Painful Jobs Report, Painful Podcast

Summary

Moody’s Talks – Inside Economics

Episode Summary: “Painful Jobs Report, Painful Podcast”

Date: August 7, 2026
Host & Guests:

• Mark Zandi (Chief Economist, Moody’s Analytics)
• Marisa DiNatale (Senior Director, Moody’s Analytics)
• Cristian deRitis (Deputy Chief Economist, Moody’s Analytics)
• Dante D’Antonio (Director, Moody’s Analytics, Guest for Jobs Report)

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Episode Overview

This episode tackles the July 2026 U.S. jobs report, which the panel characterizes as "ugly." The discussion covers headline job losses, downward revisions to previous job reports, declining labor force participation, industry-by-industry breakdowns, and implications for the Fed’s rate decisions. The group also contemplates demographic trends, the impact of immigration policy, and structural changes in the labor force. The tone is candid, analytically rigorous, and marked by a sense of concern over the labor market’s current trajectory.

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Key Topics & Insights

1. July Jobs Report: “Ugly by Any Standard"

[03:08–06:21]

• Headline Job Loss: First monthly job loss since early 2026. Downward revisions to previous months.

  • Dante D’Antonio (03:25): “Headline job loss for the first time since early this year. Significant downward revisions to previous months… All that combined gets you three month average job growth that’s 20k right now... a big swing.”

• Weakness in Most Industries:

  • Healthcare and Construction: Only bright spots (+20k in construction), but both below expectations.
  • Major Losses: Local government (-50k, mainly education, though considered “seasonal noise”), retail trade (-20k), leisure/hospitality (down big for second straight month), finance (decline).
  • Mark Zandi (04:25): “The diffusion index... also came down quite a bit.”

• Underlying Job Growth Estimate:

  • D’Antonio: 40–50k/month
  • deRitis: 35–40k/month
  • DiNatale: 30k/month
  • Zandi: “I would say underlying is 50k… break even is 70k.” [24:45]

• Quote:

  • D’Antonio (03:25): “Industry detail wise, there’s not a whole lot to be happy about.”

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2. Labor Market Indicators: Slack, Wage Growth, Participation

[10:01–29:48]

• Wage Growth Moderates:

  • Average hourly earnings up 3.2% y/y, lowest since before the pandemic, now tracking below inflation.

  • Quote — Zandi (25:30): “Wage growth is decelerating, and now it’s firmly below inflation. So real wage growth is declining.”

• Labor Force Participation Slides:

  • Down almost one percentage point since late 2025, to lowest since 1975 for some groups.
  • Foreign-born participation also declining (65.5%).
  • Quote — DiNatale (40:16): “If the participation rate had remained unchanged since the end of last year, I think the unemployment rate would be over 5%.”

• Break-even Job Growth:

  • Adjusted for both unemployment and labor force participation (“slack”), estimates range from 50k–70k/month.
  • D’Antonio (23:18): “I’d say it was 60, 70k. I mean, I don’t think it’s much higher. I think we’re pretty close to balance here.”

• Labor Market at Full Employment?

  • Most panelists: Slightly below, but close — weaker real wage growth and modest underemployment indicators.
  • Quote — Zandi (26:03): “You would say we are operating below full employment… we’re missing our mandate.”
  • deRitis (26:38): “I think we’re pretty close. Maybe slightly below.”
  • DiNatale (27:15): “I agree. I think that we’re pretty close to full employment.”

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3. Divergence Between Payroll and Household Surveys

[16:15–19:24]

• Household vs. Payroll Discrepancy:

  • Since January: Payroll employment up +300k; household measure down -900k.
  • Labor force down 1.4 million since January.
  • Quote — D’Antonio (17:41): “Household employment’s down by over 900,000 now since January.”

• Interpretation:

  • Most economists “discount” the noisier household survey but note convergence due to downward payroll revisions.
  • D’Antonio: “I think we should not completely ignore it, but I do think it’s a little bit extreme.” [18:28]

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4. What’s Driving the Labor Force Participation Decline?

[40:53–55:51]

• Demographic Shifts:

  • Population aging is leading to more retirements.
  • Participation dropping among both 16–24 and 55+ age groups; even among “prime-age” has dipped recently (down 1 point since Dec 2025).

• Wealth Effects & AI:

  • Stock market gains may facilitate early retirements.
  • Possible “AI-push” causing older workers to exit rather than adapt to new tech.
  • DiNatale (44:09): “Could it be that people… are looking at the changes coming in their company or their business and saying this is just a good time for me to step out because I don’t want to deal with this AI stuff.”

• Immigration Policy:

  • Stricter enforcement/deportations reducing foreign-born workforce, affecting participation.

• Cyclical vs. Structural Debate:

  • Some evidence the participation drop is recent and could be cyclical (“discouraged workers” giving up job searches), especially for prime-age.
  • Zandi (51:16): “It feels like a stretch to say that [the participation drop] would be… wealth driven. Unless everybody decided that at the same time.”

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5. Statistics Game — Notable Data Points

[30:41–39:13]

• $116,000 — Civilian non-institutional population gain, smallest for July since 1965 (DiNatale, 31:12)
• 1.4 million — Decline in labor force since January (DiNatale, 31:45)
• 114k vs 61k — Avg. monthly job growth January–May (114k) vs. updated through July (61k); shows how revisions flipped the narrative (D’Antonio, 34:11)
• 153,000 — Rise in number of people on temporary layoff in July – a sign of softness (deRitis, 37:34)
• 65.5% — Labor force participation rate among foreign-born workers (Zandi, 38:51)

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6. Industry Anecdotes & Real-world Observations

[13:51–16:14]

• Leisure/Hospitality Weakness:
  • “Lost 40,000 jobs in last two months… restaurants, entertainment, amusements, it’s everything.” (DiNatale, 13:28)
  • Anecdotal evidence: East Coast beach towns quieter than usual, possible consumer price fatigue and shift in vacation patterns.

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7. Fed & Monetary Policy Implications

[56:44–61:40]

• Policy Implications:

  • Futures market probability of a September rate hike falls (now 56% chance of a hold after the data).
  • 10-year yields dipped slightly, markets flat.
  • Panel expects “on hold” rather than tightening; no immediate rate cut, but that’s not ruled out if labor market weakens further.
  • deRitis (58:48): “In my worldview the report that came out today kind of reinforces the view that the labor market is a lot weaker than it looks. Inflation is likely to remain elevated but start to come in and that will allow the Fed not to… hike.”

• Upcoming Data:

  • Emphasis on watching next week’s CPI/PPI numbers.
  • Anticipated BLS benchmark revision could further impact the jobs narrative.

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Standout Quotes & Moments

• Mark Zandi (03:09): “Dante, I think the word is ‘ugly.’ Do you have a different way of describing [the jobs report]?”
• D’Antonio (12:20): “I think you have to squint pretty hard to find something [positive].”
• DiNatale (32:52): “This is the smallest gain in the civilian non-institutional population… since 1965. We’re just not adding the people… so you really don’t need as many jobs to be added each month that you used to have.”
• D’Antonio (35:19): “Which is how fast the story can change… even when things look strong, the narrative can change.”
• Zandi (25:53): “That would be consistent with an economy that's operating below full employment.”
• DiNatale (55:51): “There’s plenty of anecdotes of people struggling to find jobs. They’re putting out 300, 500 applications and deciding, 'I can’t find a job’… There clearly is discouragement out there.”

