Speaker 1: Live from the Heart Blind and the Crossroads of America.
Speaker 2: It's Tony Katz today.
Speaker 1: So the economy shed twenty three thousand jobs in July.
Speaker 1: It missed the expectations, and the market.
Speaker 2: Said that's cool, and you said something.
Speaker 1: It's cool by us. We're fine with it. We're good
Speaker 1: with it, no problem. As a matter of fact, we'll
Speaker 1: go up, Tony Katz. Tony Katz today, Good to be
Speaker 1: with you. There are reasons, though, there are reasons, including,
Speaker 1: of course, inflation and rate hikes. Doctor Mattwell joined as
Speaker 1: economist at the University of Indianapolis. I started to understand
Speaker 1: this one early, but I want to understand what's in
Speaker 1: the jobs report. First, you took a look at it.
Speaker 1: We've got jobs report, We've got unemployment numbers. Walk me
Speaker 1: through what the report says, the Job's report, and what
Speaker 1: it says to you.
Speaker 3: Okay, Well, I'm going to start off by telling you
Speaker 3: that the headline is bad. And just like the other
Speaker 3: day we talked about this. You know, headlines are bad,
Speaker 3: but when you look under the hood, it's actually good
Speaker 3: for the economy, believe it or not. So let's start
Speaker 3: with the headline minus twenty three thousand jobs, which is
Speaker 3: really interesting because the expectation is plus eight eighty thousand,
Speaker 3: so this was one hundred thousand job myths. That's a
Speaker 3: big deal. But let's now start looking underneath the hood.
Speaker 3: Unemployment rate dropped from four point two to four point
Speaker 3: one percent. That's good, okay, Now for the bad. The
Speaker 3: only reason to drop is because the participation rate declined.
Speaker 3: Fewer people are looking for jobs. Fewer people are in
Speaker 3: the workforce. Now more bad news for you. Tony, May
Speaker 3: and June were revised down by one hundred and three
Speaker 3: thousand jobs, so people didn't get employed this quarter. Argue
Speaker 3: this month, two big revisions. I mean, there's a lot
Speaker 3: going on there that's not good. But there is a
Speaker 3: good part to this. The private industry gained thirty thousand jobs,
Speaker 3: so there was a growth in private and the government
Speaker 3: lost fifty three thousand. This was all government job loss,
Speaker 3: so as far as the market's concerned, good Again, back
Speaker 3: to the same scene we've been talking about. Government is contracting,
Speaker 3: private industry is growing, and if you look across the board,
Speaker 3: there's some pretty good information in this. I mean, construction
Speaker 3: twenty two thousand jobs up, durable goods manufacturing eighteen thousand
Speaker 3: jobs up, Transportation warehousing ten thousand jobs up. I mean,
Speaker 3: there is good news in this report for the private economy,
Speaker 3: and wages didn't grow that much. I know, again that
Speaker 3: sounds bad, but there's a story behind this and why
Speaker 3: this job's report is loved by the market.
Speaker 1: So I've with you on the government stuff, and I
Speaker 1: have discussed this now in a couple of places. Your
Speaker 1: point that GDP gross domestic product one point five percent
Speaker 1: bad headline. But if government spending juices GDP, we had
Speaker 1: less government spend, which is good for us the taxpayer.
Speaker 1: It just makes the GDP number look worse. But yet,
Speaker 1: when you look as you describe it, under the hood,
Speaker 1: things on some fundamentals, specifically manufacturing, very very solid. When
Speaker 1: I took a look at market response and I watched
Speaker 1: the futures go up one hundred points in a blink
Speaker 1: of an eye after this report came out, it became
Speaker 1: pretty clear to me. And I feel like all this
Speaker 1: talking together has finally gotten me some level of degree,
Speaker 1: maybe only in associates, but still am on my way
Speaker 1: that what they saw is the job market might be weaker.
Speaker 1: So those in the federal Reserve who are thinking about
Speaker 1: rate hikes to tamp down and tamper down inflation, might
Speaker 1: think twice and no rate hikes is where the market
Speaker 1: wants to be true or false.
