Category: Macroeconomics

Surprisingly Strong September Jobs Report

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If not for the shutdown of the federal government, the Bureau of Labor Statistics (BLS) would have already released its “Employment Situation” report (often called the “jobs report”) for September and October by now. The September jobs report was released today based largely on data collected before the shutdown.

The jobs report has two estimates of the change in employment during the month: one estimate from the establishment survey, often referred to as the payroll survey, and one from the household survey. As we discuss in Macroeconomics, Chapter 9, Section 9.1 (Economics, Chapter 19, Section 19.1), many economists and Federal Reserve policymakers believe that employment data from the establishment survey provide a more accurate indicator of the state of the labor market than do the household survey’s employment data and unemployment data. (The groups included in the employment estimates from the two surveys are somewhat different, as we discuss in this post.)

Because the household survey wasn’t conducted in October, the data in the October report that relies on the household survey won’t be included when the BLS releases establishment employment data for October on December 16. The data for September released today showed the labor market was stronger than expected in that month.

According to the establishment survey, there was a net increase of 119,00 nonfarm jobs during September. This increase was well above the increase of 50,000 that economists surveyed by FactSet had forecast.  Economists surveyed by the Wall Street Journal had also forecast a net increase of 50,000 jobs. The relatively large increase in employment in September was partially offset by the BLS revising downward by a combined 33,000 jobs its previous estimates of employment in July and August. The estimate for August was revised from a net gain of 22,000 to a net loss of 4,000. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)

The following figure from the jobs report shows the net change in nonfarm payroll employment for each month in the last two years. The figure makes clear the striking deceleration in job growth beginning in May. The Trump administration announced sharp increases in U.S. tariffs on April 2. Media reports indicate that some firms have slowed hiring due to the effects of the tariffs or in anticipation of those effects.

As shown in the following figure, the unemployment rate increased from 4.3 percent in August to 4.4 percent in September, the highest rate since October 2021. The unemployment rate is above the 4.3 percent rate economists surveyed by FactSet had forecast. The unemployment rate had been remarkably stable, staying between 4.0 percent and 4.2 percent in each month from May 2024 to July 2025, before breaking out of that range in August. In September, the members of the Federal Open Market Committee (FOMC) forecast that the unemployment rate during the fourth quarter of 2025 would average 4.5 percent. The FOMC’s current estimate of the natural rate of unemployment—the normal rate of unemployment over the long run—is 4.2 percent. (We discuss the natural rate of unemployment in Macroeconomics, Chapter 9 and Economics, Chapter 19.)

Each month, the Federal Reserve Bank of Atlanta estimates how many net new jobs are required to keep the unemployment rate stable. Given slower growth in the working-age population due to the aging of the U.S. population and a sharp decline in immigration, the Atlanta Fed currently estimates that the economy would have to create 111,878 net new jobs each month to keep the unemployment rate stable at 4.4 percent. If this estimate is accurate, if the average monthly net job increase from May through September of 38,600 were to continue, the result would be a rising unemployment rate.

As the following figure shows, the monthly net change in jobs from the household survey moves much more erratically than does the net change in jobs from the establishment survey. As measured by the household survey, there was a net increase of 251,000 jobs in September, following a net increase of 288,000 jobs in August. As an indication of the volatility in the employment changes in the household survey note the very large swings in net new jobs in January and February. In any particular month, the story told by the two surveys can be inconsistent. as was the case in September with employment increasing much more in the household survey than in the employment survey. (In this blog post, we discuss the differences between the employment estimates in the two surveys.)

The household survey has another important labor market indicator: the employment-population ratio for prime age workers—those aged 25 to 54. In September the ratio was 80.7 percent, the same as in August. The prime-age employment-population ratio is somewhat below the high of 80.9 percent in mid-2024, but is still above what the ratio was in any month during the period from January 2008 to February 2020. The continued high levels of the prime-age employment-population ratio indicates strength in the labor market.

It is still unclear how many federal workers have been laid off since the Trump Administration took office. The establishment survey shows a decline in federal government employment of 3,000 in September and a total decline of 97,000 since the beginning of February 2025. However, the BLS notes that: “Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.” It’s possible that as more federal employees end their period of receiving severance pay, future jobs reports may report a larger decline in federal employment. To this point, the decline in federal employment has had only a small effect on the overall labor market.

The establishment survey also includes data on average hourly earnings (AHE). As we noted in this post, many economists and policymakers believe the employment cost index (ECI) is a better measure of wage pressures in the economy than is the AHE. The AHE does have the important advantage of being available monthly, whereas the ECI is only available quarterly. The following figure shows the percentage change in the AHE from the same month in the previous year. The AHE increased 3.8 percent in September, the same as in August.

The following figure shows wage inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month wage inflation, whereas this figure shows 1-month wage inflation.) One-month wage inflation is much more volatile than 12-month wage inflation—note the very large swings in 1-month wage inflation in April and May 2020 during the business closures caused by the Covid pandemic. In September, the 1-month rate of wage inflation was 3.0 percent, down from 5.1 percent in August. This slowdown in wage growth may be an indication of a weakening labor market. But one month’s data from such a volatile series may not accurately reflect longer-run trends in wage inflation.

What effect might today’s jobs report have on the decisions of the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) with respect to setting its target range for the federal funds rate? The minutes from the FOMC’s last meeting on October 28–29 indicate that committee members had “strongly differing views” over whether to cut the target range by 0.25 percentage point (25 basis points) at its next meeting on December 9–10 or to leave the target range unchanged.

One indication of expectations of future changes in the FOMC’s target for the federal funds rate comes from investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.) A month ago, investors assigned a 98.8 percent probability of the committee cutting its target range to 3.50 percent to 3.75 percent at its December meeting. Since that time indications have increased that output and employment growth have continued to be relatively strong and that inflation is stuck above the Fed’s 2 percent annual target. This morning, as the following figure shows, investors assign a probability of 60. 4 percent to the committee keeping its target unchanged at 3.75 percent to 4.00 percent at the December meeting. Committee members will also release their Summary of Economic Projections (SEP) at that meeting. The SEP, along with Fed Chair Powell’s remarks at his press conference following the meeting, should provide additional information on the monetary policy path the committee intends to follow in the coming months.



Solved Problem: Using the Demand and Supply Model to Analyze the Effects of a Tariff on Televisions

Supports: Microeconomics, Macroeconomics, Economics, and Essentials of Economics, Chapter 4, Section 4.4

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The model of demand and supply is useful in analyzing the effects of tariffs. In Chapter 9, Section 9.4 (Macroeconomics, Chapter 7, Section 7.4) we analyze the situation—for instance, the market for sugar—when U.S. demand is a small fraction of total world demand and when the U.S. both produces the good and imports it.

In this problem, we look at the television market and assume that no domestic firms make televisions. (A few U.S. firms assemble limited numbers of televisions from imported components.) As a result, the supply of televisions consists entirely of imports. Beginning in April, the Trump administration increased tariff rates on imports of televisions from Japan, South Korea, China, and other countries. Tariffs are effectively a tax on imports, so we can use the analysis in Chapter 4, Section 4.4, “The Economic Effect of Taxes” to analyze the effect of tariffs on the market for televisions.  

  1. Use a demand and supply graph to illustrate the effect of an increased tariff on imported televisions on the market for televisions in the United States. Be sure that your graph shows any shifts of the curves and the equilibrium price and quantity of televisions before and after the tariff increase.
  2. An article in the Wall Street Journal discussed the effect of tariffs on the market for used goods. Use a second demand and supply graph to show the effect of a tariff on imports of new televisions on the market in the United States for used televisions. Assume that no used televisions are imported and that the supply curve for used televisions is upward sloping.

Solving the Problem
Step 1: Review the chapter material. This problem is about the effect of a tariff on an imported good on the domestic market for the good. Because a tariff is a like a tax, you may want to review Chapter 4, Section 4.4, “The Economic Effect of Taxes.”

Step 2: Answer part a. by drawing a demand and supply graph of the market for televisions in the United States that illustrates the effect of an increased tariff on imported televisions.  The following figure shows that a tariff causes the supply curve of televisions to shift up from S1 to S2. As a result, the equilibrium price increases from P1 to P2, while the equilibrium quantity falls from Q1 to Q2.