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Timestamps for Major Segments

• 00:23–03:08: Banter; team updates, preview of jobs discussion
• 03:09–14:00: Jobs report deep dive: headline numbers, industry review, diffusion
• 14:00–20:00: Digging into anomalies, payroll vs. household surveys, labor statistics
• 20:00–29:48: Wage growth, slack, redefining “break-even” job growth, full employment discussion
• 30:41–39:13: The “statistics game” — key numbers, explanations, context
• 40:16–55:51: Labor force participation causes, demographic and economic trends, anecdotes
• 56:44–61:40: Fed outlook, interest rates, markets’ response, policy implications
• 61:40–62:30: Anticipated benchmark revision, closing thoughts on data revisions
• 62:30–end: Wrap-up, future AI content preview, encouragement to listen to related podcasts

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Overall Takeaways

• The July 2026 job numbers reflect broadening labor market weakness, with both cyclical and structural undercurrents.
• Downward revisions erase much of the perceived robustness earlier in the year—suggesting vulnerabilities, and highlighting how quickly the macro narrative can flip.
• Declines in labor force participation—especially among older, younger, and foreign-born workers—raise questions about how much slack is “hidden” and complicate interpretation of full employment.
• The Fed is now less likely to hike rates near-term; the next data points, especially on inflation and labor supply, will be critical for policy.
• Broader themes include the role of AI in shaping job growth, the lasting impact of pandemic-era shifts, and how immigration policy affects labor supply.

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Upcoming Content Teaser

• AI-centric podcast series launching soon, with notable guests (David Autor, Joe Davis, Ben Harris)
• Updated Moody's paper on AI’s economic consequences, now including a “job dystopia” scenario

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Structured, candid, and data-rich—this episode is an essential listen for those seeking clear-eyed analysis of a turning point in the U.S. labor market.

Transcript

[A]

Foreign. Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's analytics, and I'm joined by my two trusty co hosts, Chris Deridis, Marissa Di Natelli. Hi, guys.

[B]

Hey, Mark. It's good to see you again.

[A]

Yeah, Happy Jobs Friday. And because it's Jobs Friday, we're sitting here on August 7th. The morning of August 7th, we bring in Dr. Dante D'. Antonio. Doctor, good to have you aboard.

[C]

Hi, Mark. How are you?

[A]

Good, good. So, generally, how's everyone doing? How are you feeling about things? I know we'll get to the ugly jobs report in a second, but, you

[D]

know, other than personally speaking, how are we doing?

[A]

Personally speaking and also, I should say, abstracting from the ongoing technical battles we're all having.

[C]

I'm leaving for vacation right after the podcast, so I'm feeling pretty good. I'm good.

[A]

Oh, you're feeling pretty good.

[D]

I'm leaving for vacation tomorrow, so I'm also feeling pretty good. Yeah.

[A]

All right, well, you guys, you're abandoning me.

[D]

I'm.

[A]

What am I all by myself?

[B]

I'm here.

[A]

No, I'm here.

[D]

He's your deputy.

[B]

I'm chopped liver. But, you know, I'm here.

[A]

I've been working on this. We talked about it the last podcast. This yield curve indicator did some more work. Chris, I'm just about ready to send it your way. I. I did send you a bit of a draft. What'd you think? Any promising or.

[B]

Or not promising? It was a little difficult to follow, I have to say.

[A]

Really? Okay.

[C]

Okay.

[B]

It's a little A.I. right?

[A]

Oh, yeah. I hadn't put the human element, you know, my human touch to it, but you could tell.

[B]

You could tell.

[A]

Yeah, you could tell. You know, I will. I will. And I'll send it your way. And I actually done more work around the explication, so I think. I think you'll find it more useful this next round. Oh, I'm also going to send you the underlying data so you can have at it. Because you asked for the underlying data. Yeah.

[B]

Got to validate.

[A]

Yeah. So we're still working, guys. While you're. Dante, are you on a cruise? Where are you going? What are you up to?

[C]

We're going to be in Tennessee. Just going to Tennessee.

[B]

Yeah.

[A]

Pigeon, Forgeville, that area, Bluegrass, Dolly Parton, that kind of stuff.

[D]

Oh, Dolly Parton.

[B]

Yeah.

[C]

Going to Dollywood.

[B]

Yeah.

[C]

Gonna.

[A]

Oh, cool.

[C]

Gonna see what's going on.

[A]

Oh, so cool. That is really cool. Yeah, I like Dolly and Marissa. Where are you off to? Where you. Now you're overseas, I'm sure. Somewhere like Bora Bora.

[D]

I'm going to Mexico just for five, four days.

[A]

Oh, that sounds nice. That sounds nice. Okay, well, safe travel, guys, and we'll hold down the fort, Chris and I, and we'll welcome you back. Are you going to be back for next week's podcast? Because we're, I think, David Autor. Isn't David Autor coming on. The MIT economist, the great guy, well respected. We're going to talk about AI, artificial intelligence as part of our AI series that we're gearing up for. That's next week, isn't it? I believe, I believe it is. Yeah.

[B]

I think it is.

[C]

Yeah.

[A]

Yeah. Soon. Yeah. Coming up. Okay, well, let's get down to business. The jobs numbers for the month of July, July 2026. Dante, I think the word is ugly. No. Do you have a different way of describing it?

[C]

Well, I think ugly. I think ugly is the right word. Headline job loss for the first time since early this year. Significant downward revisions to previous months. So all that combined gets you three month average job growth. That's 20k right now. It was much, much higher than that. It was over 100k just last month prior to revision. So it's a big swing in job growth over the course of the month. Industry detail wise, there's not a whole lot to be happy about. I mean, healthcare obviously still added jobs, but at a slower pace than we're used to seeing. Construction maybe a bright spot, added a little over 20,000 jobs, but outside of those two, it was a lot of negative on the board. Government was the big one and I think we can talk about the details of that. But it was mostly concentrated in local government. Leisure hospitality also down big again for the second straight month. Retail trade down almost 20,000. Finance was down. So again, not a whole lot of highlights there under the surface.

[A]

The diffusion index, that's the percent of industries canvassed by the BLS that are adding to payrolls. I noticed that that also came down quite a bit as well during the month.

[C]

Yeah. And I think anytime you see that headline loss in jobs, you almost always see the diffusion index come in quite a bit.

[A]

Quite a bit, yeah. So the one kind of anomaly. And now we're talking about your focus on the payroll survey, the survey of businesses. We'll get to the household survey in just a second, which was even uglier. But the payroll survey, the government down, I think was a little over 50k in the month. Mostly local government. Do I, I do, I remember correctly? There was A month, not too long ago where we saw a positive surprise on local government that we saw a jump in employment.

[C]

That was actually a positive surprise. Local government, excluding education jumped a few months ago, but that actually got revised away pretty, pretty significantly. This was in local government education, which is obviously very highly seasonal. We're in the summer months when it's, you know, you can see those shifting seasonal patterns really play role here. So I, I would pretty heavily discount the decline that we saw, and I would expect that we, you know, probably get it back here next month just because of a shift in, in hiring patterns for teachers.

[A]

Okay, so that's the decline of 50k in local government. That's education is just your, your thinking is it's more noise than signal and that we'll get a bounce back at some point and iron itself out. So this actual decline in employment is likely overstated. But Even accounting for 50k, if we add that back in, we're still positive, but at very little positive growth.

[C]

That's right. Private sector gain. Private sector was 30k positive, and that's exactly the same as it was in June. So I mean, we're not exactly growing like gangbusters, even on the private sector side.

[A]

Yeah. I also noticed, I guess AI has some role here in adding to jobs. You see it in construction and manufacturing. Right? I think. Do I have that right?

[C]

Yeah, I mean, that's my assumption on the, on the construction side of things. And yeah, manufacturing was a little bit smaller of a positive, but certainly construction, I think is mostly fueled by, you know, AI build out at this point.

[A]

Right, right. I mean, and it's still quite modest. I mean, I think construction was up what, 20k, something like that, and manufacturing up 5k. So even though AI is probably adding, it's a, it's a pretty modest add. Be my sense of things.

[C]

I would agree.

