Revisions, Revisions, Revisions

0:00Welcome to Inside Economics. I'm Mark Zandy, the chief economist of Moody's Analytics, and I join by my two trustee co-host, Merissa Dean-Atali, Chris Dredinies. Hi, guys. Hey, Mark. Hey, Mark. Merissa is always slow to say hello to me. I like Chris. Chris always jumps in with the high mark first. So I was at what we mean until that greeting is out of the way. So you're you are happy to see me. You're just waiting. I am. I am. I am. Where you happen? Okay. Just check it. Just check it. And we got Dante. Dante, Dr. De Antonio. How are you, Dante? To all right. How are you? Good. Good. All three of us were were we? Exactly. Washington DC. Washington DC. That's right. That are a conference. So would you think Dante? I thought I went really well. Yeah. Everyone seemed engaged. The topics were good.

1:02What about my speech? What did you think about my speech? Well, I mean, obviously, always, always the highlight of the day. Always a good way to kick it off. You know, all right. I'll take my check in the mail whenever you're going to send it to me for me. I'm making sure I say the right thing. Exactly. And would you talk about it, the conference, Dante? Mike, person and I talked about a K-shaped consumers, you know, sort of labor market impacts, consumer credit. Oh, that sounds like a good one. I missed it. But it sounds, that sounds like it was good. Missed a good one. Yeah. Yeah. And Chris and Marissa, you guys were tag teaming it on AI. Yeah. In fact, how did that go? Good. I thought good. Chris. I thought so as well. Yeah. Yeah. Yeah. Yeah. Good. It was a good conference. We had fun. We enjoyed it. So you did. I don't know about the audience, but I was at right. They were very bad. A lot of questions. They were pretty engaged. Yes. That's great. Well, we've got another conference coming up right in New York. I think it's the Thursday, October 22nd. And the Washington conference was sold out. I think in Europe, we're still filling the attendees.

2:05And so if you have an interest, just let us know inside economics at Moody's.com. And we'll go from there. But I'm looking forward to that conference. So I was just looking at the agenda. And I did notice that Sarah gave me a few more minutes. I thought that was pretty encouraging. What did you say? You think that good idea? Give me a few more minutes. Just I think someone asked for those minutes. Forced the hand of the agenda maker. Yeah. Exactly. Exactly. Well, anyway, we had a good time in DC and could see a lot of old friends and some former colleagues, right? We had a few former colleagues there. And that'll be the same case in New York. So hopefully we'll see you there. But let's get down to business because there's a lot of business. This was a busy week on the economic data front. But obviously the headliner was today's numbers. This is Friday, October 22nd, jobs Friday. And, well, gee, here we go.

3:05What do you think, Dante? I mean, it all makes more sense or does it just create more confusion? Yeah, I think it all makes a little more sense now. We've had some noise in recent months. And I think this sort of gets us back on a track that we were expecting to be on. The headline number, obviously, a little bit weak. 29,000 jobs added in September. But the three-month average is now right about 50,000, which we've been talking about is roughly what we think underlying job growth is. So it brings things to balance. Hold it. Hold it. We? What are you talking about? Certainly you and I. I don't know about the other two. You and I have certainly been talking about 50. Right. I don't know if these other guys have been saying, but it's not. I'm not going to fall on that sore. Yeah, I'm okay. Okay, there you go. It's slightly more pessimistic about the last couple of months, right? Downer revision is totaling about 60,000 over July and August. Certainly much weaker than last month, right? Even in August with the Downer revision, we added 133,000 jobs, down to 29,000 in September. The breadth of job creation, pretty narrow again.

4:07Like we've seen before the last couple of months, healthcare, the biggest driver added 23,000 jobs of the 29,000 top line. Construction manufacturing still putting up positive numbers a little bit weaker than the last few months, but I think still a good sign that we're getting some growth set of the goods producing side of the economy. Not a whole lot else to write home about. White collar jobs still falling, right? Information, finance, professional business services all down. Again, in the month as they've been most of the time here throughout 2026. I would say a week, September, but if you're looking over the last couple of months, it brings everything into balance and I think makes a lot of sense in terms of where growth is. You're saying underlying job growth. We have to find that abstracting from the monthly vagaries of the data, methodological or measurement or whatever it may be, because the numbers are bouncing up and down and all around a lot of it. It seems like a lot of noise in the data month to month. This month is on the week side, but it's making a case, but overstating the case.

5:10But if you abstract from all that, we're at 50,000 per month job. Yeah, it actually works. Yeah, actually, right. The three month average is about 50. And actually, the 12 month average is also right at about 50K right now. That tells you over the last three months and over the last year we're holding in that same zone. Chris, what do you think? Are you on board with the 50K? I can't remember where you were, but there's a little less than that. I think it's a little less than 50K. I think so, but like 40, 40, 45, right? 49K. The price is right, Rulant. No, I think it's a little bit weaker, but so far. Why do you say that? I'm just curious. Why do you think it's a little bit weaker? Just based on the demographics and the supply side of the equation. Got it. Oh, thinking about the unemployment rate and all that. We'll come back to that. Yeah. I see. I got it. You're working kind of backwards here. You're saying, okay, if I got relatively stable unemployment, and this is what I think supply is, this gives me a sense of underlying job growth. That's right. Yeah, I got it. What about you, Mercer? I can't remember where you were, but are you on board with the 50K?

