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What does recent jobs data tell us about a September rate cut? · The Financial Exchange Show

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Speaker 2: Well, it's Chuck, Mike and Tucker with you and wrapping
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Speaker 2: up the first week in September. No major news today,
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Speaker 2: so we're just gonna take the rest of the day
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Speaker 2: off it. Oh no, wait, Michael, there's a BLS job support.
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Speaker 2: At eight thirty this morning, the Bureau of Labor Statistics
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Speaker 2: fired up their old abacus's or is it abakai abakai
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Speaker 2: abakai ye? They fired up the abakai and they said, hey,
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Speaker 2: for the month of August, we saw a net growth
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Speaker 2: of twenty two thousand jobs in the United States, which
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Speaker 2: is poor to quite poor.
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Speaker 3: Bad.
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Speaker 2: Uh, it's not negative, which is, you know, the best
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Speaker 2: thing that you can say about it. Unfortunately, the June
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Speaker 2: numbers were revised down by another twenty seven thousand, from
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Speaker 2: positive fourteen thousand to negative thirteenth and that's now the
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Speaker 2: first negative number that we've seen in a jobs report
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Speaker 2: since twenty twenty. And quite honestly, I'll exclude twenty twenty
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Speaker 2: from the numbers just because there's some stuff going on
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Speaker 2: back then, a fire, there was a little bit of
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Speaker 2: stuff going on, you know, it was kind of a thing.
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Speaker 2: And so if you in fact as I do exclude
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Speaker 2: twenty twenty from the numbers, this is the first negative
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Speaker 2: jobs print since twenty ten, fifteen years. We didn't see
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Speaker 2: a negative one during the twenty tens aside from the
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Speaker 2: start of twenty ten.
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Speaker 4: Again, what this means is when the surveyors went out
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Speaker 4: to businesses and asked how many people did you hire?
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Speaker 3: How many people to you fire? The revised results that we've.
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Speaker 4: Seen over the course the last few months indicated that
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Speaker 4: they fired some thirteen thousand people. Now again it's all
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Speaker 4: netted out. Some companies hired, some companies did not. But
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Speaker 4: these are the estimates now, and that's the first month
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Speaker 4: of job loss, like Chuck mentioned since twenty ten, if
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Speaker 4: you exclude the twenty twenty recession.
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Speaker 3: Correct. Now, other things that we saw in here.
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Speaker 2: The unemployment rate rose from four point two percent to
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Speaker 2: four point three percent. That is tabulated using a different
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Speaker 2: survey of households. And so the big reason there not
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Speaker 2: actually a you know, increase in the you know, a
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Speaker 2: huge increase in the number of unemployed. You did see
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Speaker 2: a little bit of an uptick there, but rather it
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Speaker 2: was more people coming into the labor force who reported
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Speaker 2: themselves as unemployed and so that was, you know, kind
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Speaker 2: of the interesting thing where this was a month where
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Speaker 2: on the household data both the number of unemployed and
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Speaker 2: employed went up, which is not something that you see,
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Speaker 2: you know, in the in this magnitude you know too often,
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Speaker 2: you see it occasionally, it happens from time to time,
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Speaker 2: but it's just not something that you see. A ton
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Speaker 2: of other things that we have in here. Construction jobs
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Speaker 2: now have seen net firings for the past three months.
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Speaker 2: We've been warning that based.
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Speaker 4: On firings or quits, right, these are not measured differently.
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Speaker 2: Fewer negative jobs grow. They've seen job losses for the
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Speaker 2: last three months. Who cares whether you left voluntarily or not.
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Speaker 3: It doesn't matter. You're not getting paid anymore.
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Speaker 2: And so construction over the last three months now with
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Speaker 2: negative job numbers in each of those. Manufacturing with another
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Speaker 2: tough month for job creation as well, down twelve thousand,
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Speaker 2: now down seventy eight thousand for the year on the
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Speaker 2: manufacturing side, also starting to see some signs that the
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Speaker 2: those cuts that were put into effect earlier this year
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Speaker 2: are now showing up in here. With government jobs down
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Speaker 2: sixteen thousand. That's expected to accelerate over the next couple months,
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Speaker 2: simply because those had six months severance offers, many of
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Speaker 2: which were accepted in February and March, so six months
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Speaker 2: is as one would expect August and September, so those
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Speaker 2: will show up.
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Speaker 3: I don't think that those.
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Speaker 2: Are necessarily going to be something that you you know,
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Speaker 2: put in as you know, any kind of trend that's
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Speaker 2: going to develop, because the decisions were made six months ago,
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Speaker 2: they're not being made anymore, but just something to watch
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Speaker 2: for over.
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Speaker 3: The next month or two.
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Speaker 2: Other data that we had in here average weekly earnings
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Speaker 2: running at about a three point three percent annual growth
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Speaker 2: rate over the last twelve months. Average hourly earnings ap
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Speaker 2: point three percent for the month I'm sorry, yes, a
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Speaker 2: point three percent for the month. But the big one
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Speaker 2: that I always like to watch in here is the
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Speaker 2: number that's called aggregate payrolls. And aggregate payrolls is a
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Speaker 2: fancy way of saying, Hey, show me the number of
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Speaker 2: jobs added and combine it with wage growth. How much
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Speaker 2: did payrolls go up? And the big thing on this one,
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Speaker 2: I like to use it as a proxy for demand
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Speaker 2: from households because it's pretty much, hey, how many people
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Speaker 2: are working and how much are they getting paid. And
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Speaker 2: we've been in a pretty consistent range over most of
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Speaker 2: the twenty tens and even since the start of twenty
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Speaker 2: twenty four, where we've generally been, you know, between like
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Speaker 2: four and three quarters and five and a quarter percent
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Speaker 2: year over year aggregate payroll growth. This month, that year
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Speaker 2: over year payroll growth slowed to four point four percent.
