Latest / The Financial Exchange Show / Recent economic data is pulling the Fed in opposing directions

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Recent economic data is pulling the Fed in opposing directions · The Financial Exchange Show

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Speaker 2: Happy Friday, and welcome back to the Financial Exchange. It's Mike,
1:14
Speaker 2: Paul and Tucker with you on a Friday. After a
1:17
Speaker 2: big inflation report Thursday. But frankly, all of this news
1:21
Speaker 2: this week getting buried given the murder of Charlie Kirk.
1:24
Speaker 2: There's a press briefing going on as we speak at
1:27
Speaker 2: the moment, it looks like in Salt Lake City on
1:29
Speaker 2: that subject. But to that end, I think, in part
1:34
Speaker 2: because of that, any of the financial news that has
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Speaker 2: come out this week, Paul has not really been covered
1:40
Speaker 2: by the press. And I was speaking with Mac Ganion
1:42
Speaker 2: this morning out of Portland about this subject, which is
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Speaker 2: for good reason. This has not been the most important
1:48
Speaker 2: thing that has mattered. And yet we have markets sitting
1:51
Speaker 2: here again at all time his The Dow rallied above
1:54
Speaker 2: forty six thousand for the first time ever yesterday, and
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Speaker 2: we have a Federal Reserve meeting coming just next week,
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Speaker 2: if I'm not mistaken, yes next week becoming the Federal
2:04
Speaker 2: Reserve meeting. So a lot to cover here in the
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Speaker 2: world of finance, markets and the economy, and we'll be
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Speaker 2: getting right to it. But I think we start off
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Speaker 2: with the recap yesterday. Again, if you did not see
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Speaker 2: it yesterday, we got an inflation reading that was not
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Speaker 2: extraordinarily bad. It was elevated, but not elevated enough to
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Speaker 2: really reverse any of the thinking on the Fed's next moves.
2:31
Speaker 2: We also got a weekly jobless claims number that came
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Speaker 2: in hotter than expected, meaning more people leaving those jobs,
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Speaker 2: probably involuntarily. And again, the way that we summarize those
2:45
Speaker 2: from yesterday, Paul was both of these in and of themselves,
2:51
Speaker 2: for one reading, are not terribly concerning, but could represent
2:55
Speaker 2: a new trend line that is worth keeping an eye on. Nonetheless,
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Speaker 2: a lot of this bad news for the economy has
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Speaker 2: meant good news for markets, and some of that's logical,
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Speaker 2: some of it's not. But nonetheless, I think all of
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Speaker 2: the data this week either solidified the perspective that the
3:15
Speaker 2: FED should be cutting rates or at least did not
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Speaker 2: thoroughly negate that perspective that, yeah, the FED should be
3:21
Speaker 2: moving forward with rate cuts at this stage, and so
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Speaker 2: all expectations are that we are ago with at least
3:27
Speaker 2: a twenty five basis point cut when we meet with
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Speaker 2: the FED and their press conference next week.
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Speaker 3: Yeah, I think the biggest subject this week is really
3:35
Speaker 3: where the Fed sits at this point. We've talked about
3:37
Speaker 3: on the show a lot. They have two primary responsibilities,
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Speaker 3: which is price stability, that's inflation, and then the labor market.
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Speaker 3: And what's so interesting about this week where the Federal
3:47
Speaker 3: Reserve is positioned, is that it is very clear that
3:49
Speaker 3: there is certainly a weakening in the labor market. You
3:52
Speaker 3: could argue how severe that it is, but it would
3:55
Speaker 3: be hard to argue that we're not seeing at least
3:57
Speaker 3: a trend of the labor marketing over the course of
4:01
Speaker 3: the last six to twelve months or so.
4:03
Speaker 2: Meanwhile, you let's talk about that for a minute, because
4:05
Speaker 2: I don't know that everybody is experiencing that. I think
4:08
Speaker 2: if you are listening here in the Boston area, you
4:10
Speaker 2: might be understanding that quite a bit because unemployment rate
4:13
Speaker 2: in the Massachusetts it is like the tenth worst in
4:17
Speaker 2: the state and has changed pretty dramatically since the beginning
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Speaker 2: of the year. But if you're in New Hampshire, or
4:22
Speaker 2: if you're in the Midwest right now and listening, you
4:24
Speaker 2: might not be feeling that week. Labor market. What are
4:26
Speaker 2: the indications that you're using and what did we see?
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Speaker 2: They're big revisions this week for example, about a weakening
4:32
Speaker 2: labor mind.
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Speaker 3: Yeah, so the unemployment rates up to four point three
4:35
Speaker 3: percent we saw from March of twenty twenty five through
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Speaker 3: March of twenty twenty four, they went back and revised down.
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Speaker 3: Nine hundred and eleven thousand jobs were taken away in
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Speaker 3: terms of growth over that period of time. And then
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Speaker 3: from a sector perspective, if you look at the more
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Speaker 3: recent months data, we're now averaging in around with that revision,
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Speaker 3: it's somewhere around seventy four thousand. If you look back
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Speaker 3: at the span of the last twelve to eighteen months,
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Speaker 3: from a sector perspective, on the white collar jobs, those
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Speaker 3: service business services kind of positions, you're seeing a lot
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Speaker 3: less hiring in those areas. Really, what's only been propping
5:09
Speaker 3: up employment growth in general has been healthcare services. That
5:12
Speaker 3: has been really the main sector where we've seen growth.
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Speaker 3: But otherwise as we're getting old, yeah, there's a lot
5:17
Speaker 3: of healthcare spending, which we'll talk about later in the
5:20
Speaker 3: show today because healthcare costs don't seem to want to
5:23
Speaker 3: go down. But that aside just a labor market in
5:26
Speaker 3: general that has been weaker because of those intericators that
5:29
Speaker 3: we're seeing. It's not a tremendous amount of layoffs or
5:32
Speaker 3: firings that we're seeing just yet, but certainly the job
5:36
Speaker 3: growth has slow. There's no way you can argue that.
5:38
Speaker 2: Yeah, that piece is true. The complex. Yeah, to get
5:43
Speaker 2: to your point here, Paul, it's really unclear how many
5:48
Speaker 2: jobs we need to create on a monthly basis in
5:51
Speaker 2: order to keep the unemployment rate low. But what is
5:55
Speaker 2: fairly clear is that if we only create twenty to
5:58
Speaker 2: fifty thousand jobs per month, whether the unemployment rate goes
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Speaker 2: up or not, it's going to be tough to see
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Speaker 2: economic growth. Yeah, I think that's where I land is. Yeah,
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Speaker 2: unemployment rate could stay down here in the four point
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Speaker 2: three percent range, but if we keep creating jobs at
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Speaker 2: such a slow pace, then consumer spending won't increase. People
6:16
Speaker 2: won't be able to move from job to job and
6:18
Speaker 2: see those wage increases, and so we're going to be
6:21
Speaker 2: kind of in a languishing point when it comes to
6:22
Speaker 2: the labor market, regardless of that unemployment.
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Speaker 3: So that's one side of the equation, And what makes
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Speaker 3: it more fascinating this week is that we have the
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Speaker 3: inflationary picture, which you just mentioned, that is trending in
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Speaker 3: the other direction, where inflation has been ticking up from
6:35
Speaker 3: the low that it reached back in April. On a
6:37
Speaker 3: year over year basis, it was sitting at two point
6:39
Speaker 3: three percent. We now just had a report that came
6:42
Speaker 3: out at two point nine percent. Obviously the Fed's target
6:45
Speaker 3: is two percent. That has been a huge concern this year,
6:47
Speaker 3: and probably what we've spent more time focusing on this
6:50
Speaker 3: year from our show and other news publications is concerns
6:53
Speaker 3: about tariffs leading to inflationary pressure. And really what the
6:57
Speaker 3: FED has come out and committed to is there Our
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Speaker 3: focus is now on the labor market. This inflationary report
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Speaker 3: was not so bad that that would cause a shift
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Speaker 3: in plan here. So really what we're going to see
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Speaker 3: from this rate cup, very likely coming next Wednesday, is
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Speaker 3: a twenty five basis point cut and a Fed that
7:18
Speaker 3: is more focused on the employment market. And what is
7:21
Speaker 3: puzzling to me a little bit which we can get into,
7:23
Speaker 3: is the stock market rallied pretty significantly off of the
7:27
Speaker 3: news yesterday on that inflation report, which I wouldn't have
7:30
Speaker 3: rated as a tremendous report. I wouldn't say it was disastrous,
7:33
Speaker 3: but because of that premise of lower rates, which can
7:37
Speaker 3: impact asset values positively. We had a market rally even
7:41
Speaker 3: against a backdrop that I would say is kind of
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Speaker 3: mixed at the moment.
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Speaker 2: Yeah, it is. But here's where I always land when
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Speaker 2: we're talking about economic data and how it's going to
7:52
Speaker 2: affect the FED. And what makes it really really difficult
7:55
Speaker 2: to take take a market's perspective on all of this
7:58
Speaker 2: is you have to remove yourself from what I would
8:02
Speaker 2: do in this scenario and put yourself in the role
8:05
Speaker 2: of J. Powell and those other eleven voting members of
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Speaker 2: the FED and say, Okay, I might view things this way,
8:14
Speaker 2: but what would J. Powell and what would the Federal
8:16
Speaker 2: Reserve Board and Committee be doing in this case? And
8:20
Speaker 2: all evidence points to a FED that over the last
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Speaker 2: five years has been far more interested in what's happening
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Speaker 2: in the labor market and concerned about how they can
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Speaker 2: improve that labor market story than what is happening in
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Speaker 2: the inflation side of things. We saw it in twenty
8:36
Speaker 2: twenty two when they were very late to the game,
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Speaker 2: and I see no compelling evidence why we wouldn't see
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Speaker 2: it again this time. So let's take a quick break
8:44
Speaker 2: here when we do come back. I want to speak
8:47
Speaker 2: a little bit more about that inflation report. What were
8:50
Speaker 2: the bad items, what were the things that we're really
8:52
Speaker 2: driving up prices? And why might the Fed be willing
8:55
Speaker 2: to look through all of that for a lower interest
8:58
Speaker 2: rate environment. That's next here on the Financial Exchange.
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Speaker 2: So, Paul, we're talking about the labor market and inflation.
10:15
Speaker 2: We're talking about it because that's all we talk about
10:18
Speaker 2: on the financial Exchange. I'm joking, but we do. We
10:20
Speaker 2: do have a Federal Reserve meeting early next week, and
10:23
Speaker 2: markets seem to be anticipating a rate cut. And I
10:26
Speaker 2: don't mean seem to be. They are anticipating a rate cut.
10:30
Speaker 3: Question is how big really? I mean, well, it's pretty
10:32
Speaker 3: clear it'll be the quarterback.
10:34
Speaker 2: It seems to be. Yeah. There is currently, according to
10:36
Speaker 2: Chicago Mercantile Exchange, where you can look at prediction markets
10:39
Speaker 2: on interest rate cuts or hikes, there is a ninety
10:42
Speaker 2: two point four percent likelihood of a quarter percentage point cut.
10:47
Speaker 2: There's a seven and a half percent chance of a
10:49
Speaker 2: fifty basis point cut. So the reason why I think
10:54
Speaker 2: quarter is the most likely scenario is because of these
10:57
Speaker 2: underlying inflation concerns. But I gotta say I think that
11:02
Speaker 2: the Fed will be willing to look through them a
11:04
Speaker 2: little bit. The Journal has a piece today on twelve
11:08
Speaker 2: month price changes from where they were a year ago.
11:11
Speaker 2: These are always interesting to look at. Coffee top the
11:15
Speaker 2: list here in terms of August changes, up twenty one
11:18
Speaker 2: percent from last year.
11:19
Speaker 3: Almost sput out my coffee when I read that sucks.
11:23
Speaker 2: Auto repair up fifteen percent. That's likely again tariff related,
11:27
Speaker 2: as is coffee. By the way, this stuff comes from
11:30
Speaker 2: Vietnam and Brazil, both of which are facing double digit
11:33
Speaker 2: percentage rates on tariffs. We don't grow that here in
11:36
Speaker 2: the United States. Ground beef up thirteen percent, not really
11:40
Speaker 2: terif related, apples up ten percent, bananas up six point six,
11:43
Speaker 2: used vehicles up six, tools in hardware up nearly six,
11:48
Speaker 2: oranges up five. There's a lot of other price increases
11:51
Speaker 2: in here. Two furniture, paper products, a bunch of other
11:56
Speaker 2: food categories. But a lot of this stuff is seeing
11:59
Speaker 2: some upticks. Others are really not. Women's apparel is down
12:02
Speaker 2: in pricing, and I can't really explain that, to be
12:04
Speaker 2: quite honest, which is why I don't think you actually
12:07
Speaker 2: want to focus on each of these individual categories. But
12:10
Speaker 2: if I am the FED and I'm taking a look
12:12
Speaker 2: at yesterday's inflation report, which again, if you missed it,
12:15
Speaker 2: prices were up two point nine percent year over year
12:19
Speaker 2: four tenths of a percent for the month. When you
12:21
Speaker 2: strip out the food and energy impact, prices were up
12:23
Speaker 2: even more year over year because generally energy prices have
12:27
Speaker 2: been coming down of the course of the last year.
12:29
Speaker 2: Stripping those pieces out, prices are up three point one
12:32
Speaker 2: percent and three tenths of a percent for the month.
12:35
Speaker 2: These are underlying trends that are pretty high. But if
12:37
Speaker 2: I'm looking at this report, I'm looking at it and
12:39
Speaker 2: I'm saying, Okay, we've got services prices that are on
12:43
Speaker 2: the move. Yes, that is a concern, but frankly, the
12:46
Speaker 2: pace at which services are going up is right around
12:49
Speaker 2: what's normal. What is changing here is that goods prices
12:53
Speaker 2: are moving up right now. If I'm them, I'm blaming
12:57
Speaker 2: this on tariffs. If I'm the Fed, I'm blaming If
13:01
Speaker 2: I'm the Federal Reserve, if I'm J. Powell, I'm blaming
13:03
Speaker 2: these price increases on tariffs, because honestly, look through the list,
13:08
Speaker 2: most of those big price upticks could be blamed on tariffs.
13:12
Speaker 2: They could also be you know, changes to farming because
13:16
Speaker 2: of immigration and other factors. But if I'm the FED,
13:19
Speaker 2: I'm probably not banking on that. I'm thinking this is
13:21
Speaker 2: because of tariffs, and if I really care about what
13:24
Speaker 2: things look like a few years from now, because that's
13:28
Speaker 2: what my policy affects. I don't really care about the
13:31
Speaker 2: tariff impact. Why it's going to drive up prices once
13:36
Speaker 2: and then you know a year from now. If I'm
13:39
Speaker 2: the FED, I don't exactly expect coffee prices to be
13:42
Speaker 2: up another twenty one percent. We've already built in that
13:44
Speaker 2: tariff effect. And if anything, the year over year comps
13:48
Speaker 2: should look better. The year over year comps should look better.
13:50
Speaker 2: You could have more tariff negotiations, maybe Brazil is not
13:53
Speaker 2: paying fifty percent tariffs or all of these different things. Heck,
13:56
Speaker 2: it's with the Supreme Court right now. You don't even
13:58
Speaker 2: know if it's going to be overned entirely. So I
14:01
Speaker 2: think the more and more I've considered all of this,
14:04
Speaker 2: am I concerned about underlying inflation and what it will
14:07
Speaker 2: look like a few years from now? Yes? I am.
14:10
Speaker 2: I think it could be an overlooked variable that is
14:13
Speaker 2: not being paid enough attention to. But if I'm putting
14:17
Speaker 2: myself in J. Powell's shoes and the FED shoes. I
14:20
Speaker 2: am embarking on a rate cutting cycle that probably lasts
14:24
Speaker 2: more than one meeting. I do think with the trend
14:27
Speaker 2: that you're seeing in employment right now, all else equal,
14:30
Speaker 2: you're cutting rates by a little bit at this meeting,
14:33
Speaker 2: and you are indicating that you're going to go further
14:35
Speaker 2: at the next several.
14:35
Speaker 3: That makes sense. You're throwing all your resources at employment.
14:39
Speaker 3: I can see the logic behind the decision to sort
14:43
Speaker 3: of put inflation on the back burner for the moment
14:46
Speaker 3: and recognize that the labor market is a more near
14:49
Speaker 3: term threat for the economy. But I don't love the
14:52
Speaker 3: idea of shrugging off inflation. But I can get the logic.
14:56
Speaker 2: Yeah, I mean they were wrong to shrug it off
14:58
Speaker 2: three years ago. The piece that gives me real pause
15:01
Speaker 2: is they completely misread everything three years ago when it
15:04
Speaker 2: came to inflation, and they are basically if they just
15:09
Speaker 2: you know again, if you buy the argument that I
15:10
Speaker 2: just made, then you're buying the transitory argument once again, right,
15:15
Speaker 2: And that word is taboo.
15:16
Speaker 1: Now.
