Robin (2:43)

Wait, wait, wait, wait. I forgot to say, we are still collecting audio reviews. Thank you. For the people who've called in so far, you can still call and leave us a review on our voicemail. That number is 202-643-0295. I'll put that in the show notes. That sounds like a good idea. I'll do that now. Redcon. Redcon, which stands for retroactive continuity. And this is the segment, if you're new to this show, where we're actually reflecting on shows.

Katherine (3:11)

You maybe haven't heard the Christopher Nolan part of the episode. As my friend pointed out, I had an economist reach out to tell me that when we were talking about paid family and medical leaves. And I explained that in a social insurance program on the federal or state level, you can have the worker pay the tax and or the employer pay the tax. And in a lot of paid family and medical leave programs on the state level, only the employers pay. And he said he didn't think that that was true. And it's not. At least, you know, Rhode island is one. But in some states, the worker and the employer both pay the paid family medical and leave social insurance tax. And he pointed out that he thought. He agreed with me. It needs to be a worker side tax because workers are in support of it and that way they'll never take it away.

Robin (4:03)

I looked up gamma power because in our conversation last week, you said, do I have gamma power? And I'm here to tell you, Katherine, you do. You have gamma power. So gamma power is spikes in these high frequency brain waves that are in the frontal cortex of your brain. I should just say I'm not a neuroscientist, but in kids, they tend to correlate with emerging language skills. But what I also found was interesting is that it shows alertness and focus in adults. And they're studying. I'm sorry, Some places like MIT are looking at whether you can stimulate gamma waves to combat Alzheimer's and Parkinson's and some other diseases like that. Anyway, Gamma power.

Katherine (4:45)

Gamma power. We all have gamma power.

Robin (4:47)

We all have gamma power. That's a boost.

Katherine (4:49)

I feel great about that. I have a power I didn't even know I had. I have gamma power.

Robin (4:53)

Yeah. Excellent. Terms and conditions.

Katherine (4:59)

Terms and conditions. Okay, I have one thin edge of the wedge. It's very hard for me to say thin, thin end. Oh, wait, no. Thin end of the wedge, but also thin edge of the wedge. They both work, right? Okay. So if you say that something is the thin end of the wedge, you mean that it appears unimportant at the moment, but it's the beginning of a bigger, more harmful development. And it's always used in the negative context of, like, the bad thing that's lurking behind the small thing that you didn't consider.

Robin (5:38)

It seems to be a Britishism. Really?

Katherine (5:40)

Yes, I think it's more common than British. What's really funny about this is that this is a phrase that someone used in rejecting my book proposal.

Robin (5:51)

But used it in sort of a positive way.

Katherine (5:53)

Like, used it in a positive way kind of. But was referring to, like, potential book sales of, like, we don't see the thin edge of the wedge here. And I was like, wait, isn't. I had to look it up? And I was like, does that mean it's good? Or in her mind, all of you, like, nascent optimists listening out there are.

Robin (6:12)

Not a big enough wedge.

Katherine (6:14)

You are, like, the bad thing lurking in the background. I don't know, but it was an interesting phrase. I think it was used maybe in, like, a new context now. It's expressed to me basically that if I sold a book, I would be a harbinger of horrible things.

Robin (6:31)

Economic disaster.

Katherine (6:32)

Of economic disaster. I don't think that's how she meant it.

Robin (6:36)

I don't think that's how she meant it.

Katherine (6:37)

Yeah, yeah. It's an Inigo Montoya moment. But, like, her phrasing was, I don't think the book will sell, but if you just read it with the actual definition of thin edge of the wedge, it's like you are going to bring about our economic destruction. So I have been reveling in this rejection because I actually find it to be totally hilarious. And just a note for the optimist that rejections are very common. I'm not, like, personally offended.

Robin (7:05)

Writers are used to rejections.

Katherine (7:06)

Yeah. Between being an academic, like a half academic researcher and a writer, like, rejection's really most of what I know.

Robin (7:15)

Speaking of rejection, I just saw a former colleague posted on LinkedIn that he said, when you get rejection letters, it's way better if you just try to read them in the voice of Sam Elliott. And he linked to the video of Sam Elliot at the bar in the Big. Lebowski, a wiser fellow than myself, once said, sometimes you eat the bar much of blood, sometimes the bar will eat you. So anyway, that's advice for you guys. Facing any sort of unemployment situation these days, My term and condition is I was looking up actually full employment, which led me to the Phillips Curve, which was developed in 1958 by an economist named William Phillips. He was looking at British inflation and unemployment data. But it's basically this demonstration of how inflation and unemployment sort of balance each other out. When unemployment is very low, it tends to push inflation higher, and the reverse is true. And there have been some sort of interesting questions about how true this is and whether or not we had this long, long period of low inflation and low unemployment. And then also we've had some really interesting things happening in the unemployment and inflation space since the pandemic, some of which we're going to talk about today.

Katherine (8:39)

For our big Pilcrow, which we can get right to.

Robin (8:43)

We're framing this a little bit as a pitch session because I normally have an economist on speed dial who I can ask questions when things are in the news, but my economist was busy this week. And so this is my chance to ask these questions, because recently there was a big downward revision in the estimates of the number of jobs created going back to 2024. And I was kind of curious what to make of it, because one of the things that was showing up poll data in news stories and certainly in the election was that people did not feel good about the economy in 2024, and yet the economic data was not explaining it at the time. And then we got this big downward jobs revision about 2024. We've talked a lot about the mechanics of the BLS, and we've talked a lot about how they do what they do. But I was just kind of curious beyond all that, what you were making of this. Maybe the vibe session was actually. It was like a real thing. It wasn't just vibes. People were actually sensing things that were going on out there that were not yet surfacing in the data.

Katherine (9:50)

Well, my hot take is that it wasn't a vibe session. It's really easier to think about it as a ghost recession, which, believe it or not, is not a technical term, and I need to explain it, but I think I can if we start with, like, a history of now and where our economy has been since the pandemic. Everything that we're going through now really starts with the pandemic. And In March of 2020 and April of 2020, the US experiences its shortest and severest recession on record, in that it didn't last very long. But associated with the shutdowns at the start of the pandemic, the U.S. economy shed about 22 and a half million jobs in less than five weeks.

Robin (10:38)

Mm.

