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Why should you continue to trust US jobs data? · The Financial Exchange Show

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Face is the Financial Exchange with Mike Armstrong and Mark Fandetti.
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Speaker 2: Happy Tuesday. Hope everyone had a nice long weekend. We
1:19
finished off last week kind of discussing that, you know,
1:21
the only real thing to talk about in markets, aside
1:25
from maybe Dollar General earnings was it was Nvidia earnings,
1:28
and they came out and they were fantastic, but not
1:30
as great as investors had been expecting. But this week
1:34
we do not have that lack of data and information
1:37
that we had last week. This morning at ten am,
1:40
we got the Ism Manufacturer Survey. Tomorrow at eight thirty,
1:43
we've got trade deficit data, job openings at ten am,
1:46
so that two to one ratio, the JOLT survey of
1:50
how many people are looking for work compared to jobs
1:53
open out there, we'll have auto sales data. The Fed's
1:56
Beige Book comes out at two pm Tomorrow. Thursday, we
2:00
get the ADP Employment Report. That's the private payroll report
2:05
that you know, directionally gives us some information. IM Services
2:08
Index coming out at ten am on Thursday. We get
2:11
the initial job as claims every week but those will
2:13
be out as well. And then finally to top it
2:15
all off on Friday at eight thirty. We've got the
2:17
monthly jobs report for the month of August.
2:21
Speaker 3: So I missed that.
2:23
Speaker 2: No, Yeah, let me just start again, and I'll go
2:26
slower for you, and we'll just start at square one.
2:29
But no shortage of information to come out this week,
2:32
and I think I think we'll start at the most
2:35
important one, which will be this Friday's jobs report, or
2:37
at least the one most heavily reported.
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Speaker 4: Well, well, we can talk about whether or not it's the.
2:41
Speaker 2: Most important, but generally speaking, we're expecting another one hundred
2:45
and sixty thousand jobs to be created in the month
2:48
of August, or we expect that that's how many were
2:51
created in the month of August. Since it's no longer August,
2:53
and the unemployment report, which came up to four point
2:56
three percent in July, we're actually expecting that to dip
3:00
down to four point two percent for the month of August.
3:03
I guess my question mark, you certainly the Federal Reserve
3:07
cares about this job's report. We're going to be reporting
3:10
on it. How important is this one compared to others?
3:16
Given that the Fed would be meeting in just two
3:17
weeks for their first rate cut in this cycle.
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Speaker 5: Well, it's psychologically critical for markets. It's new information, so
3:27
by definition everything needs to be updated when when information
3:33
is revised, So it's far more to answer your question directly,
3:37
I think it's probably less important than the FED than
3:40
it is to folks like us who will talk about
3:43
it and market participants who are just salivating for anything new.
3:48
I say it's less important to the FED because the
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FED is more focused on trends in these time series,
3:53
whether it's inflation or unemployment. Government officials always say, take
3:57
this day so called data point with a grain of salt.
4:01
We're looking at longer term averages as they should. Their
4:04
job is to keep unemployment as low as is consistent
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with stable inflation. Said differently, they want to keep the
4:12
economy growing at its potential, so that's their north star.
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Speaker 2: So we've got markets selling off a little bit this morning.
4:18
We'll talk about that. But there's been this push for
4:23
the idea of the soft landing. Markets have been arguably
4:27
a little bit loony even since the som rule trigger
4:30
of last month, and nonetheless, market participants have been jumping
4:33
in and participating and getting excited about returns.
4:36
Speaker 4: We'll be talking about that later. But this report has
4:40
the ability to.
4:41
Speaker 2: I mean, depending on which way you want to spin it,
4:44
confirm that soft landing story, or at least play into it,
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or contradict it directly.
4:50
Speaker 5: I don't think, and I should probably phrase this as
4:53
a question, but I'll just make a statement. I don't
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think the Fed's mind is going to change no matter
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what Friday's data say. We know that the statistics, and
5:04
I call them that for a reason. I say this
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every time I'm on which is mercifully infrequent from the
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point of view of a lot of you. But I
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always say we call them statistics for a reason because
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they're estimates. We don't know what the true or population
5:16
value is this stuff. When we say the unemployment, we
5:18
say that payrolls increased by what was it, one hundred
5:20
and twenty thousand. I'm rounding up, I think a little
5:22
bit last month. That could be that could be as
5:24
many as two hundred and fifty you're a.
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Speaker 3: Few is lessons.
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Speaker 5: It could be a few is negatives, some negative number
5:31
plus or minus one hundred and thirty k I think
5:32
is the error bands You want to keep in mind
5:34
when you look at a statistic like that. But anyway,
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I don't think Friday's number will change the Fed's thinking
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at all unless it is much much bigger than expected.
