1 00:00:03,120 --> 00:00:07,480 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:10,039 --> 00:00:13,400 Speaker 2: Hi Claudia, Hello, how are you doing good? How are 3 00:00:13,440 --> 00:00:16,840 Speaker 2: you doing pretty good? It's a little calmer this week, so. 4 00:00:17,400 --> 00:00:19,680 Speaker 3: Oh yeah last week. Last week was a little nuts. 5 00:00:19,760 --> 00:00:21,680 Speaker 1: Last week was nuts. Oh my gosh. 6 00:00:21,920 --> 00:00:24,680 Speaker 2: Yeah, so good to catch breath. 7 00:00:25,160 --> 00:00:27,400 Speaker 1: Sometimes I wonder if you have a Google alert set 8 00:00:27,440 --> 00:00:30,760 Speaker 1: up for some and if it's just like going off constantly. 9 00:00:31,040 --> 00:00:33,360 Speaker 1: You know, in the past ten days. 10 00:00:33,800 --> 00:00:36,800 Speaker 2: There were several hits of my Google alerts, the last couple. 11 00:00:38,840 --> 00:00:40,599 Speaker 2: I don't have one on the Sam rule. I think 12 00:00:40,600 --> 00:00:42,760 Speaker 2: that probably would have been even more out of control. 13 00:00:45,479 --> 00:00:50,000 Speaker 3: I did a deadlift one two, Jimmy, Okay, what's. 14 00:00:51,720 --> 00:00:52,519 Speaker 2: Uh, Barges? 15 00:00:52,680 --> 00:00:54,840 Speaker 3: This isn't after school special, except. 16 00:00:54,440 --> 00:00:57,000 Speaker 1: I've decided I'm going to base my entire personality going 17 00:00:57,000 --> 00:00:59,920 Speaker 1: forward on campaigning for a strategic pork reserve and the. 18 00:01:00,360 --> 00:01:02,080 Speaker 3: Where's the Best with imposta. 19 00:01:02,240 --> 00:01:04,800 Speaker 1: These are the important question. Is that robots taking over 20 00:01:04,840 --> 00:01:05,479 Speaker 1: the world. No. 21 00:01:05,520 --> 00:01:08,399 Speaker 3: I think that like in a couple of years, the 22 00:01:08,480 --> 00:01:10,680 Speaker 3: AI will do a really good job of making the 23 00:01:10,680 --> 00:01:14,160 Speaker 3: Odd lotch podcast. And people say, I don't really need 24 00:01:14,200 --> 00:01:16,640 Speaker 3: to listen to Joe and Tracy anymore. We do have. 25 00:01:17,160 --> 00:01:22,720 Speaker 1: Touching you're listening to lots More, where we catch up 26 00:01:22,720 --> 00:01:25,600 Speaker 1: with friends about what's going on right now, because. 27 00:01:25,360 --> 00:01:28,200 Speaker 3: Even when the odd lots is over, there's always lots more. 28 00:01:28,640 --> 00:01:33,960 Speaker 1: And we really do have the perfect guest. We are 29 00:01:34,000 --> 00:01:37,800 Speaker 1: speaking with Claudia Salm, of course, the creator of these 30 00:01:37,840 --> 00:01:41,200 Speaker 1: PSALM rules. She is chief economist and New Century Advisors 31 00:01:41,240 --> 00:01:45,440 Speaker 1: and also a columnist at Bloomberg. And you've been in 32 00:01:45,480 --> 00:01:49,280 Speaker 1: the news a lot recently, Claudia, because actually I can't 33 00:01:49,320 --> 00:01:53,160 Speaker 1: figure this out. Has your rule actually triggered or not? 34 00:01:54,720 --> 00:01:59,720 Speaker 2: It has. The way that I calculated this rule, and 35 00:01:59,840 --> 00:02:02,360 Speaker 2: it's very it was very close to the trigger. So 36 00:02:02,600 --> 00:02:07,240 Speaker 2: the value in July is zero point five three and 37 00:02:07,320 --> 00:02:10,240 Speaker 2: the threshold is point five or above. And there have 38 00:02:10,280 --> 00:02:13,160 Speaker 2: been people doing various calculations off the same principle, a 39 00:02:13,280 --> 00:02:16,400 Speaker 2: change in the unemployment rate a relative to the past 40 00:02:16,440 --> 00:02:19,359 Speaker 2: twelve months, and you can get very small differences depending 41 00:02:19,400 --> 00:02:20,880 Speaker 2: on how you do it. I think that just says 42 00:02:20,880 --> 00:02:23,560 Speaker 2: I mean, it's right at the edge. But the official 43 00:02:23,600 --> 00:02:25,399 Speaker 2: Saw rule is triggered. 44 00:02:25,880 --> 00:02:28,200 Speaker 3: And every time I write about the sum rule, I'm 45 00:02:28,240 --> 00:02:31,200 Speaker 3: always like, only ninety nine percent sure or ninety percent try. 46 00:02:31,240 --> 00:02:32,720 Speaker 3: I remember what it is and I always go look 47 00:02:32,720 --> 00:02:36,240 Speaker 3: it up. But it's what it basically states is that 48 00:02:36,280 --> 00:02:39,720 Speaker 3: when the three month moving average of the unemployment rate 49 00:02:39,960 --> 00:02:44,360 Speaker 3: is zero point five percent above the twelve month low, 50 00:02:44,919 --> 00:02:49,440 Speaker 3: then historically in post World War two recessions, every single 51 00:02:49,520 --> 00:02:53,040 Speaker 3: time that has happened, every time it's written above gotten 52 00:02:53,080 --> 00:02:56,520 Speaker 3: above half of a percent, a recession came soon thereafter. 53 00:02:56,880 --> 00:02:57,520 Speaker 3: Is that correct? 