6:14Yeah, I mean, I've kind of been on board with the 50K, but I kind of agree with Chris. She's making that up. I thought you were on the other side. Yeah. Mercer on the high side. No. Someone's got to keep track of what you're saying. I'm going to start writing these things down. Fortunately, this is recorded. So there is a record. There is. That means somebody, can we ask Kwa to go back and look? Maybe probably. Yeah. Get a pin her down. You're saying 50K. Yeah, I think 50K ish. Sure. I mean, I don't know how she does that. She put the ish in there. So next time she's going to come out and say 60K. 70K. What's 50K ish? My standard error is, you know, 100K. Okay, I hear you. I got you. But we're all time on the same place. Yeah. Yeah. I think so. Hey, Dante, you know, back to the narrowness of the job growth. Am I dreaming this, but if you exclude healthcare, the one sector, healthcare sector,

7:17admittedly a big sector, but you excluded. Parallel job growth of the past year has been basically zero. Is that right? Yeah, and it's actually true for longer than just the last year. I mean, it's over the last couple of years. If you take healthcare out, it's been basically zero. Right. So how does one view that? I guess is it positive or negative or both? I mean, I think it's certainly a positive that healthcare is at least still growing. And I think, you know, just dividing that way masks a little bit of what's going on. We've seen some sort of at least somewhat persistent growth in manufacturing and construction this year. But that's your sort of offsetting weakness that happened earlier in that period. It's offsetting some weakness in other industries. So it's not that no other industries have grown at all. It's just that you throw it all together. There's enough offsetting factors there. So I think there are pockets of brightness maybe in there a little bit outside of healthcare, but nothing that's been consistent over the last two years. Yeah, but pretty much on the margin. I mean, that construction and manufacturing, you're adding 10k maybe, you know, and then you're losing 10k if you have services and

8:22professional services. And you're saying the net of all that zero, but it's not like these guys are adding tens of thousands per month. They're adding thousands per month maybe. That's right. I mean, white color has been a pretty persistent negative drag. So I mean, if you took that, if you also excluded that piece of it, then sort of the balance outside of that is a little bit positive. It's nowhere close to healthcare. Right. Healthcare is far and away the biggest driver over the last couple of years, but I do think there is a little bit of positive story outside of healthcare. Yeah, it feels like AI's got it's finger principle. I think we talked about this last month, but it feels like, you know, so on the construction job gain, it was around 10k. I can't remember exactly what it was. That's data centers, right? Data center related. That's AI. On manufacturing, it feels like that's probably, maybe that's broader based, but it feels AI-ish. So that's the positive side of AI on the job market. And then on the negative side, while we're losing jobs and financial services and professional services, and when I say professional service, that's everything from like a legal and accounting advertising that feel like there's more easily substituted out by AI. That's the negative. And if

9:29you take the, the, all together, or the positives and the negatives, you're basically at zero. So AI's, first of all, do you think AI is playing that kind of role? And second of all, if it is, is it basically playing to a wash, you know, basically zero labor market impact at this point? What do you think Dante? Yeah, I certainly think it's playing a role. Yeah, I don't think it's a huge magnitude in either direction. I think it's probably pretty close to zero in terms of the net effect at this point, right? I think the question is, does that affect push more negative as we move forward, right? Do you sort of lose some of the construction of manufacturing positive and does the downside get bigger as time goes on? I think that's obviously the big open question that we need to figure out. Of course, so what do you think? Do you think that the risk that I just did around AI is roughly right? Yeah, I do. I mean, I think something's clearly going on, particularly in information, maybe in financial services and insurance, AI related, perhaps it's stifling hiring a bit, but I don't think it's huge. I think there's other things going on that are making hiring

10:32in those industries very soft, but on the flip side, as you said, non-Res construction is really powered by AI. So yeah, it's in there. It's in there, but it's small, and it's probably going to get larger as we move into the next year. What do you think, Chris? Is that a good way of thinking about what's going on underneath the hood? Yeah, I agree with Merce. I think the effects on financial services, in particular, are more indirect. I'm not quite buying into the idea that AI is actually doing a lot of the replacement of jobs. It's more augmenting and perhaps causing firms just to pull back on the hiring and wait and see, but I'm not seeing a large degree of evidence that it's actually doing a lot more of the tasks that insurers or finance companies do. Got it. Got it. There's other data in the payroll survey that don't take anything you want to call out? I mean, wage growth week again, 0.1% in September, year over year, wage growth is now

11:36down to 3%, even, which is the weakest, abstracting from the noise right after the pandemic. That's the weakest since the end of 2019. And obviously inflation at the end of 2019 was much lower than it is today. So I think that's still a concern is what real wage growth looks like here moving forward. Yeah, so average hourly earnings, that's the measure of wages in the payroll survey that we're looking at today. You're saying that increased, but very modestly in year over year, or 3% on the nose, I believe, and inflation's higher than that. You know, my, my immediately goes to, well, wage growth is slowing and it has been consistently slowing. This is not new. This has been the case for year two or three, we've been steadily decelerating, seeing steadily decelerating wage growth. That that would indicate that the economy is despite the 4.2% on employment rate, which we'll come back to, we're not at full employment. We're operating below full employment. Do you think I have that right or is there another explanation for what's going on here with the wage numbers?