15:17
Speaker 2: How many of us were saying transitory, Oh my gosh
15:20
Speaker 2: back in twenty two to two when it came to
15:22
Speaker 2: everything that we were facing and guess what, it wasn't
15:25
Speaker 2: all that transitory, and maybe this moment isn't either. But
15:28
Speaker 2: that is the word that they are not going to
15:31
Speaker 2: use because of how taboo it is. But it's effectively
15:33
Speaker 2: if you read through the arguments that they're making, that's
15:36
Speaker 2: what they're saying is, look, it's terrif related. We'll see
15:38
Speaker 2: these price increases, there'll be a one time adjustment two prices,
15:41
Speaker 2: and then things will settle back in at our normal
15:44
Speaker 2: two percent target. And we're willing to look past all
15:46
Speaker 2: of that. The obvious risk to all that is they're wrong. Yes,
15:50
Speaker 2: So do you want to talk about how they could
15:52
Speaker 2: be wrong when it comes to all this, like how
15:54
Speaker 2: could they be missing the boat? Here? Let's play out
15:57
Speaker 2: a completely different scenario, right. The scenario for the last
16:00
Speaker 2: few months has been tariffs are in place. AI is
16:05
Speaker 2: playing some role in the labor market that's making employers
16:08
Speaker 2: less interested in hiring a boatload of people. I have
16:12
Speaker 2: a personal belief on that that it's not because they're
16:13
Speaker 2: actually having effective usage of AI. It's just that they
16:16
Speaker 2: want to signal to markets that they're having an effective
16:19
Speaker 2: usage of AI. And the best way to do that
16:21
Speaker 2: is not hiring people.
16:22
Speaker 3: Yeah, I think it's more the economic uncertainty that businesses
16:25
Speaker 3: aren't expanding their labor force more so than AI taking.
16:28
Speaker 2: Jobs agreed, So they have been hesitant to hire. That's
16:33
Speaker 2: led to a you know, it's not a week labor market.
16:36
Speaker 2: Four point three percent unemployment isn't really a weak labor market,
16:39
Speaker 2: but it's been pretty low rates of hiring. They've been
16:43
Speaker 2: hoarding labor. They've been holding off on any big projects
16:47
Speaker 2: other than artificial intelligence expansion. That's the only thing that
16:49
Speaker 2: people have been willing to invest in. But housing has
16:52
Speaker 2: been taking a side. And so the question would be, Okay,
16:56
Speaker 2: if you're buying that inflation is just transitory and it's
16:59
Speaker 2: going to have a one time price adjustment because of
17:01
Speaker 2: tariffs and then die off, how could they be wrong? Well,
17:06
Speaker 2: let's play that through tariffs could get overruled here in
17:09
Speaker 2: the next coming months. When it comes to all of this, Yep,
17:13
Speaker 2: there's been one hundred I think one hundred and fifty
17:16
Speaker 2: billion dollars worth of tariff revenue collected just since March.
17:20
Speaker 2: This economy looks really different. If you have to go
17:23
Speaker 2: refund one hundred and fifty billion dollars to every company
17:26
Speaker 2: in the United States. Loo's a lot different if those
17:31
Speaker 2: tariffs go away, you know, companies start buying up everything
17:36
Speaker 2: that they can to get it in the United States
17:38
Speaker 2: once again likely we saw earlier this year. Why because
17:42
Speaker 2: guess what if the Supreme Court does overrule the President
17:45
Speaker 2: on tariffs, they're not going to just turn away and say, Okay,
17:47
Speaker 2: we're done. They're going to go and they're going to
17:50
Speaker 2: go try and create another law and use another deformation
17:53
Speaker 2: for tariffs. That takes a little bit longer, and so
17:55
Speaker 2: you're back to that uncertainty. But in the short term,
17:57
Speaker 2: you potentially have companies buying up everything that they can
18:00
Speaker 2: hand The last piece on all this, we have a
18:04
Speaker 2: labor market that has been stuck. Could something unstick it
18:09
Speaker 2: in some way, shape or form. I'm just not sure
18:12
Speaker 2: what that looks like, but you sure do have a
18:14
Speaker 2: lot of money being spent on this artificial intelligence investment.
18:19
Speaker 2: Should that turn into something on the hiring side that
18:23
Speaker 2: ticks up hiring. Maybe it's because companies are facing less
18:26
Speaker 2: uncertainty when it comes to tariffs. Maybe it's something else entirely,
18:30
Speaker 2: but anything that kind of changes that labor market story
18:34
Speaker 2: that could change the entire trajectory of all of this
18:38
Speaker 2: and drive things higher. And then finally, the whole thing
18:41
Speaker 2: that they're doing is lowering interest rates that is entirely
18:45
Speaker 2: designed to spur economic activity. So again, I don't really
18:50
Speaker 2: think that they are wrong on this one. I tend
18:52
Speaker 2: to believe that they are right to look through the
18:55
Speaker 2: current inflation that we are seeing in that three percent range.
18:59
Speaker 2: But they do have this undercurrent of inflation that has
19:02
Speaker 2: not existed in this economy for decades, and I hope
19:06
Speaker 2: they don't completely ignore it.
19:07
Speaker 3: Yeah, my last piece would be that the inflation increases,
19:11
Speaker 3: maybe they get a little more substantial than we anticipate
19:14
Speaker 3: because of just the slow bleeding out of how they've
19:18
Speaker 3: been phased in, and maybe that causes inflation to run away.
19:21
Speaker 2: Quicker quick break. We've got Wall Street Watch coming up 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
19:53
Speaker 1: Street Watch, a complete look at what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 3: Markets our mixed territory.
20:01
Speaker 4: Putting a bow on a week filled with inflation and
20:04
Speaker 4: labor data ahead of the FEDS anticipated meeting on tap
20:09
Speaker 4: next week. Right now, the Dow is down by three
20:11
Speaker 4: tenths of one percent, or one hundred and forty four
20:13
Speaker 4: points lower. SMP five hundred is edging only three points higher.
20:18
Speaker 4: NASDAC up three tenths of one percent or eighty two
20:21
Speaker 4: points higher. Russell two thousand is down six tenths of
20:24
Speaker 4: one percent. Tenure Treasure reeled up five basis points today
20:28
Speaker 4: and is now at four point zero six four percent.
20:31
Speaker 4: In crude oil up nearly two percent higher, trading at
20:34
Speaker 4: sixty three dollars and forty five cents a barrel. Well
20:38
Speaker 4: big news in the media world this morning after CNBC
20:40
Speaker 4: reported that Paramount Skydance was readying an offer for Warner
20:44
Speaker 4: Brothers Discovery. However, as of Thursday, Warner Brothers had yet
20:48
Speaker 4: to receive an offer, but a bid could come as
20:52
Speaker 4: soon as next week. Yesterday, Warner Brothers stock sored twenty
20:55
Speaker 4: eight percent on the news and is up another nine
20:59
Speaker 4: percent to Meanwhile, shares in super Microcomputer rising nearly three
21:03
Speaker 4: percent after the AI tech firm announced it is now
21:07
Speaker 4: delivering equipment powered by nvidia's Blackwell Ultra technology in volume
21:12
Speaker 4: to customers elsewhere. Open Ai and Microsoft reach a deal
21:16
Speaker 4: to extend their partnership despite a summer of tough negotiations.
21:21
Speaker 4: Microsoft shares are up by about one percent. Software company
21:25
Speaker 4: Adobe raised its annual outlook for the second time this
21:29
Speaker 4: year after reporting better than expected quarterly results. However, that
21:33
Speaker 4: stock is down by about one percent. Furniture retailer rh
21:37
Speaker 4: trimmed its annual outlook as it struggles with higher terror
21:41
Speaker 4: related costs and uncertainty, that stock falling over one percent
21:45
Speaker 4: and after surging seventy eight percent yesterday. Recent memestock open
21:50
Speaker 4: Door Technologies is retreating over seven percent today. I'm Tucker
21:56
Speaker 4: Silva and that is Wall Street Watch.
21:58
Speaker 2: According to Well Saint Louis Fed, who sources their data
22:02
Speaker 2: from realtor dot com, there are currently one point zero
22:06
Speaker 2: nine to nine million homes for sale in the United States.
22:09
Speaker 2: That would include condos and other types of listings. We
22:13
Speaker 2: are officially on the sick look, or the seasonal downward
22:17
Speaker 2: trend that you get towards the end of the summer
22:19
Speaker 2: when it comes to home listings. We peaked out at
22:22
Speaker 2: just over one point one million homes back in July,
22:25
Speaker 2: and we're assuming that we follow the same trend that
22:29
Speaker 2: we have for almost every year in modern history when
22:32
Speaker 2: it comes to home sales, we will start to see
22:34
Speaker 2: those slide, sorry, home listings. We will start to see
22:37
Speaker 2: those slide into the fall season here as people delist
22:41
Speaker 2: their homes ahead of Thanksgiving and Christmas holidays. To give
22:45
Speaker 2: you a point of comparison, back in August of twenty nineteen,
22:49
Speaker 2: there are one point two three five million homes for sale,
22:53
Speaker 2: so still a far cry from where we were, but
22:56
Speaker 2: obviously getting much closer to a inventory state that is
23:01
Speaker 2: more similar to where we were back in twenty nineteen.
23:04
Speaker 2: That varies considerably state to state. We've talked a lot
23:07
Speaker 2: about that. In Florida you have a much weaker housing
23:09
Speaker 2: market than you did in twenty nineteen. In Connecticut you
23:13
Speaker 2: have a one that there's so few homes for sale,
23:17
Speaker 2: I don't know how everyone anyone even buys one. The
23:20
Speaker 2: Wall Street Journal asks if the new mortgage rate scenario
23:24
Speaker 2: that we're seeing now might come to the rescue of
23:26
Speaker 2: the housing market, and my answer is it all depends
23:29
Speaker 2: on timing. So in terms of where we are right now,
23:32
Speaker 2: your average thirty year fixed rate is sitting at six
23:34
Speaker 2: and a quarter. That probably means that there are some
23:37
Speaker 2: folks out there that are getting close to under six percent.
23:41
Speaker 2: For those very high credit ratings that are putting twenty
23:44
Speaker 2: percent down on a conforming mortgage, you might be getting
23:46
Speaker 2: into the five nine nine range. On that the average
23:49
Speaker 2: fifteen year fixed you're looking at five point seven percent.
23:53
Speaker 2: And so the question therefore is will that be enough
23:57
Speaker 2: to spur a big fall housing sea or do we
24:01
Speaker 2: really need to see what happens next spring. When it
24:03
Speaker 2: comes to all of this, my sense is this is
24:06
Speaker 2: not enough to move a bunch of potential buyers off
24:09
Speaker 2: the couch here.
24:10
Speaker 3: No, you have to lean on the seasonal trends for that.
24:13
Speaker 3: I mean, so much of it is driven by once
24:15
Speaker 3: school gets back in and going, you don't really have
24:18
Speaker 3: a tremendous amount of volume going off on the fall
24:20
Speaker 3: winter period. But if the rates were to stay in
24:24
Speaker 3: around this level, or perhaps lessen and break that six
24:27
Speaker 3: percent barrier, I think that is a big psychological piece
24:30
Speaker 3: that if you could get the thirty year fixed at
24:33
Speaker 3: high fives, then maybe that spurs more buyers into the
24:37
Speaker 3: market where they can kind of justify the monthly payment
24:40
Speaker 3: a little bit more if they're sitting at under six percent.
