WEBVTT - US Inflation Slowdown in Sight 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:19.000 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:19.280 --> 0:00:22.079 All right, so you know earlier we got an update 0:00:22.120 --> 0:00:25.239 on US inflation showing signs of moderating in April, giving 0:00:25.280 --> 0:00:29.880 the Fed maybe room to pause read. So we're splitting 0:00:29.960 --> 0:00:33.959 here's here. All right, let's get into it, because two 0:00:33.960 --> 0:00:35.239 folks who know a lot about it and have a 0:00:35.240 --> 0:00:37.600 lot to say about it is Bloomberg's Mike McKee and Dartmouths. 0:00:37.640 --> 0:00:40.400 Danny Blanchflower. Mike, of course, Bloomberg News international economics and 0:00:40.400 --> 0:00:42.880 policy correspondent who's been up for like twenty four hours 0:00:42.880 --> 0:00:45.159 straight talking about this. He's on the phone in New 0:00:45.240 --> 0:00:48.560 York City. Danny Dartmouth, professor of economics, former member of 0:00:48.600 --> 0:00:51.960 the Bank of England's interest rate setting Monetary Policy Committee. 0:00:52.000 --> 0:00:54.520 He's a labor economist. He's with us from zoom in 0:00:54.560 --> 0:00:57.120 Hanover in New Hampshire. Folks, thank you so much for 0:00:57.160 --> 0:00:59.720 being with us. Mike. I want to start with you. You 0:00:59.560 --> 0:01:02.000 were on early breaking it down as a numbers cross 0:01:02.080 --> 0:01:04.720 You've had hours to go over all of the data points. 0:01:05.200 --> 0:01:07.520 What are the key facets of this report? 0:01:08.800 --> 0:01:12.080 Well, I think I said this earlier and it really 0:01:12.160 --> 0:01:14.240 is the case that this was a status quo report. 0:01:14.240 --> 0:01:16.720 It didn't move the ball much one way or another. 0:01:17.240 --> 0:01:20.560 We saw inflation move up a little bit on a 0:01:20.600 --> 0:01:24.800 headline basis, largely because of the energy. We saw the 0:01:24.800 --> 0:01:28.360 core rate not go down very much, largely because of housing. 0:01:28.360 --> 0:01:31.320 And these are stories that we have seen before. So 0:01:31.400 --> 0:01:33.760 this isn't going to change the way the Fed is 0:01:33.800 --> 0:01:37.600 looking at the overall economy and looking at the fight 0:01:37.640 --> 0:01:42.240 against inflation. They can still pause in June, but it 0:01:42.319 --> 0:01:44.240 won't be because of this report. 0:01:45.640 --> 0:01:50.040 So we saw for the first time an inversion, or 0:01:50.080 --> 0:01:52.480 the first time in many months, an inversion of the 0:01:52.520 --> 0:01:56.440 headline figure which is now lower than the core figure. 0:01:56.560 --> 0:01:58.560 Does that mean anything or does it just look cool 0:01:58.600 --> 0:01:59.040 on a chart? 0:01:59.080 --> 0:01:59.280 Mic? 0:02:01.080 --> 0:02:04.240 It looks cool on the chart, Matt. The biggest thing 0:02:04.360 --> 0:02:06.800 is that we're going to see core starting to come 0:02:06.880 --> 0:02:10.320 down when the drop in rental prices over the past 0:02:10.360 --> 0:02:13.200 year finally starts to show up in the data, which 0:02:13.240 --> 0:02:16.720 should be in the next month or so. But the 0:02:16.720 --> 0:02:19.240 core is the core for a reason. It is the 0:02:19.280 --> 0:02:24.840 stickier parts of inflation, and the headline numbers largely influenced 0:02:24.840 --> 0:02:27.800 by things like inflation and food, although food wasn't a 0:02:27.800 --> 0:02:32.680 big factor this time, but energy and food energy prices 0:02:32.760 --> 0:02:35.160 went up. They've started to go down again, so we'll 0:02:35.200 --> 0:02:37.040 probably see it change next month. 