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Speaker 2: If you make any attention today, you know exactly the
Speaker 2: economic data that pip this morning. US retail sales broadly
Speaker 2: declining in January, indicating that consumers took a little breather
Speaker 2: after a strong holiday shopping season. So here's some numbers here.
Speaker 2: The value of retail purchases, unadjusted for inflation, decreased eight
Speaker 2: tenths of one percent from December, this after a downward
Speaker 2: revision to the prior month. This according to Commerce Department
Speaker 2: data earlier today, that drop the biggest in nearly a year.
Speaker 2: Separate data showed US factory production fell for the first
Speaker 2: time in three months in January. Following all of this,
Speaker 2: of course, is Michael Mckehe's international economics and policy correspondent
Speaker 2: for Blueberg News. He joins us right now from Washington, DC,
Speaker 2: where he's at the National Association for Business Economics conference.
Speaker 2: We're going to have more on that in just a minute,
Speaker 2: But first, Mike, I want to get to this data.
Speaker 2: The two reports that we got today, they pointed to
Speaker 2: a loss of momentum, But are they a sign that
Speaker 2: the economy is deteriorating.
Speaker 3: I wouldn't use the word deteriorating. The economy is slowing,
Speaker 3: and we know, of course that in January Shanalli went
Speaker 3: on vacation, so a lot of shopping didn't get done.
Speaker 3: A lot of it is probably weather related. When you
Speaker 3: look at what happened across the country in January, a
Speaker 3: lot of snow, a lot of people stayed home, and
Speaker 3: car sales really suffered. That was about half of what
Speaker 3: we saw in the decline. Another major part was building
Speaker 3: materials and outdoor stores, things that would be affected by
Speaker 3: the weather. Now there is some loss of momentum, there's
Speaker 3: no question about that. What we have to see is
Speaker 3: whether it comes back in this month in February, and
Speaker 3: that's what the FED will be looking for. But it
Speaker 3: kind of offsets the CPI numbers, which is why I
Speaker 3: think you're seeing some rallying inequities today. Because when the
Speaker 3: CPI came out, everybody wrote off the FED cutting rates
Speaker 3: anytime sooner. But if the economy's slowing down, maybe they will.
Speaker 3: So the psychology, the psychological game continues.
Speaker 4: But let's draw the connection between the inflation data we
Speaker 4: got and the retail sales number. If inflation is indeed
Speaker 4: hotter then you expect, Mike, then wouldn't consumers start to
Speaker 4: slow down more into the year.
Speaker 3: Well, there's two ways to consider this. One is that
Speaker 3: inflation is built into the prices. These are nominal numbers
Speaker 3: for retail sales. So if inflation is higher and you
Speaker 3: subtract it out to get the real figures, they're even
Speaker 3: worse than they looked. But I think the kind of
Speaker 3: inflation that we saw in many service industries it was
Speaker 3: the primary reason that we saw the CPI go up,
Speaker 3: so it may not have had as much of an
Speaker 3: effect on retail sales, which are largely good.
Speaker 2: Okay, Mike, Anything else in these two reports that we
Speaker 2: got earlier today that we need to make sure we
Speaker 2: understand here.
Speaker 3: Well, one thing I would point out is that for
Speaker 3: the first time in about nine months, we saw import
Speaker 3: prices rise, and that's even ex petroleum. Petroleum prices push
Speaker 3: them up. But we also saw some goods prices go
Speaker 3: up in import prices. The Philadelphia surveyed reported that their
Speaker 3: prices paid index went up, not much, it's still low,
Speaker 3: but it went up. So with CPI and those two things,
Speaker 3: it may be a bit worrying that inflation might be
Speaker 3: picking up. And again we just have to look at
Speaker 3: the retail sales numbers and say, maybe that's offsetting it somewhat.
Speaker 3: If the economy is slowing, then inflation should slow.
Speaker 4: The question yet becomes to there's a lot of economic
Speaker 4: data still ahead, Mike. Tomorrow we get producer prices as well.
Speaker 3: What's the expectation, Well, the expectations we get a little
Speaker 3: bit of inflation. Producer prices have run below the CPI
Speaker 3: significant for quite some time. They're in the one percent
Speaker 3: range one to two percent range on a year over
Speaker 3: year basis, so there's no reason to really think that
Speaker 3: they're going to go up significantly. If they do, we'll
Speaker 3: want to see what categories where might some inflation pressure come.
Speaker 3: Also tomorrow we get the University of Michigan's consumer sentiment numbers,
Speaker 3: and that's always important to the FED because they want
Speaker 3: to see what people's inflation expectations are. They've been moving down,
Speaker 3: they were significantly lower last month, and so if that continues,
Speaker 3: then the FED is a little less worried about what
Speaker 3: the CPI might mean.
Speaker 2: We got news Mike just in about the last hour
Speaker 2: that Fed Jo J. Powell is going to be testifying
Speaker 2: before the House Financial Services Committee come March sixth, this
Speaker 2: from punch Bowl. Is this a surprise at all? What
Speaker 2: do we need to understand about him testifying? And wow,
Speaker 2: less than a month.