Katherine (10:39)

We will never come close to doing that again short of another pandemic. The unemployment rate shot up to around 20%. There were some measurement issues with the unemployment rate at the time. The official unemployment rate was 14.5%, but the BLS released a note saying it's 19 and a half. These people are not classified correctly given how special the pandemic was and how the survey couldn't capture it. So that puts us into the summer of 2020, when the US economy is the worst it has ever been since the Great Depression. And the open question becomes, are we ever going to get out of this? Because the precedent that we were coming from with the last recession we had had was the 2007-2009 financial crisis. And the worry at the time was if we had another slow labor recovery like the Great Recession, you were looking at like 15 years to recover from this two month pandemic job loss. So that didn' thank God Congress and the Federal Reserve juiced the market really as much as they could. We got stimulus checks, we helped unemployed people with extra benefits, we kept people in houses, we put student loans in automatic forbearance. You could go penalty free into a mortgage forbearance. I mean, we basically did more than we have ever done.

Robin (11:58)

We pulled out all the stops, all.

Katherine (12:00)

The stops, pulled out every stop possible to try and keep the economy from sliding into disaster and keep people preserved through this difficult time. And the result was amazing. The US economy recovered, all of those jobs lost faster than anyone could have predicted. In 2020, it took about two years, which is incredible. The predictions were that it would take five or that it would take six because it was such severe job loss and the economy was still opening up. And that period of especially 2021, I mean, that was the fastest job growth the US had ever seen. So because the hole was so big, a big problem emerges towards the end of 2021, which is that we're starting to get hot prints on inflation.

Robin (12:48)

I'm sorry, did you say hot prints?

Katherine (12:50)

Hot prints, that means the print is what we call the inflation report. And if it's hot, that means the number's high.

Robin (12:57)

So it's a hot print.

Katherine (12:59)

So inflation refers to the year over year growth in average prices. The Fed wants it around 2% and in the fall of 21 it just keeps ticking up. The obvious response to inflation rising is that you're supposed to increase interest rates. The Fed was waiting to do that because the labor market was still recovering from the pandemic. And they didn't like. And this recovery was, it was amazing. It was like hot job summer People, it was fast.

Robin (13:22)

I mean, and it was fast.

Katherine (13:23)

There are big questions about when should we pump the brakes? Because we wanted to stabilize the labor market. But the inflation reports kept getting higher. So eventually they turned on the brakes, which means to raise interest rates.

Robin (13:37)

And by they, we mean the Federal Reserve raised.

Katherine (13:39)

The Federal Reserve. The Federal Reserve raised interest rates. And for over two years, the interest rate had been zero.

Robin (13:45)

Yeah.

Katherine (13:45)

Meaning that most interest rates in the economy were at massive lows. And then they basically raised it for a year and a half. Every time they met, they raised interest rates again. And it was always a question if they were going to go up a quarter of a point or a half a point and raise interest rates in the economy to combat inflation. This notion of a vibe session coincides almost perfectly with interest rates going up.

Robin (14:08)

Interesting.

Katherine (14:09)

So it's like vibe session is a thing. I think the first appearance is in the summer of 2022, when interest rates by this point have been raised two times or three times. And it kind of as long as the Fed is moving interest rates up. We are in a quote unquote, vibe session. And I always thought at the time it was reflecting a couple of things. But first, finish the story. So we raise interest rates from basically the start, the spring of 22 through the fall of 23. Interest rates are just on this very steep climb up. They get to where they are.

Robin (14:49)

The climb is from zero. We should.

Katherine (14:50)

The climb is from zero. It goes from zero to five and a half. This is a big jump.

Robin (14:54)

And interest rates have been so low, even before the pandemic, for so long.

Katherine (14:57)

They were in like a lower era.

Robin (14:59)

Yeah.

Katherine (15:00)

After the Great Recession, they lowered them.

Robin (15:02)

And because they never kind of got out of that.

Katherine (15:04)

I mean, they wanted to raise interest rates, but like, man, you still hadn't recovered the jobs from five years prior that were lost, like, they just. It was a very tenuous time for the labor market. For the record, the US labor market didn't really come out swinging from the Great Recession until almost like 2017 or 2018.

Robin (15:20)

Yeah.

Katherine (15:20)

I mean, it just took a really long time to not just recover, but become stronger. So interest rates stay high through 2024, but they don't raise again. And this is when you start to hear less from the vibe session. We're not great, but it's kind of leveled out with interest rates in tandem. And then in the fall of 24, we see weakness in the labor market. Price growth has fallen below 3%. They feel comfortable and they start to lower interest rates. And they are on a path of, I think, three or four successive rate cuts. And then Trump becomes president, and he says, I'm going to have broad tariffs, trade wars for no reason. I'm going to deport, and I'm going to cut. The federal government and the Federal Reserve completely freezes. And they're like, well, we can't do anything because you're basically proposing a policy of stagflation. And that is where we have been this year, is waiting for the Fed to act in either direction, either to go back up to answer prices or to go back down to answer the hurt in the labor market. So that's. That's like the brief history of now. I think your question was, what was it like, days ago? I don't remember. Your question was.

Robin (16:33)

Yeah, I just wanted to know what you made of this, about looking back with the benefit of this hindsight, essentially. What do you make of this big downward revision?

Katherine (16:45)

Okay, so this will make me sound borderline insensitive, but I never thought the Vibe session was that interesting. It was less a vibe session and more a ghost recession. You know that I struggle with metaphors. So, like, stay with me. There's so much talked about. And, like, it was like, we're in a vibe session. And I. I had my. My phone was constantly ringing with reporters, economics journalists, like, asking me about the vibe session. And I was like, am I missing. I mean, like, am I missing something? The Federal Reserve is actively restricting the economy through the raising of interest rates, and prices are high. Like, what this. What is the. Of course it's shitty out. Like. Like what. What do you expect?

Robin (17:31)

Like, deliberation.

Katherine (17:32)

Like, they're trying to hurt the economy in order to bring down prices. And they're like, what do you think of this vibe session? I'm like, I don't. I'm sorry, but why? Like, it was. To me, it felt like it almost was. Like it was almost like quiet quitting or like a trend term.

Robin (17:47)

Yeah.

Katherine (17:48)

That got attention because it was an interesting way to frame stories.

Robin (17:51)

Yeah.

