WEBVTT - Tony Katz & Dr. Matt Will on Unemployment Rates & Rate Hikes 0:00:05.160 --> 0:00:10.480 Live from the Heart Blind and the Crossroads of America. 0:00:10.520 --> 0:00:12.000 It's Tony Katz today. 0:00:12.520 --> 0:00:16.120 So the economy shed twenty three thousand jobs in July. 0:00:17.079 --> 0:00:21.200 It missed the expectations, and the market. 0:00:20.880 --> 0:00:23.680 Said that's cool, and you said something. 0:00:23.680 --> 0:00:25.960 It's cool by us. We're fine with it. We're good 0:00:25.960 --> 0:00:28.360 with it, no problem. As a matter of fact, we'll 0:00:28.360 --> 0:00:31.960 go up, Tony Katz. Tony Katz today, Good to be 0:00:32.080 --> 0:00:36.480 with you. There are reasons, though, there are reasons, including, 0:00:37.479 --> 0:00:42.400 of course, inflation and rate hikes. Doctor Mattwell joined as 0:00:42.479 --> 0:00:46.800 economist at the University of Indianapolis. I started to understand 0:00:46.800 --> 0:00:49.680 this one early, but I want to understand what's in 0:00:49.720 --> 0:00:53.159 the jobs report. First, you took a look at it. 0:00:53.200 --> 0:00:58.040 We've got jobs report, We've got unemployment numbers. Walk me 0:00:58.160 --> 0:01:01.279 through what the report says, the Job's report, and what 0:01:01.320 --> 0:01:02.000 it says to you. 0:01:03.120 --> 0:01:04.920 Okay, Well, I'm going to start off by telling you 0:01:04.959 --> 0:01:08.080 that the headline is bad. And just like the other 0:01:08.160 --> 0:01:10.679 day we talked about this. You know, headlines are bad, 0:01:10.840 --> 0:01:13.360 but when you look under the hood, it's actually good 0:01:13.400 --> 0:01:15.880 for the economy, believe it or not. So let's start 0:01:15.920 --> 0:01:19.679 with the headline minus twenty three thousand jobs, which is 0:01:19.720 --> 0:01:23.680 really interesting because the expectation is plus eight eighty thousand, 0:01:23.840 --> 0:01:27.600 so this was one hundred thousand job myths. That's a 0:01:27.600 --> 0:01:30.800 big deal. But let's now start looking underneath the hood. 0:01:31.360 --> 0:01:34.640 Unemployment rate dropped from four point two to four point 0:01:34.640 --> 0:01:39.039 one percent. That's good, okay, Now for the bad. The 0:01:39.080 --> 0:01:42.160 only reason to drop is because the participation rate declined. 0:01:42.480 --> 0:01:45.399 Fewer people are looking for jobs. Fewer people are in 0:01:45.400 --> 0:01:49.440 the workforce. Now more bad news for you. Tony, May 0:01:49.480 --> 0:01:53.440 and June were revised down by one hundred and three 0:01:53.440 --> 0:01:58.680 thousand jobs, so people didn't get employed this quarter. Argue 0:01:58.720 --> 0:02:02.400 this month, two big revisions. I mean, there's a lot 0:02:02.440 --> 0:02:05.520 going on there that's not good. But there is a 0:02:05.520 --> 0:02:10.239 good part to this. The private industry gained thirty thousand jobs, 0:02:10.560 --> 0:02:13.359 so there was a growth in private and the government 0:02:13.520 --> 0:02:17.480 lost fifty three thousand. This was all government job loss, 0:02:18.080 --> 0:02:21.519 so as far as the market's concerned, good Again, back 0:02:21.560 --> 0:02:25.880 to the same scene we've been talking about. Government is contracting, 0:02:26.520 --> 0:02:30.000 private industry is growing, and if you look across the board, 0:02:30.160 --> 0:02:33.560 there's some pretty good information in this. I mean, construction 0:02:33.880 --> 0:02:38.680 twenty two thousand jobs up, durable goods manufacturing eighteen thousand 0:02:38.800 --> 0:02:43.679 jobs up, Transportation warehousing ten thousand jobs up. I mean, 0:02:43.720 --> 0:02:47.519 there is good news in this report for the private economy, 0:02:47.960 --> 0:02:51.040 and wages didn't grow that much. I know, again that 0:02:51.120 --> 0:02:54.160 sounds bad, but there's a story behind this and why 0:02:54.280 --> 0:02:56.959 this job's report is loved by the market. 