Jack Farley interviews Danielle DiMartino Booth in their best interview yet. Booth blasts the Fed’s unemployment projections.
The current unemployment rate is 4.2 percent. The Fed projects it will rise no more than 0.2 percentage points this year and next.
Let’s tune into that assessment.
Please watch the above video. It’s a great one. First let me get a couple nitpicks out of the way.
Booth praises Powell. I don’t. He kept QE going far too long, and was slow to see inflation that was obvious to the world. He never apologized for the housing mess the Fed created.
And it’s hard to praise a Fed that makes such glowing predictions in its projections and the current state of the economy, then cuts rates by 50 basis points. The cut is just another example of Fed asymmetric policy.
I also disagree with Booth on the Truflation model. I think it is very flawed on housing and would be willing to discuss with Truflation or Danielle.
I mention these things only because they come in at the beginning of the interview and you may inclined to cut a great video short. That would be a mistake.
Too Late to Rescue the Economy
Regarding “Its too late”, I am 100% in agreement with Booth.
We both think a recession has started. Originally, she pegged October of 2023 as the recession start based off the McKelvey indicator. In the interview, she revised that to no sooner than April.
It’s was Booth’s colorful rebuttal of the widespread soft landing thesis that had me clapping.
“For there to be some kind of immaculate soft landing that the Fed can somehow engineer, that only moves the needle on an unemployment rate that was rounded down to 4.2 percent, they think it’s only going to increase by 0.2 percentage points between now and the end of 2025, I think Jesus Christ himself walked through the front door right now. They know that history dictates that the unemployment rate will rise in earnest.”
“To presume that this is all of a sudden going to hit a brick wall, and America is going to wake up in a fully certain environment, with an election hanging over us, and that companies are going to start hiring again, is absolutely asinine.“
My wife managed to hear that last part and we both started laughing out loud. There is plenty more in the interview, but that quote made me stand up and salute.
Booth also discussed how gig jobs are suppressing the unemployment rate, soaring tech layoffs, commercial real estate, and the Fed Beige Book among other things.
Playing the interview will be an hour well spent.
Related Posts
September 9: Fed Beige Book Conditions Are Worse Now Than the Start of the Great Recession
That is a point Booth mentioned as well.
September 10: The McKelvey Recession Indicator Triggered, But What Are the Odds?
Think of a Richter Scale with earthquakes. I suggest the odds of damage (recession) increases in a non-linear fashion as both indicators get above a certain level.
Flat out, I came up with about a 78 percent chance but downgraded that a bit.
September 16: Claudia Sahm’s Recession Denial Theory Flunks a Simple Data Test
Sahm explained there was no recession because the labor force was expanding. I did a fact check on that idea: In 7 of 10 recessions, the labor force was higher in the third month of recession than the start of it.
September 19: The Ominous Reason Continued Unemployment Claims Have Improved
This is a key idea. People have already expired their benefits. I add those unemployed for more than 26 weeks to arrive at much better numbers.
September 22: 21 Million Renter Households Spent Over 30% of their Income on Housing Costs
The evidence a recession has already started is overwhelming. I think April is early, but it’s possible.
The NBER likely won’t place the date for at least a year.
Meanwhile, on the political side, I wonder if companies are trying to hold off on layoffs until after the election. I suspect they won’t be able to do so.
The jobs report on November 2, might be quite interesting. The election is on November 5.
It’s impossible to have a recession with 3% GDP growth.
Why would the Fed say something else and spoil an almost perfect sequence of error after error?
Because The System is telling them what to say & do to help get Kamala elected?
Labor force expanding … 10MM illegal immigrants helps with that. As far as immaculate, the Fed is now and has been for quite some time, a propaganda engine for an over financialized economy which has gone global.
The Sunnis in Syria celebrate. The butcher who slaughtered and buried them alive was killed last week. The IDF destroyed 40%/50% of Hezbollah capacities, hitting most targets they know about. The Shia population in S. Lebanon and Beirut escaped bc they are scared. The French told Hezbollah : cut your losses now before it’s too late. A lull during the ceasefire negotiation will stop the bloodshed. The mumbling LBD Biden might sign a peace agreement after the Nov election, before he leaves.
Next up, exploding Hezbollah / Iranian pacemakers. New meaning to heart attack.
The problem with the “recession now” crowd and the “everything looks OK” crowd is that neither deals with the bifurcation of the ecomomy into very different “paycheck to paycheck” and “asset owning” sectors. The former is in a cost of living recession but is being given ample credit (for now) to keep things going. The latter is living it up as asset growth far far exceeds cost of living inflation. The aggregate numbers, driven by the asset holders and deficit spending, look good and will not allow a formal recession. But a lot of people are living less well with each year which seems to me like recession. And a few people are having a great boom driven by that Fed money creation. These YouTube people need to focus on the real story, the “Great Bifurcation”.
Fair enough. But hasn’t it always been that way? Forecasters can bifurcate lots of data differently. An 18-year-old high school graduate is going to have a much different life, income and ‘economic issues’ than a 64-year-old about to take full Social Security. A household of five living in a high-cost city near other family members is going to look different statistically in economic terms than a single person moving around the US to whatever job pays the most. Etc, etc, etc.
There are a lot of Boomers retiring now with these assets you mention, but we’ve known about this particular population bulge for some time. And I’m sure some people are really poorly off, but with this historically low unemployment rate and growing wages (on average), how many more (than in the past) of those really exist.
That’s why the economics data focuses on the average or median so much. You can tell whatever story you want, if you bifurcate the data as you choose. But patterns in averages and medians change slowly over time; that’s why they are reported that way
Many past recessions started with similar bifurcations.
Great Depression began in Florida real estate in 1927.
Great Recession was evident in real estate bubble markets as early as 2005 or 2006.
Today’s recession has already hit many states, watch the Philly Fed diffusion indexes and state-by-state activity maps.
Some weak periods don’t expand enough to formally qualify as recessions (Oil bust 1980s, “peace dividend” bust early-mid 1990s).
I don’t think we will be so lucky this time, mainly because at least a dozen different genuine leading indicators are already in recession territory, in ways that didn’t occur in mere weak periods.
The crutches people are leaning on to claim “no recession yet” are all either prone to revisions or not actual proven leading indicators.
Maybe the NBER needs to come up with bifurcation recession criteria?
It’s the NBER’s job to mark the recessions, but it’s not their job to spot them in real-time. They’re like scorekeepers at a sports event, recording the obvious well after it’s happened. They’re not referees making live-action calls.
Good video. The immaculate soft landing is akin to Irving Fisher’s Sept pronouncement close to 95 years ago: “Stock prices have reached what looks like a permanently high plateau.” By the end of 1929 the unemployment rate was about 3.2%, by 1930 about 9%, and by 1933, about 25%. Stock market crashes do matter and create a negative wealth effect in the real economy. Today is day 14 and the final average daily high for the ACWI, an ETF as proxy for the 100+ trillion dollar global equity market which is following a 4-phase 8/17/14/10 day crash fractal series from 5 Aug 2024 to 8 Oct 2024. After the 2009 crash the Fed and its partner central banks became experts in QE. This down cycle for the global equity markets will be much shorter than the 1929 to 1932 peak to nadir crash.
Day 14 had a new all=time ACWI peak valuation during the first 5-minute unit and a lower high during the 8th 5-minute unit of the 78 5-minute units making up the trading day. A nonlinear lower low gap valuation should occur at tomorrow’s opening.
A soft landing, not unlike being crushed as a 600lb man slowly settles into the chair you’re occupying.
some economic data along with GDP used to date recessions is real personal income excluding transfer payments, payroll employment, real manufacturing and trade sales, and industrial production. All this is available for free on FRED. No evidence of a recession starting at any time yet. Eventually one will happen but it won’t be dated to April 2024 or October 2023.
Two points:
(1) I took a closer look at those data series. 2 of the 4 are flashing Recession signals already. See below.
(2) Much of the data used to date recessions is laggy and subject to extensive revisions. Because of that, it can take a year or more before NBER will make the call. Payroll employment in particular suffers from birth/death model errors, and subsequent adjustments, with massive revisions over the subsequent year. Total Employment (household series) and full-time employment (also household series) have much better track records, aren’t subject to birth/death revisions, and are both showing recession levels in their year-over-year % change graphs.
Of the NBER favorites, here are the two I see as already consistent with Recession:
Real Personal Income: the year-over-year change in this series has fallen back to 1.8%, a weak level consistent with the start of nearly every recession back to 1960, and rarely seen otherwise. [ Some people are looking for “plunges”, but those don’t catch the early stage of a recession (where we are now), they only show up later on in the recession – so relying on that would miss the moment that matters. ]
Industrial production is one I know less about, but it’s currently negative year-over-year, which is also a recession signal for that series, albeit an imperfect one. In FRED data back to 1920 this indicator has flagged all 18 true recessions with only 6 additional false positives. That 18 / 24 accuracy record suggests 75% odds the current situation is a recession.
I know many have given up on or poo-poo the yield curve view of things but the FED of Cleveland has chance of a recession in next 12mths at 63.14% as of the end of August 2024.
A year is extremely laggy. The Fed cut 50 BP in Sept 2007 and by Dec is when the NBER called a recession. I doubt seriously the NBER is going to back date a recession anywhere other than a quarter that isn’t near 1% GDP.
