Latest / The Financial Exchange Show / Retail sales say the economy isn't really slowing down

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Retail sales say the economy isn't really slowing down · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. Mike, Paul
1:14
Speaker 2: and Tucker with you on a Tuesday where the FED
1:17
Speaker 2: meeting is kicking off tomorrow. We'll be hearing from Fed
1:20
Speaker 2: officials Jerome Powell on the path of interest rates. This morning,
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Speaker 2: we receive some retail sales data and continued I guess
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Speaker 2: just confusion and mixed news about the direction of this economy,
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Speaker 2: labor market, and inflation. That's the only way that I
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Speaker 2: can describe it. We described it that way yesterday as well.
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Speaker 2: In this morning's retail sales report, I think continued to
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Speaker 2: muddy those waters a bit here, Paul, I want to
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Speaker 2: start right there with that retail sales report, as we
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Speaker 2: have markets in slight sell off mode, the NAZAC barely
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Speaker 2: negative for the day, the Dow off a little bit further.
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Speaker 2: Eight thirty am this morning, we got a report on
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Speaker 2: weather and how much consumers are spending across this economy.
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Speaker 2: And the weather is the weather they're spending. Question is answered,
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Speaker 2: They are spending. They're spending quite a bit. Who and
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Speaker 2: where is an interesting question, but spending overall retail sales
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Speaker 2: advanced six tenths of a percent. Overall that beats the
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Speaker 2: expectations of a two tenths of percent increase that most
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Speaker 2: economists polled we're expecting if you exclude motor vehicle parts
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Speaker 2: and gas stations, which we tend to do because they
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Speaker 2: can swing things, especially big. I remember, these are not
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Speaker 2: adjusted for gas prices and things like that. It's just
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Speaker 2: a regular old print that was up seven tenths of
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Speaker 2: percent off of expectations of four tenths So, by all accounts,
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Speaker 2: beating all expectations. And that's in spite of a lot
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Speaker 2: of complaining and concern that I keep hearing about the
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Speaker 2: labor market and inflation. So I don't know, Paul, help
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Speaker 2: me make sense of this report, because I guess my
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Speaker 2: only making sense of it is we Americans are really
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Speaker 2: good at one thing, which is spending irresponsibly, and maybe
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Speaker 2: we're getting more of it here.
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Speaker 3: I actually had the reaction at my desk this morning.
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Speaker 3: I literally said out loud, WHOA when I saw these numbers,
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Speaker 3: because it was so counterintuitive to all of the general
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Speaker 3: rhetoric that we've talked about over the last few weeks,
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Speaker 3: where the backdrop of the economy focus has been weak
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Speaker 3: labor market, job revisions slowing, growth, and then you have
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Speaker 3: us on a backdrop of inflation that has remained persistent
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Speaker 3: and stummered. You would think with those two things, persistent
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Speaker 3: and stubborn inflation, that would slow down the consumer, right,
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Speaker 3: You would think with a weaker labor market that would
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Speaker 3: also lead to the consumer slowing down. And this report
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Speaker 3: beating expectations pretty handily was quite a surprise, but it
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Speaker 3: does point to what's been really the story, Mike of
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Speaker 3: the last geez three four years post pandemic, has been
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Speaker 3: a extremely resilient consumer. Yeah, and I've many times questioned
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Speaker 3: how long that that trend could keep going for, and
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Speaker 3: quite some time in this report just backs that notion
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Speaker 3: that the consumer is going. The consumer continues to get
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Speaker 3: out there and spend, and it is surprising to me.
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Speaker 3: It's nice, it's welcome news, but it it does make
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Speaker 3: it harder to generate a narrative. If someone asked you,
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Speaker 3: g Mike or Paul, how's the economy doing after this
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Speaker 3: prot I would.
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Speaker 4: Say, well, a little bit of this and a little
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Speaker 4: bit of that.
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Speaker 2: It's it's mixed, yeah, and we will check in on,
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Speaker 2: by the way, what all this means for the Fed's
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Speaker 2: rate decision. Tomorrow, because this is another data point for
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Speaker 2: them to consider, I suppose as they're making their rate
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Speaker 2: cutting decision today. But taking a look at some of
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Speaker 2: the details in the weeds here again, we saw six
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Speaker 2: tens percent increase overall compared to This is measuring data
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Speaker 2: from the month of August, by the way, so we're
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Speaker 2: you know, a month away from it now, or are
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Speaker 2: sixteen days away.
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Speaker 4: From it now compared to year over year.
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Speaker 2: Spending up five percent at these retail and food services business.
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Speaker 2: Excuse me, I didn't say, did I say five ten
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Speaker 2: percent percent? I said five percent? Okay, sorry, six tens
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Speaker 2: a percent month of a month, five percent year over
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Speaker 2: year is where we landed here.
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Speaker 4: With this report.
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Speaker 2: Motor vehicle and parts dealers up half a percent month
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Speaker 2: over month. Furniture and home furnishings, this is an area
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Speaker 2: that we saw a decline that's down three tens a
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Speaker 2: percent month of a month, but still up year over
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Speaker 2: year pretty substantially. Electronics and appliance stores up three tenths.
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Speaker 2: Building materials and garden equipment that barely moved, and that's
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Speaker 2: in fact down year over year. And so I look
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Speaker 2: at that one area and say, okay, I think I
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Speaker 2: can make sense of that given housing activity.
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Speaker 4: If you're seeing.
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Speaker 2: Building material and guarding, gardening equipment and suppliers, home depot
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Speaker 2: lows the likes of them falling away little bit. I
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Speaker 2: think it's because of a lack of home building and
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Speaker 2: a lack of home improvement projects that are going on.
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Speaker 2: Food and beverage stores you're up three tens percent, three
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Speaker 2: percent year over year. Health and personal care barely moved
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Speaker 2: but still up five percent year over year. Gas stations
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Speaker 2: moved up month over month, but gas prices overall are
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Speaker 2: down year over year, so that figure is down. And
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Speaker 2: then clothing and clothing accessories up a full percentage point
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Speaker 2: in just a month, giving US an eight percent increase.
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Speaker 4: Year over year.
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Speaker 2: Sporting goods, hobby musical instruments up eight tens of percent,
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Speaker 2: four point seven percent year over year. General merchandise stores.
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Speaker 4: I don't know what that means.
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Speaker 2: Down a little bit, but up year over year. Miscellaneous,
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Speaker 2: I guess that's your seven elevens. That's down month of
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Speaker 2: a month, but a big year over year. And then
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Speaker 2: non store retailers think online up two percent in terms
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Speaker 2: of sales. Finally, food service and drinking places seven tenths
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Speaker 2: percent bumps six and a half percent year over year.
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Speaker 2: I can't I can't paint a picture of this that
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Speaker 2: explains much of anything to me based on this data.
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Speaker 2: I mean, here's one takeaway that I have. Consumers were
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Speaker 2: a bit nervous about the state of things and seemingly
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Speaker 2: pulled back their spending early on during the tariff announcements.
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Speaker 2: We saw this April and May. Retail sales data declined
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Speaker 2: both of those months. April a little bit, May quite
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Speaker 2: a bit. So, you know, as big as this report
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Speaker 2: was the upside, the May report on retail sales was
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Speaker 2: bigger to the downside. By June, people had kind of
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Speaker 2: settled in, said, you know what, haven't lost my job.
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Speaker 4: I know everybody's been warning me that I might.
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Speaker 2: I know everybody's been warning me that prices are going
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Speaker 2: to go through the roof, But haven't lost my job.
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Speaker 2: Still have my income, and prices aren't through the roof.
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Speaker 2: I'm going to go back to normal. We saw price
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Speaker 2: we saw retail sales increase almost a full percentage point
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Speaker 2: in June, and then the last two months July and August,
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Speaker 2: we've now seen increases of six tens of percent in
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Speaker 2: each of those two months. So I buy the normalization
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Speaker 2: piece on the consumer's part. It's not reflecting and hiring.
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Speaker 2: You know, you didn't see businesses go out and do
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Speaker 2: the same thing, right, You didn't say see businesses say, Okay,
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Speaker 2: we're really nervous about these tariffs, so we're putting off
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Speaker 2: all of our plans, but then by June we picked
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Speaker 2: them back up.
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Speaker 4: No, because we have not seen the pace of hiring
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Speaker 4: like I was.
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Speaker 2: Maybe I was kind of expecting it to to follow
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Speaker 2: some of the consumer trends to say, oh yeah, people
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Speaker 2: are no consumers anywhay. Sorry, businesses rather are no longer
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Speaker 2: concerned about these tariffs in the same way they're picking
8:38
Speaker 2: up hiring has not happened.
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Speaker 4: So where does the FED go?
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Speaker 2: I guess with a report like this, where hey, they're
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Speaker 2: really worried about the labor market.
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Speaker 4: But this could be inflationary. It could don't buy it.
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Speaker 3: No, I don't think so. I don't think retail sales
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Speaker 3: gets weighted as heavily in that consideration PI for the
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Speaker 3: Federal Reserve, where you probably have to attribute some of
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Speaker 3: this retail sales to inflationary pressures. It's not adjusted for inflation.
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Speaker 3: It's adjusted for seasonality and things like that. So some
9:13
Speaker 3: of this increases is likely from some of the cost
9:16
Speaker 3: increase that we've seen. It still is a really strong
9:20
Speaker 3: report from a consumer spending side of things, But ultimately
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Speaker 3: I don't think this really drives the FED to move
9:26
Speaker 3: in one direction or another. I think that their trajectory
9:28
Speaker 3: is set in stone. There's too much AMMO on the
9:32
Speaker 3: labor market front that points to a weaker trend there
9:36
Speaker 3: to really deviate from their approach. It's a data point
9:40
Speaker 3: that I'm sure that they look at and review, but
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Speaker 3: ultimately not enough to move the needle in terms of
9:45
Speaker 3: their trajectory of very likely cutting rates by a quarter
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Speaker 3: percent tomorrow.
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Speaker 4: Let's take a quick break here on the Financial Change.
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Speaker 2: When we come back, I want to talk about that
9:54
Speaker 2: FED meeting, a bunch of court cases that have been
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Speaker 2: happening just over the last couple of days surrounding the
9:59
Speaker 2: FED governors, but really diving into what is going to
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Speaker 2: happen tomorrow during that press conference that's next here on
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Speaker 2: the Financial Exchange.