Speaker 3: Uh close, tony close, I'm giving you a B, not
Speaker 3: an A.
Speaker 2: Yeah, teacher, ever.
Speaker 3: I'm sorry. Well, every time someone gets a bad grade,
Speaker 3: that's what they tell me. You're very close. The reason
Speaker 3: was the unemployment rate drop. So it's not that the
Speaker 3: job market is bad, it's that the wage growth is
Speaker 3: not exorbitant. Wage growth would indicate inflation. So the bad
Speaker 3: part where you're correct is in quotes, wage inflation is
Speaker 3: not there. And the unemployment rate stayed at four point one,
Speaker 3: I mean four two to four to one, so we
Speaker 3: didn't have hot unemployment. If we had significantly increasing unemployment,
Speaker 3: there would be pressure on the Fed to cut rates.
Speaker 3: There's inflation, which seems to be in this case moderate
Speaker 3: not outrageous. Moderate, which is less pressure to increase rates.
Speaker 3: So the said, here's what happened this morning. In the markets,
Speaker 3: there is a fifty seven percent chance that said was
Speaker 3: going to do a rate hike in September. There's stuff
Speaker 3: on Wall Street and in the options market, in futures
Speaker 3: market that predicts this that went down as soon as
Speaker 3: this came out. As soon as it came out the
Speaker 3: news on the unemployment, that probability dropped from fifty seven
Speaker 3: percent to forty seven percent. So the headline is this
Speaker 3: inflation argues for a hike, employment argues against it. And
Speaker 3: this morning the employment one.
Speaker 1: Talking to doctor Matt will the economist from the University
Speaker 1: of Indianapolis. So when you talk about winning this back
Speaker 1: and forth, this seems to be a non scientific struggle.
Speaker 1: This only seems to be a reaction struggle. Am I
Speaker 1: right about that?
Speaker 3: Oh? Absolutely, that's exactly what's happening.
Speaker 2: So the reaction from Wall Street was that the.
Speaker 3: Lack of.
Speaker 1: Labor participation, which would show us that we don't have
Speaker 1: wage inflation, means that everything is getting better.
Speaker 3: Yes, But your phrase reaction is why you might get
Speaker 3: an as on this now, because what happened is it's
Speaker 3: the reaction to the latest piece of news. You and
Speaker 3: I the other day talked about the PCE very high, CPI,
Speaker 3: eh okay, PPI terrible. That was Then today's news is, look,
Speaker 3: unemployment is pretty flat. That's good, wage increase not going
Speaker 3: through the roof. So what happened here is today's most
Speaker 3: immediate current news reaction is okay, inflation under control, no
Speaker 3: rate change. So that's what the market saw. The latest reaction.
Speaker 3: Now you know, something could happen tomorrow and completely changed
Speaker 3: the game again. But this is what the market's doing
Speaker 3: with the news that got today. Okay, unemployment's fine, wage inflacement,
Speaker 3: inflation is reasonable, no reason to overreact here. So the
Speaker 3: Fed again only a forty four percent chance they're going
Speaker 3: to do a rate increase. Now the market likes that.
Speaker 3: The market liked it so much that as soon as
Speaker 3: they got that information, the futures jump. NASDAK futures immediately
Speaker 3: went up one point one percent, S and T futures
Speaker 3: went up half a percent instantly instantly on the news
Speaker 3: coming out. And the tenure treasury, which you talked about,
Speaker 3: the tenure treasury sell eight BIPs eight basis points down
Speaker 3: to four point one six or the two year treasury
Speaker 3: I mean, and the ten year also went down to
Speaker 3: four point six to one immediately reaction lower treasury rates.
Speaker 3: Market bumped both Nasdaq and SMP across the board. The
Speaker 3: market loves this.
Speaker 1: Can't discuss something else that I'm surprised I haven't heard
Speaker 1: from Beat since the Treasure Secretary or President Trump that
Speaker 1: the US trade deficit contracted. It went to seventy three
Speaker 1: point three billion in June from seventy seven point six
Speaker 1: billion in May. That story just came out earlier this week.