12:38I mean, that feels like the most likely, you know, for going with your Occam's razor theme lately, that that feels like the simplest explanation, right, that that's got to be what's driving wage growth to keep, you know, Occam's razor. Oh, yeah, I've been listening to things you say, you know, that's what I'm, right. So you like, does everyone know what Occam's razor is? I guess if you were at the conference, you know, the simplest, what is it? The simplest explanation for something is the most likely explanation for something. So that's what you're saying. Yeah, I didn't fact check your definition before, you know, I just, I'm taking your word for it. I think I made that up. Now if you're wrong, I'm also wrong. And it's, it's okay. Yeah. Yeah. But so the, how can you think of any other possible explanation for what's going on with the decelerating wage growth other than there's still some slack in the labor market that we're not operating at full employment despite the 4.2% on employment rate? I mean, the other thing I would think to is, you know, is there a mix issue in industries, but you know, the employment cost index is also pointing in the same direction. Obviously, we don't have, you know, Q3 data, we'll get that

13:39at the end of this month. So, you know, maybe there'll be some divergence there. They would point to, you know, a little bit of a mix issue, but up until now, they've been essentially trending in the same direction. So that doesn't seem to be playing a big part. Yeah, and even on the next side, I mean, you're right, through it, I mean, ECI, the employment cost index is saying the exact same thing, the Atlanta Fed, wage tracker, another way of measuring wage growth, saying the same thing is, it's the rate of growth is a little bit higher. It's measuring some things, things a little bit differently, but it's also decelerating consistent with, you know, work-beloved for employment. Now, on the mix issue, it feels like it might go the other way, right? Because all the immigrant, the highly restrictive immigration policy, you're kicking out a lot of immigrants that are generally the lower part of the pay scale. If anything, that would raise a measured wage growth. No? Well, I'm just thinking, you obviously have seen weakness in white collar, right? You know, finance. So you're losing some of those high wage jobs, although, you know, the jobs are being

14:40created in construction and manufacturing. Those aren't necessarily low wage jobs, right? You're talking about, you know, sort of specialty contracting and high-tech manufacturing, you know, those aren't low wage, but I still think you might get a little bit of offset there from losing those white collar jobs. Got it. Hey, Chris, any other explanation for this, excuse me, the continued deceleration of wage growth other than we've got slack in the labor market? Oh, perhaps, somewhat perhaps related is just loss of bargaining power, right? You could have, it is an important sort of the slack in the labor market. I mean, it feels like that's how that actually works, right? No? And I guess that's the scenario I'm thinking of. There's the threat of AI or the threat of or technology coming online and there's work as a worker. And, you know, employment is still okay for now, but I just don't have as much power to go forth and demand higher wages. Yeah, that makes that makes sense. I guess the other possible explanation might

15:43be there's just so little churn in the labor market, right? The quits. Yeah. Yeah, there's no quitting. And usually the bigger you get a bigger pay increase when you switch a job. So if there's no switching here or much less switching, that would that would reduce the measure of wage growth. Is that right, Marissa? Do I have that right? Yeah, you do. I was going to say that, but then I was thinking, but the the low quits rate is also sort of a reflection of how much slack there is, right? If you think that if you think the labor market's really tight, you're much more likely to quit your job because you think it will be easier to find another one and people just aren't quitting. They're staying in place. And interestingly, the quits rate is particularly low in these office using industries in finance, insurance, professional services. So workers in these industries are not wanting to move. Perhaps because they perceive that it'll be difficult to get

16:44a new job in that industry. Well, we know that getting a job is pretty tough if you lose it, right? I mean, the duration of the point is pretty long. Yeah. So it's interesting. So the unemployment rate, the labor force participation rate aren't telling the whole story here about how labor is kind of on its back hills. People have jobs, but they're fearful that if they lose their job, they don't want to move because no one's hiring. They can't move. And they're fearful of losing their job because they can't get hired because hiring is so low. And they see the specter of AI. Maybe if that's playing a role here, that's still going a long way to play out. So they're kind of hunkering down and they're saying, okay, I'll take a smaller wage increase just to keep me on board so that you don't fire me. That's kind of sort of what we're saying, right? Right. Yeah. Interesting. And you're saying proof of that, or at least some evidence of that is if you look at the quit rates and sectors that are

17:47most likely going to be pressured by AI, where the hiring rates are relative low, it's so secure. So where people are moving. Yeah. Interesting. Interesting. Okay. But fundamentally, that's still slack in the labor market, right? Yeah. Yeah. Yeah. Full employment on employment rate, you know, is is well, anyway, I think we covered it. Why don't we go to the household survey? And Date, can you want to give us a run down there at the end of the Pundit rate notch tire? Anything to tell on that on that front? Yeah, I mean, it's a similar story to last month where we got this sort of initial turnaround in the household survey. It had been pretty downbeat up until August. And then we got a big increase in the labor force in August. We got another big increase in the labor force in September. I think 485,000 push the participation rate back up another two tenths of a percent. So it's still down over the last year, but it's now up four tenths of a percent over the last two months. So definitely a rebound with that, a big increase in household survey

18:51employment. So starting to close that big gap that had formed between the payroll and household survey. I think it sort of fits more to the script we've had in our forecast for the unemployment rate to creep back a little bit higher throughout the end of this year, early next year, as labor force growth comes back at least to some degree. We didn't expect that the labor force would continue to contract as it had been early in the year. So I think again, similar to the payroll survey, this just seems to make a little bit more sense about what's going on. It's sort of makes the picture a little clearer, I think, in my mind. Got it. Got it. So the other concept that we continue to debate, we talk about every month is the so-called break even rate of monthly job growth. So how many jobs do we need to maintain kind of stable slack in the labor market? What do you think that is, Dante? When I say slack, it's more than just the unemployment rate, participation and everything else that was going into this. Yeah, I mean, it feels to me if we're thinking about sort of moving forward, I'm assuming trend job growth will be 50K and at the same time, I'm assuming the unemployment rate is going to

