Latest / The Retail Podcast / NRF 2023 Prospects and perspectives on the U.S. economy Part 1

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NRF 2023 Prospects and perspectives on the U.S. economy Part 1 · The Retail Podcast

• 0:00
  Well, touch on. I'll do we have time today to go
• 0:03
  into each one Noble but I hope that we'll be able to put some
• 0:06
  context around sort of how we see the economy.
• 0:09
  Certainly, when you start looking at a few of the - pieces
• 0:14
  and remember when you're doing a jigsaw puzzle, you're working
• 0:17
  on, maybe fortunes of the, get the corner, the side, you'll
• 0:22
  really attack the bill because you know that's soaked.
• 0:25
  Why do Mike that like your your your your strategy Minds always
• 0:28
  been the corners and and the rail.
• 0:31
  So think about a few of these pieces being up or at the rail
• 0:35
  to the right. Might be housing and certainly
• 0:37
  the aid interest, sensitivity of housing it's going on and
• 0:40
  certainly best light up. Think about what we just heard
• 0:44
  last week from the nfib small business and I just mentioned to
• 0:49
  you that you know everybody thinks of retail is the being
• 0:52
  guys. Look there is a lot about 90% of
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  retail or small businesses with under 10 employees.
• 0:58
  So it's a very very De Burgh scientists rate.
• 1:02
  We saw is M surveys that have come out in a we herself.
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  And a certainly showing contraction and obviously in
• 1:09
  just recently, last week, we had it PlayStation.
• 1:12
  Even though inflation is is a negative.
• 1:16
  It can also be as we think about the rate of equations crowd,
• 1:19
  possibly a positive as we think about how that we caught him, I
• 1:23
  turn out, but on the other hand consumption was relatively
• 1:25
  strong. Look at those data points.
• 1:27
  It the in two weeks. Consumer confidence is on the
• 1:31
  man. We just got some data from
• 1:34
  University BC last week, it was a cube of Swing unemployment
• 1:38
  rate is at 50 or lull. Our still growing in terms of
• 1:43
  John's. They shall claims are still well
• 1:46
  below the break-even level along Panda, beater indicators.
• 1:51
  Usually that, we look at to get signals on the economy and of
• 1:54
  course, another point of reference, I would just say it
• 1:57
  is, you don't have that. Reserve raised interest rates
• 2:02
  425 basis points last year, and it kind of a still do it, okay?
• 2:09
  And in the second half we raised him to order and 75 basis points
• 2:14
  and we still are seeing some strength.
• 2:17
  So I get a lot of questions then for what about the full story on
• 2:21
  out of the Pod recession? I will talk a little bit about
• 2:23
  it, but just let me put a few of my thoughts together because I'm
• 2:27
  regularly asked abide. So what about recession?
• 2:29
  Well, I Could tell you will have a recession, the pressure, it is
• 2:33
  wet. Will it be next year is the
• 2:36
  cycle doing repeat themselves? We do, recession is normal.
• 2:40
  It's a part of the economic power.
• 2:44
  At this point, I am not and in a position to believe that we are
• 2:47
  in a recession at this point in. I'm hoping that we can get true.
• 2:54
  Oh, Next year or this year without being disappointed.
• 2:59
  But they are null and of course, crush, it is.
• 3:04
  When would it happen? And I'll just mention it, a very
• 3:07
  famous economist. Paul Samuelson, went sated Dirac
• 3:11
  article head that the stock market as predicted nine of the
• 3:15
  past five recession. So think about we're trying to
• 3:19
  determine from the data, what roles he's would state has
• 3:23
  taught us about get the future and I could Say I'm kind of in
• 3:27
  the camp right now. At this point, it will hear from
• 3:30
  our speakers on what their view with the economy.
• 3:33
  I'm thinking get through it. It's going to be a challenging
• 3:36
  one. It will have found the truck
• 3:38
  shins of there are fleshy white. You could look at other
• 3:41
  indicators for you. People were all mindful of the
• 3:46
  the inverted yield curve. Has been inverted since
• 3:48
  November. It's it's it's pits.
• 3:52
  Not the most reliable indicator when it has Woman to be a times
• 3:56
  to be it off early in good fun. It doesn't tall as when it just
• 4:00
  says we are in a position it's like a barometer that the
• 4:04
  weather is changing. And of course if you haven't
• 4:07
  read it on article judge reproduce laughs.
• 4:09
  Wait a last month by the San Francisco fent debate or detail
• 4:13
  about the use of the unemployment rate as MediCare at
• 4:16
  a fine at this time - Matt car missing or depression.
• 4:21
  So mirror would scenario is I think it will be a challenge.
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  He drink. It's been 23.