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Speaker 2: So again, I don't know that it's a meaningful inflection downward,
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Speaker 2: but it's it's slower than it's been. But for the
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Speaker 2: last three months now, we're running at an annualized rate
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Speaker 2: of two point four percent on aggregate payroll growth. Two
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Speaker 2: point four percent to put it in perspective, aside from
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Speaker 2: the pandemic. The last time we were there was June
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Speaker 2: of twenty ten. Yeah, it's not good when you see
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Speaker 2: it moving that slowly, simply because you have concerns about
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Speaker 2: whether consumer spending can keep up. Now that the counterpoint
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Speaker 2: to this is if you actually look at Social Security
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Speaker 2: with holdings over the last two months, they're running at
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Speaker 2: north of seven percent annualized growth, which is hard to
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Speaker 2: reconcile because.
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Speaker 4: What do we make of that? So Security withholdings up
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Speaker 4: seven percent, at grid payrolls.
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Speaker 2: I don't know what to make of it, because they
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Speaker 2: normally tie pretty closely. You know, they're typically pretty close
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Speaker 2: with you know, a couple exceptions here and there. Because
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Speaker 2: social Security payroll growth, I think it's a great measure
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Speaker 2: of how the economy is typically doing because you pay
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Speaker 2: Social Security taxes only on a limited set of income,
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Speaker 2: so it's not influenced by the people making ten million
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Speaker 2: dollars or a bunch of investment income and all that stuff.
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Speaker 2: Social Security you know, FIKA withholdings is fundamentally based on hey,
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Speaker 2: how much are companies sending to the US Treasury on
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Speaker 2: a daily basis for workers making less than like one
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Speaker 2: hundred and seventy thousand dollars a year. So I can't
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Speaker 2: reconcile these two numbers, and that does have me a
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Speaker 2: little bit confused as to what's going on, because ultimately
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Speaker 2: what matters in this is how much peace we're being paid,
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Speaker 2: And the Social Security numbers are telling me there's no
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Speaker 2: real problem there, whereas this number is telling me there's
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Speaker 2: a problem. And it's unusual to have that divergence. I
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Speaker 2: don't know what it means, but it's going to resolve
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Speaker 2: itself in the next couple months, either these numbers are
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Speaker 2: going to have to come up or the Social Security
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Speaker 2: withholdings are going to start to slide.
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Speaker 4: So the last four months now we are sitting at
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Speaker 4: average payroll growth of what thirty thousand nine.
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Speaker 3: Where do we need to be.
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Speaker 4: To maintain the unemployment rate at four point three percent?
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Speaker 2: We don't know. And that's the humble, honest opinion. And
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Speaker 2: we don't mean chuck and I don't know. We mean
8:38
Speaker 2: nobody really knows right now. No. And the reason why
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Speaker 2: nobody really knows is that no one has a great
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Speaker 2: picture as to exactly what's going on with immigration right now,
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Speaker 2: other than the levels are down from where they were
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Speaker 2: a year ago. And what I mean by this is
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Speaker 2: we don't know how many immigrants.
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Speaker 3: Who were either here league or illegally.
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Speaker 2: Have dropped out of the workforce or are just no
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Speaker 2: longer in the country right now. The estimates that I've
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Speaker 2: seen are that you have anywhere from about three hundred
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Speaker 2: thousand to one point five million immigrants that are no
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Speaker 2: longer in the workforce. And basically what it means then,
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Speaker 2: because that band is so big in terms of the
9:23
Speaker 2: number of jobs added per month, that you need to
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Speaker 2: keep the unemployment rates steady. The estimates that I've seen
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Speaker 2: are anywhere from like twenty thousand to one hundred thousand.
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Speaker 2: It's a wide band, and so we really don't know.
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Speaker 3: What I can tell.
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Speaker 2: You is that ultimately, spending growth in the US is
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Speaker 2: powered by two things, more people getting paid and those
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Speaker 2: people getting paid more, which is why aggregate payrolls matters.
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Speaker 2: If you slow to job growth of twenty thousand, you know,
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Speaker 2: jobs per month, and if wage growth you know, continues
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Speaker 2: to run at three percent, it is tough to have
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Speaker 2: five percent nominal GDP because you can't spend that money
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Speaker 2: that you don't have.
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Speaker 4: The unemployment rate might matter in that case to the
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Speaker 4: FED and their decisions about inflation, but in terms of
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Speaker 4: growth of the economy, it's tough to see consumers growing.
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Speaker 4: If you're only adding twenty thousand jobs.