Speaker 3: This is his regularly scheduled what we used to call
Speaker 3: Humphrey Hawkins testimony. He'll talk to the House Financial Service
Speaker 3: this is a committee one day, and then he'll talk
Speaker 3: to the Senate Banking Committee the next day. So it's
Speaker 3: not a surprise. It's a little bit later than usual,
Speaker 3: but we had been warned off the record that it
Speaker 3: wasn't probably going to come until March. What will be
Speaker 3: interesting is that that gets us very close to the
Speaker 3: next FED meeting on March twentieth, So we have a
Speaker 3: lot of Fed speak between now and then. That may
Speaker 3: not matter because Wall Street's going to wait and see
Speaker 3: what Jay Powell has to say those days, and I
Speaker 3: bet you we get on Bloomberg Radio and television big
Speaker 3: ratings on March sixth, at least when he first starts
Speaker 3: to give his view of the economy and what policy
Speaker 3: might be going forward.
Speaker 2: Yes, people want to watch him, and people want to
Speaker 2: see him and hear what he has to say, of course,
Speaker 2: but we want to hear what's going on at the
Speaker 2: conference that you're at, Mike, I didn't know this thing
Speaker 2: started on Valentine's Day. What happened yesterday? What's going on
Speaker 2: today and tomorrow? Down in DC, yesterday was quite interesting.
Speaker 3: We had a presentation from Charlie Cook, he's the guru
Speaker 3: of political analysts here in why Washington, who suggested that
Speaker 3: the Biden administration is in trouble, not because people think
Speaker 3: that Donald Trump's a great guy, but because the economy's
Speaker 3: improvements haven't registered with the average voter yet and that's
Speaker 3: got to turn around or it could be an issue
Speaker 3: for Joe Biden. That we heard from Michael Barr, who
Speaker 3: is the Vice Chairman for Supervision at the FED, who
Speaker 3: said that basically two things, He's with j Powell and
Speaker 3: slowing down and waiting to see more data as far
Speaker 3: as monetary policy is concerned. But he also addressed to
Speaker 3: all the concerns on Wall Street about NYCB and regional
Speaker 3: banks and their exposures to commercial real estate, suggesting that
Speaker 3: this was maybe a one off because NYCB had bought
Speaker 3: signature banks bad loans and that the system was under control,
Speaker 3: there was no real systemic danger that the FED was
Speaker 3: on top of it. That was kind of reinforced at
Speaker 3: a seminar today on commercial real estate, where basically the
Speaker 3: consensus was that we will see some some banks struggle
Speaker 3: with commercial real estate loans, but in general the system
Speaker 3: isn't as bad as it has been portrayed. So so far,
Speaker 3: so good. We also had Mario Draghi here today talking
Speaker 3: about globalization, and of course he's always a big favorite
Speaker 3: of everyone.
Speaker 2: Michael McKee gonna have to leave it there, don't have
Speaker 2: too much fun in Washington. I hope you come back
Speaker 2: tomorrow and we can see here in the office. That's
Speaker 2: Michael McKee, International Economics and Policy correspondent, joining us from
Speaker 2: the National Association for Business Economics conference in Washington.
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Speaker 2: Well, here's some good news. At a mere one point
Speaker 2: nine percent, the state of Maryland has the lowest unemployment
Speaker 2: rate in the entire country, and at more than one
Speaker 2: hundred and eight thousand dollars a year, got the highest
Speaker 2: median household income in the US. And then there's the
Speaker 2: not so good news. Maryland's economy is growing at a
Speaker 2: slower rate than the US economy and its neighbors Pennsylvania
Speaker 2: and Virginia, and labor force participation has not recovered to
Speaker 2: pre pandemic levels. These figures are highlighted in a report
Speaker 2: last month from the Maryland State Controller's Office, the first
Speaker 2: report of its kind to be released. Let's get to
Speaker 2: the interview we have with us this afternoon, Maryland's Comptroller
Speaker 2: Brook Leerman. She joins us from our Washington DC Bureau Comptroller. Welcome,
Speaker 2: It's good to have you on the program this afternoon.
Speaker 2: As I mentioned, there are a lot of good numbers
Speaker 2: in the report, but there's also a lot of challenges here.
Speaker 2: Take your biggest challenge, give us your biggest challenge. What
Speaker 2: in here concerns you the most?
Speaker 5: Thank you so much. Tim, As you said, you know,
Speaker 5: Maryland is doing so well in so many ways. But
Speaker 5: what we saw in this report through our numbers and
Speaker 5: analysis as well as roundtables around the state, is that
Speaker 5: our labor force is constrained. You know, we have a
Speaker 5: traditionally very high labor force participation rate in Maryland and
Speaker 5: we still have a rate that is higher than the
Speaker 5: national average, but we haven't quite recovered from COVID, and
Speaker 5: so some of our economy is really constrained in the
Speaker 5: private sector growth. We're seeing good federal sector growth, but
Speaker 5: the private sector growth is constrained because of this, uh labor,
Speaker 5: these labor force challenges. So you know, we were excited
Speaker 5: to release this report so that our policy makers, our
Speaker 5: governor and others can and can really start to tackle
Speaker 5: these challenges and our economy can continue to grow.