Katherine (17:52)

But it did not seem to me to have much substance behind it because it had a very clear, like, logical and causal link. The Fed is hurting the economy by raising interest rates, and inflation is hurting the economy on making things more expensive. So people were pretty upset in the consumer sentiment survey, and they were not happy with the economy. And people were like, it's a vibe session. I'm like, it's just economic pain.

Robin (18:17)

Well, that's interesting, though, because, you know, I think people feel like economic pain is a recession, but it wasn't a recession in the economic meaning of the word.

Katherine (18:26)

The part that I think was unintentionally interesting to me showed the degree to which when people are going through a hard time in the economy, they expect it to be a recession.

Robin (18:36)

Yeah.

Katherine (18:37)

Well, it was almost as if it was suggesting, like, no indicator is showing anything wrong with the economy, but people aren't happy when, in fact, lots of indicators were showing lots of things wrong with the economy. It just wasn't bad enough to be a recession.

Robin (18:54)

And so they weren't necessarily wrong. They were intentional. They slowed down hiring on purpose, essentially. Right. Yeah.

Katherine (19:01)

I think the way that I have thought of the vibe session is less that a vibe session and more it was a ghost recession. I mean, you raise interest rates from 0% to 5% in a year, and every economic history or case that you can point to would have said you were going to be in recession by the end of it and that there is no way you can raise interest rates this fast, this quickly and not trigger an unemployment crisis and go into a recession. And for basically a year and a half, we were all waiting for it.

Robin (19:33)

Yeah.

Katherine (19:34)

And we were waiting for this recession to come and waiting for this recession to come. And I think that the expectation of a recession was part of this conversation of that we kept on having people like me saying, like, it's not a recession.

Robin (19:49)

Well, what do you mean by a ghost recession?

Katherine (19:52)

It's the recession that wasn't there. I mean, when we started raising rates in 22 and kept it up for a year and a half, by the fall of 2023, we should have been in a recession. Everybody was predicting it.

Robin (20:03)

And so we just sort of saw it, but it wasn't really there.

Katherine (20:06)

But it. So we saw like, it was almost maybe not even a ghost recession. You know, when you, like, take a photo and there's like the negative print, like it's the negative of a recession. We didn't see it, but we saw, like, where it should have been. Again, this metaphors are.

Robin (20:22)

Yeah, I don't know that that's. Yeah. Okay. Like a ghost on an image. Like it's something that's just sort of hinted at being there, but it's not really there.

Katherine (20:29)

There's some scene where, like, they're at the Fed in the dark room developing photographs, and in one of the photographs they can see the recession and they're like, there it is. But it wasn't there when we took the picture. You took the picture and. Yeah, the high school horror movie set in the 80s, that is the Federal Reserve making decisions about the economy. I think this one works.

Robin (20:51)

The Scooby Doo recession.

Katherine (20:55)

The high school darkroom economy. But. But it should have been there. And the economy did show signs of weakness throughout that period. Even though the economy didn't enter recession, we still need to recover from the weakness. That wasn't recession, but then we just crashed.

Robin (21:13)

A new presidential administration and a whole lot of strange new policies.

Katherine (21:16)

Yeah, strange is a kind way to put it. I mean, right around the fall of 2024, we basically start to see interest rates fall. And this. Had we had a real recession, this would have been the start of the real recovery. We just had kind of weakness on the fringes. Whinges, damn it. Wow. Somewhere there's a group chat of my high school debate team that was like, she did it again. Added to the list that we keep on chalkboard fringes. But I don't even remember what I was trying to say.

Robin (21:51)

Weakness on the fringes.

Katherine (21:52)

On the fringes of our economy. It showed up in lots of places in small ways. The hiring rate started to slow, but the unemployment rate was still falling. The thing about the economy and judging its strength or weakness is, I mean, you have to look at everything to the extent that we should have had a recession at the end of 2023 and into 2024. The recovery from that started in the fall of 24, where we started to lower interest rates. We got inflation under control, and that all came to a screeching halt. And so I think some of what we're feeling right now is the screeching.

Robin (22:29)

Halt of the ghost recovery.

Katherine (22:31)

Of the ghost recovery. We didn't really go through a recession, but we went through something. Yeah, we didn't really have a recovery.

Robin (22:37)

But it was something.

Katherine (22:38)

It's not normal to predict a recession in the U.S. economy for multiple years. Yeah, this is not normal. And I think that we were getting back to normal, and this administration stopped us in our tracks. And it's a deliberate policy choice that has stopped us.

Robin (22:54)

Well, but I want to think about what the jobs revision told us about 2024.

Katherine (23:00)

So the jobs revision that we got a couple weeks ago, it was this monster number of 911,000. And it refers to job creation that.

Robin (23:09)

Meant that there were 911,000 fewer jobs created in 2024.

Katherine (23:15)

Created from April of 2024 to March of 2025.

Robin (23:21)

Okay.

Katherine (23:22)

And that number itself will also be revised.

Robin (23:25)

Right.

Katherine (23:25)

And it won't be finalized until March of 2026. So it's a full year Lag. I will not know with certainty how many jobs were added in March of 2025 until March of 2026. I think what's happening is that people are getting deeper and deeper into the workings of federal statistics and they're not quite in the ecosystem enough to understand, like they have been telling us for months, that they can come up with a monthly prediction of the overestimate given the data that they publish along with the estimates. And then they also tell you where they think that the estimate came from.

Robin (24:02)

You're saying they're trying to tell you why they think the initial measurement is differing from the measurement that they're at at this point. And in this case, what was that reason?

Katherine (24:13)

Drift from the birth death model.

Robin (24:16)

Oh, right, of course, of course, of course. You should explain what the drift from.

Katherine (24:22)

The birth death model.

Robin (24:23)

Well, I think you might, might want to explain it.

Katherine (24:25)

Okay, so if I want to know with, with almost certainty how many jobs were added in March of 2025, I know exactly how to do it. I just look at tax records because companies and businesses, they have to pay the payroll tax. But the problem there is that it takes a long time to collect that data. One, it's a census, so we're talking about 160 million records that you have to go through and check and compile and so on. And two, it has reporting issues. Some people don't pay their quarterly taxes on time. They're basically telling us that they're going to come up with the final estimate of the number of jobs in March of 2026.

Robin (25:04)

Right.