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Speaker 2: Per month, now you don't need to add two or
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Speaker 2: three hundred thousand. You could be very contentious clipping along
10:25
Speaker 2: and saying, okay, I can add one hundred thousand jobs
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Speaker 2: a month, and that's you know, zero point seventy five
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Speaker 2: percent in terms of you know, workforce growth for the year,
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Speaker 2: and if wages run three to three great I've got
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Speaker 2: my four percent, you know, four and a quarter percent
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Speaker 2: that I need for aggregate payroll growth, and I'm happy
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Speaker 2: as a clam. But if you're basically flatlining on the
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Speaker 2: payroll growth and wage growth, you know, if wage growth
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Speaker 2: does stagnate for any reason because companies say, hey, like,
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Speaker 2: we don't need to pay up because the labor market's loosening,
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Speaker 2: that's where things start to get dodgy, and that's where
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Speaker 2: recessionary things happen. We're not there yet, mostly because with
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Speaker 2: labor supply so tight, companies are still paying up for
11:09
Speaker 2: labor even though they don't.
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Speaker 3: Need to grow their labor force much.
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Speaker 4: Looking for a glimmer of good news here, Chack and
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Speaker 4: I don't have much from this report. I suppose one
11:18
Speaker 4: would be we're at a pretty solid starting point. Four
11:20
Speaker 4: point three percent unemployment is not a bad place to be,
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Speaker 4: and so the trend line, while concerning, has not brought
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Speaker 4: us to a level of unemployment in the total that
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Speaker 4: we would genuinely concern, genuinely considered to be recessionary. Yet
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Speaker 4: I guess the other piece would be it definitely shapes
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Speaker 4: what the FED is likely to do next after this report.
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Speaker 3: Yeah, and let's talk a little bit about that.
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Speaker 2: Let's take a quick break here, but when we come back,
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Speaker 2: let's talk about what this means for the FED meeting,
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Speaker 2: which is now twelve days away, by the way, it's
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Speaker 2: coming up sneaky quick, and so we'll talk a little
11:56
Speaker 2: bit about what this report means for the September meeting.
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12:37
Speaker 2: All right, So this morning job sport came out wasn't
12:41
Speaker 2: particularly good. Twenty two thousand jobs, created some downward revisions
12:45
Speaker 2: for June that pushed June to negative territory, first negative
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Speaker 2: jobs numbers that we've seen since twenty twenty. And we
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Speaker 2: raised the question at the end of the last segment,
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Speaker 2: what does this mean for the upcoming FED meeting. Here's
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Speaker 2: what that means. The FED is going to be cutting
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Speaker 2: at the September meeting. Only real questions twenty five or
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Speaker 2: fifty chuck correct. As of right now, we have an
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Speaker 2: eighty five point seven percent chance of a twenty five
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Speaker 2: basis point cut and a fourteen point three percent chance
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Speaker 2: of a fifty basis point cut. And so this is
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Speaker 2: like the whole crux of the question now is how
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Speaker 2: large is the cut going to be at this meeting?
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Speaker 2: And then and then from there, like what's the path
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Speaker 2: for subsequent meetings as we get into you know, the.
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Speaker 3: Rest of the year.
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Speaker 2: Currently, the market pretty much pricing in seventy five basis
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Speaker 2: points of cuts by year end. But this has the
13:41
Speaker 2: potential to change because remember, in a recession, typically the
13:45
Speaker 2: Fed might cut anywhere from like two to four percent.
13:49
Speaker 2: And so the possibility that we have to be aware
13:51
Speaker 2: of in the short term is, hey, if there is
13:54
Speaker 2: a recession that develops, you've got kind of the left
13:58
Speaker 2: tail there of the Fed funds rate lower rates. You know,
14:01
Speaker 2: they could get priced in where you start saying, hey,
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Speaker 2: should we be you know, pricing in Fed funds rate
14:05
Speaker 2: closer to two percent than three percent as the terminal rate. Now,
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Speaker 2: that also would have to go along with inflation not
14:12
Speaker 2: being a problem, because it's tough for me to get
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Speaker 2: to a point where the FED says, hey, inflation is
14:18
Speaker 2: still running at three percent, and we're gonna cut to
14:22
Speaker 2: you know, two yeah, because the problem there is the
14:26
Speaker 2: second that things turn and start accelerating upward, which they
14:31
Speaker 2: always do.
14:32
Speaker 3: Even if you get.
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Speaker 2: A recession here, it's they always turn. In my estimation,
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Speaker 2: it's not likely to be particularly long or deep. Then
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Speaker 2: you have people, you know, buying up more stuff than
14:41
Speaker 2: they used to, and that's where three percent inflation turns
14:44
Speaker 2: into five percent in a hurry. And the Fed's got
14:46
Speaker 2: to be quick on that other side if they've gone
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Speaker 2: too far there.
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Speaker 4: So let's justify a fifty bases point cut right now.
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Speaker 4: So on July twenty seventh, that was the last FED
14:56
Speaker 4: and meeting, if I'm not nope, that's twenty twenty sixth schedule.
15:01
Speaker 4: July twenty eighth was the last meeting. The decision webs
15:05
Speaker 4: that you're looking at that I have.
15:07
Speaker 2: No idea M and I markets never heard of them neither,
15:11
Speaker 2: So pretty sure that's right though. What we knew at
15:14
Speaker 2: that stage this is Pizza's Mike and Eros pizzas for euros.
15:23
Speaker 2: The oh wait, did you say?
15:25
Speaker 3: I meant like Yero but not euros. But they sound
15:30
Speaker 3: very interesting if they were a money changer that sold pizzas.