Step 2: Answer part b. by drawing a demand and supply graph of the market for used televisions in the United States that illustrates the effect on that market of an increased tariff on imports of new televisions. Although the tariff on imported televisions doesn’t directly affect the market for used televisions, it does so indirectly. As the article from the Wall Street Journal notes, “Today, in the tariff era, demand for used goods is surging.” Because used televisions are substitutes for new televisions, we would expect that an increase in the price of new televisions would cause the demand curve for used televisions to shift to the right, as shown in the following figure. The result will be that the equilibrium price of used televisions will increase from P1 to P2, while the equilibrium quantity of used televisions will increase from Q1 to Q2.

To summarize: A tariff on imports of new televisions increases the price of both new and used televisions. It decreases the quantity of new televisions sold but increases the quantity of used televisions sold.

NEW! 11-07-25- Podcast – Authors Glenn Hubbard & Tony O’Brien discuss Tariffs, AI, and the Economy

Glenn Hubbard and Tony O’Brien begin by examining the challenges facing the Federal Reserve due to incomplete economic data, a result of federal agency shutdowns. Despite limited information, they note that growth remains steady but inflation is above target, creating a conundrum for policymakers. The discussion turns to the upcoming appointment of a new Fed chair and the broader questions of central bank independence and the evolving role of monetary policy. They also address the uncertainty surrounding AI-driven layoffs, referencing contrasting academic views on whether artificial intelligence will complement existing jobs or lead to significant displacement. Both agree that the full impact of AI on productivity and employment will take time to materialize, drawing parallels to the slow adoption of the internet in the 1990s.

The podcast further explores the recent volatility in stock prices of AI-related firms, comparing the current environment to the dot-com bubble and questioning the sustainability of high valuations. Hubbard and O’Brien discuss the effects of tariffs, noting that price increases have been less dramatic than expected due to factors like inventory buffers and contractual delays. They highlight the tension between tariffs as tools for protection and revenue, and the broader implications for manufacturing, agriculture, and consumer prices. The episode concludes with reflections on the importance of ongoing observation and analysis as these economic trends evolve.

https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/soundcloud%253Atracks%253A2208512723&color=%23ff5500&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&show_teaser=true&visual=true

Pearson Economics · Hubbard OBrien Economics Podcast – 11-06-25 – Economy, AI, & Tariffs

Older People Have Become Relatively Wealthier While Younger People Have Become Relatively Less Wealthy

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There has been an ongoing debate about whether Millennials and people in Generation Z are better off or worse off economically than are Baby Boomers. Edward Wolff of New York University recently published a National Bureau of Economic Research (NBER) working paper that focuses on one aspect of this debate—how the wealth of households headed by someone 75 years and older changed relative to the wealth of households headed by someone 35 years and younger during the period from 1983 to 2022.  

Wolff uses data from the Federal Reserve’s Survey of Consumer Finances to measure the wealth, or net worth, of people in these age groups—the market value of their financial assets minus the market value of their financial liabilities. He includes in his measure of assets the market value of people’s real estate holdings—including their homes—stocks and bonds, bank deposits, contributions to defined contribution pension funds, unincorporated businesses, and trust funds. He includes in his measure of liabilities people’s mortgage debt, consumer debt—including credit card balances—and other debt, such as educational loans.  Because Wolff wants to focus on that part of wealth that is available to be spent on consumption, he refers to it as financial resources, and he excludes from his wealth measure the present value of future Social Security payments and the present value of future defined contribution pension benefits.

The following figure from Wolff’s paper shows that, using his definition, both median and mean wealth have increased substantially from 1987 to 2o22. Note that both measures of average wealth declined during the Great Recession and Global Financial Crisis of 2007–2009. Median wealth declined by nearly 44 percent between 2007 and 2010. That median wealth grew much faster than mean wealth over the whole period indicates that wealth inequality.

Although the average wealth of all age groups increased over this period, the relative wealth of households 75 years and older rose and the relative wealth of households 35 years and younger fell. The following figure from the NBER Digest illustrates this shift. The 75 and over age group increased its mean net worth from 5 percent greater than the mean net worth of the average household in 1983 to 55 percent of the mean net worth of the average household in 2022. In contrast, the 35 and under age group saw its mean new worth relative to the average household fall from 21 percent in 1983 to 16 percent in 2022. Note, though, that there is significant volatility over time in the relative wealth shares of the two age groups.