24:42
Speaker 3: I'm also pretty happy. I think my mortgage predictions that
24:45
Speaker 3: we did at the beginning of this year have it
24:48
Speaker 3: somewhere between seven percent and five eight five. So if
24:52
Speaker 3: I could just get that, that would help.
24:54
Speaker 2: Between five eight five and seven. Come on, we're allowed
24:58
Speaker 2: to have two and a half percent ranges on these guesses.
25:01
Speaker 3: Look at what what were the Guessestecker? What do they
25:03
Speaker 3: say for thirty year of ranges?
25:05
Speaker 2: Mine made no sense. I remember that my prediction was
25:08
Speaker 2: just just gobbllygook.
25:10
Speaker 4: Non Yeah, Paul, you had low five eight five, high
25:13
Speaker 4: seven to one, Chuck had five to two seven eight
25:16
Speaker 4: call me noster Damas, and Mike had whatever was now,
25:21
Speaker 4: which was back in December of twenty four and a
25:24
Speaker 4: lowest six five.
25:26
Speaker 2: Oh well, I was way off. There were already six
25:29
Speaker 2: in a corner. But that said, I didn't decide to
25:32
Speaker 2: use a three percent swing on my mortgage prediction rates.
25:35
Speaker 2: So nonetheless, yeah, you're looking like you might win that one, Paul. Yeah,
25:41
Speaker 2: that's the answer to me. Yes, you will have a
25:43
Speaker 2: bunch of refinancing activity at these rates, because there are
25:45
Speaker 2: a bunch of people with seven percent mortgages right now
25:47
Speaker 2: and so I think they'll be more than happy to
25:49
Speaker 2: refinance into a six and a quarter or six percent
25:51
Speaker 2: right now. The fact of the matter, that is not
25:56
Speaker 2: a huge generator of economic activity. No, No, it's a
25:59
Speaker 2: bit of a general raider, right because yeah, if you
26:01
Speaker 2: if you finance down from seven to six, you are
26:04
Speaker 2: saving a lot on that monthly payment and you can
26:06
Speaker 2: go blow that on. I don't know what what's the
26:10
Speaker 2: what's the trendy thing toes the boo boos? Is that
26:13
Speaker 2: a thing? What the boo boos?
26:15
Speaker 4: I have no idea what you're talking about?
26:16
Speaker 2: You about?
26:17
Speaker 4: No, I don't think anybody does, actually sure?
26:22
Speaker 3: What can you describe the item?
26:24
Speaker 2: The boo boo?
26:26
Speaker 1: What is?
26:27
Speaker 2: This is a popular character and line of collectible blind
26:32
Speaker 2: box toys created by Hong Kong artist Casting Lung that
26:35
Speaker 2: are sweeping the nation right now of nine and seven
26:38
Speaker 2: year old girls.
26:39
Speaker 3: My god, So that's what you do with your housing
26:44
Speaker 3: excess catch.
26:45
Speaker 2: So everybody's going out there and buying the boo boos?
26:47
Speaker 2: Would be my guess when it comes to all these things. Yeah, yeah,
26:52
Speaker 2: I think I think a famous tennis player had one
26:54
Speaker 2: on her on her tennis bag and it made.
26:57
Speaker 3: I thought, you were gonna go with, like, you know,
26:58
Speaker 3: spend money to redo the the porch.
27:01
Speaker 2: Just a whole of probably probably these labuobuos and then
27:06
Speaker 2: those rubber ducks that everybody likes to put on their
27:08
Speaker 2: jeeps these days or other jeep don't get me started.
27:11
Speaker 2: I don't know how that works, but I'm glad I'm
27:14
Speaker 2: not part of that.
27:15
Speaker 4: These wranglers driving around with like three hundred ducks just
27:20
Speaker 4: covering their dashboard for some stupid reason. The whole thing
27:23
Speaker 4: with the wranglers and looking.
27:25
Speaker 2: No idea what he's talking about.
27:26
Speaker 3: I kind of seeing the ducks thing, but I didn't
27:28
Speaker 3: know where that stems from. Is it like a TikTok prank?
27:31
Speaker 4: No, it's it's it's a jeep thing. I don't know
27:34
Speaker 4: what the camaraderie is with jeep jeeps and like wave
27:36
Speaker 4: into each other, Like.
27:38
Speaker 2: When your car breaks down every three thousand miles, you
27:41
Speaker 2: have to have like a community to surround you on
27:44
Speaker 2: you know what to do when these things happen.
27:46
Speaker 4: Like my wife has a jeep compass, and I see
27:48
Speaker 4: people like waving to me all the time out when
27:50
Speaker 4: you're not when you're a beautiful Italian car breaks down,
27:53
Speaker 4: wave not accepted.
27:55
Speaker 3: Jeep ducking. I did not know this is the thing.
27:58
Speaker 2: Well, I'm glad we got to cover it on this front.
28:00
Speaker 2: Let's take a quick break. When we do come back,
28:03
Speaker 2: I want to talk one more time about the labor market.
28:06
Speaker 2: We've been talking a lot about labor hoarding this year.
28:10
Speaker 2: Employers not quite willing to leave their employees, employees unwilling
28:14
Speaker 2: to jump ship and go somewhere else. Quick break labor hoardings.
28:17
Speaker 2: Next on The Financial Exchange.
28:19
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28:22
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29:23
Speaker 2: Connor sent from Bloomberg, is out with an opinion piece
29:27
Speaker 2: on labor hoarding. So let's talk about that first before
29:30
Speaker 2: we get any further. Paul, there is compelling data that
29:35
Speaker 2: would indicate that labor turnover of any sort has been
29:39
Speaker 2: way down. You take a look at quits rates, at
29:42
Speaker 2: firing rates, all of these things are pretty low, and
29:44
Speaker 2: I helped. I think that helps explain the low unemployment rate.
