>> Joe, I have an embarrassing confession.

>> Go on.

>> You know the birth death adjustment?

>> I have the same confession.

>> I used to think it was something about like the population of people and the labor supply, but it's not. It's about business formation.

>> Yes, that's right. Oh, my my confession is even more embarrassing, which is that I literally always forget what it is.

>> When people are listening to this, it is jobs day. We're recording this September 4th. Jobs day. September 5th. The important thing to know right now is that to some extent that monthly non-farm payrolls report that everyone depends on and relies on has never felt to me like more of a moving target in terms of what I'm supposed to be looking at. For many years it's like okay how many jobs were created this month? Yeah, it's going to get revised a little bit but that tells you something. Now between seasonality postcoavid sort of normalization that's still processing and then of course the sort of changes in immigration policy which have swung dramatically in a year. These numbers it's not clear that you actually have to put in some work to understand these numbers.

>> No, totally. And also I mean the the BLS itself seems to have some difficulty uh with the numbers because the trend that we've seen is they put out a non-farm payroll like an initial estimate on a Friday and then a few weeks later you get the revisions and the revisions always seem to be downwards lately.

>> Lately they've been mostly downwards and then there's annual revisions and those are coming up I believe next week. And you know, we are at a time when setting aside the collection and of course setting aside the fact that the BLS chief has been uh fired and there's going to be a new one at some point. Setting aside all of these things, we're also at a time when there are significant questions about just the macro state of the economy and whether the sort of low hiring, low firing mode which is characterized for a while now is at risk of deteriorating further. I don't know. It's a tough it's a tough read.

>> You know who we should ask? Steve Englander. Okay, but let me start with with a broader question issue maybe.

>> Excellent. And the thing is that the question has changed like in in the past we we used to say okay last month or you know last 12 months NFP growth was 200,000 looks like 100,000 now things have slowed down that's all we had to know this time around because supply is so important everyone is making an estimate and kind of saying well nativeorn workers you know maybe 70,000 if you're pessimistic if you think we have net immigration from foreignb born workers you have a view of 50 and if you think that there's still some legal immigration coming in, maybe you're at 100. And that means that getting the level right is really important. And the problem with the NFP number is that it actually has two components. One of which is the one that we all think about. They survey about 160,000 businesses, maybe 600,000 establishments, and basically say, "Okay, how many workers did you have last month? How many did you have this month?" and through their statistical analysis they say okay this is a change. So that's for firms that are in continual operation that gives them that number. The problem is that they have no handle on firms that have just opened and very little handle on firms that have just closed. So they use something called the burst death adjustment to adjust for employment by those latter two categories of firms. you know, net job creation from new firms minus closing firms. And the problem is that they have a very simple model and it is it was fine in the past when all you cared about was the direction, but now when you're saying it really matters >> if NFP growth is 50, having a bias in that number really affects things.

And what you see is that that number has through thick and thin has stayed about a 100,000 jobs. You know, when you seasonally adjust it because they publish a not seasonal adjustment, but you can do a rough and ready seasonal adjustment. It's very stable at about every month 100,000 jobs or almost 100,000 jobs are coming from that birth death adjustment in terms of what we see on Bloomberg page Friday morning at 8:30. We have another source of information on that which lags but which is far more accurate. This is something called the business employment dynamics. It lags by about 8 months but it's based on the quarterly census of employment and wages. And what that shows is that in 2024 like Q4 2024 say the four quarters both the employment growth coming from continuing firms and continuing operation and the employment growth from newly open firms let's just closed firms they've tanked.

>> So you're sort of looking at a reliable source because it's it's not even a sample. This is the entire population. They know what open and what's closed, saying, "Hey, there just isn't any significant jobs creation from newly formed firms." And the NFP number keeps telling you that there's 100,000 jobs coming from that.

>> This is already excellent. Next week, we are getting yet another one of these QC quarterly

>> Q. What do you call it?

>> I call it QC. What's the right one? How what do we call it?

>> I call it QC.

>> Okay. We get a new QCEW. That's the 9th. September 9th, we get that. All right. Tell us what this is. Let's walk through this part again in terms of what is it that's high quality about this data? Why we expect it to show further downward revisions and why there continues to be the sort of downward bias in this initial snapshot versus ladder better insight?

>> Oh, okay. First, NFP has a big sample, but it's a sample. their sampling errors and people who don't report and we don't know if there's a bias and who's reporting who's not reporting. So there's always some inherent error there.

