185,000 new jobs.
That is the World Cup’s impact on the American economy (according to government projections).
Of course, the real answer — the Moneyball Economics answer — isn’t quite so simple. But the games are still playing a key role during one of the year’s most important turning points for policy and profits.
Let’s dive in:
Video transcript:
It’s time for Moneyball Economics. I’m your host, Andrew Zatlin.
Well, this week’s going to be very explosive because we’ve got payrolls coming down the pipeline on Thursday and the markets have decided that everything depends on payrolls. Payrolls will decide when we’re going to have a rate hike.
Now, that’s a very different situation than when we were at the beginning of the year. And go back in time. The question on the table was, is the US economy strengthening or is it kind of at that point where we need a rate cut?
I was firmly in the camp of saying, “this is going to be a bullish 2026 for the economy.” Fast forward six months, that’s exactly what’s happening. We’re no longer questioning whether or not the US economy’s strengthening. We’re now wondering, is it strengthening at a level where the inflation’s gotten to a point where we need a rate hike? That’s the problem.
And we’ve seen a lot of data come down the pipeline that supports not only a strong US economy, but we got inflation being frothy. As always, there’s a little bit of confusion as to how to read the economic data. For example, the strengthening of the economy. Well, that’s seen in pretty much everywhere we look, especially in the labor market.
For example, jobless claims have come down pretty dramatically. They were hitting 225,000. Last week they fell to 215,000. Same thing with payrolls. Of the last five months, four of them have been very strong.
So we kind of strengthened the US economy, but is that driving up inflation? Because the usual formula is economy strong, inflation accelerating, raise interest rates. Well, the question there is how much of that is transitory? Because we know inflation’s coming down the pipeline because of Iran. Higher fuel prices rippling throughout the economy.
Now that we’ve got a ceasefire in place, fuel prices have collapsed back down pretty much to the pre-war levels. And so we’re going to see that ripple through in the form of lower inflation. So you’re the Fed chairman, you’re trying to look at all this stuff, you’re kicking the can a little bit. Let’s see what happens with inflation. Let’s see if the economy can absorb a rate hike. Now you’re trying to crystal ball what’s going to happen.
There are three possible scenarios. It’s just like Goldilocks. Payrolls could come in light, which would say, okay, hold off on that rate hike. We see inflation could be transitory. Looks like the economy might be softening. What’s a light number? Anything around 100,000 or below.
Then you’ve got the other extreme. Payrolls come in heavy, say closer to 200,000 in which case game over. The economy’s super strong, you’ve got inflation. The markets will position for a rate hike. They’re not going to like this. Then you’ve got the Goldilocks in the middle. Consensus thinks it’s going to be about 120,000, which believe it or not, is actually the same number as last month when you strip out government nonsense that happened last month.
All right, 120,000, the markets say, “Well, it’s not too hot, not too cold. It doesn’t justify a rate hike being pulled in. It doesn’t justify a rate hike being pushed out. It just is what it is. We kick the can another month.”
Let me walk you through those three scenarios and which ones are most likely…
And it all comes down to what happens from the FIFA soccer games. That’s right. Estimates are that FIFA’s creating 185,000 jobs. And quite frankly, that’s very reasonable to me. Let me explain why, but also I’m going to explain why I then discount that 185,000.
And it starts off with, let’s look at what happens at any given stadium…
You get 60,000 people piling into a stadium. In and of itself, that’s about 2,000 jobs. You’ve got Uber drivers, but this is a little different. You got 60,000 people who also have to stay at hotels and they’re kind of routing. They’re going to go out and drink and eat and they’re around not just for one day.
They’re going to stick around for a little bit. All right. To support that, you got to feed say 60,000 people. That’s a lot of bartenders and waiters and you got to put most of them up in hotels and that’s a lot of cleaning staff and so forth. I could easily see 15,000 or more to support 60 some thousand people and that’s times 10 stadium cities. But here’s where I start to shade the data.
I discount most of this job growth because I have seen that these are not net new jobs. A lot of these are just extra shifts, but there are some net new jobs and we can see that happening in the data. For example, not just my data. My data shows that in these stadium cities, yes, there is job growth happening during the FIFA games, but it’s not that huge. It’s measured say at about two, three, 4,000 per stadium city, not 16,000.
And to understand why, let’s take a look at New Jersey…
Now, New Jersey is a host for the games, but they don’t have at the MetLife Stadium baseball. And so that’s what’s important. You go to say the LA Dodgers, well, they’re playing all the time. Their stadiums fill up. The same people working a Dodgers game are working the soccer game. You need about 1,500 to 2,000 workers to do a Dodgers game. That’s exactly what the labor union demanded for the games at FIFA 2000. It’s overlap. The same people last month, this month, they’re working the same event. That’s not a net new payroll.
With New Jersey, it is net new. They don’t have the same blowout type of experience. They have some. And as a result, John’s claims, for example, New Jersey fell a few thousand below where they should have been. Okay. So let’s say that a stadium city net net creates about 3,000 jobs. And let’s even say it’s a litle bit higher because people go into the game in New Jersey are staying in New York. So a lot of the hotel actions happening there.
Well, guess what? Hotel occupancy rates didn’t go up that much in New York. They went up a whopping 5%.
140,000 rooms in New York, 5%, that’s 7,000 rooms. You need a few hundred cleaners for that, but not thousands. What I’m trying to say is the math suggests that most of the people who need to work at the stadiums, who need to work the bars, restaurants, and hotels, they’re picking up shifts.
It’s not that they’re suddenly coming in off the streets. They didn’t have a job. They were working in the prior few weeks. They were working a couple months ago.
Somebody called them and said, “Hey, I usually have you on Monday, Tuesday, Wednesday. Can you also come in Friday and Saturday?” Well, guess what? That’s not a payroll ad. That’s an additive to the shift. And so that’s why you’ve got two different polls. You’ve got people who think, “Nope, net new. All of these people are net new to the equation.” And I’m saying a fraction of them are, let’s say about 20, maybe 25%.
Now, I’m thinking that the market might translate a high number into a low number because if all of this action is in one sector, leisure hospitality, that means it’s transitory because of the games, that means the core economy isn’t that strong. Boom, that means rate hikes may not happen until further out.
So I think the odds are pretty much three out of three suggest rate hikes aren’t going to be pulled in, they’re going to be pushed out. I think the markets are going to like what happens on Thursday. We’ll see what happens because we’re in it to win it, folks.
Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics