1 00:00:02,680 --> 00:00:05,440 Speaker 1: Hello everybody, and thanks for joining us for this special 2 00:00:05,600 --> 00:00:09,280 Speaker 1: edition of Bloomberg Daybreak. I'm Nathan Hager. The US stock 3 00:00:09,320 --> 00:00:12,760 Speaker 1: market is closed for the Memorial Day holiday. Coming up 4 00:00:12,760 --> 00:00:15,640 Speaker 1: this hour as we kick off the unofficial start of summer, 5 00:00:15,680 --> 00:00:17,279 Speaker 1: we'll look at why this one could be one of 6 00:00:17,280 --> 00:00:21,919 Speaker 1: the most expensive Memorial Days ever with Bloomberg's Julia Fanzeries 7 00:00:21,960 --> 00:00:25,720 Speaker 1: and Mark Dequett, plus retail in focus for investors. This week, 8 00:00:25,720 --> 00:00:29,320 Speaker 1: we preview earnings from Costco and Best Buy with Bloomberg 9 00:00:29,400 --> 00:00:33,519 Speaker 1: Intelligence Senior analyst Jen Bartashis and Lindsay Dutch. But first 10 00:00:33,600 --> 00:00:36,320 Speaker 1: we have a special roundtable on the economy and the 11 00:00:36,360 --> 00:00:39,960 Speaker 1: future of the Federal Reserve under a new chairman, and 12 00:00:40,000 --> 00:00:42,920 Speaker 1: for that we're joined by Bloomberg International Economics and Policy 13 00:00:42,920 --> 00:00:47,159 Speaker 1: correspondent Michael McKee and Anna Wong, chief US economist at 14 00:00:47,159 --> 00:00:49,519 Speaker 1: Bloomberg Economics. It's great to have the both of you 15 00:00:49,560 --> 00:00:52,560 Speaker 1: with us on this Memorial Day holiday, and I'll start 16 00:00:52,600 --> 00:00:56,840 Speaker 1: with you, how would you describe this economy that new 17 00:00:56,920 --> 00:00:58,920 Speaker 1: chairman warsh is stepping into. 18 00:00:59,360 --> 00:01:03,960 Speaker 2: Well, he stepping into a huge supply shock. The Iran 19 00:01:04,120 --> 00:01:09,480 Speaker 2: war has led to re acceleration and headline CPI However, 20 00:01:09,600 --> 00:01:13,840 Speaker 2: he's also stepping in just as the headline change in 21 00:01:13,959 --> 00:01:19,880 Speaker 2: CPI maybe peaking. We are estimating that May the next 22 00:01:19,920 --> 00:01:23,920 Speaker 2: report is where the headline CPI will peak roughly around 23 00:01:24,800 --> 00:01:28,880 Speaker 2: a little bit over four percent. However, the danger is 24 00:01:29,000 --> 00:01:32,160 Speaker 2: whether there will be second round effect onto the core. 25 00:01:32,760 --> 00:01:36,039 Speaker 2: But Kevin Morrish is also stepping in just as a 26 00:01:36,080 --> 00:01:39,160 Speaker 2: second supply shock is about to hit. But it's not 27 00:01:39,480 --> 00:01:42,800 Speaker 2: obvious right now that showing up in as EPI. So 28 00:01:42,920 --> 00:01:46,479 Speaker 2: this second round, or I don't know, maybe like fifth 29 00:01:46,560 --> 00:01:49,720 Speaker 2: round already in the last five years, is the AI 30 00:01:49,880 --> 00:01:55,520 Speaker 2: driven type of inflation in memory chips and computer software 31 00:01:55,720 --> 00:01:59,840 Speaker 2: and storage drive. We are seeing that peaking only in 32 00:01:59,840 --> 00:02:03,800 Speaker 2: twenty twenty seven, So I think generally your over year 33 00:02:03,800 --> 00:02:09,000 Speaker 2: inflation likely will peek in May and then step down gradually, 34 00:02:09,160 --> 00:02:12,360 Speaker 2: But then we'll see another little bump towards the end 35 00:02:12,400 --> 00:02:15,600 Speaker 2: of the year, and then in twenty twenty seven we'll 36 00:02:15,639 --> 00:02:20,120 Speaker 2: see it incrementally rising again after falling potential. It's very confusing, 37 00:02:20,280 --> 00:02:24,280 Speaker 2: but that's that's the inflation picture that Kevin warsh Inherit 38 00:02:24,400 --> 00:02:26,800 Speaker 2: a very confusing and complicated one. 39 00:02:26,919 --> 00:02:29,560 Speaker 1: Well, I think you've spelled it out pretty clearly, even 40 00:02:29,600 --> 00:02:32,520 Speaker 1: if it is a complicated situation here, but just to 41 00:02:32,560 --> 00:02:34,920 Speaker 1: put a bottom line on it, Mike, it sounds like 42 00:02:35,720 --> 00:02:39,400 Speaker 1: Chairman Warrish is stepping into an environment where two percent 43 00:02:39,480 --> 00:02:42,320 Speaker 1: inflation might be a ways off. 44 00:02:43,880 --> 00:02:47,920 Speaker 3: It's definitely going to be a ways off. The FED 45 00:02:48,040 --> 00:02:52,960 Speaker 3: minutes of their April meeting suggested that most members agreed 46 00:02:53,000 --> 00:02:55,119 Speaker 3: that it's going to be a lot longer to get 47 00:02:55,200 --> 00:02:58,639 Speaker 3: down to two percent than they had been thinking because 48 00:02:58,639 --> 00:03:05,000 Speaker 3: they're also seeing some bleed over into core rates from 49 00:03:05,200 --> 00:03:09,639 Speaker 3: services and goods that they didn't expect. So it's an 50 00:03:09,639 --> 00:03:14,200 Speaker 3: inflation problem that is kind of double for Kevin Walsh 51 00:03:14,320 --> 00:03:18,079 Speaker 3: because both the fact that there's not much he can 52 00:03:18,160 --> 00:03:22,400 Speaker 3: do about it it mingles with the fact that his 53 00:03:22,520 --> 00:03:24,880 Speaker 3: boss isn't going to be happy about it. 54 00:03:26,240 --> 00:03:28,840 Speaker 1: Well, let's talk about that a little bit, Anna, because 55 00:03:29,160 --> 00:03:35,560 Speaker 1: obviously Chairman Walsh was nominated after serious political pressure that 56 00:03:35,880 --> 00:03:38,920 Speaker 1: President Trump had been putting on former chair j Powell 57 00:03:38,960 --> 00:03:43,080 Speaker 1: for months, if not years. What is the challenge for 58 00:03:43,440 --> 00:03:47,800 Speaker 1: Chairman Walsh to deliver on the rate cuts that President 59 00:03:47,840 --> 00:03:49,760 Speaker 1: Trump has made clear he wants. 60 00:03:50,120 --> 00:03:52,680 Speaker 2: Well, we don't know if he's going to deliver. You know, 61 00:03:52,760 --> 00:03:57,320 Speaker 2: at has confirmation hearing he vigorously denied the idea that 62 00:03:57,360 --> 00:04:00,960 Speaker 2: he has promised Trump rate cuts. And also, I think 63 00:04:01,040 --> 00:04:07,000 Speaker 2: a sizeable portion of market participants, including ourselves, suspect that 64 00:04:07,120 --> 00:04:10,400 Speaker 2: Kevin Walsh in fact is a hawk at the heart 65 00:04:10,440 --> 00:04:14,120 Speaker 2: of things. But the reality is the market is already 66 00:04:14,160 --> 00:04:17,080 Speaker 2: doing the hiking for him, and he may be happy 67 00:04:17,120 --> 00:04:19,640 Speaker 2: about that. So in the last three weeks alone, we 68 00:04:19,680 --> 00:04:23,880 Speaker 2: have seen ten year yields rising by roughly thirty basis 69 00:04:23,960 --> 00:04:27,760 Speaker 2: point from four point three to now four point six, 70 00:04:28,040 --> 00:04:33,640 Speaker 2: and that is equivalent to almost forty to fifty basis 71 00:04:33,680 --> 00:04:39,039 Speaker 2: point of rate hikes. Basically, the market has essentially hiked 72 00:04:39,080 --> 00:04:43,760 Speaker 2: twice before Kevin worsh even came on board. It may 73 00:04:43,800 --> 00:04:47,840 Speaker 2: be just maybe that in the next six months what 74 00:04:47,920 --> 00:04:52,440 Speaker 2: he would see is a slowing economy because the tightening 75 00:04:52,839 --> 00:04:56,599 Speaker 2: of financial conditions from higher yields would be biting. And also, 76 00:04:56,839 --> 00:04:59,960 Speaker 2: as I said, the inflation on ever a year basis 77 00:05:00,080 --> 00:05:02,719 Speaker 2: would have peaked in May and it will be coming down, 78 00:05:03,080 --> 00:05:06,960 Speaker 2: and that could provide him the cover of at least 79 00:05:07,040 --> 00:05:09,400 Speaker 2: not hiking, if not cutting rates. 