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Speaker 4: H What we knew at that meeting was a labor
15:38
Speaker 4: market that had slowed, but not considerably. I don't know
15:40
Speaker 4: what the running average for the job creation at that
15:42
Speaker 4: point was, but I think it was in the fifty
15:44
Speaker 4: to seventy five thousand per month range over the last
15:46
Speaker 4: three months. Two days after that meeting thereabouts, you got
15:50
Speaker 4: a massive revision of jobs that resulted in the President
15:54
Speaker 4: firing the then head of the Bureau of Labor Statistics.
15:57
Speaker 4: You now have another reading on jobs that showed weak
16:01
Speaker 4: employment in the month of August and further revisions downward
16:05
Speaker 4: for the previous few months. You already had two FED
16:10
Speaker 4: members voting for a cut at that stage. I think
16:14
Speaker 4: you can pretty easily justify a fifty basis point cut
16:17
Speaker 4: at this stage if you want to.
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Speaker 1: Last time they did it was September.
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Speaker 3: Of last year.
16:21
Speaker 4: Yes, in the face of pretty similarly weak jobs data.
16:26
Speaker 4: I think the only caveat would be you haven't seen
16:29
Speaker 4: the same jump and unemployment that you saw in the
16:32
Speaker 4: spring and summer of last year.
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Speaker 3: And inflation's inflected higher.
16:35
Speaker 2: But if you want to look at the labor market
16:37
Speaker 2: and say, hey, is there enough basis for a fifty
16:40
Speaker 2: basis point cut?
16:42
Speaker 3: The answer is.
16:42
Speaker 4: Absolutely, Yeah, absolutely, and I think you will get members
16:47
Speaker 4: like Waill Theer calling for it and voting for it.
16:49
Speaker 4: Here's the case for it, quite honestly. Parker Ross, who's
16:52
Speaker 4: a guy that I follow on X.
16:54
Speaker 2: He is the global chief economist at Arch Capital Group,
16:58
Speaker 2: and park it is a work with I mean again,
17:02
Speaker 2: if you're the global chief economist, you do a lot
17:04
Speaker 2: of work with everything, but in particular, he looks at
17:06
Speaker 2: a lot of labor statistics and one of the things
17:09
Speaker 2: that he's really worked on is, hey, based on the
17:13
Speaker 2: ratios and the rates that you see in jolts, what
17:17
Speaker 2: do we expect private payrolls to actually come in at?
17:22
Speaker 2: And he's built just a fantastic model that trends it,
17:24
Speaker 2: which basically shows, hey, if the hiring rate is x
17:28
Speaker 2: and the separation's rate is why, here's the job growth
17:31
Speaker 2: that you should expect for you know, kind of a
17:33
Speaker 2: three month moving averages is where he butters his bread
17:37
Speaker 2: and basically his model, what it's showing is if the
17:41
Speaker 2: rate of hires continues on its current trend and the
17:45
Speaker 2: rate of separations continues on its current trend, you're gonna
17:49
Speaker 2: have negative job growth within the next month or two,
17:52
Speaker 2: potentially accelerating to like three to four hundred thousand jobs
17:56
Speaker 2: lost per month by this time next year. If that
17:58
Speaker 2: were to continue now, nothing continues for a year, because
18:01
Speaker 2: you know, things are always wiggling and moving a little bit.
18:04
Speaker 2: There are no straight lines in economics, at least outside
18:07
Speaker 2: of you know, China, right where occasionally they have straight
18:12
Speaker 2: lines in their data, usually because the data set is
18:15
Speaker 2: discontinued for a little bit and then there's a straight
18:17
Speaker 2: line connecting the two points. But effectively, this is something
18:22
Speaker 2: I've been following Parker for you know, a number of years,
18:25
Speaker 2: and about a year ago he was like, look, if
18:27
Speaker 2: things continue the way they're going by like this time
18:30
Speaker 2: right now, you'd have, you know, the danger of being
18:34
Speaker 2: you know, basically flat in terms of job creation. And
18:37
Speaker 2: so he's pretty good because he had twenty thousand jobs
18:39
Speaker 2: created twenty two thousand for the last month. Yeah, so
18:43
Speaker 2: this is the case for the FED to be cutting
18:45
Speaker 2: and not just by a quarter percent, but by half
18:48
Speaker 2: a percent this meeting, and if this were to continue
18:51
Speaker 2: half a percent each of the next two meetings before
18:54
Speaker 2: a year end, to get one and a half percentage
18:55
Speaker 2: points and cuts in before the end of the year.
18:59
Speaker 2: It's probably probably justifiable. Even with inflation running where it is.
19:04
Speaker 2: The problem is what you do on the back end
19:05
Speaker 2: of it. Usually recessions are what kill inflation. What if
19:11
Speaker 2: it doesn't because the situation is different this time in
19:14
Speaker 2: terms of deglobalization, plus the one piece I keep coming
19:18
Speaker 2: back to, electricity prices keep rising because of all this
19:21
Speaker 2: data center construction and electricity prices are in every business.
19:26
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19:29
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19:59
Speaker 5: Well the August joh this report is here in markets
20:01
Speaker 5: have reverse course and are now in negative territory after
20:05
Speaker 5: only twenty two thousand jobs were added last month, well
20:08
Speaker 5: below forecasts of seventy five thousand. The government also revised
20:12
Speaker 5: its numbers from earlier in the summer and said that
20:14
Speaker 5: the economy lost a net thirteen thousand jobs in June,
20:19
Speaker 5: marking its first decline since December of twenty twenty. Right now,
20:23
Speaker 5: the Dow is down by six tenths of one percent,
20:25
Speaker 5: or two hundred and eighty two points lower. SMP five
20:28
Speaker 5: hundred is down about a half a percent, Nasdaq down
20:31
Speaker 5: three tenths of one percent or sixty two points lower.
