Jobs Friday: On the Couch with Dr. Zandi

Episode Summary

Executive Summary: The episode dissects a solid but softer-than-expected April jobs report: payrolls rose 175k, wage growth cooled, and unemployment stayed near 3.9%. The hosts debate whether labor-market momentum is merely normal volatility or an early slowdown, with additional concern from rising broader unemployment measures, weak temp help, and below-50 service-sector ISM. They also debate whether the Fed will cut rates before or after the 2024 election, leaning toward two cuts this year.

Main Topics: April jobs report: solid but softer payroll growth (Priority: 5/5): The panel agrees the report is not alarming, but April’s 175k payroll gain is weaker than recent months and more concentrated in healthcare. Healthcare’s outsized role in job creation (Priority: 4/5): Healthcare accounted for roughly half of the month’s gains. The group debates whether that concentration is truly narrow given healthcare’s diversity, broad footprint, and demographic tailwinds. Wage growth moderation and labor-market balance (Priority: 4/5): Average hourly earnings rose only 0.2% m/m and 3.9% y/y, which the hosts view as a healthy moderation consistent with easing inflation pressure. Household survey, immigration, and measurement distortions (Priority: 5/5): The household survey remains much weaker than payrolls, which the hosts largely attribute to Census undercounting immigration-driven population growth and benchmark issues. Signals of slowdown: temp help, hours, U6, and ISM services (Priority: 5/5): Marissa and Dante highlight warning signs: higher U6 unemployment, persistent declines in temp help, weak hours worked, and a sub-50 ISM services reading. Fed timing: cuts before or after the election (Priority: 5/5): The discussion turns to whether the Fed will start cutting in September or wait until after the election. The group mostly expects two cuts in 2024, though timing remains debated. Soft landing vs recession vs no-landing (Priority: 4/5): The hosts revisit scenario probabilities. Most see a soft landing as the base case, but they acknowledge both recession risk from high rates and a smaller risk of reacceleration/inflation.

Key Arguments: The April payroll number looks softer than the first quarter, but the three-month average remains strong enough to suggest underlying labor-market resilience. Healthcare is the main engine of current job growth, but that does not automatically imply weakness because healthcare spans many job types and has strong structural demand. Wage growth slowing to 3.9% y/y is a positive sign for inflation and suggests the labor market is no longer overheating. The household survey is likely understating labor-force and employment growth because immigration is not fully captured in Census population estimates. Rising U6 unemployment, declining temp help, and weak hours worked suggest the labor market may be cooling beneath the surface even if headline payrolls remain positive. The ISM services dip below 50 and weak confidence readings support the idea that the economy is slowing more broadly. The Fed may wait until after the election to avoid appearing political, but several participants think it should be cutting sooner because inflation is close enough to target. The main policy risk is either waiting too long and causing unnecessary labor-market damage or cutting too soon if inflation reaccelerates. The current setup still most likely ends in a soft landing, though the group assigns meaningful odds to recession and a small chance of no landing/reacceleration.

Data Points: April payroll jobs added: 175,000 - Headline payroll gain in the April jobs report. Three-month average payroll growth: just north of 240,000; cited as 242,000 - Used to argue the labor market remains stronger than the monthly April print suggests. Healthcare share of top-line gain: about half - Healthcare produced roughly half of April’s payroll increase. Leisure + government jobs added: 13,000 combined - Combined gain in leisure/hospitality and government was modest. Average hourly earnings m/m: 0.2% - April wage growth on a monthly basis. Average hourly earnings y/y: 3.9% - Lowest cycle pace and first sub-4% reading since the pandemic distortion. Unemployment rate: 3.9% - Technically edged up, but the underlying unrounded rate was essentially flat. Unrounded unemployment rate in February: 3.86% - Shows little movement in recent months. Unrounded unemployment rate in March: 3.83% - Shows little movement in recent months. Unrounded unemployment rate in April: 3.86% - Shows little movement in recent months. Labor force growth (household survey): 25,000 in April; 45,000 average over 12 months - Illustrates weak household-survey labor force growth versus payrolls. Payroll vs household employment gap: 6.6 million vs 3.6 million; gap of ~3.0 million - Cumulative post-pandemic divergence between payroll employment and household employment over the last two years. Temp help decline over two years: -445,000 - Temp employment has fallen steadily for 24 of the last 25 months. U6 unemployment rate: 7.4% - Broad labor-underutilization measure discussed as a possible warning sign. ISM non-manufacturing index: 49.4 - Service-sector survey slipped below 50, indicating contraction. Initial jobless claims: 208,000 - Weekly claims remained very low, supporting labor-market stability. Consensus market pricing after jobs report: 70% chance of two cuts; September and December - Fed funds futures implied a higher probability of two 2024 cuts after the report. Core PCE inflation: 2.8% y/y - The Fed’s preferred inflation gauge remained above target. Federal Reserve inflation target: 2% - Benchmark referenced repeatedly in the rate-cut debate. Federal reserve scenario probabilities cited by participants: Soft landing: 60-80%; recession: 10-20%; no landing: 5-30% - Each host offered probabilities for the three macro scenarios.

Pivotal Quotes: "I think it's a good report, right? I mean, if you can sort of set aside what seems like a slowdown in top line job growth, I think that's not anything to be concerned about." — Dante DiAntonio: Summing up the April payroll report as solid despite softer headline growth. "I'm worried that this is the start of a significant slowdown in the labor market, and that this is the start of businesses pulling back on hiring and investing at a time where inflation is still high." — Marissa Di Natale: Expressing concern that the April report could signal a broader downturn with policy implications. "I think if they can get a few inflation reports that support the case, they could go ahead and pull the trigger." — Dante DiAntonio: On the possibility of the Fed cutting rates before the election if inflation data cooperates.

Implications: Listeners should read the report as a decelerating but still healthy labor market, not a recession signal. The key watchpoints are inflation, temp help, U6, and service-sector weakness. Fed cuts likely remain on the table in 2024, with September and December the base case.