Speaker 1: Everything about tariffs is about trade deficits, that somehow trade
Speaker 1: deficits are the end of civilization.
Speaker 2: I don't believe that they are.
Speaker 1: I believe it's a bad reason to implement tariffs as
Speaker 1: a concept.
Speaker 2: Does this trade deficit going down not?
Speaker 1: Does that have an effect on people, on how people
Speaker 1: see the market, manufacturing, futures, et cetera.
Speaker 3: No, when you say people, if you're talking about Wall
Speaker 3: Street and financial experts, no, because actually what you saw
Speaker 3: was a blip. The trade deficits has been growing since
Speaker 3: tariff institution has been stabilized, and this is exactly what
Speaker 3: I consider a good thing. Again, I'm a fan of
Speaker 3: trade deficits. I'm not against them because to cause foreign
Speaker 3: direct investment, we buy lots of cheap crap from overseas,
Speaker 3: and those dollars that we spend flow back into the
Speaker 3: United States in the form of investing in our country,
Speaker 3: which is how you grow your economy. So I've got
Speaker 3: lots of research on this. I'm a fan of these
Speaker 3: trade deficits, so I don't think he made a comment
Speaker 3: about it because it was just a blip. And if
Speaker 3: he here's the big deal if he were to bring
Speaker 3: up the topic, Tony, the secret between you and me.
Speaker 3: If he were to bring that topic up, then everyone
Speaker 3: would start talking about Wait, the trade deficits have been
Speaker 3: growing significantly since you put the terrorists in place, So
Speaker 3: I think he wants to avoid that topic altogether.
Speaker 1: Talking to doctor Matt Will, economists at the University of Indianapolis,
Speaker 1: Let's continue the conversation if we would, if we can,
Speaker 1: because I have mentioned that there have been a couple
Speaker 1: of FED governors before this report came out today and
Speaker 1: the market is making their bet. A couple of FED
Speaker 1: governors have said it's time for a rate increase. The
Speaker 1: inflation is not down, we need a rate hike. Are
Speaker 1: are they correct? Does this report change them at all?
Speaker 3: It changes them? They're correct that inflation isn't gone, but
Speaker 3: their solution is wrong, and this report gives wash some
Speaker 3: time to adjust. And this is where it gets that
Speaker 3: complex assets thing again. They had a legitimate point, do
Speaker 3: you want to camp down inflation and one of the
Speaker 3: tools you do it is to increase rates. Well, when
Speaker 3: you increase rates, that's going to decrease investment because money
Speaker 3: costs more. So that's a you know, one of the
Speaker 3: things Trump always argues against. But there's another way to
Speaker 3: control inflation, and that's what Warsh is trying to do.
Speaker 3: He's slowly moving the ship. He Slowly's got this commission going.
Speaker 3: It's going to look at selling assets off the balance sheet.
Speaker 3: Good for him. So he's working on that, and this
Speaker 3: report gives him cover. It gives him more time to
Speaker 3: let his political technique, his little commission do its job,
Speaker 3: because he's going to be able to say to these
Speaker 3: three governors, Okay, hold on, can't you see look, unemployment flat,
Speaker 3: no reason to increase rates. Everything's wonderful right now, people
Speaker 3: go back into your corner. So I think this buys
Speaker 3: him time to not worry about the whole rate situation
Speaker 3: while he gets his ducks in line to do a
Speaker 3: huge asset sale. And I think he's going to pull
Speaker 3: it off. I'm confident, I'm patient, and I think he's
Speaker 3: going to succeed.
Speaker 1: I want to see it happen, like I want to
Speaker 1: see how that plays out. But there were some other
Speaker 1: things that happen I want people to be aware of
Speaker 1: in the market, and you've been making mention of this.