0:02:37.120 --> 0:02:38.920 All right, Danny, come on in on here. You've been 0:02:39.120 --> 0:02:41.560 very clear on how you feel about what the Fed's 0:02:41.600 --> 0:02:43.880 been doing here. But do you feel like inflation is 0:02:44.040 --> 0:02:46.440 slowly it's certainly better than it was a year ago. 0:02:46.600 --> 0:02:48.359 How did I feel, Danny? How do you feel about 0:02:48.400 --> 0:02:49.519 what the Fed's been doing here? 0:02:50.160 --> 0:02:50.440 Oh? 0:02:50.680 --> 0:02:53.240 Well, I mean I think that the reality I mean, 0:02:53.280 --> 0:02:56.480 Mike laid it out very well and very carefully. The 0:02:56.520 --> 0:03:00.840 reality is that what's most astonishing is it everybody seems 0:03:00.840 --> 0:03:05.240 to have such a kind of accepted view. Everybody seems 0:03:05.280 --> 0:03:08.440 to think the same. All the central banks are saying 0:03:08.480 --> 0:03:11.560 the same things. And the reality and we have unanimous votes, 0:03:11.960 --> 0:03:14.239 and the reality is we just don't really know. There's 0:03:14.240 --> 0:03:18.520 no fundamental theory here as to what's going on. What 0:03:18.560 --> 0:03:22.760 we see is inflation starting to fall today. Basically what 0:03:22.800 --> 0:03:26.320 you got was the base effects for this month stop working. 0:03:26.400 --> 0:03:28.079 So you dropped a point four, and you got a 0:03:28.160 --> 0:03:31.080 point four, and in the seasonally unadjusted you get a 0:03:31.200 --> 0:03:33.280 drop in the seasonal adjustment, you get it to stick 0:03:33.280 --> 0:03:35.840 at five. So the next two months we're going to 0:03:35.920 --> 0:03:40.000 have big base effects dropping out. And I think in 0:03:40.040 --> 0:03:43.240 a sense the discussion has to actually be so what 0:03:43.840 --> 0:03:47.400 are the costs of inflation? I mean we all sort 0:03:47.400 --> 0:03:49.200 of sit around and go, yeah, that's what the Fed's 0:03:49.200 --> 0:03:52.080 got to do. Inflation is such a terrible thing. Well, 0:03:52.120 --> 0:03:55.400 actually enumerate what a terrible thing it is. Yeah, I 0:03:55.480 --> 0:03:58.960 know that inflation low as well being, and I've measured 0:03:58.960 --> 0:04:01.320 a great deal of it. But the question is what 0:04:01.520 --> 0:04:04.200 do you replace it with? And what are the costs 0:04:04.240 --> 0:04:08.040 and the consequences of overly tightening. And the answer is 0:04:08.120 --> 0:04:11.400 that a one percent rise in unemployment is between five 0:04:11.480 --> 0:04:15.120 and ten times worse on ordinary people than a one 0:04:15.120 --> 0:04:18.960 percentage point change in inflation. So essentially what we're going 0:04:19.000 --> 0:04:22.320 to see is how much this how much The consequences 0:04:22.360 --> 0:04:26.240 of what they're doing are much worse than the problem 0:04:26.320 --> 0:04:26.920 of inflation. 0:04:27.279 --> 0:04:31.200 So I don't think we can have maybe a recession though, 0:04:31.240 --> 0:04:35.440 with a labor market that is still strong, well, I don't. 0:04:35.279 --> 0:04:37.720 Even believe this thing about strong. I think it's kind 0:04:37.760 --> 0:04:40.080 of nonsense. I mean, the reason it's The reason I 0:04:40.120 --> 0:04:44.039 think it's nonsense is that the unemployment rate no longer 0:04:44.080 --> 0:04:47.120 is a decent measure of anything. So I've worked on 0:04:47.160 --> 0:04:52.040 this forever. The unemployment rate is uncorrelated with wage growth. 0:04:52.080 --> 0:04:55.520 It's uncorrelated with it. The biggest macro problem you have 0:04:55.680 --> 0:04:58.600 is to explain why wage growth was so flat between 0:04:58.640 --> 0:05:01.200 twenty ten and two anyone unemployment was falling. 0:05:01.240 --> 0:05:03.360 Answer, unemployment rate is irrelevant. 0:05:03.360 --> 0:05:06.600 What you have here is lots of labor markets slacked 0:05:06.720 --> 0:05:10.800 currently being indicated by the non employment rates and the 0:05:10.880 --> 0:05:15.000 labor force and activity rates. That's what's determining wage growth 0:05:15.040 --> 0:05:18.039 and keeping wage growth down. If you try and look 0:05:18.040 --> 0:05:20.880 at every country in the world, every other country other 0:05:20.920 --> 0:05:25.040 than the US, the Inact, the the EPOP, the employment 0:05:25.080 --> 0:05:28.599 to population rate is at least equal to its rate 0:05:28.680 --> 0:05:31.080 in two thousand, The UK is well above. 