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Why is the labor force shrinking? · The Financial Exchange Show

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1:03
Speaker 1: Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
1:10
Speaker 2: Good morning, Happy Independence Day Eve. Here on the Financial Exchange,
1:14
Speaker 2: it's a Jobs Thursday. For some reason, on the Financial
1:18
Speaker 2: Exchange it feels a lot like a Friday. Today. Speaker
1:21
Speaker 2: Johnson still wrangling votes in the House to try and
1:24
Speaker 2: get this big beautiful Bill Act across the finish line.
1:28
Speaker 2: He was hoping to have a vote by eight am.
1:30
Speaker 2: That apparently has not occurred. To the vote that they
1:32
Speaker 2: had at the wee hours of the morning was to
1:34
Speaker 2: bring this to the floor for a vote. We will
1:36
Speaker 2: see when or if that occurs sometime in the next
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Speaker 2: two hours, and be sure to let you know if
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Speaker 2: it does. In the meantime, at eight thirty am this morning,
1:45
Speaker 2: we had a few different reports on the state of
1:48
Speaker 2: the labor market, one being the big monthly jobs report
1:53
Speaker 2: that's what's getting all the headlines. We also saw weekly
1:56
Speaker 2: jobless claims come out at the same time. Usually they're
1:58
Speaker 2: separated by a day. Week is special. Let's start right
2:02
Speaker 2: off with the Bureau of Labor Statistics Jobs Report Market.
2:06
Speaker 2: Before we get there, I think it might be helpful
2:09
Speaker 2: just to set the groundwork for what you and I
2:13
Speaker 2: think was the dominant narrative about the labor market, and
2:19
Speaker 2: you know, economic growth generally, but the labor market especially
2:22
Speaker 2: because I think that the dominant economic narrative was slow down.
2:28
Speaker 2: Am I? Am I assuming too much more concerns.
2:31
Speaker 3: Yeah, the other reports had suggested some weakening, but it
2:34
Speaker 3: was from feverish levels. You have to keep that in mind.
2:37
Speaker 3: The economy was overheating, so it could be normal. We
2:40
Speaker 3: talked about this yesterday too. More of a normalization than
2:42
Speaker 3: a weakening. That appears to be the case.
2:44
Speaker 2: So, you know, evidence that there was some weakening going on.
2:49
Speaker 2: The unemployment rate had slowly ticked up a bit. I
2:52
Speaker 2: know it read at four point two percent for the
2:55
Speaker 2: last several months, but it really went from like four
2:57
Speaker 2: to one five to four two five, a slight increase
3:00
Speaker 2: in the unemployment rate. The number of jobs created was fine,
3:05
Speaker 2: but not stellar, and there were several revisions downward of
3:08
Speaker 2: previously reported data. The jobless claims number we're not getting
3:14
Speaker 2: to a exorbitantly high level, but the number of people
3:18
Speaker 2: still sitting on the unemployment claims and not finding a
3:21
Speaker 2: new job, we're you know, we're growing. And the overall
3:25
Speaker 2: state of churn in the labor market has been comparatively low,
3:30
Speaker 2: to say the last few years, and so the narrative
3:33
Speaker 2: that I think was dominating markets was keep an eye
3:36
Speaker 2: on the next few jobs reports because you could swing
3:38
Speaker 2: towards some really low numbers of job creation based on
3:42
Speaker 2: what we're hearing about the labor market today completely contradicted
3:47
Speaker 2: that it showed the resilience of the US labor market,
3:50
Speaker 2: of employers, of maybe some of that employment hoarding.
3:54
Speaker 3: What do we say, what happened yet?
3:55
Speaker 2: No, we didn't. Oh so you're just you building I'm
3:57
Speaker 2: building it all up. Mark, you didn't get the suspense.
4:01
Speaker 3: Apparently, I was turned off.
4:02
Speaker 2: One hundred and forty seven thousand jobs were created in
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Speaker 2: the month of June. According to the survey done by
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Speaker 2: the BLS. The unemployment rate, which had been sitting at
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Speaker 2: four point two actually dropped down to four point one percent.
4:17
Speaker 2: The I believe the last month's data also got revised upwards,
4:20
Speaker 2: if I'm not mistaken, so you had the previous month
4:22
Speaker 2: looking actually better than it was initially reported here. And
4:27
Speaker 2: so overall, what you're left sitting here with is a
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Speaker 2: job market that is a little bit confusing, given what
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Speaker 2: everybody's been saying, but one that is resilient and is
4:37
Speaker 2: showing some strength here when everyone is expecting it to
4:41
Speaker 2: weaken a little bit, which I take as good news
4:44
Speaker 2: for American workers, but challenges a whole bunch of things
4:47
Speaker 2: that also been dominating, such as the FED lowering rate,
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Speaker 2: lowing rates. So let's start with the report itself. I
4:53
Speaker 2: mentioned the headline hundred and forty seven thousand jobs created,
4:56
Speaker 2: Unemployment rate dipped. Anything else in the report actually catch
4:59
Speaker 2: your eyes here?
5:00
Speaker 3: I mean, is it worth pointing out that the rate dipped?
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Speaker 3: So the rate is a rate. So when you hear
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Speaker 3: rate thing fraction, something on top of something on the bottom.