Katherine (25:05)

Okay. So obviously we need this data like a little bit ahead of time.

Robin (25:08)

We need a picture.

Katherine (25:10)

We need something ahead of time. So the answer is the current establishment survey, where while we wait for the census of employment to come in, we're going to send a survey to employers and ask them how many jobs they have. And that basically takes us to within days of the month ending. We have an estimate of the number of jobs in the economy. I mean, we found out the August job number on September 5th.

Robin (25:38)

Right. I mean, that's just like a constant survey and from which they create the estimate of jobs numbers.

Katherine (25:43)

Yes. So the survey has. There's basically two types of revisions from this first number that comes out. The first kind of estimate and set of revisions comes from the survey collection itself. Not everyone sent in their August survey by September, and so they'll send it in in September and October. And so this number is revised twice. These are the monthly revisions that come in every jobs report. The second set of revisions are how good was my survey? Because my survey has to predict basic things about employers in the United States, including the number of new employers that are being added and old employers that are leaving in what we call the birthday death model.

Robin (26:20)

But. But they're not. They're not like, trying to find those companies and add them to the survey. They've got some kind of model for how many companies there are, how many firms there are, how many employees they would have. Yes. And they're using this, this survey just like they do kind of political polling. Right. You have a model and then you do the survey and you kind of run it through this model so that it's. They think it's more accurately reflecting reality. And in this case.

Katherine (26:44)

And the. The birth death model is based on a like a moving historical average of like, I'm going to look at the bir of firms in the US over the past three years, put that into an average, and that's what's feeding into the survey. Well, the last few years have been, like, kind of messed up.

Robin (26:59)

Yeah. Yeah.

Katherine (27:00)

What we found out was that the assumption of firm growth was the overestimate.

Robin (27:05)

So it's like a lot of people started businesses maybe during the pandemic, working from home, and then those all evaporated.

Katherine (27:10)

Or just that was at such a high pace that we overshot the last two benchmark revisions of F of which is, you know, a lot of it is drift from the birth death model. The last two have been negative. The one before that was large and so positive, where basically it underestimated business growth. And then I think the model took that into account, and then it was overestimating business growth. So it pushed down average job growth over that period from around 150,000 to 75,000 per month. Per month. But, yeah, the unemployment rate's not changed.

Robin (27:45)

I know. Which is really interesting. It's interesting that the unemployment rate seems to stay really steady even as we keep adding jobs. And I think that says something about how much unseen slack there is in who could be working but isn't working and isn't unemployed.

Katherine (27:59)

Well, and the unemployment rate's not a population estimate, and the population is changing because we're actively deporting people and the number of asylum seekers entering and how they affect the labor market. There were a lot of think pieces in 2022 and 2023 that the reason why our unemployment rate was low was because all of these immigrants were coming in and kind of basically boosting economic activity through their presence and working. But that story is not the same today. And that's a population that's hard to define. But in terms of the unemployment rate, it's just measuring people who either have a job or say they want a job and are looking for one. And so it's a moving target. Less so than. Just like everybody who's a firm, I'm going to count the number of jobs you have. The people move more than firms do.

Robin (28:50)

Hmm. The labor market always wants to be in motion, or maybe we want it to be in motion, but I think that that can seem maybe counterintuitive. It sounds like we want people to be thrown out of jobs and have to go find new ones. But conversely, we want for there to be openings and opportunities and change, and we want companies to be able to evolve along the lines of what their future needs are as opposed to their past needs. How does that kind of question about turnover and the necessity of turnover relate to full employment? You never hear like, this is full employment. Full employment feels like a moving target to me.

Katherine (29:27)

Oh, it absolutely is. And the Fed has a dual mandate to keep inflation in check and to maximize employment. So this low inflation, low unemployment, which the Phillips curb says there should be a trade off between, that is the mandate of the Fed. The dual mandate. The dualness of the employment side wasn't added until the late 70s. I mean, it was kind of always there, but it was not explicitly added. Of like. No, it's dual. It was like prices, also employment, too. And then in the 70s it was like, no employment too. But the price marker is like, let's keep it at 2%, 2.0%. That's, that's inflation target. Very clear. Unemployment target is like, well, could be four, could be three, could be three. Some people argued it was five in the Great Recession. So it's, it's a lot different of what it means to have full employment. And really, full employment is more easy to detect, less by the number of the unemployment rate and the features that the labor market is exhibiting, like high wage growth, high hiring rates, rapid absorption of new workers into the economy, expansion of the labor force. Lots of things happen when the market is at full employment, and we've seen that happen at different unemployment rates.

Robin (30:44)

When the National Bureau of Economic Research or whoever declares recessions, are they looking at all of those things about employment? Yeah, you have to use your words. You can't just not like you gotta say you agree with me. I guess I said something that didn't sound stupid. Come on, throw me down here.

Katherine (31:04)

In fact, yes, that is accurate. A recession comes from a broad decline in economic activity. When they look at that, they're looking at a bunch of different features of the labor market. And in fact, there have been recessions where the US they go back and say the recession started at this month and the US Added jobs for another six months.

Robin (31:22)

Really.

Katherine (31:24)

So there's no hard and fast rule. And then you don't want a hard and fast rule because then the economy could be fine. Cross over some benchmark that's typically associated with recession, and then automatically we're in one. So at any given time in the US economy, you can expect somewhere between 1.5 and 1.9 million people to be laid off in a given month. And that's.

Robin (31:47)

That's just typical. That's just like average. That's just typical every month.

Katherine (31:52)

And that encompasses really any reason why a job has ended and the employee didn't initiate it. So it's not quits. It's not that they retired. It's that they were fired for cause, laid off. You know, not for cause, laid off for business reasons. The shop closed. You know, it's a temporary layoff, but it's. It's just like your job ended, and it was not because you wanted it to end. That is a layoff and discharge. And there's about 1.5 to 1.9 million of them a month. I mean, it's. And it's an incredibly flat number. It doesn't really move that much. I mean, right at the start of a business cycle, at the start of a recession, layoffs and discharges jump up, but then they go right back down.

Robin (32:34)

What do you mean? They jump and then they go right back down? In a recession?

Katherine (32:37)

You know, if you think of a recession as being when a bunch of people lose their job, really, a recession is when a bunch of people can't find a job.

Robin (32:45)

Right.

