Catch Up and Ketchup

Episode Summary

Executive Summary: The panel viewed the December 2023 jobs report as solid but noisy: headline payrolls beat expectations, yet underlying job growth is clearly slowing and becoming concentrated in government, healthcare, and leisure/hospitality. They concluded the labor market is cooling in a way consistent with a soft landing, wage growth near 4% is not alarming, and the report does not materially alter expectations for Fed rate cuts in 2024.

Main Topics: December jobs report: solid headline, weaker underlying trend (Priority: 5/5): Dante described the report as confusing because headline payroll growth was stronger than expected, but revisions and sector concentration showed slowing momentum. The group agreed the labor market is moderating rather than weakening sharply. Sector concentration and catch-up hiring (Priority: 5/5): Most job gains are coming from government, healthcare, leisure and hospitality, which the panel largely framed as catch-up hiring after pandemic disruptions rather than a new warning sign. Household survey noise vs. payroll survey stability (Priority: 4/5): Marissa emphasized that the household survey showed broad-based declines in employment and labor force, but the panel treated much of it as volatility/noise rather than a new trend. Wage growth and inflation dynamics (Priority: 5/5): The discussion focused on whether 4% wage growth is still inflationary. The consensus was that 4% may be sustainable given higher productivity and that real wages are improving as inflation falls. JOLTS and labor market churn is normalizing (Priority: 4/5): The November JOLTS data showed lower hires and quits, which the group interpreted as a sign of normalization. Lower quits were linked to slower wage pressure and less churn. Fed policy and the soft landing (Priority: 5/5): Listeners asked how much credit the Fed deserves. The panel split credit between supply-side normalization and Fed rate hikes/communication, and agreed the jobs report likely does not change the path toward rate cuts. Auto sales as another sign of resilience (Priority: 3/5): The group used strong 2023 vehicle sales as evidence that consumer demand remains resilient and that an industry that often leads recessions is not signaling trouble now.

Key Arguments: The labor market is still cooling, but in a controlled way: private payroll growth averaged only about 115,000 over the last three months, which is slow but still consistent with a soft landing. Concentration in government, healthcare, and leisure/hospitality reflects catch-up hiring after the pandemic more than a broad-based problem. A lower diffusion index is expected when overall job growth slows; it is not inherently recessionary unless it falls near or below 50. Wage growth around 4% may be compatible with 2% inflation if productivity growth is closer to 2% than 1.5%, and recent inflation declines mean real wages are rising. The household survey was unusually noisy and should be treated cautiously because its volatility did not match the more stable payroll survey. JOLTS data show labor market churn normalizing: quits and hires are both down, while layoffs remain very low, suggesting slower hiring rather than rising distress. The Fed deserves partial credit for preventing inflation expectations from becoming unanchored, but most of the inflation decline came from the fading of pandemic and supply shock effects. Strong auto sales, lower vehicle prices, and improving supply chains argue against a recessionary consumer backdrop.

Data Points: Nonfarm payroll gains: 216,000 - December 2023 headline jobs growth, stronger than expectations 3-month average private payroll growth: 115,000 per month - Reflects slowing underlying private-sector job growth after revisions Unemployment rate: 3.7% - Unchanged in December, though the household survey was volatile Average hourly earnings, monthly: 0.4% - December wage growth increase Average hourly earnings, year over year: 4.1% - Wage growth edged above 4% in December Diffusion index: Above 50; up a couple points in December - Used to argue job growth is less broad-based but not recessionary Leisure and hospitality job gains: About 40,000 in December - Still contributing meaningfully, though below the sector's earlier pace JOLTS quit rate: 2.2% - November quits rate, back near March 2018 levels excluding pandemic months JOLTS hires: 5.47 million - November hires total, signaling slower hiring Initial unemployment claims, 4-week average: 208,000 - Very low level, indicating limited layoffs Light vehicle sales, 2023: 15.5 million units - Full-year U.S. sales, strongest since before the pandemic Light vehicle sales, December 2023: 15.8 million annualized - Monthly sales pace cited as improving from earlier pandemic-era weakness Household survey adjusted employment change: -753,000 - Employment decline after adjusting household data to payroll concepts Timeframe for payroll growth normalization: 75,000-100,000 jobs per month - Panel expectation for the medium term as catch-up hiring ends

Pivotal Quotes: "The labor market is still clearly moderating relative to a year ago. It still looks like things are headed in the direction we want them to." — Dante: Summary judgment on the December employment report "You can't have every industry adding to payrolls and only have payroll growth of a hundred thousand a month." — Dante: Explaining why a lower diffusion index is normal when job growth slows "I think 4% might be the right number." — Mark Sandy: Discussion of whether wage growth near 4% is necessarily inflationary

Implications: Expect slower but still positive job growth, with more normal wage pressure and no clear recession signal. The Fed’s likely path toward cuts appears unchanged, while consumers and employers remain supported by a resilient labor market.