80 00:05:09,720 --> 00:05:12,600 Speaker 1: Now, the selloff in bonds, not just in the US 81 00:05:12,640 --> 00:05:15,200 Speaker 1: but globally has been pretty stunning to watch. Over the 82 00:05:15,240 --> 00:05:17,799 Speaker 1: last few weeks. It raises a question, Mike about whether 83 00:05:18,320 --> 00:05:20,920 Speaker 1: it matters for the Fed to try to catch up 84 00:05:21,040 --> 00:05:24,600 Speaker 1: with where the bond market is on rates. Does it 85 00:05:24,640 --> 00:05:27,760 Speaker 1: matter if the Fed keeps things where they are when 86 00:05:27,880 --> 00:05:31,200 Speaker 1: the treasury market's saying that rates need to go up. 87 00:05:31,360 --> 00:05:33,640 Speaker 3: Well, if you thought they were going to be up 88 00:05:33,680 --> 00:05:36,839 Speaker 3: in the markets for some time, yes, that would put 89 00:05:36,960 --> 00:05:41,320 Speaker 3: pressure on the Fed. The question is because this has 90 00:05:41,360 --> 00:05:47,000 Speaker 3: been so volatile, because from one Trump headline to another, 91 00:05:47,560 --> 00:05:50,719 Speaker 3: the Fed at this point is probably just going to 92 00:05:50,839 --> 00:05:54,239 Speaker 3: be content to sit back and wait and see what happens, 93 00:05:54,320 --> 00:05:57,680 Speaker 3: not only with inflation but with the impact of the 94 00:05:57,800 --> 00:06:00,560 Speaker 3: higher rates. The question that is going to be on 95 00:06:00,600 --> 00:06:04,839 Speaker 3: everybody's mind as we go forward is how much is 96 00:06:04,920 --> 00:06:08,799 Speaker 3: this inflation, especially energy price inflation, going to curb demand 97 00:06:09,279 --> 00:06:13,359 Speaker 3: and therefore put pressure on the labor market and growth. 98 00:06:14,000 --> 00:06:17,279 Speaker 3: If it doesn't do that, then they're going to have 99 00:06:17,400 --> 00:06:20,560 Speaker 3: to start thinking about rate increases, which they told us 100 00:06:20,600 --> 00:06:24,159 Speaker 3: in the minutes. If it does, then that takes rate 101 00:06:24,240 --> 00:06:27,760 Speaker 3: increases probably off the table. So it's a very confusing time. 102 00:06:28,440 --> 00:06:32,760 Speaker 3: As Anna began the whole segment saying, and we're just 103 00:06:32,800 --> 00:06:35,119 Speaker 3: going to have to watch and see what happens, which, 104 00:06:35,360 --> 00:06:38,000 Speaker 3: of course Kevin Warre said, we don't want to be 105 00:06:38,120 --> 00:06:41,480 Speaker 3: data dependent, but they're kind of data and headline dependent 106 00:06:41,560 --> 00:06:42,480 Speaker 3: at this point, it. 107 00:06:42,440 --> 00:06:45,320 Speaker 1: Seems to be that way. We're speaking with Bloomberg International 108 00:06:45,320 --> 00:06:49,440 Speaker 1: Economics and Policy correspondent Michael McKee and Anna Wong, chief 109 00:06:49,520 --> 00:06:54,479 Speaker 1: US economist at Bloomberg Economics. Let's talk about the labor market, Anna, 110 00:06:54,600 --> 00:06:58,200 Speaker 1: because it seems like this low higher, low fire environment 111 00:06:58,240 --> 00:07:00,800 Speaker 1: we've been talking about for quite some time continues to 112 00:07:00,960 --> 00:07:03,600 Speaker 1: roll along. Do you expect that to continue even with 113 00:07:03,760 --> 00:07:04,760 Speaker 1: rates where they are? 114 00:07:05,240 --> 00:07:08,760 Speaker 2: No, I don't so. I think that the labor market 115 00:07:08,800 --> 00:07:13,200 Speaker 2: indeed had stabilized for several months now. We actually time 116 00:07:13,320 --> 00:07:16,880 Speaker 2: the bottom of the labor market to be around early fall, 117 00:07:17,320 --> 00:07:21,480 Speaker 2: late summer last year. However, because of this low hiring, 118 00:07:21,560 --> 00:07:24,920 Speaker 2: low fire regime is still in a very fragile state, 119 00:07:25,520 --> 00:07:28,560 Speaker 2: and with ten year yields going to four point six percent, 120 00:07:28,880 --> 00:07:32,120 Speaker 2: what I have found is that whenever ten year yields 121 00:07:32,160 --> 00:07:36,520 Speaker 2: surpass around the four point five percent mark is when 122 00:07:37,120 --> 00:07:42,080 Speaker 2: rates become very restrictive, and immediately you see the housing 123 00:07:42,160 --> 00:07:46,160 Speaker 2: sector responding, in which we are. Many of these housing 124 00:07:46,200 --> 00:07:50,920 Speaker 2: sector goods are already seeing deflation also, you would start 125 00:07:50,960 --> 00:07:55,640 Speaker 2: seeing manufacturing slowing. Right now, manufacturing is still doing very 126 00:07:55,640 --> 00:07:58,920 Speaker 2: well because of the war, but if rates continue to 127 00:07:59,000 --> 00:08:03,280 Speaker 2: be this elevated, the slowing is inevitable. And on top 128 00:08:03,360 --> 00:08:06,400 Speaker 2: of that, we are already now seeing some signs that 129 00:08:06,560 --> 00:08:11,000 Speaker 2: consumer a sentiment are as weakening. So I think one 130 00:08:11,040 --> 00:08:15,000 Speaker 2: takeaway from this earning season is that while the text 131 00:08:15,080 --> 00:08:18,440 Speaker 2: refonds so far this year have provided a support for 132 00:08:18,600 --> 00:08:23,160 Speaker 2: consumers shielded them from the higher gasoline price, that cushion 133 00:08:23,400 --> 00:08:26,280 Speaker 2: is going away by the middle of this summer. And 134 00:08:26,360 --> 00:08:29,280 Speaker 2: so if rates continue to be that high through the 135 00:08:29,400 --> 00:08:32,080 Speaker 2: end of the summer, and the war over Iran is 136 00:08:32,120 --> 00:08:36,680 Speaker 2: not resolved, gasoline prices still are at four point three 137 00:08:37,040 --> 00:08:39,520 Speaker 2: dollars per gallon, then we are going to see that 138 00:08:39,559 --> 00:08:40,840 Speaker 2: weakening and consumption. 139 00:08:41,160 --> 00:08:42,760 Speaker 1: Mike, what do you how do you account for the 140 00:08:42,960 --> 00:08:46,679 Speaker 1: relative resilience that we've seen in this labor market despite 141 00:08:46,960 --> 00:08:50,040 Speaker 1: all the headwinds we've been talking about. 