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Speaker 3: The thing on the bottom is the labor force that's
5:09
Speaker 3: shrunk by a little bit. The thing on top is
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Speaker 3: the number of unemployed people that shrunk by more. So
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Speaker 3: when the top went down by more than the bottom,
5:17
Speaker 3: you get a lower ratio. That's how you get to
5:19
Speaker 3: that point if you've ever wondered, And these are just estimates,
5:22
Speaker 3: like you said, May and April. Now I'm gonna switch
5:25
Speaker 3: from household we were just talking about the household survey
5:28
Speaker 3: to the establishment survey. Where as you set up one
5:31
Speaker 3: forty seven k. Again, this is a businesses that plus
5:38
Speaker 3: sixteen thousand new jobs in May and April. That is
5:41
Speaker 3: just an estimate, So that that's one forty seven plus
5:45
Speaker 3: or minus one hundred and thirty six thousand with ninety
5:48
Speaker 3: percent confidence. What does that mean in actuality because it's
5:52
Speaker 3: a sample. Yeah, it's well, it's a sample, and samples
5:56
Speaker 3: can be off for a couple of reasons. One is
5:58
Speaker 3: just statistical. They don't go to every employer in the country. Nope,
6:01
Speaker 3: they go to about one hundred and twenty thousand, covering
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Speaker 3: a little over half a million individual locations. Similarly, the
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Speaker 3: household survey they only go to sixty thousand households. Those
6:10
Speaker 3: are the limits of our survey capabilities given the amount
6:14
Speaker 3: of money we spend on it. So pretty sure that
6:16
Speaker 3: some jobs were added in June that could always be
6:19
Speaker 3: revised to something much lower.
6:21
Speaker 2: It could speaking of those revisions. So again to March's point,
6:24
Speaker 2: the way this works, they when we're talking about one
6:26
Speaker 2: hundred and forty seven thousand jobs created, they go out
6:29
Speaker 2: to how many businesses it's.
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Speaker 3: About one hundred twenty thousand or so.
6:33
Speaker 2: So about one hundred and twenty thousand businesses, and they
6:35
Speaker 2: pepper them with questions did you hire anybody? Did you
6:37
Speaker 2: fire anybody? They send them a.
6:38
Speaker 3: Survey, and then they have to mail it back and
6:40
Speaker 3: some don't, which is why you get measurement error.
6:42
Speaker 2: And so you know that portion that doesn't mail it back,
6:46
Speaker 2: or maybe doesn't mail it back immediately.
6:47
Speaker 3: Spills coffee on it or something like it.
6:49
Speaker 2: Seriously, whole building burns down. Any number of things I
6:53
Speaker 2: was thinking caused them to not return these surveys or
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Speaker 2: not return them on time. And so we did get
6:59
Speaker 2: more did we get revisions for April and May based
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Speaker 2: on more of those surveys coming in, And what we
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Speaker 2: saw was that, in fact, with those revisions, the estimates
7:08
Speaker 2: are now sixteen thousand jobs higher for the months of
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Speaker 2: April and May than were previously reported. And true knows
7:16
Speaker 2: like to Mark's point, this all could get revised downwards later.
7:18
Speaker 2: But what I keep harping on is that this seems
7:22
Speaker 2: to contradict the dominant narrative that was in markets before,
7:26
Speaker 2: which is feder reserve, you're behind the eight ball. You
7:30
Speaker 2: need to cut because the economy. This isn't what President
7:33
Speaker 2: Trump was saying, but you know what others have been saying,
7:35
Speaker 2: The economy is showing underlying signs of weakness. We're not
7:38
Speaker 2: seeing it yet. In the headline data, but it's going
7:40
Speaker 2: to show up eventually, and so cut, cut, cut, we're
7:44
Speaker 2: behind the eight ball. We need to cut and fed didn't.
7:48
Speaker 2: They've resisted that temptation, And this report is going to
7:52
Speaker 2: put a bit of a question mark on the next ERLF.
7:55
Speaker 3: Backing up a little bit, Unemployment in the threes is exceptional.
7:59
Speaker 3: It's actually worrisome. That's unnaturally low. We've been there only
8:02
Speaker 3: a couple of times in the history of record keeping
8:04
Speaker 3: of this stuff. Unemployment in the fours or fives is good,
8:08
Speaker 3: assuming it's not going up really fast in the fours
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Speaker 3: and plateauing or stable. Even in the fives and plateauing
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Speaker 3: and stable is probably about where the economy should be.
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Speaker 3: Anything above, say the fives, you're probably looking at something problematic,
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Speaker 3: apps in a big shift in the composition of the
8:27
Speaker 3: labor force that pushes up the so called natural rate,
8:30
Speaker 3: the rate at which the rate at which inflation is
8:33
Speaker 3: more or less steady. So anything in the fours or
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Speaker 3: fives is fine, assuming you're not on the way up
8:39
Speaker 3: to something potentially problematic.
8:42
Speaker 2: And that trend in unemployment is what people oftentimes look like.
8:45
Speaker 3: Look, they're like mini trends, right, You know, because there
8:48
Speaker 3: is no long term I'm sorry, I'm being a little
8:51
Speaker 3: bit finish year.
8:52
Speaker 2: No, no, you're fine. But the analysis that's been done is
8:56
Speaker 2: once an unemployment starts trending in a certain direction up
9:00
Speaker 2: specific there's a little bit of persistence, tends to be persistent.
9:03
Speaker 2: Although that broke a little bit last year in terms
9:06
Speaker 2: of where the jobs showed up seventy three thousand jobs
9:09
Speaker 2: created in June in government employment, where specifically state government
9:14
Speaker 2: increased by forty seven thousand, mostly in education, local government
9:19
Speaker 2: and education up twenty three thousand, whereas federal employment no
9:23
Speaker 2: surprise here, down seven thousand. So in spite of the
9:25
Speaker 2: fact that federal government is cutting jobs, still state and
9:29
Speaker 2: local employment picking up the slack there and continuing hiring.
9:33
Speaker 2: Healthcare continuing to add thirty nine thousand jobs in the
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Speaker 2: month of June compared to forty three thousand over the
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Speaker 2: prior twelve months, so about on target with average social assistance.