0:02:58.360 --> 0:03:00.880 So I've with you on the government stuff, and I 0:03:00.880 --> 0:03:03.200 have discussed this now in a couple of places. Your 0:03:03.240 --> 0:03:06.200 point that GDP gross domestic product one point five percent 0:03:06.600 --> 0:03:10.680 bad headline. But if government spending juices GDP, we had 0:03:10.760 --> 0:03:13.400 less government spend, which is good for us the taxpayer. 0:03:13.520 --> 0:03:16.639 It just makes the GDP number look worse. But yet, 0:03:16.639 --> 0:03:18.680 when you look as you describe it, under the hood, 0:03:18.960 --> 0:03:24.760 things on some fundamentals, specifically manufacturing, very very solid. When 0:03:24.800 --> 0:03:27.799 I took a look at market response and I watched 0:03:27.800 --> 0:03:30.880 the futures go up one hundred points in a blink 0:03:31.040 --> 0:03:34.200 of an eye after this report came out, it became 0:03:34.240 --> 0:03:36.960 pretty clear to me. And I feel like all this 0:03:37.080 --> 0:03:39.720 talking together has finally gotten me some level of degree, 0:03:40.080 --> 0:03:43.080 maybe only in associates, but still am on my way 0:03:43.400 --> 0:03:47.240 that what they saw is the job market might be weaker. 0:03:47.720 --> 0:03:50.600 So those in the federal Reserve who are thinking about 0:03:50.720 --> 0:03:55.160 rate hikes to tamp down and tamper down inflation, might 0:03:55.240 --> 0:03:58.080 think twice and no rate hikes is where the market 0:03:58.120 --> 0:03:59.440 wants to be true or false. 0:04:00.680 --> 0:04:03.720 Uh close, tony close, I'm giving you a B, not 0:04:03.840 --> 0:04:04.040 an A. 0:04:04.440 --> 0:04:06.760 Yeah, teacher, ever. 0:04:07.280 --> 0:04:09.600 I'm sorry. Well, every time someone gets a bad grade, 0:04:09.640 --> 0:04:13.400 that's what they tell me. You're very close. The reason 0:04:13.680 --> 0:04:16.760 was the unemployment rate drop. So it's not that the 0:04:16.880 --> 0:04:19.479 job market is bad, it's that the wage growth is 0:04:19.520 --> 0:04:24.080 not exorbitant. Wage growth would indicate inflation. So the bad 0:04:24.120 --> 0:04:28.600 part where you're correct is in quotes, wage inflation is 0:04:28.640 --> 0:04:32.760 not there. And the unemployment rate stayed at four point one, 0:04:32.839 --> 0:04:34.880 I mean four two to four to one, so we 0:04:34.920 --> 0:04:39.080 didn't have hot unemployment. If we had significantly increasing unemployment, 0:04:39.600 --> 0:04:42.560 there would be pressure on the Fed to cut rates. 0:04:43.279 --> 0:04:47.480 There's inflation, which seems to be in this case moderate 0:04:48.000 --> 0:04:52.480 not outrageous. Moderate, which is less pressure to increase rates. 0:04:52.839 --> 0:04:56.320 So the said, here's what happened this morning. In the markets, 0:04:56.520 --> 0:04:59.320 there is a fifty seven percent chance that said was 0:04:59.320 --> 0:05:03.440 going to do a rate hike in September. There's stuff 0:05:03.480 --> 0:05:06.040 on Wall Street and in the options market, in futures 0:05:06.080 --> 0:05:09.480 market that predicts this that went down as soon as 0:05:09.520 --> 0:05:11.560 this came out. As soon as it came out the 0:05:11.640 --> 0:05:15.279 news on the unemployment, that probability dropped from fifty seven 0:05:15.320 --> 0:05:19.039 percent to forty seven percent. So the headline is this 0:05:19.480 --> 0:05:24.920 inflation argues for a hike, employment argues against it. And 0:05:25.160 --> 0:05:27.440 this morning the employment one. 0:05:28.760 --> 0:05:32.479 Talking to doctor Matt will the economist from the University 0:05:33.000 --> 0:05:38.160 of Indianapolis. So when you talk about winning this back 0:05:38.200 --> 0:05:42.720 and forth, this seems to be a non scientific struggle. 