5:43
Speaker 2: Well that's what I'm much much smaller. That's what I
5:45
was gonna say is I don't think it really has
5:47
the ability to change their mind away from a rate cut.
5:50
Speaker 5: That's not to say markets won't react to it, right,
5:53
but the FEDS, the policymakers, and the people they rely
5:57
on to inform them at the FED will take it
6:00
with us.
6:00
Speaker 3: With the proverbial grain as alt.
6:02
Speaker 2: I think in one way, if you have the unemployment
6:05
rate drop, there will be those out there that take
6:07
that as the you know, all certain indicator of a
6:11
soft landing, which it's obviously not. These statistics can move
6:14
in different directions, and just because the unemployment rate declines
6:17
in one month, that.
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Speaker 5: Would be an interesting outcome because it'll generate I'm sorry
6:21
you Midzu.
6:23
Speaker 2: It could generate a lot of excitement, I think would
6:25
be my point, whether that's you know, falsely placed or not.
6:28
I think if a unemployment rate drops, you could see
6:31
a lot of people coming out and saying, here's the
6:33
soft landing that we were looking for.
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Speaker 5: Then why would the FED be lowering that would raise
6:37
the question, why is the FED easing? If unemployment is
6:40
coming down? With FED funds at five point two five,
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they're already locked in and you and You've got estimates
6:47
like GDP now, which is an imperfect but serviceable measure
6:51
of where the economy's at today, telling us that the
6:54
economy is growing faster, considerably faster than its potential growth
6:57
rate based on structural or law long term forces. Why
7:01
in the world would the FED be easing. I understood
7:04
that's somewhat rhetorical. I get the textbook answer to that question,
7:07
But the question will be raised if unemployment comes down.
7:10
Speaker 2: On the other hand, if it continues up. Right, we've
7:13
seen the trend in unemployment. It's gone from I think
7:16
the low after the last eighteen months was around three
7:18
four if I'm not mistaken, but a.
7:20
Speaker 4: Year ago is three to five.
7:22
Speaker 2: Now come up by eight ten percent to four point
7:24
three percent, that continues up to four to five, Well,
7:27
then I think you've got a FED that's cutting by
7:29
fifty bases points, right, I don't know, Mike, Now.
7:31
Speaker 5: Fifty is a jumbo cut in recent historical terms. That
7:36
might cause panic. Good, you would expect unemployment to continue
7:40
to drift up given the amount that the FED is
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tightened by in the past two years, two plus years now.
7:46
Speaker 4: Yeah, right, right or wrong?
7:47
Speaker 2: I could definitely see that reaction with the Maybe it's
7:51
not the unemployment rate alone, but the number of data
7:54
points we have in the labor market this week, I
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think you could see the FED convinced of a half
7:59
a percent center rate cut given the commentary we've heard
8:02
from them in Jackson Hole and elsewhere that, Hey.
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Speaker 5: I would interpret that as personally for this is just
8:06
a parlored link game, so take it with a grain
8:08
of salt. But I would interpret that as the FED
8:11
thinking or knowing conditions are worse than the indicators that
8:15
we have available we all of us as citizens have available.
8:19
That again could stoke a little bit of panic they
8:22
know this. So there's this constant game of feedback between
8:28
do they know something we don't know, why a jumbo cut?
8:31
Do they think the economy is deiorating faster than it appears? Actually,
8:35
it doesn't appear to be deteriorating at all. That would
8:37
just be playing weird mic.
8:39
Speaker 2: Yeah, and so that's where they stand right now. Is
8:43
a labor market that, let's be clear, I mean the
8:45
labor market has turned out to be weaker than I
8:48
think all of us thought.
8:51
Speaker 4: Let's call it three months ago.
8:53
Speaker 2: Unemployment rate is ticked up, there was an eight hundred
8:56
thousand jobs revised away over the previous twelve months, and
8:59
so I think, I think, with the data that we
9:01
have now, the labor market is clearly worse than we
9:03
you know, perhaps knew about three months ago. I won't
9:07
say necessarily thought, but you know, definitively the data that
9:09
we had, it is indicated.
9:10
Speaker 4: A weaker labor market. And so how distinctly will the FED.
9:14
Speaker 2: React to that, and then how will markets react to
9:17
it is an equally interesting question.
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Speaker 4: I do want to take a quick break.
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Speaker 2: Like I mentioned, we've got markets broadly across the board
9:23
off more than one percent this morning. We'll talk a
9:25
bit more about that, and then I also want to
9:27
talk about those revisions that we had. Obviously, partisans all
9:31
over calling the system rigged and all sorts of stuff.