Speaker 4: Now, controller what are the biggest challenges in the workforce
Speaker 4: and who is bearing the brunt of the pain here?
Speaker 5: So it's a good question. You know, we are really
Speaker 5: fortunate as a state to have a robust and unique
Speaker 5: set of industries in the state. You know, from federal
Speaker 5: to government to the port to unique biotech and cybersecurity
Speaker 5: and more all across the state, as well as numerous universities.
Speaker 5: What we saw in the data is that women have
Speaker 5: left the workforce at a higher rate in Maryland then nationally,
Speaker 5: So that's something that we're really focused on. We also
Speaker 5: have seen some health challenges over the years because of
Speaker 5: the opioid epidemic and so and continuing health concerns, and
Speaker 5: so we want to make sure that we're focusing gotten
Speaker 5: there as well. And then finally, I will say, you know,
Speaker 5: our population growth is so important. You know, when you're
Speaker 5: talking about labor force, it's about you know, the number
Speaker 5: of people both who live in Maryland and are participating.
Speaker 5: And we have seen lower numbers of growth in terms
Speaker 5: of population in the past few years since COVID, and
Speaker 5: so we want to make sure that there's a place
Speaker 5: for everyone in Maryland that they can afford a home,
Speaker 5: that they can send their kids to our great public schools.
Speaker 5: And so that's where we're focusing as well.
Speaker 2: Okay, Controller, I want to zero in on one issue
Speaker 2: that you mentioned, it's women leaving the workforce. I was
Speaker 2: really shocked to see the decline of childcare centers in
Speaker 2: this report in the state of Maryland. We are seeing
Speaker 2: that you predict by twenty twenty seven there will be
Speaker 2: only twenty seven hundred child care providers in the state,
Speaker 2: down from nearly six thousand in twenty eighteen. I've got
Speaker 2: two little kids. Childcare is front and center for my
Speaker 2: wife and I. How do you fix this in the state?
Speaker 2: Can you do that? As Controller?
Speaker 5: So, you know, one of the things about my job
Speaker 5: that I love is that I can partner with our governor,
Speaker 5: you know, with other our General Assembly or Speaker, Senate presidents.
Speaker 5: So as the Controller, I really serve as the elected CFO.
Speaker 6: Of the state of Maryland.
Speaker 5: And this report is about identifying some of those challenges
Speaker 5: so that our General Assembly and our governor have the
Speaker 5: information and can then formulate policies to tackle some of
Speaker 5: those challenges and seize opportunities. And this childcare one is
Speaker 5: a huge one. I'm also a mom with two children.
Speaker 5: I understand the challenge of finding childcare and it is
Speaker 5: essential that we get it right right, that we make
Speaker 5: sure that they're space in our economy for childcare providers
Speaker 5: of all types, the private settings, but also the in
Speaker 5: home care that many Marylanders and many folks who are
Speaker 5: below meeting income really rely on. And so that is
Speaker 5: certainly a focus of the General Assembly and the governor
Speaker 5: in fact mentioned it in a State of the State
Speaker 5: of the address this year.
Speaker 2: Do you think it's something that the state can fix
Speaker 2: on its own or do you need the federal government
Speaker 2: to help.
Speaker 5: I think it's going to have to be a partnership.
Speaker 5: You know, we will work with the federal government in
Speaker 5: terms of the childcare block grant program. You know, many
Speaker 5: years ago we changed how we paid in Maryland to
Speaker 5: pay more. In fact, in the Office of the Controller.
Speaker 5: Just this past year, we completely changed how, working with
Speaker 5: the Maryland State Department of Education, how we reimburse childcare
Speaker 5: providers so that we could provide repayments and reimbursements in
Speaker 5: a much more timely fashion. So we're very focused on
Speaker 5: that childcare piece to ensure that women have the opportunities
Speaker 5: that they want to work out of the home.
Speaker 4: I want to switch gears a little bit here, and
Speaker 4: I want to talk about something that's on the top
Speaker 4: of a lot of people's minds right now. It is
Speaker 4: tax season. I want to think about your posturing versus
Speaker 4: some of the others around you. For example, vir Junior
Speaker 4: Governor Glenn Youngkin has been of the side of saying
Speaker 4: that taxes are too high yet at state and local levels,
Speaker 4: and at the federal level, we're obviously facing a massive
Speaker 4: constraints on budgets. How do you think about the tax
Speaker 4: equation for the folks who live in Maryland.
Speaker 5: I think we can never enter into a race to
Speaker 5: the bottom. You know, Maryland and Maryland. We're proud of
Speaker 5: our amazing public schools. I graduated from Maryland public schools.