19:55creep a little bit higher. So to me, that break even level's got to be something just above 50,000. We're not going to add enough jobs over the next six months to keep unemployment stable in my mind. Right. So you didn't give me a number. 70, 75. 75. Okay. By the way, it's exactly where I am. And where I've been. Yep, there you go. There we go. On the same date. What about you, Marissa? Do you have a sense of the underlying or excuse me, the break even rate of job growth? I think it's 60-ish. 60-ish. I used to ash again, I know. I love it. I love it. It's live. Thank you. Yeah. Yeah. And Chris, you're lower. I think it's closer to 50, right? Okay. So you're 40K underlying, 50K break even, something like that. Right. And that goes to all the work you've done on kind of the demographic trends and what that means for kind of overall underlying job growth in break even. Yes. Although admittedly, there's a lot of uncertainty, right? Yeah. When it comes to the immigration numbers or

20:57size labor force. Right. Okay. Anything else on the job? Anything surprised you don't tell you in the job? Well, there was a lot to surprise. Anything on the upside, in the surprise, was there any upside surprise? It seems like it was all downside surprises. You know, things that fell short of expectations. Anything come in on the high side of expectations? Not real. I mean, other than labor force growth being strong again, I think it's a good sign. I don't know. It was overly surprising, but I think it does. It just makes more sense. The two surveys make more sense together now than they did a few months ago, which is good. Can I ask and I don't want to get anyone's stat, but I'm going to do it anyway. The household employment gain, what was that? That was about 70, 80K. Household survey employment? Yeah. Household survey. It was about 400, yeah, a little over 400K. Oh, it was a big increase. Adjusted though to payroll concept. It was much, much smaller. It was only about 100K. But over 100K. Okay. Got it. And when you look over the past year, average monthly payroll job growth has been 50K.

22:01Do you know what household employment growth has been on average per month? Yeah. So I mean, if you look since January, since the beginning of the year, household survey employment is basically flat now. It had been down big, and now it's basically rebounded to flat and payroll surveys since January is up between 400K. So that gap between the two had been about a million just two months ago. And now it's basically half as wide as it was. And so it's moving in the right direction. Got it. Chris, did you have anything else on the job numbers before we move forward? You wanted a positive employment. Yeah. A top population for a prime age. Oh, yeah. Workers was 80.7. So it's rebounded. Yeah, rebounded. Yeah. Is it right back to where it all started? Re-match was certainly early in the year. Yeah, the peak overall was 80.9, I think. So I mean, we're just off the high of the cycle. I mean, it's been, it's about as high as it's been. Right. Right. Okay. Got it.

23:02Okay, let's move on. It's because this past week has been full of a lot of good economic data. Chris, kind of in the popery of information that we got this week, what do you want to focus on? I think we should focus on GDP. GDP. Yeah. So we got the third and final estimate for second quarter GDP. And there was a quite a large upward revision from the second print. So GDP grew to 0.2% annualized in the second quarter. And the revisions also pushed up Q1 GDP. We got benchmark revisions to the national income and product accounts that go all the way back to 2021. So kind of everything was revised around GDP. Right. So GDP, the spending numbers, the savings rate, all of that stuff was revised. So 2.2% growth on GDP in the second quarter, 2.5% growth on GDP in the first quarter. So that revision, you know, there were revisions in both quarters that were pretty large.

24:09And consumer spending was quite strong, particularly in the second quarter. So as investment and the BEA particularly called out the build out of data centers as being one of the main drivers of that upward revision in Q2 to investment. So the economy looks, I would say substantially stronger than we were first estimating. So we were at about 2%. abstract again, there's a lot of variability here quarter to quarter. And before the revisions, it felt like underlying GDP growth, real GDP growth. Some quarters a little higher, some quarters a little lower, but on average, it cut through the ups and downs and all the rounds. It felt like it was about 2% hish. That's what we grew last year. That's kind of sort of what we grew in the first half of this year annualized. Now with the revisions, what would you say it is? I think we're above 2%. If you look at the first half, where somewhere like two,

25:15three, something like that on average. Because we went from two and a half percent in the first quarter to 2.2% in the second quarter. That was a percentage point upward revision between the second print and the first in the final print for Q2 here. So I think we're growing a little bit above 2%. In Q3, the current quarter, the tracking estimates feel like they're around 3% annualized. Some a little higher, ours is a little bit lower, but it feels like they're kind of colosing around 3. There's still a lot of data to be released before we kind of get a real fix on that. So it feels like GDP growth. The job numbers were pretty bad. The revision kind of took us back down. But in case if we stick to these GDP numbers, these revised GDP numbers, they feel used or when you use the word significant or substantial,

26:18is that oversteading the case? I mean, it feels better, but I guess it's measurable. Is that what you're saying? Better? Yeah. The original growth in Q1 was 1.5%. So we went from 1.5% to 2.2% in the first quarter. That's a big revision. Again, this is the benchmark revisions that are taking GDP growth back to 2021. And if you take out, like if you look at the real final sales, real final private sales, that rose 4.6% in the second quarter. So this is if you just look at consumer spending and private investment. So we take out government, we take out exports. That was 4.6% in Q2. That's quite strong. Not for importing, all of the stuff we're importing.

