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Macrocast: Pour one out for the essential workers
Join Ylan, John, and Brendan for this #JobsDay #Macrocast! The group discussed the current state of the labor force, including how caretakers, including women, are handling the high cost and short supply of daycare. The group also talked about how the employer and employee dynamic might shift as the labor market cools—will employees still be able to use their leverage to get benefits and flexibility? In the next couple weeks, there will be some potential economic headwinds, including changes to childcare funding, the reinstatement of student loan repayments, and potential government shutdown, and Ylan, John, and Brendan, also discussed the likely resulting actions out of the Federal Reserve.
Read more about Penta and Civic Science's ESI reading.
Hello, thanks for joining today's episode of the Macrocast. I'm your host, yilan Mui, and managing director at PENTA. John Fagan and Brendan Walsh of Market's Policy Partners are my co-host, and today we're diving into the latest jobs report. The Labor Department reported that the economy added 187,000 jobs in August. That's a little higher than consensus, but a lot slower than the pace you were at a year ago. The unemployment rate rose to 3.8%, but that was partly because the size of the labor force grew. So, john, this kind of feels like another Goldilocks report.
Speaker 2:Absolutely and there's really something for everyone. It really is, as you said. The headline number looks really solid, but not too hot, not too cold, the exact reason for the Goldilocks formulation and the higher unemployment number. I think that when you step back and look at it, obviously context matters a lot and the context of this report coming at a time when the Fed is, if not exactly, at near the apex of their tightening cycle, it just creates a different dynamic.
Speaker 2:The burden of proof is on the hawks this is what we've been saying the hawks on the FOMC to find data that basically bolsters their case for another rate hike at the September or November meetings or even beyond. But the burden of proof previously was on the doves. When you looked at a mixed six months ago, if you looked at this mixed messaging, the hawks would have the upper hand because they would seize on the upside surprise and the headline number. But now it's really flipped. The doves are more in control of the committee, it seems, and that stands to reason.
Speaker 2:As you get up to these kind of multi, very, very high pre-global financial crisis levels of interest rates, the committee is going to be looking probably more at that 3.8% unemployment and looking at the cooler average hourly earnings, which is another important and signifier of lower inflation pressures. So, all in all, the market really likes what it sees. The Treasury rally this week is continuing and markets are dialing back In the future, markets dialing back expectations for rate hikes at the September meeting to very low odds and bringing down the November meeting to below 50-50 odds for a hike. And those had jumped after Jackson Hole, which markets had read as a little more hawkish. But I think that the tide is going in the other direction now.
Speaker 1:Brenton, what are you seeing in terms of, I guess, the breakdown by sector? Were there any industries that were hiring that were surprising to you, any industry shedding jobs that were surprising to you? What kind of trends were you picking up on?
Speaker 3:Well, this one did so. 54,000 people were because of jobs were lost because of two specific reasons. One, the Hollywood actors are on strike, so they're counted as unemployed, so they're not really unemployed, they're choosing to be on strike and eventually hope so, because I like watching TV that strike hands. But then also a large truck company went bankrupt so those truckers were out of work this month. But we do have a shortage of truckers, so I would imagine that all of them are going to be hired pretty quickly. But that was the. And then also in terms of the unemployment rate, the reason that it jumped so much was actually kind of for a good reason that a large amount of people entered the workforce. So the labor force participation rate went up really to the highest it's been in a long time, irrelevant of the pandemic.
Speaker 1:So that's a good sign.
Speaker 3:People are re-entering the workforce, especially women. Women have really been carrying the load for a while. A lot of young men have kind of left the workforce, which is a troubling trend, but hopefully that's kind of beginning to reverse.
Speaker 1:Yeah, I gotta say I've been really encouraged by the number of women who are entering the workforce, who are finding jobs. There was a recent report out of the Brookings institutions Hamilton Project that found that it's actually working mothers that have been driving the increase in women's return to the workforce and therefore driving the increasingly reporce participation rate since the pandemic ended.
Speaker 1:And I guess in one level you would expect that because they took such a hit during the depths of COVID when schools closed, you couldn't send your kid to childcare, Everything was in total disarray and I don't want to think about it too long because I'll give myself PTSD.