54 00:02:57,639 --> 00:03:01,600 Speaker 2: Yeah, I have a half a percent or more. Yeah, 55 00:03:01,639 --> 00:03:07,240 Speaker 2: it can. And that's historically, and in particular, that very 56 00:03:07,320 --> 00:03:12,400 Speaker 2: kind of precise record is in the data as it 57 00:03:12,520 --> 00:03:17,600 Speaker 2: was published at the time, right so right around. But 58 00:03:18,080 --> 00:03:20,040 Speaker 2: in principle, yes, and you know the important things. You 59 00:03:20,040 --> 00:03:22,639 Speaker 2: take the three month moving average, so you smooth out 60 00:03:22,919 --> 00:03:25,440 Speaker 2: over time. You take that currently three month average, look 61 00:03:25,480 --> 00:03:27,480 Speaker 2: at the low of the three month averages over the 62 00:03:27,520 --> 00:03:31,000 Speaker 2: prior twelve months, not including the current the prior, and 63 00:03:31,560 --> 00:03:36,480 Speaker 2: those are the changes. And but it all is I 64 00:03:36,520 --> 00:03:41,440 Speaker 2: think like the formula, the thresholds very much go back 65 00:03:41,440 --> 00:03:45,040 Speaker 2: to the purpose of it, which was to create an indicator, 66 00:03:45,080 --> 00:03:49,120 Speaker 2: a simple one to initiate fiscal relief. Right, so like 67 00:03:49,440 --> 00:03:52,200 Speaker 2: stimulus checks extra jobless payments. So it need to be 68 00:03:52,240 --> 00:03:56,760 Speaker 2: something simple, and it needed to happen in the recession. 69 00:03:57,080 --> 00:03:59,120 Speaker 2: So like the recession is already here. The song rule 70 00:03:59,160 --> 00:04:02,600 Speaker 2: is not a forecast. It typically has triggered about three 71 00:04:02,600 --> 00:04:07,800 Speaker 2: months in to recessions historically, and it's not meant to 72 00:04:07,800 --> 00:04:09,960 Speaker 2: get ahead of it. It was meant to like it's here, 73 00:04:10,200 --> 00:04:12,560 Speaker 2: the unpoint rate has started to rise. We know in 74 00:04:12,600 --> 00:04:15,600 Speaker 2: recessions it continues to rise. A half a percentage point 75 00:04:15,640 --> 00:04:19,040 Speaker 2: increase down point rate is not a big deal. This 76 00:04:19,160 --> 00:04:22,320 Speaker 2: is not a worrisome feature in and of itself. It's 77 00:04:22,360 --> 00:04:25,080 Speaker 2: where it tends to go from there that makes the 78 00:04:25,080 --> 00:04:26,120 Speaker 2: recessions damaging. 79 00:04:27,160 --> 00:04:30,000 Speaker 1: So this is important. So the origin of the rule 80 00:04:30,200 --> 00:04:33,839 Speaker 1: is that you wanted something that was dependable that you 81 00:04:33,880 --> 00:04:37,640 Speaker 1: could use as more or less immediate guidance for the 82 00:04:37,680 --> 00:04:41,440 Speaker 1: government to actually come in and do something about recession. 83 00:04:41,760 --> 00:04:46,039 Speaker 1: But because the rule is also encoded and calculated in 84 00:04:46,240 --> 00:04:49,920 Speaker 1: a very specific way, so the US is entering recession 85 00:04:50,040 --> 00:04:54,279 Speaker 1: whenever unemployment is running zero point five percentage points higher 86 00:04:54,279 --> 00:04:58,600 Speaker 1: than the prior twelve months flows. Because it's set in stone, 87 00:04:58,720 --> 00:05:02,920 Speaker 1: it also cannot take into account I guess, differences in 88 00:05:02,960 --> 00:05:07,279 Speaker 1: the current economic environment or maybe nuances that are not 89 00:05:07,400 --> 00:05:10,640 Speaker 1: necessarily captured by those hard numbers. 90 00:05:11,400 --> 00:05:15,640 Speaker 2: Right, it's because again the goal was looking back over history, 91 00:05:15,839 --> 00:05:20,800 Speaker 2: what is the formula the rule that would get to 92 00:05:20,880 --> 00:05:25,480 Speaker 2: turn on fiscal relief, so stabilization as early as possible 93 00:05:25,520 --> 00:05:27,320 Speaker 2: in a recession, so it could do the most good 94 00:05:27,800 --> 00:05:30,559 Speaker 2: and also be as accurate as possible, right as looking 95 00:05:30,600 --> 00:05:33,600 Speaker 2: back over history. So in the United States, you can 96 00:05:33,640 --> 00:05:37,200 Speaker 2: look back over several decades. I mean, I'm moving across 97 00:05:37,200 --> 00:05:41,360 Speaker 2: several different recessions, different kinds of features. And yet there 98 00:05:41,440 --> 00:05:44,240 Speaker 2: have been and this is a theme of this entire 99 00:05:44,560 --> 00:05:50,479 Speaker 2: cycle since the pandemic began, some very unusual disruptions that 100 00:05:50,560 --> 00:05:54,080 Speaker 2: the pandemic kicked off, and this rule is now in 101 00:05:54,120 --> 00:05:58,240 Speaker 2: a long list of our kind of macroeconomic tools that 102 00:05:58,320 --> 00:06:04,240 Speaker 2: have fallen victim to features particularly supply very abrupt supply 103 00:06:04,360 --> 00:06:08,960 Speaker 2: shocks that just aren't they aren't there to the same 104 00:06:09,040 --> 00:06:12,840 Speaker 2: extent in the historical record. So you like, that's where 105 00:06:12,839 --> 00:06:15,960 Speaker 2: the pattern, it relies on a pattern and the dynamic 106 00:06:16,040 --> 00:06:19,760 Speaker 2: that's really powerful. It's happened for post World War two period, 107 00:06:19,880 --> 00:06:24,160 Speaker 2: and yet it is not infallible. And had an opportunity 108 00:06:24,200 --> 00:06:27,480 Speaker 2: to talk about this for I found posts from two 109 00:06:27,520 --> 00:06:30,040 Speaker 2: years ago explaining why this sum rule might break and 110 00:06:30,120 --> 00:06:32,440 Speaker 2: certainly like this is where it's been headed. But that's 111 00:06:32,480 --> 00:06:35,200 Speaker 2: instructive too about what's actually going on right now in 112 00:06:35,240 --> 00:06:37,360 Speaker 2: the economy. And it is not to say that all 113 00:06:37,440 --> 00:06:40,040 Speaker 2: is good with the labor market, even if the SAM 114 00:06:40,160 --> 00:06:41,640 Speaker 2: rule says it's a recession and we do not have 115 00:06:41,680 --> 00:06:45,040 Speaker 2: a recession. Right, there is information here about the health 116 00:06:45,360 --> 00:06:49,320 Speaker 2: of the labor market, some concerning signs in the labor market. Right. 