9:45
Speaker 2: Employment trended up nineteen thousand and little changes in a
9:49
Speaker 2: whole bunch of other fields, including mining, quarrying, oil and gas, construction, manufacturing,
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Speaker 2: wholesale trade, retail trade, transportation, et cetera. The unemployment rate what.
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Speaker 3: About manufacturing, because that's a big political focus. Did you
10:05
Speaker 3: happen to see we lost what seven k jobs there
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Speaker 3: last month? I think lost another seven k I think
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Speaker 3: this month. That just shows how hard it is to
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Speaker 3: goose employment in a targeted way.
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Speaker 2: So no real move in manufacturing. Let's take a let's
10:23
Speaker 2: take a quick break. I want to come back to
10:25
Speaker 2: this and discuss this a little bit more, but let's
10:27
Speaker 2: take a quick break. I want to cover two things. Next.
10:29
Speaker 2: One would be that drop in unemployment. We've been talking
10:32
Speaker 2: about the labor force and what could be happening there.
10:34
Speaker 2: There's a lot of theories. Let's talk about that and
10:38
Speaker 2: the federal reserves reaction to this type of labor market report.
10:42
Speaker 2: Next on the Financial Exchange.
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Speaker 2: Mark As you know, there is a question and answer
11:50
Speaker 2: section in the results that get posted every month from
11:53
Speaker 2: the Bureau of Labor Statistic and Statistics, and I think
11:56
Speaker 2: one of the questions is potentially relevant today. Are undocumented
12:01
Speaker 2: immigrants counted in the surveys? And this is a quote
12:05
Speaker 2: from the survey itself. It is likely that both surveys
12:08
Speaker 2: include at least some undocumented immigrants. However, neither the Establishments
12:13
Speaker 2: nor the Household survey is designed to identify the legal
12:16
Speaker 2: status of workers. Therefore, it is not possible to determine
12:19
Speaker 2: how many are counted in either survey. The Establishment survey
12:22
Speaker 2: does not collect data on the legal status of workers.
12:25
Speaker 2: The household survey does include questions which identify the foreign
12:28
Speaker 2: and native born, but it does not include questions about
12:31
Speaker 2: the legal status of the foreign born. So if you're wondering, hey,
12:36
Speaker 2: this survey from three years ago, did it include a
12:39
Speaker 2: group of people who weren't of legal status working in
12:42
Speaker 2: the country, The answer is probably yes. It probably still
12:45
Speaker 2: does today because you're asking employers and employees about whether
12:50
Speaker 2: or not they are working. The question that I have
12:55
Speaker 2: why I'm asking this question, is we saw a drop
12:58
Speaker 2: in the unemployment rate Mark, and I believe that was
13:01
Speaker 2: from a shrinking size of the labor force. Am I am?
13:04
Speaker 2: I correct? But so it was it wasn't you know? Again,
13:08
Speaker 2: to Mark's point, it's a fraction. You can have the
13:10
Speaker 2: unemployment rate drop because a whole bunch of new people
13:13
Speaker 2: got jobs. That partly happened today, But the bigger drop
13:16
Speaker 2: in the unemployment rate came from a smaller labor force itself,
13:20
Speaker 2: meaning a smaller group of people actually pursuing work. Right.
13:27
Speaker 3: Yeah, that both the numerator and the denominator went down.
13:30
Speaker 3: The numerator went down by more.
13:32
Speaker 2: Yeah, So what we I guess. What I conclude here
13:37
Speaker 2: is we have in this survey at least this month
13:39
Speaker 2: a shrinking labor force. This date is all seasonally adjusted,
13:44
Speaker 2: so it accounts for the fact that, you know, there's
13:45
Speaker 2: a bunch of new college grads that may have entered
13:47
Speaker 2: the labor force, but we have this shrinking labor force
13:50
Speaker 2: at least in this one month. And you know, one
13:52
Speaker 2: month does not make a trend. But if we assume
13:54
Speaker 2: for a moment that that might continue, where could it
13:57
Speaker 2: be coming from? You know, we talked obviously a lot
14:00
Speaker 2: lot about immigration, We talk a lot about baby boomers
14:03
Speaker 2: and retirees. Is there a compelling case that I guess
14:08
Speaker 2: I've been talking about this now for a few weeks.
14:10
Speaker 2: Is there a path where this labor market in fact
14:15
Speaker 2: turns out to be the exact opposite of what everyone's
14:17
Speaker 2: been predicting, which is loosening, cause for lower rates, potential recession.
14:24
Speaker 2: I'm seeing a path here where we could get to
14:26
Speaker 2: a pretty tight labor market that could actually be inflationary
14:28
Speaker 2: due to what we're seeing here. Maybe not tomorrow, but
14:32
Speaker 2: I'm starting to see this path developing.
14:34
Speaker 3: That's plausible to me. I don't really know, it's not
14:37
Speaker 3: really my area to tell you the truth. I do
14:39
Speaker 3: just a general gust. So there are people I've read
14:42
Speaker 3: stuff by people who do specialize in labor in the
14:47
Speaker 3: labor market, and they are concerned about the supply of
14:54
Speaker 3: new workers from immigration being constricted by present policies. So yes,
14:59
Speaker 3: that's certainly plausible. In the long run. That will also
15:02
Speaker 3: translate into fewer hours worked and thus lower growth, presidential growth,
15:07
Speaker 3: lower actual Well yeah, it's it's mathematical sort of certainty
15:12
Speaker 3: all else EQUL a very important qualifier. So yeah, I'm like,
15:15
Speaker 3: that's that's plausible and something worth keeping eye on it.