Katherine (32:46)

And layoffs themselves rarely sustain for that long. If you have a period of elevated layoffs, it's like three to six months, tops, tops. And then it goes right back down. So that it's a pretty steady churn of layoffs and discharges out of jobs. The things that fluctuate a lot more are hires and quits. Quits tend to go right with the strength of the labor market. So the stronger the labor market, the more people are quitting. And so it's much more of a fluctuating measure where when the unemployment rate is high, people don't quit their job. When the unemployment rate is low, people quit their job.

Robin (33:21)

Yes.

Katherine (33:22)

Over the past five years, quits peaked in the spring of 2022, when you had like, 4 million people quitting their job every month. And it has since fallen to little over 3 million. But I mean, one thing to bring up about the labor market right now is that we're still seeing really high quit rates, really, relative to past periods. So quit rates right now are where they were in most of 2016 and 2017. And hires have also fallen. Hires and quits move in tandem. They tend to go in the inverse of the unemployment rate. Hires right now are low, and they've fallen a ton. Right. You can feel the labor market slowing down, and you can see it slowing down, but it's still not at necessarily, like, recession levels. That's still about where the labor market was in 2015 and 2016, as we were basically coming down, coming out of a recession. But, you know, the nadir of the great recessions labor market was the summer of 2009. So this is six years past. That is where we are with quits and hires right now.

Robin (34:31)

I just feel like I've been reading that we have a low quit, low hire. But you're saying quits are actually pretty average.

Katherine (34:36)

I mean, they're low relative to what they were two years ago.

Robin (34:40)

2022. Yeah.

Katherine (34:41)

Yeah. Relative to 2022, they're a lot lower. I think what's, what's kind of remarkable is that they have fallen lower without tipping into a recession. So here's, here's the part that makes this kind of, you know, the quandary of our current economic era is that these two things have fallen while unemployment has not gone up.

Robin (35:02)

Yeah.

Katherine (35:03)

So, you know, normally, like, yeah, unemployment rates, 8%. I am not quitting my job.

Robin (35:08)

Yeah.

Katherine (35:08)

Like, I, the unemployment rate's 8%. I've been looking for jobs. I can't find one. Hires are low, quits are low. The unemployment rate is still just above 4%, and hires are low and quits are low. So what we're seeing is basically the labor market is slowing down without creating excess slack. Everything else in the labor market, it's giving off tons of features of, like, these are things that happen in a recession, but in a recession, the unemployment rate is not 4%. And like, we're seeing the wages slow down because movement is what creates wage growth.

Robin (35:42)

Right. Yeah.

Katherine (35:43)

Right. I, I, I get a new job.

Robin (35:45)

I get a new one with better pay.

Katherine (35:46)

Yes. Or I get that job offer and go back and say, they're gonna give me $10,000 more. You need to give me $10,000 more too. So we're seeing the slowdown of this low fire, low hire, low quit economy, but it has not been associated because we haven't really had any peaks of layoffs. It hasn't actually been associated with a high unemployment rate. So it's a, it's a labor market that's slowed without falling. Our economy doles out a fair amount of pain on the regular, even when everybody else is doing fine and even when we're in a recession. Even in the worst economy we've ever had, the vast majority of people were fine. They had their job.

Robin (36:26)

Even in the pandemic, which is pretty shocking. You know, we've got a basically, you know, huge swaths of the entire economy just shut down and 80% of people.

Katherine (36:37)

Still had their job.

Robin (36:38)

Still had a job.

Katherine (36:40)

Yeah, I can understand why people would feel like they're ignored because most of the economy is doing well and you're not. But that's a permanent feature of our economy. There are always people that aren't doing well. And what makes an economy bad is more people are added to that minority group. And maybe they didn't expect to be there, or maybe they're surprised to be there, or they feel like they don't belong there or that no one cares that they're there, but it's still a relatively small group that dictates how we feel about the economy overall. That's tough and you'll hear that. And it's not as if everyone's perfectly fine in a recession. Right. It's still hard to get a new job, to switch jobs, to sell your house, to borrow. Like the interest rates are moving and you can't really yell at your boss because you're kind of afraid to quit. Like it affects you, but it doesn't devastate you. And I think in some ways recession is a measure of how many people in the labor market are truly suffering versus just suboptimal.

Robin (37:42)

And I think that there's also the sentiment piece to this too, which is just what you were explaining, which is how do you feel about the economy versus how is the economy treating you? I can't tell you how many conversations I've had in the last three months or even last three weeks about choices that people are making because of fear that the economy isn't stable, which you worry about. I mean, I worry about becoming a self fulfilling prophecy. You know, if people aren't either because of tariffs or because of perceptions of what tariffs are going to do or perceptions of what happens with Inflation that they decide, you know what, I'm just not going to buy a new car. I'm not actually going to hunt for a new house. I literally had that conversation the other day with somebody who's like, I'm just going to sock away cash because I don't know what's going to happen with my job, because my job is tangentially related to nonprofit funding, which is then related to government funding. And everybody's waiting for these things to ripple through the economy, and they don't know if it's going to reach them or not.

Katherine (38:58)

You're absolutely right.

Robin (38:59)

And it.

Katherine (38:59)

And it's a very uncontrollable aspect of our economy of how much mood can influence behavior and therefore. And then. And then by extended space animal spirits, how much behavior influences, you know, tangible economic activity that we measure. In some ways, I go back to, like, the ghost recession, ghost recovery, where we have had the rug pulled out from under us. Like, we are supposed to be in a recovery right now from that weird recession that didn't happen, but still hurt. And that's not. We're just not seeing it.

Robin (39:32)

So here's my metaphor. Are you ready for my metaphor?

Katherine (39:34)

Oh, it's your metaphor. Oh, please don't be better than mine.

Robin (39:37)

I. I think it's the ghost recession metaphor. It was like you narrowly averted an accident, but you still had this rush of adrenaline.

Katherine (39:46)

Oh, oh. We're like, you, like, the car in front of you is stopped, and you like. And don't.

Robin (39:51)

Don't hit it.

Katherine (39:52)

But you're like.

Robin (39:52)

You're just like. You still got, like, white hair out of the whole deal, right?

Katherine (39:56)

Yes. Yes. That's actually so good and simple. So can I do my complicated one?

Robin (40:01)

Sure.