0:05:43.360 --> 0:05:46.240 This only seems to be a reaction struggle. Am I 0:05:46.320 --> 0:05:46.839 right about that? 0:05:47.640 --> 0:05:49.880 Oh? Absolutely, that's exactly what's happening. 0:05:51.279 --> 0:05:55.200 So the reaction from Wall Street was that the. 0:05:58.880 --> 0:05:59.279 Lack of. 0:06:00.760 --> 0:06:06.160 Labor participation, which would show us that we don't have 0:06:06.240 --> 0:06:11.000 wage inflation, means that everything is getting better. 0:06:15.080 --> 0:06:18.520 Yes, But your phrase reaction is why you might get 0:06:18.520 --> 0:06:22.120 an as on this now, because what happened is it's 0:06:22.120 --> 0:06:25.720 the reaction to the latest piece of news. You and 0:06:25.760 --> 0:06:30.800 I the other day talked about the PCE very high, CPI, 0:06:31.160 --> 0:06:37.400 eh okay, PPI terrible. That was Then today's news is, look, 0:06:37.800 --> 0:06:42.760 unemployment is pretty flat. That's good, wage increase not going 0:06:42.800 --> 0:06:47.000 through the roof. So what happened here is today's most 0:06:47.040 --> 0:06:52.919 immediate current news reaction is okay, inflation under control, no 0:06:53.240 --> 0:06:57.000 rate change. So that's what the market saw. The latest reaction. 0:06:57.320 --> 0:07:00.880 Now you know, something could happen tomorrow and completely changed 0:07:00.880 --> 0:07:03.360 the game again. But this is what the market's doing 0:07:03.560 --> 0:07:08.640 with the news that got today. Okay, unemployment's fine, wage inflacement, 0:07:08.920 --> 0:07:12.840 inflation is reasonable, no reason to overreact here. So the 0:07:12.920 --> 0:07:17.240 Fed again only a forty four percent chance they're going 0:07:17.240 --> 0:07:20.000 to do a rate increase. Now the market likes that. 0:07:20.520 --> 0:07:23.640 The market liked it so much that as soon as 0:07:23.680 --> 0:07:28.480 they got that information, the futures jump. NASDAK futures immediately 0:07:28.480 --> 0:07:31.720 went up one point one percent, S and T futures 0:07:31.720 --> 0:07:35.040 went up half a percent instantly instantly on the news 0:07:35.200 --> 0:07:37.960 coming out. And the tenure treasury, which you talked about, 0:07:38.160 --> 0:07:42.200 the tenure treasury sell eight BIPs eight basis points down 0:07:42.240 --> 0:07:44.160 to four point one six or the two year treasury 0:07:44.200 --> 0:07:46.640 I mean, and the ten year also went down to 0:07:46.680 --> 0:07:50.119 four point six to one immediately reaction lower treasury rates. 0:07:50.880 --> 0:07:55.040 Market bumped both Nasdaq and SMP across the board. The 0:07:55.080 --> 0:07:55.840 market loves this. 0:07:56.560 --> 0:07:59.560 Can't discuss something else that I'm surprised I haven't heard 0:07:59.560 --> 0:08:03.120 from Beat since the Treasure Secretary or President Trump that 0:08:03.240 --> 0:08:07.080 the US trade deficit contracted. It went to seventy three 0:08:07.240 --> 0:08:10.559 point three billion in June from seventy seven point six 0:08:10.640 --> 0:08:15.120 billion in May. That story just came out earlier this week. 0:08:15.560 --> 0:08:19.640 Everything about tariffs is about trade deficits, that somehow trade 0:08:19.680 --> 0:08:21.200 deficits are the end of civilization. 