[A]

Okay. All right, so just taking a step back, kind of looking things over with a broader lens, historical lens, and I know we've had this discussion before every month, and let's have it again. What is underlying job growth, meaning abstracting from the noise, getting to this underlying signal, you know, what do you think average monthly job growth is underlying all the noise? What do you think it is?

[C]

I think it's 40 or 50k somewhere in that neighborhood.

[A]

40 or 50k? Yeah. Okay. All right, Chris, what do you think? Looking at the numbers, I know you haven't had a chance to dig deep into the bowels, but based on what you've seen and heard, what's your sense of Things after the number we got, after all the revisions, what do you, what do you think underlying job growth is?

[B]

Oh, I was going to say, overall, I think this report actually makes. I know it's ugly report, but actually makes more sense now.

[A]

Relative makes more sense.

[B]

Okay, right. The last few months we've been kind of puzzling to see all the strength and now with the revisions, it actually seems to fit more with the narrative. But yeah, ugly, ugly report. Underlying job growth. I, I think I've pegged it around 3540. I think that's still the case.

[A]

Oh, that sounds lower than you, than I would have. As I recall, you're saying 35.40K underlying job growth. Okay.

[C]

Yeah.

[B]

Break even around 35, so.

[A]

Oh, okay, that's, that's where I, that's where we differ. Yeah, that's right. Okay, got it. We'll come back to the break evens in just a minute. So. Yeah, you make a good point. You're saying that, you know, given all the other data and everything else that we've been observing, it had been surprising to see these larger monthly job gains this spring. And now with these revisions and the data we've gotten over the last couple of months, it now all fits better

[B]

with the other data, right?

[C]

That's right.

[B]

It's possible it still gets revised down. Right. At the end of the day at least this seems a little bit more consistent with some of the other sources we've been looking at. And the broader picture in terms of you'd expect higher oil prices to do something. Right. It's got to have some effect on weakness, but.

[A]

Right. And I guess, you know, one data point that to call out would be GDP growth. Right. Because we got that last week and GDP growth is at best 2%. And if you have 2% productivity growth, which is. We got that report this week as well showing about 2% productivity growth. That doesn't leave a whole lot of room for job growth. Right.

[B]

So that's right, that's right.

[A]

To your point about this is much more consistent with what we had been

[B]

saying in other data and the other area. I'm assuming you'll go here as well. But wage growth has also been moderating, kind of moderated in this report too, and that's consistent with the slower employment situations.

[D]

Yeah.

[A]

I want to come back to wage growth because one of the puzzles here is we talked about the household survey and unemployment, the declining unemployment to 4.1%. How much slack is there in the labor market? So I want to come back to that. In that context. But. Okay, so Dante is saying underlying job growth, monthly job growth, abstracting from the noise is 40 to 50k. You're saying you're less than that.

[B]

35, maybe a little less, but, you know, not. Yeah, yeah, yeah.

[A]

There's grand hairs here. Yeah, splitting hairs. Yeah. Okay, Marisa, to you. What's your general take and what's your estimate of underlying job growth?

[D]

I think underlying job growth is probably around 30k.

[A]

Okay,

[D]

I agree with Chris. This makes more sense. You know, it was puzzling why we were getting these big numbers in the spring and earlier this year. That was hard to explain. And now that's been tempered. And this is more in line with what we see in other data in terms of hiring rates and jolts report. You know, there's still no layoffs, but there's a lot of evidence that there's just not a lot of hiring, no matter kind of what survey you look at. So, yeah, it's not.

[A]

It's.

[D]

It's not good among a variety of dimensions. We haven't really talked about the household survey yet. I mean, not only is there no hiring, the hiring that there is is very narrow. The labor force is contracting. So, yeah, it's kind of more. It's a continuation of the trend we were seeing throughout 2025, I think.

[A]

Right, right. Dante, in the payroll survey was there. You know, there's a lot of other stuff. There's hours worked, and that kind of held its own. Although I did notice manufacturing overtime hours declined and hours have been. Are low and have been kind of slumping here on a consistent basis. We'll talk about wages in just a second. But is there anything in the report that's redeeming that. You know, usually these reports are a mixed bag, Right. You got some positives, you got some negatives. And depending on which part of the report you look at, you can come up with a, you know, kind of different narrative about what's going on. But this one, I can't see anything redeeming in the. In the. In the numbers. Is. Is there anything redeeming in the payroll numbers that you can call out?

[C]

I mean, I think you have to squint pretty hard to find something. I mean, I guess the fact that health care is still adding jobs is good. Right. If that sort of. If that falls away, we're in even bigger trouble.

[A]

If that's the best you can do.

[C]

You know, professional business services added again, it's, you know, up over 50,000 jobs the last two months. So, you know, maybe That's a little bit of a positive. A story early on that maybe there's some sort of AI related job gains happening there. But again, I wouldn't put a whole lot of faith in that at this point.

[A]

Okay. Hey, Chris, Marissa, any just to.

[D]

Did you guys mention leisure hospitality and the. It's lost 40,000 jobs in the last two months.

[A]

No, no, we didn't mention that. Yeah, yeah.

[B]

We're looking for positives though, right?

[C]

That's.

[D]

Yeah, yeah. I'm sorry. Back to the negative.

[B]

Yeah.

[A]

Which also might be more some noise as opposed to signal. Right. It does feel a little weird. Although I guess in July maybe there were some World cup related layoffs, but in June we didn't get any. I guess maybe it was in May we got some. That. That I'm confused about.

[D]

That's right. So actually I'm not sure now with the revision what May Is, but up 42 in May.

[C]

Okay.

[D]

And then it lost 40 in June and 40 in July. So it's more than World Cup. Right. I mean, whatever there was from the World cup is gone. And there wasn't much to begin with. There was no hiring in June when you would have expected it. And it's kind of across the board. It's restaurants, it's entertainment, it's amusements, it's everything, you know.

[A]

Did I tell you? I mean, economists are loathe to tell anecdotes, but I kind of like anecdotes, just not this if they're consistent with my worldview. But, you know, did I tell you we go to the beach as a family around July 4th, and we go to the same beach in New Jersey and hang out either the week before July or the week of after July. And I've been. We've been doing this for decades. And this last July 4th, the island, because it's a barrier island, most of the New Jersey beaches are on barrier islands, was really incredibly quiet, you know, almost eerily quiet. I mean, historically, I couldn't find. You couldn't find a parking spot. You know, you'd have to drive for a while to get a parking spot. If you're going out to dinner, getting a reservation, impossible. Just everything about it was just eerily quiet and to the point where I noticed and even the workers at the hotels were commenting, you know, that they were having some difficulty. I just wonder. And this was July 4th, you know, about the time when gas prices, you know, were at their high and so forth and so on. So I just wonder if something else deeper isn't going on here. I don't know what you guys said.

[C]

I can give you my side. So for years we would go to the Jersey Shore every summer. We'd usually go for two weeks. And prices just got out of control since, since the pandemic. I mean, the rental prices for houses. We stopped going last year because we actually went to Hawaii instead of going to the Jersey Shore because it was basically the same price.

[D]

Wow.

[C]

The supply demand balance got way out of whack. And I think now with consumers on edge, I think it probably just hit even harder. People were sort of tolerating higher prices for a few years, and then I think it maybe just was too much.

[A]

Ah, interesting point. Someone else gave a theory, has kind of a different perspective that, you know, a lot of the homes are obviously owned by people that aren't there.

[C]

Right.

[A]

These are second vacation homes. And because the stock market has done so well, they don't need to rent.

[C]

Oh, yeah.

[A]

But you would have seen that. Yeah.

[B]

I don't know.

[A]

That's a theory. I didn't test it, but interesting. Probably shouldn't dive too deep into these anecdotes, though. But anyway, they're fun to consider. Okay, let's turn to the household survey. And the household survey, typically economists kind of poo poo it because it's based on a small sample of, I think, 60,000 households. And there's a lot more, tends to be a lot more noise than signal in the household survey. But, you know, the numbers there are pretty clear and consistent since the beginning of the year. They're all negative. And that did not change in the month of July, right, Dante?