117 00:06:49,400 --> 00:06:53,200 Speaker 3: So you developed this role in part to guide countercyclical 118 00:06:53,240 --> 00:06:57,080 Speaker 3: fiscal policy. Right now, it's pretty clear that we're nowhere 119 00:06:57,120 --> 00:06:59,279 Speaker 3: near any sort of political will. We're going to start 120 00:06:59,320 --> 00:07:01,159 Speaker 3: sending checks it and so if there's going to be 121 00:07:01,200 --> 00:07:03,120 Speaker 3: a response to the weakness, it's going to come on 122 00:07:03,160 --> 00:07:06,560 Speaker 3: the monetary policy side. Expectation is for some sort of 123 00:07:06,680 --> 00:07:10,240 Speaker 3: rate cut. In September, when we got that last unemployment 124 00:07:10,360 --> 00:07:14,640 Speaker 3: report and the some rule did technically trigger, there was 125 00:07:14,680 --> 00:07:17,240 Speaker 3: a lot of debate. Is it different this time? This 126 00:07:17,320 --> 00:07:19,720 Speaker 3: isn't really driven by layoffs. It's about the fact that 127 00:07:19,760 --> 00:07:22,080 Speaker 3: there's a lot of entrance into the labor force and 128 00:07:22,080 --> 00:07:25,480 Speaker 3: the hiring rate has slowed down, et cetera. I guess 129 00:07:25,480 --> 00:07:30,040 Speaker 3: what I would start is what is from your perspective. Okay, 130 00:07:30,040 --> 00:07:33,040 Speaker 3: the rule is triggered. What is the case for sort 131 00:07:33,040 --> 00:07:37,440 Speaker 3: of quibbling or people trying to explain away or oh, 132 00:07:37,480 --> 00:07:40,680 Speaker 3: the headline unemployment isn't quite that bad this time, and 133 00:07:40,760 --> 00:07:44,360 Speaker 3: oh layoffs are still pretty low. That strikes me as 134 00:07:44,560 --> 00:07:47,560 Speaker 3: a sort of risky line of dialogue. But I'm curious 135 00:07:47,600 --> 00:07:48,000 Speaker 3: your take. 136 00:07:48,920 --> 00:07:52,440 Speaker 2: Yes, so it is always risky to go down that 137 00:07:52,520 --> 00:07:55,800 Speaker 2: this time is different. And there's a long historical record 138 00:07:55,800 --> 00:07:58,520 Speaker 2: of explaining away bad news that that ends up being 139 00:07:58,560 --> 00:08:00,800 Speaker 2: actually it was bad news and that was your chance 140 00:08:00,840 --> 00:08:03,480 Speaker 2: to see it. So no, I take this very Yeah, 141 00:08:03,520 --> 00:08:06,160 Speaker 2: this is this is tough, right, It's been tough to 142 00:08:06,240 --> 00:08:09,560 Speaker 2: think about what's wrong here and pull out the actual 143 00:08:09,680 --> 00:08:13,520 Speaker 2: like what's the right message from the labor market, and 144 00:08:13,680 --> 00:08:16,400 Speaker 2: it's new once there's not a simple message. I push 145 00:08:16,480 --> 00:08:19,000 Speaker 2: back pretty strongly on the idea of, oh, well we 146 00:08:19,080 --> 00:08:24,160 Speaker 2: haven't seen the layoffs. If you look and some of 147 00:08:24,200 --> 00:08:28,200 Speaker 2: this is like the these measures, like these things where 148 00:08:28,200 --> 00:08:30,760 Speaker 2: you're looking at these small changes unemployment rate. These are 149 00:08:31,520 --> 00:08:35,600 Speaker 2: features early in recessions. Right, recessions do have a they 150 00:08:35,640 --> 00:08:39,120 Speaker 2: turn on right, it is actually the economy charge to contract. 151 00:08:39,160 --> 00:08:42,520 Speaker 2: It's a subjective decision of the National Peer of Economic 152 00:08:42,720 --> 00:08:45,640 Speaker 2: Research experts on when we go into a recession and 153 00:08:45,679 --> 00:08:48,040 Speaker 2: we come out, but there is a the economy starts 154 00:08:48,040 --> 00:08:53,440 Speaker 2: to contract, and the early phases of a recession, like 155 00:08:53,480 --> 00:08:57,240 Speaker 2: the early six months save a recession often twenty twenty 156 00:08:57,320 --> 00:09:03,040 Speaker 2: was an exception, but often are a slow grind into it. Right. 157 00:09:03,080 --> 00:09:05,880 Speaker 2: You can see the signs of the contraction, but the 158 00:09:05,960 --> 00:09:10,679 Speaker 2: unemployment rate often usually peaks gets to its highest level 159 00:09:10,840 --> 00:09:14,400 Speaker 2: after the economy has come out of the recession. Right, 160 00:09:14,440 --> 00:09:17,040 Speaker 2: So those layoffs, if you wait to see mass layoffs, 161 00:09:17,240 --> 00:09:21,679 Speaker 2: you are typically well in to a recession. Right Again, 162 00:09:21,920 --> 00:09:25,080 Speaker 2: COVID came just out of nowhere and so rapidly that 163 00:09:25,240 --> 00:09:28,280 Speaker 2: if our mind is set on what COVID, doesn't even 164 00:09:28,440 --> 00:09:31,880 Speaker 2: look like a recession like it just because of it 165 00:09:31,960 --> 00:09:34,080 Speaker 2: just looks like a shock to our system, which it 166 00:09:34,200 --> 00:09:37,160 