142 00:08:50,720 --> 00:08:54,560 Speaker 3: Well, it's kind of an interesting question because as and 143 00:08:54,679 --> 00:08:58,240 Speaker 3: as Staph has pointed out, there may be some reasons, 144 00:08:58,480 --> 00:09:03,120 Speaker 3: statistical reasons, and other reasons why the labor market isn't 145 00:09:03,120 --> 00:09:06,520 Speaker 3: as strong as the FED wants to think it is. 146 00:09:07,200 --> 00:09:10,240 Speaker 3: But it does seem to be that everybody's frozen in 147 00:09:10,280 --> 00:09:14,319 Speaker 3: place at this point. There are reasons to be optimistic 148 00:09:14,360 --> 00:09:17,360 Speaker 3: about productivity rising, and certainly there's been a lot of 149 00:09:17,400 --> 00:09:22,040 Speaker 3: spending on the AI buildout that's keeping GDP higher. The 150 00:09:22,080 --> 00:09:25,840 Speaker 3: GDP numbers have been distorted by weird trade situations because 151 00:09:25,880 --> 00:09:32,040 Speaker 3: of the AI imports and things like that. So right 152 00:09:32,080 --> 00:09:37,040 Speaker 3: now companies aren't firing, they're not hiring, they're just sort 153 00:09:37,040 --> 00:09:40,679 Speaker 3: of waiting to see what happens like everyone else. And 154 00:09:40,720 --> 00:09:45,800 Speaker 3: that's again just keeps everything sideline, keeps the Fed sideline 155 00:09:45,840 --> 00:09:49,600 Speaker 3: for now. Interesting point what Anna was just talking about 156 00:09:49,640 --> 00:09:52,719 Speaker 3: with rates staying high. There's two things I would note. 157 00:09:52,760 --> 00:09:57,920 Speaker 3: One is that oil industry analysts say the prices of 158 00:09:58,000 --> 00:10:01,560 Speaker 3: oil and gasoline are going to main high for months, 159 00:10:02,040 --> 00:10:05,760 Speaker 3: that the market doesn't seem to be absorbing that idea yet. 160 00:10:06,400 --> 00:10:08,760 Speaker 3: But the other thing is that there was an interesting 161 00:10:08,760 --> 00:10:10,640 Speaker 3: study that came out in the last few days from 162 00:10:10,640 --> 00:10:14,280 Speaker 3: one of the regional Fed banks that said when people 163 00:10:14,440 --> 00:10:18,680 Speaker 3: see the central bank raising interest rates or market rates 164 00:10:18,720 --> 00:10:23,040 Speaker 3: going up, they think inflation is going to follow. Now, 165 00:10:23,080 --> 00:10:25,680 Speaker 3: the idea of raising interest rates, obviously is to slow 166 00:10:25,720 --> 00:10:31,520 Speaker 3: the economy and then inflation slows, but because that makes 167 00:10:31,559 --> 00:10:35,600 Speaker 3: borrowing more expensive in the short run, people get more 168 00:10:35,640 --> 00:10:39,240 Speaker 3: depressed when rates go up, and so therefore that could 169 00:10:39,280 --> 00:10:42,319 Speaker 3: also have a negative effect on the economy. 170 00:10:42,760 --> 00:10:45,960 Speaker 1: So that raises a question, then, for Anna, about what 171 00:10:46,200 --> 00:10:49,199 Speaker 1: the risks are for the FED right now, whether the 172 00:10:49,280 --> 00:10:51,360 Speaker 1: risks are in balance when it comes to the dual 173 00:10:51,440 --> 00:10:55,640 Speaker 1: mandate inflation and the job market. It sounds like the 174 00:10:55,679 --> 00:10:58,600 Speaker 1: FED could be in a bit of a bigger box 175 00:10:58,679 --> 00:11:02,120 Speaker 1: than we might think. Is that what you're seeing in I. 176 00:11:02,080 --> 00:11:06,600 Speaker 2: Think the Fed's challenge right now is to forecast the 177 00:11:06,760 --> 00:11:10,640 Speaker 2: economy correctly, and the FED has lost a lot of 178 00:11:10,720 --> 00:11:16,120 Speaker 2: confidence over their own forecasting capability. And when the central 179 00:11:16,160 --> 00:11:20,040 Speaker 2: bank does not believe that it can forecast things, then 180 00:11:20,120 --> 00:11:24,120 Speaker 2: it acts in a very belated fashion. So, for example, 181 00:11:24,200 --> 00:11:28,760 Speaker 2: if it forecast if I've wrong a believe that inflation 182 00:11:29,200 --> 00:11:32,920 Speaker 2: is not transitory right now, then and they go aheadhead 183 00:11:33,000 --> 00:11:36,120 Speaker 2: and hike as the market is now priced in for 184 00:11:36,160 --> 00:11:38,680 Speaker 2: them to hike, and it turned out that it is 185 00:11:38,760 --> 00:11:42,720 Speaker 2: transitory after all, and the bite of that hiking will 186 00:11:42,800 --> 00:11:47,040 Speaker 2: hit the economy next year. This actually jeopardized is one 187 00:11:47,080 --> 00:11:51,120 Speaker 2: way of thinking about why the administration is attacking the 188 00:11:51,120 --> 00:11:55,160 Speaker 2: central Bank, and so the central Bank is under pressure 189 00:11:55,360 --> 00:11:59,800 Speaker 2: to forecast correctly. And I think Kevin warsh rurle here 190 00:12:00,320 --> 00:12:05,040 Speaker 2: is to aside from thinking about monetary policy, and there's 191 00:12:05,840 --> 00:12:08,680 Speaker 2: and obviously he cannot do much because he's just one 192 00:12:08,720 --> 00:12:13,160 Speaker 2: person and he's facing a majority of the FOMC who 193 00:12:13,280 --> 00:12:16,760 Speaker 2: leans hawkish. But what he can do is to go 194 00:12:16,840 --> 00:12:24,120 Speaker 2: in and reform the institution and increase the forecasting capability 195 00:12:24,280 --> 00:12:29,240 Speaker 2: of the FED and hance. Maybe that could distract the 196 00:12:29,440 --> 00:12:33,960 Speaker 2: debate and the headlines for a while away from him 197 00:12:34,000 --> 00:12:37,719 Speaker 2: not cutting rates as Trump wanted, but focus on what 198 00:12:37,760 --> 00:12:39,560 Speaker 2: he is doing to reform the FED. 199 00:12:40,120 --> 00:12:43,920 Speaker 1: What a complicated start to the Kevin warsh era. Thanks 200 00:12:43,960 --> 00:12:45,520 Speaker 1: to both of you for this great having you on 201 00:12:45,559 --> 00:12:48,800 Speaker 1: with us. That's Bloomberg Economics Chief US economist stanel Wong 202 00:12:49,160 --> 00:12:54,120 Speaker 1: and Bloomberg International Economics and Policy correspondent Michael McKee. Up next, 203 00:12:54,160 --> 00:12:56,880 Speaker 1: we're going to turn our focus from the economy to earnings. 204 00:12:57,000 --> 00:13:00,880 Speaker 1: What to expect from Costco and Best Buy. It's twenty 205 00:13:00,920 --> 00:13:04,760 Speaker 1: minutes past the hour. I'm Nathan Hagar, and this is Bloomberg. 206 00:13:16,280 --> 00:13:19,360 Speaker 1: Welcome back to this special edition of Bloomberg Daybreak. I'm 207 00:13:19,440 --> 00:13:22,240 Speaker 1: Nathan Hager. The US stock market is closed for the 208 00:13:22,280 --> 00:13:25,920 Speaker 1: Memorial Day holiday. We turn our focus now to earnings. 