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Speaker 2: So talking about the eleventh hour for a moment, here
11:26
Speaker 2: we have two, I guess not changes to members of
11:31
Speaker 2: the voting Central Bank at the Federal Reserve, but at
11:35
Speaker 2: least two that you know, we weren't really sure would
11:38
Speaker 2: be able to attend this meeting given where everything was going,
11:42
Speaker 2: and they apparently will be. So let's start off with
11:44
Speaker 2: Lisa Cook for reference here if you you know, have
11:48
Speaker 2: not caught this story, one of the voting members of
11:51
Speaker 2: the Central Bank, Lisa Cook, has been accused by I'm
11:56
Speaker 2: trying to remember where the initial accusation came from. I
11:59
Speaker 2: think is within the Justice Department, but it might.
12:02
Speaker 3: A Federal Housing Finance Agency director Bill Polt who publicized
12:07
Speaker 3: the allegations.
12:08
Speaker 2: So the allegations are that Lisa Cook declared two properties
12:14
Speaker 2: to be her primary residence. One would do this to
12:16
Speaker 2: get more favorable terms on a mortgage. That is the accusation,
12:21
Speaker 2: and the President has moved to remove her from that role.
12:26
Speaker 2: Two courts now have rejected that attempt. They have said
12:31
Speaker 2: that they have to give Lisa Cook do process to
12:34
Speaker 2: fight those claims, and the onus is on the White
12:37
Speaker 2: House to prove that she did this and that it
12:41
Speaker 2: is cause for firing. I think it probably lands in
12:44
Speaker 2: the Supreme Court ultimately, but we will see. In either case,
12:49
Speaker 2: a judge has now said no, you cannot remove her,
12:52
Speaker 2: and so therefore she will presumably be attending this meeting
12:56
Speaker 2: coming up here today today and again voting on the
13:01
Speaker 2: decision of where rates go tomorrow. The second piece, the
13:06
Speaker 2: Senate has now voted to confirm President Trump's pick Stephen
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Speaker 2: Moran to the FED Board. He is replacing another Fed
13:13
Speaker 2: governor who resigned very recently. This is a unique situation.
13:18
Speaker 2: I believe it's the first time since the nineteen thirties
13:21
Speaker 2: that a sitting member of the White House, a member
13:27
Speaker 2: in the White House, is going to sit on the
13:29
Speaker 2: Governor's board. He is going to be taking a unpaid
13:33
Speaker 2: leave while working at the Central Bank. And this is
13:35
Speaker 2: a short term arrangement because this exact seat is up
13:39
Speaker 2: for a new pick I think in February of next year.
13:44
Speaker 2: So again it's a pretty unique situation. But nonetheless, he
13:47
Speaker 2: is going to be also voting at this Federal Reserve meeting.
13:51
Speaker 2: So okay, none of this should actually change anyone's view
13:55
Speaker 2: on where interest rates go, and it doesn't really change
13:58
Speaker 2: my view on where interest rates go. But it's going
14:00
Speaker 2: to be a weird FED meeting. Like, let's just start
14:03
Speaker 2: right there. You've got a newly appointed Fed governor that
14:08
Speaker 2: is coming from the White House, sitting at the Economic
14:12
Speaker 2: Council of Economic advisors and.
14:15
Speaker 3: Who's been very critical, has been.
14:17
Speaker 2: Critical of the other members of that FED, and has
14:20
Speaker 2: been pretty prominent in his views that rates need to
14:23
Speaker 2: come down. I would think he continues with that viewpoint
14:29
Speaker 2: in this meeting, but not necessarily. Like if I'm thinking
14:33
Speaker 2: about how do I want to actually be influential, and
14:35
Speaker 2: I just come out saying, hey, we should cut rates
14:37
Speaker 2: by one percent, then everybody's going to laugh me out
14:39
Speaker 2: of the room and not take me seriously for all
14:41
Speaker 2: the future FED meeting. So I'm not sure that's what
14:43
Speaker 2: he does. Lisa Cook again, people are going to pay
14:47
Speaker 2: attention to what she says, but you have to look
14:49
Speaker 2: at that situation, say fifty to fifty she's fired in
14:52
Speaker 2: the next six months, right, So I would think that
14:56
Speaker 2: is not a terribly influential role either. And then finally
15:00
Speaker 2: we have the governor himself, J Powell, who is going
15:05
Speaker 2: to be in that role I think, right until his
15:07
Speaker 2: term ends. But his term ends in less than a year.
15:11
Speaker 2: You have seen this with previous FED governors as well.
15:13
Speaker 2: This is not unique to J.
15:14
Speaker 4: Powell.
15:15
Speaker 2: But the closer you get to the end of the term,
15:16
Speaker 2: the less influence you have, the more difficult it is.
15:18
Speaker 2: To wrangle your members because all of them are vying
15:21
Speaker 2: for the role of the next FED the head of
15:24
Speaker 2: the Federal Reserve, and so his influence is going to
15:27
Speaker 2: be at least under question when it comes to this meeting.
15:31
Speaker 2: So I don't know that we see any of that
15:33
Speaker 2: in the meeting, but I am uniquely interested this time
15:38
Speaker 2: around to see how the governors are actually voting. I
15:41
Speaker 2: think you're going to have more descents than usual. Yes,
15:46
Speaker 2: I don't think you will, but you could possibly have
15:49
Speaker 2: descents in both directions. So again, let's say the FED
15:52
Speaker 2: cuts rates by quarter percent and they vote on that,
15:56
Speaker 2: and the majority.