0:05:30.839 --> 0:05:32.359 It, Greece is even comparable. 0:05:32.520 --> 0:05:34.840 So the question you have to ask yourself up to 0:05:34.880 --> 0:05:36.560 which I don't have a great answer, and we can 0:05:36.600 --> 0:05:39.400 discuss it, is why is it true that the non 0:05:39.440 --> 0:05:41.800 employment rate in the US suggests to get back to 0:05:41.839 --> 0:05:45.760 two thousand levels, you need about seven million more people working. 0:05:46.160 --> 0:05:48.960 So on that basis, I don't believe the unemployment rate 0:05:49.000 --> 0:05:51.560 because nobody can show me anything that it's related to wages. 0:05:51.680 --> 0:05:55.080 I have lots of papers on it. So and why 0:05:55.200 --> 0:05:57.479 is the US so much different to everybody else? So 0:05:57.560 --> 0:05:59.680 the argument you have to raise rates because the labor 0:05:59.680 --> 0:06:02.160 market so tight, it's for the birds. 0:06:02.720 --> 0:06:06.240 So what Let me ask you this because you know 0:06:06.520 --> 0:06:09.760 in econ one oh one, I was mostly thinking about 0:06:09.800 --> 0:06:10.960 Kegger's and the Grateful Dead. 0:06:11.000 --> 0:06:12.480 But why is it that. 0:06:13.080 --> 0:06:15.320 You know, the FED wants to use unemployment and a 0:06:15.400 --> 0:06:17.160 recession to fight inflation? 0:06:17.440 --> 0:06:17.960 Is what I get. 0:06:18.000 --> 0:06:20.040 They're saying, we have to fight this inflation, and we're 0:06:20.040 --> 0:06:23.440 gonna have to accept a recession and higher unemployment in 0:06:23.520 --> 0:06:26.240 order to do that. And you say, a higher unemployment 0:06:27.800 --> 0:06:31.520 is actually much worse than higher inflation, right? Why Why 0:06:31.640 --> 0:06:34.320 is that? Because inflation affects all of us, right, and 0:06:34.440 --> 0:06:36.160 unemployment only affects a very much. 0:06:36.240 --> 0:06:37.839 So that's that's completely wrong. 0:06:37.920 --> 0:06:41.920 Actually, Okay, obviously a lot of is still in his life. 0:06:41.920 --> 0:06:43.440 I'm just gonna say to. 0:06:43.480 --> 0:06:45.960 Charlie Evans, who told me when I showed him these estimates, 0:06:46.000 --> 0:06:48.120 he said to me, Danny, this is great. Everyone told 0:06:48.120 --> 0:06:51.120 me always what you've just said, that inflation hurts everybody. 0:06:51.200 --> 0:06:53.520 It's like thirty times worse than un employment. So here's 0:06:53.560 --> 0:06:56.440 the story. You go measure it. You ask people you'll 0:06:56.480 --> 0:06:59.120 about your well being, and you say, so, how much 0:06:59.160 --> 0:07:02.400 does inflation? So think about a one percentage point rise 0:07:02.440 --> 0:07:05.080 in inflation against a one percentage point rise in unemployment. 0:07:05.160 --> 0:07:07.719 Well you get a number for the inflation. What you 0:07:07.760 --> 0:07:11.360 get in unemployment is well, one percent of people are unemployed. 0:07:11.400 --> 0:07:15.880 So those people's unemployment rises a lot and they're really unhappy. Great, 0:07:15.960 --> 0:07:18.800 but what happens is a one percentage point rise in 0:07:18.840 --> 0:07:22.800 unemployment makes people much more unhappy than a one percentage 0:07:22.800 --> 0:07:26.040 point rise in inflation. Now you can argue I don't 0:07:26.160 --> 0:07:28.160 like this, but you could say this is the evidence. 