Speaker 1:But I think that one thing that's interesting is that out of the pandemic, we've seen an increase in flexible workplace policies. We saw federal funding to try to stabilize the childcare system and those things make a difference. When you see the numbers, I mean women are now in the workforce in greater numbers than I believe they were even pre-pandemic. And the increase in the labor force just over the past month, where we saw that big increase that you were talking about, Brendan, was driven by women. There was 195,000 men who joined the labor force, 336,000 women throwing the labor force. So you can see it in the numbers where these policies by businesses and policies by the federal government, they actually do make a difference in those individual decisions that women are making about whether or not they can afford to work and whether or not they have the logistical ability to actually get to the office or stay home and work.
Speaker 3:And unfortunately a lot of that childcare subsidy was part of the pandemic spending and it's running off in September. So the estimates are that as many as 3 million kids will not be able to afford daycare. So there are some efforts on Congress's part to try to re-up this but as we know, we have a pretty divided Congress so there's not a lot of optimism. So that is one troubling aspect facing the labor force going forward.
Speaker 1:Yeah, what happens when all the money that was shoring up the childcare system starts to trickle away? I mean, there are some states that are trying to replace that funding through their own budgets, but that's sort of a haphazard solution, and part of the problem that we saw during the pandemic is that the scaffolding of childcare in this country is very precarious and there's a lot of holes and a lot of gaps and that means women aren't able to be as productive members of the economy as they could be.
Speaker 1:So, clearly this is a hobby, whore no.
Speaker 3:I mean, we waste a lot of money, a lot of things, but this is one that actually we can see a return on the investment. This is productive spending that has a huge effect on the economy and people's lives. So hopefully Congress can see that and pass it.
Speaker 2:Well, there is an election coming up and so one would assume that when some of these, the old saying in Washington is the program's never sunset right. And one of the reasons for that is because once that support, once that money is out there, it's pretty hard to take it back. And under the circumstances it may be a situation in which obviously we've seen the White House touting Bidenomics that kind of came out a few weeks ago over the summer and the sense that that is probably going to be part, one would assume, of President Biden's reelection campaign, where he's basically saying hey look, remember that, remember these kind of support programs. In this kind of poisonous partisan environment that we're living in, it's quite clear that the Biden campaign is going to try to focus on that differentiated approach to economics, that differentiated approach to the support programs and so forth. So that's kind of in his DNA, I think, but we'll see if that message resonates. But it definitely has some where politics, policy and markets and economics all it's a busy intersection.
Speaker 3:Yeah, but on this daycare issue, unfortunately everybody in Congress and Senate is 80 years old, so they don't remember what it's like to have kids.
Speaker 1:Well, maybe they're being called upon to babysit the grandkids, right?
Speaker 3:Great grandkids.
Speaker 1:But let me raise this because, as the labor force starts to cool, does that mean that workers have less power and less ability to demand some of the benefits that they were able to gain during the post-pandemic years, when the labor market was so incredibly tight? For example, we were just talking about remote work and the benefit that provides to women who are trying to enter the workforce and stay in the workforce. There's a lot of companies, including the federal government, who are saying now maybe remote work needs to be capped or maybe it needs to. We need to put an end to it. As the labor market cools, how does that dynamic between employees and employers start to shift and what does that mean for some of the gains that workers may have gotten over the past three years?
Speaker 3:I think this report was very indicative of that exact point. We had a lot of people enter the labor force, the amount of jobs that we could fill is less and therefore the wage growth was slowing. So I think you're right. But also the the in-work, out-of-work dynamic is interesting because some industries are kind of forcing it. Like the finance industry really wants people back. Goldman and JPMorgan are demanding it.
Speaker 3:But other industries are finding that they actually like the remote work. Their employees are more productive and it actually saves you a decent amount of money because you don't need as much office space. So I think it depends on what industry you're in whether you have to go back or not. But I do think every industry wants at least people in the office a few days a week. You have to train people and have some sort of culture. But I think the employees now also have to balance wages with quality of life. So if you're a business, that's actually very that's a positive development because you can trade working from home for a couple of days a week for maybe a little lower wage gains.
Speaker 2:That balance that you pointed out, elon, is. That was highlighted also by the Joltz data this week. Brendan can speak to that a little bit more. He's more in the weeds on this, but Joltz is kind of this underappreciated, maybe underreported.
Speaker 3:Yeah, it was Janet Yellen's favorite data point for the labor force when she was the head of the fed.
Speaker 2:It was job openers and levers. What's that?
Speaker 3:Job opening and leaving survey Turnovers.