What explains the relative increase in wealth among households 75 and over and the relative decrease in wealth among households 35 and under? Wolff identifies three key factors:

“[T]he homeownership rate, total stocks directly and indirectly owned, and home mortgage debt. The homeownership rate is the same in the two years for the youngest group but falls relative to the overall rate, whereas it shoots up for the oldest group both in actual level and relative to the overall average. The value of stock holdings rises for both age groups but vastly more for the oldest households compared to the youngest ones and accounts for a substantial portion of the elderly’s relative wealth gains. Mortgage debt rises in dollar terms for both groups but considerably more in relative terms for the youngest group.”

Perhaps surprisingly, Wolff finds that “despite dire press reports, educational loans fail to appear as a significant factor” in explaining the decline in the relative wealth of younger households. 

 

FOMC Meeting Results in Expected Rate Cut

Photo of Federal Reserve Chair Jerome Powell from federalreserve.gov

Today’s meeting of the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) occurred against a backdrop of a shutdown of the federal government that has delayed release of most government economic data. (We discuss the government shutdown here, here, and here.)

As most observers had expected, the committee decided today to lower its target for the federal funds rate from a range of 4.00 percent to 4.25 percent to a range of 3.75 percent to 4.oo percent—a cut of 0.25 percentage point, or 25 basis points. The members of the committee voted 10 to 2 for the 25 basis point cut with Governor Stephen Miran dissenting because he preferred a 50 basis point cut and Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, dissenting because he preferred that the target range be left unchanged at this meeting.

The following figure shows, for the period since January 2010, the upper bound (the blue line) and the lower bound (the green line) for the FOMC’s target range for the federal funds rate, as well as the actual values of the federal funds rate (the red line). Note that the Fed has been successful in keeping the value of the federal funds rate in its target range. (We discuss the monetary policy tools the FOMC uses to maintain the federal funds rate in its target range in Macroeconomics, Chapter 15, Section 15.2 (Economics, Chapter 25, Section 25.2).)

During his press conference following the meeting, Fed Chair Jerome Powell made news by stating that a further cut in the target rate at the FOMC’s meeting on December 9–10 is not a foregone conclusion. This statement came as a surprise to investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.)  As of yesterday, investors has assigned a probability of 90.5 percent to the committee cutting its target range by another 25 basis points at the December meeting. Today that probability dropped to zero. Instead investors now assign a probability of 67.8 percent to the target remaining unchanged at that meeting, and a probability of 32.2 percent of the committee raising its target by 25 basis points.

Powell also indicated that he believes that the recent increase in inflation was largely due to the effects of the increase in tariff rates that the Trump administration began implementing in April. (We discuss the recent data on inflation in this post.) Powell indicated that committee members expect that the tariff increases will cause a one-time increase in the price level, rather than a long-term increase in the inflation rate. As a result, he said that the shift in the “balance of risks” caused the committee to believe that cutting the target for the federal funds rate was warranted to avoid the possibility of a significant rise in the unemployment rate.

In discussing inflation, Powell highlighted three aspects of the recent CPI report: inflation in goods, inflation in shelter, and inflation in services not including shelter. (The BLS explains is measurement of shelter here.) The following figure shows inflation in each of those categories, measured as the percentage increase from the same month in the previous year. Inflation in goods (the blue line) has been trending up, reflecting the effect of increased tariffs rates. Inlation in shelter (the red line) and in services minus shelter (the green line) have generally been trending downward. Powell noted that the decline in inflation in shelter has been slower than most members of the committee had expected.

Still, Powell argued that with the downward trend in services, once the temporary inflation in goods due to the effects of tariffs had passed through the economy, inflation was likely to be close the Fed’s 2 percent annual target. He thought this was particularly likely to be true because even after today’s cut, the federal funds rate was “restrictive” because it remained above its long-run nominal and real values. A restrictive monetary policy will slow spending and inflation.

In the following figure, we look at the 1-month inflation rates—that is, the annual inflation rates calculated by compounding the current month’s rates over an entire year—for the same three categories. Calculated as the 1-month inflation rate, goods inflation (the blue line) was running at a very high 6.6 percent in September. inflation in shelter (the red line) had declined to 2.5 per cent in September. Inflation in services minus shelter rose slightly in September to 2.1 percent.

