Revisions, Revisions, Revisions

Moody's Talks - Inside Economics

Moody's Analytics economists Mark Zandi, Cris deRitis, Marisa DiNatale, and guest Dante D'Antonio analyze the September employment report alongside major GDP and inflation data releases.

Key takeaways

• September payroll growth came in weak at 29,000, bringing the three-month average to roughly 50,000 jobs per month after ~60,000 downward revisions for July and August.
• Excluding healthcare, net private sector job growth over the past year has been essentially zero, highlighting extreme narrowness in hiring.

Main topics

• September employment report & job revisions
• GDP benchmark revisions & productivity

Notable quotes

"The headline number, obviously a little bit weak, 29,000 jobs added in September."

Conclusion

The episode delivers a nuanced assessment of conflicting economic signals,

Transcript preview

Speaker 3 (0:14) Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Marissa DiNatale, Chris Drinis. Hi, guys. Hi, Mark. Speaker 4 (0:24) Hi, Mark. Speaker 3 (0:26) Marissa Speaker 4 (0:26) is always slow to Speaker 3 (0:27) say Speaker 4 (0:27) hello to me. Speaker 3 (0:28) I let Speaker 4 (0:28) Chris, Chris always jumps in with the high mark first. So I wait until that greeting is out of the way. So Speaker 3 (0:34) you are happy to see me. You're just waiting. I am very happy. Speaker 1 (0:39) Okay. Just checking. Just checking. And Speaker 3 (0:42) we got Dante, Dante, Dr. D'Antonio. How are you, Dante? Speaker 1 (0:46) Doing all right. How are you? Good, good. And all three of us were, where were Speaker 3 (0:49) we exactly? Speaker 1 (0:51) Washington, D.C. Speaker 2 (0:52) Oh, Washington, Speaker 3 (0:53) D Speaker 2 (0:53) .C. That's right. At our conference. So what'd you think, Dante? I thought it went really well. Yeah, and everyone seemed engaged. The topics were good. Speaker 2 (1:01) What about my speech? What do you think about my speech? Well, I mean, obviously, always the highlight of the day. Always a good way to kick it off. I'll take my check in the mail whenever you're going to send it to me for making sure I say the right thing. Speaker 3 (1:14) Exactly. And what did you talk about at the conference, Dante? Speaker 2 (1:17) Mike Brisson and I talked about K-shaped consumers, sort of labor market impacts, consumer credit. Speaker 3 (1:23) That sounds like a good one. I missed it, but that sounds Speaker 1 (1:26) like it was good. Speaker 3 (1:27) Missed a good one, yeah. Speaker 1 (1:28) Yeah. Speaker 3 (1:29) And Chris and Marissa, you guys were tag teaming it on AI, the AI impact. How did that go? Good, I thought. Good? Chris? I thought so as Speaker 1 (1:38) well. Yeah. Speaker 3 (1:39) There you go. Good. It was a good conversation. We had fun. Speaker 1 (1:42) We enjoyed it. You did? I don't know about the audience, but. Oh, is that right? Speaker 4 (1:46) They were very. No, they had a lot Speaker 1 (1:48) of Speaker 4 (1:48) questions. I think they liked it. They were pretty engaged, yeah. Speaker 1 (1:51) That's great. Well, Speaker 3 (1:52) we've got another conference coming up right in New York. I think it's a Thursday, October 22nd. And the Washington conference was sold out. I think in Europe, we're still filling the attendees. And so if you have an interest, just let us know inside economics at Moody's dot com and we'll go from there. But I'm looking forward to that conference. So I was just looking at the agenda and I did notice that Sarah gave me a few more minutes. I thought that was pretty encouraging. What do you think? You think that's a good idea? Give me a few more minutes. Speaker 1 (2:25) I think someone asked for those minutes. Force Speaker 2 (2:30) the hand of the agenda maker. Yeah, exactly. Speaker 3 (2:34) Well, anyway, we had a good time in D.C. and good to see a lot of old friends and some former colleagues, right? We had a few former colleagues there and that'll be the same case in New York. So hopefully we'll see you there. Let's get down to Speaker 1 (2:49) business because there's a lot of business. This is a busy week Speaker 3 (2:52) on the economic data front. But obviously the headliner was today's numbers. This is Friday. October is the second jobs Friday. And well, gee, here we go. Speaker 3 (3:05) What do you think, Dante? I mean, it all makes more sense or does it just create more confusion? Speaker 2 (3:11) Yeah, I think it all makes a little more sense now. You know, we've had some noise in recent months, and I think this sort of gets us back on a track that we were expecting to be on. The headline number, obviously a little bit weak, 29,000 jobs added in September. The three-month average is now right about 50,000, which we've been talking about is sort of roughly what we think underlying job growth is. So it sort of brings things into balance. Hold it, Speaker 1 (3:33) hold Speaker 2 (3:33) it, hold it. We? Or what Speaker 3 (3:35) are Speaker 2 (3:35) you talking about? Certainly you and I. I don't know about the others. You and I have certainly been talking about 50,000. Speaker 1 (3:40) Right, Speaker 3 (3:40) right, right. Speaker 2 (3:42) I don't know what these other guys have been saying, but it's not- I'm not going to fall on that sword. Okay, Speaker 3 (3:46) okay, there you go. Speaker 2 (3:48) Slightly