15:56
Speaker 4: Vote for that move.
15:58
Speaker 2: You could hypothetically have some members that are voting for
16:01
Speaker 2: fifty base points whereas others are voting for no cuts
16:04
Speaker 2: at this meeting, which would be again pretty wild and
16:10
Speaker 2: something that is almost never seen. But to set the
16:14
Speaker 2: record straight, they are almost definitely cutting by a quarter
16:16
Speaker 2: percent at this meeting. The only pieces that are under
16:20
Speaker 2: question and really hoping to learn something about would be
16:25
Speaker 2: where the rest of the FED thinks that rates need
16:27
Speaker 2: to go over the course of the next twelve months
16:29
Speaker 2: given the current economic conditions.
16:30
Speaker 3: Yeah, I think you hit all the major points there
16:32
Speaker 3: the new appointees. What the decision in lies tomorrow is
16:36
Speaker 3: likely the quarterbase point cut. So other than that, I
16:40
Speaker 3: don't really anticipate it will be that exciting of a meeting.
16:44
Speaker 3: I understand the new members and things like that, but
16:46
Speaker 3: it will be parsing through the tea leaves from maybe
16:49
Speaker 3: some information on descents versus.
16:52
Speaker 2: Because remember, it's not like we get a video of
16:54
Speaker 2: the actual meeting right like they might be screaming at
16:57
Speaker 2: each other behind closed doors. We would never know. So
17:00
Speaker 2: I think that part will be interesting, but none of
17:01
Speaker 2: us will really know. And I agree with you, Paul.
17:04
Speaker 2: When it comes to press conference, it's going to be
17:05
Speaker 2: the same. It's going to be because it has to be.
17:09
Speaker 2: If you have a panicking federal Reserve, then everybody loses.
17:14
Speaker 2: So rates come down with Let's talk about what this
17:17
Speaker 2: practically means for everybody listening right now.
17:20
Speaker 4: I mean markets, you know, hype.
17:23
Speaker 2: Who knows what's driving markets on any single day, But
17:25
Speaker 2: the last several days have been pretty positive for markets,
17:28
Speaker 2: So let's start right there. What do lower rates mean
17:30
Speaker 2: for equity investors? I guess first and foremost.
17:32
Speaker 3: Yeah, so typically the lowering of rates would boost asset values,
17:36
Speaker 3: all else equal, bar and costs would go down for
17:39
Speaker 3: businesses to finance their operation from a growth perspective, and
17:42
Speaker 3: that would lead to higher valuation. So I think that's
17:45
Speaker 3: part of the movement that we've seen over the last
17:47
Speaker 3: week or two, is the optimism regarding lowering rates and
17:50
Speaker 3: thus driving the asset values. From a consumer standpoint, Just
17:53
Speaker 3: for the listeners out there, what does that mean to you? Hey,
17:56
Speaker 3: the CDs that I'm getting at the bank, maybe they
17:58
Speaker 3: were at four and a quarter percent or four and
18:00
Speaker 3: a half percent, those will likely come down very quickly
18:02
Speaker 3: to three, seven, five or four percent on money markets.
18:06
Speaker 3: The same thing applies there potentially on the good side
18:10
Speaker 3: of things. For those people who are barring whole equi
18:12
Speaker 3: lines of credit, likely those rates will come down because
18:15
Speaker 3: those are variable and anything else credit card dots, credit
18:19
Speaker 3: cards is a little slower to move, but those same
18:22
Speaker 3: types of things. That's really what the consumer would feel
18:24
Speaker 3: from an impact standpoint.
18:26
Speaker 2: Mortgage rates you have seen come down, it's not really
18:28
Speaker 2: because I mean, I guess it's sort of attached to
18:31
Speaker 2: what the FED has been promising to do here, but
18:34
Speaker 2: not really going to move the needle when they actually
18:37
Speaker 2: cut rates tomorrow, assuming that they do.
18:40
Speaker 4: You mentioned CDs.
18:41
Speaker 2: I just wanted to bring up a little story that
18:42
Speaker 2: I had with a client the other day, which is
18:45
Speaker 2: so common, But he was furious banks with a bank
18:51
Speaker 2: that I won't name. He had been in a really
18:53
Speaker 2: good interest rate CD for some time. He was traveling.
18:57
Speaker 2: It auto renewed, and they renewed him right into to
19:00
Speaker 2: a one percent CD. Now not the end of the world.
19:04
Speaker 2: He can pull the money out, but he does have
19:06
Speaker 2: to pay like three hundred dollars to get his money
19:08
Speaker 2: out of this stupid CD. And I just want to
19:11
Speaker 2: warn everybody out there that this is incredibly common. It
19:14
Speaker 2: happens with money markets at banks, it happens with CDs
19:17
Speaker 2: at banks, it happens with insurance companies and annuities. They
19:20
Speaker 2: get you at a teaser rate and then the whole
19:22
Speaker 2: way they make money is they renew you in some
19:24
Speaker 2: garbage product when it renews. So buyer beware and keep
19:27
Speaker 2: your eye out on this stuff. Quick Break Wall Street
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Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio ne work.