15:17
Speaker 2: I'm just always interested in when everyone's talking about something
15:22
Speaker 2: going in one direction, it just gets suspicious. And that's
15:25
Speaker 2: what everybody's been talking about for the last few weeks,
15:27
Speaker 2: is unemployment's going to go up. You look out for
15:31
Speaker 2: the unemployment claims, they're going to spike. We're going to
15:33
Speaker 2: see unemployment click up, We're going to see a slowing
15:36
Speaker 2: number of jobs created because one hundred and forty seven
15:38
Speaker 2: thousand rights that's above what you would need to just
15:42
Speaker 2: keep the labor force where it is, or about where
15:45
Speaker 2: you would need it to keep the labor force where
15:46
Speaker 2: it is. And I'm just very intrigued by this idea
15:50
Speaker 2: that look, inflation eight dead. We've got terrorists, we've got
15:54
Speaker 2: tax cuts, and now we have potentially a shrinking labor
15:57
Speaker 2: force that all contribute to potentially higher demand for workers,
16:02
Speaker 2: and just a tightening of conditions.
16:07
Speaker 3: Underlying inflation trend. Inflation is definitely not dead. We can
16:10
Speaker 3: measure that just the question of what direction it goes in,
16:14
Speaker 3: which is not a very helpful thing to say. Most
16:17
Speaker 3: measures that you would put into your little model if
16:20
Speaker 3: you're a researcher, to account for how much slack there
16:24
Speaker 3: is or isn't in the economy. Point two, not a
16:27
Speaker 3: lot of slack. GDP is growing seemingly according to things
16:31
Speaker 3: like the Atlanta Fed's GDP now, and there are others
16:34
Speaker 3: at or above trend, so there's very little slack. Probably
16:37
Speaker 3: their industrial production is still high. Capacity utilization not so high,
16:42
Speaker 3: but it hasn't been throughout this cycle. Vacancies to unemployed people,
16:47
Speaker 3: the jolt support that we talk about from time to time.
16:50
Speaker 3: That ratio is still way above where it used to
16:52
Speaker 3: be in the twenty tens and in prior decades. So
16:55
Speaker 3: there are a lot of things that point to elevated
16:59
Speaker 3: core using it in the ex Food and energy sense.
17:01
Speaker 3: I'm talking about trend inflation. There are a lot of
17:03
Speaker 3: things that point to elevated underlying or core or trend.
17:05
Speaker 3: Those all mean the same thing, inflation. On top of that,
17:09
Speaker 3: inflation expectations have gone up consumer expectations anyway, by some
17:12
Speaker 3: surveys a lot more than others. So yeah, this is
17:15
Speaker 3: why the FED is standing Pat Mike, It's not that
17:18
Speaker 3: they're digging their heels in because they want to irritate
17:22
Speaker 3: The President agreed.
17:25
Speaker 2: I feel like I'm being a bit negative. This is
17:27
Speaker 2: a really good jobs report. I want to be pretty
17:29
Speaker 2: clear about that.
17:30
Speaker 3: Labor market's strong.
17:31
Speaker 2: Yeah, a bunch of jobs are created, unemployment rate dropped.
17:34
Speaker 2: We have nothing but really good news to say here.
17:37
Speaker 2: What it means bad news for is the President's wishes
17:39
Speaker 2: to get lower interest rates. A day ago, there was
17:42
Speaker 2: about a one in four chance of the FED cutting
17:45
Speaker 2: rates according to Chicago Mercantile Exchange at their next meeting,
17:49
Speaker 2: the July thirtieth meeting. Is that where we are July
17:55
Speaker 2: thirtieth meeting one and four today about one and twenty
17:58
Speaker 2: sha But the same bet.
17:59
Speaker 3: That's like saying, well, it's bad news. I don't get
18:01
Speaker 3: to enjoy hospital food because I don't have cancer.
18:03
Speaker 2: Like this is.
18:04
Speaker 3: This is a good thing.
18:05
Speaker 2: This is a good thing. It is you cut the interest,
18:08
Speaker 2: you cut interest? Yeah, yeah, because you're concerned about the direction.
18:10
Speaker 3: We can demand. And that still may be the case.
18:12
Speaker 3: By the way, as you said in the last second,
18:14
Speaker 3: very wisely, I think there's wow.
18:17
Speaker 2: They're whipping out the compliments the day before July fourth.
18:19
Speaker 3: Market well and my semi annual employee reviews coming up
18:23
Speaker 3: to We don't know. This could get revised down. Other
18:28
Speaker 3: measures could point in a different direction. Everything could fall apart.
18:31
Speaker 3: Tariffs could we don't we have? Isn't there? There are
18:34
Speaker 3: so many of these deadlines on tariffs running concurrently. Yes
18:37
Speaker 3: I've lost track too, but many of them could get
18:39
Speaker 3: implemented over the next few weeks. So the wheels could
18:42
Speaker 3: fall off the economy as a result of that, and
18:45
Speaker 3: the Fed may feel like easing is the right thing
18:47
Speaker 3: to do.
18:48
Speaker 2: Yep, still could, But I think the narrative for today
18:52
Speaker 2: is American economy showing.
18:55
Speaker 3: Resilition, snapshot point in time, absolutely showing to any other conclusions.
18:58
Speaker 2: The only conclusion you can come, whether it's this report,
19:01
Speaker 2: the Weekly JABA claims confirmed the same thing you've got
19:04
Speaker 2: interest rates up, stocks up. This is a day of
19:08
Speaker 2: American economy is resilient as we head into that July
19:11
Speaker 2: fourth holiday. We're going to take a quick break here.
19:14
Speaker 2: When we come back, Ben's going to give us a
19:17
Speaker 2: full market recap, including what we are seeing on those
19:19
Speaker 2: interest rates because it is a fairly substantial move to
19:23
Speaker 2: the upside on yields. Quick break. We'll be back with
19:25
Speaker 2: that next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
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 Network.
