Chief Economist at New Century Advisors Claudia Sahm Talks Labor Market

SPEAKER_1 (0:02)

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Tom Keene (0:07)

Claudia Sahm, to say she's Chief Economist at New Century Advisors, barely describes the accolade. She is at the University of Minnesota in Duluth.

Paul Sweeney (0:17)

Whoa, okay.

Tom Keene (0:18)

Where men are men and play hockey.

Paul Sweeney (0:20)

You're talking right.

Tom Keene (0:20)

12 months of the year, giving a speech and being honored, of course, as she should be by all of their economics. Claudia Sahm, the two Americas of Duluth and, say, New York City are a median house price of 250,000 versus something like 710,000 in New York City.

The job economies that we're going to see in four minutes. How does the Fed treat Duluth's job economy versus New York City's job economy?

Claudia Sahm (0:52)

Right. Well, the Fed has a difficult position in that they have one tool.

The federal funds rate, the interest rate, right? So they really have to look at the US labor market as a whole. They can't look at Duluth versus New York City differently. And honestly, a lot of the things that we see in local labor markets that distinguish them, they aren't the business cycle. They aren't what the Fed really tries to stabilize. They're much longer-run trends. There's been shifts in demographics, shifts in industry, some of which happened decades ago. Like the closing of US Steel, which is far in the rear-view mirror, still has real implications in the Duluth local economy.

Paul Sweeney (1:31)

Claudia, is this US labor market, can it still be characterized as a low-hire, low-fire environment?

Claudia Sahm (1:39)

Absolutely. And we got more confirmation this week, on the good side of it, the low-fire, right? We saw initial jobless claims go below 200,000 again last week, and that is very low, close to the lows of this year. The jolts, the job openings, the labor turnover survey also showed very low layoff rates. That's a good thing. You got a job, you like your job, this is a good labor market.

If you are looking for a job, or yesterday when I was speaking to a bunch of college students who will soon be looking for jobs, this is tough. The hiring rate is still really low. We got a good number last month in August with 162,000 payrolls net created.

We need to see more of that before I'm convinced that we're really on an uptrend in the labor market. I think we've had a lot of stability. But again, stability is not good if you're on the outside looking in.

Paul Sweeney (2:29)

How can this economy grow on a nominal basis north of 6% if we're really not creating that many new jobs? Is it better productivity?

Claudia Sahm (2:41)

It's hard to see this being sustainable, particularly, we have such low labor force growth right now with the sharp reduction in immigration and the aging of the workforce, people getting into retirement.

It's just we're not growing a lot of workers. And typically, that's a big piece of supporting growth. So right now, if labor force is not growing, and the economy, the activity is growing, it's got to come from productivity. But AI adoption is not widespread enough to explain all of this. So it's curious. It really is.

Tom Keene (3:13)

Claudia, 114% of my audience is certain the real wage is declining. When we look at wage data and take out real inflation, not some fancy Claudia Sahm inflation, are our paychecks going up? I don't buy it.

Claudia Sahm (3:31)

Yeah, it's so hard. And I think this is one where for people, looking at the statistics, it's hard often to see themselves in it. Wages are really difficult to measure, how they change over time. There's a lot of composition that the aggregate numbers try to take into effect. And then, of course, what you need to buy, I mean, are you someone who needs to drive to work or not? Like, that can make a big difference in how hard you've been hit this year in terms of higher costs. So it's not a clear slam dunk that real wages are just growing really fast. This is not a labor market where people have a lot of options to move to better jobs either.

Tom Keene (4:05)

We triangulate our research, as we always do, with the noted economist Claudia Sahm. 29,000 in the two-month payroll revision is negative 60,000. I'm going to nail this. That's a negative 29,000, a negative over a summation here as well. The hourly earnings come in light, light, light, 0.3. And they came in substantially below that, 0.1.

Average hourly earnings annualized down a tick, 3.1.

In Duluth, Minnesota, think Gordon Lightfoot in Lake Superior. Claudia Sahm is with us. She is honored by the University of Minnesota. Dr. Sahm, this is a report that a select group of people said would happen, would come in light, what David Rosenberg called a catch down. What do you do with one month's data?