20:34
Speaker 5: Russell two thousand is actually up by four tenths of
20:37
Speaker 5: one percent. Ten year treasure reil down ten basis points
20:40
Speaker 5: at four point zero seven to six percent, and crude
20:44
Speaker 5: oil down over two percent lower trading rate at sixty two.
20:48
Speaker 1: Dollars a barrel.
20:50
Speaker 5: Broadcom shares are jumping ten percent after the chip and
20:53
Speaker 5: software maker swung to a profit, beating expectations for its
20:57
Speaker 5: quarterly sales. The company also noted its AI related revenue
21:02
Speaker 5: sword sixty three percent higher. Lukawa of Surewood News will
21:06
Speaker 5: join us in the next hour with his insight on Broadcom. Meanwhile,
21:10
Speaker 5: Lululemon shares are tanking sixteen percent after the ath leisure
21:15
Speaker 5: war companies full year guidance missed estimates. Lulu also cut
21:19
Speaker 5: its outlook, citing tariffs elsewhere. DocuSign lifted its annual outlook,
21:24
Speaker 5: amit a push to ramp up AI offerings shares in
21:27
Speaker 5: the electronic signature company up seven percent. Smith and Weston
21:31
Speaker 5: posted better than expected earnings in sales driven by demand
21:34
Speaker 5: for new products, shares in the gunmaker or climbing ten percent,
21:39
Speaker 5: and a new financial filing revealed that Tesla's board is
21:42
Speaker 5: asking investors to prove a new pay package for CEO
21:46
Speaker 5: Elon Musk that could be worth as much as one
21:49
Speaker 5: trillion dollars over the next decade. Tesla shares are rising
21:53
Speaker 5: nearly three percent. I'm Tucker Silva and that is Waaltree Watch.
21:58
Speaker 2: So we've got a few different choices as to what
22:01
Speaker 2: we can talk about now. The first is, I'm sorry
22:03
Speaker 2: anytime that I hear about someone getting paid a trillion dollars,
22:06
Speaker 2: I kind of want.
22:07
Speaker 3: To dig into it, okay.
22:09
Speaker 2: Second, Mike asked a question to me as we headed
22:12
Speaker 2: to our last break, and the question was, Hey, why
22:16
Speaker 2: do you think hiring is sluggish right now?
22:18
Speaker 3: And so we could talk about that.
22:20
Speaker 2: And then Tucker's we were heading to break, said I'm
22:23
Speaker 2: interested in hearing more about electricity costs.
22:25
Speaker 3: Take your peck.
22:26
Speaker 2: Tucker can bend chime in and let us know where
22:28
Speaker 2: he thinks we should go. Yell really loud, Ben, what
22:31
Speaker 2: do you think we should talk about?
22:34
Speaker 3: Louder?
22:35
Speaker 5: We can't hit the doors closed?
22:37
Speaker 3: Can he open it? What I'll like that cost? Okay,
22:41
Speaker 3: Ben wants to talk about electricity. So here's the thing.
22:45
Speaker 3: I was poking around this morning.
22:47
Speaker 2: And when you look at electricity costs nationwide, they are
22:53
Speaker 2: up six point two in the last year.
22:56
Speaker 4: Okay, So I double the pace of inflation of the
22:59
Speaker 4: life last year.
23:00
Speaker 3: Yes.
23:01
Speaker 2: So I went and said, okay, like, let's I'm curious,
23:04
Speaker 2: you know, what's that compared to as far as the
23:08
Speaker 2: norm like, what do we normally see? And what I
23:12
Speaker 2: found was that aside from four periods in the last
23:16
Speaker 2: forty years, this is the highest rate of electricity price
23:20
Speaker 2: growth that we've seen. The four periods are as follows
23:24
Speaker 2: twenty twenty two. For obvious reasons, the price of everything
23:27
Speaker 2: went up double digit ish, Like you don't get to
23:31
Speaker 2: nine percent inflation without a bunch of things going up
23:33
Speaker 2: really fast.
23:34
Speaker 3: Yep. So that's one of them.
23:36
Speaker 2: Number two. Two thousand and eight. A lot of you
23:40
Speaker 2: might remember the financial crisis of two thousand and eight.
23:42
Speaker 2: Not many of you remember that oil prices went through
23:45
Speaker 2: the roof and at gas prices went through the roof
23:46
Speaker 2: in the summer, and then everything blew up after yep,
23:49
Speaker 2: so that was another one two thousand and six. I
23:52
Speaker 2: don't remember this quite honestly, partly because I wasn't paying
23:56
Speaker 2: my own electric bill at this point. I was still
23:59
Speaker 2: you know, young, and and well that wasn't not cool.
24:02
Speaker 2: But in any case, electricity prices by March of two
24:05
Speaker 2: thousand and six were going up fifteen point nine percent annually.
24:09
Speaker 3: I have no idea whether.
24:10
Speaker 2: Why precipitated this, but it was the only other instance
24:15
Speaker 2: was July of two thousand and one, where they went
24:17
Speaker 2: up about nine percent annually, and so other than that,
24:21
Speaker 2: you really struggle to find a time where electricity prices
24:24
Speaker 2: went up even more than five percent, and most of
24:26
Speaker 2: the time they were going up one to three percent annually.