[C]

That's right. Yeah. I mean, the story just sort of continues on the household survey with labor force declining, employment declining, the unemployment rate declining, but for obviously the wrong reason, because the labor force is contracting faster than household survey employment, which is not what you want to see.

[A]

Right, right. And I, I, this is in my mind's eye, but I think since the beginning of the year, and we have to go since the beginning of the year because there's these population controls that mess things up on a level, on a level basis at the start of the year. So start since the start of the year, I think payroll employment is up by, I don't know, 450, 500K. But household employment's down by a like amount, or if not more, two opposite directions here.

[C]

Household employment's down by over 900,000 now since January.

[A]

900,000.

[C]

Wow. And even if you adjust for payroll concept, it's still down by almost 900,000. So it really doesn't make much of a difference whether you, which concept you're looking at. The payroll survey is actually a little bit weaker than it's been in recent months just because of the downward revisions. If you look just since January, it's up a little under 300k now.

[A]

Oh, is that right? Okay, so payroll's up 300k, household is down 900k.

[C]

Yep, that's right.

[A]

So, so what do you make of that? I mean, are you again, economists tend to poo, poo discount the household survey? Are you poo pooing and discounting the household survey or are you putting some weight on it in terms of what it's saying, which is pretty clearly we got a problem.

[C]

Yeah, I mean, I think you have to discount at least to some degree. I mean, the labor force is down 1.4 million since the beginning of the year. I mean, I don't know that that's. I also, I think we'll continue to see the payroll survey get revised closer to the household survey. I don't think we're going to see outright declines in payrolls for all of 2026 or anything that severe. But I do think the revisions we got the last few months of the payroll survey are certainly pushing it a little bit closer to the direction of the household survey. So I don't think we should completely ignore it, but I do think it's a little bit extreme.

[A]

You do?

[B]

Okay.

[A]

All right. And of course, the kind of the headline in the household survey though is the unemployment 4.1%. That's now down again on the month and it's down for the last few months. Right. I think on a. In, if you look at recently, the peak was what, four, four, four and a half? Did we get as high as four and a half percent, but we're back down to four.

[C]

4.4. Yeah, it was four, four in February and it's come down since then.

[A]

Four, four to four one. I don't know. Did you look, is it to the third significant digit? I mean, is it, was it rounded down or rounded? You know what it was?

[C]

It was 4.09. So the rounding didn't really matter.

[A]

It did matter. Okay. All right, so. So what do you make of that? I mean, in the context. Because the other data point that we talked about is labor force participation that slid again and now is down almost a point over the past since, since the end of last year. You know, how do you think about that in terms of what it's Saying about the amount of slack in the labor market.

[C]

I mean, I've been struggling. I mean, I think we talked about last night. I'm struggling a little bit, right? Because if you think about sort of breakeven job growth, right? I mean, if you just look at the household survey in isolation, break even job growth is negative, right? I mean, I don't think you could argue it's anything but negative. If the labor force is outright declining every month, you don't need to add jobs to keep the unemployment rate stable. And that's what we've been seeing, right? I mean, household survey employment is down 900,000 since the beginning of the year, but the unemployment rate is lower, which is telling you that you can lose jobs and still have what looks like a tightening labor market, which obviously I don't think is really the case. I think you brought up earlier, the wage growth story also points to the fact that there's probably more slack in the labor market than there was six months ago. Wage growth has decelerated pretty significantly since the start of the year. It was basically flat in July. So I think it's just hard to reconcile when you've got such a strong decline in the household survey. But it feels to me like there's more slack than there's been in recent months. And I don't know if that's just that the hiring is so weak that it just doesn't matter what's happening with the labor force, that there's just no appetite for hiring and that's taking all pressure off of wage growth. And so it can still fall even though the unemployment rate is close to 4%.

[A]

Hey, can I make a change in our definition of break even job growth? Because you're using it in the context of the unemployment rate. But really what we want to measure is slack in the labor market, right? And the unemployment rate is in the current context part of that. But so is labor force participation, right? I mean, if people are leaving the labor force, and I do want to talk about why people are leaving the labor force, but if they are leaving the labor force in part because they're just discouraged, you know, they. There's no hiring. So I'm not going to look, I'm just going to go to the sidelines here, I would consider that to be part of the slack in the labor market. So this goes back to the vicious cycle index that we constructed that accounts for unemployment and labor force participation. In getting a sense of what kind of slack wave in the labor market, it seems to me that if you do that, then the break even monthly job growth is, isn't zero. It isn't negative. It's something positive. Is that, is that, Am I, am I making sense, Dante?

[C]

Yeah, I think that makes sense. Or if you change the definition, then I think you could certainly argue that break even is something that's slightly positive. I think if. Right. If you're thinking about, well, there's got

[A]

to be more than, it's gotta be more than your underlying. Right. Because you're underlying slack is developing in the labor market.

[B]

That's right. Yeah.

[A]

Right. So that would suggest if your underlying estimate of underlying monthly job growth is 40 to 50k and Slack is developing, then that would suggest that the break even is higher than 40 or 50k.

[C]

Yeah. At least by some small margin.

[A]

Yeah.

[C]

Yeah, I would agree.

[A]

Yeah. Okay. Okay. So in that context, what do you think? Break even. And guys, get ready, I'm coming after you next. You know what your estimates are in the context of this definition? What do you think underlying job. Excuse me, what do you think break even monthly job growth is?

[C]

I mean, slightly. It was 60, 70K. I mean, I don't think it's much higher. I think we're pretty close to balance here.

[A]

Yeah, we're pretty close. Yeah. Pretty close. Is the slack is, is there's slack and it's developing, but it's slow. Slow. So that would suggest break even is just a bit above the underlying kind of monthly job growth. Okay. Okay. Marissa, what do you think of all that and where do you stand on this?

[D]

I. I agree. I think break even is somewhere between 50 and 70K. Somewhere around there.

[B]

Yeah.

[D]

Yeah.

[A]

And your underlying is 30K.

[D]

That's right.

[A]

Okay. Okay. All right. And Chris, what about you? What do you think?

[B]

Yeah, so under this expanded definition, it. I'd put it at around 40, 50K.

[A]

Okay. Your underlying was lower than 30 to 30 to 40 and your, your break even is 40 to 50. You kind of said that in a. Kind of a. What's the right word?

[B]

Not a pejorative.

[A]

I didn't want to use that word. But you were kind of dismissing what my, my change in definition. But don't you think that's a substantive change?

[B]

It is a substantive change.

[A]

Yeah. Yeah. In inappropriately substantive change. No. Yeah, yeah.

[B]

It just.

[A]

Yeah, yeah. I'm just checking. I'm not. There's no sleight of hand here. Is what I'm. Economic slight of hand.

[B]

Well, earlier I said it was lower. That's why I wanted to.

[A]

Oh, oh, I see.

[B]

Under the yeah, that was.

[A]

Okay. Okay, so I think we're on the same page. And I would say underlying is 50k. I've not changed. It's still 50k. And break even is 70k. Break even is 70k. So thus the slack. Okay. And let me ask you another question along the same lines. Do you think the economy's operating below full employment? I mean, with wage growth decelerating? And that's. Dante, you didn't. I don't think you gave us the exact number, but average hourly earnings year over year through July with 3.15 round up to 3, 2. And that's about as low as it's been since before the pandemic. Am I right about that, Dante? I think I am, yeah.

[C]

I think if you look. I mean, the noise sort of in the immediate aftermath of the pandemic, but. Yeah. I mean, if you're looking on a stable basis, you have to go back.

[A]

So wage growth is decelerating, and now it's firmly below inflation. Right. So real wage growth is declining. That would be consistent with an economy that's operating below full employment. No, Dante.