Speaker 5: My two children are in public schools. We have amazing
Speaker 5: state parks, we have a robust healthcare system, and so
Speaker 5: I would caution us against, you know, entering into any
Speaker 5: sort of race to the bottom. As in terms of
Speaker 5: tax policy, I think what we have to focus on
Speaker 5: is making sure that Marylanders are getting the support that
Speaker 5: they need, that our businesses are able to grow and
Speaker 5: thrive here in the state of Maryland, and that we
Speaker 5: have the labor force available, a well educated, a well
Speaker 5: trained workforce available for employers so that they know that
Speaker 5: they can grow here over the long term.
Speaker 4: Curious about the race to the bottom a little more,
Speaker 4: how do you compete with other states that are participating
Speaker 4: in that race to the bottom, particularly if you're trying
Speaker 4: to build a labor.
Speaker 6: Force well over the long term.
Speaker 5: What you see is you know, although Marylanders, if you
Speaker 5: look at the age brackets, Marylanders may be moving out
Speaker 5: of state when they're younger, when they're older, we actually
Speaker 5: see you know, the prime work age workforce age Maryland
Speaker 5: people moving into the States. And that's because of our schools,
Speaker 5: it's because of our opportunities, it's because of our housing stock.
Speaker 5: Those are those folks are finding their way to Maryland
Speaker 5: because of its reputation for being such a family supporting state.
Speaker 5: And so you know, that's where we have to focus
Speaker 5: on making sure then that those Marylanders are can find
Speaker 5: the housing that they need. Right, I think where I
Speaker 5: would focus is on making sure that the housing is
Speaker 5: available so that people can grow here, thrive here, and
Speaker 5: then retire here as well.
Speaker 2: I want to talk about federal government employment because a
Speaker 2: relatively large portion of the state compared to other states,
Speaker 2: works for the federal government five point seven percent of
Speaker 2: Maryland total of total Maryland employment, compared to one point
Speaker 2: nine percent of total employment nationally. Obviously, it's good for
Speaker 2: stability because these government jobs are stable. But I'm wondering
Speaker 2: what the downsides are of having so many government workers.
Speaker 2: Since those jobs are so stable, doesn't mean the working
Speaker 2: population doesn't necessarily have the same rate of people going
Speaker 2: and starting their own businesses of entrepreneurship. Talk to us
Speaker 2: a little bit about that.
Speaker 5: Sure, you know, we haven't seen that in Maryland. We're
Speaker 5: very fortunate to have I think this high federal employment,
Speaker 5: although it sometimes says get a little dicey when the
Speaker 5: federal government might shut down, but you know, for the
Speaker 5: most part, it's a real boom to Maryland. And we're
Speaker 5: really excited to be welcoming the FBI headquarters to Maryland
Speaker 5: in the coming years. Because we have such a robust
Speaker 5: series of research universities and the state as well well,
Speaker 5: including of course JOHNS Hopkins, the University of Maryland System
Speaker 5: and more Morgan State. We have a number of entrepreneurs
Speaker 5: and ideas and sort of that's that are coming out
Speaker 5: of those universities. We see enormous tech transfer possibilities. We
Speaker 5: also are really fortunate to have, you know, a large
Speaker 5: number of immigrants in the state of Maryland, and we
Speaker 5: see a number of immigrants who are great entrepreneurs opening
Speaker 5: businesses in the state as well.
Speaker 4: Com Schuller with the type of fighting, if you hill,
Speaker 4: that we've been seeing coming out of Congress. Do you
Speaker 4: share a concern with so many federal workers being in
Speaker 4: Maryland of a risk of a government shut down.
Speaker 5: Absolutely, you know, it's for so many reasons. A government
Speaker 5: shut down is irresponsible and challenging, you know, certainly globally,
Speaker 5: but here in Maryland it is as well. You know,
Speaker 5: those workers are having to go to work and they're
Speaker 5: not getting paid, or they're not working and they're not
Speaker 5: getting paid. It's incredibly challenging. Over the long term, they
Speaker 5: do get paid, and so the revenue does come in
Speaker 5: both to their household and to the state. The most challenging,
Speaker 5: one of the most challenging times that our economy has
Speaker 5: had relating to the federal government was actually was actually
Speaker 5: after Seaquestration. We saw real challenges after that because of
Speaker 5: the long term effect that sequestration had.
Speaker 2: We only have about thirty seconds left. But you were
Speaker 2: a Democratic delegate back in twenty sixteen. I got to
Speaker 2: ask you a national question about the Democratic Party. Why
Speaker 2: do you think there haven't been more competition from within
Speaker 2: the Democratic Party against President Biden given the challenges that
Speaker 2: he faces for reelection.
Speaker 5: President Biden and the Democrats in Congress have passed more
Speaker 5: important legislation in the past two years than I can
Speaker 5: remember in decades. I mean, from the IRA to the
Speaker 5: Chips Act to the Infrastructure Bill. I mean, the legislation
Speaker 5: that has come out is in phenomenal and it is
Speaker 5: game changing for not just the state of Maryland in
Speaker 5: the coming years, but really for our country. And so,
Speaker 5: you know, I just think the progress that has been
Speaker 5: made under the Democrats, it can't be denied. And our
Speaker 5: economy has grown as well, and so I'm excited about
Speaker 5: what's happening.