24:29
Speaker 2: So the reason that I bring this up as a
24:31
Speaker 2: problem is that, look, if the prices of certain things
24:35
Speaker 2: go up, it's not really a big deal to everyone.
24:38
Speaker 2: As an example, if the price of aluminum goes up,
24:43
Speaker 2: if you're making cars or refrigerators or buildings, you're like,
24:50
Speaker 2: this kind of sucks. We got to raise our prices
24:52
Speaker 2: because you know, our our input costs are going up.
24:54
Speaker 2: If you're raising cows or if you are selling T
25:00
Speaker 2: shirts doesn't matter to you.
25:03
Speaker 4: And so this is something we call elasticity of demand Chuck,
25:07
Speaker 4: which is if electricity, if beef prices go up, everyone
25:12
Speaker 4: but Chuck might switch to chicken or fish. Chuck keeps
25:15
Speaker 4: time buying beef. He I get rid of I get
25:17
Speaker 4: rid of all the other food in order to afford
25:19
Speaker 4: the bait. If coffee prices go up, I don't know
25:22
Speaker 4: what people will switch to. I won't switch, but these
25:24
Speaker 4: are things that you have. Mike switches to ham elastic
25:27
Speaker 4: demand on if prices start going through the roof, you
25:29
Speaker 4: generally switch your buying behavior. There's no elasticity of demand
25:33
Speaker 4: when it comes to electricity prices, whether they are up
25:36
Speaker 4: ten percent, down fifteen percent. Raise your hand if you
25:40
Speaker 4: keep the lights on more. When electricity prices are going
25:42
Speaker 4: up by one percent instead of seven percent, nobody.
25:45
Speaker 2: And it's every business that's affected. Find me a business
25:49
Speaker 2: where electricity prices don't matter at all. Yeah, baby sitting's probably.
25:56
Speaker 3: The only one.
25:57
Speaker 1: Sure.
25:58
Speaker 2: And even like even that, it's like, okay, find me
26:03
Speaker 2: another one. Yeah, I'm not even saying like daycare, like
26:05
Speaker 2: the price that goes up when just babysitting in your home,
26:08
Speaker 2: babysitting in someone else's home where you don't pay the
26:10
Speaker 2: electric bill, you know, like Other than that, it's kind
26:13
Speaker 2: of hard to find a business where electricity prices.
26:16
Speaker 3: Don't matter at all.
26:18
Speaker 2: So where I'm going with this is those price increases
26:23
Speaker 2: are going to hit a wide range of businesses. Restaurants
26:26
Speaker 2: have to deal with electricity price increases. How do they
26:29
Speaker 2: pass that along to their customers? Retail has to deal
26:33
Speaker 2: with it, Industrial you know, logistics in this and that
26:37
Speaker 2: has to deal with it. You go through every business
26:40
Speaker 2: in the country somewhere on there, aside from babysitting, there's
26:44
Speaker 2: a line item for expenses of utilities yep, and electricity
26:48
Speaker 2: is a big component of that. Obviously, my only counterpoint,
26:52
Speaker 2: Chuck here would be, yes, electricity does feed its way
26:56
Speaker 2: into everywhere. My counterpoint would be cherry picking one a
27:01
Speaker 2: line item even if we are quite certain that it
27:04
Speaker 2: did go up, and have a tough time seeing it
27:06
Speaker 2: going down in the future, right. I think that would
27:07
Speaker 2: be The other thing is if AI spend continues going up,
27:11
Speaker 2: then there's only one direction electricity costs go. Yes, could
27:16
Speaker 2: we see something else that counters that We're seeing a
27:18
Speaker 2: ton of weakness in housing, do we see shelter costs
27:21
Speaker 2: moderate and therefore the overall inflation scenario moderate too, Like,
27:24
Speaker 2: there's always that possibility that in spite of something significant
27:29
Speaker 2: driving prices higher, oh, something else fell off a ledge here,
27:33
Speaker 2: and so overall, while electricity costs up, yeah, my rent
27:36
Speaker 2: didn't go up, and so I'm still fine. But this
27:38
Speaker 2: is the problem is in order for that to happen,
27:41
Speaker 2: demand for those other things has to drop as well, yep.
27:44
Speaker 2: And that means that the economy gets wamp wompy, and
27:48
Speaker 2: it's it's just a really tough situation that we find
27:53
Speaker 2: ourselves in right now. And the electricity one, quite honestly,
27:58
Speaker 2: you can point directly to the data center construction, yeah,
28:01
Speaker 2: and say this is it because the estimates that we're
28:04
Speaker 2: seeing now. Last year, US data centers chewed up about
28:08
Speaker 2: four percent of electricity nationwide. By twenty twenty eight, the
28:12
Speaker 2: estimates are for it to be twelve percent. And we
28:14
Speaker 2: are not building that much new generation capacity because you
28:19
Speaker 2: can permit a data center and get it built in
28:22
Speaker 2: twelve to eighteen months, eighteen to twenty four months. Talk
28:26
Speaker 2: to anyone who handles permitting for utility scale electricity projects,
28:33
Speaker 2: they will tell you it is a seven to ten
28:35
Speaker 2: year process. And that's the ballgame. Like, that's the whole
28:41
Speaker 2: thing when it comes to this. So if if you
28:43
Speaker 2: want to know where I would focus my efforts on
28:46
Speaker 2: over the next year or two in terms of deregulation,
28:50
Speaker 2: it's making it easier to build power plants, you know,
28:55
Speaker 2: like and you know, figuring out ways to speed that
28:58
Speaker 2: construction up because the demand is going to be there.