0:07:28.360 --> 0:07:30.640 This is the data. Nobody else has any other data. 0:07:31.040 --> 0:07:34.520 Everything else about they worry about inflation and inflation expectation 0:07:34.800 --> 0:07:37.760 is just dreamed up. Make stuff up. This is the data. 0:07:37.880 --> 0:07:41.080 The data says a one percentage point rise in unemployment. Well, 0:07:41.080 --> 0:07:44.680 there's a new paper by Robert McCulloch from New Zealand 0:07:44.920 --> 0:07:47.320 just come out says that a one percent rise in 0:07:47.400 --> 0:07:51.440 unemployment raises pain ten times more than a one percentage 0:07:51.440 --> 0:07:53.760 point rise in inflation. I mean, the problem for anybody 0:07:53.800 --> 0:07:56.160 who says that's wrong is they have no data. This 0:07:56.240 --> 0:07:59.040 is the only data that exists, and it shows that 0:07:58.920 --> 0:08:03.520 the impact of one of unemployment or joblessness is much worse. 0:08:03.560 --> 0:08:06.160 So still waiting for people to tell me what are 0:08:06.160 --> 0:08:09.160 the consequences of an inflation rate of five percent that 0:08:09.200 --> 0:08:15.040 you're trying to get down by creating. 0:08:13.520 --> 0:08:15.520 Might come on in or other economists. 0:08:16.640 --> 0:08:21.600 Well, the obvious consequence is that people lose purchasing power 0:08:21.640 --> 0:08:24.920 and their standard of living goes down. And we saw 0:08:24.960 --> 0:08:32.440 that very specifically during the nineteen eighties great inflation, which 0:08:32.480 --> 0:08:34.439 is what scared the pants off of all the central 0:08:34.480 --> 0:08:37.040 bankers who are now trying to bring down inflation. But 0:08:37.080 --> 0:08:40.800 I was truck Danny by what you were saying about wages. 0:08:41.600 --> 0:08:45.760 Wages are still rising at a very high pace, especially 0:08:46.160 --> 0:08:49.960 compared to what they were doing in the teens. We're 0:08:50.000 --> 0:08:56.079 still well over four percent, and inflation is still running 0:08:56.160 --> 0:08:59.839 above that level. So people are still losing grounds even 0:08:59.840 --> 0:09:02.480 though they are getting raises. 0:09:02.720 --> 0:09:06.880 At this point, Danny got about just about twenty seconds. 0:09:06.920 --> 0:09:09.480 So unfortunately, well, real wage is a flat over the 0:09:09.559 --> 0:09:13.680 last year, and obviously, for the level of the unemployment. 0:09:13.080 --> 0:09:15.839 Rate, wage growth is actually still very compressed. 0:09:16.160 --> 0:09:18.080 I mean, in the past, you had an unemployment rate 0:09:18.120 --> 0:09:20.319 of three and a half, you'd be talking to wages 0:09:20.360 --> 0:09:21.160 greater than that. 0:09:21.440 --> 0:09:22.760 So the answer is that. 0:09:22.640 --> 0:09:26.920 The unemployment rate is uncorrelated with wage growth. Just get 0:09:26.960 --> 0:09:30.120 it into everyone's heads. It's completely uncorrelated with it. It 0:09:30.160 --> 0:09:33.720 has no relationship with wage growth whatsoever. You can't run 0:09:33.760 --> 0:09:35.280 it in any form of wage de grade to be 0:09:35.280 --> 0:09:37.600 at Phillip's curve or anything else or a wagecurve. 0:09:37.800 --> 0:09:40.640 The unemployment rate is uncorrelated with wage growth. 0:09:40.920 --> 0:09:42.640 We gotta run that though. 0:09:42.679 --> 0:09:44.760 I'm gonna tweet that because I think that's the most 0:09:44.840 --> 0:09:46.400 fascinating thing that I've heard today. 0:09:46.440 --> 0:09:48.439 All Right, we gotta say goodbye to Danny and two 0:09:48.480 --> 0:09:51.679 of course, our Michael mcke Danny Blanchflower over at Dart method. 0:10:02.320 --> 0:10:02.640 Sucks. 0:10:03.960 --> 0:10:06.040 All right, everybody, Well. Shares of H and R Block 0:10:06.120 --> 0:10:10.400 selling off today, hitting its lowest level in about a year. 0:10:10.720 --> 0:10:13.240 This after the company cut its outlook for the year 0:10:13.240 --> 0:10:15.800 after reporting lower earnings and revenue in its fiscal third quarter. 0:10:15.880 --> 0:10:18.000 So let's get into the quarter. Let's get into the business. 