[C]

Yeah. I mean, I don't. Yeah, you have to agree with that.

[A]

You have to. Okay. It's total logical is what you're saying.

[C]

I think so. I mean, I don't see how those two things aren't true. Right. How do you. I mean.

[A]

Right. So when you're sitting at the Federal Reserve Board and you're saying you would say we are operating below full employment. We haven't. We've missed our mandate. We're missing our mandate to have full employment. We're operating below full employment. You would say that. You would argue that.

[C]

Yeah, I would.

[A]

How come I feel like I'm Socrates?

[B]

Therefore, you must.

[A]

I'm pulling this out. Yeah.

[C]

Therefore, don't disagree with you. That makes sense to me.

[B]

All right.

[A]

All right, Chris, you heard Dante. What do you think? Are we at full employment or are we operating below it?

[B]

I think we're pretty close. Maybe slightly below.

[A]

Slightly below. And wage growth decelerating. What would it take for you to think that we're operating more fully away from full employment? What would it take?

[B]

Yeah, I'd say further wage growth, deceleration. Right. Really seeing a sharp downturn. But then I'd look for other measures of slack in the labor market. Right. Like the U6 rate or the other measures of underemployment, and we haven't really seen much of a movement in those measures just yet. So that's why I think we're pretty close to full employment.

[A]

Still got it.

[B]

Good.

[A]

Got it. Marisa, what do you. What would you say on this topic?

[D]

I agree. I think that we're pretty close to full employment. I mean, wage growth, let's say it's 3%. That's. That's what it was before we came into the pandemic. It's certainly been lower than that in the past. So it is decelerating. Right. So we don't know where it, where it stops, where the bottom is. But I'm not, I'm not worried just based on wage growth. Right now, I'm looking at other measures of labor market slack, and those are up, they're higher, but they're not in any sort of alarming territory like the number of people marginally attached or the number of people saying they want a job or working part time. You know, the U6 that Chris referred to. I just think we're in a new demographic regime and that's why we're close to full employment. I just think we're not pumping out labor force growth like we were in the past for a variety of reasons that I think we'll get into later.

[A]

Yeah. You know, the other element of this, I think, is inflation. I mean, you know, it's one thing if wage growth is decelerating and inflation is low, but wage growth is decelerating in the context of very high inflation. So real wage gains are actually declining, which kind of reinforces the concern that maybe we're operating below full employment now. Maybe this inflation, temporary, it goes away quickly once we get to the other side of the Iran war. But maybe it doesn't. And workers and businesses must be asking themselves if it doesn't, what's. What's going on here? I mean, I can't continue to operate, you know, financially with declining real wages. So in my mind, we're not there yet. But the fact that wage growth is nominal, wage growth is decelerating in the face of this high inflation reinforces the argument that, you know, if we're not at full employment, we're something operating something. Not a lot. I'm not arguing that, but, you know, at least to some degree.

[B]

No.

[A]

Does that resonate at all, Dante, does that resonate that argument with you?

[B]

It does.

[C]

And I would think from the, like, from the worker consumer perspective, the fact that you have high inflation and the fact that productivity growth has been relatively strong makes decelerating wage growth even harder to swallow. Right. I mean, the fact that wage growth is 3% when you've got productivity growth that's probably around 2%, inflation that's 3% or higher. That would argue that wage growth should be accelerating. Right. It should be picking up, not decelerating. And so I think from a worker perspective, it's got to be pretty demoralizing.

[A]

Yeah, exactly. Okay, well, let's do this, because technical difficulties abound and we're going to try to get this done before we get cut off again. Let's. Let's do the statistics game, go through that, and then we'll say goodbye to Dante, because Dante is going to. Are you driving out to Tennessee, or is that what you're doing?

[C]

We're driving to Tennessee. Yep.

[A]

Okay. Road trip. He's got to get in the car and then we'll come back. And I do want to talk a bit more about labor force participation and what's going on there, because I think that's key to this question about how much slack is in the labor market or not. So let's play the game. We put forward a stat. The rest of the group tries to figure that out with clues, questions, deductive reasoning. The best stat is 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 apropos to the topic at hand, obviously, jobs, all the better. But it doesn't have to be. And Marissa, we always begin with you. What's your stat? And I see I just grabbed you mid drink. Sorry about that. No, it's okay.

[D]

Yeah, My stat is $116,000 in the jobs report. Yes.

[A]

Payroll survey?

[B]

No.

[A]

Household survey.

[D]

Yes.

[A]

Yes. Okay. Number of jobs?

[D]

No.

[B]

That's.

[C]

Was that increase. Is that population increase?

[D]

It is, yeah. It's the popular. It's the civilian non institutional increase. Population increase in July.

[B]

Whoa.

[A]

That's impressive, Dante. How did you know that?

[C]

I mean, I always look at the headline table and it's the first number in there every morning.

[D]

The first number on the top of the table. Okay.

[A]

I guess that says something about me.

[C]

Yeah,

[A]

my eyes go somewhere else first. Okay, all right, Explain why. Why is that your stat?

[D]

Well, first I'll say that both of my number one and two stat were taken during the discourse of this conversation,

[A]

but because what were they, by the way? What were number one and two?

[D]

The 1.4 million decline in the labor force since January was my first stat. And this sort of goes along with that. And I just alluded to part of what I think is going on with this question about slack in the labor force. This is the Smallest gain in the civilian non institutional population. It's not seasonally adjusted in any July since 1965. I mean, we are. We are in a. We are in an era where the population has growth. Overall population growth has just slowed very dramatically relative to where it's been in past decades. So we're just. We're not adding the people that are coming into the labor force. We have immigration policy pulling even more people out of the labor force. So this question of, you know, where is break even and. And how much slack is there? We just don't have the denominator. We don't have the base that we used to have. So you really don't need as many jobs to be added each month that you used to have because you just don't have as many people.

[A]

Right, right. Yeah. I'm wondering increasingly whether a lot of all the stuff that's going on in the labor market can be traced back. And there's a lot of. A lot of things going on, but one of the key things going on is immigration policy. The fact that, you know, many immigrants are being deported and others are scared to go to work. And it's having a much larger. That's a pretty obvious statement to say that. But the impacts of that run deep into the labor market in lots of different ways, and we're just now starting to understand them, and that's a much bigger deal than we think. Okay, that's a good one. Dante, you want to go next?

[C]

Sure. I've got a pair of numbers. So the first one is 114,000, and then the second one is 61,000 payroll numbers. They are based on the payroll survey. Yes.

[A]

Jobs.

[C]

Jobs, Yep.

[A]

Change in jobs.

[C]

It is an average change in jobs, yeah.

[A]

Okay, so is it 114,000?

[D]

116 and plus 41. Is that what you said, Dante?

[C]

114,000. 61.

[A]

61,000.

[C]

61 is related to today's report, the 114,000. You have to look back a few months, so it's a little tricky.

[A]

But 61k today, that's not. I mean, it's not average monthly job growth.

[C]

It's not an industry. Mark, what you. I think you might have been, I

[A]

was going to say is some. Is this some measure of average monthly job growth over some period?

[C]

It's average monthly job growth so far this year. Yeah.

[A]

Oh, so far this year? Oh, year to year. Yeah. 61 k. And. Okay. And so what the 114 is. You have to go back a little bit. That's like the high the largest average monthly job gain since the beginning of the year.

[C]

Well, so if you go back to May, when the May employment report came out, it said that we had added 569,000 jobs January through May, and the average was 114,000. Now, two months later, we got the July employment report. Now we say that total job gains were only 426,000. We've added fewer jobs through July than we thought we added through May, and the average has been cut in half from 114,000 to 61,000.

[B]

Right.

[C]

Which is how fast the story can change. Right. If you go back to May.

[A]

Yeah.