29:02
Speaker 2: And quite honestly, like if you're a big believer in AI,
29:07
Speaker 2: the country or the company or whoever you think is
29:09
Speaker 2: gonna win the AI game also has to win the
29:11
Speaker 2: power generation game, right and right now, the US is
29:15
Speaker 2: not doing a great job at that.
29:17
Speaker 3: We haven't done a great job at it for forty
29:22
Speaker 3: or fifty years.
29:24
Speaker 2: It's been a while, you know, Like this is not new.
29:28
Speaker 2: This is something that's been a problem probably you know,
29:31
Speaker 2: since the nineteen eighties.
29:32
Speaker 4: Quite honestly, now I see an attitude change towards it.
29:36
Speaker 4: We will see if it actually leads to anything, because well,
29:39
Speaker 4: I've seen an attitude shift where folks are more comfortable
29:42
Speaker 4: with the idea of nuclear I have not seen an
29:45
Speaker 4: attitude short shift towards building that nuclear near me.
29:50
Speaker 2: Give me a million dollars a year and I'll put
29:52
Speaker 2: one in my basement. If you get one that I
29:55
Speaker 2: can wear on my head, just a little portable one
29:57
Speaker 2: I carry around. I do that because if it goes wrong,
30:01
Speaker 2: you don't know, true, you know, like really you want
30:05
Speaker 2: to be as close as possible to it if something
30:08
Speaker 2: goes wrong, you know, like you don't want the long,
30:12
Speaker 2: painful like problem. All Right, I'm just saying, you know,
30:18
Speaker 2: let's take a quick break when we return, do we
30:23
Speaker 2: want to cover any of those other topics that we
30:24
Speaker 2: talked about.
30:25
Speaker 3: Yeah, let's talk about why of the job market? Okay,
30:26
Speaker 3: I get my taken. Why is the job market so sluggish?
30:29
Speaker 3: Right now?
30:31
Speaker 1: Text es six one seven three six two one three
30:34
Speaker 1: eight five with your comments and questions about today's show.
30:37
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31:02
Speaker 3: I guess the.
31:02
Speaker 2: Question of prior segment, why is the labor market so stagnant?
31:08
Speaker 3: Right now?
31:09
Speaker 4: Let's start by admitting that we can't possibly know anything
31:13
Speaker 4: we do is gonna be guessing here, an educated guess
31:15
Speaker 4: to why it is, as to why it's happening, right, Sure,
31:18
Speaker 4: we can't know why Walmart is hiring fewer people or
31:23
Speaker 4: anybody else is. I have three possible explanations, and it's
31:27
Speaker 4: probably a combination of all these.
31:29
Speaker 2: And other factors. Okay, let me write these down. Immigration,
31:35
Speaker 2: enlighten me, talk, talk to me. We're talking about weakness
31:37
Speaker 2: and job creation. If there are fewer people to hire,
31:40
Speaker 2: especially in some industries like construction, then it could lead
31:43
Speaker 2: to weak hiring numbers just because you can't find the people.
31:46
Speaker 2: If it were just that, though, wouldn't you see job
31:49
Speaker 2: openings moving up still but hirings not?
31:52
Speaker 1: Right?
31:52
Speaker 4: So this might explain some of it, but obviously doesn't
31:54
Speaker 4: explain all of it. Okay, Teriff uncertainty is my number two. Yep,
31:59
Speaker 4: AI is my number three.
32:00
Speaker 3: That's it. Those are my three.
32:05
Speaker 2: Okay, I'll throw a few more logs on the fire. Sure,
32:08
Speaker 2: the housing market sucks, and when the housing market sucks,
32:11
Speaker 2: the construction hiring market sucks. Not only that, the mortgage
32:15
Speaker 2: hiring market not good. Anything related to you know, moving
32:20
Speaker 2: and this and that like all that stuff slows down.
32:24
Speaker 2: So I think that's a big piece that that is
32:26
Speaker 2: at play here.
32:29
Speaker 4: I didn't think it was good enough to just talk
32:30
Speaker 4: about like recession worries, like yeah, that that might be
32:34
Speaker 4: playing a role into here as to why companies are
32:36
Speaker 4: worried about hiring.
32:37
Speaker 2: No, but that's like that's that's that bit, like that's
32:40
Speaker 2: unique to that business, Like that's why no one, like
32:44
Speaker 2: if talk to any contractor out there right now, or
32:48
Speaker 2: talk to any GC out there right now. And this
32:50
Speaker 2: is actually really interesting. The gcs that I talked to,
32:54
Speaker 2: their subs are reaching out to them on a more
32:56
Speaker 2: frequent basis, being like, hey, do you have any work
32:58
Speaker 2: for me? Because there's not enough going on for them,
33:03
Speaker 2: And that stuff that I wasn't hearing a year or
33:06
Speaker 2: two ago is you know, subs reaching out saying hey,
33:10
Speaker 2: you got any work, or when they're bidding on stuff
33:14
Speaker 2: bidding below where the GC was expecting to see interesting
33:17
Speaker 2: because they want the job and they don't have enough
33:19
Speaker 2: work going on.
33:20
Speaker 3: On the AI side.
33:22
Speaker 4: I actually don't think that the technology itself is leading
33:25
Speaker 4: to a lack of hiring, but I do think that
33:27
Speaker 4: there is this attitude that is moving through boardrooms at
33:31
Speaker 4: big companies right now about we need to project that
33:36
Speaker 4: we're having success on artificial intelligence, and the easiest way
33:39
Speaker 4: to do so is point towards a lack of need
33:42
Speaker 4: for new employees, and so whether or not we're successfully
33:45
Speaker 4: implementing AI or not. I think companies like Salesforce, like Google,
33:49
Speaker 4: like Facebook are hiring strategically, with Facebook going on a
33:54
Speaker 4: spree recently, but wanting to point to big numbers and say, look,
33:58
Speaker 4: we added no headcount in the last order because of
34:01
Speaker 4: the impact of artificial intelligence, whether it's true or not.
34:04
Speaker 4: And so I think that is playing not just through
34:06
Speaker 4: the tech space, but through many different companies, financial services
34:09
Speaker 4: and others.
34:10
Speaker 2: The big thing is, I do think that this weakness
34:14
Speaker 2: that we're seeing in the labor market right now, I'm
34:17
Speaker 2: not sure how much longer it lasts from here. You know,
34:21
Speaker 2: I could see a case where it's like maybe another
34:23
Speaker 2: six months or so, and maybe nine months. But there's
34:26
Speaker 2: some pretty significant tax incentives in the big beautiful bill
34:29
Speaker 2: that passed earlier this summer that really should start to
34:34
Speaker 2: spur some additional investment over the next twelve to eighteen months.
34:38
Speaker 2: Is just like it takes companies time to come up
34:40
Speaker 2: with those plans and things like that, And so I
34:42
Speaker 2: think there's a pretty convincing case that by the second
34:44
Speaker 2: half of next year you start to see things, you know,
34:47
Speaker 2: inflecting upward, you know, at a pretty decent clip. But
34:50
Speaker 2: it's the question of, Hey, what's the path that we
34:52
Speaker 2: follow between now and then? Does it bottom out? Does
34:55
Speaker 2: it get worse? Like, do we see any improvement before then?
34:57
Speaker 2: I don't really know still, but I do tend to
35:01
Speaker 2: think there's some stuff in there that should have a
35:03
Speaker 2: pretty positive impact as we get into twenty twenty six.
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36:21
Speaker 4: Last piece, I want to talk about tariffs. If you
36:24
Speaker 4: are a company that puts your plans, you're hiring plans
36:27
Speaker 4: on ice back in April, I don't know that you
36:33
Speaker 4: are thawing them out now.
36:36
Speaker 3: It depends probably on the company. It depends a lot.
36:39
Speaker 4: But like I'm just thinking through this, right, if if
36:41
Speaker 4: I had uncertainty about where tariffs were going to be,
36:44
Speaker 4: I was getting to a point where it is looking
36:46
Speaker 4: fairly clear as of a few weeks ago, or at
36:49
Speaker 4: least clearer than it was. And now you've got the
36:52
Speaker 4: looming Supreme Court case, and I'm trying to think that through, Like,
36:56
Speaker 4: if it gets affirmed that the White House has the
36:58
Speaker 4: power to do this, then okay, I'm back where I
37:01
Speaker 4: was a few weeks ago in terms of getting more certainty.
37:03
Speaker 4: If it gets tossed out.
37:07
Speaker 2: No idea then, because my estimation would be the very
37:10
Speaker 2: next day the White House is going back to the
37:14
Speaker 2: drawing board and trying to figure out how they implement
37:17
Speaker 2: tariffs under new different rules or existing rules. And you're
37:21
Speaker 2: back to where you were in April in terms of
37:23
Speaker 2: uncertainty on tariffs.
37:26
Speaker 3: Yeah. So I don't know.
37:28
Speaker 4: Again, that doesn't affect every industry, It doesn't affect every company,
37:31
Speaker 4: doesn't affect every company's hiring plans. But I do think
37:33
Speaker 4: it is playing a role, and this uncertainty now tossed
37:36
Speaker 4: into the middle of it exacerbates that a little bit.
37:40
Speaker 2: For now, Tucker, do you want to give us another
37:42
Speaker 2: efficiency efficiency?
37:44
Speaker 4: I'll tell that that was an amazing recovery, Tucker, because
37:47
Speaker 4: I would have been just laughing and unable to complete
37:50
Speaker 4: the sentence.
37:51
Speaker 3: So that was one of those.
37:52
Speaker 5: Words that you just stumble over and then you're like,
37:54
Speaker 5: I can't say this word, right, Yeah, which can't happen.
37:56
Speaker 2: I mean, look, I still have ones that, even though
37:58
Speaker 2: I know the right way to pronounce them, I struggle
38:01
Speaker 2: with each time.
38:01
Speaker 5: Efficiency.
38:02
Speaker 2: The one that always gets me that I still have
38:04
Speaker 2: to think about dispensary because I.
38:07
Speaker 3: Still want to say I still want.
38:09
Speaker 2: To say dispensary. But it's not dysentery. It's a dispensary.
38:15
Speaker 2: Let's take it quits, say Friday here on the Financial Exchange.
38:18
Speaker 3: We're back on the Oregon Trail. When we return