more pessimistic about the last couple of months, right? Downward revisions totaling about 60,000 over July and August. Certainly much weaker than last month, right? Even in August with the downward revision, we added 133,000 jobs down to 29,000 in September. The breadth of job creation pretty narrow again, like we've seen, you know, sort of before the last couple of months. Healthcare, the biggest driver, added 23,000 jobs of the 29,000 top line. Construction manufacturing still putting up positive numbers, a little bit weaker than the last few months, but I think still a good sign that we're getting some growth out of the goods producing side of the economy. Not a whole lot else to write home about. White collar jobs still falling, right? Information, finance, professional business services all down again in the month as they've been sort of most of the time here throughout 2026. Yeah, so I would say, you know. a weak September, but if you're looking over the last couple of months, it sort of brings everything into balance and I think makes a lot of sense in terms of where growth is. Speaker 3 (4:49) So you're saying underlying job growth, and we have to find that to mean abstracting from the monthly vagaries of the data, methodological or measurement or whatever it may be, because the numbers are bouncing up and down and all around. It seems like a lot of noise in the data month to month. And this month is on the weak side, but it's making a case, but overstating the case. But if you kind of abstract from all that, we're at 50,000 per month. Yeah. Speaker 2 (5:15) Yeah, actually, right. The three-month average is about 50, and actually the 12-month average is also right at about 50K right now. So, I mean, that tells you over the last three months and over the last year, we're sort of holding in that same zone. Chris, what do you think? Are you on board with the 50K? I Speaker 3 (5:29) can't remember where you were, but does that sound— A little less than Speaker 1 (5:33) that, I think. Speaker 3 (5:34) Oh, Speaker 1 (5:35) a little less than 50K. I think so, but like 40— 40, 45, right? 49K. You Speaker 3 (5:41) think 49K? Speaker 1 (5:42) No, price is right rule. No, I think it's a little bit weaker, but. Why do you say that? I'm just curious. Why do you think it's a little bit weaker? Just based on the demographics and the supply side of the equation. Got it. Oh, thinking about Speaker 3 (5:55) the unemployment rate and all that. We'll come back to that. Yeah. I see. Got it. You're working kind of backwards here. You're saying, okay, if I've got relatively stable unemployment and this is what I think supply is, this is. Gives me a sense of underlying job growth. That's right. Yeah, got it. What about you, Marissa? I can't remember where you were, but are you on board with the 50K? Speaker 4 (6:14) Yeah. I mean, I've kind of been on board with the 50K, but I kind of agree with Chris. It could be a little under. She's Speaker 3 (6:19) making Speaker 4 (6:19) that up. I'm telling you. I Speaker 1 (6:21) thought Speaker 4 (6:21) you were on the Speaker 1 (6:21) other side. Yeah. Weren't you on the high side? No. Speaker 3 (6:25) Someone's got to keep track of what she's saying. I got Speaker 2 (6:27) to start writing these things down. Fortunately, this is Speaker 4 (6:29) recorded, so there is a record. There is. Can we ask Claude to go Speaker 3 (6:34) back and look? Speaker 4 (6:35) Probably. Yeah. Speaker 3 (6:37) Crap. I'm going to pin her down. It's very Speaker 4 (6:39) hard to pin down. Speaker 3 (6:40) So you're Speaker 4 (6:41) saying 50K? Yeah, I think 50K-ish. Sure. I Speaker 3 (6:45) mean, I don't... See how she does that? She put the ish in there. So next time she's going to come out and say 60K, 70K. Well, it's the same as 50K-ish. My Speaker 1 (6:57) standard error is 100K. Speaker 1 (7:01) Okay. I hear you. Speaker 3 (7:03) I got you. But we're all kind of on the Speaker 4 (7:05) same place. Yeah. Yeah. Speaker 3 (7:07) I Speaker 4 (7:07) think so. Speaker 3 (7:08) Hey, Dante, you know, back to the narrowness of the job growth. Am I dreaming this? But if you exclude healthcare, the one sector, healthcare sector, admittedly a big sector, but you exclude it, payroll job growth over the past year has been basically zero. Is that right? Speaker 2 (7:25) Yeah, and it's actually true for longer than just the last year. I mean, it's over the last couple of years. If you take healthcare out, it's been basically zero. Right. So how does one view that? Speaker 3 (7:35) I guess, is it positive or negative or both? Speaker 3 (7:40) I Speaker 2 (7:40) mean, I think it's certainly a positive that healthcare is at least still growing. And I think, you know, just dividing it that way masks a little bit of what's going on. Like, you know, we've seen some sort of at least somewhat persistent growth in manufacturing and construction this year. But that's sort of offsetting weakness that happened earlier in that period. It's offsetting some weakness in other industries. So it's not that no other industries have grown at all. It's just if you throw it all together, there's enough offsetting factors there. So I think there are pockets of... you know, brightness may be in there a little bit outside of healthcare, but nothing that's been consistent over the