29:50
Speaker 2: How would I explain why this is the case. You know,
29:54
Speaker 2: I think that generally speaking, companies, financials have been in
29:57
Speaker 2: relatively good shape over the last few year years. They
30:00
Speaker 2: haven't been pressured to lay people off on the hiring side, though,
30:05
Speaker 2: they've been kind of taking a wait and see approach
30:07
Speaker 2: when it comes to things like tariffs and artificial intelligence
30:10
Speaker 2: and how those technologies are going to work out and
30:12
Speaker 2: change their hiring plans, and how rather tariff policy is
30:16
Speaker 2: going to change those hiring plans. And so it's been
30:19
Speaker 2: in a place where, hey, you know, our stock price
30:21
Speaker 2: is doing Okay, we have enough profit to continue to
30:24
Speaker 2: pay wages, but we're not going to offer big bonuses
30:27
Speaker 2: or increases because we just don't feel like we need
30:30
Speaker 2: to at this stage. What is kind of layout as
30:32
Speaker 2: an argument for why that might be coming to an
30:35
Speaker 2: end or changing here. I don't know that I see
30:38
Speaker 2: a ton of really compelling evidence here, but he makes
30:42
Speaker 2: a few points about the state of the labor market.
30:44
Speaker 3: Yeah, I think that some of the factors that you
30:47
Speaker 3: have in places, the labor supply is something that you
30:50
Speaker 3: have to consider here too, that perhaps where there's not
30:53
Speaker 3: going to be as robust of a supply of people
30:55
Speaker 3: looking for positions, that further re emphasizes that point of
30:59
Speaker 3: just keeping the people that you have on staff. But
31:03
Speaker 3: they he does make the argument that the scenario could
31:05
Speaker 3: come to pass that you would start firing some of
31:08
Speaker 3: the older workers to take advantage of the new up
31:11
Speaker 3: and coming, the cheap up and comers. You know, I
31:14
Speaker 3: don't think it's to that point yet, but we've talked
31:16
Speaker 3: about how the college graduate market in terms of new
31:19
Speaker 3: jobs was very weak this year. Doesn't get do you
31:23
Speaker 3: go through two cycles of this where we have another
31:25
Speaker 3: you know, range of graduations come in in May of
31:27
Speaker 3: twenty six, and you get through two cycles where you
31:29
Speaker 3: have a bunch of young people looking for work and
31:31
Speaker 3: all of a sudden bringing them on it. I don't know,
31:34
Speaker 3: fifty sixty K looks a lot more enticing than paying
31:37
Speaker 3: more for that that senior person.
31:39
Speaker 2: That was my first role right out of college during
31:42
Speaker 2: the Great Recession. It was not made explicit to me
31:45
Speaker 2: during the hiring process, but within my first few weeks
31:48
Speaker 2: there I was getting a vibe and then in explicit
31:52
Speaker 2: comment from somebody about how I, you know, effectively replaced
31:55
Speaker 2: somebody that was making over one hundred thousand dollars just
31:58
Speaker 2: a few years ago and got laid off during the recession,
32:01
Speaker 2: and you know, higher little old college grad mic for
32:05
Speaker 2: probably half of what they were paying that person to do,
32:08
Speaker 2: you know, ninety percent of the same job. And so
32:12
Speaker 2: I do find that piece compelling. There is a large
32:14
Speaker 2: cohort of twenty something year olds that are looking for
32:17
Speaker 2: white collar work, in particular not finding it. On the
32:22
Speaker 2: other end, you've got these companies that are holding on
32:25
Speaker 2: to employees who are getting older every year, and so
32:32
Speaker 2: in the event of any sort of financial pressure, I
32:35
Speaker 2: can see a compelling case for why they would go
32:38
Speaker 2: on a layoff spree and then a rehiring of those
32:40
Speaker 2: younger employees. But I do think there has to be
32:43
Speaker 2: some form of financial pressure. I don't think it's just automatic.
32:46
Speaker 2: I don't think that employers oftentimes just sit there and say, yeah,
32:50
Speaker 2: let's conduct a few thousand layoffs just for the sake
32:53
Speaker 2: of saving, you know, a few bucks on labor. I
32:56
Speaker 2: don't think that's usually how it works out.
32:58
Speaker 3: No, tactically, it's not something you know what I was
33:00
Speaker 3: reading about recently with the Japanese labor market, I had
33:03
Speaker 3: no idea this is a concept. With older workers there,
33:06
Speaker 3: they just sunset them to just work at a desk
33:09
Speaker 3: with a window and no files in front of them,
33:12
Speaker 3: and keep them on as employees and still pay them
33:14
Speaker 3: just for respect for the elderly, and then they just.
33:21
Speaker 2: Give them more work, give them more work, and then
33:23
Speaker 2: file them fire them. I could not believe.
33:28
Speaker 3: It's literally like George Costanza where they just have him
33:31
Speaker 3: with the Penske file and these people don't even have files.
33:34
Speaker 3: But anyway, I digress there. It does seem like the
33:37
Speaker 3: layoff piece is something that companies turn to as a
33:40
Speaker 3: last resort. Rather you've seen the tactical moves of an Amazon,
33:44
Speaker 3: and many others have followed the same procedure too, of hey,
33:47
Speaker 3: everyone come back into the office five days a week,
33:49
Speaker 3: no more remote work. If you don't like it, you
33:52
Speaker 3: can leave. And that's been an easier way to kind
33:54
Speaker 3: of force people out to a certain path to leave
33:58
Speaker 3: that position, rather than doing the traditional layoff measure.
34:03
Speaker 2: One other piece on the labor market that I was
34:06
Speaker 2: at a conference earlier this week. I wasn't doing the
34:08
Speaker 2: radio program, I wasn't working. I was speaking to other
34:11
Speaker 2: financial professionals. And at all of these things they always
34:14
Speaker 2: do all sorts of demographic surveys and try to tell
34:16
Speaker 2: you about different generations. Because again it's a survey, it's
34:20
Speaker 2: a financial advisor conference. They don't want to tell you
34:23
Speaker 2: about that next generation and how you're going to bring
34:24
Speaker 2: them on as clients. And they came up with a
34:26
Speaker 2: bunch of stuff that I just it reminds me exactly
34:29
Speaker 2: of how everybody was describing millennials last time, you know.