20:00
Speaker 5: Markets are pulling back slightly as the FED begins its
20:03
Speaker 5: two day monetary policy meeting today. Wall Street's also reacting
20:07
Speaker 5: to better than expected retail sales data from August, where
20:13
Speaker 5: retail sales increase zero point six percent, higher than estimates
20:16
Speaker 5: of zero point two percent. Right now, the Dow is
20:22
Speaker 5: off by about a half a percent, or two hundred
20:24
Speaker 5: and four points. SMP five hundred is down about a
20:28
Speaker 5: tenth of a percent. Nasdaq is completely flat at the moment.
20:32
Speaker 5: Russell two thousand is retreating about half a percent. Ten
20:36
Speaker 5: year treasure Field is currently flat at four point zero
20:39
Speaker 5: three four percent. In crude oil at one point three
20:43
Speaker 5: percent today, trading just above sixty four.
20:45
Speaker 1: Dollars a barrel.
20:47
Speaker 5: Oracle shares climbing over two percent higher after CBS News
20:51
Speaker 5: reported that the Cloud Infrastructure Company is among several companies
20:55
Speaker 5: that would enable TikTok to continue operations in the US
21:00
Speaker 5: if a framework deal between the US and China is finalized. Meanwhile,
21:05
Speaker 5: after surpassing three trillion dollars in market cap for the
21:09
Speaker 5: first time yesterday, shares in Google parent company Alphabet are
21:13
Speaker 5: dipping slightly today. Elsewhere, shares an arcade and restaurant chain
21:17
Speaker 5: Dave and Buster are sinking sixteen percent after it logged
21:21
Speaker 5: another quarter of declining same store sales. Nova Noordez said
21:26
Speaker 5: its experimental once weekly weight loss injection drug helped patients
21:31
Speaker 5: reduce their weight by eleven point eight percent after sixty
21:35
Speaker 5: eight weeks. Novo shares are up over two percent. Chipotle
21:39
Speaker 5: shares climbing over one percent higher after the burrito chain
21:42
Speaker 5: authorized an additional five hundred million dollars for share repurchases.
21:48
Speaker 5: In more news this morning from Tesla after US auto
21:51
Speaker 5: safety regular regulators opened an investigation into whether some of
21:55
Speaker 5: the company's electrically powered vehicle doors are defective. This comes
22:00
Speaker 5: after Tesla stock jumped over three percent yesterday after CEO
22:04
Speaker 5: Elon Musk purchased about one billion dollars worth of test
22:08
Speaker 5: The stock shares are up another one and a half
22:10
Speaker 5: percent today. I'm Tucker Silva and that is Wall Street Watch.
22:15
Speaker 4: Uh, Paul.
22:17
Speaker 2: We just covered that the FED is very likely to
22:19
Speaker 2: cut rates at this next meeting. They're likely to do
22:21
Speaker 2: so by a quarter of one percent. This follows a
22:26
Speaker 2: trend that they had started back in the late summer
22:30
Speaker 2: early fall of the last year, and is happening at
22:35
Speaker 2: a time that I think is a little bit unique
22:39
Speaker 2: for the Federal Reserve to be cutting rates, I guess,
22:41
Speaker 2: And that's that's where I want to get to for
22:43
Speaker 2: a moment here, I guess, before we even talk about data,
22:47
Speaker 2: I just want to ask anybody listening, and you're welcome
22:49
Speaker 2: to text us at six one seven three, six two
22:51
Speaker 2: thirteen eighty five, regardless of what I'm about to tell you,
22:55
Speaker 2: in terms of data, do prices seem stable to you?
23:00
Speaker 4: Do you feel like you know?
23:04
Speaker 2: I think the easiest example I can give is do
23:07
Speaker 2: you know when you go grocery shopping next week for
23:09
Speaker 2: your family what the price of that basket is likely
23:12
Speaker 2: to look like? And that's a really important framework for
23:18
Speaker 2: all this. I know we talk about the data, we
23:20
Speaker 2: talk about the actual measurements how much did prices actually
23:23
Speaker 2: move on a month to month basis, But so much
23:25
Speaker 2: of this is built on expectations that I really think
23:28
Speaker 2: how human beings actually feel about prices is probably as
23:33
Speaker 2: important as all these survey results we get. Do you
23:36
Speaker 2: feel prices are stable right now? Is what I want
23:38
Speaker 2: to know. My general inkling is not really like when
23:43
Speaker 2: I talk to people, part of it's because of tariffs,
23:46
Speaker 2: part of it's just because of the massive swings that
23:49
Speaker 2: you've seen over the last couple of years, that people
23:52
Speaker 2: don't feel terribly stable in their expectations for prices. Nonetheless,
23:57
Speaker 2: the FED is looking at this economy and saying, yeah,
24:00
Speaker 2: they might be nervous about that, but we're much more
24:02
Speaker 2: nervous about the labor market right now and the weakness
24:05
Speaker 2: that we've seen in hiring, and so we think the
24:07
Speaker 2: prudent thing to do is to cut interest rates. And
24:10
Speaker 2: I'll be the first to say, I think you can
24:12
Speaker 2: justify that decision. Sure, I guess my question is what
24:19
Speaker 2: if they're wrong like they were in twenty twenty two. Again,
24:22
Speaker 2: completely different scenario here, but we are facing a similar
24:27
Speaker 2: type of decision making framework, which is, we're more worried
24:31
Speaker 2: about the state of the labor market than we are
24:33
Speaker 2: about prices. We think any price increases that we're seeing
24:36
Speaker 2: right now will be temporary and then wash away in
24:39
Speaker 2: twenty twenty two, depending on who you ask, they were
24:42
Speaker 2: kind of right but pretty wrong on that. The part
24:45
Speaker 2: that they were right about is, yeah, the price increases
24:47
Speaker 2: that we saw did eventually fade and we got back
24:50
Speaker 2: to normal inflation within a couple of years. What they
24:53
Speaker 2: clearly got wrong was just how big the price increases
24:56
Speaker 2: would be. And so I think there are some that
24:59
Speaker 2: are at this and saying, Okay, you know, justifiable to
25:02
Speaker 2: move now, but please be careful because we cannot live
25:06
Speaker 2: through another period of high inflation like we did just
25:09
Speaker 2: a few years.