Speaker 2: was so this whole like, oh, we don't see it 167 00:09:37,160 --> 00:09:39,679 Speaker 2: in the layoffs. I don't buy that. I worry. One 168 00:09:39,720 --> 00:09:41,600 Speaker 2: of the things that even when I push back on 169 00:09:41,640 --> 00:09:45,600 Speaker 2: my own rule and saying it's not it's overstating the 170 00:09:45,640 --> 00:09:50,480 Speaker 2: weakness is one feature. I mean, we've seen right now 171 00:09:50,600 --> 00:09:54,440 Speaker 2: that the firing rate is still very low. Right, so 172 00:09:54,480 --> 00:09:57,880 Speaker 2: from like the job opening, labor turnover survey, we're still 173 00:09:58,000 --> 00:10:02,400 Speaker 2: very low levels. The hiring rate has come down, have 174 00:10:02,480 --> 00:10:06,800 Speaker 2: been very high class come down, and it's now at 175 00:10:06,880 --> 00:10:10,000 Speaker 2: levels that are like twenty fourteen levels, which wasn't a 176 00:10:10,080 --> 00:10:14,640 Speaker 2: particularly good labor market. So you do have businesses who 177 00:10:15,120 --> 00:10:19,079 Speaker 2: really got burned from mass layoffs under COVID labor shortages 178 00:10:19,200 --> 00:10:21,640 Speaker 2: trying to hire back all of this difficulty. Now they're 179 00:10:21,640 --> 00:10:26,120 Speaker 2: holding onto workers. So what does that tell us? Employers 180 00:10:26,160 --> 00:10:30,480 Speaker 2: to some extent have likely changed the way, like that 181 00:10:30,679 --> 00:10:35,600 Speaker 2: pattern of how they adjust to their demand for workers. Right, 182 00:10:35,720 --> 00:10:39,280 Speaker 2: you can do it through and often hiring will show 183 00:10:39,360 --> 00:10:44,040 Speaker 2: up much sooner in terms of it weakening. So I 184 00:10:44,320 --> 00:10:48,480 Speaker 2: it's the firing rate being very low right now. It 185 00:10:48,520 --> 00:10:51,559 Speaker 2: doesn't give you much cover because the firing rate tends 186 00:10:51,559 --> 00:10:56,040 Speaker 2: to go up as the recession proceeds. Like in no way, 187 00:10:56,080 --> 00:10:59,360 Speaker 2: shape or form, am I arguing the recession started six 188 00:10:59,720 --> 00:11:04,600 Speaker 2: nine months ago, right, that's not relevant comparison. And then 189 00:11:04,840 --> 00:11:09,600 Speaker 2: I think we have some evidence that that margin of 190 00:11:09,640 --> 00:11:13,400 Speaker 2: holding onto workers versus hiring workers may have shifted some 191 00:11:14,600 --> 00:11:17,199 Speaker 2: from the pandemic. So it's kind of like you get it. 192 00:11:17,320 --> 00:11:18,880 Speaker 2: It has to go all ways, right, if you have 193 00:11:18,920 --> 00:11:22,880 Speaker 2: a pattern, if COVID has really disrupted a pattern in 194 00:11:22,880 --> 00:11:25,280 Speaker 2: the labor market that works in favor of saying, oh, well, 195 00:11:25,280 --> 00:11:29,160 Speaker 2: it's actually not as bad this time as it would normally. Look, well, 196 00:11:29,160 --> 00:11:32,520 Speaker 2: you've got to be careful. There aren't stories that unwind 197 00:11:32,520 --> 00:11:45,800 Speaker 2: it just the other way. Joe. 198 00:11:45,840 --> 00:11:48,440 Speaker 1: You've talked about this, right, the idea that in some 199 00:11:48,480 --> 00:11:52,040 Speaker 1: ways unemployment can be exponential and can kind of start 200 00:11:52,120 --> 00:11:53,360 Speaker 1: filtering on itself. 201 00:11:53,440 --> 00:11:54,200 Speaker 2: Yeah, exactly. 202 00:11:54,520 --> 00:11:56,360 Speaker 3: Yeah, And to Claudia, I mean to your point, which 203 00:11:56,400 --> 00:11:59,680 Speaker 3: is is, technically, I think the recession, the financial crisis, 204 00:11:59,679 --> 00:12:03,559 Speaker 3: recession ended like in the summer of two thousand and nine, 205 00:12:03,960 --> 00:12:08,079 Speaker 3: the unemployment rate in that cycle, it actually technically peaked 206 00:12:08,200 --> 00:12:11,640 Speaker 3: in the October two thousand and nine report at ten percent, 207 00:12:12,000 --> 00:12:15,439 Speaker 3: so that was after To your point, Claudia, so why 208 00:12:15,440 --> 00:12:17,920 Speaker 3: would it be different this time? I mean, like you say, 209 00:12:18,000 --> 00:12:20,959 Speaker 3: there's this danger, and yes, COVID messed with stuff, et cetera. 210 00:12:21,040 --> 00:12:22,960 Speaker 3: But I just looked pulled up the hiring chart, the 211 00:12:23,000 --> 00:12:26,400 Speaker 3: hiring rate, it's you know, back in twenty fourteen levels, Like, 212 00:12:26,440 --> 00:12:29,959 Speaker 3: why shouldn't we take the signal that your rule says, 213 00:12:30,240 --> 00:12:31,480 Speaker 3: quite seriously. 