20:03
Speaker 4: Well, markets are on the rise almost across the board
20:05
Speaker 4: here as traders continue to digest this morning's monthly job
20:08
Speaker 4: support that came in higher than expected non farm payrolls
20:11
Speaker 4: increased to seasonally adjust it one hundred and forty seven
20:14
Speaker 4: thousand for the month, higher than the estimate of one
20:16
Speaker 4: hundred and ten thousand and just above the upwardly revised
20:20
Speaker 4: one hundred and forty four.
20:21
Speaker 2: Thousand in May.
20:22
Speaker 4: Currently, the Dow Jones is up over three hundred three
20:26
Speaker 4: hundred points, the S and P five hundred is up
20:28
Speaker 4: just under forty three points, the Nasdaq is up one
20:32
Speaker 4: hundred and seventy nine points, and the two year yield
20:36
Speaker 4: is up nearly ten basis points and the ten year
20:39
Speaker 4: yield is up nearly or just over half a basis
20:42
Speaker 4: point as we speak right now. Cloud monitoring provider data
20:46
Speaker 4: Dog is up twelve percent after SMP Global added it
20:49
Speaker 4: to the S and P five hundred index, effective before
20:52
Speaker 4: trading starts July ninth. The move will force passive index
20:55
Speaker 4: funds to buy data Dog shares to reflect the composition
20:58
Speaker 4: of the underlying benchmark index. Online travel review company trip
21:02
Speaker 4: Advisor is up nearly eighteen percent following a Wall Street
21:05
Speaker 4: Joeneral report that activist investors Starboard took a nine percent stake,
21:10
Speaker 4: and finally, online brokerage Robinhood is down four percent, giving
21:14
Speaker 4: back some of its six percent rally yesterday. Robin Hood
21:17
Speaker 4: was seen as a leading candidate to replace Juniper Networks
21:19
Speaker 4: in the S and P five hundred and privately held
21:22
Speaker 4: Open Eye. Open Ai is pushing back against robin Hood's
21:25
Speaker 4: recent anount announcement of token I shares in the artificial
21:30
Speaker 4: intelligence startup I Am ben Kitchen, and that is Wall
21:33
Speaker 4: Street watch.
21:34
Speaker 2: I think you can pretty much see Trip Advisors World
21:37
Speaker 2: headquarters from one of our windows in this office.
21:40
Speaker 3: Yeah, right off the it's right there the way.
21:42
Speaker 2: I don't ever see anybody there, but no, it's true.
21:46
Speaker 3: I've never seen anyone there even before COVID. And where
21:49
Speaker 3: do they park?
21:50
Speaker 2: Precisely? What do you do here?
21:52
Speaker 3: Is that an actual bill? It's like a Potemkin village
21:55
Speaker 3: out there.
21:56
Speaker 2: But yeah, big news from Ben's look here. The market
22:02
Speaker 2: reaction to this job report this morning is what I'm
22:05
Speaker 2: seeing is a cyber relief. Equity markets up expectations for
22:10
Speaker 2: a rate cut down, therefore yields up as well. Those
22:14
Speaker 2: that were betting on an immediate FED rate cut have
22:16
Speaker 2: just been wiped out on that overall bet. A nine
22:21
Speaker 2: basis point move into your treasuries is a fairly significant
22:24
Speaker 2: one day move that that indicates something to me. At
22:28
Speaker 2: this stage, the chances of a rate cut at that
22:30
Speaker 2: July thirtieth meeting are now quite low, at about six percent.
22:34
Speaker 2: The odds of a quarter percent rate cut at the
22:37
Speaker 2: September meeting our gaining steam here. We're still at about
22:42
Speaker 2: seventy percent likelihood on that September rate cut compared to
22:48
Speaker 2: where we were. But to be fair, a day ago
22:52
Speaker 2: before this Job's report, there was a ninety three percent
22:56
Speaker 2: chance of rates being lower by that September meeting. So
22:59
Speaker 2: this definitely reverses all that. And again good data. Yeah,
23:06
Speaker 2: just yeah, full stop. I wanted to do a full
23:07
Speaker 2: stop there. It's good data. It indicates a positive thing
23:10
Speaker 2: for the state of the US economy. It indicates a
23:12
Speaker 2: positive thing for demand for labor. What it doesn't help
23:17
Speaker 2: you with is getting rates lower if you are if
23:21
Speaker 2: you are betting on that and looking for that, and
23:23
Speaker 2: it definitely justifies what to the federally. But this is
23:26
Speaker 2: again a really good thing.
23:27
Speaker 3: It's like, you don't you don't lament not having back
23:30
Speaker 3: pain so you could pop some oxy, like this is
23:33
Speaker 3: a good this is I'm sorry.
23:35
Speaker 2: That's a good analogy.
23:36
Speaker 3: Mark, Well, I think it was better than liking hospital food,
23:38
Speaker 3: so being you know, disappointed you didn't have a serious
23:41
Speaker 3: illness or something. So this is this is a good thing.
23:44
Speaker 2: You know, some people.
23:45
Speaker 3: Online or nitpicking, just like they did under the last president. Well,
23:48
Speaker 3: it was mostly state, it was mostly government. Hiring a
23:52
Speaker 3: job is a job. There are other potential weaknesses. Wage
23:57
Speaker 3: growth slowed, but wage growth has been pretty round. I
24:00
Speaker 3: think you're being unreasonably nitpicking if you look at anything
24:05
Speaker 3: other than sort of the top line results. Those are
24:07
Speaker 3: the things that tend to go into our big picture
24:09
Speaker 3: forecasting models. Anyway. Unemployment is historically low, job growth is
24:14
Speaker 3: strong enough to maintain that, and then some apparently last month.
24:17
Speaker 3: I'm mixing surveys there, but you know, you get the
24:20
Speaker 3: larger point.