Assuming that the shutdown of the federal government ends within the next few weeks, members of the FOMC will have a great deal of data on inflation, real GDP growth, and employment to consider before their next meeting in December.

Who Will President Trump Nominate to Be Fed Chair?

Kevin Hassett, director of the National Economic Council (photo from the AP via the Wall Street Journal)

Jerome Powell’s second term as chair of the Federal Reserve’s Board of Governor ends on May 15,2026. (Although his term as a member of the Board of Governors doesn’t end until January 31, 2028, Fed chairs have typically resigned their seats on the Board at the time that their term as chair ends.) President Trump has been clear that he won’t renominate Powell to a third term. Who will he nominate?

Polymarket is a site on which people can bet on political outcomes, including who President Trump will choose to nominate as Fed chair. The different amounts wagered on each candidate determine the probabilities bettors assign to that candidate being nominated. The following table shows each candidate with a probability of least 1 percent of being nominated as of 5 pm eastern time on October 27.

Kevin Hassett, who is currently the director of the National Economic Council, has the highest probability at 36 percent. Fed Governor Christopher Waller, who was nominated to the Board by President Trump in 2020, is second with a 23 percent probability. Kevin Warsh, who served on the Board from 2006 to 2011, and was important in formulating monetary policy during the financial crisis of 2007–2009, is third with a probability of 16 percent. Rick Reider, an executive at the investment company Black Rock, is unusual among the candidates in not having served in government. Bettors on Polymarket assign him a 10 percent probability of being nominated. Stephen Miran and Michelle Bowman are current members of the Board who were nominated by President Trump.

Scott Bessent is the current Treasury secretary and has indicated that he doesn’t wish to be nominated. James Bullard served as president of the Federal Reserve Bank of St. Louis from 2008 to 2023. David Zervos is an executive at the Jeffries investment bank and in 2009 served as an adviser to the Board of Governors. Lorie Logan is president of the Federal Reserve Bank of Dallas and Philip Jefferson is currently vice chair of the Board of Governors.

Today, Treasury Secretary Scott Bessent indicated that the list of candidates had been reduced to five—although bettors on Polymarket indicate that they believe these five are likely to be the first five candidates listed in the chart above, it appears that Bowman, rather than Miran, is the fifth candidate on Bessent’s lists. Bessent indicated that President Trump will likely make a decision on who he will nominate by the end of the year.

CPI Inflation for September Slightly Below Forecasts but Still Above Target

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As we’ve noted in recent blog posts (here and here), the shutdown of the federal government has interrupted the release of government data, including the “Employment Situation” report prepared monthly by the Bureau of Labor Statistics (BLS). The federal government made an exception for the BLS report on the consumer price index (CPI) because annual cost-of-living increases in Social Security payments are determined by the average inflation rate in the CPI during July, August, and September.

Accordingly, today (October 24), the Bureau of Labor Statistics (BLS) released its report on the consumer price index (CPI) for September. The following figure compares headline CPI inflation (the blue line) and core CPI inflation (the red line).

  • The headline inflation rate, which is measured by the percentage change in the CPI from the same month in the previous year, was 3.0 percent in September, up from 2.9 percent in August. 
  • The core inflation rate, which excludes the prices of food and energy, was also 3.0 percent in September, down slightly from 3.1 percent in August. 

Headline inflation and core inflation were both slightly lower than the 3.1 rate for both measures that economists had expected.

In the following figure, we look at the 1-month inflation rates for headline and core inflation—that is the annual inflation rate calculated by compounding the current month’s rate over an entire year. Calculated as the 1-month inflation rate, headline inflation (the blue line) declined from the very high rate of 4.7 percent in August to the still high rate of 3.8 percent in September. Core inflation (the red line) declined from 4.2 percent in August to 2.8 percent in September.

The 1-month and 12-month inflation rates are both indicating that inflation remains well above the Fed’s 2 percent annual inflation target in September. Core inflation—which is often a good indicator of future inflation—in particular has been running well above target during the last three months. 

Of course, it’s important not to overinterpret the data from a single month. The figure shows that the 1-month inflation rate is particularly volatile. Also note that the Fed uses the personal consumption expenditures (PCE) price index, rather than the CPI, to evaluate whether it is hitting its 2 percent annual inflation target.