214 00:12:31,800 --> 00:12:35,720 Speaker 2: We should take the increase in the unemployment rate seriously 215 00:12:36,160 --> 00:12:39,600 Speaker 2: in terms of the direction, right, it is rising, there 216 00:12:39,679 --> 00:12:43,600 Speaker 2: is weakening demand for labor, yes, and that is so 217 00:12:43,920 --> 00:12:46,640 Speaker 2: like setting all of this aside about the Samari recession 218 00:12:46,679 --> 00:12:50,320 Speaker 2: not a recession, like the direction we are on is 219 00:12:50,720 --> 00:12:55,200 Speaker 2: a until it levels out is a problem, okay, right, 220 00:12:55,360 --> 00:12:56,840 Speaker 2: and we can talk about there are reasons, you know, 221 00:12:56,840 --> 00:12:58,960 Speaker 2: the Federal Reserve has interest rates high because they are 222 00:12:59,000 --> 00:13:02,199 Speaker 2: fighting inflation. It should not be a real surprise that 223 00:13:02,240 --> 00:13:05,480 Speaker 2: the unemployment rate is drifting up, right in that sense, 224 00:13:05,520 --> 00:13:08,680 Speaker 2: So there's that aspect of we can chuck the sam 225 00:13:08,800 --> 00:13:10,600 Speaker 2: rule if you'll want to, But it's like, keep an 226 00:13:10,600 --> 00:13:13,920 Speaker 2: eye on the unemployment rate and what it's doing and why, 227 00:13:14,120 --> 00:13:17,240 Speaker 2: what's going on underneath it? And the piece that right 228 00:13:17,280 --> 00:13:19,679 Speaker 2: now is this puzzle and this is the thing that 229 00:13:19,720 --> 00:13:23,480 Speaker 2: the sambrale was too simple, too simplistic in trying to 230 00:13:23,520 --> 00:13:28,199 Speaker 2: get at, is that separating out changes in unemployment. So 231 00:13:28,280 --> 00:13:31,120 Speaker 2: unemployment rate rising because there's a weakening demand for labor, 232 00:13:31,480 --> 00:13:32,840 Speaker 2: and that can show up in a lot of ways. 233 00:13:32,920 --> 00:13:35,400 Speaker 2: Doesn't just have to be layoffs, can also be lack 234 00:13:35,440 --> 00:13:38,240 Speaker 2: of hiring. Right, So anything that's weakening demand of labor 235 00:13:38,800 --> 00:13:41,320 Speaker 2: that pushes up the unemployment rate and that can be 236 00:13:41,440 --> 00:13:44,839 Speaker 2: very pernicious because a worker without a paycheck or a 237 00:13:44,880 --> 00:13:48,640 Speaker 2: smaller paycheck buys less, right, and then that business needs 238 00:13:48,640 --> 00:13:50,840 Speaker 2: for your work. So that's the dynamic we're trying to 239 00:13:50,920 --> 00:13:53,520 Speaker 2: shut off. Okay, so that's a bad dynamic. That's clear, 240 00:13:53,760 --> 00:13:57,320 Speaker 2: it's in there. And yet what's also in there this 241 00:13:57,400 --> 00:14:03,400 Speaker 2: time is you have shifts in the supply of workers. 242 00:14:04,040 --> 00:14:08,200 Speaker 2: So labor supply and the same rule works. It looks 243 00:14:08,200 --> 00:14:10,360 Speaker 2: like the changes in the unemployment rate, which you have 244 00:14:10,440 --> 00:14:12,800 Speaker 2: to do with the history, because we have gone into 245 00:14:12,800 --> 00:14:15,560 Speaker 2: recessions at all different levels of unemployment. Like a low 246 00:14:15,640 --> 00:14:18,160 Speaker 2: level of employment does not protect you from a recession, right, 247 00:14:18,200 --> 00:14:21,960 Speaker 2: It's about these dynamics. So when there are two things 248 00:14:22,000 --> 00:14:24,720 Speaker 2: have happened with the SAMER and there are other indicators 249 00:14:24,960 --> 00:14:26,920 Speaker 2: I think that are out there kind of labor market 250 00:14:27,000 --> 00:14:31,080 Speaker 2: that are struggling with the same issue is that early 251 00:14:31,120 --> 00:14:36,520 Speaker 2: in the pandemic we had a plunge in the labor force. 252 00:14:36,960 --> 00:14:40,760 Speaker 2: Millions of people just walk away from work. Okay, some 253 00:14:40,840 --> 00:14:42,560 Speaker 2: of them came back, but many didn't, you know, or 254 00:14:42,720 --> 00:14:46,200 Speaker 2: retirements or other just we lost And you'll see a 255 00:14:46,240 --> 00:14:48,240 Speaker 2: lot of times in beginning recessions there's a decline in 256 00:14:48,280 --> 00:14:51,800 Speaker 2: the labor force. Right, there are patterns of labor supply 257 00:14:51,880 --> 00:14:55,080 Speaker 2: back in history around recessions, and yet this like is huge. 258 00:14:55,880 --> 00:14:58,600 Speaker 2: And what then happened is when customers came back quickly, 259 00:14:59,200 --> 00:15:02,360 Speaker 2: some of those workers did not come back or came 260 00:15:02,400 --> 00:15:05,840 Speaker 2: back much more slowly, and we had labor shortages the 261 00:15:05,920 --> 00:15:09,680 Speaker 2: unemployment rate early in the recovery. When you get to 262 00:15:09,720 --> 00:15:12,920 Speaker 2: the depths of like three point four percent unemployment rate 263 00:15:12,960 --> 00:15:15,720 Speaker 2: and you're in a labor shortage, one of the reasons 264 00:15:15,720 --> 00:15:17,800 Speaker 2: that unemployment rate is so low is because you have 265 00:15:17,840 --> 00:15:21,160 Speaker 2: too few workers. Right, it's pushed like labor supplies pushing 266 00:15:21,200 --> 00:15:23,320 Speaker 2: it down. So we've got like starting points that are 267 00:15:23,320 --> 00:15:26,280 Speaker 2: probably pushed down because we've been missing workers. And then 268 00:15:26,320 --> 00:15:28,800 Speaker 2: we get to a place that you know, we've seen 269 00:15:28,920 --> 00:15:32,720 Speaker 2: in the last few years those labor shortages. Amazingly, the 270 00:15:32,760 --> 00:15:37,359 Speaker 2: labor shortages were addressed with more workers, not fewer customers, 271 00:15:37,600 --> 00:15:39,200 Speaker 2: which is like the thing the FED can get us 272 00:15:39,240 --> 00:15:42,400 Speaker 2: fewer customers, but it got more workers. And there's a 273 00:15:42,480 --> 00:15:47,400 Speaker 2: portion particularly this very big abrupt change was in immigration 