27:21I mean, subtract imports out. We're importing tons of IT stuff, chips, all the stuff going into AI, take that out, take out. But you can't really do that, right? That doesn't really, that doesn't really mean anything, right? Because all the stuff that's going into the data centers is an imported product. Yeah, I mean, it's being consumed and that's being counted. But I'm just saying like aside from government and exports, it is quite strong. I mean, consumer spending is quite strong despite the fact that inflation is high, right? And people are struggling at the bottom of the K, getting a lot of consumer spending here still through Q2. Chris, how do you interpret the data? I do. They are significant revisions, right? Not just the trivial. So let's call it relatively strong GDP growth then with a weak labor market or

28:26certainly not growing quickly. That suggests that productivity is kicking in here. So my concern is that it's how durable or is this a short-lived type of phenomenon? This burst of activity, certainly the consumer, yeah, is holding in there and incredibly resilient, more than my imagine, but rates are high. It's going to pinch at some point here. So this is all great data looking in the backward or the rearview mirror, but I think there's still some challenges ahead of us here on both the consumer and even on the investment side. What do you think, don't they? Yeah, I mean, I think it's certainly good news for the first half of the year. I think my concern is just that's obviously a little bit dated at this point. It doesn't feel to me like consumer spending and consumption can possibly hold up at that level in the second half of the year given what we know what's going on in the labor market with wage growth. The measures of personal income are looking weaker. I think it'd be a really personal disposable income. It's gone pretty flat here.

29:32At some point, it's not sustainable. The consumers are going to keep powering growth and it feels like that's going to show up sooner than later. Hey, Merse, if you look at the entire period for which the data was revised, I think you said it's five-year backward look, right? Back to 2021. What is the impact on average annual real GDP growth over that five-year period? How much was that revised? I didn't look at that. It'd be really curious. This goes to the potential rate of growth of the economy. Previously, before the original, I was thinking it was 2%. But now it feels like it's a little bit higher than that. It could be as high as 2.25% something like that. I know that sounds like I'm displaying hairs, but to your point, Merse, I don't know if a user is substantial, but would you use Chris meaningful? I think that was my word. If does feel like underlying potential growth of the economy is a little higher, would you agree with

30:33that Dante? I think again, I think you have to split up a little bit. I think you're talking about a tenth or two of a percent. Is that meaningful? Will that hold up? I don't know. It does feel like when we get the data, the revisions to the productivity numbers, though, we should see an upward revision to productivity growth, because we're getting more GDP, which is an numerator productivity, and less fewer jobs, and denominator. It feels like we're going to get more productivity growth. No? Yeah, it should. The arithmetic certainly points upward revisions to productivity for the first half of the year. Yeah. Right. Okay. Because I did incorporate the newest QCW data on wages and jobs into all these revisions, which this was going to be my backup statistic, but we're going to see a downward revision to job growth when the benchmark revisions are released next year. So the labor market,

31:33and I think we would all, this is what we kind of all expected. It's been weaker than reported, over much of 2026 going back to 2025. So we've already incorporated the weaker labor market, and this so productivity is going to have to be stronger in order to get to these GDP numbers. So the upshot of all the data we've gotten this weekend, and there's still more to talk about, but so far in the conversation, GDP jobs, the upshot is that it feels like the labor market's weaker, and it feels like GDP is stronger. And the net of all that is we're getting more productivity growth, which would be consistent with the idea that AI might be kicking into some kind of gear here. Does that sound right, Chris? Yeah, I'll let me get right to it. We can debate the AI impact here. Oh, okay. Certainly. So everything I set up to the AI. Productivity impact certainly. I think Dante would even quibble with whether or not it's actually AI driven or other changes that are

32:37experienced during the pandemic. Right. Okay. I mean, if you look at growth by industry, the biggest contributors were among them. Durable goods manufacturing was one of them, but the other ones are all these white collar industries we're talking about. Real estate, finance, and information. Right. That's also right. Chris, that's also consistent with the AI story. Yep. Yeah. Yeah. Could be. Yeah. Could be. Right. Could be. Is it a just data processing efficiency? Anyway, we don't want to get into this today. But we don't want to. Okay. All right. None. We'll do it some other day. We got a lot to cover. A lot on our plate. Yeah. Okay. Okay. Oh, the other big data release, Merceau was inflation, right? The consumer expenditure of later data. And that also, but it's feels like revisions got to be in the title of this podcast.

33:38Because that also was revised, right? Right. Yeah. That was revised. And then, you know, as we've had Matt Collier on the podcast, he's been talking about some methodological changes going into the PCE with the way like financial services are measured. And that happened with this past release, which lowered inflation, both both core and headline inflation kind of just took a step down. So the PCE deflator was up 0.3% month over month. That's the headline core was up 0.2. So with all these revisions and this methodological change, we're up 3.4% on PCE year over year total. And we're up exactly 3% on core. Yeah. So it's still well above target, but not nearly as much as we previously estimating. And it's moving in the right, feels like it's moving in the right direction back to the