24:21
Speaker 2: And to be clear, I mean you might be able
24:23
Speaker 2: to nitpick on federal government employment and say, oh, you know,
24:27
Speaker 2: that's why that's down. You guys big government, but that's down.
24:30
Speaker 2: You know. The uptick in employment we saw was at
24:32
Speaker 2: the state level, at teachers, cops, you know, those types
24:36
Speaker 2: of jobs. And I don't know that you can nitpick
24:38
Speaker 2: and say, oh, well that's not that's not good employment
24:41
Speaker 2: for the economy. That that that's elment. No, No, it is.
24:46
Speaker 3: This is these are lagging indicators, both the payroll and
24:49
Speaker 3: the unemployment rate and all the others.
24:51
Speaker 2: Best surveys.
24:52
Speaker 3: Yeah, they're a good snapshot of the health of the economy,
24:55
Speaker 3: maybe two or three months ago.
24:58
Speaker 2: Uh. This morning, h in the wee hours of the morning,
25:01
Speaker 2: the House voted to bring the Big Beautiful Bill Act
25:06
Speaker 2: at least to a vote. That vote has not yet
25:08
Speaker 2: taken place. We do not think the House is attempting
25:13
Speaker 2: to make a bunch of revisions to this bill, although
25:16
Speaker 2: to be clear, it's not at all clear what's going
25:19
Speaker 2: to happen next. Johnson can only lose I think three
25:23
Speaker 2: votes on this bill to get it through. It would
25:26
Speaker 2: be immensely surprising to me if it did not pass
25:29
Speaker 2: in some way, shape or form. I think the only
25:31
Speaker 2: real question is candid all get done by the July
25:33
Speaker 2: fourth self imposed deadline that Republicans have put themselves under.
25:38
Speaker 2: We covered yesterday a bunch of the changes to taxes
25:42
Speaker 2: as part of this. I think the biggest actual changes
25:46
Speaker 2: that I can point to would obviously be the spending
25:48
Speaker 2: cuts on Medicaid and snap. It would be the additional
25:52
Speaker 2: tax credit for the tax deduction rather for those over
25:54
Speaker 2: the age of sixty five. Other than that, it's mainly
25:59
Speaker 2: a bill that locks in current tax law.
26:01
Speaker 3: I don't think it's gonna change. Look, there's a lot
26:03
Speaker 3: of hysterics on both sides about the deficits and the debt,
26:06
Speaker 3: and many of those concerns are very well placed.
26:09
Speaker 2: But this and also so many of them are disingenuous.
26:12
Speaker 2: But yes, yes, oh yeah, totally hypocritical.
26:14
Speaker 3: Oh yeah, obscenely hippo Democrats are, Mike, I've given up
26:17
Speaker 3: on that.
26:18
Speaker 2: I've given up.
26:20
Speaker 3: On anybody ever cutting spending meaningfully. I'm glad I was
26:23
Speaker 3: alive in the nineteen nineties and brought up and I
26:26
Speaker 3: come to see it. It's like seeing Haley's comet, which
26:28
Speaker 3: I also saw in eighty six. So I may never
26:31
Speaker 3: see either one of those two things again. I'm gonna
26:33
Speaker 3: leave it to U two and posterity to look for that.
26:39
Speaker 3: I've given up hoping on meaningful cuts. The deficit probably
26:43
Speaker 3: all else equel won't get that much bigger under this bill.
26:46
Speaker 3: People who are accusing them of trickery are pointing out
26:50
Speaker 3: that it assumes that the previous tax cuts didn't happen.
26:55
Speaker 3: That the the real dier. I'm misphrasing that a little bit.
26:59
Speaker 3: You know, I'm not even a because I don't care.
27:01
Speaker 3: At this point, deficits will be a little bit, not
27:03
Speaker 3: much worse. The debt is the real problem. If you
27:06
Speaker 3: want an analogy, the debt is like your cholesterol level.
27:09
Speaker 3: Your doctor says you're at two fifty. If you know
27:13
Speaker 3: what that number means. We all know what it means.
27:14
Speaker 3: That would be high. Is it gonna kill me this year? Doc, Well, possibly,
27:19
Speaker 3: but probably not. The debt is sort of the same thing.
27:22
Speaker 3: At some point, there's gonna be a reckoning. It's gonna
27:24
Speaker 3: push interest rates up. Is it gonna happen quickly slowly?
27:26
Speaker 3: I really don't know, but nothing imminent, probably, though it
27:30
Speaker 3: could be. We just don't know, Mike. I don't see
27:32
Speaker 3: any reason for anybody to panic more about the deficit
27:34
Speaker 3: and debt this week as opposed to last week. So
27:38
Speaker 3: that segment of the of the commentariat can calm down.
27:45
Speaker 3: Those claiming that this that these sets of tax changes
27:49
Speaker 3: will somehow increase economic growth are equally those those assertions
27:54
Speaker 3: are equally misplaced. It will do nothing for the trend
27:56
Speaker 3: and growth, which is all we should really care about,
27:59
Speaker 3: So Mike, no big. It'll make the situation slightly worse
28:01
Speaker 3: the dead situation, but it's not going to really change
28:04
Speaker 3: anything else. It might bring our reckoning up. I don't know,
28:06
Speaker 3: six or twelve months, you know, so doom doomsday. You
28:10
Speaker 3: can move that up, Fiscal dooms day, but only by.
28:13
Speaker 2: Like a year. In the words of Ernest Hemingway and
28:16
Speaker 2: a lot of people have been quoting him recently. When
28:18
Speaker 2: described in the US fiscal situation, he uses the phrase
28:22
Speaker 2: it happens slowly and then all at once when describing
28:25
Speaker 2: the process of going personally bankrupt. And maybe that's how
28:31
Speaker 2: it all plays.
