Relentless Hiring In Healthcare & Government Doesn’t Care About Fed’s Interest Rate Hikes | Eric Pachman’s Data-Visualizations On Why Inflation & Hiring Are Sticky

Episode Summary

Executive Summary: Eric Pacman argues that labor-market and inflation headlines obscure deeper structural shifts. He shows healthcare/social assistance is the dominant, increasingly Fed-insensitive source of job growth, while auto insurance, OER, and health insurance create major distortions in CPI/PCE. The core message: current policy debates rely on noisy, outdated measures that may no longer capture reality.

Main Topics: Employment data visualization and labor-market decomposition (Priority: 5/5): Pacman presents a free treemap tool that drills from aggregate nonfarm payrolls into deep industry levels, arguing it helps users see the real drivers behind the May jobs report and long-run employment shifts. Healthcare as the dominant labor-market engine (Priority: 5/5): He argues healthcare and social assistance are a secular grower, now a much larger share of employment, and far less sensitive to rates or the business cycle than most other sectors. Methodology and distortion in CPI vs PCE (Priority: 5/5): The discussion explains how different weights, surveys, and adjustments make CPI and PCE diverge, with particular focus on owner-equivalent rent, rent, auto insurance, and health insurance. Why inflation and labor measures may miss reality (Priority: 4/5): Pacman and the host debate whether official inflation data reflect lived experience, emphasizing the role of lagged housing measures, health insurance anomalies, and measurement noise. Structural inefficiency in U.S. healthcare (Priority: 5/5): Pacman describes pricing opacity, PBMs, managed care, hospital charge masters, and vertical integration as sources of inflated costs and rising employment in middlemen roles. Industries losing jobs and secular decline (Priority: 3/5): The tool also highlights job losses in oil and gas, retail, business support services, and some housing-related categories, illustrating automation and long-run structural change.

Key Arguments: Healthcare employment is a secular grower and is increasingly driving total job gains, making labor data less cyclical and potentially less controllable by the Fed. CPI and PCE are fundamentally different baskets with different weights and methodologies, so they can tell very different stories about inflation. Auto insurance has become a major CPI driver despite being small in weight, while it is far less prominent in PCE, underscoring measurement divergence. Owner-equivalent rent and rent are still too large and too sticky to get inflation to 2% quickly, even if other components cool. Health insurance showed bizarre deflation in CPI that did not match consumer reality and is now reversing, which could keep upward pressure on inflation prints. U.S. healthcare’s opacity and incentive structure reward higher list prices, rebates, and intermediaries, which helps explain persistent cost and employment growth. Government job growth is largely local and state, but long-run growth in government employment is modest compared with spending growth tied to healthcare programs. Many industries outside healthcare are more macro-sensitive or are shrinking due to automation, offshoring, or secular change, while healthcare remains exceptional.

Data Points: May nonfarm payrolls: 272,000 jobs added - Initial jobs report that prompted the discussion; above forecast. Labor visualization depth: Level 1 through level 7 - Pacman’s treemap lets users drill deeply into employment categories. Healthcare + social assistance share of jobs in 1990: 8% - Long-run employment share cited as the starting point for structural analysis. Healthcare + social assistance share of jobs today: 14% - Shows the sector’s expansion within total employment. Healthcare + social assistance growth since 1990: 126% - Pacman says this outpaced overall nonfarm employment by roughly 4x. Overall nonfarm employment growth since 1990: 30-something percent - Used as comparison to healthcare’s much faster growth. Manufacturing jobs added in May: 8,000 - Example of a relatively small, secularly declining sector contribution. Warehousing and storage growth over five years: Largest increase - Named as the top growth industry pre-COVID to post-COVID in the labor tool. Management consulting growth over five years: 336,000 - Highlighted as a significant professional-services increase. Computer systems design and related services growth: 358,000 - Cited as a large increase, reflecting tech and software demand. Services for the elderly and persons with disabilities growth since 1990: About 1,000% - Shown as one of the fastest-growing categories in the healthcare-related labor data. Private education and health services share in CPI/U?: Not directly given; healthcare + education noted as 80-90% healthcare - Pacman argues the category is overwhelmingly healthcare, not education. CPI/U year-over-year inflation: 3.35% - Referenced as the then-current CPI print in the discussion. Auto insurance contribution to CPI: 58-59 bps - Pacman says auto insurance accounted for about 18% of CPI inflation impact despite a 2.6% weight. Auto insurance year-over-year inflation: 22.6% - Used as a major driver of CPI inflation. Auto insurance weight in CPI: 2.6% - Small weight, large impact. PCE auto insurance equivalent: About 7% y/y - Pacman contrasts PCE’s much smaller auto-insurance effect with CPI. Net motor vehicle and other transportation services weight in PCE: 0.56% - Explains why the category is hard to find in PCE and less important there. Owner-equivalent rent weight in CPI: 25.4% - One of the largest CPI components and central to sticky inflation concerns. Actual rent weight in CPI: 7.5% - Combined with OER to make shelter a very large CPI share. Owner-equivalent rent weight in PCE: 5.7% - Much lower than CPI, though still important. Rent weight in PCE: 5.37% - Part of shelter in PCE, smaller than in CPI. Health insurance deflation in CPI: ~35% at peak - Described as a methodological anomaly that consumers did not experience. Health insurance contribution in CPI September 2023: -34.2 bps - Used to illustrate that health insurance had been subtracting from inflation. Hospital costs contribution in current CPI: ~15 bps - Pacman says hospital costs are starting to reassert themselves. Prescription drug expenses since 1990: Up over 1,200% - Illustrates the scale of healthcare inflation. PBM employment growth since 1990: 126% - Shows administrative growth in the middle of the healthcare supply chain. Drug manufacturer employment growth since 1990: 60-something percent - Compared to much faster spending growth. Retail pharmacy employment growth since 1990: 15% - And down since 2000, despite huge spending growth. Government employment trend: Local government growing fastest in absolute terms; state fastest in percentage terms - Used to show that headline government job gains are not the main long-run fiscal issue. OER prior-year relative importance in 2005: 23.38% - Pacman checked historical weight data and found OER has long been very large.

Pivotal Quotes: "there is a reason why these charts look like the atmospheric carbon charts and just keep going up" — Eric Pacman: Explaining why healthcare employment keeps rising and why the sector behaves like a secular grower. "the whole thing kind of falls apart. It's like a house of cards." — Eric Pacman: Describing how CPI/PCE measurement choices, weights, and adjustments complicate the notion of a single true inflation number. "We have a system that is very good at being highly inefficient when it comes to delivering healthcare services and massively overpays and massively overemploys." — Eric Pacman: Summarizing his critique of the U.S. healthcare system and why it drives jobs and costs.

Implications: Listeners should expect healthcare to remain a powerful, potentially Fed-resistant source of job growth and inflation pressure. The tools suggest headline CPI/PCE and payroll prints can be misleading without sector-level decomposition and methodology awareness.