, inflation expectations will remain lower and it's easier to get inflation back in so that's kind of a third tool they can use and have been using here to try to get inflation in. But again, that's pretty difficult to execute on. It's a pretty blunt tool. Cris, anything you want to add there to what I just said?
Cris deRitis: I think that's right. The Fed's tools are blunt and I would've said communication and certainly the Fed funds rate are their primary vehicles. I obviously wouldn't be this defensive in a congressional hearing, but I would turn it back on Congress and say, look, the Fed is the firefighter here, they do what they can with these very blunt tools to deal with the situation, but they're going to cause damage with these very blunt tools. It's not as surgical as you would like, it's really up to Congress to set the stage in terms of addressing a number of other factors that could help to bring inflation down. So good to criticize the Fed, we absolutely should, but the Congress is not helping by allowing a debt ceiling issue to linger, being wishy-washy in terms of energy policies right there, lots of other things that could be done here outside the Fed's purview.
Mark Zandi: Yeah, that's good response. Dante, anything you would add?
Dante DeAntonio: I don't think I would add, but on a related note, in terms of what the Fed might do moving forward, I don't know if you saw market expectations swung pretty dramatically on the news of the employment report this morning.
Mark Zandi: Oh no, I didn't see that.
Dante DeAntonio: As of yesterday, was basically 50-50 about whether there'd be another rate hike in May, and now it's swung basically 70-30 in favor of a rate hike in May. So I'm curious if that sort of fits with what... apparently they think this gives the Fed cover to go ahead and hike again. I'm not sure that I would've read it the same way. This feels like what the Fed wanted to see but curious what your reaction is to that.
Mark Zandi: Well, it's been trading, it's Good Friday, equity markets closed, the bond market's trading through midday, so I'm not sure I'd read too much into it. Let's wait, see what it looks like come next week. And I suspect it's going to bounce around 50-50 here because it is 50-50 in our forecast, our baseline forecast, no recession forecast. We have one more rate hike in May, so it's in there and they are talking tough and they've made it pretty clear that... it sounds like they've been kind of laying the foundation for another rate hike, assuming nothing else goes off the rails. So not too surprised, but let's wait and see. I'm sure the market isn't that liquid. That was a great question. Marisa, should we do one more?
Marisa DiNatale: Sure, this is more of a softer question, but it's related to the one I just asked, which is the job market is so great, we come on here and talk about that all the time. How strong the job market is, how low unemployment is. Wage growth has been faster than it's been in a long time, despite the recent slowing. So why do people feel so crappy about their personal financial situation, about prospects for their finances? By many different surveys you can look at, we look at consumer confidence surveys. This listener was pointing to a Wall Street Journal survey that asked people about their personal financial situation. Most people said they feel worse off today than they would've expected to be at this stage in their life. So if the job market's so great, which is the vast majority of people's financial situation, why do people feel so bad?
Mark Zandi: I got a lot of answers for that one, but maybe I'll let you guys take a crack or swing at that first. Who would like to do that? Cris or Dante?
Cris deRitis: I'll start with the data. I always question the data.
Mark Zandi: Yep, exactly.
Cris deRitis: The surveys, I don't know how reliable they are anymore. So I always take them with a grain of salt. Who's answering these survey questions? How are the questions being asked? You always have to take that into consideration. And there is a disconnect between observed or revealed behavior and survey behavior. Good question asked why that's the case, I think a lot of it has to do with just people either not being truthful or fully truthful when they answer the survey or the survey being a flawed instrument in terms of representation, so I think that's part of it. On top of that, I would say there likely is a lot of scarring still out there. People have been through a couple cycles here of really negative economic situations. So I believe that they're more guarded. Even if labor market is great today, well, what's going to happen tomorrow? What's going to happen the next day? I think that that might color their opinions as well of what the future looks like for them and for their children.
Mark Zandi: Dante?
Dante DeAntonio: Yeah, man, I think it's an artifact of a lot of these sentiment style surveys where people tend to respond more negatively about their own situation even if they have a more positive view about the overall economy or the overall labor market, they tend to think their own situation is worse than the average person out there in the labor market. So I think that's one thing that could be contributing to it. The other sort of real factors that certainly, inflation and its erosion on purchasing power has had a real impact for some people. Wage growth has been strong, but there's still a large segment of the workforce who likely has less purchasing power today than they did a few years ago. So I think some of that is a real deterioration in how people are feeling about their finances and their spending power.