0:10:18.000 --> 0:10:20.280 This is a company that's been transforming itself over the 0:10:20.320 --> 0:10:22.679 last couple of years. Back with us as Jeff Jones, 0:10:22.679 --> 0:10:24.679 president and COO at H and R Block. We've mentioned 0:10:24.679 --> 0:10:28.559 in the past his background chief marketing officer at Gap, Target, 0:10:28.600 --> 0:10:32.199 president of ride sharing at Uber formerly. Jeff joining us 0:10:32.320 --> 0:10:35.040 via zoom from Kansas City, Missouri. Jeff, good to have 0:10:35.120 --> 0:10:38.040 you back here with myself and Matt Miller. Talk to 0:10:38.120 --> 0:10:40.600 us about the quarter, the outlook. What's going on. 0:10:41.720 --> 0:10:43.880 Yeah, Well, first of all, Carol, we definitely have not 0:10:44.000 --> 0:10:46.480 hit our fifty two week low, so I want to 0:10:46.520 --> 0:10:50.880 be clear about that. Listen, the season did not end 0:10:51.000 --> 0:10:55.040 the way we expected it to. There were multiple industry 0:10:55.160 --> 0:10:58.960 dynamics of play. Our assisted business was a little softer 0:10:59.040 --> 0:11:01.960 than we wanted. But there are many many things that 0:11:02.040 --> 0:11:04.760 went well this year, and I think that's what investors 0:11:04.760 --> 0:11:08.319 are hearing. You know, we still expect to grow earnings 0:11:08.400 --> 0:11:13.080 and EPs in a really tough backdrop. Our DIY strategy work, 0:11:13.200 --> 0:11:16.360 we introduced AI, so you know, there are many things 0:11:16.360 --> 0:11:18.640 that are working. But we were clear on the call 0:11:18.760 --> 0:11:22.680 yesterday there were three reasons why our volume didn't deliver, 0:11:23.040 --> 0:11:24.760 and we feel like we've got a really good handle 0:11:24.840 --> 0:11:25.080 on that. 0:11:25.480 --> 0:11:27.880 What do you think investors are getting wrong here? 0:11:27.920 --> 0:11:31.560 Because I mean if it was a week later, you'd 0:11:31.600 --> 0:11:33.600 be at your fifty two week low, right, I mean, 0:11:34.320 --> 0:11:38.440 just because you had an incredible May in twenty twenty 0:11:38.440 --> 0:11:41.280 two in terms of the stock. Why are investors not 0:11:41.360 --> 0:11:42.960 understanding your optimistic view? 0:11:44.080 --> 0:11:46.920 You know, I think like any like any company that 0:11:47.000 --> 0:11:50.560 has an unusual mix of business and seasonality, it's just 0:11:50.600 --> 0:11:53.000 hard to get your mind around that so much of 0:11:53.040 --> 0:11:56.280 our business happens in one quarter, you know, I think for. 0:11:56.320 --> 0:11:58.800 Some mill it's been that way for how many years 0:11:58.800 --> 0:12:00.359 since like nineteen thirteen. 0:12:01.240 --> 0:12:03.440 Well not quite that far. I mean, we have a 0:12:03.640 --> 0:12:07.040 very very large and healthy tax business, and that's determined 0:12:07.080 --> 0:12:10.000 by one time a year. So I think that you know, 0:12:10.040 --> 0:12:12.200 when you look at our financials and you see us 0:12:12.640 --> 0:12:15.559 lose money in most quarters of the year, but then 0:12:15.679 --> 0:12:18.640 generate five or six hundred million of free cash flow, 0:12:19.200 --> 0:12:22.240 I think the investors that take the time to really 0:12:22.320 --> 0:12:25.600 understand the story take a great long term view on 0:12:25.679 --> 0:12:29.600 how we allocate capital, our dividend, our share repurchase. And 0:12:29.640 --> 0:12:31.000 it's a really good story. 0:12:31.120 --> 0:12:31.439 All right. 0:12:31.520 --> 0:12:33.280 And just to clarify, I'm just looking at some data 0:12:33.280 --> 0:12:35.560 on the Bloomberg it does say you're at the lowest 0:12:35.640 --> 0:12:38.560 level since about May twelfth of twenty twenty two. 0:12:38.679 --> 0:12:40.120 Yeah, that's why I said it's a it was a 0:12:40.120 --> 0:12:42.160 week later, it would be the fifty two week low. 0:12:42.400 --> 0:12:44.320 You're eight or fifty one week low. Let's put it 0:12:44.320 --> 0:12:45.280 that way, just. 0:12:45.559 --> 0:12:47.840 To say we're not twenty we're not twenty five dollars. 