Director Hassett, great to see you this morning. And I know you've been saying in reaction to the surprise loss in jobs that you're mostly looking at the unemployment figure. And it fell. However, as Mike just pointed out, labor force participation also fell, which is the reason that occurred. So looking at the figures in the state of this jobs market, are there any areas at all that you are concerned about?
Well, first of all, you know, I've been talking about these numbers with Mike for how many years, Mike? 20 years. And so he really does raise some good points. And the thing that I would say is that because of our border policy and because of deportations and the retirement of the baby boomers, that labor force participation is kind of on a downward trajectory, which means that the break-even jobs number — that is the jobs number you need so that the unemployment rate doesn't go up — has gone from maybe 120,000, 130,000 a few years ago to maybe about 40,000 now. And so what it means is that what the market is used to looking at — oh, it's like a normal tread-the-water kind of jobs number if it's around 100 — is no longer true.
If you get a number like 100, that's really like a great number. And it should make the unemployment rate go way down. And so that's like the technical big picture. Digging into the numbers, there are some things that really jump out at me, that private sector job creation was right about at the break-even positive number. It was government employment that went down a lot, about 50-something thousand. And the other thing is that we see in the hospitality sector, the end of the World Cup is really clearly a day or two. If you exclude those two things, you had about 100,000. And that's consistent with all the other indicators, like the purchasing managers being really high, unemployment insurance claims being about the lowest they've been since World War II. All these other indicators suggested the market was right, what it expected, around 100. And given that there's just a minor correction that gives you about 100, I think that suggests that's what the truth will be. But we need to see future numbers before we can make a final judgment. And that's why it's great to have a person like Mike around to help us think about it.
I agree, Kevin, for what it's worth, I absolutely agree.
Well, predictions are hard, especially about the future. As Yogi Berra said, we're both economists.
Let's get wonky here. The possible growth — potential growth for the United States or any country — is based on the size of the labor force, whether it keeps growing, and productivity. And you're taking credit now for the size of the labor force essentially going down because of the immigration policies of the administration. So is that a good thing for the economy overall?
Yeah. I mean, what's going on right now is if we do the old potential GDP calculations, that you add productivity plus capital deepening plus labor's contribution — I think one of the things you see in productivity is that it's probably running north of 2%, 2.5%. Capital spending probably adds at least 1% to that. So before you get to the labor story, you're looking at a 3%, 3.5% GDP. And I think the labor story is still going to be positive. I just think that it's not going to be as positive as it typically has been.
If you go back over 40 years, the labor story adds about 1 or 1.5% every year to GDP. I think now it's likely to be about a half or a third of that. Essentially, by the way, you mentioned the hourly earnings — if you look at the weekly earnings, they're actually up relative to inflation quite a bit, about $1,000 overall for all Americans, about $3,000 for manufacturing workers, $4,000 for construction workers. And so there is something going on where people are — something with hours that's going on that's offsetting the participation.
The President, if he's watching in the Oval Office, is just saying, 'You got your point, Kevin. Good job.'
I don't know if he's watching, but I'll find out.
I can tell you, people we've talked to so far today are basically saying this is a non-event, even with the negative number, for the Fed, because it shows the labor market is stable, if nothing else, and they can focus on inflation. I'm wondering, though, why the President is saying things like, 'Kevin Hassett can do what he needs to do.' The labor market was stable under Jay Powell, and the President was really mad at him all the time. Why is he giving Kevin Warsh so much more runway, even though conditions haven't changed all that much?
Right. Well, I could say that the President — there's been some news stories that the President's talking to Kevin Warsh, and of course he is. And he talked to Jay Powell too. But the other thing is that Kevin Warsh and the President have a very close, long-term relationship from New York City, from Florida. And they talk about the economy all the time. And I talk to Kevin as well, as does Scott Bessent. And so that's not really news. And the fact is that there's somebody at the Fed now that the President is 100% sure is going to do what's right based on the numbers and not play partisan games.
And you, Hassett — you heard me mention some of the partisan games. And I think I just want to apologize for jumping in. I just wanted to pick up on the conversations because you mentioned the economy. Are they talking about monetary policy as well, or just like broad economic advice?
I've not been listening to the conversations, but I'm sure that the President doesn't say, 'Hey, you got to do this or that to interest rates.' He respects—
Well, given that line of communication is open, I wonder if we could do a little bit of scenario analysis. Let's say that this Fed does hike. There was an equity report saying that perhaps Chair Warsh might hike if the data continues as it is for September. What do you think the President's conversation would be like with Fed Chair Warsh, should that happen?
The President is going to respect the independence of the Fed, I'm highly confident. And it's very, very natural for the President to do something like say, 'Hey, Chairman Warsh, what do you think about today's job number?' That's a very normal thing for him to do. But I think that's the way you should think about the bounds of the conversations.
Forgive me for asking this, but I've been dying to ask you this question since you brought this up last Friday. You said that the biggest danger to the economy is that socialist communist Democrats actually have a big victory in November. What is socialism in your mind?
