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Neil Data joins us. And now, Neil, what does this signal for Chairman.
Paul get Going.
That's what it says, go fifty with a promise to do as much as necessary to stabilize labor market conditions.
So again, Neil, I mean, and you think about these numbers and the revisions. As Tom was just summarizing here, the labor market, I guess it kind of falls into what we were just saying many minutes ago, not nearly as strong as people think it is.
No, I mean, the three month trend on non farm private perils is running below one hundred thousand. I mean, that's not a good number, you know, that's barely break even. And I think it's arguably actually worse than that because one of the reasons why the number even looked as good as it did is because we saw an uptake
in construction employment among I think civil engineer contractors. And so that's not going to last because everything we know about construction right now is that units under constructure are under construction collapsing. So why are we hiring all these people to build one exactly? That's that implies a margin squeeze for builders, which I don't think they can tolerate right now. So I think it's the goods producing side.
I mean Tom mentioned manufacturing. I think that's notable because a lot of people were thinking maybe you'd see some uptake and manufacturing because of the unwind of the retooling. It just didn't happen. Right on the good side of the economy's week, cyclically sensitive industries are sluggish, and you know this is all about the FED trying to create a handoff from income le growth to credit led growth.
That's what this is about. So they need to keep cutting until the credit sensitive areas of the economy.
Term joining us worldwide, Neil Dotta, we are commercial free to the nine o'clock hour. Claudia sam Mark Zandi will join in a moment. Ben Ladler will join us on the equity market reaction in the view forward here later
in these twenty minutes. Futures at negative seventeen, the vixers A twenty two level comes in nicely twenty point seven six major bond market adjustments, making eight basis points two year yield three point sixty six thirty year bond well under four percent three point nine eight percent ten year yield three point sixty seven percent, Neil, I want you to frame out for us what inflation will do given a depressed GDP in the job market, moving the second
derivative here is moving to a worser space. What does inflation then do further disinflation?
I mean absolutely, I think so. I mean, if you look at core goods, non housing services, and housing rents, I mean, those are those are the three ways to slice the inflation data. The entire shortfall relative to the FEDS target is in housing rents, which we know will continue to normalize give the lagged you know, sort of nature of that indicator relative to market based rents. Everything
else is basically normalized. So you know, again, I mean, what's the upside risk for inflation if growth is running below potential and the momentum under the unemployment rate is higher. I mean that's kind of it's kind of I mean, unit labor costs are running basically flat for the last year, so there's no more of an inflationary impulse coming out of the job market. That story is completely over, and the FED continues to run a very very restrictive policy stance.
Paul get one more in here, and Neil just and you know, the unemployment rate, just for those that are going to be watching the headlines, stay steady at four point two percent here, right in line with expectations. What does the FED think about an unemployment rate of four point two percent?
Do you think?
I don't think they should think about an unemployment rate of four point two percent. I think they should think about what's gone on over the last six months here, which is what's gone out.
It's absolutely Neil dudd.
I know you got a publish, will feature that out on Twitter. Neil Douta with Ren Mack will publish and we thank him for careful market economic analysis. We now bringing Claudia Sam chief economists New Century Advisors, and doctor Mark Zandi, chief economists at Moody's. We had them on here, oh thirty or sixty days ago, can't remember. It was just lights out, great, great analysis, Claudia. I want to get this out of the way so we can move on to the real Claudia Sam, I'm sick of the
Palm recession. Pinata, Can you just give us an update without tire and feathering your reputation? Are we close to a recession?
Doctor Sam so the increase unemployment rate is in a range where we have historically been in recessions, right, But that's a history, that's a past. We're not in a recession right now, but we do have a weakening labor market, right, So that's the important takeaway. But like, not a recession right now, but a risk, always risk.
And what I remember from two thousand and eight is a Zandy rule. There's a Psalm rule, but there's also the Zandy rule, which is to be optimistic about America, Mark Sandy. If we get the decor cards I hear from Neil and others in you frankly at Moodies as well. Can corporations adjust and sustain off of a lower nominal GDP decent revenue and decent earnings or do you just suggest everything goes down?
Tom, I think they're doing just fine. I mean, looking at corporate earnings, I feel pretty good. I mean, through Q two of twenty twenty four, double digit ear ear growth, and you know, expectations of analysts always are on the high side, but they're still pretty good as well. So I think the economy's doing fine and producing enough enough revenue growth to keep profitability going strong.
So yeah, I'm not worried about that.
And you know, just broadly, you know, I'm all on board with the view that the BET you be cutting rates and normalizing them very quickly. But today's report I thought pretty much down the strike zone. I mean, you know, the kind of right underlying job growth is one hundred hundred and fifty k that's kind of where you want it. Four point two percent unemployment, that's kind of where you want it. You saw a tick up an hour's work per week. That's, you know, feels pretty good. Wage growth
is almost exactly where you want it. I mean, yeah, you can just put airs. But come on, what are we going to say this is this is a good report, This was a This felt like a really good report to me.