0:12:48.360 --> 0:12:50.480 Okay, fair enough, fair enough. You are the CEO, you know, 0:12:50.559 --> 0:12:53.880 But I just wanted to clarify in terms of the data. 0:12:53.960 --> 0:12:57.640 Having said that, you guys are going through a transformation. 0:12:57.840 --> 0:13:00.680 And Jeff, when we last talked in terms of I 0:13:00.679 --> 0:13:02.640 think it was back in August, we talked a little 0:13:02.640 --> 0:13:05.160 bit about the impact of higher rates. Tell us about 0:13:05.200 --> 0:13:07.880 the folks on your platform, whether it's individuals, whether it's 0:13:07.920 --> 0:13:11.040 small business, in terms of the activity you are seeing, 0:13:11.120 --> 0:13:13.680 What is it telling you about them and what it 0:13:13.679 --> 0:13:14.920 tells you about the broader outlook. 0:13:16.000 --> 0:13:18.840 Well, I think the biggest thing we see is really 0:13:18.920 --> 0:13:22.720 the health of the consumer, especially you know, we saw 0:13:22.800 --> 0:13:25.520 this year the tax industry got off to a really 0:13:25.600 --> 0:13:29.720 fast start. People were looking for their money. We saw 0:13:29.880 --> 0:13:33.880 these refund advance loans really perform well this year. In 0:13:33.920 --> 0:13:38.680 the industry that speaks to the cash needs of the 0:13:38.720 --> 0:13:44.200 American consumer. The problem is, for many many Americans this year, 0:13:44.720 --> 0:13:48.959 refund sizes were down, you know, eight to nine percent, 0:13:49.720 --> 0:13:52.720 and many people who are used to getting a refund 0:13:52.920 --> 0:13:57.200 suddenly found themselves owing money. So those kind of things 0:13:57.240 --> 0:13:59.920 are very confusing to the consumer. But we definitely see 0:14:00.160 --> 0:14:04.240 consumer needing cash and looking for alternative ways to find it. 0:14:04.720 --> 0:14:09.400 Why did a lot of filers see that change? Why 0:14:09.480 --> 0:14:12.240 were a lot of filers owing money when they normally 0:14:12.280 --> 0:14:14.640 get a refund because I would I think immediately of 0:14:14.679 --> 0:14:18.959 the salt deduction cap, but that went into went into 0:14:19.000 --> 0:14:21.200 play in like twenty seventeen, twenty eighteen. 0:14:21.320 --> 0:14:24.960 Yeah, yeah, So you know, keep in mind, giving tax 0:14:25.000 --> 0:14:28.680 advice is like asking Mayo clinic for you know, medical advice. 0:14:28.760 --> 0:14:31.280 Like there's so many things that depend. But there are 0:14:31.280 --> 0:14:35.000 two broad things that happened. The first is the roll 0:14:35.080 --> 0:14:40.840 off of stimulus benefits. The second is the IRS made 0:14:40.840 --> 0:14:45.360 a change to withholding tables, which essentially more people kept 0:14:45.400 --> 0:14:48.640 money in their paycheck but didn't think about changing their 0:14:48.640 --> 0:14:52.640 withholding and therefore, you know, had a surprise at the 0:14:52.720 --> 0:14:55.240 end of the year. Those are the two main reasons. 0:14:55.040 --> 0:14:59.200 Can I ask, and I'm sure you already have a plan. 0:15:00.120 --> 0:15:02.960 What does how can AI help you at ation R Block. 0:15:04.720 --> 0:15:06.760 Well, first of all, there are many things we're already 0:15:06.800 --> 0:15:10.720 doing with AI. We use it in robotics, process automation 0:15:11.120 --> 0:15:15.680 on remedial tasks. We use it to match labor and 0:15:15.760 --> 0:15:20.400 supply and scheduling. This year, we introduced an industry first 0:15:20.440 --> 0:15:24.800 in our DIY product, where if you switched from a competitor, 0:15:25.480 --> 0:15:30.440 we automatically and proactively looked at last year's return to 0:15:30.520 --> 0:15:33.640 identify any errors that may have been made, and if 0:15:33.640 --> 0:15:36.240 we found one that was worth more than two hundred 0:15:36.240 --> 0:15:39.520 and fifty dollars for you, we notified use you could 0:15:39.560 --> 0:15:42.520 file an amendment. So there are a number of things 0:15:42.520 --> 0:15:45.720 that we're already doing today. And you know, listen, we 0:15:45.840 --> 0:15:52.720 have the same broad ethics, regulatory, legal, security, and privacy 0:15:52.760 --> 0:15:56.120 concerns as I think many companies do. But in general, 0:15:56.200 --> 0:15:59.880 we're excited about the potential for what this technology can 0:15:59.880 --> 0:16:02.880 do come or customer service, et cetera. 