Eagles and Jobs and Tariffs, Oh My!

Episode Summary

Executive Summary: The episode centered on a strong January 2025 jobs report that showed a healthy but gradually moderating labor market: payrolls rose 143,000, unemployment fell to 4.0%, and wage growth stayed near 4%. The hosts also unpacked major BLS revisions—upward household-sample population adjustments from immigration and a sizable downward payroll benchmark revision—and then turned to tariffs, arguing they are likely a mix of politics, trade leverage, and immigration pressure, with China seen as the most durable target. The discussion closed with elevated recession risks driven by policy uncertainty.

Main Topics: January 2025 jobs report: healthy but moderating labor market (Priority: 5/5): The panel agreed the headline report was solid and broadly in line with expectations, with payroll growth slowing but still consistent with a healthy labor market. BLS household survey revision and immigration (Priority: 5/5): Marissa explained that new population controls added millions to the civilian population and labor force, narrowing the gap between household and payroll data and reflecting the immigration surge. Payroll benchmark revision and job growth re-estimation (Priority: 4/5): Dante described the benchmark revision that lowered March 2024 employment and reduced average job growth over the benchmark period, but did not materially change the overall labor-market narrative. Tariffs, trade policy, and motivations behind Trump’s actions (Priority: 5/5): The group debated why tariffs are being used—campaign promises, trade leverage, immigration, China policy, revenue, and reshoring—and how long higher tariffs might persist. Productivity growth and manufacturing sentiment (Priority: 3/5): The team noted strong full-year productivity growth in 2024, though slowing in Q4, and treated the latest manufacturing ISM reading as sentiment-driven and not necessarily a real turn in activity. Recession risk and policy uncertainty (Priority: 5/5): All speakers said recession odds have risen modestly because of tariff uncertainty, immigration shifts, fiscal-policy volatility, and potential drag on hiring, investment, and consumer behavior.

Key Arguments: Payroll growth of 143,000 suggests moderation, not deterioration; underlying monthly job growth is roughly 150,000, still consistent with a healthy labor market. Job gains remain concentrated in healthcare and government, which the hosts view as structurally important and not inherently lower-quality jobs. The household survey revision reflects immigration-driven population growth; it proportionately lifted population, labor force, and employment, leaving rates mostly unchanged. The payroll benchmark revision was large by historical standards, likely because the birth-death model overestimated job creation; however, it still leaves the economy with solid 2024 job growth. Tariff policy is likely a mix of signaling and negotiation; China appears to be the most durable tariff target, while Canada/Mexico may face temporary or tactical pressure. Tariffs are unlikely to permanently solve the trade deficit and may instead raise prices, slow growth, and increase uncertainty unless quickly negotiated away. Manufacturing sentiment improved after the election, but the hosts are skeptical that underlying manufacturing fundamentals have changed meaningfully. Recession odds have risen because policy uncertainty flattens the distribution of outcomes and makes both households and firms more cautious. Higher inflation today makes tariff-induced price increases more politically and economically difficult than during Trump’s first term. Productivity growth remains solid on a yearly basis, but the recent quarterly slowdown suggests the post-pandemic productivity bump may be fading.

Data Points: Payroll job growth: 143,000 - January 2025 nonfarm payroll increase Unemployment rate: 4.0% - January 2025 unemployment rate, down from prior month Three-month average payroll growth: 237,000 - Average after upward revisions to November and December Underlying monthly job growth estimate: ~150,000 - Dante’s estimate of sustainable monthly payroll growth Wage growth, monthly: 0.5% - Average hourly earnings increase in January Wage growth, year over year: 4.1% - Year-over-year wage growth after January report Average weekly hours, private sector: 34.1 hours - Weak all-employee average weekly hours, cited as unusually low outside recessions Population revision: +2.8 million - Added to civilian non-institutional population in the household survey Labor force revision: +2.1 million - Added to labor force after population controls update Employed revision: +2.0 million - Added to household employment count Unemployed revision: +100,000+ - Added to unemployed count in household survey revision Foreign-born population change: +6.1% - Population gain from January 2024 to January 2025 among foreign-born residents Native-born population change: +1.0% - Population gain from January 2024 to January 2025 among native-born residents Payroll benchmark revision: -590,000 - March 2024 employment level revised down in benchmark process Initial benchmark estimate: -800,000+ - Earlier preliminary estimate of the payroll benchmark revision Average job growth pre-benchmark revision: 242,000 - April 2023 to March 2024 average before revision Average job growth post-benchmark revision: 196,000 - April 2023 to March 2024 average after revision Full-year 2024 average payroll growth: 166,000 - Average monthly job growth for calendar year 2024 after revisions Average absolute benchmark revision over last 10 years: 0.1% - Historical comparison cited by Dante This benchmark revision as share of employment: 0.4% - Size of the March 2024 downward revision relative to employment Productivity growth, 2024: 2.3% - Annual labor productivity growth for 2024 Productivity growth, Q4 2024: 1.2% - Quarterly slowdown from Q3 to Q4 Productivity growth, year over year through Q4: 1.6% - Marissa’s cited year-over-year productivity pace ISM manufacturing headline: 50.9 - Manufacturing purchasing managers index returned above 50 for first time in over two years U. Michigan 1-year inflation expectations: 4.3% - Consumer inflation expectations rose sharply, discussed as tariff-sensitive Federal workforce estimate: 2.1 million - Rough size of federal civilian workforce discussed by Mark Federal contractors: 3.7 million - Estimated private-sector workers contracting with the federal government Current tariff rate on China: 20% - Trump-era tariff level discussed as likely to persist or rise Pre-Trump effective tariff rate: 1% - Effective tariff rate before Trump’s first term Trump first-term effective tariff rate: 3% - Effective tariff rate after first-term tariff actions Baseline forecast effective tariff rate: 10% - Mark’s Moody’s baseline assumption by end of 2025 Probability of recession, Mark: 25% - Mark’s current 12-month recession probability Probability of recession, Dante: 25% - Dante’s 12-month recession probability Probability of recession, Marissa: 33% - Marissa’s 12-month recession probability Probability of recession, Chris: 30% - Chris’s 12-month recession probability

Pivotal Quotes: "The labor market's about where you want to see it on every front." — Mark Zandi: Mark’s bottom-line assessment of the January jobs report "I think the short term, we very well may [see higher tariffs], but ... for countries outside of China ... [they] could go into place ... and then the negotiations occur." — Dante D'Antonio: Dante on how tariffs may be used tactically before being negotiated down "I think there’s going to be a lot of bark and the bite will be minor in the end because I think that we'll back down." — Marissa DiNatale: Marissa’s view that tariff threats may not translate into sustained policy

Implications: Near-term labor conditions remain strong, but policy uncertainty from tariffs, immigration, and fiscal changes is lifting recession risk and could delay Fed easing. If tariffs stick, expect higher inflation and slower growth; if they are mostly tactical, the macro damage may be limited.