209 00:13:25,920 --> 00:13:28,640 Speaker 1: We've heard from about ninety percent of the companies in 210 00:13:28,679 --> 00:13:31,079 Speaker 1: the SMP five hundred so far, but we do get 211 00:13:31,120 --> 00:13:33,440 Speaker 1: some key reports this week from a couple of high 212 00:13:33,440 --> 00:13:38,800 Speaker 1: profile retailers. Let's start with Costco. They report Thursday. Jennifer 213 00:13:38,840 --> 00:13:42,640 Speaker 1: Bartashis covers the membership based wholesale giant. She's a senior 214 00:13:42,679 --> 00:13:46,959 Speaker 1: retail staples analyst for Bloomberg Intelligence and is with US now. 215 00:13:47,080 --> 00:13:49,400 Speaker 1: And I'll just put this out there at the beginning, 216 00:13:49,480 --> 00:13:52,880 Speaker 1: Jen I'm a Costco member. I'm there like every other week, 217 00:13:53,040 --> 00:13:55,640 Speaker 1: and every time I go in there, it's like a 218 00:13:55,679 --> 00:13:58,000 Speaker 1: line all the way to the back of the meat 219 00:13:58,080 --> 00:14:01,079 Speaker 1: section just to get out the door. That's got to 220 00:14:01,120 --> 00:14:02,840 Speaker 1: be good for their results, right, I mean, just to 221 00:14:02,840 --> 00:14:04,800 Speaker 1: see that kind of foot traffic. Is that still what 222 00:14:04,880 --> 00:14:05,360 Speaker 1: we're seeing? 223 00:14:05,920 --> 00:14:09,880 Speaker 4: Absolutely, Nathan. You know, Costco is just an engine that 224 00:14:09,960 --> 00:14:13,400 Speaker 4: doesn't quit. And when you look at the traffic into 225 00:14:13,440 --> 00:14:17,640 Speaker 4: their stores, it's consistently strong, you know. And part of 226 00:14:17,720 --> 00:14:20,760 Speaker 4: the current backdrop and the environment right now is really 227 00:14:20,760 --> 00:14:24,280 Speaker 4: playing into Costco's strengths. And what I mean by that is, 228 00:14:24,360 --> 00:14:27,720 Speaker 4: people are looking for value, and so when when you're 229 00:14:27,720 --> 00:14:30,400 Speaker 4: looking for value, you're looking to maximize the benefits of 230 00:14:30,440 --> 00:14:35,600 Speaker 4: that membership and the good prices that Costco offers. And 231 00:14:35,680 --> 00:14:38,680 Speaker 4: when I go by my costcos that there are several 232 00:14:38,800 --> 00:14:43,120 Speaker 4: near me, the lines for fuel are incredibly long right now, 233 00:14:43,880 --> 00:14:46,080 Speaker 4: So you know, people are looking for that value. They're 234 00:14:46,120 --> 00:14:48,160 Speaker 4: going to Costco for that solution, and when they're there 235 00:14:48,160 --> 00:14:51,120 Speaker 4: for fuel, they're probably also going into the warehouse and 236 00:14:51,160 --> 00:14:54,320 Speaker 4: that all tees up well for what they're going to 237 00:14:54,360 --> 00:14:55,160 Speaker 4: report this week. 238 00:14:55,280 --> 00:14:58,000 Speaker 1: Yeah, let's talk about the fuel because of course they 239 00:14:58,000 --> 00:15:01,360 Speaker 1: do sell it, but at a discount, right, So what 240 00:15:01,400 --> 00:15:02,760 Speaker 1: does that mean for their margins? 241 00:15:03,000 --> 00:15:06,320 Speaker 4: Well, what's interesting about fuel sales is that it's usually 242 00:15:06,640 --> 00:15:11,080 Speaker 4: retailer self fuel more for the loyalty perspective than for 243 00:15:11,200 --> 00:15:13,600 Speaker 4: the profit that they generate off of it. And so 244 00:15:14,160 --> 00:15:17,440 Speaker 4: right now, a lot of the fuel that's being sold 245 00:15:17,560 --> 00:15:21,440 Speaker 4: was bought before the prices went really high, So that means, 246 00:15:21,520 --> 00:15:24,280 Speaker 4: you know, generally speaking, fuel margins should be pretty strong. 247 00:15:24,720 --> 00:15:28,200 Speaker 4: Now as that inventory gets replaced at higher costs, we're 248 00:15:28,200 --> 00:15:31,240 Speaker 4: going to see some volatility there and either way, the 249 00:15:31,320 --> 00:15:36,080 Speaker 4: higher fuel prices at the pump translate into higher sales 250 00:15:36,480 --> 00:15:38,840 Speaker 4: that are being driven off of the fuel business, and 251 00:15:38,880 --> 00:15:40,520 Speaker 4: that's always good for the top line. 252 00:15:40,640 --> 00:15:43,680 Speaker 1: Where do you see those sales coming? I mean, Costco 253 00:15:43,840 --> 00:15:47,560 Speaker 1: has such a broad mix of products that they offer. 254 00:15:47,800 --> 00:15:51,120 Speaker 1: Are they selling some of the bigger appliances that you 255 00:15:51,120 --> 00:15:52,640 Speaker 1: see at the front of the store or is it 256 00:15:52,680 --> 00:15:55,760 Speaker 1: more about the food? What are you expecting right now? 257 00:15:56,360 --> 00:15:59,800 Speaker 4: For quite a while, Costco's sales had skewed a little 258 00:15:59,840 --> 00:16:03,480 Speaker 4: bit more to consumable categories, But in the last two 259 00:16:03,560 --> 00:16:07,000 Speaker 4: or three quarters we've seen a much bigger uptick in 260 00:16:07,120 --> 00:16:10,000 Speaker 4: terms of bigger ticket items. And we're at the point 261 00:16:10,040 --> 00:16:13,120 Speaker 4: of the year where people are buying for the summer, right, 262 00:16:13,160 --> 00:16:16,040 Speaker 4: and so if if fuel prices are high and people 263 00:16:16,080 --> 00:16:19,200 Speaker 4: maybe scale back on travel plans or they do plan 264 00:16:19,280 --> 00:16:21,680 Speaker 4: to do a little bit more staycations. 265 00:16:21,120 --> 00:16:23,480 Speaker 1: You got to think that there's going to be some 266 00:16:23,720 --> 00:16:29,080 Speaker 1: differences compared to summer and spring quarters of the past, right, 267 00:16:29,160 --> 00:16:33,800 Speaker 1: considering where the macroeconomic environment is right now, do you 268 00:16:33,880 --> 00:16:35,840 Speaker 1: expect any changes based on that? 269 00:16:36,480 --> 00:16:40,200 Speaker 4: Not necessarily huge changes? You know what we've seen historically 270 00:16:40,640 --> 00:16:44,160 Speaker 4: when we've had periods of very high gas prices. It 271 00:16:44,280 --> 00:16:48,040 Speaker 4: takes a little bit of time for consumers to genuinely 272 00:16:48,160 --> 00:16:52,640 Speaker 4: change their purchase behavior, because most consumers can weather a 273 00:16:52,720 --> 00:16:56,360 Speaker 4: short term kind of shock in terms of higher gas 274 00:16:56,360 --> 00:16:59,640 Speaker 4: prices at the pump. But the longer the higher gas 275 00:16:59,680 --> 00:17:04,639 Speaker 4: price is less, the more that consumer behavior does shift. 276 00:17:04,760 --> 00:17:07,800 Speaker 4: And the shift that we typically see is that people 277 00:17:07,800 --> 00:17:12,480 Speaker 4: will start to consolidate trips so that instead of seeking, 278 00:17:12,680 --> 00:17:15,240 Speaker 4: you know, a few items at a bunch of different retailers, 279 00:17:15,600 --> 00:17:18,600 Speaker 4: they start to favorite retailers where they can buy more 280 00:17:18,640 --> 00:17:21,359 Speaker 4: of the items they want in the same place. So 281 00:17:21,560 --> 00:17:26,439 Speaker 4: that kind of behavior obviously benefits companies like Costco, just 282 00:17:26,480 --> 00:17:29,160 Speaker 4: as it benefits companies like Walmart and Target where there's 283 00:17:29,200 --> 00:17:32,680 Speaker 4: a broad assortment and people can actually do a complete 284 00:17:33,600 --> 00:17:36,040 Speaker 4: shopping trip to meet all of their needs. 