25:09
Speaker 3: Yeah, there's been a huge shift to focus primarily on
25:11
Speaker 3: the labor market, like you just said, and there's been
25:14
Speaker 3: less emphasis, it seems like, on the inflationary front, and
25:18
Speaker 3: the tricky spot that they could find themselves in is
25:21
Speaker 3: that you cut rates here and perhaps you likely cut
25:24
Speaker 3: again one more time before the end of the year.
25:27
Speaker 3: And typically when the Fed is cutting rates, they are
25:31
Speaker 3: trying to aid a slowing economy. As we've just discussed
25:34
Speaker 3: in the program. It's kind of mixed bag as to
25:37
Speaker 3: whether you'd say this is a slawn comedy. The labor
25:39
Speaker 3: market is slowing, so by lowering rates, you are trying
25:43
Speaker 3: to enhance or trying to create more economic activity, more barring,
25:48
Speaker 3: more demand for consuming and all these types of things.
25:52
Speaker 3: But when you're dealing with inflationary pressure like we saw
25:55
Speaker 3: in twenty twenty two, and where we sit today is
25:57
Speaker 3: a reflection of the fact that you have to increase
25:59
Speaker 3: rates to slow down consumption, and so Fandetti always uses
26:04
Speaker 3: the thermometer or speed limit, anything you want to say
26:07
Speaker 3: there that would use as a good analogy. The problem
26:11
Speaker 3: is if we find ourselves in a spot where inflation
26:13
Speaker 3: is going up and the economy is slowing down. Think
26:16
Speaker 3: about it as if you're driving a car that is
26:18
Speaker 3: in neutral and you're trying to put your foot on
26:20
Speaker 3: the gas. You're not going to go anywhere. There's really
26:23
Speaker 3: nothing that the FED could do if that were the case.
26:25
Speaker 3: So I think it bears mentioning that that is a
26:27
Speaker 3: scenario out there. When you shift away from inflation, and
26:31
Speaker 3: if it continues to tick up, that becomes problematic because
26:34
Speaker 3: then the FED basically doesn't have the tool to solve
26:37
Speaker 3: what that problem would would be if we got to
26:40
Speaker 3: that point.
26:40
Speaker 2: Yeah, I just don't I don't want to jump that far.
26:44
Speaker 3: It's a lot would need to go wrong to be there.
26:48
Speaker 3: Usually what happens for listeners out there is if you
26:50
Speaker 3: get rising inflation, the economy, you know, comes down to
26:56
Speaker 3: a point where you just don't have enough consumption and
26:59
Speaker 3: demand for the products to kind of create that spiral
27:02
Speaker 3: of increasing inflation.
27:04
Speaker 2: I just I think there is this tail risk out there.
27:06
Speaker 2: I don't think there's a big tail risk of stagflation.
27:10
Speaker 2: I tend to think we will get one or the other.
27:13
Speaker 2: I think the real risk to inflation would be that, hey,
27:17
Speaker 2: with all of the AI investment going on, with the
27:22
Speaker 2: deportations and retiring baby boomers, that we're just dealing with
27:26
Speaker 2: this lull in employment right now that is about to
27:30
Speaker 2: swing to the other direction rather rapidly sometime within the
27:35
Speaker 2: next year. And if that were to happen, right, retail
27:38
Speaker 2: sales and everything else has been keeping up even with
27:40
Speaker 2: this weaker employment scenario. Were that to happen, I don't
27:44
Speaker 2: think you'd get a recession, but I do think you'd
27:45
Speaker 2: get some higher inflation, and that the very least the
27:48
Speaker 2: FED would need to pause their rate cutting cycle if
27:51
Speaker 2: not swing in the other direction, which again not the
27:55
Speaker 2: end of the world, but a bit problematic for doing
27:57
Speaker 2: any sort of planning. Right, I thought rates were be
28:00
Speaker 2: coming down over the next year. Now they're moving up.
28:02
Speaker 2: My mortgage rates are getting more expensive again. All these
28:04
Speaker 2: things are changing. So that's what I see is the
28:07
Speaker 2: real tail risk here as they're just getting a misread
28:09
Speaker 2: on the state of the labor market based on nerves
28:13
Speaker 2: about tariffs plus AI. In some way that could just
28:17
Speaker 2: be temporary, just like the price increases I think are.
28:20
Speaker 2: But again, I don't know that I would be making
28:24
Speaker 2: a different decision where I sitting in J.
28:26
Speaker 4: Powell shoes yep or chair. You don't sit and shoes.