Katherine (40:03)

So I was trying to explain to someone that the US Economy is never, like, batting a thousand.

Robin (40:09)

Yeah, right.

Katherine (40:10)

It was like, unemployment's never zero. Wage growth is never perfect. You know, it's kind of like a boxer. Like, they get hit in the face a lot. It's not as if a lot. They get in the face. They get hit in the side. It's not a recession until they hit the mat. They land punches and they take punches. But, like, we don't really think of it as a recession until they actually fall down. That doesn't mean that they're doing great.

Robin (40:30)

Doesn't mean it didn't hurt.

Katherine (40:31)

It doesn't mean it didn't hurt. But, like, there's a difference between having a black eye and winning the match versus having a black eye and being on the on the mat?

Robin (40:41)

No, I think it's pretty good.

Katherine (40:42)

Okay. All right. So it's.

Robin (40:43)

I don't know that it gets at the question we started out with, which was about the. The downward revisions of the jobs added. But it's. I did want to point out, too, that just because there was a downward revision of the number of jobs added, it doesn't mean that we weren't adding jobs. No, it just meant that we overestimated how many new jobs were added.

Katherine (41:01)

Well, the friend I was pitching this to pointed out to me, they're like, well, then what's your job as an economist? And I was like, I think I'm the corner man. Like, in Rocky, I'm the guy in the corner being like, no pain, no.

Robin (41:13)

Pain, no pain, no pain, no pain, no pain.

Katherine (41:18)

Let's do it. Like, you want the guy being like, no pain. Keep going. Because you do not want the economy to fall down.

Robin (41:24)

Well, you should be the ref. I think, in that.

Katherine (41:26)

Maybe I should be the ref. I want to be the corner man. You know, the number of jobs added in a month, reiterating what Robin said, it does not mean we lost a million jobs. It just means that we overestimated the number of jobs by about a million. And how bad is that? Is really a question of, well, how many did we need to add? And throughout the past 50 years, the number that we're aiming for each month changes, in part because the economy is getting bigger. So it'd be kind of wild if we added like, 150,000 jobs in, like, 1951, when the labor market itself was so much smaller. Although they did have some really hot months back then. So what was crazy about the US economy passing the 1970s in terms of job growth is that that was when the baby boomers were basically young.

Robin (42:15)

They were entering the workforce. Yeah.

Katherine (42:17)

And they were entering the workfor, like, Jesus, there's millions of them. Like, we need so many jobs. So that made our pace of job growth pretty incredible. The population right now is at a really incredible moment in terms of growth, because if you look at the prime age workforce this century, in most years, the growth and the size of that population comes from immigrants. But in some years, it comes entirely from immigrants. Like, if we tomorrow said, there is no more immigration to the United States starting tomorrow, our population would immediately decline. So, you know, maybe two, five, ten years ago, we needed to add 150,000 jobs every month. You know, the estimate had, for a long time had been somewhere between 125 and 175 like, we need to add this number. Well, given what's been going on with immigration and the number of people that are being deported and the number of people that are kind of not choosing not to come or choosing not to go to work and are voluntarily leaving the labor market or the population, there's recent estimates is that it needs to be as low as 75.

Robin (43:27)

Wow. That's like half.

Katherine (43:29)

Which is half. Which is what it was revised down to. Yeah, it basically was revised down to around 150 average. To around 75 average. And so this is. I mean, the way that economists read this number, a lot of them were like, man, does that mean the mark is actually 75? Or it could be lower. It could be the mark is actually 25 to 50 because we are seeing such a slowdown in the population behind the growth in the workforce, that 50 to 75 is a great number, but the number of jobs is a moving target. And that we know that that target is moving. It's actively being moved now. People think the target is definitely somewhere between 50 and 100, and they land around 75. And so I was. I was talking to a set of economists, and what we were saying was, I wonder if it's actually been 75 for the past two years.

Robin (44:16)

Yeah.

Katherine (44:17)

And that's why these, like, the numbers got revised, reflecting that this, what we were growing at a steady pace. And our steady pace is much lower than we thought, much earlier than we thought. All these revisions and everything going on in our economy. It raises so many questions amongst economists that, like, don't come up in any of these stories. And sometimes I feel like we're in, like, the private group chat that America needs to be let in on.

Robin (44:42)

No, that's a really. I mean, what you were just saying about the number of jobs we need to be adding to keep up with the growth in our population or the growth in our economy is really. I mean, that's not a story I'm reading.

Katherine (44:53)

Yet another one is we haven't seen an increase in layoffs, but is the return to office mandate a backdoor way to lay people off without saying they're being laid off? And to what extent is that occurring? I mean, that's impossible to tell from the data that we have now, because we only have quits versus layoffs and discharges. So we don't know how many people are basically being forced to quit because they don't want to go back to the office. And so this is a way for them to lower their payroll.

Robin (45:23)

Yep. Or companies to lower their payroll without actually laying people off.

Katherine (45:28)

I mean, the problem there is that's definitely happening. Right. People are quitting because of the return to office mandates, but because we haven't actually seen a decline in employment, if that is happening.

Robin (45:38)

A decline in employment, you mean a lift in the unemployment rate and an.

Katherine (45:42)

Actual reduction in the number of jobs.

Robin (45:44)

Okay, okay.

Katherine (45:46)

To the extent that that is happening, which it certainly is, it seems like those workers are being re employed pretty rapidly. You know, we don't have an answer yet of how return to office is warping the statistics that we look at for economic health, even though we know it's doing something, we don't know what. So these are the types of questions that like I think that economists are. You asked me once, how would labor. What would a labor economist. If you guys are all at a bar, what would you be talk. These are the questions that I think are coming up of not questioning the statistics because it doesn't match the reality of our lived experience, but wondering what they're missing given trends in the labor market that are hard to capture with the data.

Robin (46:22)

Yeah, I keep seeing stories where CEOs are projecting these further return to office mandates. Seems to be that they're just sort of signaling to their workforce. Go look for another job if you're not ready to come back to the office. Like, it's like a pre. It's like a. Yeah. Shot over the bow, right?

Katherine (46:38)

Yeah. Yeah. You need to, you need to quit.

Robin (46:42)

Yeah. Or it's coming and you should start looking. Yeah.