[C]

People were feeling pretty good about the labor market. Right. Job growth looked like. The common conversation was that job growth was re. Accelerating. Right. The end of 2025 was very weak and job growth was back and things were moving in the right direction. And now we're sitting here again talking about how weak job growth is. And, you know, the story is much more negative. And so that's just how quickly it can change. Even when things look strong, the narrative can change.

[A]

That's a good one. Hey, let me ask you. We didn't talk about the statistic that you often bring up, and that's the change in the household employment number on a payroll survey basis, because these are two different definitions. What was that for the month?

[C]

It was actually slightly positive. In July, it was up 66,000 against a decline of 87,000 unadjusted. But they're both still down by a large amount since the beginning of the year. So it doesn't really change that story.

[B]

It's.

[A]

And you said since the beginning of the year, the household employment numbers are. Survey numbers are down by about 900k. What is that on a payroll survey basis? Do you know?

[C]

Yeah. So it's 920unadjusted. On a payroll survey basis, it's 869,000. So, I mean, it's basically the same story.

[B]

Okay, same thing.

[A]

Okay, same thing. Okay, great. Those are good stats. Hey, Chris, what's your stat for the stats game?

[B]

153,000, Mark.

[A]

153,000. Am I the only one playing this game? Because you got other guys. Everyone else knows those. Oh, my gosh. All right, let's see how good I. How well I do. Is it in jobs numbers?

[C]

Yes.

[A]

Payroll. Payroll survey?

[B]

No, household survey.

[A]

The household survey. Is it. So is it jobs? 153,000 jobs changing.

[B]

It's people.

[A]

Oh, it's people. Is it in the. Related to the labor force?

[B]

Yeah, yeah, it's in the report.

[A]

It's why

[D]

it's in the household survey.

[B]

It's in the household survey, Right.

[A]

Yeah, yeah, yeah, yeah. But when. But there's employment and labor force. Is it related? Oh, is it employment? It's.

[B]

Well, what's. It's the opposite of employment.

[A]

Oh. It's unemployment.

[B]

Yes. Layoffs, layoffs.

[A]

153.

[B]

That was the increase in the number of people on a temporary layoff. Ah. In the month. Now it's one month. Right. But it was a big number. That's why I chose it. It kind of jumped out at me as a. A pretty big increase in the report.

[A]

So. Say that again. What was the 153,000.

[B]

That's people on temporary layoff.

[A]

In temporary layoff. Okay, Right.

[B]

Permanent layoff was stable. That didn't really change that much, but that was a big jump. Now, there's volatility in this number, so don't overreact. But it was a sizable increase.

[A]

Right. And your interpretation is this is another sign of weakness in the labor.

[B]

Some weakness.

[A]

Yeah, yeah. It's another. Another thing in the bowels of the report. Okay, okay, okay. How about 65.5%

[B]

labor force participation?

[D]

The labor force participation rate.

[A]

Yeah. For which crime?

[B]

Age?

[A]

No, it might be, but that's not what I had in mind. I don't tell.

[D]

It's higher.

[C]

So young workers.

[A]

No, not young workers.

[D]

Older workers.

[A]

Not older workers. You give up.

[D]

Foreign born.

[A]

Foreign born.

[C]

Oh, there you go.

[A]

Foreign born. Yeah. Very good, Marisa. Yeah, that's 65.5%. I mean, obviously participation rates by the foreign born are higher than the native born, but they're also declining. So they're stepping out of the workforce. Okay, Dante, anything else before you kind of leave us?

[C]

No, nothing else to add. It was a negative report, I think, from top to bottom, which is a little bit unusual. A lot of times these reports are a mixed bag, and instead this time it was a negative story all throughout.

[A]

Well, thanks, Dante. I hope you have a wonderful vacation. Well, it's good to be with you two guys. And I thought we'd end the conversation on two topics. One is on labor force participation that, you know, it has declined, as we were discussing quite a bit. And I'm just curious what you think are the causes behind that decline? And I'd like to go through that, and then maybe we'll end on what this all means for the Fed, because I think for sure this complicates things for them, at least for those who thought a rate hike was the right policy choice. Maybe they're reconsidering, but let's talk about that. So on labor force participation, am I right, Marissa? The participation rate, the overall participation rate across all demographic groups, that's down almost a point, a percentage point since the end of last year. That's right. I've got that right.

[D]

That's right. It's down 7, 10 of a percentage point since the start of this year. Just to get around that population revision in January, if you take out the pandemic, the overall participation rate is back to where it was in 1975.

[A]

Really?

[D]

Yeah.

[A]

I didn't know that. Boy.

[B]

Yeah.

[A]

And just for context, if the participation rate had remained unchanged since the end of last year, I think the unemployment rate would be over 5% or pretty close to 5.

[D]

I think that's right. Close to 5%.

[C]

Yeah.

[A]

So that's a big deal. So, you know, I had thought that this was mostly noise. You know, this is a small, this is the household survey, small sample and all that stuff. A lot of seasonal issues. But with each passing month and we see another decline in participation, this feels like something more fundamental is going on, that this isn't noise, this is signal. So the question is, you know, what's going on here? You know, why is participation falling? Because that goes to what it means for policy, particularly for the Fed. Because if it's the decline in participation is more structural, meaning something that is not is going to be more persistent. Like, you know, people are wealthier and retiring, that kind of thing, that's one thing. But if it's more cyclical, you know, young people leaving the workforce because they just feel like they can't find a job, there's no hiring, that's a different thing. So what do you think, Marissa? There's a long list of reasons potentially what, what's going on here. But what's kind of at the top of your list?

[D]

Participation. If you look over the last couple of years, we can talk about month to month changes, but I'm not so convinced that we should look at any one month. If you look over the past couple years, there is a decline in participation rates among older, the older workers and the younger workers. So prime age workers participation hit kind of a cycle high. It's come down a bit this year, but it's still quite high relative to historical standards. And that's especially true of women. Women, prime age workers, older workers, people over the, over the age of. You could even include 55 year olds, 55, 65. Participation has come down since peaking in about 2024 and certainly participation is coming down for people 16 to year olds. We also talked about earlier, participation has come down for foreign born workers, likely a reaction to immigration policy. So not only is the labor force itself shrinking, but there has been a recent decline in participation rates among foreign born workers as even people that are staying are more reluctant to go into the, to the labor force. So there's kind of a story for all these demographic groups. Actually there's kind of something going on, I think with all of these groups. But you know, the thing that always stands out to me is the older workers seem to be. Two things are happening. The population is aging, so you're just getting a lot more normal exits out of the labor force. But participation is lower as well, even among the people that are still in, in the, you know, potentially in the labor force.

[A]

Right. And what do you suppose is going on there? Is that, that the, the wealth effect? I mentioned earlier that older, wealthier individuals, they can now retire, they don't need to be working and they're using this as an opportunity to step out.

[D]

I don't have any evidence that that's exactly what's happening, but it's a, I think it's a narrative that, that makes a lot of sense, especially just given the run up in equity markets in the past, you know, three, four, five years. It does coincide with that. We've also talked about is there some AI push of older people out of the labor force too? Could it be that people that are on the cusp of retiring are looking at the changes coming in their company or their business and saying this is just a good time for me to step out because I don't want to deal with this AI stuff. So again, I don't think there's a lot of evidence out there of either one of those, but those narratives make sense to me. I'm not sure why else people would be leaving the labor force quicker now than they were say, you know, five years ago?

[A]

That all makes sense and I guess it kind of fits with the timing. I mean, AI has really come on here over the last year. The stock market has taken off, it's been longer than a year. But now people are realizing that this may be their stock wealth might be more durable and thus they feel more comfortable stepping out of the workforce. If that's the case, if that's the reason, the fundamental reasons why that feels more structural than cyclical. The decline in participation is not a signal that there's more slack in the labor market. These folks aren't coming back in all

[C]

likelihood,

[D]

unless the stock market goes the other way and they have to come back into the labor force, which we've seen before, right after recessions. So we've seen a lot of like in the, in the, during the financial crisis, we saw a lot of people retiring, presumably for the same reason, except back then it was housing wealth, not necessarily equity wealth. And then when the recession came, we saw a lot of people that had retired come back into the labor force because they had to rebuild those that their wealth back up. So I mean, in a way it's structural, but I mean, there could be a cyclical component to this depending on how equity markets play out here.

