Mixed Messages and Moderating Jobs?

Episode Summary

Executive Summary: The panel read the November jobs report as a mixed but still generally resilient labor-market print: payrolls rose 263,000, but the household survey weakened sharply, wages stayed hot, and key indicators suggested slowing ahead. All three agreed the data do not yet change the Fed outlook materially, but the combination of sticky wage growth and divergent labor signals keeps recession risk meaningful.

Main Topics: November jobs report: strong payrolls, weak household survey (Priority: 5/5): Payroll employment rose 263,000, beating expectations, but household data showed falling labor force participation, employment, and employment-population ratio, creating a split picture. Divergence between payroll and household surveys (Priority: 5/5): The hosts debated whether the payroll survey is overstating labor strength or the household survey is undershooting it. They noted the gap has become historically large and may hint at turning-point dynamics. Wage growth remains too hot for the Fed (Priority: 5/5): Average hourly earnings and other wage trackers remain elevated, with annualized near-term measures around 5%+; this complicates the soft-landing narrative and keeps inflation pressure alive. Signs of slower labor demand ahead (Priority: 4/5): Hours worked, overtime, temp help, hires, quits, and some sectoral weakness all suggest the job market is cooling and could slow further in coming months. Consumer spending supported by excess savings (Priority: 4/5): Despite a low 2.3% personal saving rate, panelists argued households still have meaningful savings and credit capacity, especially middle- and higher-income consumers, helping delay recession. Fed policy and recession odds (Priority: 5/5): The group discussed an expected path to roughly 5% policy rates, then eventual cuts in 2024, with recession odds held at 70% by Mark and 50% by Dante, though both acknowledged lingering uncertainty. Labor market normalization should not be mistaken for collapse (Priority: 3/5): Mark emphasized that slower job growth is needed to contain inflation and avoid a harsher downturn later, stressing that moderation is a necessary adjustment, not necessarily an immediate recession signal.

Key Arguments: Payroll growth of 263,000 is still solid, but it is far below early-2022 pace, indicating moderation rather than renewed acceleration. The household survey is much weaker than the payroll survey and may be signaling a softer labor market than headline payrolls suggest. Wage growth near 5% is still too high for the Fed’s 2.5% inflation objective and may push policy more aggressively. Hours worked, temp help, and manufacturing indicators are leading signs that job growth should cool further. Consumer savings remain large enough at the aggregate level to support spending for some time, even though lower-income households face credit stress. If payrolls remain around 250,000 into spring 2023 with wage growth still elevated, that would become a real problem for the Fed and recession risk. The expected Fed path—more hikes in coming meetings followed by cuts in 2024—is broadly consistent with market pricing and inversion in Treasury spreads.

Data Points: Payroll jobs added: 263,000 - November nonfarm payroll gain, above consensus expectations Prior month payroll revision: 284,000 - Mark noted the prior month was revised up Household survey employment change over 8 months: 12,000 net gain - Household employment was described as nearly flat over the last eight months Payroll jobs created over 8 months: Just shy of 2.7 million - Compared with the household survey, payrolls showed much stronger gains Adjusted payroll-household gap over 8 months: About 1.8 million jobs - After adjusting for concept differences, the divergence remained historically large Unemployment rate: 3.7% - Held steady in the report Average hourly earnings growth: Around 5% - Wage growth remained elevated and sticky 3-month annualized wage growth: 5.8% - Used to show recent wage reacceleration Earlier 3-month annualized wage growth: 4% - Described as a softer mid-year reading before the pickup Personal saving rate: 2.3% - Discussed as the second-lowest on record Excess savings peak: $2.5 trillion - Peak of pandemic-era excess savings in September 2021 Excess savings latest estimate: $1.8 trillion - Remaining estimated excess savings as of October Excess savings decline: $700 billion - Drop from peak to latest estimate Hires: 6.0 million - JOLTS October hires, equal to pre-pandemic February 2020 level Layoffs: 1.4 million - JOLTS October layoffs Pre-pandemic layoffs: 1.9 million - Late 2019 / February 2020 layoff level cited as higher than current ISM manufacturing employment component: 48.4 - Used as a warning sign for future manufacturing job weakness Fed funds rate path discussed: Roughly just under 5% by March/April 2023 - Mark’s forecast assumed additional hikes before holding rates steady Recession probability: 70% - Mark kept his recession odds unchanged Recession probability: 50% - Dante kept his recession odds unchanged but with an upward arrow Monthly job growth earlier in year: About 500,000+ to 537,000 - Used to compare current moderation with early-2022 strength Current reference week note: Early reference week - Could have mechanically softened wage growth, though it still rose Treasury spread: Minus 80 basis points - Referenced as market pricing consistent with recession expectations

Pivotal Quotes: "It was really a report of, I think, mixed messages." — Dante D'Antonio: Opening assessment of the November jobs report "If we get into February, March, April, next year, and we're still at 250K, that's a problem." — Mark Zandi: Threshold for when current labor-market strength would become concerning "We're talking about a weakening job market... What we're saying is that's not sustainable because if you have such strong job growth and wage growth, that means inflation is going to be a problem." — Mark Zandi: Explaining why slower labor demand is desirable even if it feels negative in isolation

Implications: The labor market is cooling, but not fast enough to reassure the Fed. If wage growth stays elevated, more tightening and a higher recession risk remain likely, even though consumer savings may postpone the downturn.