• 4:27
  I do expect a meaningful slow down.
• 4:30
  I am still constructive about the consumer to Still Remains a
• 4:33
  significant amount of cash. I'll bear in checking accounts
• 4:37
  on, I think the key with the consumer I'll break it out.
• 4:40
  Very simply if you feel secure about your job and you probably
• 4:44
  have confidence about spending at right now, I don't believe
• 4:48
  that Dad security is a big issue for what 96% of people and
• 4:55
  economies. Got another are certain sectors
• 4:57
  that there are technical recessions.
• 4:59
  Maybe going on Lorraine, Al I, and I would say, then we'll have
• 5:03
  to take our idiot Asia for the conferring and file a.
• 5:07
  I do not know what with the FED will do.
• 5:09
  I know they will want to avoid Vincent start of the economy.
• 5:13
  Like we saw back in the 70s, I think, the evidence curly
• 5:16
  suggested we are, are slowly of ultimately, a, my view.
• 5:21
  It is that we're not in recession and at this point I
• 5:24
  just have to wait to see what Well, we're a little bit more
• 5:27
  Olive from Hal. My colleagues are thinking I'm
• 5:30
  going to write to you Sarah with your view on how 2022 or 2023
• 5:35
  shit. Great thank you for having and
• 5:38
  by to be here. So we're ending the year
• 5:40
  definitely on stronger know that expected.
• 5:42
  We're talking about 3% GDP growth by the fourth quarter.
• 5:47
  It is undeniable that froth is going to slow down this year.
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  We know that the inter sensitive part to be a colony has started
• 5:54
  to react saint but it Takes time for that to move through
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  different Factor. So residential Investment
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  Housing activity. Reacts immediately to tighter
• 6:03
  interest rate to higher interest, rates and ass.
• 6:06
  I've been in quite a bit of decline.
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  The last three quarters consumption takes a bit longer
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  and it is has the best of follows after that.
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  So it's no surprise that consumer spending.
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  We had a seed, a really big pullback and so he's interested
• 6:18
  to Capone has of spending quite yet.
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  We expect that to happen in the first half for 2023 and it
• 6:24
  business, Ambassador will start to follow.
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  Are 2023. So we're definitely in for a
• 6:28
  year slower growth. We not forecast of recession in
• 6:33
  our Outlet believed. You have bro sullied about
• 6:35
  queef. 3%. It 2023.
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  I mean, that's a very painful year that's well below
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  potential, which is about well, played seven percent growth in
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  definitely slowed in and some of the very strong growth that
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  we've seen over the last two years.
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  So within that there's going to need pop it to me economy.
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  As Jeff mentioned, the fuel recessionary The house
• 6:56
  negativity is definitely one of them.
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  We're seeing layoffs within the text after we're seeing some
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  poll off and hiring for some of these Financial Services
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  Industries that are tied to housing, mortgage, Originators,
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  but really the silver lining for 2023.
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  We also have made is going to be the consumer.
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  We have consumers, spent spent, he's slowing down to about a
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  third of what we saw in 2022, but if you look under the hood,
• 7:20
  the consumer still in pretty good shape.
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  Household, volunteers are still very healthy and It's built up a
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  tremendous amount of equity in their homes, over the last
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  couple of years, we have seen a sell-off and a ponies and people
• 7:32
  lost a lot of stock market wealth.
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  That's very concentrated among the wealthiest households On Em.
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  You still as you imagine had this tremendous amount of excess
• 7:42
  savings and we know households have drawn down quite a lot of
• 7:45
  their excess a these in 2022. There's a bit more to pull
• 7:49
  consumers through and tie 2023. But really what it comes down to
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  because the labor market and Jack said it.
• 7:55
  Well, if you think you're going to have a job, you're going to
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  continue to spend, people are becoming increasingly concerned
• 8:01
  about the lever, get out with this year, you know, even though
• 8:05
  last have been very concentrated in the tech sector which is only
• 8:08
  about 1% of total. Now if our fuels in the US or
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  the very small share the US economy and it's in the
• 8:15
  headlines a lot. These companies have mass and
• 8:18
  Market cat. So, people are seeing these
• 8:20
  headlines at taking do s. And so, as the labor market
• 8:23
  slow, does this year, we start to see the on the And it rise
• 8:26
  people tea juice aggregate, become more cautious.
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  Spenders what does that look like anything that they were
• 8:32
  going to? I'm sure we'll have worried so
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  that they're going to shift their spending behaviors of
• 8:36
  pull, back their spending all together.
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  But overall, the consumers, what folds us to ruin 2023.
• 8:43
  We're in for a year of higher interest rates for a long time.