28:30
Speaker 2: Don't know what you mean, right, stand and shoes, stand
28:33
Speaker 2: and shoes sit and chairs in either case. We're going
28:35
Speaker 2: to take a quick break and when we come back,
28:37
Speaker 2: we're going to talk a little bit more about that consumer.
28:40
Speaker 2: I want to talk about this retail spending report. I
28:43
Speaker 2: want to talk about where it's coming from, specifically the
28:45
Speaker 2: demographics of who is spending who's not. That's next here
28:49
Speaker 2: on the Financial Exchange text.
28:50
Speaker 1: Does six one seven, twenty six to two, one three
28:53
Speaker 1: eight five with your comments and questions about today's show.
28:56
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29:18
Speaker 2: Paul the folks over at Baron's have an article this morning.
29:21
Speaker 2: The economy was weak in August, retail sales may buck
29:25
Speaker 2: the trend. So I guess let's start off was the
29:27
Speaker 2: economy week in August?
29:29
Speaker 3: No, it was red hot, red hot. We saw retail
29:32
Speaker 3: sales that were much higher than anticipated, coming in at
29:36
Speaker 3: point six percent month over month, well above expectation.
29:39
Speaker 4: I want to say it was universally hot.
29:41
Speaker 2: I mean, there's gotta be something we can point to
29:43
Speaker 2: that was weakness in August. The stock market was up
29:45
Speaker 2: like crazy, but hiring was bad.
29:49
Speaker 3: Oh, I thought we were just talking retail sales.
29:51
Speaker 4: No, just generally, like, let's talk about the economy.
29:53
Speaker 2: They said their economy was weak in August, So I'm
29:57
Speaker 2: trying to find evidence to support or deny their argument.
30:00
Speaker 4: Oh, lebonomy was weak in audubt.
30:02
Speaker 3: Labor market ticking up to four point three percent of employment,
30:05
Speaker 3: two hundred and sixty three thousand recent jolts claims weekly
30:10
Speaker 3: job is claims, but those can be kind of volatile
30:13
Speaker 3: week to week, and you have the revision again backward looking.
30:18
Speaker 3: But nine hundred and eleven thousand jobs stripped in terms
30:22
Speaker 3: of job growth from March of twenty five through March
30:24
Speaker 3: twenty four. Is that directly August.
30:26
Speaker 2: No, but that's probably gained nearly two percent in the
30:30
Speaker 2: month of August. And to your point, yeah, it was
30:34
Speaker 2: weak hiring, but it wasn't as though we had net
30:37
Speaker 2: job loss. I guess it is where I would go.
30:39
Speaker 2: So I don't know. I'm with you. I don't know
30:45
Speaker 2: that you can universally describe the economy as weak in
30:47
Speaker 2: the month of August. There were some concerns justifying the
30:51
Speaker 2: FED to cut rates. This spending report, though, definitely contradicted
30:56
Speaker 2: that other stuff, and it, I guess is just a
30:59
Speaker 2: good reminder, which would be the consumer never leads a recession.
31:05
Speaker 2: People just keep on spending until their car gets hauled
31:10
Speaker 2: away by the repossessor, until you know, their credit card
31:15
Speaker 2: gets closed up. People keep on spending if they have
31:19
Speaker 2: a job and an income coming in and right now
31:21
Speaker 2: they buy and large do a small percentage points higher
31:25
Speaker 2: in terms of unemployment.
31:27
Speaker 4: But the other piece that I.
31:30
Speaker 2: Think is very worth mentioning is this divergence in terms
31:34
Speaker 2: of who is spending the money.
31:36
Speaker 4: This fascinating meal all years.
31:39
Speaker 2: It has to me too, and I don't know why
31:41
Speaker 2: it wasn't really on our radar in past years, because
31:44
Speaker 2: I'm sure that it has been a growing trend. But
31:47
Speaker 2: in the second quarter of twenty twenty five, consumers in
31:52
Speaker 2: the top ten percent of the income distribution and I'll
31:55
Speaker 2: have to look up what that means in terms of dollars,
31:57
Speaker 2: but folks who are in the top ten percent of
32:00
Speaker 2: the income distribution accounted for forty nine point two percent
32:05
Speaker 2: of the total spending in the second quarter. That's up
32:07
Speaker 2: from forty eight and a half percent in the first
32:09
Speaker 2: and it's the highest level since this data point has
32:12
Speaker 2: been looked at going back to nineteen eighty nine. So
32:15
Speaker 2: the real story here to me seems to be one
32:20
Speaker 2: of a diverging wealth and income inequality, where those who
32:25
Speaker 2: own assets tend to also have higher incomes and are
32:30
Speaker 2: much more comfortable spending in this economy than the other
32:33
Speaker 2: ninety percent of consumers.
32:35
Speaker 3: This statistic has right around in my head all year.
32:39
Speaker 3: Where when we get all this conflicting information, and the
32:42
Speaker 3: retail sales is a great example of it this morning,
32:44
Speaker 3: mic where we have some weaker labor market data that
32:48
Speaker 3: we've been digesting and then here comes out a retail
32:50
Speaker 3: sales number that is very strong, and perhaps this points
32:54
Speaker 3: to this idea that the top ten percent are powering
32:57
Speaker 3: this retail sales report or they're accounting for off the spending,
33:00
Speaker 3: So they're half the reason behind why we saw a
33:03
Speaker 3: pretty good number for the month of August. And I
33:05
Speaker 3: continue to come back to this idea, and I haven't
33:07
Speaker 3: gotten a ton of data on this, but does the
33:11
Speaker 3: stock market now have more significant impact on the health
33:16
Speaker 3: and the state of consumers than it did in years
33:20
Speaker 3: prior because of this divergence that we're seeing here where
33:24
Speaker 3: the top percent of earners. If you look at the
33:26
Speaker 3: distribution on who owns stocks as a country, the significant
33:32
Speaker 3: amount of ownership, you know, a good two thirds plus
33:36
Speaker 3: is in those people who are in those top income percentiles.