Does the increase in inflation represent the effects of the increases in tariffs that the Trump administration announced on April 2? (Note that many of the tariff increases announced on April 2 have since been reduced.) The following figure shows 12-month inflation in durable goods—such as furniture, appliances, and cars—which are likely to be affected directly by tariffs, all core goods, and core services. Services are less likely to be affected by tariffs.. To make recent changes clearer, we look only at the months since January 2022. In August, inflation in durable goods declined slightly to 1.8 percent in September from 1.9 percent in August. Inflation in core goods was unchanged in September at 1.5 percent. Inflation in core services fell slightly in September to 3.5 percent from 3.6 percent in August.

The following figure shows 1-month inflation in the prices of these products, which may makes clearer the effects of the tariff increases. In September, durable goods inflation was a high 4.0 percent, although down from 5.1 percent in August. Core goods inflation in September was 2.7 percent, down from 3.4 percent in August. Core service inflation was 2.9 percent in August, down from 4.3 percent in August.

To better estimate the underlying trend in inflation, some economists look at median inflation and trimmed mean inflation.

  • Median inflation is calculated by economists at the Federal Reserve Bank of Cleveland and Ohio State University. If we listed the inflation rate in each individual good or service in the CPI, median inflation is the inflation rate of the good or service that is in the middle of the list—that is, the inflation rate in the price of the good or service that has an equal number of higher and lower inflation rates. 
  • Trimmed-mean inflation drops the 8 percent of goods and services with the highest inflation rates and the 8 percent of goods and services with the lowest inflation rates. 

The following figure shows that 12-month trimmed-mean inflation (the blue line) was 3.2 percent in September, down slightly from 3.3 August. Twelve-month median inflation (the red line) 3.5 percent in September, down slightly from 3.6 in August.

The following figure shows 1-month trimmed-mean and median inflation. One-month trimmed-mean inflation declined from 3.2 percent in August to 2.4 percent in September. One-month median inflation declined from 3.4 percent in August to 2.4 percent in September. These data are consistent with the view that inflation is still running above the Fed’s 2 percent target.

With inflation running above the Fed’s 2 percent annual target, we wouldn’t typically expect that the Fed’s policymaking Federal Open Market Committee (FOMC) would cut its target for the federal funds rate at its October 28–29 meeting. At this point, though, it seems likely that the FOMC will “look through” the higher inflation rates of the last few months because the higher rates may be largely attributable to one-time price increases caused by tariffs. Committee members have signaled that they are likely to cut their target for the federal funds rate by 0.25 percentage point (25 basis points) at the conclusion of next week’s meeting.

This morning, investors who buy and sell federal funds futures contracts assign a probability of 96.7 percent to the FOMC cutting its target for the federal funds rate at that meeting by 25 basis points from its current target range of 4.00 percent to 4.25 percent. Investors assign a 95.9 percent probability of the committee cutting its target by an additional 25 basis points to 3.50 percent to 3.75 percent at its December 9–10 meeting. If persistently high inflation rates reflect more than just the temporary effects of tariffs, these rate cuts will make it unlikely that the Fed will reach its 2 percent inflation target anytime soon.

Fed Has Apparently Lost Early Access to ADP Employment Data

Fed Governor Christopher Wallace on October 21, 2025 at the Fed’s Payment Innovation Conference (photo from federalreserve.gov)

The current partial shutdown of the federal government has delayed the release by the Bureau of Labor Statistics (BLS) of its “Employment Situation” report (often called the “jobs report”). The report had originally been scheduled to be released on October 3. In a recent blog post we discussed how well the employment data collected by the private payroll processing firm Automatic Data Processing (ADP) serves as an alternative measure of the state of the labor market. In that post we showed that ADP data on total private payroll employment tracks fairly well the BLS data on total private employment from its establishment survey (often called the payroll survey) .

An article in today’s Wall Street Journal reports that ADP has stopped providing the Fed with early access to its data. Apparently, as a public service ADP had been providing its data to the Fed a week before the data was publicly released. The article notes that ADP stopped providing the data soon after this speech delievered by Fed Governor Christopher Wallace in late August. In a footnote to the speech Wallace refers to “data that Federal Reserve staff maintains in collaboration with the employment services firm ADP.” The article points out, though, that Waller’s speech was only one of several times since 2019 that a Fed official has publicly mentioned receiving data from ADP.