9:34
I want to I want to address the revisions that
9:36
the beer of laboristic statistics did and give some context
9:40
to them, because they are a normal course of doing business,
9:43
but they were larger than usual as well. Let's take
9:46
a quick break and we'll cover that next on the
9:48
Financial Exchange.
9:50
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11:06
Speaker 2: Mark I mentioned another economic data point we received this
11:09
morning just at ten am. Good news is that it
11:13
did come up a little bit from its eight month
11:16
low of forty six point eight percent. On that ism
11:19
Manufacturing survey. Bad news is it's still showing contraction. Came
11:23
in at forty seven point two percent. Generally speaking, any
11:26
number below fifty percent signals that the manufacturing sector is
11:30
in the process of shrinking.
11:32
Speaker 4: Again.
11:32
Speaker 2: This is a survey that's done of manufacturing managers talking
11:36
about the state of manufacturing the United States. And granted,
11:39
while manufacturing is no longer the biggest sector of the
11:43
American economy or not even.
11:45
Speaker 5: Close to much, but above its weight right in terms
11:48
of extensions, I know this isn't where we're going with
11:51
this segment. When you look at what causes recessions, it's
11:54
they're all investment based for the most part. And then
11:57
within the investment category, which is part of we can
12:01
get into this at some point if it's helpful. I
12:02
get the sense that it is not, given the glazed
12:04
over looks I'm getting, but it's it's inventories.
12:08
Speaker 4: Really, I always drool when you talk. It's it's not about.
12:11
Speaker 5: How your your unusual. Some would say strange. So it is,
12:17
and we're going to talk about data. I think in
12:19
the next article, the piece by Claudia Sommerse, this data
12:23
is used now by people like US Market participants, you
12:26
listening for purposes that it was not in designed for.
12:32
Data is imperfect. These are just estimates. We call them
12:35
statistics for a reason. We're trying to get in an
12:37
underlying value, the true value, sorry for the redundancy of
12:44
which we don't really know. The original purpose of this
12:47
was to get a sense for the state of the
12:49
economy during the Great Depression, because we didn't have any
12:51
reliable measures of it. We had some, but they were fragmented. Sure,
12:54
I say, we like it was alive at the time,
12:56
but you are you know, no, no, believe it or not.
12:59
Speaker 3: Hair loss a side no.
13:03
Speaker 5: So we have to be careful when we use it.
13:05
And again we're going to get into that, so I
13:07
won't belabor the point.
13:08
Speaker 2: Now she's there, So you're telling me you weren't born
13:13
under FDR's that's what you're trying to tell I'm just shocked.
13:19
So let's talk about some of those statistics, and specifically
13:22
that piece by Claudia Sam so as just a refresher
13:25
out there, you may have been hearing a lot about
13:27
the name Claudia sam from US and any other financial
13:30
journalism piece out there.
13:32
Speaker 4: She is a former FED economist.
13:34
Speaker 2: She now works for New Century Advisors and an investment
13:37
firm as the chief economist there, and she created I
13:42
think it was just in twenty nineteen, this PSALM rule,
13:45
an indicator that looked back at previous recessions and found
13:49
what Mark calls what is statistical anomaly our regularity, which
13:57
found that in each and every single recess it was
14:02
coinciding or you know, right alongside a half a percent
14:07
increase in the unemployment rate within a twelve month period.
14:10
And she uses some specific rolling averages to come up
14:13
with that. But in any case, in July we triggered
14:15
that recession rule indicator, and so Claudia for good reason.
14:20
It has been getting a lot of attention over the
14:21
last few months here for that reason, and she writes
14:26
a piece today that again I think is I disagree
14:30
with some parts of it, but it does get home
14:32
to the point that you're trying to make, Mark, which
14:35
is there is a lot of data out there, and
14:38
it very regularly gets revised, and the problem is that
14:42
a lot of us don't really know how to use
14:45
that data.
14:45
Speaker 5: We expect too much of it. It wasn't designed with
14:49
a single and specific purpose in mind. These data series
14:54
were put together on an ad hoc basis as we
14:57
figured out we needed to measure some thing that was
15:01
important for policy makers or for us as citizens, and
15:04
we had no idea what was going on. What we
15:06
call economic statistics are the cumulative result of decades worth
15:10
of groping to get a sense of what the heck
15:13
is going on in the economy. They're not meant to
15:16
be used on a month by month basis to give
15:18
you a high resolution picture of the economy. They're meant
15:22
to be smoothed out, that is, averaged, like we do
15:25
with some series. When we say we're taking a moving average,
15:28
we're smoothing it to get a sense for the trend.
15:30
There are other ways to extract a trend from data.
15:32
Smoothing is the simplest and the most common and the
15:34
most easy to understand, I think, But you gotta be
15:37
careful when you're using this data. It's not meant to
15:39
give you a real time snapshot of where the economy is.
