Transcription
The Chicago Fed labor market indicator. It's a new thing published. It's out this morning. It's a new report that brings together a lot of different alternative market indicators along with the government data, but we don't have the government data. So, this indicator is now filling in for the missing government data with other private sector data. It's confusing. You can read it online, but the bottom line is this. Estimates the unemployment rate most likely unchanged at 4.36% in October, but there's a 40% probability that it's higher according to the model and a 20% probability that it's lower.
Joining us now, Austin Goulsby, Chicago Fed President, and former chairman of the Council of Economic Advisors in the Obama administration. Uh, Austin, I I know what I'm doing this weekend. I'm gonna play a little guitar. I'm going to do a little fly fishing, spend the rest of the time trying to understand all of the alternative jobs data that's out there and just what the heck it's telling me about the market. So, we had this morning challenger job cuts, uh, one of the worst October in um, uh, in since 2003. We had uh uh the ADP report 42,000. That's okay. And now I've got this report telling me that the unemployment rate probably unchanged. What's your take on the job market? And good morning.
>> Well, I'm Hello, Steve. I'm going to save you some time this weekend. You just move the Chicago Fed labor market indicators right to the top. You look at it and you just saved yourself 30 minutes. Uh we we can we have only the private sector information when the government is shut down. Um that said, when we put together these labor market indicators, it wasn't because of the government shutdown. It was because we wanted more real time information. And so we supplement by 11 different sources. And to me, the most of the labor market indicators that we're getting show a lot of stability in the market. And when we were getting the government data, they showed a lot of stability. The one number that was not showing stability that showed pretty substantial deterioration was total payroll job creation. But there's a question mark on that that we should be a little careful overindexing on payroll job numbers as an indicator of the business cycle. When immigration there's a huge question mark and you don't know what's happening to population growth. So, I still think that there's mild cooling, but this labor market indicator reading that we that we put out from the Chicago Fed that shows the unemployment rate is basically unchanged except for a tiny increase that came from the workers who are not working because of the government shutdown and at the that the hiring rate shows a lot of stability and the layoff and vacancy rate also shows a lot of stability. That's what it feels like o on the labor side so far to me.
>> Okay. There's a different way to look at it which is not what the numbers say now and what was it before and how the change is but where the risks lay and what do you say is terms of what the the downside is there greater downside risk to the job market and how does that compare with your assessment of the risk when it comes to
>> I'd say a little uh I I'd say there's a little more danger. It feels like mild cooling. Um the hardest thing that that among the hardest things a central bank has to do is to get the timing right when there are moments of transition and try to figure out the through line of what's happening. That's why I still continue to think that there's a lot of stability and we're in an unusual environment which is this low hiring lowfiring environment. The beginnings of recessions and business cycles are not to historically low hiring, low firing. There tends to be low hiring when there's high firing or when the economy is booming. The reverse it is characteriz it characterizes periods of high uncertainty when businesses pull back and they have both low hiring and low firing. And when I'm out here in the Midwest talking to business people in the Chicago Fed district, I still hear a lot about that. We don't know what the rules are going to settle down at. We might still get deals on tariffs. We need to figure out where we are before we're going to reach an equilibrium. So, I I think there's still that that uncertainty hanging over us.
Does that uncertainty and that lack of understanding where the equilibrium is make you reluctant to continue the rate cutting cycle that the Fed appeared to be on? May maybe I mean the it I think there's a subtlety that that is asymmetric when you turn off the data like we have and that is we have a bunch of indicators from the private sector and from the Chicago labor market indicators etc about the job market and we have very little private sector information about inflation. So when the government is shut down, we're not getting the official statistics. If there are problems developing on the inflation side, it's going to be a fair bit of time before we see that where if it starts to deteriorate on the job market side, we're going to see that pretty much right away. So that makes me even more u uneasy maybe maybe I'd say with frontloading rate cuts and counting on the inflation that we have seen in the last three months to just be transitory and and assume that they're going to go away.