34:32
Speaker 2: This time it was, Oh, they're really not tied down
34:34
Speaker 2: to a specific location or job they want. They like
34:38
Speaker 2: the idea of being able to hop around. They don't
34:40
Speaker 2: look at the workforces the way that we used to
34:42
Speaker 2: do traditionally, where you would work for an employer long term,
34:45
Speaker 2: and I don't know, to me, that reminded me exactly
34:49
Speaker 2: of all the millennial stuff like, oh, they don't want
34:51
Speaker 2: to own homes, they wanted the flexibility of renting forever.
34:55
Speaker 2: And then guess what millennial home ownership is exactly where
34:58
Speaker 2: it was for their parents' generation by their mid thirties.
35:01
Speaker 2: And so a lot is going to be said about
35:04
Speaker 2: these you know, gen zers and where they are going
35:07
Speaker 2: to work into the labor force and what they want.
35:10
Speaker 2: And I think my answer is, don't listen to surveys
35:16
Speaker 2: about that generation and how different they are, because generation
35:19
Speaker 2: after generation has proven that they just aren't all that different.
35:22
Speaker 2: They do want to own homes, they do want stable
35:25
Speaker 2: careers that play them good benefits. And once they realize that,
35:28
Speaker 2: and you know, aren't. Look at twenty two, I wanted
35:31
Speaker 2: to go travel the world and only work for an
35:34
Speaker 2: employer nine months of the year two and then I
35:36
Speaker 2: quickly realized how impractical that is and realized that I
35:39
Speaker 2: needed to get a job. So I just take all
35:41
Speaker 2: of that with a grain of salt, and I would
35:43
Speaker 2: encourage everybody else to as well, because I just don't
35:46
Speaker 2: buy some of these trends.
35:47
Speaker 3: No, it's always there's always these concepts on the fringes
35:51
Speaker 3: that you hear about, like ones you just mentioned about
35:54
Speaker 3: flexibility and not owning a home and things like that.
35:57
Speaker 3: But I don't think that represents the overwhelming Maybe they're right,
36:01
Speaker 3: maybe there is a uptick in those people who feel
36:04
Speaker 3: that way, but still, at the crux of it, the
36:06
Speaker 3: majority of the generation ends up falling to similar trends.
36:10
Speaker 3: For the most.
36:11
Speaker 2: Part, folks, we have markets again touching near all time highs. Here.
36:17
Speaker 2: We have seen a pretty dramatic shift in the way
36:21
Speaker 2: interest rates are likely to be headed over the course
36:23
Speaker 2: of the next few months, and for many the economy
36:26
Speaker 2: scenes to be at some sort of turning point. If
36:30
Speaker 2: you are staring down this market and scratching your head
36:34
Speaker 2: or just wondering what comes next, I'd like to talk
36:36
Speaker 2: to you about two events that we have the Armstrong
36:38
Speaker 2: Advisory Group are putting on. One of them is going
36:42
Speaker 2: to be down on Cape cod the other one in
36:44
Speaker 2: Chestnut Hill, Massachusetts. The first is at the Margaritaville Resorts
36:49
Speaker 2: on October ninth. The second down at the showcase Superlux
36:52
Speaker 2: and Chestnut Hill on October sixteenth, Both of them will
36:55
Speaker 2: be doing a live broadcast of this show, the Financial Exchange,
36:58
Speaker 2: followed by a seminar from Armstrong Advisory Group. Join us
37:02
Speaker 2: for lunch. We'll be talking about all things markets, economy
37:05
Speaker 2: and what it means for your financial strategy. If you
37:09
Speaker 2: want more information, there's a ton of it online at
37:12
Speaker 2: Armstrong Advisory dot com. There's a little banner right at
37:14
Speaker 2: the top that gives you details on the event. You
37:16
Speaker 2: can sign up there too, but space is limited for
37:20
Speaker 2: these events. Again, there's two of them, one on October ninth,
37:23
Speaker 2: the second on October sixteenth. If you're going to be
37:26
Speaker 2: in the area and you want to catch a live
37:28
Speaker 2: version of the show and chat with us after, call
37:32
Speaker 2: us at eight hundred three nine three for zero zero one.
37:35
Speaker 2: Check us out at Armstrong Advisory dot com slash events.
37:38
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37:42
Speaker 2: for zero zero one.
37:44
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
37:46
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37:49
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37:59
Speaker 2: As we adhere to the top of the hour, we've
38:02
Speaker 2: got an incredibly boring stock market. As we close things
38:06
Speaker 2: out here, the Dow is off one hundred and forty
38:08
Speaker 2: eight points, or one third of one percent, the S
38:11
Speaker 2: and P five hundred up six points, less than one
38:14
Speaker 2: tenth of one percent, and the Nasdaq seeing a little
38:16
Speaker 2: bit of move to the upside here, up one hundred
38:19
Speaker 2: and two points nearly half a percent in the trading
38:22
Speaker 2: so far today. The yield and the ten yure treasury,
38:25
Speaker 2: a main driver of mortgage rates and other types of loans,
38:28
Speaker 2: back up over four percent after dipping below there over
38:31
Speaker 2: the course of the last few days, sitting at four
38:33
Speaker 2: point zero six four percent, and oil moving up a
38:37
Speaker 2: little bit on risk of Russian output, up one and
38:41
Speaker 2: a half percent in early trading. We got a lot
38:43
Speaker 2: more to cover in the second hour here, folks, stay tuned,
38:46
Speaker 2: We'll be right back