15:42
Speaker 2: And so that's one of the pieces that I would
15:44
challenge Claudion in this piece.
15:46
Speaker 3: She knows this by the way she does, but.
15:48
Speaker 2: She makes a point here that the European Union most
15:51
labor for statistics are quarterly, not monthly. Having statistics early,
15:55
even if they are preliminary benefits us decision makers.
16:00
Speaker 4: I do wonder, you know, does it better than nothing? Right?
16:04
Is something better than nothing?
16:05
Speaker 1: You know?
16:05
Speaker 2: Perfect, even though we know it's imperfect and by the way,
16:09
has arguably worsened over the last decade as response rates
16:12
to these surveys have gotten noticeably worse. I do just
16:15
have to openly wonder maybe it is best better for
16:19
us decision makers. Maybe the decision makers ultimately do know
16:22
how to use these points, even though for the average person, Yeah,
16:27
a monthly data set that's heavily revised isn't terribly useful.
16:30
Speaker 5: Well, we know they're useful because even with revisions and
16:33
with the benefit of historical perspective, that is, hindsight, they
16:38
the indicators. For example, in two thousand and eight, we're
16:40
giving us a good idea that things were creating. The
16:43
extent of it was a little hazy at the time
16:45
for reasons we've discussed. These are samples, they're estimates, they're
16:49
subject to error, so something is probably Look, who am
16:52
I to say, I've never worked a do well, I'm
16:54
just a private sector shlub.
16:56
Speaker 3: But I do know, and you know you're not a
16:58
s enough.
17:00
Speaker 5: I'm not even sure what a shlub is. I am
17:01
not like something you're not say on the radio.
17:05
Speaker 3: I think.
17:06
Speaker 5: So again, we report these numbers, markets react to them,
17:10
but we know that they give us it best and
17:13
imperfect picture. And as evidence of that is the massive
17:17
revision to payrolls jobs created that you and Chuck reported
17:22
on a couple of weeks ago and have been talking
17:24
about probably continuously for the past couple of weeks.
17:27
Speaker 4: Let's just talk about that for another moment here.
17:29
Speaker 2: So the massive revision that we're talking about was eight
17:33
hundred thousand jobs that were previously estimated were created between
17:37
what was it April of twenty three through March of
17:39
twenty four. They were they disappeared overnight.
17:43
Speaker 3: So the number one from like two point eight million
17:45
to two million.
17:46
Speaker 4: Right.
17:46
Speaker 3: That's why you say massive, because it's.
17:47
Speaker 2: It's like a chunk of the jobs that were created
17:51
just vanished. Now, how I mean, how does that happen?
17:55
It happens because over time more people respond to the surveys.
18:01
The BLS also goes in and tracks a bunch of
18:03
IRS data on who is actually submitting unemployment claims and
18:08
all sorts of things to be able to get a
18:09
more accurate viewpoint of this picture. One thing that's definitively
18:14
not is some partisan attempt to frame the economy better
18:19
or worse than it previously was. I think any well,
18:23
I don't know, I would certainly make that claim. Would
18:26
you have any difference of opinion there?
18:27
Speaker 5: I think anyone who makes that claim has number one,
18:31
no idea what they're talking about. I know some of
18:33
you out there believe it. I don't mean any disrespect,
18:35
but you got no idea what you're talking about. And
18:38
anyone who makes that claim is doing it for self
18:41
aggrandizing reasons. They're trying to push your buttons and manipulate
18:44
you into thinking everything's rigged against you. And they're always trying.
18:49
There this mysterious mystery ball of I don't know, builder
18:53
Burger's or something, or pick your you know, group of
18:57
mysterious behind the scenes actors holding strings. Sometimes maybe that's
19:03
been true historically, that is not true in the case
19:05
of career statisticians at the Department of Labor. These people
19:08
have worked there for decades and decades. They don't turn
19:11
over with the administration. That's the wonderful thing about having
19:14
a career bureaucracy. Whatever it's its flaws. Sure they're not
19:18
behold into a particular political figure.
19:20
Speaker 2: Many criticisms there, like I think that, you know, we
19:22
could talk about whether or not these things should go
19:24
out monthly, if they should be revised, if there's different
19:26
way to take the surveys. But you know, guessing as
19:29
to whether it's political, I think it's bogus. Wall Street
19:32
Watch is next.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first Right here
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on the Financial Exchange Radio Network. Time now for Wall
19:55
Street Watch. A complete look at what's moving markets so
19:58
far today right here Financial Exchange Radio Network.