Mark Zandi: The obvious answer is inflation.
Marisa DiNatale: Yeah.
Mark Zandi: People hate inflation. And I think maybe exacerbating how much they hate it is many people have never experienced it. They go, what is this? So the last time we've had inflation that was a problem was back in the '70s and '80s, and many people weren't even alive at that point in time, and others barely remember it. And I think people view... I'm stretching a little bit, but I think people view inflation as being unfair. It's like, why am I spending... by our calculation in the month of February, the average American household is spending $372 more a month to buy the same goods and services that they were purchasing a year ago because of the inflation. And they go, whoa, why? I'm getting ripped off here, someone's taking advantage of me.
And then the surveys, I would push back a little bit because surveys are saying different things. The University of Michigan survey, a popular monthly survey, people are feeling crummy. But if you look at the conference board survey, another monthly survey, sentiment is about where it's been on average over the history of the index. They're not feeling great, but I wouldn't characterize it as feeling crummy, it's just feeling like average. And that just goes to Cris's and Dante's point about the survey. The Michigan survey is focused on people's personal finances, inflation and also stock market and also perhaps housing values are down. Whereas the conference board survey is more focused on the job market, which, as we've been talking, is good. Unemployment's 3.5%, people are doing pretty well.
So I don't know that I'd say by all different sentiment measures, it's not fair to say that people are feeling... again, no one's feeling great, but they're not feeling crummy. And then there's I think all kinds of atmospherics that play a role, the political environment that can be... because you look at the survey responses, republicans are really, really depressed compared to... again, no one's feeling great, but the Republicans are feeling really depressed and that's got to be the political environment that we're in. So I think it's just a whole slurry of things that have come together to create this kind of noxious brew in people's minds.
Cris deRitis: They're feeling depressed but they're still spending.
Mark Zandi: Yeah, they're still spending.
Cris deRitis: The revealed behavior is different.
Mark Zandi: Yeah. Okay. Well let's move on. There's one more thing I want to do, and that's the probability pf recession going forward. And let me ask you this. I've not talked this over with you guys, but maybe I can look for two numbers. Probability number one is the probability that a recession will start in 2023, so the next nine months of 2023. And then the next one is the probability of recession starting in 2024. How does that sound? Just to provide a little more granularity here in terms of people's thinking. Does that sound reasonable? Okay. And correct me if I'm wrong, but it feels like even if you weren't more pessimistic about the economy in '24 than '23, your probabilities in '24 should be a little bit higher than in 2023, just because things-
Marisa DiNatale: If it doesn't happen in '23-
Mark Zandi: Conditional it doesn't happen in '23, it's got to be a little bit higher than you would think unless there's some reason why you would think otherwise but typically you would think it would be higher. Do I have that right, Cris?
Cris deRitis: So these are probabilities within those periods, they're not cumulative, for the second one. You're saying probability of a recession in '24?
Mark Zandi: Yeah.
Cris deRitis: Independent of ;23?
Mark Zandi: Well, I'd say conditional on '23, no recession in '23.
Cris deRitis: Yeah, I'm sorry. Assuming no recession, but not the cumulative probability-
Mark Zandi: Not the cumulative probability-
Cris deRitis: ... of a recession within a year and a half.
Mark Zandi: Yeah, just to give more... I think that gives people more context as to how we're thinking about things. And recession is, as defined by the National Bureau of Economic Research, broad-based persistent decline in economic activities, not two quarters of negative GDP, which we got back in the first half of last year, but the NBER, National Bureau of Economic Research defined recession. Okay. Let's go with you Marisa first, what is your probability of 2023 and probability of recession starting in '24?
Marisa DiNatale: I would say I'm at 50% for the remainder of this year, and then if we go into '24, I'm at 55, somewhere between 55 and 60.
Mark Zandi: Okay, that's up from where you were for '23, you were kind of at 45, I believe, something like that.
Marisa DiNatale: Yeah, I was a little south of 50 before the banking crisis, right.
Mark Zandi: Okay. All right. So you're thinking this is going to take a little longer to play out, so if we're going to have a recession, it's just not going to happen here in the next few months. It's going to play out further into the horizon in '24.