GDP is another heavily revised series. Q3 GDP hasn’t even been reported yet, much less revised. Q2 hasn’t been revised yet. Both could be at any point over the next year, before NBER makes the call. The real-time GDP reports in late 2007 were not negative.
The 2007 sequence was: short rates start to fall, then stock market peaks, then economy steadily weakens amidst widespread state of ignorance, then offiicial denials in spring 2008, followed by data revisions, and market crash, leading to NBER finally noting the 2007 recession start in December or 2008 a year later.
Those same events will play out again but they don’t need to be in the same sequence, other than that the economy weakens amidst ignorance, followed by denial, followed by the eventual recession call long after it’s obvious.
Bingo!
are you telling us this is a ‘fake landing’ like back in 1969?
We entered a soft landing in June of this year, the month that job growth really moderated. While I could be wrong, I’m going to laugh my A$$ off if DiMartino Booth continues to be wrong like she has been all year. She’s been saying since January that the labor market / economy was going to roll over.
Well it’s been 9 months and we just created 142K jobs and made it through the 800K downward job revisions without an apocalypse ensuing.
Do I think we’re creeping towards a recession? Absolutely, but the Three Little Pigs scenario has long since flown the coup. Again, Booth has been on record all year that we entered a recession in Oct 2023. People, that’s 12 months ago and the economy is clearly chugging along fine. I know she’s a smart lady with tons of data, but OMG just stop with the doom & gloom until we clearly see a sustained move higher in initial unemployment claims. Then, we’re probably there.
For the millionth time, $2T in deficit spending goes a LONG WAY towards holding off a recession.
Many people who I regard as smart see the problems much earlier than most. They are habitually early and timing is the hardest things in our socialistic market economy because, as you point out, one must never underestimate the ability of the gov’t to kick the can down the road..
Absent a black swan event, it takes time for things to play out, for changes to be reflected on financial statements, for politicians to exhaust pulling all the levers there are to pull and inventing new ones to give them more time using other people’s money, etc., etc.
FY Q2 GDP was 3% and Q4 is likely to be around 3%. There’s no way in hell the NBER dates a recession back to either of these quarters or any earlier for that matter.
Again, see my $2T point. It’s stunning how few people either here on MishTalk or the guru’s online don’t make this connection.
So from this discussion if on both December 2024 and December 2025 unemployment is 4.4% or less, you will be willing to admit that Jerome Powell is someone akin to the second coming of Jesus Christ.
If it’s only predictions that matter then I’d say more akin to Nostradamus.
Expensive energy and expensive labor demand substitutions. The substitutions won’t experience a recession. Energy, labor, and retail staples demand will experience a depression. The substitutes are information bots and robots. The next seventeen year Kondratief technology wave has begun. I suspect that small modular nuclear power plants will contribute until nuclear fusion power generation succeeds.
Things will probably change again with the soon to be substitute for the US dollar.
That headline is pretty damn rich, when “The Key” to a “Soft Landing” is that it comes Without A Recession! In other words, it should act and appear, as a shift of sorts. Be rather painless by nature of being soft, and gradual as that shift occurs.
I personally don’t buy into the term, and that’s what it is, when it was used for Political purposes. The record of this, so called or made up, phenomenon is sketchy at best. I don’t see anything soft about being in, or getting out of a recession.
IMO, we will have a Recession (I feel we are in it now), and it will be very far from a smooth transition. In fact, my guess is that that this will be eventually considered one of the worst in American History.
It has been ignored, papered over, refused to be talked about, had vast chances of corrections pass by, and decisions made to feed it strength to allow it to continue to move forward behind the hidden scenes. We have been and currently remain on the wrong side of fixing anything that is occurring right now, and that will only serve to exacerbate it even further…
“my guess is that that this will be eventually considered one of the worst in American History.”
Yes, I agree, but it’s clearly not here yet.
It’s still building strength up, so when it does arrive officially, it will come in fashion to be sure…
Stu, it’s been building strength for 18 months now. Personally, I think we’re in the early stages of a tech sector recession. I think so many extra people were hired before & after COVID that the industry is finally being forced to downsize. And, AI is on the cusp of making a ton of developers obsolete. Big wigs @ NVIDIA & Amazon have been hinting at this over the past few months. Within a 3-5 years, we’re all going to wake up and realize, oh sh!t this is really happening. It will start in tech and slowly filter out to other jobs within a decade.
There’s absolutely no telling when the next recession will arrive.
O/N RRPs high of 2022-12-30 $2553.716, and its drawdown to 2024-09-23 $380.372 was the largest mechanism to extend economic growth.
The FED’s accounting is wrong. An increase in O/N RRPs destroys the money stock. A decrease increases the money stock.
It is an accounting error according to the Federal Reserve Bank of Chicago’s “Modern Money Mechanics”.