285 00:17:36,520 --> 00:17:39,840 Speaker 1: Kind Of curious about whether Costco could be looking for 286 00:17:39,920 --> 00:17:43,080 Speaker 1: ways to juice profit in some way, you know, considering 287 00:17:43,160 --> 00:17:45,560 Speaker 1: that they do try to keep the prices for their 288 00:17:45,840 --> 00:17:49,040 Speaker 1: items at a reasonable level. But in terms of trying 289 00:17:49,080 --> 00:17:51,639 Speaker 1: to get more of a profit down the line, do 290 00:17:51,720 --> 00:17:56,000 Speaker 1: you see Costco thinking about things like raising membership prices, 291 00:17:56,119 --> 00:17:59,240 Speaker 1: making it a little bit more expensive to get people 292 00:17:59,240 --> 00:18:01,639 Speaker 1: in the door. Is is that something that could be 293 00:18:01,680 --> 00:18:05,840 Speaker 1: coming down the line for Costco customers. 294 00:18:04,520 --> 00:18:08,280 Speaker 4: Probably not anytime soon. I know Costco really they hold 295 00:18:08,280 --> 00:18:11,640 Speaker 4: a very very consistent schedule of when they when they 296 00:18:11,720 --> 00:18:14,840 Speaker 4: raise management membership prices, and it's roughly every five years. 297 00:18:15,720 --> 00:18:18,560 Speaker 4: So we we just had a membership price increase not 298 00:18:18,600 --> 00:18:21,479 Speaker 4: that long ago, so they probably won't pull on that 299 00:18:21,560 --> 00:18:25,919 Speaker 4: lever right away. And instead, you know, they have always 300 00:18:25,960 --> 00:18:29,399 Speaker 4: consistently talked about the fact that they're okay with some 301 00:18:29,560 --> 00:18:33,480 Speaker 4: volatility from quarter to quarter with regards to their their margins, 302 00:18:33,760 --> 00:18:36,280 Speaker 4: you know, or or their level of profit, because they 303 00:18:36,320 --> 00:18:39,880 Speaker 4: put the consumer first. And so what we may see 304 00:18:39,960 --> 00:18:42,960 Speaker 4: is a little bit more margin pressure in the next quarter, 305 00:18:43,440 --> 00:18:45,720 Speaker 4: and you know, and and maybe the next towards the 306 00:18:45,800 --> 00:18:48,639 Speaker 4: end of this year, just as as they try to 307 00:18:48,680 --> 00:18:51,600 Speaker 4: absorb some of the higher costs to keep things competitive 308 00:18:51,640 --> 00:18:55,639 Speaker 4: and priced white for their for their customer base. And 309 00:18:55,720 --> 00:18:58,320 Speaker 4: if things extend for too long, then we may see 310 00:18:58,359 --> 00:19:01,560 Speaker 4: some adjustments in in in what the have. But the 311 00:19:01,600 --> 00:19:05,280 Speaker 4: beauty of the model of like Costco is that it's 312 00:19:05,840 --> 00:19:08,320 Speaker 4: they can change what they offer in the stores, so 313 00:19:08,400 --> 00:19:12,240 Speaker 4: if any one item or category becomes too expensive, they 314 00:19:12,280 --> 00:19:16,480 Speaker 4: can simply shift into something else, and their shoppers love 315 00:19:16,520 --> 00:19:18,080 Speaker 4: it because at the end of the day. Part of 316 00:19:18,119 --> 00:19:21,040 Speaker 4: the charm of Costco is that treasure hunt mentality. You 317 00:19:21,080 --> 00:19:23,000 Speaker 4: don't know exactly what you're going to find when you 318 00:19:23,040 --> 00:19:26,320 Speaker 4: get there, but you're excited when you find it. And 319 00:19:26,400 --> 00:19:29,280 Speaker 4: so they have a lot of flexibility to help offset 320 00:19:29,640 --> 00:19:32,880 Speaker 4: pressures that arise in the business with regards to costs 321 00:19:33,760 --> 00:19:35,760 Speaker 4: that they can they can do and it plays right 322 00:19:35,800 --> 00:19:39,680 Speaker 4: into what their customers value most about their format. 323 00:19:40,040 --> 00:19:43,880 Speaker 1: Yeah, I mean, there are often changes to the inventory 324 00:19:43,960 --> 00:19:46,800 Speaker 1: in Costco, but it seems like a couple of things 325 00:19:46,800 --> 00:19:50,159 Speaker 1: that never change are the dollar fifty hot dog soda 326 00:19:50,160 --> 00:19:53,919 Speaker 1: combo and the four ninety nine rotisserie chicken. Are are 327 00:19:53,960 --> 00:19:56,720 Speaker 1: those ever going to change? 328 00:19:57,480 --> 00:19:59,800 Speaker 4: I think that those are the last things Costco ever 329 00:19:59,840 --> 00:20:04,040 Speaker 4: wan to change, because it's that it's that sense of stability, 330 00:20:04,119 --> 00:20:08,960 Speaker 4: that sense of reliability. And you know, they sell millions 331 00:20:08,960 --> 00:20:12,320 Speaker 4: and millions of chickens and hot dogs every year, and 332 00:20:12,600 --> 00:20:14,320 Speaker 4: you know there is something to be said for the 333 00:20:14,440 --> 00:20:17,719 Speaker 4: volume of what you sell. But I think they happily 334 00:20:17,800 --> 00:20:19,800 Speaker 4: would take a loss on those areas if they had 335 00:20:19,800 --> 00:20:24,000 Speaker 4: to in order to keep that value perception intact. 336 00:20:24,240 --> 00:20:26,480 Speaker 1: Now, this is definitely the time for a hot dog. 337 00:20:26,920 --> 00:20:28,760 Speaker 1: Thank you. Jed Good having you on with us, that 338 00:20:28,880 --> 00:20:32,400 Speaker 1: is a Bloomberg Intelligence senior analyst, Jennifer Bartashis. And again 339 00:20:32,440 --> 00:20:35,240 Speaker 1: look for those Costco earnings. They are due out on Thursday. 340 00:20:35,480 --> 00:20:37,960 Speaker 1: Also on that day we get results from a big 341 00:20:38,000 --> 00:20:41,720 Speaker 1: consumer electronics name that would be best Buy, and we've 342 00:20:41,760 --> 00:20:44,560 Speaker 1: got another Bloomberg Intelligence senior analyst with us to preview 343 00:20:44,600 --> 00:20:49,040 Speaker 1: those results, Lindsay Dutch, who covers retail and consumer hardlines 344 00:20:49,200 --> 00:20:52,800 Speaker 1: for BI great having you with us. Of course, best 345 00:20:52,840 --> 00:20:56,280 Speaker 1: Buy has been guiding for just a one percent increase 346 00:20:56,440 --> 00:21:00,040 Speaker 1: in same store sales this quarter. I read your latest No, 347 00:21:00,320 --> 00:21:04,200 Speaker 1: you're saying even that may be too much to expect. 348 00:21:04,560 --> 00:21:08,240 Speaker 5: Why so the guidance for one percent same store growth, 349 00:21:08,480 --> 00:21:11,720 Speaker 5: you know, really assumed an increase in both March and April, 350 00:21:12,240 --> 00:21:16,000 Speaker 5: compensating for a decline in February. And those gains were 351 00:21:16,040 --> 00:21:19,879 Speaker 5: sort of predicated on tax refunds, you know, going to 352 00:21:20,280 --> 00:21:25,160 Speaker 5: some of those consumer electronic purchases, and with elevated gas prices, 353 00:21:25,240 --> 00:21:27,439 Speaker 5: you know, we think that demand might have been muted. 