0:08:21.360 --> 0:08:23.200 I don't believe that they are. 0:08:23.240 --> 0:08:26.960 I believe it's a bad reason to implement tariffs as 0:08:27.000 --> 0:08:27.720 a concept. 0:08:28.480 --> 0:08:31.360 Does this trade deficit going down not? 0:08:32.240 --> 0:08:35.199 Does that have an effect on people, on how people 0:08:35.240 --> 0:08:38.199 see the market, manufacturing, futures, et cetera. 0:08:40.440 --> 0:08:42.680 No, when you say people, if you're talking about Wall 0:08:42.720 --> 0:08:46.360 Street and financial experts, no, because actually what you saw 0:08:46.559 --> 0:08:50.240 was a blip. The trade deficits has been growing since 0:08:50.360 --> 0:08:54.760 tariff institution has been stabilized, and this is exactly what 0:08:54.840 --> 0:08:57.560 I consider a good thing. Again, I'm a fan of 0:08:57.600 --> 0:09:00.720 trade deficits. I'm not against them because to cause foreign 0:09:00.800 --> 0:09:04.439 direct investment, we buy lots of cheap crap from overseas, 0:09:04.880 --> 0:09:07.800 and those dollars that we spend flow back into the 0:09:07.880 --> 0:09:10.280 United States in the form of investing in our country, 0:09:10.360 --> 0:09:13.840 which is how you grow your economy. So I've got 0:09:13.880 --> 0:09:16.199 lots of research on this. I'm a fan of these 0:09:16.240 --> 0:09:18.640 trade deficits, so I don't think he made a comment 0:09:18.679 --> 0:09:20.880 about it because it was just a blip. And if 0:09:20.920 --> 0:09:23.719 he here's the big deal if he were to bring 0:09:23.800 --> 0:09:26.280 up the topic, Tony, the secret between you and me. 0:09:26.720 --> 0:09:28.760 If he were to bring that topic up, then everyone 0:09:28.800 --> 0:09:31.600 would start talking about Wait, the trade deficits have been 0:09:31.640 --> 0:09:35.040 growing significantly since you put the terrorists in place, So 0:09:35.440 --> 0:09:37.599 I think he wants to avoid that topic altogether. 0:09:38.600 --> 0:09:42.839 Talking to doctor Matt Will, economists at the University of Indianapolis, 0:09:43.960 --> 0:09:48.040 Let's continue the conversation if we would, if we can, 0:09:48.200 --> 0:09:50.960 because I have mentioned that there have been a couple 0:09:51.040 --> 0:09:54.920 of FED governors before this report came out today and 0:09:54.960 --> 0:09:57.480 the market is making their bet. A couple of FED 0:09:57.520 --> 0:10:00.160 governors have said it's time for a rate increase. The 0:10:00.240 --> 0:10:05.360 inflation is not down, we need a rate hike. Are 0:10:05.480 --> 0:10:08.560 are they correct? Does this report change them at all? 0:10:10.559 --> 0:10:15.839 It changes them? They're correct that inflation isn't gone, but 0:10:15.880 --> 0:10:21.040 their solution is wrong, and this report gives wash some 0:10:21.200 --> 0:10:23.920 time to adjust. And this is where it gets that 0:10:24.040 --> 0:10:28.959 complex assets thing again. They had a legitimate point, do 0:10:29.000 --> 0:10:31.600 you want to camp down inflation and one of the 0:10:31.600 --> 0:10:33.880 tools you do it is to increase rates. Well, when 0:10:33.880 --> 0:10:36.679 you increase rates, that's going to decrease investment because money 0:10:36.720 --> 0:10:40.000 costs more. So that's a you know, one of the 0:10:40.040 --> 0:10:42.600 things Trump always argues against. But there's another way to 0:10:42.640 --> 0:10:45.199 control inflation, and that's what Warsh is trying to do. 0:10:45.679 --> 0:10:50.560 He's slowly moving the ship. He Slowly's got this commission going. 