20:02
Speaker 6: Little bit of a selloff going on to start the
20:05
week as traders are returning from the holiday weekend preparing
20:09
for busy slate of economic data points this week, including
20:13
a big jobs report on Friday. Right now, the Dow
20:16
is off by over one percent, or four hundred and
20:19
seventy two points, SMP five hundred is down one in
20:23
a third percent or seventy four points, Nasdaq down by
20:27
nearly two percent or three hundred and thirty points. Russell
20:30
two thousands off by one to two thirds of a percent,
20:32
or thirty six points. Ten year treasure yield is down
20:36
by seven basis points at three point eighty three percent,
20:40
and crude oil down four percent this morning, trading just
20:43
above seventy dollars a barrel. Shares in the United States
20:47
Steel are down by three percent after presidential candidate and
20:51
Vice President Kamala Harris opposed the planned fourteen billion dollars
20:54
sale of the Steel Giants to Japan's depawn Steal. Harris
20:58
stated that US Steel will an historic American company and
21:02
it is vital for our country to maintain strong American
21:05
steel companies. Meanwhile, Boeing down by eight percent after Wells
21:10
Fargo downgrade of the aircraft maker to underweed from equal weight.
21:14
The Wells Fargo analysts site of Boeing's peaking free cash
21:17
flows as reason for the downgrade. Elsewhere, BMW announced a
21:21
recall it more than one hundred and forty thousand of
21:24
its electric minis, saying there was a risk of battery fires. However,
21:28
no accidents or injuries have been reported. That stock down
21:31
by two percent or In Buffett's Berkshire, Hathaway revealed this
21:35
past Friday it's sold more of Bank of America shares,
21:38
adding to its previous cuts from earlier this summer, Bank
21:41
of America down by one percent, and taking a look
21:44
at earnings, where we'll see Dick Sporting Goods, Dollar Tree,
21:47
and Ormel Foods report ahead of tomorrow's opening. Bell Hewlett
21:51
Packard Enterprise will follow after tomorrow's clothes. I'm Tucker Silvan.
21:56
That's Wall Street Watch.
21:57
Speaker 2: We have a couple of consumer story to cover here.
22:01
The first is from the Wall Street Journal on a
22:03
survey that they regularly do. In this case, the Wall
22:07
Street Journal surveyed about fifteen hundred voters in late August
22:11
for their feelings about the economy. They also had done
22:14
this in early July, and they noticed a marked improvement here.
22:18
So fifteen hundred voters late August for their feelings about
22:21
the economy, thirty four percent said that the economy was improving.
22:24
That's up from twenty six percent in early July. Obviously,
22:27
those are pretty small numbers and pretty small portions of
22:31
Americans who think the economy is improving. The share who
22:34
thought the economy was worsening also fell. That was at
22:37
fifty four percent in early July to forty eight percent now.
22:41
And I started thinking about this in the context of, Okay,
22:44
what's changed over this period of time, because I can't
22:47
look at a lot of data points that have gotten
22:49
significantly better other than maybe inflation.
22:51
Speaker 4: Expectations over the last two months.
22:54
Speaker 2: But what it came to me is, you know, so
22:57
much of how we think about the economy right now
22:59
is apped up in our own political views. And what
23:02
happened right in between this survey was Biden dropping.
23:05
Speaker 4: Out of the race.
23:06
Speaker 2: Yeah, he was depressing, and so I think what you
23:10
might just have here is a giant sigh of relief
23:12
from the half of the people that they surveyed that
23:15
lean Democratic, uh, to say, yeah, Okay, Biden's no longer
23:18
the one running, and so I'm more optimistic about the
23:21
economy now. I don't think you should read a whole
23:24
lot more into this other than Biden dropping out of
23:26
the race. Yeah, I guess now, maybe that influences behavior.
23:29
Maybe I'm maybe I'm more worth.
23:30
Speaker 5: You know, there's somebody at work that nobody really likes.
23:33
Maybe that person is me. I don't know who comes
23:35
into your mind. No, but days when they're not in
23:39
or after the you're like, yeah, Mark, I know exactly
23:41
what that's like. Tucker and I were just talking about
23:44
that before you walked in, And I believe and everybody
23:48
suddenly feels better about work. I couldn't think of a
23:50
better analogy.
23:51
Speaker 4: Yeah.
23:52
Speaker 5: No, he's more or less gone. So this Paul, this Millstone,
23:57
I don't know what metaphor.
23:58
Speaker 3: You want to use for him.
23:59
Speaker 5: Yeah, but you know, they they drag him out occasionally
24:02
to prove that there's still somebody allegedly in charge of
24:04
the executive branch. But other than that, he's pretty much gone,
24:08
and it's like this great weight has been lifted. I
24:11
personally feel that way.
24:13
Speaker 4: Hmm.
24:14
Speaker 3: I was relieved.