“If the buyer of a reverse repo or a security sold by the Fed is a nonbank (which 90% of RRPs are), and pays for the purchase using its bank account, the money supply is directly affected”.
RRPs are now rising, most likely due to the Fed lowering the FFR. Money MAY start to slowly roll out of bills & back into RRPs.
Bummer. We never got then to go to zero. Would have loved to see how that played out. But if I’m right, this will reduce the money buying treasuries, which may cause yields to rise due to less demand.
I have pretty much given up on thinking there will be a recession. If there is it will be short as money printing will ramp up.
A couple of years ago I read a news letter written by the Banque of France. It said central banks should take whatever means possible to help the economy. They said debt does not matter. That is right. A central bank said debt does not matter.
Inflation is better than deflation in their opinion. aAsmall recession is okay as long as prices do not deflate but just slow down
Banks don’t lend deposits. Secular stagnation was the impoundment of savings, the bottling up of savings, in the banks. Only 16% of bank deposits represented transaction deposits at the beginning of the GFC. With C-19, 56% of bank deposits represent transaction deposits.
The turnover rate for transaction deposits relative to savings deposits was 95:5 in 1996.
We knew this already. Link: George Garvey:
Deposit Velocity and Its Significance (stlouisfed.org)
“Obviously, velocity of total deposits, including time deposits, is considerably lower than that computed for demand deposits alone. The precise difference between the two sets of ratios would depend on the relative share of time deposits in the total as well as on the respective turnover rates of the two types of deposits.”
The FED’s Ph.Ds. don’t know a debit from a credit. Banks are not intermediaries. Funds do not leave the payment’s system. Indeed, as evidenced the existence of “float”, or the “check is in the mail”, (largely eliminated by “The Check 21 Act” which introduced electronic substitutes on Oct 28, 2004), the payment system’s reserve credits tend, on the average, to precede the reserve debits.
This being so it is a delusion to assume that savings can be “attracted” from the commercial banks, for the funds sever leave the payment’s system.
I like your posts but have a hard time understanding them. Maybe you could put a brief summary in layman’s term’s at the end.
If the Fed cont to cut rates unrealized and realized gains will rise. Taking profit will
send the 10Y rate up. The front end, hooked to FedRates, will drop. The long duration will rise. The Fed will have to tame the 10Y rise by increasing its assets.
If the economy swings from the service sector to producing real stuff, real goods,
investors will park their money in the stock markets for dividends and realized gains, instead of bonds and notes. Higher demand for skilled and highly skilled workers will lift tax collections. With that US gov debt might drop by $5T/$7T, or more, in nominal terms. Much more in real terms. The Dow will bolt.
Part-time Worker stats would be interesting. Had it sky-rocketed? If so, then we can count in the loss of Benefits and the big one is: HEALTH INSURANCE.
My premiums have risen. ON ALL insurances.
When I retired early at 38, I paid my own Self-insurance and was stupidly shocked by the 24 years of out-of-pocket expenses, including back-to-back DEDUCTIBLE achievements in an over-night stay due to a kidney stone:
$30,000 out of pocket ANNUAL DEDUCTIBLES (charged) because I was checked in on 12/31/2000 and stayed one night with surgery on new years day. The insurance company would not budge.
So, uninsured young folks are in for a world of hurt due to out-of-pocket Medical expenses.
Do not attempt to adjust the picture. We are controlling transmission.
If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper.
When it comes to being fiscally irresponsible, the Fed and the US congress know no Outer Limits.
When the gigs taper off it slim pickin’s for me.
There will be no soft landing… there will be no landing at all
What Cannot Continue Will Stop“There’s not a lot of gas left in the tank”https://fasteddynz.substack.com/p/what-cannot-continue-will-stop-6a4
Boeing will learn the true rate of inflation when they settle for >40% wage increase.
Looking at the Fed projections, I am not so much worried by the unemployment, GDP growth, and inflation projections. All central banks assume in their projections that if monetary policy is set correctly, the economy will move in line with potential GDP and the inflation target. In reality this will of course never happen given future shocks. What’s more disturbing about the Fed projections is the implicit R* of 0.5-1.0 percent. That projection assumes a switch to an immaculate fiscal policy after Election Day, while there is massive evidence that both Republicans and Democrats are keen on running an unsustainable fiscal policy after Election Day.
I’ll watch it but I know we are in a recession. What I would really be interested in though is what does Powell actually do all day? I’m assuming he has a staff of no less than ten people brainstorming the best way to say something without actually saying anything with a slight positive feel then looks over their creative word stylings and picks a few a week. When does he look it over? No idea. Maybe over lunch in Chevy Chase MD or D.C. take out. One thing is for sure, he’s not looking at the bill.
Soon the difference between haves and have nots will be if you can live and save with a single job that gives you paid leave and medical or if you have to work multiple part time jobs to tread water.