34:39feds 2% inflation target. Yeah. That's right. Yeah. Okay. All right. So we'll come back to and talk about, you know, what the market reaction is to all this, what it all means for the fed. And how we think about this more broadly. But and we'll play the game next, but just to summarize, all this data, it feels like what we're coming to is the job market is soft. It doesn't feel like that is going anywhere fast. But GDP, the value of all the things that we produce that feels a little bit better. And inflation while a buck target, still well above targets is moving in the right direction. So kind of taking it all together, my feelings about things are equally as mixed, maybe mixed in a different way. But it just feels like we're okay. Things are moving, you know, we're moving forward, but it just feels uncomfortably okay. And looking forward,

35:41there's a lot of things to be nervous about. Is that a fair, Dante, a fair way of kind of bringing it all together? Yeah, I think so. I mean, yeah, I think this cleared up the picture on the labor market a little bit, but I think it's still, yeah, it's still a little bit unclear when you start to pull all the data together, how it fits. Okay. Is that your, are your emotions in the same place? Mine are, I mean, yeah, I didn't specifically talk about spending and income, but you know, Dante mentioned that last month, disposable, real disposable personal income was zero, growth was zero, right? But, but on the spending side, real spending was strong. It was 0.6% up over a month. So we have people spending, but income is basically flat. So that doesn't feel good. Right. In this context, either, especially with weak job growth and declining, you know, decelerating wage growth. Right. Chris, how, how would you characterize all of this? Yeah, it's similarly, you know,

36:45rear view mirror looks pretty good, but okay, that the road ahead looks bumpy. And then I think you have to come back to the distributional aspects as well, right? So yeah, spending overall good, and even at the, even at the lower tiers, but there was an increase in spending in recreational goods, for example, right? And, presumably, that's going to skew a little bit more towards the upper end. So, I don't know, I think you need to, to dive into the data a little bit further beyond the headlines to understand that, you know, clearly not all parts of the economy are moving at the same speed here. Right. Right. Okay. Okay. While we're playing the stats game, we all put forward a statistic, rest of the group tries to figure that out with clues, questions to Dr. Reesing, the best stats, one that's not so easy, we get it right away, one that's not so hard, we never get it. And if it's at propose to the topic at hand, we've got a lot of data here to choose from from all the better. Racer, we always start with you. What's your stat? My stat is 49.

37:45Ah, the one, the diffusion index? Yeah. That was my stat. Oh, I was just saying I also looked at it too, but yeah, that, oh, explain, explain, Marissa. This is the one month in private employment diffusion index from the payroll survey. So, the BLS takes all of the industries that they publish detail for, and they take all the industries that are adding jobs and subtract the industries that are either not adding jobs or losing jobs. So, anything under 50 means you have more industries basically contracting than you have adding to jobs. And it's 49 and it's, this is the first time it's been below 50 all year. So, it was 50, I think, I think it was in December of 2025. It was below 50, the last time it's been above 50 in every month until this past month. Wow. The dissimilar indication of how soft that work was. Wow.

38:54Did you look at these like a three month diffusion index? I did. And that's still a little bit above 50. So, the three month, the 12 month, they're okay. They're above 50. It's just the one month that dipped below. Right. Chris, were you going to say anything other than what Rissa just said about the diffusion index? No, she said it much more eloquently. That's funny. Well, that's a really good one. Is there any kind of rule of thumb if it falls below a certain level for a certain period of time it indicates that we got a big problem? With the six month diffusion index, if that falls below 50 for, I don't know, it's been a while since it was below 50. But when that falls below 50, I think for even just a few months, then there's always been a recession following. And where are we today? Do you know? On the six month diffusion index, we're above 50. That hasn't been followed. We're still above 50. Yeah. Yeah. Yeah. Okay. But that happened last year, right? It didn't happen last year. That's right.

39:58A few months. Yeah. Yeah. Maybe recession's coming. Some false positives. Yeah. Yeah. Not foolproof, but suggested. Yeah. Okay. Chris, I'll give you a bit of a break because I know you have to regroup. Yeah. Sorry. But Dante, you want to go next? Sure. Let me up probably, this is a negative number. I want to make clear. This is a negative in case I forget to say it again. And I'm going to give you the rounded version. But I'll give you the unrounded, just I don't want any accusations flying. So it's negative 20.7,000. In the job number? In the job numbers. Yeah. payroll survey. Payroll survey. Correct. Is it a change in jobs? It is a change in jobs. Yeah. Not a percent change, but a absolute change. Right. A level change. Yeah. Over a certain time period. Right. Yeah. It's not a single month. Right. Yeah. It's the third year. It's not over the year. No.

41:02Since the beginning of the year. No echoing. It's not just beginning of the year. No. It's shorter horizon. Okay. Last three months. There you go. It's last three months. Change in jobs. Okay. It's a professional services. It's not professional services, but you're getting warmer. You're on the right track. Information. This feels like a boring statistic. Finance. Tempelp. There you go. Chris. Tempelp. Tempelp. Oh, I said boring. Interesting pattern recently, though. Really? Okay. Tempelp had been down consistently for the last couple of years. Right. And then beginning of this year, it turned positive. Tempelp was up 55,000 jobs from the beginning of the year through whatever three months ago is July, June, the first half of the year. And now it's turned negative again. Right. I mean, we do tend to think of Tempelp as a signal of sort of the broader conditions of the labor market. How much maybe that's still true can be debated, but certainly it was signaling that there was