354 00:21:27,800 --> 00:21:31,480 Speaker 5: We also heard from some early reporting retailers, like a 355 00:21:31,560 --> 00:21:35,680 Speaker 5: tractor supply who specifically called out that they saw that 356 00:21:35,760 --> 00:21:39,280 Speaker 5: tax refund money was really going towards essentials on paying 357 00:21:39,320 --> 00:21:42,240 Speaker 5: down debt rather than splurging sort of on a big 358 00:21:42,240 --> 00:21:42,879 Speaker 5: ticket item. 359 00:21:43,440 --> 00:21:46,639 Speaker 1: Well, that's a big surprise considering in the past you 360 00:21:46,680 --> 00:21:49,879 Speaker 1: think about those tax refunds going to some of those 361 00:21:50,320 --> 00:21:53,119 Speaker 1: big ticket items. So what can we expect from the 362 00:21:53,160 --> 00:21:56,160 Speaker 1: guidance going forward from best Buy? What are you looking for? 363 00:21:56,640 --> 00:21:56,720 Speaker 6: So? 364 00:21:56,840 --> 00:21:59,159 Speaker 5: I think when I look across the board at my 365 00:21:59,280 --> 00:22:01,879 Speaker 5: coverage and think about the consumer, it sort of seems 366 00:22:01,880 --> 00:22:04,320 Speaker 5: that the higher income consumer is still hanging in there. 367 00:22:04,800 --> 00:22:07,959 Speaker 5: We're still seeing some resilience there, but the lower income 368 00:22:07,960 --> 00:22:10,880 Speaker 5: consumer might be pulling back even further, you know, with 369 00:22:10,960 --> 00:22:14,720 Speaker 5: these elevated gas prices. So for best Buy, I think 370 00:22:14,760 --> 00:22:17,040 Speaker 5: we have to see, you know, where the first quarter 371 00:22:17,200 --> 00:22:19,760 Speaker 5: comes in. The comps are going to get a little 372 00:22:19,800 --> 00:22:22,040 Speaker 5: bit harder as we get further into the year. Last 373 00:22:22,080 --> 00:22:24,720 Speaker 5: year we had the launch of Nintendo Switch to that 374 00:22:25,160 --> 00:22:28,359 Speaker 5: drove a big gain in gaming. Computing has been strong. 375 00:22:28,520 --> 00:22:31,560 Speaker 5: Phones have been strong, but they've been carrying growth for 376 00:22:32,160 --> 00:22:35,960 Speaker 5: a couple of years now. So the comps are getting harder, 377 00:22:36,000 --> 00:22:38,439 Speaker 5: and best Buy really needs a rebound in demand for 378 00:22:38,560 --> 00:22:42,480 Speaker 5: TVs and appliances to really get back on the growth track. 379 00:22:42,800 --> 00:22:46,639 Speaker 1: Are you expecting to see that kind of rebound in 380 00:22:46,720 --> 00:22:50,480 Speaker 1: some of those bigger ticket items on the consumer electronics side. 381 00:22:50,560 --> 00:22:53,440 Speaker 5: So I think the timing on the rebound is tricky 382 00:22:53,520 --> 00:22:55,440 Speaker 5: and it might be a bit delayed. You know, we 383 00:22:55,520 --> 00:23:00,800 Speaker 5: heard results from Whirlpool and they indicated that demand for 384 00:23:00,920 --> 00:23:04,800 Speaker 5: big ticket appliances is down. I also cover Somni Group, 385 00:23:05,119 --> 00:23:09,200 Speaker 5: you know, they're they're formally tempor seily big ticket mattresses. 386 00:23:09,760 --> 00:23:12,960 Speaker 5: They also revised their demand forecast for this year down. 387 00:23:14,040 --> 00:23:17,160 Speaker 5: Does seem like consumers aren't really dipping their toe into 388 00:23:17,200 --> 00:23:21,160 Speaker 5: those big ticket you know, home type of items. TV, 389 00:23:21,680 --> 00:23:23,720 Speaker 5: you know has a little bit more promise you there's 390 00:23:23,720 --> 00:23:27,439 Speaker 5: some new technology coming out mid this year that that 391 00:23:27,480 --> 00:23:31,480 Speaker 5: best Buy has mentioned. We have seen new product drive 392 00:23:31,560 --> 00:23:34,560 Speaker 5: demand over the past two years or so, so there's 393 00:23:34,600 --> 00:23:37,480 Speaker 5: a possibility there, but we have to wait and see 394 00:23:38,240 --> 00:23:42,680 Speaker 5: because that big ticket rebound just hasn't emerged in other 395 00:23:42,760 --> 00:23:43,680 Speaker 5: categories yet. 396 00:23:43,960 --> 00:23:47,800 Speaker 1: You mentioned the tamp down of potentially being driven by 397 00:23:47,800 --> 00:23:50,240 Speaker 1: these higher gas prices of course that we're dealing with 398 00:23:51,040 --> 00:23:54,520 Speaker 1: tied to what's happening in the Middle East. Are these 399 00:23:55,119 --> 00:23:58,480 Speaker 1: big consumer companies thinking about this as sort of a 400 00:23:58,520 --> 00:24:00,480 Speaker 1: temporary blip or is this something that they think they're 401 00:24:00,480 --> 00:24:02,800 Speaker 1: going to be needing to deal with for quite some time. 402 00:24:03,119 --> 00:24:05,119 Speaker 5: You know, I think everyone's still in a wait and 403 00:24:05,160 --> 00:24:08,200 Speaker 5: see sort of pattern. How how long will this last? 404 00:24:09,840 --> 00:24:13,800 Speaker 5: I think we're we are seeing some consumer companies, you know, 405 00:24:13,840 --> 00:24:16,520 Speaker 5: I cover elf Beauty at very different business, but they're 406 00:24:16,560 --> 00:24:20,200 Speaker 5: actually considering rolling back price increases that they took last 407 00:24:20,280 --> 00:24:23,600 Speaker 5: year because they think that the consumer is so value 408 00:24:23,640 --> 00:24:27,200 Speaker 5: focused and so price conscious that they need to bring 409 00:24:27,280 --> 00:24:31,159 Speaker 5: prices down. So it's certainly a pressure that retailers across 410 00:24:31,160 --> 00:24:34,920 Speaker 5: the board are dealing with, and and we're going to 411 00:24:34,960 --> 00:24:38,160 Speaker 5: have to see how that second half unfold. Obviously, second 412 00:24:38,200 --> 00:24:41,119 Speaker 5: half is you know, seasonally very important, very strong, so 413 00:24:41,160 --> 00:24:44,640 Speaker 5: we still have some time for demand to recover by then, 414 00:24:45,359 --> 00:24:46,640 Speaker 5: but we'll have to see how it goes. 415 00:24:46,920 --> 00:24:48,520 Speaker 1: Yeah, I wanted to ask you about that a little 416 00:24:48,520 --> 00:24:51,320 Speaker 1: bit because you know, we're at the start of you know, 417 00:24:51,400 --> 00:24:54,439 Speaker 1: holiday driving season right now, the unofficial kickoff of summer, 418 00:24:54,520 --> 00:24:56,800 Speaker 1: but just down the road we're going to be getting 419 00:24:56,800 --> 00:24:59,960 Speaker 1: into back to school shopping season in just a few months. 