Losing early access to the ADP data comes at a difficult time for the Fed, given that the BLS employment data are not available. In addition, the labor market has shown signs of weakening even though growth has remained strong in measures of output. If payroll employment has been falling, rather than growing slowly as it was in the August jobs report, that knowledge would affect the deliberations of the Fed’s policymaking Federal Open Market Committee (FOMC) at its next meeting on October 28–29. Serious deterioration in the labor market could lead the FOMC to cut its target for the federal funds rate by more than the expected 0.25 percentage point (25 basis points).

In a speech in 2019, Fed Chair Jerome Powell noted that the Fed staff had used ADP data to develop a new measure of payroll employment. Had that measure been available in 2008, Powell argued, the FOMC would have realized earlier than it did that employment was being severely affected by the deepening of the financial crisis:

“[I]n the first eight months of 2008, as the Great Recession was getting underway, the official monthly employment data showed total job losses of about 750,000. A later benchmark revision told a much bleaker story, with declines of about 1.5 million. Our new measure, had it been available in 2008, would have been much closer to the revised data, alerting us that the job situation might be considerably worse than the official data suggested.”

The Wall Street Journal article notes that Powell has urged ADP to resume sharing its employment data with the Fed.

Mokyr, Aghion, and Howitt Win 2025 Nobel Prize in Economics

Joel Mokyr (photo from news.northwestern. edu)

Philippe Aghion (photo from philippeaghion.com)

Peter Howitt (photo from brown.edu)

For most of human history there was little to no economic growth. Until the nineteenth century, the average person everywhere in the world lived at a subsistence level. For example, although the Roman Empire controlled most of Southern and Western Europe, the Near East, and North Africa for more than 400 years, the living standard of the average citizen of the Empire was no higher at the end of the Empire than it had been at the beginning.

Economists typically measure economic growth by the rate of increase in real GDP per capita. The following figure, updated from Chapter 11 of Macroeconomics (Chapter 21 of Economics), shows the slow pace of growth in real GDP per capita in the world economy from the year 1 to the year 1820 and the much faster rates of growth over the following periods. As discussed in Chapter 11, the figure relies on data compiled by Angus Maddison of University of Groningen in the Netherlands and—for recent years—data from the World Bank.

This year’s three Nobelists have contributed to understanding why economic growth accelerated sharply in the nineteenth century and why England was the first country to experienced sustained increases in real GDP per capita—an event labeled the Industrial Revolution. Joel Mokyr of Northwestern University has conducted decades of research into which innovations were crucial to economic growth and the institutional and economic advantages that allowed entrepreneurs in England to use those innovations to expand production much more rapidly than had happened before. Philippe Aghion of Collège de France and INSEAD and Peter Howitt of Brown University have focused on formally modeling the process of creative destruction that underlies sustained economic growth. The classic discussion of creative destruction appears in Joseph Schumpeter’s book Capitalism, Socialism, and Democracy, published in 1942.

In Macroeconomics Chapter 21, we discuss the process of creative destruction in the context of economic growth. Creative destruction occurs as technological change results in new products that drive firms producing older products out of business. Examples are automobiles driving out of business producers of horse-drawn carriages in the early twentieth century. Or Netflix and other movie streaming sites driving video rental stores out of business in more recent years.

The Nobel Committee’s announcement of the prize can be found here. A longer discussion of the Nobelists’ work can be found here. The scope of their research can be seen by reviewing their curricula vitae, which can be found here, here, and here. The amount of the prize this years is 11 million Swedish kronor (about $1.2 million). Mokyr receives half and Aghion and Howitt receive the other half.

Buy Stablecoins and Receive … a Free Toaster?

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Beginning in 1933, under the Federal Reserve’s Regulation Q, commercial banks were prohibited from paying interest on checking account deposits. As we discuss in Money, Banking, and the Financial System, Chapter 12, Section 12.4, in 1980 Congress allowed banks to pay interest on Negotiable Order of Withdrawal (NOW) accounts. Because NOW accounts effectively functioned as checking accounts, many people moved funds out of checking accounts and into NOW accounts.