>> QCW is basically the universe. It's not a sample.

>> They get administrative data from the labor department saying how many people paid into unemployment insurance and that's basically everybody because everybody does. Everybody who's working does pay into unemployment insurance. And so when they come up with a number, there's a bit of revision because there's sometimes some firms don't report in time, but there's not much. And that it's very authoritative. And so if you sort of say, oh, QCW and and the business employment dynamics tell us that in 2024 there was almost no job creation from newly opened, let's just close firms. You believe it? Because there's you're not going to get a better source. There's no other source to that. And so that's why it's used for the benchmark. probably should be used to rebenchmark employment more frequently in the year because they do publish it quarterly. But, you know, when it comes out, it's a big deal. And we think it's likely to tell us that somewhere between 750 and maybe 1.1 million jobs. That's the overstatement between Q1 2024 and Q1 2025.

>> Wow.

>> And that would knock off a lot in in in terms of headline employment growth. The key point is that there's no reason to believe that the bias has really shifted.

>> One of the other unusual things that's going on at the moment is we have this new head of the BLS installed by the Trump administration. And that new head suggested initially that the BLS could just stop publishing jobs numbers altogether or maybe they could publish them less frequently like on a quarterly basis or something. is the quarterly idea maybe that's reasonable given the lag with the QCW data.

>> Speaking of the new BLS person, Joe, um I saw the most worrying sentence in an analyst note this week. So, the sentence was I have it on my screen. The sentence is because Trump has his own BLS person now. I don't necessarily see a bad number on Friday.

>> I'm not I'm not that pessimistic. I think um

>> I don't know, but I don't know. I don't have a view on I don't have a view on this. It's But wait, where was who said this?

>> I don't want to say because I'm not sure it's public or not, but

>> but this is a notable person.

>> Yes, it's someone you know actually.

>> Okay, fine.

>> And not me.

>> Not Stephen. Let's talk about the conversation has focused on these levels and pace of job creation and so forth. We recently did an episode with Austin Goulsby, the Chicago Fed president, and he was like, "So much is in flux. I'm not really looking at levels." And he called what he's like, he used this term very dramatic, the four horsemen of truth. He's interested in rates. He's interested in the unemployment rate, which is still at 4.2%. He's interested at the hiring rate, which we had the Jolts report come out this week. It's at 3.3%. He's interested in the firing rate, which I think has still been fairly low. Maybe he's looking at like the rate of wage growth. I don't remember what the fourth horsemen was. In a time of volatility, what do you think about this idea? Like, let's just forget about levels and just focus on rates because they don't get revised as much. You go out and you ask thousands of people, are you employed or unemployed right now? And if 4.2% say they're unemployed, that is probably a reasonable proxy for whether people are employed or not.

>> Right. But Joe, if you turned out to be the next person named to the FOMC to the board >> and you see a payroll number and it comes out at 75,000 like tomorrow's consensus, is that a strong number or a weak number?

>> Well, that's what I'm saying. I just look at the uh I don't know. I mean, I don't know. Let's say so right now just for what it's worth, the unemployment rate is at 4.2%. Economists expect it to tick up to 4.3%. Let's say it comes at 4.2%. Let's say we have a weak NFP number, but the unemployment rate stays at 4.2%. Why don't I say, okay, things are still more or less fine.

>> Well, let me say this. I I like rates, but I like the employment to population ratio, okay?

>> Because we know that participation rate is cyclical.

>> And if you look to the employment to population ratio, all these comments that unemployment rate is stable, it looks in balance, nothing's changed, they don't hold up very well. We've had pretty consistent drop. Not a 2008 type of drop, but you know, was like over 60 a year ago. Now it's 59.6.

>> Okay.

>> It's telling us that there's kind of increased softening. I think you can't be choosy about which rates you you look at, but I think in cyclical periods probably employment to population is telling you more. And this time it is more on Waller's side than it is on Powell's side. I know we've been talking about weaknesses in the NFP estimates, but what's your expectation for um the official number?

>> Well, I wrote we're a little bit splitrained on this leftrain, right brain, because we live in a world where we have to get the market reaction right. Right.

>> So, our forecast is 75,000. It's it's very close to consensus. You know, >> nothing dramatic.