28:31
Speaker 3: There could be a sudden stop. There are some it's
28:33
Speaker 3: called the international economists call it a sudden stop because
28:36
Speaker 3: it's happened elsewhere Greece, for example, Suddenly creditors say for you,
28:40
Speaker 3: you're not a bankable credit, I will not lend to
28:42
Speaker 3: you at any interest rate. Unlikely that would happen to
28:46
Speaker 3: the United States. I see more of a sort of
28:48
Speaker 3: this unfolding gradually in terms of rising interest rates and
28:52
Speaker 3: a permanent rise in the level of inflation. We can
28:56
Speaker 3: adjust to those things, probably so it'll means slower growth
28:59
Speaker 3: and lower standards of living. But you won't. You won't
29:02
Speaker 3: be conscious of the alternative. It's like the other universe
29:06
Speaker 3: where I'm taller and more and handsome, and I have
29:09
Speaker 3: more here, and I don't know that guy, I can't.
29:12
Speaker 3: I can't lament it. We'll never know what we left behind.
29:16
Speaker 2: All right, So so far I've gotten an oxy Cotton
29:20
Speaker 2: analogy and doctor strange, Doctor Strange. We have to take
29:24
Speaker 2: a break now, go out when you're on top quick.
29:27
Speaker 2: That's so when we come back, we're talking trade deals
29:30
Speaker 2: in Vietnam in particular, next on the Financial Exchange.
29:34
Speaker 1: Breaking business news as it happens only here on the
29:38
Speaker 1: Financial Exchange Radio Network. The Financial Exchange streams live on YouTube.
29:44
Speaker 1: Subscribe to our page and stay up to date on
29:47
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29:50
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30:00
Speaker 2: Because we just didn't have enough going on this week
30:05
Speaker 2: in a shortened trading week with multiple jobs reports and
30:10
Speaker 2: a giant tax bill that's trying to get passed, President
30:13
Speaker 2: Trump's team announced a new deal with Vietnam on trade
30:18
Speaker 2: just yesterday, so we've had a bit more time to
30:20
Speaker 2: digest that. And I think, look, US trade with Vietnam
30:25
Speaker 2: is fairly significant, especially for some big household brands that
30:29
Speaker 2: we're all familiar with, Nike, Lululemon, Gap, to name just
30:33
Speaker 2: a few of them. So it is a fairly significant
30:37
Speaker 2: trade partner, especially in those specific areas. It's also a
30:41
Speaker 2: country that I think the word accused is appropriate here,
30:46
Speaker 2: has been accused of kind of facilitating Chinese made goods
30:50
Speaker 2: to go through that country. And then back to the
30:52
Speaker 2: United States and vice versa, so it gets a lot
30:55
Speaker 2: of attention for a number of those different reasons. The
30:58
Speaker 2: deal that has been announced here is for a zero
31:01
Speaker 2: percent tariff rate on American goods going into Vietnam, with
31:05
Speaker 2: a twenty percent tariff rate on any Vietnamese made goods
31:09
Speaker 2: going into the United States, as well as some supplemental
31:13
Speaker 2: rates on Chinese goods that get rerouted through Vietnam, which
31:17
Speaker 2: is I don't know how you track that, given the
31:20
Speaker 2: only reason you would put them through Vietnam is to
31:22
Speaker 2: avoid tariffs in the first place. It seems to be
31:25
Speaker 2: that would be pretty difficult to enforce some of those details,
31:28
Speaker 2: but nonetheless attempting to impose a higher rate there, I
31:32
Speaker 2: think the only relevant question that's not true. There's a
31:35
Speaker 2: few relevant questions to me on this one, I believe
31:40
Speaker 2: from my reading, and I'm getting a little bit out
31:43
Speaker 2: over my skis here, so I don't want anyone to
31:45
Speaker 2: take this one to the bank. But I believe that
31:48
Speaker 2: the rules the President is using, the White House is
31:50
Speaker 2: using right now to impose these tariffs are the same
31:54
Speaker 2: ones that are being looked at in terms of the
31:56
Speaker 2: legal authority and probably land in the Supreme Court eventually
32:00
Speaker 2: to determine, Hey, does the President have the authority under
32:04
Speaker 2: these emergency powers to impose tariffs on Vietnam on China?
32:09
Speaker 2: And so, depending on how that ruling goes, there's a
32:13
Speaker 2: path where either Congress needs to ratify this deal, a
32:18
Speaker 2: new justification needs to be come up with, or I
32:22
Speaker 2: think there's even well I consider to be a low
32:25
Speaker 2: probability scenario, a scenario where this twenty percent tariff rate
32:29
Speaker 2: goes away, things all get blown up again, and possibly
32:34
Speaker 2: even all the tariffs collected on Vietnam get reimbursed to
32:37
Speaker 2: the US importers of those goods. I consider that to
32:41
Speaker 2: be low probability. But we are still working through Hey,
32:44
Speaker 2: does the President even have the legal authority here to
32:47
Speaker 2: make these determinant calls on tariff rates on China, on Vietnam,
32:51
Speaker 2: on all these countries. So more to come on that.
32:54
Speaker 3: I just want to point out, this is a tax
32:56
Speaker 3: increase on Americans. They'll pass some of these tariffs through
33:00
Speaker 3: cut presumably for Vietnamese consumers. Explain why tariffs are a tax.
33:06
Speaker 3: I know the administration for some reason insists on calling
33:09
Speaker 3: them other things. I don't know why you would the
33:11
Speaker 3: whole point is to tax foreign goods to make them
33:14
Speaker 3: relatively less competitive and shift manufacturing here, or alternatively, to
33:19
Speaker 3: tax foreign goods to raise revenue. He keeps The President
33:23
Speaker 3: specifically keeps saying we're gonna charge China, We're gonna charge Vietnam.