Speaker 2: Controller, thank you so much for joining us. That's Brooklearman,
Speaker 2: Maryland's controller, joining us from Washington.
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Speaker 2: Well. US retail sales broadly declined in January, indicating consumers
Speaker 2: took a breather after a strong holiday shopping season. The
Speaker 2: value of retail purchases, unadjusted for inflation, decreased eight tens
Speaker 2: of one percent from December. This after a downward revision
Speaker 2: to the prior month. This according to Commerce Department data
Speaker 2: that we got earlier today, that drop was the biggest
Speaker 2: in nearly a year. For more on this and more
Speaker 2: when it comes to retail, let's bring in Angie Solanki,
Speaker 2: National director of US Retail at Colliers. She joins us
Speaker 2: from San Francisco. Good to have you back on the program.
Speaker 2: I want to start with today's data, but then I
Speaker 2: want to move beyond that and get to what you're
Speaker 2: seeing in your work in terms of AI, in terms
Speaker 2: of efficiencies, and really what we're seeing in the future
Speaker 2: of retail. But were these numbers at all a surprise
Speaker 2: to you that we got a little earlier today. What
Speaker 2: are you seeing in your work?
Speaker 7: Yeah, I mean, if we look at the numbers, you know,
Speaker 7: it's a reasonable start to twenty twenty four. It's just
Speaker 7: you know, our January numbers, it's not fatal. If we
Speaker 7: really look at core retail in terms of increase, it
Speaker 7: was about two point eight percent, so that's pretty healthy.
Speaker 7: And if we really look at you know, back two
Speaker 7: to three years, you know what we've seen from retailers
Speaker 7: is really that operational efficiency and how they're looking forward
Speaker 7: in terms of utilizing different tools and platforms to increase
Speaker 7: their EFFICI season margins going for.
Speaker 4: A big question that a lot of investors have too
Speaker 4: is if they're using money to invest in things like
Speaker 4: AI to increase operational efficiency, how much of that money
Speaker 4: is turned around and used to pay employees? For example,
Speaker 4: do you need to raise prices for consumers in order
Speaker 4: to invest more? How does the equation work at the
Speaker 4: end of the day.
Speaker 7: Yeah, you know, it's really dependent upon each of the retailers.
Speaker 7: So each retailer will have a slightly different business model.
Speaker 7: But what we have seen or are monitoring, I should
Speaker 7: say closely, is using AI from an operational efficiency perspective
Speaker 7: can be a savings of sixty to seventy percent.
Speaker 6: Then what happens is we start.
Speaker 7: To layer on and I'll use grocery as the category
Speaker 7: or segment as the example, is that you then can
Speaker 7: offer additional products through a private label system. So when
Speaker 7: you do that, you're actually seeing a better margin increase.
Speaker 7: So operational efficiencies margin increases allows that retailer to actually provide,
Speaker 7: to your point earlier better wages.
Speaker 2: What's the what are the inputs that that give them
Speaker 2: the data that allow them to make these decisions to
Speaker 2: have these efficiencies.
Speaker 7: I mean, if you stop and thinking about AI right,
Speaker 7: we're we're kind of in its you know, infancy as
Speaker 7: it relates to retail. There's a lot of discussion around it.
Speaker 7: There's you know, still adoption around this. We're seeing AI
Speaker 7: used definitely from a distribution perspective, so in the supply chain,
Speaker 7: but also where we're able to take AI step further
Speaker 7: because we've been harvesting or I should say retailers have
Speaker 7: been harvesting pos or point of sale data through transactions,
Speaker 7: whether it's online or offline in the store.
Speaker 6: So when they're.
Speaker 7: Collecting that data, they have the ability to start utilizing
Speaker 7: the AI overlay to start to find kind of you know,
Speaker 7: themes around personal customization areas of where there's seems from
Speaker 7: product so far faster than a different product. So that
Speaker 7: is helping from an efficiency perspective.
Speaker 4: How do you think that the year is going to
Speaker 4: play out? You know, the thing that's really top of
Speaker 4: mind right now for investors is that data we saw
Speaker 4: from retail sales just this morning being worse than expected.
Speaker 4: If the consumer starts to become more strapped this year,
Speaker 4: what are the things that many retailers are not really
Speaker 4: thinking about at this moment to prepare for that.
Speaker 6: That's a great question.
Speaker 7: So there is a little bit of what I'm calling
Speaker 7: the you know, credit card hangover from December. There was
Speaker 7: quite a bit of spend in December, so people are
Speaker 7: being much more cautious. We have definitely seen big ticket items,
Speaker 7: you know, look at it, you know, a bit of
Speaker 7: a decrease in terms of sales and spend. But where
Speaker 7: we have seen a shift an increase in spend has
Speaker 7: been actually in the restaurant and bar scene. So it's
Speaker 7: the allocation of funds. Now, looking forward into twenty twenty four,
Speaker 7: we're going to be very you know, called it optimistically cautious.