>> I just say this that you got to realize there's so much randomness in the number. It could be 125,000 and not be meaningful, but it's just the way it goes. You know what we've argued if you look at the range of forecasts almost everybody is between like 40,000 and 100,000 105,000. So you get a number like 30. I think that will be a very dramatic number in terms of

>> outside the range of expectations.

>> Yeah. I mean, because this range is really tight in in terms of market expectation, and I think it would put 50 on the table for the Fed because I I think the argument would be

>> that if you get a number that's so low, you probably should have cut in June or or or July. And so, you're not saying, "Oh my god, the world's coming to an end. Everything's falling apart." But you're saying, "Yeah, well, we kind of missed it. The data weren't there at the time." In retrospect, had we had those data, we probably would have cut in June or July. So, we're just doing catchup now. Now for us the real issue is how do you interpret like a 100,000 because we would say okay 100,000 less our bias of 70,000 means real job creation of 30,000 so you should be talking about 50. I don't think we've convinced the market yet that that's the way you should look at it. By the way, just before going on, so on the eco page, consensus is 75K. Consensus is for the unemployment rate to tick up to 4.3%. Also, average our earning earnings of.3% month-over-month growth. So, that's sort of like what we're looking at this week. We've had some sort of soft data. We had initial claims today come in at 237K. That was ahead of the estimate of 230K. ADP employment, take it or leave it, 54K versus estimates of 68K, down significantly from the 106K revised last month. ISM services employment 46.5. That was a little bit shy of expectations. So soft and there's this risk of softening. I just think it's really interesting the range of possibilities for September because, you know, we were just in Jackson Hole and you're talking about, oh, maybe there's a case for 50, but there's also still a lot of residual concern about inflation and the inflation dragon has yet to fully be slayed.

>> The reason I would focus on the labor market is because if it's as weak as we think it is and incorrectly measured, the slack in the labor market will take care of inflation.

>> Okay? that the again I I'm sort of more on Waller's side that you're not going to have any kind of power on the labor side. If I can make one comment, I mean some people get their pleasure from banging their head against the wall. The wall I bang my head against once or twice a year is taking all of these incoming data on labor market indicators and trying to predict non-farm payrolls.

>> You got to have a hobby.

>> You you got to have a hobby. And this one might be the definition of insanity. And none none of them work a bucket of spit. I'm looking at the um band-aid on your forehead. See, this is when you talk about banging your head against the wall for pleasure. You're actually talking literally it would appear.

>> Well, you should see the wall.

>> Okay. We would be remiss if when we have you in the studio if we did not ask about what's going on with bonds. So, one of the things that's happening today is because of that softening jobs data that Joe just laid out, we are seeing a little bit of a recovery in bonds because there's more expectation that the Fed might cut. But the big story in recent days has been this huge selloff in bonds particularly at the long end. And it does

>> particularly in Europe,

>> particularly in Europe, but also in the US. It does seem kind of weird that we're talking about the economy slowing and meanwhile the long end of the curve just keeps going up. What's going on?

>> Markets attention span is maybe not as long as you give it credit for. And I I think the problem is this that you look at fiscal situations that are deteriorating globally and likely to deteriorate in the US especially if anything happens with the tariffs to pull them back.

>> Oh yeah. And markets are kind of saying, look, in the long term, this doesn't look good. It looks like there's a lot of borrowing out there. But the long term in market terms can be six weeks and it could be six years. You don't know when those forces are going to matter. So absent anything else, the market pays attention to it. Then you you sort of come in this week and every number seems to be soft. You say, "Oh my god, the Fed's going to cut." and all of a sudden this sort of selling of bonds especially because the market probably got reasonably short worrying itself about the fiscal situation they say oh my god may maybe not so short and people are buying back the bonds that they've sold and you get the kind of dramatic movement we've seen this week we've argued in the short term both FX and bonds are going to be driven by the Fed and the US economy and by short term I mean the next month or six weeks

>> I think once you get past that we're we don't think inflation's going to disappear

And even outside of the tariff induced inflation, the non-tariff goods and services seem to be at best stay steady and even maybe even edging up a bit. There's a bit of fiscal stimulus in in in Trump's fiscal package. I think it's possible that the the economy is not as bad as it might look based on the employment numbers that we're getting especially if there is a productivity pickup in the data that's not really recognized. So we see a possibility or we actually see more than a possibility. We expect dollar weakness in the next couple of weeks but by the time we get to the end of the year we could see the dollar strengthening positioning is kind of short dollars in our view and same with the bond market. You know, while the market's sort of saying, "Oh my god, last week was debating 0 and 25. This week I suspect they'll be debating 25 and 50." While the market's debating that bond yields are going to come down, once that's kind of settled in terms of market expectations, I think they'll look at the fiscal picture and kind of say, you know, low fours, maybe not.