420 00:25:00,040 --> 00:25:02,960 Speaker 1: Do you expect to see anything from these results about well, 421 00:25:03,000 --> 00:25:06,000 Speaker 1: what Best Buy expects from you know, parents that might 422 00:25:06,000 --> 00:25:08,920 Speaker 1: have to buy their kidd laptop this summer into the fall. 423 00:25:09,240 --> 00:25:12,360 Speaker 5: Yes, I definitely think that they'll discuss you know, computing demand, 424 00:25:12,560 --> 00:25:15,480 Speaker 5: as I mentioned, that has been strong, it came into 425 00:25:15,520 --> 00:25:17,639 Speaker 5: the year strong. I think there's you know, pretty solid 426 00:25:17,720 --> 00:25:22,320 Speaker 5: expectations for that category. I think that you know, we're 427 00:25:22,359 --> 00:25:25,160 Speaker 5: still a little bit early, but that July fourth type 428 00:25:25,160 --> 00:25:28,720 Speaker 5: of sales could also be a good indicator, you know 429 00:25:28,760 --> 00:25:31,679 Speaker 5: that back to college shopping, which which is really you know, 430 00:25:31,880 --> 00:25:36,159 Speaker 5: I think more and invest Buy's playbook will start to 431 00:25:36,240 --> 00:25:40,240 Speaker 5: hit them, you know, in that mid to late summer season, 432 00:25:41,400 --> 00:25:43,359 Speaker 5: and I see so I think we have to see 433 00:25:43,400 --> 00:25:46,600 Speaker 5: the sales going into July, and I think best Buy 434 00:25:46,680 --> 00:25:48,920 Speaker 5: will work with their suppliers to make sure that they're 435 00:25:48,920 --> 00:25:52,320 Speaker 5: trying to offer value to consumers, draw them into the door, 436 00:25:52,800 --> 00:25:55,360 Speaker 5: and support growth in some of those key categories. 437 00:25:55,720 --> 00:25:58,080 Speaker 1: All Right, we'll be looking forward to see what best 438 00:25:58,119 --> 00:26:01,320 Speaker 1: Buy tells us later on this week. Thanks for this, Lindsay, 439 00:26:01,359 --> 00:26:04,520 Speaker 1: great having you on with us. That's Bloomberg Intelligence Senior 440 00:26:04,520 --> 00:26:08,080 Speaker 1: retail analyst Lindsay Dutch And up next we'll tell you 441 00:26:08,119 --> 00:26:10,720 Speaker 1: why this may be one of the most expensive Memorial 442 00:26:10,800 --> 00:26:14,160 Speaker 1: Days on record. It's thirty seven minutes past the hour. 443 00:26:14,240 --> 00:26:29,280 Speaker 1: I'm Nathan Hager, and this is Bloomberg. Thanks again for 444 00:26:29,359 --> 00:26:32,600 Speaker 1: joining us for this special edition of Bloomberg Daybreak. The 445 00:26:32,800 --> 00:26:35,880 Speaker 1: US stock market is closed for this Memorial Day holiday. 446 00:26:36,000 --> 00:26:38,520 Speaker 1: I'm Nathan Hager, and if it feels like you're paying 447 00:26:38,600 --> 00:26:41,760 Speaker 1: more this holiday than you have in Memorial Days past, 448 00:26:42,600 --> 00:26:45,639 Speaker 1: you are right. This unofficial kickoff of summer is in 449 00:26:45,680 --> 00:26:48,320 Speaker 1: fact shaping up to be one of the most expensive 450 00:26:48,600 --> 00:26:51,600 Speaker 1: on record. And for more, we're joined by a couple 451 00:26:51,600 --> 00:26:55,240 Speaker 1: of Bloomberg News reporters who covered this economy, Julia Fanzeries 452 00:26:55,320 --> 00:26:58,480 Speaker 1: and Mark Niquette. Mark covers the intersection of government and 453 00:26:58,520 --> 00:27:01,440 Speaker 1: politics with the USA economy as well. So it's great 454 00:27:01,480 --> 00:27:03,680 Speaker 1: to have both of you with us on this Memorial 455 00:27:03,760 --> 00:27:08,080 Speaker 1: Day holiday at a time when even though things are 456 00:27:08,119 --> 00:27:11,800 Speaker 1: more expensive, it seems like people are still determined to 457 00:27:12,200 --> 00:27:15,560 Speaker 1: get out there in some respect. What are you seeing 458 00:27:15,600 --> 00:27:16,720 Speaker 1: out there, Julia. 459 00:27:16,560 --> 00:27:19,359 Speaker 7: Yeah, it really is fascinating to see that despite the 460 00:27:19,440 --> 00:27:23,000 Speaker 7: higher prices, people are adamant about going on their vacations. 461 00:27:23,080 --> 00:27:26,280 Speaker 7: And there has been some Bank of America Institute data 462 00:27:26,320 --> 00:27:29,480 Speaker 7: saying that despite these prices, only ten percent of people 463 00:27:29,520 --> 00:27:32,320 Speaker 7: surveyed wanted to change their trips. So what they are 464 00:27:32,320 --> 00:27:35,280 Speaker 7: doing instead because their budgets are being squeezed by those 465 00:27:35,359 --> 00:27:38,640 Speaker 7: higher fuel costs, is they are looking at different ways 466 00:27:38,880 --> 00:27:42,760 Speaker 7: to save, whether that is changing what hotels they're going to, 467 00:27:42,920 --> 00:27:45,879 Speaker 7: spending less nights out, or even eating out less. But 468 00:27:45,960 --> 00:27:49,000 Speaker 7: people are adamant to get on the road and to 469 00:27:49,560 --> 00:27:51,800 Speaker 7: enjoy their Memorial Day vacations. 470 00:27:52,040 --> 00:27:54,360 Speaker 1: What are you seeing out there, Mark, in terms of 471 00:27:54,560 --> 00:27:58,520 Speaker 1: how the economy is affecting what people are doing with 472 00:27:58,600 --> 00:27:59,560 Speaker 1: their summer plans. 473 00:28:00,000 --> 00:28:02,280 Speaker 6: Well, it's kind of surprising that we're seeing, you know, 474 00:28:03,160 --> 00:28:06,720 Speaker 6: the strong predictions of travel because of what's happening with 475 00:28:06,880 --> 00:28:10,840 Speaker 6: gas prices. You know, since the US war in Iran 476 00:28:10,960 --> 00:28:15,119 Speaker 6: started in February twenty eighth, we've just seen gas prices spike, 477 00:28:15,200 --> 00:28:19,280 Speaker 6: and energy prices in particular, just affecting the economy and 478 00:28:19,359 --> 00:28:21,880 Speaker 6: driving up prices for a whole range of things including 479 00:28:21,880 --> 00:28:25,600 Speaker 6: transportation costs and packaging costs. But if you look just 480 00:28:25,640 --> 00:28:28,480 Speaker 6: at gasoline, we're having everybody getting on the road for 481 00:28:28,560 --> 00:28:34,639 Speaker 6: the Memorial Day weekend. Gasoline today is at what is it, 482 00:28:34,760 --> 00:28:39,360 Speaker 6: four fifty six gallon for regular unleaded, and that's up 483 00:28:39,880 --> 00:28:42,400 Speaker 6: a dollar thirty eight from a year ago this time 484 00:28:42,480 --> 00:28:45,400 Speaker 6: last year, forty three percent, it was three dollars and 485 00:28:45,520 --> 00:28:48,440 Speaker 6: eighteen cents a gallon. And if you look at just 486 00:28:48,600 --> 00:28:50,840 Speaker 6: you know, since the war started, before the war started, 487 00:28:50,840 --> 00:28:54,040 Speaker 6: gasoline is up a dollar fifty eight a gallon on average. 488 00:28:54,120 --> 00:28:55,720 Speaker 6: This is across the country. It's a lot higher in 489 00:28:55,760 --> 00:28:58,520 Speaker 6: California and other states, of course, And if you look, 490 00:28:58,640 --> 00:29:01,440 Speaker 6: you know, just a year ago, the gas prices were 491 00:29:01,520 --> 00:29:05,200 Speaker 6: much much lower. So you know, it's kind of surprising 492 00:29:05,200 --> 00:29:07,840 Speaker 6: that we've seen people still being willing to pay that. 493 00:29:07,960 --> 00:29:11,840 Speaker 6: But we're seeing record low consumer confidence numbers coming out 494 00:29:12,080 --> 00:29:15,920 Speaker 6: in surveys. So I think in particular, gas prices are 495 00:29:16,000 --> 00:29:18,520 Speaker 6: driving people's sour view of the economy. 