24:15
Speaker 5: I'm sure a lot of Americans were relieved well, because
24:18
there were there was a chance, although it was it
24:19
was it was was pretty shrinking quick, and that he
24:22
would be re elected. But now that he's off the scene,
24:25
I feel somewhat believed.
24:27
Speaker 2: Yeah, so that's what I'm going to read into this survey.
24:29
I don't think I'm gonna spend any time.
24:30
Speaker 5: Because there's no figure out of there, there's no data
24:32
to back it up. The data has deteriorate, the apartment
24:36
rate has gone up.
24:37
Speaker 3: Yeah, this is right.
24:38
Speaker 2: I mean, maybe CPI has shown more months of people.
24:42
Speaker 4: Don't pay close.
24:42
Speaker 5: I don't think some men stocks are up since then,
24:45
but they they started wobbly and then they stabilize, so
24:48
markets are up.
24:49
Speaker 2: Okay, So that's what we're going to tribute that one
24:50
to market. The Mark and Mike agree on something, which
24:53
is the Biden effect impacted how people are feeling about
24:55
the economy, which.
24:56
Speaker 4: Is fast sleeping.
24:58
Speaker 2: We've talked about a lot of firsts and presidential cycle,
25:01
and that's one of my I can't believe by the way,
25:03
I mean, I don't know how many days we are
25:05
from the election, but early voting starts in three days
25:08
in some parts of the country, So we're there consumer
25:12
spending rising at a faster rate than income. So if
25:16
you just think about those two things here, we right
25:19
now have the pace at which Americans are spending money
25:22
is going up faster than the pace at which they
25:25
are earning more money. And as you can imagine, that
25:30
can't really happen for a long period of time, and
25:34
as the Wall Street Journal or maybe Barons here, yeah,
25:38
Barons rather points out, that could be a recipe for trouble.
25:42
And so I started wondering, I mean, you know, obviously
25:45
there can be many periods of time where this can
25:48
occur for shorter time horizons, right, You know, if spending
25:52
outstrips growth and income for two months, I don't really care.
25:57
If it happens for a year and a half, then
26:00
you start to really worry about the state of things.
26:02
And I just wonder, Mark, if you have any idea
26:05
if this is a frequent occurrence, if this happens all
26:08
the time, if this moment in time is truly an
26:10
outlier by any stretch in terms of spending outstripping income.
26:15
Speaker 5: I think it's a characteristic of the stage in the
26:20
business cycle we're at. And by business cycle, I just
26:23
mean where the economy is. It's not a periodic cycle
26:27
like other predictably periodic things.
26:31
Speaker 4: Are that change seasons. Thank you.
26:33
Speaker 5: I'm trying to come up with a good that's a
26:35
perfect one. Yes, So expansions. You know, an economy expands,
26:42
then it peaks, then it starts to contract, then it troughs,
26:45
then it expands. I'm doing this wave with my hand
26:48
that only Mike can see right now, but you guys
26:50
get the picture. Oh that's a good looking wave, Marks's
26:54
that's actually my siges and you.
26:55
Speaker 2: Told me that something like two hundred people tuned into
26:57
our YouTube stream the other day.
26:58
Speaker 3: Okay, so two hundred people.
26:59
Speaker 4: Yeah, this is this is the business cycle.
27:02
Speaker 5: You can do this at your next wedding.
27:04
Speaker 4: It's gotten very strange, now, Okay, go on.
27:06
Speaker 3: I wasn't doing it in your direction, Mike. I'm not
27:09
trying to hypnotize you. Okay.
27:13
Speaker 5: So there's this thing that researchers call the business cycle,
27:16
and you all get it. The economy expands, then it contracts.
27:18
That it expands, then it contracts, though it's not regular
27:21
and it's not predictable. Typically late in the cycle, the
27:24
savings rate starts to go down. What you just described
27:27
could be alternatively described as the savings rate, which is
27:30
disposable income less.
27:32
Speaker 4: Your outlays and sometimes can go negative.
27:34
Speaker 5: Divided by those good yeah, which savings rate won't go negative,
27:38
but for a time, Yeah, outlays can outpay. The growth
27:41
in outlays can outpace the growth in income, which results
27:44
at a falling savings rate. And if you just google
27:47
savings rate, there's a great chart that the Federal Reserve
27:49
makes you will see because they helpfully put in recessions,
27:53
they shade them that the savings rate almost always declines
27:57
right before late in the great lays in the expansion phase,
28:02
right before recession. So it is a characteristic though it
28:05
is there are some false positives. That is to say,
28:08
it doesn't always precede recession. It can go down and
28:12
up during an expansion. But yeah, it's a hallmark of
28:16
late cycle if you don't mind the technical term behavior.
28:21
And you're right, Mike, it can't go on forever, obviously.
28:24
Speaker 4: And it's safe to say that's occurring right now.