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  The FED had made very clear that their way to keep raids other
• 8:49
  Peak rate for about a year. So that's going to make its way
• 8:53
  through the economy. There, higher debt service,
• 8:55
  cause Or households or companies.
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  So it's going to be a tough growth year, but we think that,
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  you know, specially how strong the labor markets been that's
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  really going to support the consumer for Van Dyne III.
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  Thanks, Eric hen your perspective, we'll all ears.
• 9:13
  Thanks. Thanks very much Jack.
• 9:14
  And it's ours to how great to be here.
• 9:17
  So, on the our Viewpoint from kicking and Jack Act is that we
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  believe the US economy will enter the session in the first
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  half. 5:22-23, a lot of the point sets are made.
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  We just think it's gonna be weaker, and I'll start for your
• 9:37
  court Samuelson coil about stock market, predicting nine, the
• 9:42
  last five recessions. Oh, well, from the yield curve,
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  we follow that very closely and from the perfective fixed income
• 9:51
  Market participants, what the car inverted in the yield curve.
• 9:55
  It is telling us it is that baud rates are below short piece, so
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  if you can believe that a 10-year US Treasury to know,
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  currently yields about three and a half percent.
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  Does anyone know what the one-year treasury bill is Elin.
• 10:19
  And it's 120 days of Point, higher for 70%.
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  So you can see how upside down their yield curve.
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  It is. And that's an anomaly, because
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  typically, you know, if you're putting your money at wrist,
• 10:37
  going out all the way 10 years. You want to get some return for
• 10:43
  that, you know, the uncertainty investing their money for 10
• 10:47
  years, but now Are you getting a one-year?
• 10:50
  We turn over one full percentage scoring and just a testament of
• 10:56
  how kobrin added pacted, the economy, and financial markets.
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  And in a way, how upside down we are particularly from the
• 11:06
  Viewpoint of the fixed income are did for US Treasury yield.
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  Now going back to Jack's early to court about Samuelson when
• 11:17
  you look at the you So prayer, particularly Buzz, the spread
• 11:22
  between green month and 10 year yields and that has the longest
• 11:27
  history. So if you go back to your Ian
• 11:29
  1962, there's bed nine, inversion is in, they do occur.
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  Anybody would take a guess, how many receptionist of retired and
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  years to Paris? And seven, fifth period, 9N X so
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  much better try for workers than the stock market.
• 11:54
  So that's one of the reasons, deaf the signal that were
• 12:00
  receiving from the fix them. Keep calm Market has us
• 12:03
  concerned about, where do you have to count?
• 12:06
  We might be headed. Yes, Jack's entirely, right?
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  We don't know whether the recession where I'd arrived.
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  In a couple of months or it could still be idea Ralph.
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  So that is a long time span. But we do think, economics,
• 12:21
  Timmy will weekend with their effect - JP and Bob, q1 and Q2
• 12:28
  will show you one. We look deeper down 2% GDP
• 12:30
  growth chew to down 1.60 1.8 on decline of for the first half
• 12:38
  but second half. We do respect a recovery and
• 12:44
  Another down for that we've been following closely is actually
• 12:49
  Soft Data recently This Week Philadelphia fed president.
• 12:56
  Patrick Hardware had commented that sometimes the hard data
• 13:02
  doesn't tell you the full story and at times it's important to
• 13:06
  look at Soft Data which is survey data.
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  And the importance of survey data is It captures changes of
• 13:15
  set of it, much more quicker than the official statistics and
• 13:22
  as Jack have mentioned. The PMI purchasing managers
• 13:26
  index for services in December actually fell below. 50 50 is
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  the brake demon if you're above 15, economic activity used is
• 13:37
  expanding, the low 50 is contracted and or this Services
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  PMI It kind of informs us that he knows aware of the current in
• 13:47
  Tech financial services. Read this housing that maybe
• 13:54
  started carotid into other areas of the economy because of that
• 13:59
  PMI going below 50. So do those are some of the some
• 14:06
  of the concerns that we have. Let's talk about inflation for a
• 14:12
  minute. Where do you see inflation going
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  through 2023? Cuz that's going to be a big
• 14:18
  factor has that big factor and we know the FED is very
• 14:22
  concerned divided. Can what do you think the
• 14:25
  direction is over the next 12 months?
• 14:29
  We do see progress that inflation the most recent CPR
• 14:33
  before for December 6 and a half percent, and a weight, which is
• 14:38
  down 71 in November. And then the keep was 91 back to
• 14:44
  the June of last year's. So we've made measurable
• 14:47
  progress for the bounce of this cereal.
• 14:51
  Let's say December 20 and 23 car.
• 14:54
  Looking somewhere at three to three and a half percent CPI.
• 14:59
  We're not going to quite get to 2% that quickly.