>> Mr. President, what are the the indications or the the the worrying parts of our current situation that would cause us to think that the labor market is softening? And by that I mean, I know we've had tariffs. I'm not sure that's really enough to do it. I don't the uncertainty from tariffs and what that does to businesses. Maybe that could play into it to some extent. But you look at earnings and you look at the stock market and you look at things like that and I'm trying to figure out why we would even be predicting that jobs would be weakening. We could be totally wrong.
>> Jobs would deteriorate. It It's an interesting question especially when we're getting the GDP numbers coming in as strong as they are. Consumer spending strong and if growth is that strong
>> look into the abyss. There's nothing there. Unless maybe AI is putting people out of business or something.
>> Yeah. But look, you you could have in the short run if technology and productivity growth accelerated even more and and it's been pretty high in the last two years. If it accelerated even more in the short run, that that might replace their their need to hire labor, but that really wouldn't be the business cycle. I think it would have to be a you've seen this cooling, the hiring rate is pretty low. That's the weakest part of the job market and and everyone knows that and feels that. If you look at new graduates especially, they're feeling it's it's hard to get hired in a job. And so the deterioration of the job market, if it weren't sudden, if it were tied to consumer confidence where you you've seen consumer confidence hasn't been that high, uh maybe it would be rooted in that. But I I think there's been a lot of stability in the job market and it's the unemployment rate is objectively low and the layoff rate is objectively very low. Both of those that that would be very unusual for for the beginning of a recession.
>> Hey hey hey Austin, I have tried to make it a practice over a time not to ask Fed officials what they're looking at because the answer is always everything except for now we're in a shutdown. So the question of what you're looking at is actually pretty germanine here. Um when it comes to the inflation side, um I've been looking at this series price stats. Could you fill us in on what you're doing to kind of get a feel for what's happening? We um a guy Troy Lutka from SNBC has been looking at an aggregation of the price data from the Federal Reserve uh uh bank uh different manufacturing reports. What are you doing to try to get a feel for inflation out there? I'm talking to a lot of business people to ask them what are they where do they see it going on both the cost side and the sales price side for their products.
Now the the I I want to caution everybody it's a lot easier a a we don't get very much inflation information when the official statistics are shut down and what information we get skews heavily to goods that physical goods and physical manufacturing is it's easier to measure and the the most troubling thing that came out of the inflation reports that we got right before it went dark was that services inflation the threemon for services inflation was pushing 4% at an annualized rate. That's almost certainly not coming from tariffs. We got to hope that that's and historically that's pretty persistent form of inflation. So we got to hope that that was a blip and for it to go dark right at that moment is is uncomfortable.
>> There appears to be Go ahead. No, I was gonna say I I I think all we can do is rely you you know before I was ever at the Fed, I was involved with the Adobe uh digital price index project. I I'm friends with the with the folks that started the billion uh price project.
>> The the what what we observe from online and and from observation is very limited. It's not near as good as the official statistics.
>> Okay. So, there appear to be two different ideas about how to drive at the Federal Reserve these days. One idea is if you're driving in the fog, you pull over and stop, and that argues for a pause. The other idea is, well, somebody said, uh, you may slow down, but you don't stop driving. Um, nobody has mentioned the idea of just getting in a Whimo and letting the, uh, the computer drive, but that's another story. Um, tell me what your thought is about how to drive in this fog of of of of data.
Look, you you know that medium run I'm not hawkish on rates. I believe that the settling point for rates is going to be a fair bit below where it is today and that all we got to do is get the dust out of the air and make sure that we're still on path to full employment with prices coming down. that what knocked me for a little bit of a loop is we had this threemonth period right before the data go dark where core inflation is running at 3.6% and core services almost 4%. That's that's not perfect. You know, if you're Thanksgiving's coming up, you're cooking the turkey. If you open this thing, you look in like, is it burning? I don't know. Let's cook it for 30 more minutes and see how it how it does. It's a little I, as I say, I I have some concerns and I lean more to the when it's foggy, let's just be a little careful and slow down. And this subtlety that the data being turned off, the official data being turned off is more problematic on the inflation side than on the labor side. Because if labor starts to go wrong, we're going to get observations that show that. But if inflation starts to go wrong, we're not really going to get observations that show that. That just that that accentuates my caution of front-loading rate cuts and just assuming that the inflation that we've seen the last three months is going to go Okay.