0:10:50.600 --> 0:10:53.720 It's going to look at selling assets off the balance sheet. 0:10:54.120 --> 0:10:56.839 Good for him. So he's working on that, and this 0:10:56.920 --> 0:11:00.240 report gives him cover. It gives him more time to 0:11:00.320 --> 0:11:04.000 let his political technique, his little commission do its job, 0:11:04.559 --> 0:11:06.000 because he's going to be able to say to these 0:11:06.000 --> 0:11:10.080 three governors, Okay, hold on, can't you see look, unemployment flat, 0:11:10.320 --> 0:11:13.360 no reason to increase rates. Everything's wonderful right now, people 0:11:13.600 --> 0:11:16.600 go back into your corner. So I think this buys 0:11:16.679 --> 0:11:20.000 him time to not worry about the whole rate situation 0:11:20.520 --> 0:11:23.040 while he gets his ducks in line to do a 0:11:23.240 --> 0:11:25.839 huge asset sale. And I think he's going to pull 0:11:25.840 --> 0:11:28.800 it off. I'm confident, I'm patient, and I think he's 0:11:28.800 --> 0:11:29.439 going to succeed. 0:11:30.120 --> 0:11:31.400 I want to see it happen, like I want to 0:11:31.400 --> 0:11:33.520 see how that plays out. But there were some other 0:11:33.559 --> 0:11:35.400 things that happen I want people to be aware of 0:11:35.520 --> 0:11:39.040 in the market, and you've been making mention of this. 0:11:39.559 --> 0:11:43.120 We've talked often about layoffs, right, a lot of layoffs 0:11:43.160 --> 0:11:46.240 in tech Wallstreet Journal, discussing the fact that the new 0:11:46.320 --> 0:11:48.800 data shows the job cuts are down forty one percent 0:11:48.880 --> 0:11:51.960 so far this year, which would make one believe that, Okay, 0:11:52.320 --> 0:11:56.120 we've done enough cutting. Let's actually see if our AI 0:11:56.240 --> 0:11:59.960 investments increased productivity. Maybe we just really need these people. 0:12:00.280 --> 0:12:02.040 There's only so much you can cut. We saw a 0:12:02.080 --> 0:12:05.920 business to run products to sell, et cetera. But within 0:12:06.040 --> 0:12:11.000 this is the recognition that software is getting. 0:12:10.640 --> 0:12:12.880 The living, not kicked out of it. 0:12:12.960 --> 0:12:15.319 That when we talk all about the technology and AI 0:12:15.440 --> 0:12:19.920 transforming the economy and all that jazz software, I don't 0:12:19.920 --> 0:12:22.000 know if they mean software as a service or software 0:12:22.040 --> 0:12:24.560 in general is getting slapped around. 0:12:25.160 --> 0:12:27.080 What is happening in that in that sector? 0:12:27.880 --> 0:12:30.960 Well, I like what you said. You said productivity, and 0:12:31.040 --> 0:12:34.720 we've seen, in fact, today's report had a two percent 0:12:34.840 --> 0:12:39.160 increase in productivity. So that is a side benefit at 0:12:39.240 --> 0:12:43.400 a consequence the main benefit of AI. So what's happening 0:12:43.400 --> 0:12:46.000 And you're right, it's SaaS as a service, software as 0:12:46.000 --> 0:12:48.600 a service, I should say. And what's happening is companies 0:12:48.720 --> 0:12:52.120 like work Day and Salesforce and Adobe, and we talked 0:12:52.120 --> 0:12:56.719 about the other day, IBM while sixty nine billion dollars 0:12:56.720 --> 0:13:01.360 in value in one single day because there's software got killed. 