• 15:03
  It's always kind of that you know laughs my problem you know
• 15:07
  which retailers have. That's usually the toughest Art
• 15:11
  getting that deficiency. A delighted smile.
• 15:14
  So, getting to the 24 tip Target, I think we rule of be a
• 15:19
  little bit longer. Be on 23, but we do expect
• 15:26
  continued progress on the inflation and but defend is not
• 15:31
  done yet. There's still going to keep
• 15:33
  writing Rings. It's the follow-up Kalam here.
• 15:36
  Who do you're looking for soft? First half, right.
• 15:41
  And ultimately in GNP for the year will be - it would be - on
• 15:47
  our shoe for remember to for businesses, but actually on the
• 15:51
  annual average of pod be up to times because we respect the
• 15:56
  recovered in the second half and your bod Sons.
• 16:00
  Yeah, we have inflation coming down to about three percent by
• 16:04
  the end of 2020 3. Similarly knock any bad towards
• 16:06
  that 2% range till the end of 2024 or Beyond.
• 16:10
  And we don't have the FED considering reducing rates until
• 16:16
  we're at three percent range. So that's what Breeze the rate
• 16:19
  down, though. Um, right now, do you know, it's
• 16:23
  elevated your expectation Dart brr, brr.
• 16:28
  Hello like this, you prank mind is certainly rental cause rents
• 16:34
  are high but my view is are expected to fall off as the year
• 16:40
  goes. Further.
• 16:41
  Because a price Halls had coming down at a few though, how the
• 16:44
  CPI and 8 PC in calculates, a thought, impute all record owner
• 16:52
  Aquila vrat Akon strong, our changes and how impress has on
• 16:57
  everything I reading and seeing a gearing, this app could be a
• 17:00
  major issue for offering clay shaken down and your thoughts.
• 17:06
  Yes, I think is really important, and think about
• 17:08
  inflation is to break out Services versus Goods because
• 17:10
  They're completely different stories, right now, a lot of us
• 17:13
  and dragging Goods inflation has been generated by supply chain.
• 17:16
  Disruptions 80% of those prices that we saw during Kovac a new
• 17:20
  youth evil purses. And you viewable prices were up
• 17:23
  55% at their highest peak. On the other side, the services
• 17:28
  is a much more reply to though. The aggregate demand in the
• 17:30
  economy is also why the PHA Islam or focused on core
• 17:34
  Services because it took, you know, is more of a reflection of
• 17:38
  the response of the economy to higher interest rate.
• 17:41
  Within good, we expect a lot of deflation to confirm beautiful
• 17:46
  prices, apparel, prices have come off a little bit Hall, good
• 17:49
  guys, but because it's 80% is built our vehicles.
• 17:52
  That's going to do a long way in bringing down overall inflation.
• 17:55
  We've already seen, used vehicle prices.
• 17:57
  Declining mother warm up for about five or six months in new
• 18:00
  vehicle prices which tend to lie.
• 18:03
  I've used vehicle prices, just turn it in the latest print as
• 18:05
  well. And then as you mentioned
• 18:08
  shelter inflation that's very Tied to the labor market.
• 18:12
  So as job, growth slows, as wages Slidell, we are going to
• 18:17
  see that pass through into shelter, inflation coming off.
• 18:20
  And we know that home prices of combat out on New rents are
• 18:23
  starting to roll over and not just takes time based on
• 18:26
  methodology to show through into inflation.
• 18:29
  So we would expect shelter to rollover more do tably amid
• 18:34
  2023. Any time ever because I'm going
• 18:38
  to pick on something that you use mentioned employment growth.
• 18:42
  Wow. With a degree of in downturn are
• 18:47
  expecting cat. I went to Iowa suing are seeing
• 18:50
  native average monthly growth in employment, orange, PVP this
• 18:56
  approximation and will be see. That's we had very strong but I
• 19:01
  shouldn't say very we in solid numbers from November in the
• 19:04
  Sable called breakout. Yeah, and I certainly agree that
• 19:08
  the labor market is remain still solid.
• 19:11
  And is your eyes upon me. The there were some signs of
• 19:16
  cooling on the edges in the labor market.
• 19:19
  For example, the number of job openings is still is still very
• 19:24
  high for the US economy. Just hovered close to ten and a
• 19:29
  half million at the peak. They were 12 million job
• 19:32
  openings. So just to put that into
• 19:35
  perspective, if we translated or current on the part of a, which
• 19:40
  is three and a half four cents, 850 roll Whoa.
• 19:43
  Whoa, that Jack had mentioned earlier, that three and a half
• 19:47
  percent would translate into about vodka with seven million
• 19:50
  people unemployed in the US economy.
• 19:53
  So