[A]

Yeah, got it, got it. Chris, what about you? What would you put at the top of the list? It may be the same thing as Marissa, but abstracting from what she said, you know, what would you put at the top of the list?

[B]

Yeah, I think it. I certainly agree with most of those claims there about the demographics and some of the changes that we've seen there. I've seen some evidence in some report, if we look at just the most recent declines which seem like anomalous, there's some evidence that that might be more statistical anomaly.

[D]

Right.

[B]

There was the population controls in January that may have shifted essentially with those population controls they found, or the share of over 65 population actually went up. So just compositionally, if that's true, and now they've kind of reexamined the population, let's say, and found that there's a larger share of older population just compositionally that would suggest that the labor force participation rate would be lower. But perhaps the real error isn't so much or the shock shouldn't be that the participation rate is reported as lower today. It's just that we reported it as too high in 2025. So this is kind of just rebalancing here. So the trend is downward. So I think it's very consistent with Marissa's point of view here in terms of what we're seeing. But it may not be quite as strong as what the data suggests. Some of this might just be some statistical noise as we refine the population estimates.

[A]

Wouldn't you have thought that if that were the case, it would be kind of a level shift down in the participation rate when they moved over to the new population controls at the start of the year and not this consistent month after month decline that we're seeing?

[B]

Well, we saw this big, big drop off in. Well, was it June?

[A]

Right.

[B]

Wasn't that the. It's been that was the month where we saw the.

[A]

Well, in the prime. In the prime age, we saw a big decline in June. Yeah, in the prime age, labor force participation. Yeah, yeah.

[B]

Oh, just prime age. Okay.

[A]

Yeah, so we saw the biggest decline was in prime age.

[D]

Yeah, I don't think it was just prime age, but there was a big decline in prime age.

[A]

In 25 to 54 year old, participation rate fell very sharp. Came back a little bit in July, but only a little bit. It's still well below, you know, where it was earlier in the year. So yeah, I guess that may. Yeah, I mean that goes back to the signal noise and. But with each passing month, again it feels less noise, more signal. So any other fundamental arguments you can think of for why participation may have declined in this period?

[B]

Well, another thought I have is just what I wonder if we have the wrong equilibrium in mind.

[C]

Right.

[B]

We kind of, or at least in my mind, I kind of think of 2019, what was going on in 2019. When we think about the 65 plus population and we've seen participation rate come down since then, but it's kind of not all that far from where it was in 2010, 2015 time period. So maybe again, maybe the anomaly is we had this bump up in participation of the older workers during that time period and now it's come in. But maybe this is the equilibrium, maybe this is normal, it's not that it's abnormal. And perhaps it's the stock market that allowed people to come back into the level of participation that they normally would choose.

[D]

I think that could definitely be true for what's going on with prime age. In the last few months, prime age hit almost an all time high. Right. And it's come in a little bit. But maybe that high point was not a sustainable high point and maybe even some of the composition of the age groups there has something to do with it. I mean, maybe it's the older end of that, could be the older end of that age group, they could be retiring. I don't know. I mean, I read all the time about people retiring in their 50s now for the same reason that we're talking about early retirements of people older than that. Right. So yeah, I think, I think.

[A]

But again, I think it could be a little bit. But again, if I have the data right, this decline that we're observing is recent. It's not what you're arguing is something that would play out over months, a year or so. This feels like a kind of a recent decline. Certainly for prime age, it's recent.

[D]

It's not for prime age. Yeah, yeah.

[A]

It's not like. And it's hard to imagine that they all of a sudden looked at their stock portfolios and said, okay, I'm going to retire. So it feels. And. But again, that might be noise. Who knows? Because it's a month or two we'll have to see. It's a thing I've observed, though.

[D]

I was just going to say, Mark, it's a full percentage point drop in prime age since the end of last year.

[A]

Yeah, but didn't it all happen like in the last few months?

[D]

That's what I mean. I mean, it's just since like December.

[A]

Yeah, right. But that, that just doesn't. I mean, I'm. It feels like a stretch to say that that would be. I now feel wealthy enough that I can retire. That's what just. I don't know.

[D]

Right. Unless everybody decided that at the same time.

[A]

Yeah, exactly. Here's the other thing I observed, and I'll preface this by saying I'm not sure I actually observed it. It's maybe one of those things I think I. Because I look at. I'm looking at data all day long and sometimes I blur things and I want to go back and look at it with today's release, but you can actually look at the flows from in and out of the labor force unemployed to out of the labor force employed out of the labor force. And a lot of what's happened this year has been unemployed to out of the labor force. So it's almost like I lose my job. I see no hiring. I'm going to take. And maybe, maybe I have a little bit of wealth, you know, maybe I have a little bit of savings or not. Or I can go live with my parents. If I'm a younger person and I'm stepping, I'm. I'm not doing the things that need to be done to be counted as being in the labor force. Like there's different crisis by different requirements. Like you have to be looking for a job certain number of time, blah, so forth and so on, and they're just not doing that. So that piece of evidence suggests to me that it may be more cyclical, you know, related to the lack of hiring and the fact that's happening. What do you think of that theory? If I've got the data right and we should go look.

[D]

I was looking at the flows this morning because I wanted to. Well, yeah, but I wasn't looking. I was just looking at it for July because I wanted to see the composition of the drop just over this month because we saw another drop in the labor force. And what it looked like last month was it was just people, people that would have entered the labor force did not. So it wasn't like the unemployed leaving or the employed leaving. It was just that you didn't get, get the increase that you would normally get from people that were already out of the labor force coming in. But what I haven't done is what you just said. I haven't looked at it over a longer time period. So I'll, I'll certainly look at that.

[A]

Yeah, let's go take a closer look at that because that, that I think would be, you know, informative as to what's going on. It, it also may explain if, again, if I've got this right, why we're not seeing an increase in layoffs and in, in unemployment insurance claims. You know, they're just, they're just leaving, they're, they're not sticking around. So maybe, you know, we've been waiting for layoffs and UI claims to pick up and maybe they're not because these people are just stepping out of the workforce altogether and not, not, not being counted as being laid off. I, I, I don't know. Make it, I, I don't know. Does that sound right or not?

[D]

I think it could. Especially if given where the layoffs have been. They've been at tech companies. These people probably are getting LA of money in the bank.

[A]

Yeah.

[D]

And they're not going to file for unemployment insurance claims. Certainly they're not going to make a claim on unemployment insurance. They're not going to care about getting 200 bucks a month or whatever it is. Right. And they probably have a nest egg built up so they can do what you're saying, just stay out of the workforce for forever. Question mark. Or for a while.

[A]

Right. Okay. All right. Well, I guess this is to be determined. Right. We need more data points to see how this plays out. Anything else on the labor for front before we move on to what it all means for monetary policy for the Fed. Anything else? Did I miss anything? I mean, I, I do think summing it up, it does. I'm sure you're right, Marissa. Some of it's got to be older workers because we've seen participation rates decline and it is consistent with the increase in equity wealth. And I'm sure. And also just the sheer arithmetic. I mean we are aging into the 70s and 80s and your participation rate, rate, age controlled, would decline. And so we're seeing some of That I also think immigration is also obviously contributing because immigrants have higher participation rates than native born. So if you're losing immigrants to deportation, then that would push down, I think, the overall participation rate. And we've seen that occur. So there's some measurement issue there. But I also think there's some cyclical component to it. You know, going back to the flows. Maybe you should ask Claude to decompose it for us and see what it comes up with. Maybe I'll do. That's my vibe coding for the weekend. I'm going to do that for the weekend.