Katherine (46:45)

Also, for what it's worth, I do think next year's BLS revision will also be large and negative because. Well, for a few reasons. But I think right now the number of federal employees that have not been fired but do not have a job.

Robin (47:02)

Are maybe still getting paid. But maybe.

Katherine (47:04)

Oh no, they're getting paid. I know federal workers who have been paid full time, accruing paid time off for five months and they're not allowed to go into work. The people who took deferred resignation and they voluntarily left, they're still getting paid. That ends on the first.

Robin (47:17)

Okay, so then there are people who.

Katherine (47:20)

Are on administrative leave where they're not allowed to go into work, but they're going to be fired once the administration gets legal permission to do so. So at the moment they're just getting paid full time, accruing all of their PTO and retire and so on, and getting health insurance and not doing any work. I mean, they're being told you cannot do any work. Sometime in the Next few months, all of those people will show up and that will be a big bad number when it finally shows up, if they are successful at firing as many federal employees as they would like to be. So there's bad things coming on the horizon.

Robin (47:53)

I mean, you know, as we were just saying, they're in the position of knowing that that's on the horizon for them. And they are either there and they might be looking for another job. They might be thinking, okay, well, I'm just going to retire early.

Katherine (48:05)

They might be taking up woodworking, but.

Robin (48:10)

They might also just be hoarding cash as much as they can because they know that they're going to have to ride out, you know, a six month job hunt.

Katherine (48:19)

Yeah. Or they've been actively looking this whole time.

Robin (48:23)

Probably. Yeah.

Katherine (48:24)

And even if they got another job, do they need to quit the one that's paying them and telling them they're not allowed to work, but they get to accrue vacation? I wouldn't. So there are some bad things coming.

Robin (48:38)

Optimist economy. There's some bad things coming.

Katherine (48:41)

There's bad things coming. What I find interesting about the number of conversations and the attention given to the BLS benchmark revision of 911,000 is that if you asked me what do you think is the weakest part of our labor market right now, I would say it's that 70% of job growth over the past year has come from education, health care, and state and local and federal government. It's mainly state and local, but like 70% of our job growth are coming from industries that do not reflect economic activity.

Robin (49:11)

What do you mean they don't reflect economic activity?

Katherine (49:14)

Well, like, manufacturing is down 70,000 jobs, like year over year.

Robin (49:18)

Yeah. Extraction industries down.

Katherine (49:20)

Professional and business services, which is a huge part of our economy. I think it's like 14%. It's also not growing and it might have lost jobs. But that tends to reflect things like consumer demand. Whereas healthcare reflects lots of old people.

Robin (49:35)

Right, right.

Katherine (49:36)

More every day. So we're not seeing growth in the labor market in sectors that are a reflection.

Robin (49:45)

Consumer demand. Yeah, yeah.

Katherine (49:47)

Or like.

Robin (49:47)

And the consumer price and the consumer sentiment stuff is showing us that too.

Katherine (49:51)

Yeah. Okay, so what's the optimism here, y'?

Robin (49:53)

All?

Katherine (49:53)

We're gonna go back to a couple. I don't want to leave this episode on like a dour note. The optimism one is that we didn't lose a million jobs that we thought we had. Really. We overestimated. We overestimated by a million. And no one, like lost their job or there weren't like a million people who were jobless, who we never counted before. Like, this is all about complex estimation methods of trying to hit a moving target.

Robin (50:17)

That is. That's good.

Katherine (50:18)

So that's one. The second would be, you know, as. As cruel as this can sound, even when the economy gets at its absolute worst, most people are fine. And statistically, that most people will include you and people lose their jobs and people have a hard time finding a job. But, like, whatever the US Economy has been through, it has always bounced back into a growth cycle in. Okay, well, maybe if I could, like, force my boxing metaphor further in terms of optimism. I mean, this tariff policy is in some ways, like, catastrophic, and we're still mostly fine. I mean, it is a testimony to how strong the U.S. labor market is and how strong the U.S. economy is is that even as we are, like, sabotaging export markets and import goods and making things deliberately more expensive and business harder to manage, like, we are also still fine. Like, we, we. It's not like we're spiraling into a depression even as we're pursuing these really destructive policies, because we do have a very resilient economy. And even that punch in the face that, like, knocks us down to the mat will get up. And that's what our economy does. Like, we. We go through recession and then it goes back to creating more jobs and lowering unemployment and having more quits and layoffs and generating wage growth. And sometimes it's anemic and sometimes it's strong. And those periods of weakness are terrible, but they're not forever, and they don't affect everyone equally. Equally. So that's the preview for next time.

Robin (51:47)

We're going to talk a little bit. Yeah. About how to make it less cruel.

Katherine (51:50)

We're going to talk about how to make it less cruel. Yeah. In some ways, I think that the reporting of things like the stock market, which is a really jumpy number and reflects a lot of, like, gambling and betting, both makes the economy seem much more volatile than it is, but also makes the peaks and troughs of the economy seem more severe. I always thought the stock market is like your most dramatic richest friend reacting to the news of like, oh, my God, did you hear 900,000? Jesus, I cannot believe this.

Robin (52:21)

We need to.

Katherine (52:21)

I mean, they're going to cut rates, so I'm going to bet on everything. And then it's like he said at the meeting that he didn't know if prices were going to go up. I have no idea where I am anymore. And Like, I'm just going to sell everything. Like, it's a. Like, they're very dramatic in their reaction. Businesses don't react that way. Consumers don't react that way. Workers don't react this way.

Robin (52:41)

Prince Group this way.

Katherine (52:42)

This group of people that we pay, like, 80% of economic news attention to are, like, so effing dramatic. And then. And people are like, well, the market went up. So if the market went up, the economy's fine. I'm like, I wouldn't trust those people to mow my lawn. Like, look at the numbers that actually matter. That is that the stock market represents on some level the strength of the companies that are held publicly. And on another level, what a bunch of gambling addicts think is gonna happen in the next month. So, like, don't put too much. Like, they get a lot of news coverage. Cause they change a lot. We don't get 25 unemployment rates a day. Market doesn't close, like, the daily unemployment rate. So it gets a lot of attention. It makes the economy seem much more volatile than it really is. So don't listen to that friend. Okay, we're gonna end the show. Cause I've officially talked myself hoarse.

Robin (53:34)

Oh, my God. It actually happened.

Katherine (53:35)

Just like my great grandma would.