33:26
Speaker 3: That's not how tariffs work. I'm not sure if he's
33:28
Speaker 3: had to explain to him and he just chooses to
33:29
Speaker 3: ignore it because he thinks it's better to frame it
33:31
Speaker 3: this way.
33:32
Speaker 2: Well, but I mean, my answer, Mark would be that
33:34
Speaker 2: a core tenant of MAGA in the first place, you
33:37
Speaker 2: go listen to interviews with Steve Bannon and others, the
33:40
Speaker 2: entire tirety of the idea here. One of the core
33:42
Speaker 2: tenants is we want to lessen free trade right and
33:46
Speaker 2: build giant Paris to build up the US manufacturing base.
33:51
Speaker 2: That's and the word taxes are immensely unpopular.
33:55
Speaker 3: They just that is a legitimate point of view. We
33:58
Speaker 3: can argue about it. The evidence suggests that makes people worse,
34:02
Speaker 3: not better off. Yep, we can have a level headed
34:05
Speaker 3: discussion about that.
34:06
Speaker 2: Obfuscating works better than level headed discussions.
34:09
Speaker 3: I don't think it's not I don't think it's helpful.
34:11
Speaker 3: I don't think it's advancing their cause. So this is
34:14
Speaker 3: a tax increase. The hope is it will reduce consumption
34:16
Speaker 3: of Vietnamese goods, so the production of them is shift
34:20
Speaker 3: here is shifted here. Excuse me.
34:22
Speaker 2: We ain't making Nike shoes with a twenty.
34:24
Speaker 3: Pers and even if we were that to happen, you
34:27
Speaker 3: wouldn't be raising revenue from tariffs. So that is intention
34:31
Speaker 3: with the stated the other stated purpose, which is to
34:34
Speaker 3: raise revenue. I still don't understand what the objective of
34:38
Speaker 3: all these machinations is. They're doing a lot of dancing
34:42
Speaker 3: around and ending up in the same place we were
34:43
Speaker 3: at three months ago, and the result is higher uncertainty,
34:48
Speaker 3: which may be impacting the dollar and therefore capital markets.
34:52
Speaker 3: Something I think we're going to.
34:52
Speaker 2: Talk about where I land on all this, and Mark,
34:55
Speaker 2: I agree with you entirely. I'm not in favor of tariffs.
34:57
Speaker 2: I don't think they're going to be a good tool
34:59
Speaker 2: for make I don't think it's going to make America better.
35:02
Speaker 2: I guess it would be my main point here. I
35:04
Speaker 2: think what you can take away from this is Vietnam
35:08
Speaker 2: is one of the first deals that has been made.
35:10
Speaker 2: We are seeing where those tariff rates land, it gives
35:14
Speaker 2: us some form of benchmark for where the rest of
35:16
Speaker 2: these negotiations go. For example, it's very unlikely, for instance,
35:21
Speaker 2: that China's tariff rate is going to go down below
35:23
Speaker 2: twenty percent in my view now. Likewise, for India and
35:26
Speaker 2: other countries, I see it unlikely. As you know, the
35:30
Speaker 2: Chinese tariff rate of fifty five percent is going to
35:32
Speaker 2: go to zero. I don't think so based on what
35:35
Speaker 2: we're seeing now. And so we're starting to get this
35:37
Speaker 2: framework for how trade develops. I agree with you, I
35:40
Speaker 2: would rather have free trade. We're not going to get that.
35:43
Speaker 3: Well, it's not so much that as how it's being framed.
35:46
Speaker 3: Do these guys even understand what tariffs are and do
35:48
Speaker 3: they understand what they.
35:49
Speaker 2: Want from them?
35:50
Speaker 3: If they don't get those two things, and given their
35:53
Speaker 3: public statements, they don't seem to understand what a taro.
35:55
Speaker 3: The Commerce Secretary doesn't seem to understand what a tariff is,
35:58
Speaker 3: or if he does get it, he's wilfully misrepresenting it.
36:01
Speaker 3: Either one of those possibilities is a little bit disturbing.
36:04
Speaker 3: If these guys don't get what they're doing and don't
36:08
Speaker 3: have any idea. How they're going to measure success. Let's
36:10
Speaker 3: measure it using the trade deficit, and we can look
36:12
Speaker 3: at trump one track record for a proof of how
36:15
Speaker 3: that works. Trade deficit went up, not down. We lost,
36:18
Speaker 3: We didn't game manufacturing jobs. You can expect that to
36:21
Speaker 3: happen again because of the way these things work.
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37:13
Speaker 2: Tesla's global vehicle deliveries plunged. This is just too funny.
37:19
Speaker 2: Global vehicle sales dropped thirteen and a half percent as
37:22
Speaker 2: the evmaker struggles to reverse months of declining sales. The
37:26
Speaker 2: final quarterly tallly of three hundred and eighty four thousand
37:29
Speaker 2: Tesla deliveries missed all expectations of three hundred and eighty
37:33
Speaker 2: seven thousand deliveries, And quite honestly, I don't know that
37:37
Speaker 2: Elon Musk cares. He is now kind of phrasing the
37:41
Speaker 2: company as not a car company, but we're more of
37:44
Speaker 2: an AI and tax robo taxi company, which is great
37:52
Speaker 2: if you can pull it off. But from everything that
37:55
Speaker 2: I understand, one percent of your earnings currently comes from
37:58
Speaker 2: selling cars. So you've got a lot to prove on
38:01
Speaker 2: that other business model if it's going to drive the
38:03
Speaker 2: stock forward. Let's take a quick break. When we come back,
38:07
Speaker 2: we're gonna have a full market recap, take a look
38:09
Speaker 2: at that jobs report again and get an update on
38:12
Speaker 2: the big beautiful Bill actwork in its way through the House.
38:15
Speaker 2: That's next on the Financial Exchange