42:05some strength in the labor market in the first half of the year, but now it's flipped again. Right. It's signaling that there's some weakness. I think we saw there was some stronger job growth and particularly in the first three or four months of the year that has wamed here. And so it's another signal that maybe the second half of the year will not be quite as promising or quite as strong as the first half. Yeah, that's a good one. What about you, Chris? Have you regrouped yet? You have got a stat? Yeah, it's my second. If you want, I'll give it to you, but I'm not too enthusiastic. It can't be any worse than Dante's. Okay. All right, the number is one. That's a legit. I take that fact. Maybe it is good. Is that like job openings to unemployed people? Yes. Oh my god. I see. Oh. All right, explain. Go ahead. Oh, Chris, you got to explain what you're doing. Everyone,

43:06we all know what you're talking about. Presumably the listener doesn't or the listener is thinking the same thing. I think it would go. It's the number of job openings to the number of unemployed individuals, one exactly one, which is, which is okay, but certainly it got as high as two during the pandemic, of course, right? And it's been it dipped below one last year. So it's somewhat of an improvement. But if you want to look back to say 2019, it's low, right? Back then we still had more job openings than unemployed. So now it's one for one. It just is consistent with this idea that it's not not so easy to find employment if you become unemployed. Certainly, or if you're entering the job market right now because you have even competition, if you will, between the vacancies and the unemployed. That's pretty good. Pretty good. Yeah. Yeah. I'm usually don't play and I'm usually MC, but because I feel like we were a little lacking this round of the game.

44:13I'm going to come up with what I got one for you. 1.7%, 1.7%. And it's not in the government data, but it's related to the job market. Came out this week. Well, you came out this week. Is something related? Conference Board really? Yeah. Conference Board related. 1.7%. You should get it now. Dante. It's good. That right now. What do we all look at to gain change on employment rate? Jobs, plentiful versus jobs hard to get. Yeah. The labor market differential. Yeah. Right. That's the difference between the percent of respondents to the conference Board survey that say jobs are plentiful versus the percent that say jobs are hard to get. And that's a really good kind of indicator of where the unemployment rate has had. And it was this past month that we can considerably. The 1.7% is low. And we got that tick up in the unemployment rate. But the reason I brought a reason why I picked that statistic is it highlights the conference Board survey. That's the consumer sentiment survey that is done every month. And that I found to be a

45:18pretty reliable kind of measure of sentiment in this sense that it does a pretty good job of you know, engaging consumer spending, which is kind of what we want to use it for. And it weakened very sharply in the month of September. I mean, notably sharply. Dante, do you make anything of that or is that just noise, do you think? I mean, it feels important, right? I mean, we've sort of discounted the University of Michigan survey over time. But the conference Board survey had seemed to be a little bit more reliable and less noisy. And I mean, it was a sharp drop. I mean, I think it's the lowest. It's been over a decade now. So it doesn't feel like just noise. And it was a big drop in the present conditions part of the index, right? The sort of future expectations had been sort of persistently weak, but the sort of how people are feeling about their current situation had been holding up more strongly. And that was sort of the big contributor to the drop. So people clearly are not feeling great about the current state of the labor market in the economy. Yeah. Yeah. It seems generally consistent with the broad sentiment. But you know,

46:21I'm not a big fan of those surveys to begin with. So I noticed that it was a pretty big client. But anyway, let's move on. Come back to the data. And what is the market reaction of all this Chris? And what does it mean for people's expectations for what the Fed is going to do? Yeah. So interesting market reactions, even as we are recording this, things have kind of shifted around. The biggest or the most important market reaction is the Fed funds futures. What investors believe the Fed is going to do at the next meeting in October, later this month, and then further out. And that has decisive as a result of today's report, decisively shifted towards a pause, right? We went from fairly high probability that they would actually institute another hike to now 80% as of this morning, indicating that they expect the Fed to pause here, given the weakness in the labor market and the inflation report that was perhaps a little bit under a consensus,

47:25at least not showing accelerating inflation at this point. So that was the main driver. As a result of that, I think you saw the stock market show some improvement, right? So not expecting a higher rate. Then the bond market, the 10 year bond market, first saw some improvement. So you saw the yield come in, five basis points on headlines said that that was a tumble. So I don't know if that's accurate anymore, but yeah, it came in pretty solidly initially. But then consequently, it's now come back up. Right. So it seems like investors are digesting this report and still concerned about other other factors that are out there, perhaps more inflation related. So the uncertainty of pause are late morning on Friday, October 2nd, and you're saying the stock market is up on the employment report, but the in the bond market, we haven't really seen any improvement in yields.

48:28No, no, really, if you want the latest number, it's actually up to basis point at this point relative what is this right now? What is it? It's five and a quarter. Okay. Well, five and a quarter. So I dipped to something like five, wow, point one seven and now, and looking at the federal funds futures, what investors think the Fed's going to do, they pretty much now taken off the table, another hike in the funds rate at the October, later this month, the late October meeting. That's right. So December still in play. So it's about two thirds plus probability of a hike in December. So that's still out there, but that even that has quays. So that makes sense. The stock market turning around makes sense in that context. So the stock investors are saying, hey, this data suggests that less likely we're going to see if the Fed raised rates here, certainly at the next meeting and lowers the probability for future rate increases.