Is it to the point there mark where the FED can stay at twenty five basis points or is this something that some are suggesting may push them to a fifty basis point cut in September?
Yeah, I think it's twenty five. I mean, I would expect the FED to cut fifty only in emergency, if you know, markets are really evaporating or there really was some serious deterioration in the economy job market.
But I don't see any of that, So I think it's a cooler point.
And there's you know, I think there's good arguments to cut and cut in a consistent way, but I don't think we need to dramatically cut all at once, because there's a lot of uncertainty as to reasonable and certainty as to you know, where the FED should be going here. What is the so called equilibrium federal funds rate? What's the rate where policy is either supporting or restraining growth? That is very uncertain and I think given that, I'd go cautiously unless push to do otherwise.
And in this report, I don't see any reason to feel like they have to move very quickly.
Here, Claudia. Over the weekend, you'll be at some fancy cocktail party and somebodys can come up to you and say, hey, Claudia, how's the US labor market. What's your response?
It's not headed in the right direction. This is the thing I am most concerned about. Again, just you know, the numbers, like the numbers themselves. Okay, fine, it's just things have been slowing and we can and not because I am you know, hair on fire. That are recessions around the corner I'm really concerned that we're losing a slipping away of a really good labor market and we need this as good as it gets and there should be nothing weaker than what it takes to get inflation down.
And we are like the t is still moving and is not in the right direction.
I mean to both of you, and then folks, we've got huge academic caliber here. Mark, I'm gonna go to you first, and then Claudia the same question the ECB is trying to teach us about being non measured? Are we slaves Mark Sandy to a green spanny and measured approach? Careful, careful, careful? Why can't we go X beeps or why beeps or Z beeps and see what happens? Why can't we do that? Mark Sandy?
Well, I don't know Tom that you need to.
I mean, if the you know, the labor market was falling apart, yeah, absolutely, If you financial system was in turmoil, yeah, i'd move quit more quickly. But you know the economy is it's throttling back. But that's exactly what you'd want to see, to throttle back for, to throttle back here. It's been growing too strongly and it's kind of coming right into where you want it and no reason to
to move quickly otherwise. And again I keep going back to I don't think anyone knows reasonably, so where we're headed here. You know, it feels like it feels like the equilibrium rate is higher than it has been typically and it's moving, so you know, why not go cautiously And you know, if things start to really deteriorate, if you know, we do, you start to see really significant job loss or even very weak job growth.
Hey, one other quick point I wanted to make you know. The August data is always weak.
You know, we get very low response rates, initial response rates in the month of August, I think for obvious reasons, people are on vacation, and we always get an initial print that's on the sauce side. And almost invariably, if you cast me back a year from now, we're going to be talking about upward efficients to the data. So you know, you just have to take that into consideration.
Claudia, I got a s free month moving average of one hundred and sixteen thousand, three hundred and thirty three one one six three three three. I'm sorry, but that's way below anything I've seen as a normal rate of unemployment if you take this three month moving average. Jason furmanal help out on this at Harvard. I'm sorry, Claudia is measured in place? Or is this a FED that's got to go and hoc forward.
Well, I think again, it's like looking at how the variables are changing. The unemployment rate has been rising. Yes, it is still relatively low historically. We also have an older workforce. Four point three percent is not that far from and experienced and esteemed right, And so there's no magic number with the unemployment rate. It's watching the dynamics. It's watching the change and knowing that once that changes in place. The FED has been trying for two years
to cool off the labor market. That's why the funds rate is at five percent and other types of demand. Right, So, yes, things are cooling off, and now it's like, okay, now we need to we need to turn that around. Take we don't need that slow wing. I think that changes everything.
Wander will Zamon Sandy with us right now? They move the market higher. Futures negative thirty now negative twelve, deterioration and the Sweeney yield two year yield from negative seven basis points down to negative nine those levels three sixty five, two year, three sixty eight, ten year, thirty year bond hun or four percent. Paul you home shopping this weekend.
I might be absolutely red headline crossing the Bloomberg terminal. Traders pricing fifty percent chance of half point fed cut this month, crossing the Bloomberg terminal Mark Sandy. Given the labor outlook here in some of the data we got today, as it relates to total payrolls and wages, what's your view of the US consumer here? How healthy or how at risk is the US consumer?
I think and aggregate, you know, looking across all Americans, they're continue to do their part.
They're hanging tough.
I mean, the train is being driven by folks in the top part of the income distribution. And you know, I don't know, I don't think it's hyperperctly, but their financial situation is probably as good as it's ever been.