Speaker 2:Joltz. So yeah, it showed that came out. That was sort of one of the jobs week. It sort of builds to this crescendo on Friday morning of the non-farm payroll number. But they got the opening acts. The Joltz is one of those warm-up acts earlier in the week and, yeah, when that came out on Tuesday it made a pretty big market splash because it showed a significant decline in the opening in job openings. Now there are a lot of quibbles with Joltz, I guess.
Speaker 3:John, 100% right, it is a little volatile, but the last three months have shown the same trend, where job openings are going up and the amount of jobs that need to be filled is going down.
Speaker 1:Well, and the quits rate, too, has come back to the levels that it was pre-pandemic, I think 2.3%.
Speaker 3:You only quit your job if you're confident you're going to get a better one. You know, or you're a crazy person.
Speaker 2:Oh yeah, that's right.
Speaker 1:No, but I think that's fascinating. We think about the great resignation and the trend we saw post-pandemic of people leaving their jobs, maybe partly because they thought they could find another one, maybe some COVID era soul searching that they did around what type of work they wanted to do and how they wanted to do that work. But now it seems like also everyone who has wanted to find a new job or to make that career transition has made it. So now one of the things that we're hearing from a lot of different businesses is that people are staying in the jobs longer and so the normal attrition that they would expect to see isn't happening because folks have found the jobs they want to be in.
Speaker 3:Yeah, and then going back to our talk about the housing market, you have a pretty low 30-year mortgage, so you have to have a way, way better job to move out of that house if you're going to have a significant life change.
Speaker 1:Absolutely. I wanted to also bring up the kind of abnormally large, if you will, revisions to previous months that we got in this job support. Yeah, I think this is a really important point. This is always my kind of leading. This is one, in my opinion, one of the best leading indicators for the labor market.
Speaker 3:It's watching the revisions, you know when you're coming out of a recession, because the first time we collect the data, we only collect somewhere between 67 to 72% of it, and then over the next months the other businesses send in. So you can get very, very large revisions. And in times when we're coming out of a recession you'll find very large upward revisions. But when you're kind of entering into a slowdown, you start to get those negative revisions and we've had now kind of four or five months of negative revisions and this one was a pretty big one.
Speaker 1:Yeah, june was revised down by 80,000 jobs, july revised down by 30,000 jobs, so 110,000 fewer jobs cumulatively than had been previously reported. I mean that seems pretty significant and also it puts us pretty squarely in that sort of 100 to 150 kind of range in terms of the monthly level of job growth.
Speaker 3:Yep, which is still perfectly fine, but you know, it's not the booming economy that we experienced for the last 12 months or so.
Speaker 1:The other potential leading indicator here is the reduction in temporary help. I don't know if you guys noticed that within the report as well that motion picture one struck me, yeah, but. I saw the temporary help was down by 19,000 jobs for the month of August, and I felt, like you know, we always say that that could be. That's another canary in the coal mine. Right, you're going to get rid of your temporary help before you get rid of your more permanent employees, and so maybe that's a sign of something to come.
Speaker 3:No, and it shouldn't be a shock. We always say that monetary policy works with a lag and they raise rates really aggressively and they're very high, and that's why I think that you know there are still some hawks within the Fed, but I think they're coming to realize that a lot of the tightening that they've done hasn't seeped through to the economy yet and it's just starting. So they are at a huge risk of having a large monetary policy disaster if they, if they continue to look at backward looking data and high rates, especially as we talked about the inflation numbers haven't reflected the slowdown in the housing market that's coming. So if they're looking at these data points without factoring that in, it's an injustice to the American public.
Speaker 2:Yeah, the narrative of a soft landing has really become pervasive over the last few months and that you know, as the Fed isn't going to get complacent on that front, obviously all markets definitely can get complacent, particularly the equity market. But you know, the competing narrative against the soft landing is sort of like this the summertime splurge is over and you know, consumers were kind of like, you know, they had that last hurrah the, you know Taylor Swift, they're going to see Beyonce.
Speaker 1:One more episode. We got Taylor Swift Right. We got to get it in.
Speaker 2:The, the, the barb and Heimer, you're going out, you're having fun, you're buying new, you're buying new outfits and that sort of stuff, and there's honestly like a sense that on the, on the sort of negative side of the of the analyst and economist community, there's a sense that, you know, consumers have now extended themselves, have exhausted some of that, or quite a bit of that dry powder that they had saved up, you know, post pandemic and, and this was, and this you know was reflected. This kind of narrative was, was boosted by the, by this personal spending and income data that came in earlier this week, where you had income undershooting growing, you know, at a slower pace, but spending overshooting and the resulting savings rate coming down pretty significantly. So it's that, that is the, that's the counter, that's the dominant sort of counter narrative to the soft landing scenario here is that the consumers of are basically, you know, ready to, ready to kind of sit on their wallets for a little bit, take it easy and and we'll, we'll see. The next few months will be very interesting.