Marisa DiNatale: Yeah, I'm a little more worried that... next week will be interesting when we see CPI, I'm getting a little bit more worried that sort of core services inflation is going to take longer to budge. It made good progress and then it kind of stalled over the last three months. If you look at the three-month average, the longer that takes to get under control and the Fed has to play this, thread the needle game between the job market and financial conditions and inflation, that's just a higher probability that something goes wrong down the line.
Mark Zandi: Here's the thing about the inflation outlook, monetary policy and recession risks that I don't quite get. Suppose inflation and those focus on CPI inflation, consumer price inflation, it's 6% on the nose year over year through the month of February. It feels, and you can correct me if you disagree or take a different perspective, but it feels like we're going to come down pretty fast here, given so-called base effects, comparisons this time last year when inflation was at its peak, given the slowing and the cost of housing services, because we know rent growth has gone flat to down and that's going to translate through with a lag. It feels like good prices are going to start to come in, new vehicle prices. So it feels like we're going to go from six to three-ish here pretty quickly, and by the end of the year, we're going to be a three.
The target, the fed's target for CPI inflation, and here I'm making this up, but I think it's right, is about two and a half percent, core consumer expenditure deflator, different measure of inflation, that's two. But because of measurement difference, CPI is probably two and a half. Do you really think the Fed is going to be on the war path over 50 basis points, getting from three to two and a half? I just don't see it. So I feel like it can state with confidence, we're going from six to three and once we're at three, they're going to be much more relaxed and leisurely about getting it back down. They want to get it back down. They're going to keep monetary policy tight. I don't see the funds rate coming back down quickly, but I just don't know why they would need to or feel compelled to continue to press on the breaks raise rates even more, which is I think what you would need to get a recession in 2024 to get that inflation, the last mile back to two and a half percent. Does that resonate with you, what I just laid down?
Marisa DiNatale: So are you arguing that they should stop right now?
Mark Zandi: Well, if I were king, I'd stop right now, but if it's a quarter point, no big deal because as Dante has pointed out, that's already embedded. It's okay. Another quarter point, you're bringing the federal funds rate target to just over 5% and then I think they're going to pause. And then I'm saying, given the inflation outlook, given the economic outlook, I don't see the compelling reason why they need to start raising rates again later in the year going into next. And then if they don't raise rates, they have to raise rates again going into next year, there is no... it's much more difficult to construct a recession scenario in 2024. Sure, things can go wrong and that's why the probability should rise in 24 relative to 23, because who knows what's going to happen with stuff, just random events. But in terms of things that we can see and account for, monetary policy is a thing that would seem to me would have to push us in. The Fed would have to be more aggressive and start raising rates again for us to go back into recession in 2024. What do you think? No?
Marisa DiNatale: So no argument that we're clearly on a downward trajectory with headline inflation because of those things you just mentioned, but we could get another energy price spike. OPEC is cutting output here. The Fed has said they're very keyed in on wage growth, if that kind of core, super core stuff doesn't budge, even if you get all the other... rent, food, even energy falling, do you think they're going to just ignore that and let that be?
Mark Zandi: Yeah, let it be in the sense that they believe that it is going to continue to moderate, but it doesn't have to get back to two and a half percent like now. Why do I need to push the economy into recession to go from three to two and a half?
Marisa DiNatale: I guess I'm saying what if it doesn't really moderate? [inaudible 01:02:36] doesn't moderate?
Mark Zandi: My working assumption is the labor market's weakening, the economy's slowing, unemployment's notching higher. That's kind of the forecast. So you get to the end of the year and you're looking around, you're saying, "Why do I need to push this economy even more?" It's already on the edge of recession, it's already weak. Why do I need to push this economy even harder to get that last mile, to get that 50 basis points in a few months? If I'm going to get this over the next 12, 24 months, I'm okay with that. Of course, that's just me, the Fed maybe... who knows what they're thinking and how they're approaching it, but I would think that they would be much more relaxed about getting that last 50 basis points. But anyway, Dante, what's your probabilities?
Dante DeAntonio: So I think the last time you framed this as 12 months, I was at 50%. I think now, if I'm thinking just in 2023, that's probably 40%. I think it's a bit lower than that and I don't think I would go higher than 50% still in 2024 for a lot of the reasons you just mentioned. I don't see the Fed pushing too much higher at this point, given everything that's happening, given the improvement in the labor market, given what is likely to be improvement in inflation here in the second half of the year. So I think I'd stick at 50% for 2024.