Speaker 1: We've talked often about layoffs, right, a lot of layoffs
Speaker 1: in tech Wallstreet Journal, discussing the fact that the new
Speaker 1: data shows the job cuts are down forty one percent
Speaker 1: so far this year, which would make one believe that, Okay,
Speaker 1: we've done enough cutting. Let's actually see if our AI
Speaker 1: investments increased productivity. Maybe we just really need these people.
Speaker 1: There's only so much you can cut. We saw a
Speaker 1: business to run products to sell, et cetera. But within
Speaker 1: this is the recognition that software is getting.
Speaker 2: The living, not kicked out of it.
Speaker 1: That when we talk all about the technology and AI
Speaker 1: transforming the economy and all that jazz software, I don't
Speaker 1: know if they mean software as a service or software
Speaker 1: in general is getting slapped around.
Speaker 2: What is happening in that in that sector?
Speaker 3: Well, I like what you said. You said productivity, and
Speaker 3: we've seen, in fact, today's report had a two percent
Speaker 3: increase in productivity. So that is a side benefit at
Speaker 3: a consequence the main benefit of AI. So what's happening
Speaker 3: And you're right, it's SaaS as a service, software as
Speaker 3: a service, I should say. And what's happening is companies
Speaker 3: like work Day and Salesforce and Adobe, and we talked
Speaker 3: about the other day, IBM while sixty nine billion dollars
Speaker 3: in value in one single day because there's software got killed.
Speaker 3: So what's happening is AI is replacing software. I'll give
Speaker 3: you my own personal example. I've got to put together
Speaker 3: this schedule of classes for students. It takes forever to
Speaker 3: go through all the gyrations and the formulas, and I
Speaker 3: now have an AI that can do it in minutes
Speaker 3: compared todays. There's software on the market that does that. Well,
Speaker 3: the people that sell that software, they're not selling the software.
Speaker 3: I can just turn on my AI, tell it what
Speaker 3: I want, and it gives me the same output. That
Speaker 3: is what's happening to companies like Workday and Salesforce and
Speaker 3: Adobe and IBM. They're getting beaten down because people can
Speaker 3: go on their computer on their phone and get the
Speaker 3: same output quality that they were getting from a piece
Speaker 3: of software that costs them a fortune just two years ago.
Speaker 1: How does this play into overall tech sector? Are there
Speaker 1: companies that care about their software products or are they
Speaker 1: willing to sacrifice at all to the U on the
Speaker 1: altar of AI, because that's the only thing that matters.
Speaker 3: You know what, I don't like this phrase, but I
Speaker 3: have to use it. It's a massive paradigm shift.
Speaker 2: What phrase. You're right about that?
Speaker 3: You know again, I don't like using that phrase, but
Speaker 3: that's what's happening. It's what companies are doing. Is it's
Speaker 3: literally shoepayers creative destruction that you and I have talked
Speaker 3: about before. This whole software industry is being upended. It's
Speaker 3: not going to disappear, it's going to reformulate. So people
Speaker 3: companies that are willing to say, Okay, we're going to
Speaker 3: look at this differently. So instead of hiring IBM to
Speaker 3: write some software, I'm going to hire a bunch of
Speaker 3: AI experts and they're going to develop prompts and custom
Speaker 3: gems and custom GPPs, and they're going to create these
Speaker 3: AI environment so that any one of my lower level
Speaker 3: employees can do the same thing that that software was
Speaker 3: doing before at a cheaper price. So they're really transforming
Speaker 3: their businesses away from reliance on software which is static.
Speaker 3: You've got to buy updates. You know, it has bugs. Yeah,
Speaker 3: AI is not perfect, but it can do the job
Speaker 3: much easier, quicker, and with less overhead. So companies are
Speaker 3: just transforming, they still have to do the same thing, Tony.
Speaker 3: You still got to edit your audio and your videos,
Speaker 3: and you've got to get them published on your various platforms. Well,
Speaker 3: now the AI is going to alleviate your need to
Speaker 3: buy a bunch of software to do.
Speaker 1: That, Doctor Matt Will, economists at the University of Indianapolis.
Speaker 1: I appreciate you taking the time to be with us
Speaker 1: more to get to this is Tony Katz today.