0:16:03.040 --> 0:16:07.000 I mean, can't can't AI make the tax code easier 0:16:07.640 --> 0:16:11.000 for humans to deal with? I remember Donald Rumsfeld's famous 0:16:11.120 --> 0:16:12.680 letter to the I R S where he was like, 0:16:12.840 --> 0:16:15.160 I have no idea, and I have a college degree, 0:16:15.160 --> 0:16:16.840 like my wife doesn't know either, So. 0:16:16.880 --> 0:16:17.400 Here you go. 0:16:18.000 --> 0:16:22.280 Can't can't this make make it easier for Americans to 0:16:22.320 --> 0:16:24.280 file their taxes by themselves? 0:16:24.400 --> 0:16:26.120 I mean basically talk to a bot and just do it. 0:16:26.240 --> 0:16:28.560 Yeah, talk to an H and R AI bot and 0:16:28.600 --> 0:16:31.400 they'll say, I fire your taxes and it's it's all done, 0:16:31.560 --> 0:16:31.760 you know. 0:16:32.520 --> 0:16:32.720 Yeah. 0:16:32.760 --> 0:16:35.000 I mean, I think what obviously has to happen is 0:16:35.320 --> 0:16:38.520 the you know whatever average means. The average American consumer 0:16:39.000 --> 0:16:41.600 has to be willing to turn over all of their 0:16:41.640 --> 0:16:43.960 most intimate financial data to the bot. 0:16:45.280 --> 0:16:48.080 And for the average American consumer, that's like a W two. 0:16:48.280 --> 0:16:50.840 Here you go, all done. 0:16:51.600 --> 0:16:53.960 It's it's really not a W two. Think about the 0:16:54.000 --> 0:16:57.080 Earned income tax credit, the child tax credit, the way 0:16:57.160 --> 0:17:00.760 childcare happens. Are you a grandparent of paren and anna 0:17:00.800 --> 0:17:02.960 or and uncle taking care of the child? I mean, 0:17:03.000 --> 0:17:05.480 there's an enormous amount that goes into this for the 0:17:05.560 --> 0:17:09.840 consumer every year, way beyond a W two. There's no 0:17:10.080 --> 0:17:14.880 question this technology can help all of us provide better 0:17:14.960 --> 0:17:18.560 tax planning and make things faster. We're already leaning into that, 0:17:19.119 --> 0:17:21.000 but I think you know, the jury will be out 0:17:21.040 --> 0:17:24.520 over many years on will people be comfortable turning over 0:17:24.880 --> 0:17:27.600 essentially their financial DNA to the computer? 0:17:27.760 --> 0:17:29.280 Well, and I guess I would argue, I know what 0:17:29.320 --> 0:17:31.560 we share with our accountant, and they pretty much know 0:17:31.640 --> 0:17:34.800 everything and anything when it comes to our finances, So 0:17:35.200 --> 0:17:39.119 you essentially are handing it right now to affirm individuals 0:17:39.160 --> 0:17:41.320 who put it into a database that you get. 0:17:41.400 --> 0:17:44.040 My dad was never. My dad would be never. Okay, 0:17:44.080 --> 0:17:46.000 he'll do his own taxes until he dies. 0:17:46.040 --> 0:17:48.600 But we are so are many other people. So I 0:17:48.640 --> 0:17:51.760 think it does sound like just kind of the normal progression. Hey, 0:17:51.760 --> 0:17:53.160 one thing I want to go back to, Jeff, because 0:17:53.160 --> 0:17:54.879 you do have a vantage point when it comes to 0:17:54.920 --> 0:17:58.360 your platform. San Francisco FED coming out with their household 0:17:58.400 --> 0:18:01.639 survey and they're saying that house is still strong in 0:18:01.720 --> 0:18:04.760 terms of the money that they have on their individual 0:18:04.840 --> 0:18:07.320 balance sheets despite how many years we are out from 0:18:07.320 --> 0:18:09.679 the pandemic. Do you agree in terms of what you 0:18:09.720 --> 0:18:12.560 are seeing or do you feel like things are getting 0:18:12.760 --> 0:18:14.119 a little bit weaker and softer? 