Mark Zandi: So 40% in the remainder of '23 and 50% for 2024. Okay. You just heard my kind of mini rant. Did that resonate with you?
Dante DeAntonio: Yeah. The thing that I ask myself is we know the labor market's slowing. Even if the Fed pauses, it's hard to know how much further the labor market will slow. If labor market keeps slowing, even if there's a pause, we could still end up in a recession in early 2024. Even if the Fed does what we think they should do and sort of take the foot off here pretty soon. It's hard to know how much damage will continue to happen or how much that slowing will continue, even if rate hikes stop, and we just are living in a high rate environment here for the rest of 2023. So we've gotten the thing moving in the slowdown direction, but we don't know how far it's going to go, even if they stop hiking rates.
Mark Zandi: Yeah, that's fair. Although again, I'd say with a reasonably high degree of competence that one, inflation's coming in, I think we're going six to three. There're things that could derail that but I feel pretty strongly about that. And it also feels like the labor market's going to slow, I feel pretty confident about that in the context of the higher rates and the banking crisis. We're going to go from 300K per month on average. I think we're kind of north of that right now, 300K per month on average, abstracting from the vagaries of the monthly data down to something that's a 100K or less. I feel pretty confident about we're going in that direction.
And on oil prices there I'm less confident, but I'm making an assumption that I think they're going up, but I don't think they're going to go back up to a hundred bucks because there's a lot of excess capacity, spare capacity now out there in the global oil markets given all the production cuts by OPEC and the force cuts on Russia because the sanctions, but that is an assumption. Given that, in my mind reasonable confidence around those dynamics, I say to myself, Why would the Fed raise rates feel compelled to raise rates more?" And if they don't... recession odds in '24 are very high, but doesn't feel like it's extraordinarily high. Okay, so you're on board with that. Okay, Cris, go ahead.
Cris deRitis: You're sitting down?
Mark Zandi: Yeah. By the way, do you want me to give you my odds first so that you can react to that?
Cris deRitis: No, I'd like to give you mine first so you can adjust yours.
Mark Zandi: Okay. Fire away.
Cris deRitis: I think I'm pretty compelling.
Marisa DiNatale: You can correct yours.
Mark Zandi: Yeah, give [inaudible 01:06:55].
Cris deRitis: I'd say 45% for 2023.
Mark Zandi: Oh, okay. Interesting.
Cris deRitis: Do agree in terms of the timing there, but 67% for 2024.
Mark Zandi: And 67 is strategic? Right?
Cris deRitis: Yeah.
Mark Zandi: Kind of strategic.
Cris deRitis: Kind of strategic.
Mark Zandi: Because...
Cris deRitis: I debated it could be 70, but the seven... that calls a lot of attention.
Mark Zandi: No, 67 is strategic because you would put...
Cris deRitis: The baseline forecast would have to change if that's the case.
Mark Zandi: That's right because our rule of thumb is for a big change in the forecast and adopting a recession of any flavor would be a big change, and we need to be very confident and very confident is a subjective probability of more than two thirds. If you go to 67, you're effectively saying you would put a recession at some point in 2024 in the baseline forecast, our baseline forecast.
Cris deRitis: Although we already have a little bit of a recession.
Mark Zandi: What does that mean?
Cris deRitis: 50 basis point increase in the unemployment rate over the course of the years.
Mark Zandi: Yeah, but we have 1% GDP growth, we [inaudible 01:08:08] unemployment.
Cris deRitis: Fair enough.
Mark Zandi: Okay, fair enough. This is an important point, is a really important point. You're saying this is kind of an artificial line between an economy's that's on the edge of recession and an economy that experiences a modest recession, which is what you would anticipate. So it's a kind of a faux point of demarcation. It's a bit of a parlor game is what you're saying?
Cris deRitis: Yes, choosing 67% that's fair is making a statement, but it's not as strong a statement as if I went to 75 or 80, then it's clearly suggesting deeper recession, no ambiguity.
Mark Zandi: No ambiguity in your mind, but Marisa's at 55, and correct me if I'm wrong, Marisa, you would not put a recession in the baseline forecast for '24?