Speaker 7: I know we've used that word quite a bit, but
Speaker 7: I think last year was one where we were really
Speaker 7: focused and monitoring every single movement within retail. This year,
Speaker 7: I think there's more of a consciousness around how people
Speaker 7: are spending where they're spending, but it's going to be
Speaker 7: very value driven and I don't see that changing through
Speaker 7: throughout the year.
Speaker 2: Where where specifically are you seeing weakness and dare I
Speaker 2: ask if you're seeing any recession right now?
Speaker 6: Recession.
Speaker 7: No, we're not definitely forecasting recession as of today. What
Speaker 7: we will, what I would suggest is that we're really
Speaker 7: seeing in terms of, you know, a decline in sales
Speaker 7: as a you know, electronics. We're going to continue to
Speaker 7: see some softness in you know, kind of that tech
Speaker 7: device sector. But from a F and B perspective, I
Speaker 7: think we're going to still be We're a little.
Speaker 6: We're still bullish in that sector.
Speaker 7: We actually survey over five hundred retail professionals within our
Speaker 7: organization to say, where are you seeing across the US
Speaker 7: and your respective.
Speaker 6: Local markets the most movement from.
Speaker 7: A least transaction perspective, and it's definitely in the restaurant space.
Speaker 4: Now, another thing we talk about a lot over here
Speaker 4: at Bloomberg is the cost of real estate right now
Speaker 4: in retail space, and there are a lot of retailers
Speaker 4: that really expect to expand a physical footprint. How costly
Speaker 4: is that expansion plan?
Speaker 7: You know, it is market driven. I think you know
Speaker 7: what we're seeing, you know, some.
Speaker 6: Of the challenges is it goes back.
Speaker 7: To construction cost, workforce as well as when you look
Speaker 7: at where we are from an occupancy perspective in the
Speaker 7: more urban suburban markets and secondary markets. Rents have continued
Speaker 7: to climb and those are going to be you know,
Speaker 7: at some point, there's there has to be a tipping point,
Speaker 7: right because there's only so much a store can generate
Speaker 7: in terms of sales. So we have to work collectively
Speaker 7: landlords and retailers to make it much more a partnership
Speaker 7: so that it is the stainable and there isn't this
Speaker 7: like you know, flip and we're starting to see some
Speaker 7: struggle or challenges with high rents.
Speaker 2: What about in terms of you know, we've talked a
Speaker 2: lot about real estate on this program over the last
Speaker 2: few weeks, and one thing we talked about earlier this
Speaker 2: week with the co CEOs of the design and planning
Speaker 2: firm Gensler, is repurposing office space that isn't being used
Speaker 2: right now, repurposing that to housing. I'm wondering what you're
Speaker 2: seeing on the retail side right now and the way
Speaker 2: that you're seeing retail being repurposed. Can you offer any
Speaker 2: thoughts there about what you're seeing and if you're starting
Speaker 2: to see that being converted to different uses.
Speaker 7: So what we're seeing in terms of retail converting to
Speaker 7: you know, it's retail converting to other types of uses.
Speaker 7: So you're seeing this a lot in the mall sector.
Speaker 7: So you're starting to see some of the larger boxes
Speaker 7: where you have an opportunity to upgrade in terms of
Speaker 7: the overall mix of types of products or I should
Speaker 7: say uses within the project. So you're starting to see
Speaker 7: some concepts such as hotels coming in, So you're starting
Speaker 7: to see hotel operators coming in. You're also starting to
Speaker 7: see and these are one alike. Consider malls. These are
Speaker 7: you know, malls that may have slightly higher vacancy maybe
Speaker 7: you know they have a seventy five to eighty percent
Speaker 7: vacancy versus the class triple A malls. And so we're
Speaker 7: seeing hospitality. We're also seeing healthcare, so healthcare large healthcare
Speaker 7: organizations seeing advantages and or benefits right as it relates
Speaker 7: to if I can bring create a convenience to my
Speaker 7: end user and patients in this situation, and even you know,
Speaker 7: the doctors and the staff, et cetera. You're allowing these
Speaker 7: people to come into a no because typically retail malls
Speaker 7: are in accessible areas, they have great accessibility in an
Speaker 7: ample parking.
Speaker 6: And then you're also providing.
Speaker 7: Other benefits where if there's you know, shopping opportunities, food opportunities.
Speaker 6: So we are seeing that occur. You know, interesting thing.
Speaker 7: That you said, and we just published this which is
Speaker 7: kind of this retail office interdependency and that relationship more
Speaker 7: in the urban markets. You know, what we're now seeing
Speaker 7: is this new trend, and that trend is with small businesses.
Speaker 6: I'm really excited about that because.
Speaker 7: You're starting to see small businesses pop up more and more,
Speaker 7: and I think landlords are giving them an opportunity to
Speaker 7: take a vacant in space and really activate that and
Speaker 7: warm and up for.