28:26
Speaker 5: Savings rate has been declining yet for the past several
28:29
quarters actually.
28:30
Speaker 2: And we talk a lot about this, but there have
28:33
been many, many different indicators over the last few years
28:37
that have been flashing the recession sign, right, savings rate.
28:41
Speaker 5: I would call this way if I can't, I don't
28:43
mean to characterize it that way, if that's what it
28:44
sounded like, but it's characteristic of late cycle beasure. I'm
28:49
not just trying to be slippery here. It's I'm trying
28:51
to make it. I'm trying to be a little subtle.
28:53
But anyway, the.
28:54
Speaker 2: Point that I would make would simply be this, among
28:57
with many other indicators about the state of the economy,
29:00
we can use the temporary workers. That was usually a
29:03
good sign of a recession to come. The yield, the
29:08
difference between the yield on two and ten year treasury
29:10
bonds has been another one that have been somewhat reliable
29:14
recession indicators. And the point that we have made many
29:16
times in this program is that for.
29:17
Speaker 4: The last four now.
29:19
Speaker 2: And a half years, many of those things have just
29:22
been broken because of something unique about this economy today.
29:27
And so I'll file this under another interesting observation about
29:31
the state of the American consumer that could eventually lead
29:35
to a recession but hasn't yet.
29:37
Speaker 3: Mike, nobody knows you know this.
29:38
Speaker 5: You and Chuck talk about it a lot. The way
29:40
to tell a real economist, somebody with training from like
29:43
an armchair person or a journalist or something, is that
29:47
the person who hasn't had training makes very confident predictions
29:50
or has very strong opinions about where the economy is.
29:52
Anybody who knows knows to not try to forecast recessions
29:58
or to tell you where we are in the business cycle.
30:00
It's just subject to too many factors. Our job here
30:03
in you and Chuck, I think do a terrific job
30:05
of informing describing putting things in context. We don't try
30:09
to tell you where the economy is going to be
30:10
in six months.
30:11
Speaker 3: Nobody can as no one knows.
30:14
Speaker 4: It's a big secret.
30:15
Speaker 7: Nobody has any idea, and CNBC and Bloomberg would be
30:18
really boring if they just admitted that. So, yeah, you're right,
30:21
let's take quick break when we come back. Had some
30:23
retail earnings over the last few weeks and it painted
30:25
a very interesting but diverging story between the types of
30:29
retailers you look at. We'll cover that next here on
30:31
the Financial Exchange.
30:32
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This is your home for the latest business and financial
30:58
news in New England and of around the country. Is
31:01
the Financial Exchange Radio Network.
31:11
Speaker 2: What an appropriate song as we head into Austin Christmas here,
31:15
but last week we heard some retail earnings from the
31:20
likes of Dollar stores Dollar General. The week before we
31:24
had heard from Walmart home Depot lows, and it's telling
31:27
a just interesting and I think diverging story about the
31:30
state of the American consumer right now. I mean, on
31:32
one front the home improvement space, the same stall that
31:37
you seem to be seeing in the overall real estate
31:39
market when it comes to sales appears to be occurring in.
31:42
Speaker 4: Home improvements as well.
31:43
Speaker 2: So home builders are just slowing down, Apartment construction is
31:47
slowing down, and people doing big renovations they're just putting
31:52
the pause button on them. And I think you could
31:55
attribute to this to any number of things, but high
31:57
interest rates as well as as you know, I think
32:01
a general desire to move from from American homeowners has
32:05
got to be playing a role in that.
32:06
Speaker 4: And that's what you saw in home Depot and lows
32:08
on the.
32:09
Speaker 2: Sides of Walmart, Target and TJX you seem to have had,
32:13
and Walmart in particular mentioned this a draw from higher
32:19
income shoppers who are looking for discounts. So middle and
32:22
high income shoppers who you know might have otherwise shopped
32:26
at say a Wegman's or a Shaw's, said hey, I'm
32:28
going to go do my grocery shopping at Walmart, and
32:31
Target seem to have picked up some a little bit
32:34
on that as well. And you know, I'm going to
32:36
attribute some of that to their advertising, although we'll never know,
32:38
but you know, they made a big push for hey,
32:40
we're discounting thousands of items in stores, and then TJX always,
32:45
you know, holds that place. What's been interesting to me, however,
32:48
is that same draw that Walmart had in terms of
32:51
attracting the middle and higher income shoppers just didn't work
32:55
for Dollar General. And I just I find that interesting
32:59
because I can't really think of an overall retailer that
33:03
dominates the low cost space quite like Dollar General that's
33:08
kind of rock bottom in terms of cost, even below
33:11
a Walmart. And yet they really struggled. And so the
33:15
conclusion that you know, the author from the Wall Street
33:18
Journal comes to is, hey, you know, while Walmart was
33:21
able to pick up these higher income consumers, and yeah,
33:23
some of their existing low income shoppers didn't have as
33:26
much to spend on the necessities that was made up
33:28
by these higher income shoppers. But for whatever reason, they
33:31
just weren't willing to go and do their shopping at
33:33
a Dollar General.