Speaker 1:Yeah, that big jump in consumer spending was interesting and I love how some of the news media stories called out exactly some of the categories that you're mentioning, john restaurants, live shows, recreational equipment everyone was, I don't know, going voting or something during the during the summer and getting outdoors. So that that seems significant. And I and I also thought it was interesting that consumers spent money primarily on on non-durable goods and I wonder if that's another sort of lagged effect, maybe even of you know higher interest rates that we've been seeing that trickle down through the cost of credit. You know consumers may not be willing to pay those higher interest rates to shell out for bigger ticket items, so they're purchasing, you know, more disposable goods instead.
Speaker 1:And we can see that sentiment actually playing out in the index that Penta puts together with Civic Science. The economic sentiment index, which comes out every two weeks, came out just this past Wednesday and showed that the index is at the lowest level since the entire year began. So all five indicators you know job finding, strength of the economy, personal finance those were all down at the lowest levels of 2023. And so that does speak to this sort of end of the summer, of fund-inflation idea. But if the consumer starts to really pull back, you know, into the second half of this year. I wonder what that means. Obviously could bring down inflation, but also could slow growth pretty significantly.
Speaker 3:Right and one of the it will slow too because we're coming from such high levels. So the Atlanta Fed GDP tracker is at over 5%, which is well above our trend. We're usually 2% to 3% GDP growth. So it is going to slow, but it actually could slow very significantly. It might be negative, just kind of the way, because we do it quarter over quarter analyzed, so you kind of have kind of big changes, but if the consumer kind of pulls back, that's what like you said, that's what's been driving the economy and we don't have a lot of other drivers to keep this thing going. The Inflation.
Speaker 3:Reduction Act is doing a lot, but that's not enough to the infrastructure spending we're doing is not enough to drive to replace the consumer.
Speaker 2:Yeah, one thing that is going to be a consistent drag, it seems, is basically high gasoline prices. The gasoline prices are extremely high for Labor Day weekend. We've seen Saudis basically shouldering unilateral cuts for OPEC Plus in an effort to keep-.
Speaker 3:Yeah, the Saudi numbers were way down. They came out today. They've just stopped pumping.
Speaker 2:Yeah, the exports in August fell off a cliff the crude exports from Saudi, and so it just goes to show just the depth of their commitment to keeping oil prices high. Now they're not soaring because the counterbalance is slowing demand and a lot of that is In China. We'll talk a little bit more about China's weakness in a minute, but that is it's a headwind. It's not like an acute onset, but it's kind of like a chronic condition. These naggingly high energy prices and they do tend to feed through and you get things like the pass through for shipping rates, shipping announcement of higher I think it was FedEx announced higher shipping rates. This is the kind of consequence of this and it creates Europe has had less of a positive week this week because its data showed more of a stagflationary kind of dynamic. That's one of the things. That is a scenario, a warning sign, a harbinger and something that makes us concerned about the coming quarters in the US this sticky high energy prices we're going to see some statistically driven positive moves in inflation and headline inflation numbers. But the question of that core core when you're like, really drill down and look at some of these numbers, it looks a little bit sticky still, even if growth slows, is it really going to suppress some of these other price supportive dynamics? That won't diswa lower US growth won't dissuade Saudi from cutting exports, it'll just encourage them to do more. It's not the rosiest of pictures when we're going into the fall here, despite some reason to be optimistic about a US soft landing.
Speaker 2:But risks do abound. China is one of them. As I mentioned, they came out this morning. There was a little bit of a better purchasing managers index number on the factory side, but you can see from there it doesn't. It isn't a day that goes by now without Beijing coming out with another stimulus. Another stimulus announcement Overnight it was the People's Bank of China trying to shore up the Renminbi with some tweaks to foreign exchange reserve rules, and previous in the week it was cutting the down payment requirement in major Chinese cities. In Beijing and Shanghai they immediately reset their property down payment rules. Along with that, tax breaks here. The knock on it. It's all small ball. They're not like having this massive campaign of fiscal expenditure, but it is a constant drumbeat and it shows rising determination in Beijing to try to turn this thing around, because the economy has been looking very threadbare.