Once NOW accounts were available, a bank could try to attract deposits by offering higher interest rates. But what did a bank do to attract deposits prior to 1980 when it couldn’t legally pay interest? Many banks offered rewards, such as toasters, clock radios, or other small appliances, to people who opened a new checking account or made a large deposit. Banks heavily advertised these rewards on television and radio and in newspapers. The 1960s and 1970s are sometimes called “the free-toaster era” in banking. For example, in 1973, the Marquette National Bank placed this advertisement in a local Minneapolis newspaper offering a variety of gifts to anyone depositing $250 or more in a checking account.

In 1977, a bank in Morton Grove, Illinois offered candy bowls and ashtrays to people opening new accounts.

Congress authorized NOW accounts because as interest rates rose during the 1970s—despite the offers of free gifts—banks  were losing deposits to money market mutual funds and other short-term financial assets such as Treasury bills. Today, banks are afraid that they will lose deposits to cryptocurrencies, particularly stablecoins. As we discuss in this blog post, stablecoins are a type of cryptocurrency—bitcoin is the best-known cryptocurrency—that can be bought and sold for a constant number of units of a currency, usually U.S. dollars. Typically, one stablecoin can be exchanged for one dollar.

In July 2025, Congress passed and President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (Genius Act) to provide a regulatory framework for stablecoins. Firms issuing stablecoins earn income on the assets, such as Treasury bills and money market funds that invest in Treasury bills, that they are required to hold to back the stablecoins they issue. But a provision of the Act bars issues of stablecoins from paying interest to holders of stablecoins. So, stablecoin issuers can’t copy the strategy of banks by paying interest to attract deposits and funding the interest on deposits with the interest earnings on their assets.

To this point, few people are buying stablecoins unless they intend to use them in buying and selling bitcoin and other cryptocurrencies or unless they need a convenient way to transfer funds across national borders. Some of these international transfers are related to drug dealing and other illegal activities. Because few retail firms—either brick-and-mortar or online—are equipped to accept stablecoins in payment for goods and services, and because stablecoins pay no interest, most households and firms don’t see stablecoins as good substitutes for checking accounts in banks.

As we discuss in Chapter 12 of Money, Banking, and the Financial System, when the federal government adopts new financial regulations, like the Genius Act, financial firms often respond by attempting to evade the regulations. People buy and sell cryptocurrencies on exchanges, such as Coinbase. Circle issues the stablecoin USDC and has agreed to pay Coinbase some of the interest it earns on Circle’s assets. As the following screenshot from the Coinbase site shows, Coinbase offers to pay interest to anyone who holds USDC on the Coinbase site.

Screenshot

An article in the Wall Street Journal notes that: “The result is something that critics say looks a lot like a yield-bearing stablecoin. Coinbase says the reward program is separate from its revenue-sharing deal with Circle.” If other stablecoins attract funds by offering interest payments in this indirect way and if more retailers begin to accept stablecoins as payment for goods and services—which they have an incentive to do to avoid the 1 percent to 3 percent fee that credit card issuers charge retailers on purchases—banks stand to lose trillions in deposits.  

Smaller banks, often called community banks, might be most at risk from deposit outflows because they are more reliant on deposits to fund their investments than are larger banks. As we discuss in Money, Banking, and the Financial System, Chapter 9, community banks practice relationship banking by using private information to assess the credit risk involved in lending to local borrowers, such as car dealers and restaurants. Many large banks believe that the transaction costs involved in evaluating risk on small business loans make such loans unprofitable. So the disappearance of many community banks may make it more difficult for small businesses to access the credit they need to operate.

The Bank Policy Institute (BPI), which lobbies on behalf of the banking industry, argues that:

“Stablecoin issuers want to engage in banking activities, like paying interest. Being a bank requires the full suite of regulatory requirements, deposit insurance and discount window access that keep banks safe. Stablecoins seeking to offer banking services must be subject to those requirements and protections, rather than using workarounds and backdoors to pay interest, take deposits and access the federal payment rails.”

BPI urges Congress to eliminate the ability of Coinbase and other crypto exhanges to help stablecoin issuers evade the prohibition on paying interest.

If the prohibition on stablecoin issuers paying interest is tightened, how else might issuers attract people to invest in stablecoins? Well, there’s always free toasters!