Speaker 2: That's that's interesting to hear. Yeah, that's interesting to hear,
Speaker 2: especially because in terms of new jobs that are created,
Speaker 2: small businesses account for a huge portion of those. Hey, Angie,
Speaker 2: we got to leave it there. Angie Solanki is National
Speaker 2: director of US Retail at the real estate firm Callier.
Speaker 2: She joins US from San Francisco, A journal.
Speaker 3: Now about you let me drive?
Speaker 2: Oh no, no, no, no, who's.
Speaker 8: Alright?
Speaker 1: Please, I'll do the travels.
Speaker 6: Excuse wait, I don't want to drive. It's a good question.
Speaker 1: Try this is the drive to the clothes do commer pick.
Speaker 6: We'll buy around each.
Speaker 1: Other dawn on Bloomberg Radio.
Speaker 2: We'll just amount eighteen minutes to go until the close
Speaker 2: of creating here. We just heard an update from Charlie
Speaker 2: Pellett and Bill Maloney that we're seeing some late day buying.
Speaker 2: The S and P five hundred off its session highs,
Speaker 2: but still up half a percentage point. The NASDAC up
Speaker 2: more than one tenth of one percent. Will the Dow
Speaker 2: up eight tenths of one percent. Let's get our drive
Speaker 2: to the clothes with Megan Horneman, chief investment officer at
Speaker 2: Verde's Capital Advisors. She joins us from Hunt Valley, Maryland. Megan,
Speaker 2: good to see you.
Speaker 1: How are you.
Speaker 8: I'm great? How are you?
Speaker 2: We're doing well. Thanks. Trying to make sense of the
Speaker 2: kind of conflicting data that we got this week and
Speaker 2: last week that shows that inflation came out a little
Speaker 2: hotter than expected, retail sales coming in a little lighter
Speaker 2: than expected, all on the heels of that jobs report
Speaker 2: that came out last Friday that showed that hiring in
Speaker 2: January was robust. What's on your mind.
Speaker 8: Right now. I'm a little bit concerned about the inflation.
Speaker 8: I'm not so much concerned about what's going on with
Speaker 8: the retail sales. Again, it was a disappointing January. Don't
Speaker 8: forget we had a pretty big jump in December, so
Speaker 8: this could be some give back. There's some nuances with
Speaker 8: the seasonality as well, But the inflation is the bigger concern.
Speaker 8: And the reason that's concerning me is we've warned for
Speaker 8: a long time that inflation can be a bumpy road down.
Speaker 8: It's not a straight line down. The Feds made it
Speaker 8: pretty clear that they're more concerned about inflation than they
Speaker 8: are about the economy. So there's a lot of people,
Speaker 8: and you know, expectations for these rate cuts this year,
Speaker 8: and I'm afraid that might be a little optimistic given
Speaker 8: that inflation data that.
Speaker 2: We saw, even still optimistic, Yeah.
Speaker 8: You're still looking instead of seven rate cuts. I mean,
Speaker 8: I don't even know where that came from seven rate
Speaker 8: cuts to now maybe down to four rate cuts. But
Speaker 8: if we get some more of this volatility and inflation,
Speaker 8: the Fed could remain on hold this entire year.
Speaker 4: Well that's what I was thinking a lot about. What
Speaker 4: if we get no rate cuts and indeed, what would
Speaker 4: it take to see another rate hike? I mean, how
Speaker 4: much risk is there a reacceleration of inflation at this rate.
Speaker 8: I think there's a risk. I'm not ready to say
Speaker 8: that there's a chance that they could have to hike
Speaker 8: again this year, but there is a risk. We haven't
Speaker 8: seen the full effects of what's going on in the
Speaker 8: Red Sea. We know that shipping costs, these are all skyrocketing.
Speaker 8: Will get some more information from the producer side. If
Speaker 8: you look at the ISM Services index that we got
Speaker 8: for January, that price is pay component jumped up to
Speaker 8: sixty five. That was a pretty big jump there. So
Speaker 8: these are things that are showing us that that's sticky inflation.
Speaker 8: The FED has warned us about the service side housing wages.
Speaker 8: This is still a problem and we may not be
Speaker 8: able to save. Were completely out of the wood there, And.
Speaker 4: How lagged is a lot of this data If you
Speaker 4: think about, for example, one thing that struck me this
Speaker 4: week was the mortgage rate climbing the most you've seen
Speaker 4: in two months here, and interestingly that came before we
Speaker 4: saw the interest rate jumps this week. Right, we saw
Speaker 4: the yield rise meaningfully this week in the two year
Speaker 4: and the ten year. So how much more pain is
Speaker 4: there in terms of the impact of higher rates and
Speaker 4: kind of how cyclical is this problem at this point?
Speaker 8: Yeah, it takes a while for the full effects of
Speaker 8: the FED rate hikes to be felt in the economy.
Speaker 8: And what you're seeing is this kind of this dispersion
Speaker 8: where the FED has done such an aggressive rate hiking cycle.