And you know, got a.
Job, strong, real wage gains, They own stocks, stocks or near record high zone home home vows or near record highs. If they've got any debt at all, it's a thirty or fifteen year or fixed rate mortgage locked in. And it seems like everyone I talked to us mortgage is a two and a half or three percent kind of locked in. So I and they get and in my by my calculation, they still have some excess cash that they build up during the pandemic when they couldn't spend
that they're spending down now. So I think they're fine. I do think the soft spot, obviously is lower income households. They clearly are struggling. You know, they got nailed by the high inflation. They took on a lot of debt to supplement their income to maintain their purchasing power. And it's one thing when rates are low, but when rates are really high. They mean, the credit card rate is twenty two percent, a record high.
That's very painful.
They don't own stocks, they don't own a home, they rent, so, you know, very different kind of perspectives. But you know, at the end of the day, it's the folks in the top middle parts of the distribution that here we are critical here.
I mean, I can't keep up. Did I tried to get John Williams on the show Claudius Mark Sandy, John Williams. That would have been good New York FED President John Williams says, now appropriate to lower FED funds rate. Claudia, when you were studying this at Michigan, this this this ex post lag. Is this unusual the way our FED is acting.
Yes, particularly in the way monetary policy is quote unquote supposed to be done like in the theories, right, but that's a very clean, not realistic state. I understand why the FED. When tools start breaking down and data don't make as much sense, then you kind of you, you know, crawl your way along and you want evidence. I think this FED did lean into a very FED like tendency of being super super cautious, and they have been kind of greedy in terms of how much data they wanted
on inflation. And if I had to hear so many times. We have the luxury of time because the labor market is so strong, it's like, well, guess what, it actually wasn't as strong, and so there's a cost that they took time to get comfortable with inflation. But that probably means they do not have time to get right. Is the lever market really weak and like they may need to recalibrate some and get going I think would be the appropriate But this this is really outside of their playbook.
So I understand why this is a hard case to make.
Doctor Xandy your opiniata for the Gloom Crew. I mean seven eight oh nine, you said, everybody shut up, We're going to fix this Zandy pandemic. Everybody shut up, We're going to fix this. Give us an optimistic touch here on how America will clear these traumas post pandemic. China is slowing down, Claudia Sam's cats are miserable. Mark Zandy, just as directly as you can give us. I need some Xandy optimism now, or I can't get through the weekend early.
I've got that reputation.
I didn't know that I'm that optimistic. Well look, uh, I just look at a number. I mean, top four point two percent unemployment. I mean, okay, maybe be nicer if it were four. I'm I'm on board with that. I mean, it's maybe on the soft side of one point four point two percent unemployment. We're creating a lot of jobs across lots of different industries and have been for you know, quite some time. Inflation that's back in the bottle almost no matter how you measure it, So
you know, we're growing at a potential. And by the way, here's the thing that's really you know, makes me encouraged. The economy's potential is very strong. I mean, we're seeing a lot of labor force growth. That's one of the that's the key reason why unemployment is not tired here over the past year. That goes to immigration, and you know, there's a lot of costs there. But the benefit, obviously
is the strong libor force growth. And look at those productivity growth numbers, and you know, I mean it's hard to argue that whether it's sustainable or not, but it feels like there's a lot of good things happening underneath all the business formation we beginning since the pandemic hit. It's probably reaping benefit. And this is all before AI kind of kicks in. So you add up all the productivity gains, you add in the labor force growth, and
that's a strong growing economy and the FED. The trick for the FED here is, you know, let the economy take the foot off the breaks sufficiently to allow the economy to grow at its higher potential. That's a very different issue or problem. If demand we're evaporating, that's not what's going on here. So you know, objectively, take a step back and take a look around.
This economy is good.
Paul. One quick question to Claudia sim because futures just went green, which is a signal. Go Ben Ladler, so quickly here go to Claudia. And then we got to drag Ben Laidler.
An here Claudia Sam, I mean again, how do you just when you sit back, you've had a few minutes of the digestis how's the FED? How do you think they're going to digest these numbers today?
I think the payroll numbers are going to be the concern. And frankly, the piece of it that I found most is concerning you are the July revision, the earlier revisions. Right, that's the hiring rate has gotten to too low of a place, and we're seeing it in the job and then to see it, you know, July was actually even a little worse than we thought on the job's number, and so that I think that takes some pause.
She said, So I'm supposed to have dinner with Claudia and Jackson hole. You know what they served elk and the health's food was venison. I mean there's no fish or nothing. Claudia Sam we gotta go. Thank you so much, Claudia Sam just nailing these revisions. I want to want to mention Anna Wong as well at Bloomberg and Mark Zandi, thank you so much for being with us. Really appreciate from Moody's his optimism on the American economic experiment.