274 00:15:47,520 --> 00:15:50,960 Speaker 2: into the United States, and that's actually made it hard 275 00:15:51,440 --> 00:15:56,280 Speaker 2: in our measurement, even like it's very hard for me 276 00:15:56,440 --> 00:16:01,040 Speaker 2: to with any conviction to quantify exactly how much of 277 00:16:01,040 --> 00:16:03,840 Speaker 2: this labor supply affect because it's not just that there's 278 00:16:03,920 --> 00:16:08,560 Speaker 2: increasing labor supply. We've had recessions. Nineteen seventies had increases 279 00:16:08,840 --> 00:16:12,720 Speaker 2: in labor force, we had entrance into the labor market contributing, 280 00:16:12,760 --> 00:16:15,280 Speaker 2: as you know, the saw will triggered. But what we've 281 00:16:15,280 --> 00:16:20,080 Speaker 2: had this time are just these big swings in one 282 00:16:20,120 --> 00:16:25,400 Speaker 2: direction the other direction, and so then when that piece 283 00:16:25,480 --> 00:16:28,320 Speaker 2: is in there, you get now we have what looks 284 00:16:28,400 --> 00:16:30,600 Speaker 2: like some of the increase in the unemployment rate is 285 00:16:30,640 --> 00:16:35,840 Speaker 2: coming from more labor supply over the intrum. I mean, 286 00:16:35,840 --> 00:16:38,800 Speaker 2: it's higher unemployment is always bad for the unemployed person, 287 00:16:39,000 --> 00:16:41,400 Speaker 2: right like they're looking for a job. But when we 288 00:16:41,440 --> 00:16:44,840 Speaker 2: look at that unemployment highnemployment and think about where it's headed, 289 00:16:45,080 --> 00:16:47,680 Speaker 2: if it's coming primary from labor supply, and it's and 290 00:16:47,800 --> 00:16:51,760 Speaker 2: especially an abrupt then it's more of a matching, like 291 00:16:51,840 --> 00:16:54,400 Speaker 2: we need the jobs to catch up now, and as 292 00:16:54,480 --> 00:16:59,360 Speaker 2: they catch up, well, then the unemployment rate will drift 293 00:16:59,440 --> 00:17:03,760 Speaker 2: down or at least settled out right. And then once 294 00:17:03,840 --> 00:17:07,840 Speaker 2: you're getting workers, when you get more workers into the economy, 295 00:17:07,920 --> 00:17:11,000 Speaker 2: it's the exact opposite of a recession dynamic, it's an 296 00:17:11,080 --> 00:17:14,440 Speaker 2: expansion dynamic. Because you've got more workers, you can make more, 297 00:17:15,400 --> 00:17:18,280 Speaker 2: so you have like totally opposite. You know, is this 298 00:17:18,600 --> 00:17:21,200 Speaker 2: increasing unemployment rate a really bad sign? Is this increased 299 00:17:21,240 --> 00:17:24,560 Speaker 2: unemployment rate a really good sign? Unfortunately? I think the 300 00:17:24,680 --> 00:17:26,760 Speaker 2: best we can do right now is to say that 301 00:17:26,840 --> 00:17:30,920 Speaker 2: these two things are both in play and to watch 302 00:17:31,000 --> 00:17:34,040 Speaker 2: them carefully. And that's where I think taking seriously the 303 00:17:34,160 --> 00:17:37,800 Speaker 2: weakening part of the labor market, because there are policy 304 00:17:38,400 --> 00:17:42,000 Speaker 2: levers to pull with the Federal Reserve can get those 305 00:17:42,080 --> 00:17:45,040 Speaker 2: under control and then help that kind of catch up 306 00:17:45,119 --> 00:17:47,879 Speaker 2: process of jobs. Like the stronger the job market is, 307 00:17:47,920 --> 00:17:51,000 Speaker 2: the faster we can bring in these workers. 308 00:17:51,480 --> 00:17:54,400 Speaker 1: So this is kind of the other reason why your 309 00:17:54,920 --> 00:17:57,879 Speaker 1: some Google alert would have been going off like crazy 310 00:17:57,960 --> 00:18:00,440 Speaker 1: over the past week or so. There's also so like 311 00:18:00,680 --> 00:18:04,000 Speaker 1: everything in the world nowadays, at least in the US, 312 00:18:04,040 --> 00:18:08,960 Speaker 1: there seems to be this intense politicization of this particular 313 00:18:09,320 --> 00:18:12,680 Speaker 1: economic rule and of the jobs market end of what 314 00:18:12,880 --> 00:18:15,920 Speaker 1: the FED should do. And I think like some of 315 00:18:15,960 --> 00:18:19,400 Speaker 1: the irony of the current moment is you see accusations 316 00:18:19,800 --> 00:18:22,840 Speaker 1: that the FED is behind the curve. You see accusations 317 00:18:22,960 --> 00:18:27,879 Speaker 1: that if it cuts in September before an election. That's 318 00:18:28,080 --> 00:18:32,000 Speaker 1: because it's trying to support the Democrats and support Kamala Harris. 