last two years. Yeah, but pretty much on the Speaker 3 (8:14) margin. I mean, construction and manufacturing, you're adding 10K maybe, you know, and then you're losing 10K if they have services and professional services. And you're saying the net of all that zero, but it's not like these guys are adding tens of thousands per month. They're adding thousands per month. Speaker 2 (8:30) Maybe. That's right. Yeah. I mean, white collar has been a pretty persistent negative drag. So, I mean, if you took that, if you also excluded that piece of it, then sort of the balance outside of that is a little bit positive. It's nowhere close to healthcare, right? Healthcare is far and away the biggest driver over the last couple of years. But I do think there is a little bit of positive story outside of healthcare. Speaker 3 (8:47) Yeah. It feels like AI has got its fingerprints. I think we talked about this last month, but it feels like, you know, so on the construction job gain, it was around 10K. I can't remember exactly what it was. That's data centers, right? And data center related. That's AI. On manufacturing, it feels like that's probably, maybe that's broader based, but it feels AI-ish. So that's the positive side of AI on the job market. And then on the negative side, while we're losing jobs and financial services and professional services, and when I say professional service, that's everything from like legal and accounting, advertising, that feel like they're more easily substituted out by AI. that that's the negative. And if you take it all together, the positives and the negatives, you're basically at zero. So AI's, first of all, do you think AI is playing that kind of role? And second of all, if it is, is it basically playing to a wash, you know, basically zero labor market impact at this point? What do you think, Dante? Speaker 2 (9:46) Yeah, I certainly think it's playing a role. Yeah, I don't think it's a huge magnitude in either direction. I think it's probably pretty close to zero in terms of the net effect at this point, right? I think the question is, does that effect push more negative as we move forward, right? Do you sort of lose some of the construction and manufacturing positive and does the downside get bigger as time goes on? I think that's obviously the big open question that we need to figure out. So what do you think? Do you think that the arithmetic I just did around Speaker 3 (10:12) AI is roughly right? Speaker 4 (10:14) Yeah, I do. I mean, I think something's clearly going on, particularly in information, maybe in financial services and insurance, AI related. Perhaps it's stifling hiring a bit, but I don't think it's huge. I think there's other things going on that are making hiring in those industries very soft. But on the flip side, as you said, non-res construction is really powered by AI. Speaker 4 (10:43) Yeah, it's in there. It's in there, but it's small. And it's probably going to get larger as we move into the next year. Speaker 3 (10:50) What do you think, Chris? Is that a good way of thinking about what's going on underneath the hood? Speaker 1 (10:54) Yeah, yeah, I agree with Marissa. I think the effects on financial services in particular are more indirect. I'm not quite buying into the idea that AI is actually doing a lot of the replacement of jobs. It's more... augmenting and perhaps causing firms just to pull back on the hiring and wait and see. But I'm not seeing a large degree of evidence that it's actually doing a lot more of the tasks that insurers or finance companies do. Got it. Got it. Speaker 3 (11:25) There's other data in the payroll survey, Dante. Anything you want to call out? I mean, wage growth week, again, Speaker 2 (11:32) only up 0.1 % in September. Year over year, wage growth is now down to 3 % even, which is the weakest. Abstracting from the noise right after the pandemic, that's the weakest since the end of 2019. And obviously, inflation at the end of 2019 was much lower than it is today. So I think that's still a concern is what real wage growth looks like here moving forward. Speaker 3 (11:52) Yeah, so average hourly earnings, that's the measure of wages in the payroll survey that we're looking at today. You're saying that increase, but very modestly in year over year, we're 3 % on the nose, I believe. And inflation is higher than that. You know, my mind immediately goes to, well, if wage growth is slowing Speaker 1 (12:11) and Speaker 3 (12:12) it has been consistently slowing, this is not new. This has been the case for a year or two or three. We've been steadily decelerating, seeing steadily decelerating wage growth, that that would indicate that the economy is, despite the 4.2 % unemployment rate, which we'll come back to, we're not at full employment. We're operating below full employment. Do you think I have that right? Or is there another explanation for what's going on here with the wage numbers? I Speaker 2 (12:38) mean, that feels like the most likely, you know, if we're going with your Occam's razor theme lately, that feels like the simplest explanation, right? That that's got to be what's driving wage growth to keep, you know. Occam's Speaker 3 (12:47) razor. Oh, Speaker 2 (12:48) yeah. I've been listening to things you say, you know, that's what I'm. Speaker 3 (12:51) Right. So you want