Monthly Jobs and Mark's Journey

Episode Summary

Executive Summary: The episode dissects September's U.S. jobs report and concludes the labor market is cooling, but not fast enough for the Fed. Speakers debate labor demand vs. supply, the significance of falling openings, wage pressures, and whether the economy can achieve a soft landing. They also discuss OPEC+ cuts as an inflation risk and end with recession odds around 50%–70%, with policy likely peaking near 4.25%–4.75%.

Main Topics: September Jobs Report: Cooling, but still too hot (Priority: 5/5): Payroll growth slowed to 263,000 and unemployment fell to 3.5%, but speakers agreed the report remains too strong for the Fed given elevated wage growth and only modest easing in labor demand. Labor demand vs. labor supply (Priority: 5/5): The group framed the report as a split story: demand is easing via fewer job openings and slower hiring, while supply remains constrained by lower participation and lingering childcare/other barriers. Fed reaction and terminal rate expectations (Priority: 5/5): Participants largely agreed the report locks in a 75 bp November hike and raises the terminal rate, with market and speaker views clustering around 4.25%–4.75%. Job openings and the soft landing debate (Priority: 4/5): They debated whether the sharp decline in openings is a healthy normalization or a warning sign; some argued it could support a soft landing, while others said the path is extremely narrow. OPEC+ output cuts and inflation (Priority: 4/5): The conversation shifted to oil prices after OPEC+ cuts, with broad agreement that the move is self-interested, likely pushes oil toward about $90/bbl, and complicates inflation disinflation. Recession probability and forward outlook (Priority: 5/5): The panel discussed recession odds using leading indicators, wage trends, and claims data; views ranged from roughly 50% to 70%, with some arguing recession is already in the baseline by early 2023. Special statistics game: childcare, openings, and layoffs (Priority: 3/5): The closing game used targeted labor-market indicators to illustrate supply constraints, job-market tightness, and rising caution via announced layoffs.

Key Arguments: The September jobs report is good in absolute terms but bad in the current macro context because the Fed needs labor-market cooling to reduce inflation. Unemployment fell for the wrong reason: labor force participation dipped, so the decline does not indicate genuine loosening. Labor demand is moderating faster than payrolls alone suggest, especially when considering the large drop in job openings. Job openings remain historically elevated even after a large decline, so the labor market is still tight enough to keep wage pressures high. The Fed will likely stay aggressive because average hourly earnings near 5% are still inconsistent with inflation returning to target. OPEC+ cuts are viewed as a rational move to defend producer revenue, but they worsen the U.S. inflation outlook. A soft landing is still possible, but the path requires openings to fall without triggering broad layoffs, which the panel views as unlikely. Recession risk is rising materially, with some participants already building a mild recession into their baseline forecasts. Childcare availability and cost continue to constrain labor supply, but they are no longer the dominant explanation for lower participation. The labor market’s true tightness is better captured by unemployment, participation, and openings per unemployed worker than by payroll growth alone.

Data Points: September nonfarm payrolls: 263,000 - Jobs added in September employment report Unemployment rate: 3.5% - Down 0.2 percentage points, matching pandemic-era low Labor force participation rate: 62.3% - Ticked down in September Prime-age employment-to-population ratio: 80.2% - Held above the full-employment rule-of-thumb of 80% Average hourly earnings growth: 5.0% - Still too hot for the Fed; down from 5.2% Job openings decline since March: 1.8 million - JOLTS openings have fallen sharply over the last several months Job openings per unemployed worker: 1.7 - Down from roughly 2.0 at the peak; above pre-pandemic 1.2 Year-over-year labor force growth: 1.99% - Discussed as strong relative to pre-pandemic trends Challenger layoffs announced in September: 29,989 - Used as a sign of rising caution, though still just announcements Initial UI claims: About 200,000 per week - Below the panel’s healthy benchmark of roughly 250,000 Wall Street/market terminal rate expectation: Around 4.7% - Markets were seen pricing a terminal rate near 4.7% Speaker terminal-rate range: 4.25% to 4.75% - Consensus range discussed for the Fed funds peak Oil price rule of thumb: $10 per 1 million barrels/day - Used to interpret OPEC+ cut impact on crude prices OPEC+ announced production cut: 2 million barrels/day quota cut; roughly 1 million barrels/day actual output reduction - Used to argue oil could rise from about $80 to about $90 per barrel 2023 GDP consensus: 0.7% - Ryan cited consensus GDP growth for next year

Pivotal Quotes: "Good news is bad news, bad news is good news, right?" — Mark Sandy: Framing the jobs report through the lens of Fed tightening and inflation "I think in that sense, we could, even faster moderation would be good news for the Fed." — Dante: On why slower job growth and easing demand would help policy makers "I think the path is quite narrow." — Chris: Assessing the likelihood of a soft landing without a recession

Implications: Listeners should expect continued Fed tightening, higher recession risk, and more scrutiny of wages, openings, and layoffs. Even if payrolls remain positive, the key question is whether cooling is orderly enough to avoid a downturn while inflation falls.