49:31But despite that, the long-term bond yields have come back up. Okay. Is that okay? All right. Yes. Yeah. A lot going on here. Well, the prices actually fell this morning. So it's not clear what's not clear what's going on here, but the bond market, clearly those bond investors are still nervous about the future. This did not. They didn't go far enough to calm their fears of additional inflation or rate hikes to come. Not it. Not it. Hey, that's just one other thing about the bond market. I mean, we've been doing a lot of work here trying to understand what's driving the run-up in bond yields. And one explanation, my mind immediately goes to the Iran war and the inflation created by the Iran war. It goes to deficits and debt. It goes to someone increase uncertainty around the conduct of monetary policy given Fed independence and the chairworsh's perspective on communicating with

50:33the market in a more opaque way than his predecessor predecessors. But one argument that's been given is the gross that the economy is stronger. And this goes to the AI boom and the demand for credit by AI hyperscalers to fund the build out of the AI infrastructure data centers or anything else. And that's a key factor in the run-up and rates. What do you think of that argument? What is your perspective, Chris, on this run-up and long-term yields was behind it? You're thinking of the more of a crowding out impact here or that the bond investors have this option. They can either invest in AI bond-related bonds or they can invest in US treasuries. And right now there's so much demand. They're all excited about the AI bonds. Therefore, treasuries yields have to be higher to attract them. Is that the crowding out? Usually you think of crowding out the other way. No, no, it's more than argument you're making or just that growth is

51:38expected to be rip roaring. So inflation is going to continue to be a better factor. The neutral rate. The underlying growth rate of the economy is stronger and expectations for it to be stronger in the future have risen. AI driven, AI is behind that shift in expectations. And so that's a factor or a key factor driving up the long-term interest rates. And the reason why this is an important debate is to make it clear is if the run-up and yields is due to growth expectations, then the damage of the higher yields to the economy in aggregate should be monitored or not at all. If the run-up and yields is more related to things like the war and inflation expectations and deficits and debt and monetary policy, uncertainty, then the higher yields are going to do more damage. So I guess I'm asking broadly, where do you stand on that kind of debate? Yeah, I'd be more in the second camp.

52:43I think there certainly could make that argument that for growth, resetting the bar, if you will, but I don't see that as the major or the most significant driver here, the more likely story seems to be all the above in terms of the concerns that bond investors may have. And it may be different bond investors with different concerns, but collectively, my sense is that's much more the fear than the growth story that you put out. I agree with Chris. I think it's sort of the bad things that are driving yields higher. I think it's more of this concern around debt sustainability, inflation, the war, not really knowing what the Fed is considering when they're looking at these meetings, just more uncertainty, I think, around rates. I just think the timing of the run-up in the 10-year yield, to me, it's more consistent with

53:45concern about all of these things than with this expectation that AI is going to drive growth. Supply side, explanation is the was started. Right. Right. Because it's really been since the war started. Right. If you look at when this began. Right. Don't you have a different perspective where you want to add anything to that? No, I would agree. I think the timing is hard to ignore in terms of the sort of a negative story. Right. Okay. All right, guys. We covered a lot of ground. Anything else you want to cover before we call it a podcast? Chris, anything? Marissa, Dante? You didn't ask me for your favorite stat that you asked me every month that I'm here. Oh, yes. What is the unemployment rate to the second? Excuse me, the third significant digit. I spend time calculating it so I might as well get it on the air. It was 4.18%. So it was only up from 4.14. So we were just below 4.21. Rounded last month. We crossed the threshold and we rounded up to 42 this month.

54:494.2. Okay. So not that big an increase. Okay. Yeah. How can I have forgotten that, Dante? Please. That is my favorite stat. Yeah. Good. Okay. Anything else, Chris? Anything you want to add before we call it a podcast? I did get one listener reaching out asking if maybe we would consider a preview of the next week at the end of each of our podcasts. Now, I probably should have told you this before. But if you have any thoughts on what to watch or what you're thinking about as we go into next week, certainly that'd be appreciated. I looked at the calendar. It's pretty light. FOMC minutes come out next week. That might be a lot of interest, but I don't know. Any thoughts on your end? I don't know. A week is a long time. Things happen. Have you noticed? I don't think we're going to have a problem. Some weeks feel longer than other weeks. There's no data point or anything.

55:52There's no major data. Okay. You're not waiting for the you, you, you, you, mech consumer sentiment on Friday. But assuming nothing happens between next Friday, which is not going to happen, but assuming that is the case, maybe we should talk about indicators that we really like and really don't like. We each pick one and talk about it. Because I think listeners, I suspect listeners would find that of some real interest. Going back, did we do that? I don't. We didn't do that already. No way. Really? I think we have, but there's always more. Maybe something we can always I can do this. I just don't remember doing it. You guys are making this. I feel like I was here when we did that once. No. All right. All right. Well, then I don't know. But there's always new indicators. Right? So you can go deeper onto your hate list. But if you're top three, you can do your top 10. All right. We'll have to give that some.

56:56Now this is getting down to the kind of the, you know, the nuts and bolts of how we do the podcast, right? Because often if we don't have a guest, we get on and then we decide right then in there, what we're going to talk about and then we talk about it. Right? Exactly. Yeah. That's the deep dark chicken. What was actually part of the secret sauce, right? Given the way the secrets are big. Don't prepare it all. Because then you have to really deep, you know, you have to, it's more exterpranious, right? It feels like a real conversation. You know, that kind of well, what we could do since we don't have a guest is do some listener questions, which we need some good, good underscore good ones. She's, she's imploring you dear listener to come forward with some when should they send it to inside economics at Moody's dot com. Yeah. Okay. All right. Well, there you go. All right. Well, we're going to call this a podcast, I think at this point. I hope everyone has a wonderful weekend and we will talk to

58:01you next week. Take care dear listener.