Speaker 8: But if you look at things like financial conditions because
Speaker 8: of the rise and equities because of low volatility, because
Speaker 8: credit spreads are so tight, you're actually seeing financial conditions.
Speaker 8: Some of these indices that are out there, financial conditions
Speaker 8: are the easiest they've been since before the FED started
Speaker 8: raising rates. That's a problem the FED has said. I
Speaker 8: think the problem the Fed did is they got dubbish
Speaker 8: in December and that sparked kind of a resurgence in
Speaker 8: from economic data. And that's very easy to reignite inflation.
Speaker 8: And then you put on top of that the fact
Speaker 8: that we have these issues in the red Sea. This
Speaker 8: is a concern for inflation. Don't ever take one month
Speaker 8: of anything for a trend. Here, Well, we're going to
Speaker 8: look at some of the underlying data, some leading indicators,
Speaker 8: and we'll take it. We'll see if this continues month
Speaker 8: after month to get a better idea. But it is
Speaker 8: a risk that we could see inflation kind of stall
Speaker 8: here with the progress we've made.
Speaker 2: So what are you seeing in terms of your own
Speaker 2: predictions for the year, Megan, Are you thinking that, Okay,
Speaker 2: this is just a blip, this CPI figure, or are
Speaker 2: is the Fed on track to actually successfully bring inflation
Speaker 2: to its two percent target.
Speaker 8: I think that they're on track to get it to
Speaker 8: their two percent target, but not as quickly as most anticipate.
Speaker 8: I think that it's going to be really difficult to
Speaker 8: get to where we are now down to that two percent.
Speaker 8: I don't I'm not as optimistic that we'll see that
Speaker 8: this year. I think that maybe a twenty twenty five story.
Speaker 8: One of our themes for this year was that the
Speaker 8: Fed was walking a very fine line and that reinflation
Speaker 8: was a risk. We saw that coming into the year
Speaker 8: they were so dubbish. In December, equity markets took off,
Speaker 8: you saw spending from consumers take off, you saw consumer
Speaker 8: confidence pick up again. Those were things that concerned us
Speaker 8: about reinflation being an issue, And then you have to
Speaker 8: look at how the what are the markets pricing in
Speaker 8: If the markets weren't sitting at record highs, then we
Speaker 8: might say, hey, they're not you know, they're being a
Speaker 8: little bit more realistic of where we are and what
Speaker 8: the Fed Kenny can't do. But the market just continues
Speaker 8: to notch these record highs this year, and it's disregarding
Speaker 8: a lot of these signs in the economy.
Speaker 4: So what do you think investors are ignoring now as
Speaker 4: the engage in markets. You look at a lot of
Speaker 4: these industries near all time highs and a lot of
Speaker 4: exuberance in certain parts the market. After everything you've said
Speaker 4: about kind of the miscalculation and the market about rate
Speaker 4: cuts and some concerning economic data that we're seeing, how
Speaker 4: should investors be thinking about positioning.
Speaker 8: So what we're doing is, first thing is holds extra cash.
Speaker 8: We are, as I mentioned, the Fed may be on
Speaker 8: hold for longer than most are pricing in the market.
Speaker 8: So holding extra cash isn't at the end of the world.
Speaker 8: At this point, you're getting five percent on your cash level.
Speaker 8: So holding extra cash and being able to take chances
Speaker 8: when there's when the volatility in the market arises, which
Speaker 8: we expect. The other thing is we just did this
Speaker 8: in the beginning of the year. Look at your portfolios,
Speaker 8: look at where you should be your asset allocation is
Speaker 8: has it deviated? It definitely has deviated in some of
Speaker 8: those areas like growth when you're looking at your portfolios,
Speaker 8: so rebalance, rebalance where is necessary. That's something that is
Speaker 8: important to do. We're being patient, We're waiting for opportunity
Speaker 8: in the market. There will be opportunities. I just think
Speaker 8: right now the market is looking a little bit frothy,
Speaker 8: a little bit too optimistic and pricing in this perfect landing,
Speaker 8: perfect inflation story for twenty twenty four.
Speaker 2: Hey, just forty seconds left. What kind of opportunities are
Speaker 2: you talking about here? Are you talking about opportunities of
Speaker 2: like a one and a half percent pullback or something
Speaker 2: more significant?
Speaker 8: Something more significant on the large cap space for sure,
Speaker 8: But there is opportunities, we think in the small and
Speaker 8: MidCap space because they're pricing in. I think of a
Speaker 8: lot of the downside risks. So if you can withstand
Speaker 8: the volatility that can arise as the economy continues to weaken,
Speaker 8: I think that over the long run, you'll be rewarded
Speaker 8: in that small and MidCap space.
Speaker 2: Hey, Megan, love it when you join us. Really do
Speaker 2: appreciate you taking the time this afternoon. That's Megan Horneman,
Speaker 2: chief investment Officer at Verdant's Capital Advisors, joining us from
Speaker 2: Hunt Valley, Maryland.
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