Robin (53:39)

Okay, executive orders. Catherine, what's your executive order?

Katherine (53:43)

I think you should go first. We've got another. We're on a theme here.

Robin (53:46)

Oh. So it's autumn, and I don't know about you, but I hate, hate, hate, hate the smell of cinnamon brooms. Which are not brooms. They're just stinky things that apparently people buy to hang on their front door. So there's like, a gauntlet of these stinky things that every Trader Joe's you ever go to. And then if you're, God forbid, in a place that isn't warm year round, and they put that stuff inside. It's awful. And these need to be completely banned. They should not be allowed to be sold in. My sister sent me a picture when they showed up where she lives. And she's like, I'm just warning you, the cinnamon brooms have arrived. No more cinnamon brooms.

Katherine (54:25)

Okay? So I'm just gonna say right now, we are not gonna be sponsored by, like, the Cinnamon council of the U.S. like, this is your second or third cinnamon executive order.

Robin (54:33)

It's my sin.

Katherine (54:33)

Getting it. Getting it out of Trader Joe's. Just getting rid of the scent. Okay?

Robin (54:38)

Big Cinnamon is not our friend.

Katherine (54:40)

Big Cinnamon's gonna come after us.

Robin (54:46)

We're gonna get it. There's an email Coming right now from the lobbyists from the cinnamon industry.

Katherine (54:53)

Big cinnamon. Big sin. Big sin is great. Big sins coming for us. My executive order is that you can't save a table at a counter restaurant without ordering first.

Robin (55:05)

Oh, yeah, that's just human disease. Oh, no.

Katherine (55:08)

Doesn't always happen in New York City.

Robin (55:10)

Doesn't always happen either.

Katherine (55:12)

So this just happened to me in New York, and I didn't feel bad for this guy, but he was coming in the door to this little cafe right as I was, and there was a table open by the window. It was a really nice table. And I looked at it and he came in right behind me, and he basically, like, shoved me to get by me to put the stuff down. Now, he didn't see that I was really pregnant. And so, like, from his point of view.

Robin (55:35)

Douchebag.

Katherine (55:36)

Oh, my God. So many people saw him push a pregnant woman into a chair, which, like, I shouldn't have hit if I wasn't pregnant. But I'm, like, pregnant enough that I'm knocking things off of counters. And so I let out, like, this involuntarily, like.

Robin (55:47)

Like, oh.

Katherine (55:49)

As he, like, rushes by me to put a bag on the table. And then when we. I, like, waddled my way like a penguin to the line, he basically beat me there. And I was like. I was such an asshole about it. I was like, I don't. I don't know what you are doing here, but I'm getting breakfast. But whatever you got to do, you got to do, so you go first. I can't handle this right now. And I just did this arm wave. I was like, I can't handle this right now, so just get in front of me. And I don't want to deal with it. It. He said, I'm, you know, I'm sorry. And I was like, you're not sorry for the right thing. You should be sorry for saving a table without ordering at a counter when there are 10 people in line. Like, why do you. Are you better than all of us? So that is my executive order. And honestly, I hope that guy continues to get called out. And for the record, I waited in line, I ordered my shit, and there was a table that had opened up in the natural ecosystem of counter service cafes that when someone had finished eating, that was about the time that I got my food and I just got to sit down like a human person with dignity.

Robin (56:52)

I think that's a good rule. They actually have signs in plenty of restaurants in LA that actually say order first.

Katherine (56:58)

So Andy asks, what did this son of a bitch order, and I'm just gonna say right now, I bet it had cinnamon in it. I bet this was one of those Big Sin emissaries.

Robin (57:13)

He's a lobbyist for Big Sin.

Katherine (57:15)

He's a lobbyist for Big Sin, basically. Okay, Spiritual sponsor, not Cinnamon or anything related to it.

Robin (57:24)

My spiritual sponsor this week is we have a great horned owl in our neighborhood who, of course, I can't see because they're nocturnal, but I hear every night, and I hear at 5, just as the sun is first coming up in the morning. And I love him. Her. Anyway, this morning, I actually heard two. I don't know if they nest together or what they do, but the thought of living in the middle of the city, but the wildlife is here. And also that we didn't have a lot of owls for a long time because of. Well, frankly, because of rat poison. And that people have sort of cottoned onto the idea that if you poison the rats, you poison the owls. And now we have owls back.

Katherine (58:08)

They cottoned on. What a great throwback.

Robin (58:11)

Because it's a regular phrase that people use.

Katherine (58:14)

Really. My vocabulary absorption from our own show is pretty low. My spiritual sponsor this week is history memes that people make for TikTok and Instagram.

Robin (58:32)

What do you mean?

Katherine (58:33)

Oh, God. It's really one of these moments where I'm like, oh, my gosh, there's dozens of us. So my sister and I trade. History means she's better at finding them than me. But this one was a video of a relief pitcher walking out during the playoffs to take the mound and close the game. But it said in big captions above it, grant entering the Eastern Theater in 1864. I watched it, like, 10 times. And now, thankfully, the algorithm has just been delivering all these, like, Civil War history meme jokes to me, and I'm like, this is giving me life, y'. All.

Robin (59:11)

You're such a nerd.

Katherine (59:12)

Oh, man, it's so good. But I. But this. I was like, but I'm not alone. Like, these videos have millions of views and like, oh, all the ones making fun of Europe.

Robin (59:19)

Somebody's making those.

Katherine (59:20)

Someone is making them. Someone's putting the time into them. And I'm like, I don't know who you are or what you do, but I see you and I appreciate you. Please give me more Civil War memes. I am here for it. History memes, history jokes, the history reels, the history tik tok that are all incredibly sarcastic. Love it.

Robin (59:38)

Love it. That is our show. At the end, we do want to remind you, you can reach out to us at any time@optimist.eilibriummail.com we also have social media accounts on TikTok, on Instagram and on LinkedIn. And then, of course, you can see clips of the show and YouTube. The. On YouTube, we don't do a full video version yet because we're not millionaires, but there are clips from the show on YouTube and that's it, I think. But we need to snap out Sophie and Andy, who produce the audio and video for our show.

Katherine (60:18)

And we also need to. We also need to snap out that Sophie and Andy's studio chat during recording has gotten, like, a lot sassier.

Robin (60:24)

Yeah, they've really. It's true.