>> It's interesting. It occurs to me when you say how when we talk about how bad the economy is that there's actually two different ways of what bad could mean. So one is bad could just mean a sort of where you are on the cycle. We're in a deceleration cycle. We're not creating as many jobs. Therefore, we have to have a lower rate of interest to get things going again. But then bad could also mean more sort of qualitatively where what's really bad is slackening growth and also a firm inflation picture such that traditional measures of policy stimulus or dstimulus don't work as well they'd like because there is some sort of deeper rot. And it sounds like what you're saying, if I can put all this together, is that cyclally there's a slowdown. There may be a case for 50 basis point cut very soon, case for lower rates, but not so bad in the case of the US economy is broken and therefore policy measures won't work to get it revived again.

>> Yeah, I think that's right. We actually don't think they'll do much more than 50. They'll say, "Okay, we've caught up. Time to wait and see." I and our baseline because we're not yet sure about what the employment number is is is 25 and stop but you know we've been talking about the choice being between 25 and 50.

>> Just adding on one more it really is just on the Europe situation we mostly talk about the US like France has also their 10-year yield has been shooting higher.

>> Yeah. This is the crazy thing. I think if we didn't have everything that was going on in the US at the moment like the France story would be huge in the market.

>> Yeah. So give us your talk to us about Europe for a minute.

>> Yeah, look, there's a France story. I'm actually scheduled to go to France, but it looks like they might be on strike next week, so I'm not sure how how that's going to play out. The structural problems that they face are are kind of enormous. I mean, the French deficit's about as large as the US deficit, and their interest rates are way lower than US interest rates. They have a very fragile government. They're trying to do some sort of fiscal consolidation because it's like it's not just a minority. It's like a tiny government.

>> The opposition parties are kind of saying no way. And so that that's setting the US aside. The the French and broadly speaking, the European situation isn't that good. And in some cases, you're seeing sterling trade like a emerging markets economy that in in that the correlation of interest rates in the currency is not the normal G10 one where higher rates lead to a stronger currency because people look at the return. the higher rates are viewed as risk premium and they're associated with a weaker currency.

>> I mean know yeah you can look at levels sorry just to keep going you can look at levels of debt to GDP or ratios etc. But it sounds like the common thread here at least to me and this is the bias or this is my lens when you talk about what's going on in France maybe you won't even be able to visit there because of strike when you talk about we had Liz Truss on the podcast recently politically these are not well functioning polities right now are they? Yes. And I'd say that the ability particularly to get through unpopular measures like fiscal consolidation is very limited.

>> And that's why they're all sort of have their backs against the wall and the markets are looking at this and kind of saying you don't really have a source of growth and you have to do austerity but you're not. So we're looking at these ratios and where they're going to go. I think the one advantage the US has is that here you know at least you can ask tell the story where you say look some of the productivity numbers look pretty good on the ground you sense that AI is making inroads you we don't know when it's going to matter in terms of actual realized productivity but it could you can tell a story that's that's somewhat optimistic whereas if you look at Europe they kind of have they have high energy costs their capital markets aren't as well developed for financing these kind of in innovative firms and they're kind of lagging on the technology side. So the battle seems to be between the US and China and other countries sort of really lagging which doesn't mean the US outcome is going to be great but at least you can tell the story whereas it's much harder to tell the story a European story of say private sector induced growth.

>> What's that line again Joe? It's like the US innovates China iterates and Europe writes the regulation.

>> Do you remember that? Yeah. And they also get tons of vacation and they have this amazing life and so

>> and put out think pieces.

>> Yeah. But which sounds great. So many people would kill for a job writing pieces.

>> I lived in France for a number of years and I'd say the quality of life of the median French worker is well above that of the median US worker.

>> That's what I'm saying. We need to have some um this is an important point. You observe that.

>> Yeah.

>> Yeah.

>> And the question is whether it's sustainable. It's like living on your credit card, but

>> we need to regulate more. We need to instead of innovating, let's try regulating.

>> We should go We should go drink some wine for lunch.

>> Yeah, sounds great.

>> Great suggestion.