319 00:18:32,280 --> 00:18:34,720 Speaker 1: And you've been kind of on the receiving end of 320 00:18:35,119 --> 00:18:38,320 Speaker 1: some of that commentary. What do you say to people 321 00:18:38,480 --> 00:18:43,200 Speaker 1: who think this is all about politics and justifying downwards 322 00:18:43,280 --> 00:18:47,320 Speaker 1: momentum in the labor market at a very politically sensitive time. 323 00:18:48,040 --> 00:18:50,040 Speaker 2: So to be honest, I haven't tried to engage in 324 00:18:50,119 --> 00:18:54,080 Speaker 2: that discussion because I didn't think, I mean, it's this rule, 325 00:18:54,280 --> 00:18:57,440 Speaker 2: it's a tool. I might this is a really important 326 00:18:57,480 --> 00:19:00,680 Speaker 2: time to have a robust discussion about what's happening in 327 00:19:00,720 --> 00:19:03,760 Speaker 2: the US labor market from the vantage point of policymakers 328 00:19:04,480 --> 00:19:10,119 Speaker 2: or businesses, households. Right, so that it is timed with 329 00:19:10,640 --> 00:19:14,720 Speaker 2: an election year, that's unfortunate, But I had, you know, 330 00:19:14,840 --> 00:19:19,480 Speaker 2: I had been aware, like realizing this dynamic before last week. 331 00:19:19,560 --> 00:19:22,719 Speaker 2: You know, there had been as an example, people had 332 00:19:22,760 --> 00:19:25,480 Speaker 2: looked at these state level changes in unemployment rates, so 333 00:19:25,520 --> 00:19:28,199 Speaker 2: like kind of state sam rules, and I've written about 334 00:19:28,280 --> 00:19:30,320 Speaker 2: this also, like there were some states like California that've 335 00:19:30,359 --> 00:19:32,840 Speaker 2: had larger increase in unemployment rate, and there were quite 336 00:19:32,840 --> 00:19:35,120 Speaker 2: a few that had hit the half a percentage point. 337 00:19:35,160 --> 00:19:37,520 Speaker 2: There is no state samrule, but you know, using that trigger. 338 00:19:38,160 --> 00:19:41,040 Speaker 2: And I started, and this was several months ago, like 339 00:19:41,119 --> 00:19:43,720 Speaker 2: in the spring, writing about this, and I got a 340 00:19:43,800 --> 00:19:47,760 Speaker 2: lot of pushback from some people that I wasn't being 341 00:19:47,840 --> 00:19:51,639 Speaker 2: true to my rule because there was a Democrat in 342 00:19:51,680 --> 00:19:53,880 Speaker 2: the White House and I wasn't willing to say a recession. 343 00:19:54,720 --> 00:19:56,760 Speaker 2: And you know, for all this, it's like I wouldn't 344 00:19:56,800 --> 00:20:00,280 Speaker 2: wish a recession on anyone, Like I don't care who's 345 00:20:00,320 --> 00:20:02,920 Speaker 2: in the White House, but it is an election year 346 00:20:02,960 --> 00:20:05,880 Speaker 2: and I'm not that naive, and I understand that people. 347 00:20:05,960 --> 00:20:10,000 Speaker 2: And recession is a very charged I mean, it's a 348 00:20:10,080 --> 00:20:12,520 Speaker 2: very bad experience, and it also has meaning beyond its 349 00:20:12,560 --> 00:20:17,119 Speaker 2: actual definition. So I'm not surprised it's unfortunate, and I 350 00:20:17,240 --> 00:20:20,760 Speaker 2: certainly I mean the thing with looking at these these 351 00:20:21,080 --> 00:20:23,720 Speaker 2: I mean it's called a rule them because it's a 352 00:20:23,880 --> 00:20:26,760 Speaker 2: policy prescription. Right, It's not a rule we must have 353 00:20:26,840 --> 00:20:29,520 Speaker 2: a recession. It's supposed to be a prescription of policy. 354 00:20:30,080 --> 00:20:35,960 Speaker 2: And this is not creating panic or a concern where 355 00:20:36,119 --> 00:20:40,240 Speaker 2: I think if you look broadly at the economic conditions, output, 356 00:20:40,320 --> 00:20:43,760 Speaker 2: consumer spending, income, like the US economy is not contracting 357 00:20:44,480 --> 00:20:47,080 Speaker 2: and even after we go through revisions. I think it's 358 00:20:47,119 --> 00:20:49,119 Speaker 2: going to be hard to say July twenty twenty four 359 00:20:49,320 --> 00:20:50,840 Speaker 2: was a recession. I just don't see that. 360 00:21:04,400 --> 00:21:06,600 Speaker 3: This is my summary of your views, and tell me 361 00:21:06,880 --> 00:21:10,800 Speaker 3: if I'm wrong. There are reasons to think that, unlike 362 00:21:10,960 --> 00:21:13,600 Speaker 3: past times when the sum rule has triggered, we may 363 00:21:13,800 --> 00:21:16,600 Speaker 3: not be in a recession because other economic data looks 364 00:21:16,640 --> 00:21:19,480 Speaker 3: good and much of the upward push and the unemployment 365 00:21:19,600 --> 00:21:23,120 Speaker 3: rate is due to the influx of labor supply. Yet 366 00:21:23,240 --> 00:21:26,480 Speaker 3: on the other hand, there is this clear deceleration in 367 00:21:26,640 --> 00:21:30,560 Speaker 3: demand for labor. And so regardless of the recession question 368 00:21:30,800 --> 00:21:33,040 Speaker 3: or not in the specific trigger, in what it says 369 00:21:33,600 --> 00:21:36,400 Speaker 3: that from a sort of policy and risk management move, 370 00:21:37,080 --> 00:21:40,840 Speaker 3: it's a good time for the FED to essentially go 371 00:21:40,960 --> 00:21:45,000 Speaker 3: in the other direction or essentially engage in stimulative policy 372 00:21:45,000 --> 00:21:46,320 Speaker 3: one running it one way or another. 373 00:21:47,240 --> 00:21:49,400 Speaker 2: Yeah, at this point they can just take their foot 374 00:21:49,440 --> 00:21:52,760 Speaker 2: off the brake a little bit. This isn't even because 375 00:21:52,760 --> 00:21:58,280 Speaker 2: again this is where when FED policy makers or FED 376 00:21:58,320 --> 00:22:00,439 Speaker 2: cher J. Powell the last press conference, Bioko, we got 377 00:22:00,480 --> 00:22:03,360 Speaker 2: the July data, essentially saying we the FED don't want 378 00:22:03,359 --> 00:22:06,480 Speaker 2: to see more weakness in the labor market or weakening, 379 00:22:07,359 --> 00:22:12,280 Speaker 2: and it's like, well, you left rates uncut, right, It's like, 380 00:22:12,359 --> 00:22:15,119 Speaker 2: what do you think is going to happen? The direction 381 00:22:15,320 --> 00:22:17,760 Speaker 2: here is really clear, and what I have a very 382 00:22:17,840 --> 00:22:24,399 Speaker 2: hard time of without appealing to the FED reducing interest rates. 