33:40
Speaker 3: And so what we've seen over the course of this
33:43
Speaker 3: year is April the market took us very steep dive,
33:45
Speaker 3: and you pointed to earlier retail sales in April and
33:48
Speaker 3: May were very tepid on this idea that the uncertainty
33:52
Speaker 3: around tariffs they've now resumed and it's come in line
33:55
Speaker 3: with a stock market rally over the course of the
33:58
Speaker 3: last few months that has been very strong. And not
34:00
Speaker 3: to say that there's a direct one to one correlation,
34:02
Speaker 3: but it does seem like more and more, Mike, if
34:04
Speaker 3: we're going to have the top percent ten percent driving
34:07
Speaker 3: so much of spending, A lot of their wealth is
34:10
Speaker 3: tied to the stock market. If they're seeing their net
34:12
Speaker 3: worth go up, I do think that provides some confidence
34:15
Speaker 3: for them to get out there and continue to spend.
34:17
Speaker 2: By the way, I just took a look, the income
34:21
Speaker 2: figure you need to reach to be in the net
34:22
Speaker 2: top ten percent is around one hundred and fifty thousand
34:25
Speaker 2: dollars as of the most recent data. So if you
34:28
Speaker 2: have household income of one hundred and fifty k plus,
34:31
Speaker 2: you would be considered within that top ten percent, that
34:33
Speaker 2: top decile of income earners.
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35:43
Speaker 2: Paul, do you want to talk about earnings reports or
35:45
Speaker 2: Boston real estate?
35:47
Speaker 3: Let's talk Boston real estate.
35:48
Speaker 4: Let's go there.
35:50
Speaker 2: I have an unpopular opinion, although I'm guessing it's growing.
35:55
Speaker 4: Masschusts economy screwed, not.
35:58
Speaker 2: Forever to tell, not forever, but I think that we
36:01
Speaker 2: are in a cyclical trend that is going to be
36:05
Speaker 2: pretty bad for the Massachusetts economy, and I think that
36:10
Speaker 2: could spell more real estate listings. It's already been a
36:16
Speaker 2: story of much higher unemployment, and that's my viewpoint. Three
36:20
Speaker 2: days from now, we will get state level unemployment data
36:23
Speaker 2: so we'll see the latest data for the month of
36:26
Speaker 2: August for Massachusetts. But let me describe to you what's
36:29
Speaker 2: happened in terms of employment in Massachusetts since December of
36:33
Speaker 2: last year. I cherry picked December because in December that
36:36
Speaker 2: was the last time that the Massachusetts unemployment rate matched
36:40
Speaker 2: the national unemployment rate at four point one percent. Since then,
36:44
Speaker 2: the national unemployment rate rose from four point one percent
36:48
Speaker 2: in December to four point two percent in July, and
36:52
Speaker 2: then now four point three percent in August. In Massachusetts, December,
36:56
Speaker 2: we're at four point one. By July we're at four
36:59
Speaker 2: point eight percent. If that had happened on the national stage,
37:03
Speaker 2: the FED would have already cut rates by at least
37:05
Speaker 2: fifty basis points, and we would be saying we are
37:07
Speaker 2: probably in a recession right now as a nation. I
37:11
Speaker 2: can point to a number of different things here. All
37:13
Speaker 2: of it would be guesswork. I assume that unemployment in
37:17
Speaker 2: the education sector, in the biotech sector is all increasing.
37:21
Speaker 2: I've talked to folks in that area, and now you're
37:24
Speaker 2: starting to see it in terms of real estate with
37:27
Speaker 2: apartment owners in the Boston Cambridge area just saying yeah,
37:29
Speaker 2: we've got more vacancies than we have anytime in recent history.
37:32
Speaker 3: Yeah, I mean, you've The biggest issue that they're combating
37:35
Speaker 3: here is so much of the Boston rental market is
37:39
Speaker 3: unique and different than New York, for example, which is
37:42
Speaker 3: much more a month to month structure. So much of
37:45
Speaker 3: Boston revolves around September first, and for a good reason,
37:48
Speaker 3: because of a lot of students. And what you've seen
37:52
Speaker 3: is the amount of students on visas from China and
37:57
Speaker 3: India has declined substantially. There's been no virtual virtually no
38:01
Speaker 3: visa appointments for the last few months for those students
38:04
Speaker 3: in India, so that is leading to impact in the
38:07
Speaker 3: rental market.
38:07
Speaker 2: I'm sorry, I think it's going to be a bit
38:09
Speaker 2: of a tough spell for Massachusetts residents, landlords.
38:11
Speaker 4: Et cetera.
38:12
Speaker 2: Quick break, A lot more to cover in the second
38:15
Speaker 2: hour of the Financial Exchange.
38:16
Speaker 4: Stay tuned, we'll be right back