Speaker 1:Brenda and I like the way you put it earlier that there's not a whole lot of drivers for the economy when you look through the second half of the year. But certainly there could be a lot of potholes. One of them is a potential government shutdown once Congress returns from recess in just a little bit. I mean, I was just looking at the dates, the actual dates of the next FOMC meeting in September and it's September 19th and 20th. We're looking at a potential shutdown starting after the fiscal year ends on September 30th. I know the Fed is not political right, they're nonpartisan, they're a partisan, if you will, and independent. But it is also very hard to imagine that if we are barreling toward another shutdown of indeterminate length on those dates that the Fed would actually raise interest rates.
Speaker 3:Yeah, I think you're right. I mean government shutdown. We've put everything into essential, so it really only shut down about 4% of the government. But that's not the point because, going back to your economic sentiment indicators, the consumer is kind of worried and the government's shutdown is not going to help that. You have, like we said, the daycare issue. That's a big one, but also people are going to have to start paying their student loans again. There are actual headwinds coming, irrelevant of not having more stimulus. But a government shutdown is only going to exacerbate the kind of pessimism that the US consumer sees. It's not totally Republican-Democrat. Republicans are more pessimistic because of Democrats in charge, but it's not that Democrats are super happy about the economy, which is not a great thing for Biden if he's going to try to get reelected. But I think you're also right that the Fed has to be very aware that there are these headwinds and if the government shutdown, it's going to be a bad look for the Fed to raise another 25 basis points.
Speaker 1:Yeah, I mean on the margins, if it doesn't really matter whether you raise in September or October, slash November and it's really just about the signaling effect on the objects. The objects and the signaling look really bad.
Speaker 3:No, totally, and that was the message after the Fed meeting and the message at Jackson Hall is that they're data dependent and you know a government shutdown is another data point and a negative one. So you know it makes sense to be cautious and whole because, as you say, it doesn't really matter whether you do it in September or, you know, at the end of the year. I mean, I don't think they need to do it anyways, but it would be kind of it would be a bad luck if they, out of consensus, shock the market with a 25 basis point hike.
Speaker 1:Right, and you know you're right, brendan. I feel like the ultimate economic impact of a government shutdown tends to be fairly small. Employees end up getting paid retroactively, you know, unless it sort of drags on for weeks and weeks, as we have seen it do in the past. You know there might be some sort of lip effect there, but it really is about.
Speaker 3:DC is actually really fun time Because everyone all the employees know that they're going to get paid, but you know you're not allowed to work. So there's a lot of like happy hours on Wednesdays.
Speaker 2:I was one of the quote unquote essential workers, and so my like my staff would be out playing frisbee and it was pour one out for the essential workers. It really is. It's a lousy feeling and you really hope that they get their act together on Capitol Hill.
Speaker 1:So anyway, you got to make sure the Treasury markets are operating smoothly, John.
Speaker 3:But you don't have to wait in line at the cafeteria.
Speaker 1:There's certainly a lot that's going to be happening over the next few months, as we sort of sprint toward the end of the year. What's on your radar for the next week or so?
Speaker 3:There's a food hall opening above Farragut West. I'm very very excited about this. Wait, what I didn't know that, yeah, it's an enormous like high end food hall above the Farragut West metro stop. It opens next week, so I'm I'm going to be spending a lot of time in the office this week.
Speaker 1:Macro-cast lunch. I love it.
Speaker 2:Wow, that shows some some, some optimism for because DC downtown has still been pretty kind of dead, but there's, there's a vote of confidence there.
Speaker 1:Micro indicators.
Speaker 2:Yeah, and we've got the it's pretty light data. Next week we got the beige book and a smattering of you know trade data, factory orders. Overseas we have more PMIs, the purchasing managers indexes from China, so we'll see how those land and some data out of the EU with retail sales, GDP and so forth. Bank of Canada has a decision serve Bank of Australia. Both are supposed to be sitting on their hands so it should be a pretty quiet week. So enjoy Labor Day, have a, have an extra, extra hot dog at the barbecue and look forward to a quiet start to September, I guess.
Speaker 1:Absolutely Well. That does it for us. Today I'm Elan Moy with Penta. My co-hosts are Brendan and John from markets policy partners. We hope you all enjoyed our show. Please remember to like and subscribe to the macrocast wherever you get your podcasts. Thanks for listening.