383 00:22:24,720 --> 00:22:27,920 Speaker 2: I think it's a hard story to tell as to 384 00:22:28,119 --> 00:22:30,760 Speaker 2: what it is that levels it out? 385 00:22:31,920 --> 00:22:32,040 Speaker 3: Right? 386 00:22:32,200 --> 00:22:34,639 Speaker 2: What is it that helps us stay at this place? 387 00:22:34,920 --> 00:22:37,760 Speaker 2: And yeah, it creates the demand for labor, yeah, or 388 00:22:37,920 --> 00:22:41,480 Speaker 2: just yeah, creates the demand levels out this weakening? Wait, 389 00:22:41,560 --> 00:22:45,600 Speaker 2: I agree, the labor market was really firing on all cylinders, 390 00:22:45,680 --> 00:22:50,040 Speaker 2: and labor shortages were very disruptive. So we were going 391 00:22:50,119 --> 00:22:53,280 Speaker 2: to see job gains slow, we were going to see 392 00:22:53,280 --> 00:22:57,960 Speaker 2: the unemployment rate drift up some. But you're getting to 393 00:22:58,040 --> 00:23:01,680 Speaker 2: a place now where yeah, the level looks really pretty good, 394 00:23:02,400 --> 00:23:06,960 Speaker 2: I mean not really pre pandemic good levels. But the 395 00:23:07,200 --> 00:23:11,159 Speaker 2: direction is a problem. That's the piece I think has 396 00:23:11,280 --> 00:23:14,760 Speaker 2: to have a focus in policy maker's mind. But then 397 00:23:14,920 --> 00:23:19,040 Speaker 2: there is an I this a very useful discussion about 398 00:23:19,160 --> 00:23:22,719 Speaker 2: how much of that direction, that'd say, the increase in unemployment, right, 399 00:23:22,800 --> 00:23:26,560 Speaker 2: how much of that is coming from these good factors 400 00:23:27,000 --> 00:23:29,600 Speaker 2: and from these more problematic ones. 401 00:23:30,040 --> 00:23:33,560 Speaker 1: Claudia, did you see Ben emons he did a some 402 00:23:33,880 --> 00:23:36,879 Speaker 1: role with initial job as claims. Did you look at that? 403 00:23:38,280 --> 00:23:43,359 Speaker 2: I am thrilled to have warned particular on this, Like 404 00:23:43,520 --> 00:23:47,120 Speaker 2: we are in a recession indicators things, so I still 405 00:23:47,200 --> 00:23:48,840 Speaker 2: think there's a long there's a long way to go 406 00:23:48,880 --> 00:23:50,720 Speaker 2: in a lot of work to do on say these 407 00:23:51,480 --> 00:23:55,600 Speaker 2: semi automatic stabilizers, fiscal policy put on autopilot. I think 408 00:23:55,640 --> 00:23:59,600 Speaker 2: it's still worth pursuing. And it's clear like if this 409 00:24:00,520 --> 00:24:02,960 Speaker 2: WORL didn't work, right, there's something better out there. So 410 00:24:03,119 --> 00:24:05,360 Speaker 2: it is I think it is really helpful to look 411 00:24:05,400 --> 00:24:09,560 Speaker 2: at the other indicators at this point, because the labor 412 00:24:09,680 --> 00:24:14,040 Speaker 2: market has these features, right like when we're talking about 413 00:24:14,040 --> 00:24:16,399 Speaker 2: this problem of like there's this labor supply and it's 414 00:24:16,480 --> 00:24:19,520 Speaker 2: masking what we typically look at as the labor demand 415 00:24:19,880 --> 00:24:22,600 Speaker 2: that's with a cycle. I just I don't think at 416 00:24:22,640 --> 00:24:24,480 Speaker 2: this point we're going to get a clear signal just 417 00:24:24,600 --> 00:24:28,399 Speaker 2: from the labor market claims has some issues, vacancies have 418 00:24:28,560 --> 00:24:30,160 Speaker 2: issues in similar ways. 419 00:24:30,240 --> 00:24:32,800 Speaker 3: We'll find out one day in the long future what 420 00:24:32,920 --> 00:24:36,480 Speaker 3: the NBER says was really going on in summer twenty 421 00:24:36,560 --> 00:24:36,960 Speaker 3: twenty four. 422 00:24:37,240 --> 00:24:39,960 Speaker 1: That's the great thing about the current economic moment is 423 00:24:40,000 --> 00:24:41,600 Speaker 1: like we are actually going to learn a lot of 424 00:24:41,680 --> 00:24:42,200 Speaker 1: things from it. 425 00:24:42,440 --> 00:24:44,880 Speaker 3: Someone will be proven right, someone will be proven wrong, 426 00:24:44,960 --> 00:24:46,439 Speaker 3: and then there will be a new set of debates 427 00:24:47,080 --> 00:24:48,719 Speaker 3: all over again. It never it will never end. 428 00:24:48,880 --> 00:24:50,800 Speaker 2: Yeah, so it goes. 429 00:24:55,480 --> 00:24:58,560 Speaker 1: Lots More. Is produced by Carmen Rodriguez and Dashel Bennett, 430 00:24:58,600 --> 00:25:00,879 Speaker 1: with help from Moses onom kel Brooks. 431 00:25:01,280 --> 00:25:04,280 Speaker 3: Our sound engineer is Blake Maples. Sage Bauman is the 432 00:25:04,359 --> 00:25:05,679 Speaker 3: head of Bloomberg Podcasts. 433 00:25:05,920 --> 00:25:09,040 Speaker 1: Please rate, review, and subscribe to add Lots and Lots 434 00:25:09,119 --> 00:25:11,960 Speaker 1: More on your favorite podcast platforms. 435 00:25:11,840 --> 00:25:14,399 Speaker 3: And remember that Bloomberg subscribers can listen to all of 436 00:25:14,480 --> 00:25:18,359 Speaker 3: our podcasts add free by connecting through Apple Podcasts. Thanks 437 00:25:18,400 --> 00:25:18,840 Speaker 3: for listening.