0:18:15.480 --> 0:18:17.760 You know, what I can speak to, Carol is the 0:18:17.840 --> 0:18:20.800 twenty million people that we serve and the last several 0:18:20.840 --> 0:18:24.880 months of seeing how important it was they got their cash. 0:18:25.119 --> 0:18:28.320 So does that mean they're excited to get it because 0:18:28.359 --> 0:18:30.760 their flush and their bank accounts are full and their 0:18:30.760 --> 0:18:35.000 credits their debt is low. Or does it mean you 0:18:35.040 --> 0:18:37.960 know that money's already spent. And what we see with 0:18:38.280 --> 0:18:42.320 the consumers we serve is that refund is already spent 0:18:43.680 --> 0:18:46.440 and so you know, it's not go on a vacation. 0:18:46.640 --> 0:18:50.280 So we still absolutely saw this year urgency to get 0:18:50.320 --> 0:18:53.240 cash and just too many people being surprised by the 0:18:53.320 --> 0:18:55.760 outcome for those two reasons I mentioned earlier. 0:18:55.880 --> 0:18:57.439 Hey, I do want to go to since you do 0:18:57.600 --> 0:18:59.840 know when your stock HiT's a fifty two week low 0:19:00.720 --> 0:19:02.440 and I was looking at, you know, the moves today 0:19:02.440 --> 0:19:04.520 it's down about four percent. It was down six percent 0:19:04.560 --> 0:19:07.400 at its lows. What are investors saying to you, because 0:19:07.400 --> 0:19:09.159 they obviously are disappointed. 0:19:10.840 --> 0:19:13.480 Well, first of all, they're excited that we will still grow, 0:19:13.520 --> 0:19:17.679 earnings will still grow, expect to grow EPs. We have 0:19:17.680 --> 0:19:21.440 a really strong capital allocation program, and when you put 0:19:21.480 --> 0:19:25.199 all that together, we deliver a really nice TSR. So 0:19:25.359 --> 0:19:28.119 they definitely see that. I think what they want to 0:19:28.160 --> 0:19:31.560 know is, you know, why did you lose volume this year? 0:19:32.480 --> 0:19:35.720 And there are three answers, and we're really clear with this. 0:19:35.880 --> 0:19:39.960 You know, we lost filers who make less than five 0:19:40.040 --> 0:19:43.399 thousand dollars of income who were most likely in the 0:19:43.440 --> 0:19:47.439 system because of stimulus. That represents about a third of 0:19:47.440 --> 0:19:52.399 our client loss. The second is those EITC filers that 0:19:52.440 --> 0:19:57.280 we're looking for refunds refund advances. And the third about 0:19:57.280 --> 0:20:00.199 twenty percent of our client loss is just do to 0:20:00.240 --> 0:20:04.560 the California extension timing. So I think the clarity about 0:20:04.600 --> 0:20:08.399 why we lost volume this year is helped investors understand 0:20:08.440 --> 0:20:11.719 that two of those three headwinds are behind us, and 0:20:11.760 --> 0:20:14.960 we're still generating a tremendous amount of free cash flow 0:20:15.359 --> 0:20:17.639 and deploying that very effectively. 0:20:17.280 --> 0:20:21.040 Right, including buybacks, right and dividend correct, exactly. All right, 0:20:21.080 --> 0:20:22.800 Gonna leave it on that note. He Jeff always fun 0:20:22.840 --> 0:20:24.840 to check in with you, Jeff Jones. He's president and 0:20:24.920 --> 0:20:27.960 CEO of H and R. Block stock is down about 0:20:27.960 --> 0:20:30.120 fourteen percent so far. You talked about TSR. Of course, 0:20:30.160 --> 0:20:33.919 total shareholder return joining us from Kansas City, Missouri. So 0:20:33.920 --> 0:20:35.280 your dad doesn't handle anything over. 0:20:35.400 --> 0:20:38.439 No, never would never. It's a little worrying. 0:20:38.480 --> 0:20:41.600 Actually, all right, more to come on Bloomberg Business Week. 0:20:42.440 --> 0:20:46.000 You're listening to the Bloomberg Business Week podcast. Catch us 0:20:46.040 --> 0:20:49.399 live weekday afternoons from three to six Eastern Listen on 0:20:49.440 --> 0:20:52.280