[B]

Getting back to the anecdotes, there's plenty of anecdotes of people struggling to find jobs. Right. They're putting out 300, 500 applications and deciding, you know, I can't find a job or the unemployment rate for recent college graduates is still elevated. Right. So it's, there's something real there. Right. There clearly is discouragement out there.

[A]

Right, right. And it, you know, even if, let's say half the decline in participation rate was cyclical and half was structural, half, meaning, would mean if, if the unemployment rate, excuse me, if the participation rate had fallen by half, the unemployment rate would be, you know, not five, but it would be four and a half to five somewhere in there. So.

[B]

Right.

[A]

More slack. Okay. All right. So Chris, what, what did the futures markets, the Fed funds, futures markets say about all this in terms of Fed tightening?

[B]

Well, they shifted a bit towards a holding rates in September.

[C]

Right.

[B]

So I'm looking it up now. It's 56% chance of a hold, so 45% chance of a hike at the moment. So you know, that, that came in a bit. It kind of flipped. It was, it was the reverse just a, a day or so ago. So the market is certainly interpreting this as less of a reason for the Fed to hike. They're not pricing in a cut certainly, but they're kind of moving in that direction that the Fed's just going to be on hold here for a while.

[A]

I saw 10 year bond yields came in as well. They declined a little bit. Not a lot, just a little bit.

[B]

It's hard to see what was it like a basis point or two.

[A]

Oh, is that right? That's all?

[B]

Well, they're volatile. Right. So maybe their initial reaction was probably right, 7, 8 or something like that. And then it's been whittled away. But there's so many other things going on here and we've seen that bond spreads or bond yields are moving around, you know, by tens of basis Points

[A]

and stock prices were up but you're

[B]

saying also kind of pretty flat, pretty tapped, but yeah.

[A]

So. So no one's minds got changed by this report.

[B]

Doesn't seem like it.

[A]

Yeah. Did, did you.

[B]

Not dramatically.

[A]

Not dramatically. Yeah. Did. Now you've been like the rest of the. Marissa and I have been saying no rate hikes. You know here, this just reinforces that must, this, this report just must reinforce that, reinforce that view. Right?

[B]

I think it does and I think that's what the, the futures market is reflecting there, there.

[A]

Yeah. Yeah but, but there, there's. The investors are still kind of thinking if you look out there's going to be some couple rate hikes here.

[B]

No. Oh, by the end of the year.

[A]

Yeah.

[B]

Yeah. The probability came in it. But still. Yeah. It's still I think 80 chance of at least one. Right. By the end of the year and

[A]

we, we don't have a rate hike in our forecast.

[B]

We don't.

[C]

We don't. Yeah.

[B]

I guess in my worldview the report that came out today kind of reinforces the view that the labor market is a lot weaker than it looks. Inflation is likely to remain elevated but start to come in and that will give. Or that will allow the Fed not to have to resort to a rate hike at this point. If anything, they might start looking at having to ease if the labor market continues to soften further.

[A]

Right. I mean of course there's a lot of data between now and the September meeting.

[C]

Absolutely.

[A]

And I guess the more important statistics are the inflation statistics and we can a read on that next week with CPI and ppi, I believe.

[C]

Yeah.

[A]

Yeah. Marissa, any, any reaction to the market reaction to all this?

[D]

I'm not surprised at how the market reacted.

[A]

You're not?

[D]

No, no, that's what I would expect.

[A]

Yeah. I, I'm a little surprised. I mean if I look at this report, it, it feels very definitive to me. It changes the whole narrative around the labor market and growth. I mean if you go back a couple months ago, it looked like the job market was stabilizing. Job growth was re. Accelerating. You know, the argument was the economy was strong. I don't know how you could argue that with this because it revises most of the job gains away and you're left with really very little if any job growth in the payroll survey and the household survey. It's just. I can't completely discount it. Can you? I mean there's gotta be some information there, right? No.

[D]

The labor force is down by 1.4 million since the start of the year. That's pretty dramatic.

[A]

Yeah.

[D]

And wage growth is negative, right?

[A]

Real wage growth. Yeah.

[D]

Right. Nominal wages is 3%. I mean, I don't think any of us really thought the labor market had rallied and was so great back in March, April, you know, there were still signs that it was very tenuous. And to your point, I mean, a lot of that has been revised away, so I don't think it changes my view of the labor market, it. From where it was, like at the end of 2025.

[A]

Yeah. I think we get another benchmark revision here, don't we?

[D]

We get a preview of the benchmark later in a couple weeks. I think we'll get a preview that's

[A]

at the end of August. And yeah, that's when the BLS gives us a sense of what the actual benchmark will be when they release the benchmark early next year and what they tell us what the benchmark is revision will be for March of this year. March of 2026.

[D]

Yeah. And that preview is usually pretty.

[C]

Pretty close.

[D]

Pretty close to what it. What it ends up being. Yeah.

[A]

So we could get. We're going to get more revisions. We don't know whether they're going to be up or they're going to be down, but last year they were big time down.

[B]

Yeah.

[A]

And if. And given the monthly revisions we're getting now, kind of sort of feels like more likely they're going to be downward benchmark revisions and upper. But we'll see. We'll see what they say.

[D]

Watch.

[A]

They're now all up. And they change the narrative again.

[B]

That would be. That would be a pretty awkward preliminarily. And then the real ones will be, you know.

[A]

Yeah. Then they go the other way. Right, right. Shows you how tough a job being on the Federal Reserve Board is. Okay. Anything else before we call it a podcast? Chris, Marissa, anything else you want to bring up?

[B]

Up.

[A]

Do we miss anything?

[D]

No, I don't think so.

[A]

Okay.

[B]

No, thank.

[A]

Good. Okay, Just one note. If you're on YouTube and you're watching this podcast, you've seen me in about five different places. But now I've come full circle. I'm back to where we started. And. And apparently it looks like it's okay, right? It was. We did okay. Yeah.

[D]

Perfect.

[C]

Now.

[B]

Yeah.

[A]

Okay. Before I leave, just a couple things. I was on a podcast with Zachary Carabelle. What could go. Right. You know, I don't know. Do you guys do a lot of podcasts? I've been doing a lot of podcasts. Have you, Chris? Have you Been doing any? Not really.

[B]

Not recently, no.

[A]

Yeah. You know, sometimes you feel like you're on and sometimes you feel like you're off, you know, like this podcast, given its technical difficulties, I felt like I never got my rhythm. But that podcast, that conversation with Zachary Carabelle I was on, it was a lot of fun, maybe because of Zachary. I mean, he's a great conversationalist, so a lot of fun. So I encourage people to listen in on that. We are going to have a series of podcasts on Inside Economics around artificial intelligence, AI. It's going to run beginning later in the month into September. A bunch of really cool guests. We have David Autor from the University of or, excuse me, from Massachusetts Institute of Technology, mit. All the economists out there know David Autor, doing a lot of work on the impact of China's entry into the World Trade Organization and global trade on the US Economy. He's going to talk about AI. We've got Joe Davis from he's chief economist of Vanguard. He's going to be talking about AI and investing. We got Ben Harris, senior research fellow at Brookings, going to be talking about AI and policy, the chief economist of ramp. That should be really cool. Darrell Spence from Capital Group has got a lot to say, so it should be a really interesting series. And I will mention we did just come out with an update to our paper on the macroeconomic consequences of AI. We ran a bunch of different scenarios on how AI will affect the macro economy going forward. And we added a new a new scenario called Job Dystopia to kind of channel the darkest kind of perspectives on AI in the labor market. So a lot going on here at Inside Economics and and hope you enjoyed this, this particular podcast. And I hope you join us next week. And with that, dear listener, we are going to call this a podcast. Take care now.