0:13:02.000 --> 0:13:06.240 So what's happening is AI is replacing software. I'll give 0:13:06.280 --> 0:13:09.280 you my own personal example. I've got to put together 0:13:09.360 --> 0:13:13.320 this schedule of classes for students. It takes forever to 0:13:13.360 --> 0:13:17.440 go through all the gyrations and the formulas, and I 0:13:17.600 --> 0:13:20.400 now have an AI that can do it in minutes 0:13:20.880 --> 0:13:25.480 compared todays. There's software on the market that does that. Well, 0:13:25.559 --> 0:13:29.199 the people that sell that software, they're not selling the software. 0:13:29.360 --> 0:13:31.360 I can just turn on my AI, tell it what 0:13:31.480 --> 0:13:34.560 I want, and it gives me the same output. That 0:13:34.720 --> 0:13:37.400 is what's happening to companies like Workday and Salesforce and 0:13:37.440 --> 0:13:42.480 Adobe and IBM. They're getting beaten down because people can 0:13:42.520 --> 0:13:45.800 go on their computer on their phone and get the 0:13:45.880 --> 0:13:49.360 same output quality that they were getting from a piece 0:13:49.400 --> 0:13:52.160 of software that costs them a fortune just two years ago. 0:13:54.200 --> 0:14:01.640 How does this play into overall tech sector? Are there 0:14:01.720 --> 0:14:06.559 companies that care about their software products or are they 0:14:06.600 --> 0:14:11.880 willing to sacrifice at all to the U on the 0:14:11.920 --> 0:14:15.600 altar of AI, because that's the only thing that matters. 0:14:16.160 --> 0:14:18.680 You know what, I don't like this phrase, but I 0:14:18.760 --> 0:14:21.840 have to use it. It's a massive paradigm shift. 0:14:23.280 --> 0:14:24.520 What phrase. You're right about that? 0:14:25.520 --> 0:14:27.440 You know again, I don't like using that phrase, but 0:14:27.440 --> 0:14:30.760 that's what's happening. It's what companies are doing. Is it's 0:14:30.880 --> 0:14:34.680 literally shoepayers creative destruction that you and I have talked 0:14:34.680 --> 0:14:39.440 about before. This whole software industry is being upended. It's 0:14:39.480 --> 0:14:43.640 not going to disappear, it's going to reformulate. So people 0:14:44.000 --> 0:14:46.000 companies that are willing to say, Okay, we're going to 0:14:46.040 --> 0:14:48.720 look at this differently. So instead of hiring IBM to 0:14:48.760 --> 0:14:51.720 write some software, I'm going to hire a bunch of 0:14:51.760 --> 0:14:55.240 AI experts and they're going to develop prompts and custom 0:14:55.360 --> 0:14:58.560 gems and custom GPPs, and they're going to create these 0:14:58.640 --> 0:15:02.760 AI environment so that any one of my lower level 0:15:02.960 --> 0:15:07.240 employees can do the same thing that that software was 0:15:07.280 --> 0:15:12.160 doing before at a cheaper price. So they're really transforming 0:15:12.200 --> 0:15:16.400 their businesses away from reliance on software which is static. 0:15:16.680 --> 0:15:20.080 You've got to buy updates. You know, it has bugs. Yeah, 0:15:20.160 --> 0:15:23.200 AI is not perfect, but it can do the job 0:15:23.560 --> 0:15:27.040 much easier, quicker, and with less overhead. So companies are 0:15:27.080 --> 0:15:29.160 just transforming, they still have to do the same thing, Tony. 0:15:29.240 --> 0:15:32.000 You still got to edit your audio and your videos, 0:15:32.240 --> 0:15:36.080 and you've got to get them published on your various platforms. Well, 0:15:36.240 --> 0:15:38.880 now the AI is going to alleviate your need to 0:15:39.000 --> 0:15:41.120 buy a bunch of software to do. 0:15:41.120 --> 0:15:45.560 That, Doctor Matt Will, economists at the University of Indianapolis. 0:15:45.600 --> 0:15:47.480 I appreciate you taking the time to be with us 0:15:47.720 --> 0:15:49.800 more to get to this is Tony Katz today.