33:35
Speaker 5: You're not seeing evidence at a higher level though, that
33:39
spending is slowing.
33:42
Speaker 4: In the Aggrea. No, no, I guess it's not. Sorry, No, no,
33:46
you're fine.
33:47
Speaker 5: I'm just not sure. I say this every time you
33:49
get into the weeds on retail. But it does it
33:54
translate into a larger economics no story.
33:57
Speaker 4: I don't think it does.
33:58
Speaker 2: This is just I think this is a micro story
34:00
of some companies having success in others not. And the
34:03
other place it translates is you know TJX Great Quarter
34:06
picked up a lot of customers, Macy's, Coals, these more
34:10
mid price department stores. It's not like, you know, you
34:12
go to Cole's because you're buying the highest luxury item
34:16
out there.
34:16
Speaker 4: It's not I don't know, what's it.
34:18
Speaker 2: What's a really luxury good outfitter, what's the what's the
34:22
crazy expensive home furnishing store that always comes to mind
34:25
in this space furnishing store?
34:28
Speaker 6: I don't know. But like a retailler like nordge From,
34:31
they carry luxury.
34:32
Speaker 4: Sure.
34:32
Speaker 2: Yeah, so TJX is picking up some stuff there, and
34:35
so it really comes down to store by store execution
34:38
in my view, like Dollar General just did not do
34:40
a good job of attracting those people that still have
34:42
money shoppers.
34:44
Speaker 4: We really need a woman to silence.
34:48
Speaker 5: I feel really, we're gonna get a nice pair of socks.
34:50
We're all like total dead silence.
34:52
Speaker 4: I mean the gold toe, the the old gold toe.
34:56
Speaker 5: Amazon basics dead silence for thirty second. We couldn't name
35:01
a store with any store, So no, no problems. More
35:05
more broadly, though, the journalists writing these articles are desperately
35:08
seeking for a common economic thread, looking for canaries in.
35:13
Speaker 3: The coal mine.
35:14
Speaker 2: Yeah.
35:14
Speaker 3: Yeah, and I don't think you're seeing them.
35:16
Speaker 2: I'm not seeing them either, other than hey, those who
35:19
are making thirty five thousand dollars or less per year
35:22
are clearly very much struggling at this point in time,
35:25
and they always are, but more so than two years ago.
35:29
Speaker 4: Yeah, but more so than two years ago.
35:30
Speaker 2: When they were getting stimulus checks in unemployment checks and
35:33
hit things along those lines. And so it's being reflected
35:36
in particularly in one company's earnings dollar general.
35:39
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35:41
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36:45
Speaker 4: Restoration Hardware. That's what I was thinking.
36:49
Speaker 2: Restoration hardware Finally, after a full minute and a half
36:53
of googling, I was able to come up with it. So,
36:55
speaking of discounted items, this is the weekend, this was
37:01
the weekend of you know, the king of all discounts,
37:05
which is Alston Christmas.
37:07
Speaker 4: And if anybody is in.
37:08
Speaker 2: The market for maybe a new, not new, very used
37:13
piece of furniture, the time to get it is now.
37:17
I have somebody that's we have a pair that just
37:20
started living with us this week, and we're trying to
37:22
kind of think of the like cultural things around the
37:25
city of Boston that you should know about and beware
37:28
of if you're going to live here, and I do
37:30
genuinely feel like Austin Christmas is one of them. If
37:34
you're unfamiliar with the idea of Austin Christmas, it's it's
37:37
the date when almost every apartment in Boston turns over,
37:40
which is September first, and all of these college students
37:44
move into apartments that were occupied, you know, throughout the
37:47
last twelve months. Pretty much all of the other apartments
37:50
also coincide with this, even if they're not renting purely
37:53
to students. And what you have really across Boston, but
37:57
especially in the areas of Auston and Brighton. Are people
38:01
just dumping furniture that they don't want or can't fit
38:03
into their new apartments onto the curb for ultimately the
38:07
trash pickup to come deal with. But sometimes you know
38:10
those looking for a good deal to scoop up a
38:12
nice couch or lamp. So Austin Christmas. If you are
38:16
looking for some real discounts out there, quick break, but
38:19
a lot more to cover in the second hour of
38:21
the Financial Exchange. We'll also have a full market update
38:24
for you and the strikes occurring at hotels. That's next
38:26
on the Financial Exchange.