Marisa DiNatale: No, I wouldn't. I like what the baseline looks like now.
Mark Zandi: Yep, okay. All right.
Marisa DiNatale: Skirting recession.
Mark Zandi: Well, you heard my mini rant, so how would you respond to that?
Cris deRitis: I would say all well and good. I don't know about the 3% by end of year in terms of inflation. Maybe it's three and a half. I won't quibble with that, but I don't think the Fed is going to hike aggressive. I do agree with your assessment there. I think you might be putting a little too much or too little weight on the credit crunch from the banking crisis. I'm really concerned that this... we haven't seen the real effects of credit drying up for a lot of businesses and that inevitably will cause some pullback, inactivity. I think that does take a while. I don't think it's immediate.
I think it's when loans come up for refinancing and the banks are also adjusting right now. They may be flush with capital again. They've got their liquidity positions back in order, but still they're going to be facing a lot of earnings pressure going forward. So I expect that's going to weigh heavily. I also am expecting another shooter drop in terms of delinquencies and losses. We had only started to see auto delinquencies, credit card delinquencies starting to tick up. I think we're going to continue to see those types of trends in the future and that's also going to lead to some pullback in credit and spending and investment so that's the rationale. I don't think we need the Fed-
Mark Zandi: No, I see.
Cris deRitis: [inaudible 01:10:30] to cause the recession, as long the Fed doesn't actually cut, I think they're already putting a lot of pressure given the long and variable lags of monetary policy. We're going to be feeling these effects over the rest of this year and into '24.
Mark Zandi: So even the Fed... say they raise the rates a quarter point in May, the funds rate goes to lower five. That's a terminal rate, doesn't go any higher than that. Even with that, given what's already in train, recession-
Cris deRitis: That's a lot.
Mark Zandi: Yeah, there's a lot. Yeah, okay. Okay, I'm at 40% with Dante on 2023 and I'm at 50% for 2024, so very consistent, with the same kind of logic as Dante had. It's hard to see... well, hard is not the right word, less likely we see a recession in '23, just given this is March, we're still creating 203-6000 jobs. Unemployment's still three and a half. It could happen, something would have to go off the rails. We'd have to get a hundred dollars plus oil for a couple three months, which again, is not inconceivable given things, but not what I would consider likely. But '24, the odds do rise just simply in part because that's a long period of time. And to say nothing else is going to go wrong, consequences over the next year and nine months, that's saying a lot. Things can't happen.
I will say though, I do think some underlying weights on the economy will lift as we move into 2024. So for example, real disposable incomes of people are now turning positive again because inflation's coming in, wage growth isn't coming as fast. So people's purchasing power is no longer eroding. It was a year ago when inflation was taken off and wages were lagging far behind. So consumers should get some [inaudible 01:12:34] solos from that, particularly lower income households, seeing some benefit from that. The other is housing so housing under tremendous pressure, given the run-up in mortgage rates back six, nine months ago, year ago. And that undermined affordability and demand collapsed immediately. Home building fell sharply and it feels like we're pretty close to the bottom, I think in terms of... if we're not already at home sales, pretty close to bottom in terms of construction.
House price is more to go but in terms of its economic consequence, I think housing goes from being this major headwind to growth over the last 12 months, year, to kind of going more neutral with respect to the economy. So it does feel like there are some things out there that may actually help to support the economy as we make our way into '24. So it's not all negative. But anyway, that was a good discussion. So we'll definitely come back to these probabilities down the road here and use this new frame of '23 and 2024. With that, anything else guys you want to bring up before we call it quits? I did another body scan and...
Marisa DiNatale: We made it. We all made it.
Mark Zandi: We all made it.
Marisa DiNatale: No one collapsed.
Dante DeAntonio: [inaudible 01:13:52].
Mark Zandi: No one collapsed. I hope everyone has a nice holiday weekend. I know it's Passover and Easter, which is I think rare for them to line up like that. So it's a very important holiday weekend for lots of people. So with that, are you guys taking off the afternoon? No, not you guys. You're always working.
Marisa DiNatale: We actually have the afternoon off.
Mark Zandi: Do we really?
Marisa DiNatale: Although it seems some people forgot because we have meetings on our calendar.
Mark Zandi: Yeah, I got plenty of meetings. But with that, we're going to call this a podcast. Take care everyone.