496 00:29:18,640 --> 00:29:20,320 Speaker 1: Is that what you're seeing as well, Julia, that the 497 00:29:20,760 --> 00:29:23,680 Speaker 1: view of the economy is souring, even if people are 498 00:29:23,720 --> 00:29:26,000 Speaker 1: still continuing to get on out there and hit the 499 00:29:26,080 --> 00:29:29,400 Speaker 1: road to some extent, Are we seeing people try to 500 00:29:29,440 --> 00:29:33,720 Speaker 1: adjust to make those travel plans happen. 501 00:29:34,000 --> 00:29:38,240 Speaker 7: Absolutely. They are so pessimistic about the economy right now. 502 00:29:38,240 --> 00:29:41,040 Speaker 7: They are more pessimistic, according to some surveys, than they 503 00:29:41,040 --> 00:29:45,440 Speaker 7: were during the Great Depression during COVID. These higher gas prices, 504 00:29:45,800 --> 00:29:49,080 Speaker 7: they are really weighing on consumer sentiment and their budgets 505 00:29:49,120 --> 00:29:52,240 Speaker 7: and a huge reason that people still have to go 506 00:29:52,280 --> 00:29:55,320 Speaker 7: out and drive. And the reason that demand for gasoline 507 00:29:55,360 --> 00:29:59,920 Speaker 7: hasn't abated is because gasoline, they say, it's an inelastic demand. 508 00:30:00,200 --> 00:30:02,120 Speaker 7: People still need to drive to work, they need to 509 00:30:02,200 --> 00:30:05,240 Speaker 7: drop off their kids at school, so you still see 510 00:30:05,240 --> 00:30:06,200 Speaker 7: people on the road. 511 00:30:06,520 --> 00:30:06,760 Speaker 4: Now. 512 00:30:06,880 --> 00:30:10,560 Speaker 7: Vacations are another thing, but a gas buddy who tracks 513 00:30:10,560 --> 00:30:16,120 Speaker 7: gasoline prices nationwide has said that people are really really 514 00:30:16,200 --> 00:30:19,520 Speaker 7: hesitant to cancel any trips they've been excited for. So 515 00:30:19,960 --> 00:30:22,760 Speaker 7: what you have been seeing is a shift. Whether it's oh, 516 00:30:22,800 --> 00:30:26,080 Speaker 7: you're now instead of driving down to Florida, you're going 517 00:30:26,120 --> 00:30:29,360 Speaker 7: to drive maybe only two hours away from where you 518 00:30:29,400 --> 00:30:32,880 Speaker 7: originally were. Or we've spoken to some people who plan 519 00:30:33,160 --> 00:30:36,560 Speaker 7: on sleeping in their car because they wanted to do 520 00:30:36,600 --> 00:30:39,040 Speaker 7: a road trip across the country and so, but they 521 00:30:39,080 --> 00:30:41,800 Speaker 7: can't afford to pay for a hotel every night. So 522 00:30:41,960 --> 00:30:45,120 Speaker 7: there are these minor changes that are happening, whether it 523 00:30:45,200 --> 00:30:47,560 Speaker 7: is you're spending less time at a hotel or even food. 524 00:30:47,600 --> 00:30:50,600 Speaker 7: We have actually seen with credit cards spending data, a 525 00:30:50,640 --> 00:30:53,560 Speaker 7: little bit of a pullback with restaurants and food, and 526 00:30:53,600 --> 00:30:56,880 Speaker 7: that is usually the first place that people start pulling 527 00:30:56,920 --> 00:30:59,680 Speaker 7: back when their budgets are tightening and when they are 528 00:30:59,720 --> 00:31:01,000 Speaker 7: trying to conserve some mind. 529 00:31:01,040 --> 00:31:03,239 Speaker 1: I think interesting to hear you talk about that as 530 00:31:03,280 --> 00:31:06,080 Speaker 1: a minor adjustment. When you think about people literally sleeping 531 00:31:06,080 --> 00:31:08,560 Speaker 1: in their cars instead of staying in a motel room, 532 00:31:08,560 --> 00:31:10,600 Speaker 1: I mean that tells you something. And with a shift 533 00:31:11,160 --> 00:31:14,440 Speaker 1: away from restaurant spending as well, what kind of ripple 534 00:31:14,440 --> 00:31:19,160 Speaker 1: effect mark do you see from these higher gas prices 535 00:31:19,160 --> 00:31:21,600 Speaker 1: in the effect that it's having on the consumer. 536 00:31:21,560 --> 00:31:24,840 Speaker 6: Well, it's starting to sort of ripple through to other products. 537 00:31:24,880 --> 00:31:27,600 Speaker 6: Like I mentioned, in the economy particularly, we're starting to 538 00:31:27,640 --> 00:31:31,640 Speaker 6: see a big increase in food prices. As Julia mentioned, 539 00:31:32,320 --> 00:31:37,000 Speaker 6: we're seeing all food increasing, prices for all food increasing, 540 00:31:37,400 --> 00:31:41,640 Speaker 6: but in particular prices for things like beef and lettuce 541 00:31:41,720 --> 00:31:45,240 Speaker 6: and tomatoes. I mean, the beef alone for your Memorial 542 00:31:45,360 --> 00:31:49,080 Speaker 6: Day cookouts is at record levels because the country's cattle 543 00:31:49,120 --> 00:31:51,600 Speaker 6: herd is at its smallest in seventy five years, but 544 00:31:51,720 --> 00:31:54,840 Speaker 6: demand hasn't softened, so prices have really gone up. The 545 00:31:54,920 --> 00:31:58,400 Speaker 6: average ground beef prices in April broke the seven dollars 546 00:31:58,480 --> 00:32:01,480 Speaker 6: per pound threshold for the first time, and steak is 547 00:32:01,520 --> 00:32:05,240 Speaker 6: now passed thirteen dollars a pound. Tomatoes are up forty 548 00:32:05,240 --> 00:32:07,920 Speaker 6: percent compared to this time last year. That's the biggest 549 00:32:08,000 --> 00:32:11,080 Speaker 6: jump since two thousand and four. So you're just seeing 550 00:32:11,240 --> 00:32:13,959 Speaker 6: a host of you know, in particular food products, but 551 00:32:14,000 --> 00:32:17,160 Speaker 6: other items that are important in our economy, the prices 552 00:32:17,320 --> 00:32:20,280 Speaker 6: are going up, and the fear is that these prices 553 00:32:20,280 --> 00:32:22,200 Speaker 6: are just going to keep going up, you know, as 554 00:32:22,520 --> 00:32:25,480 Speaker 6: it relates to food for example, you know, the economists 555 00:32:25,520 --> 00:32:28,360 Speaker 6: tell us that we haven't yet seen the full impact 556 00:32:28,400 --> 00:32:32,040 Speaker 6: of the war on food prices because a lot of 557 00:32:32,040 --> 00:32:34,400 Speaker 6: what's going to drive up food prices later in this 558 00:32:34,520 --> 00:32:37,680 Speaker 6: year and into next year is the fact that farmers 559 00:32:37,760 --> 00:32:41,080 Speaker 6: were not able to get as much fertilizer because the 560 00:32:41,120 --> 00:32:44,320 Speaker 6: shipment of fertilizer was affected by the war, So it 561 00:32:44,440 --> 00:32:47,120 Speaker 6: drove down supply and it drove up the price of fertilizers. 562 00:32:47,120 --> 00:32:50,400 Speaker 6: So farmers use less fertilizer on their crops or didn't 563 00:32:50,440 --> 00:32:53,880 Speaker 6: use fertilizer at all. So farm so yields are going 564 00:32:53,920 --> 00:32:56,200 Speaker 6: to be come down, are going to be downcome harvest time, 565 00:32:56,360 --> 00:32:58,200 Speaker 6: and food prices are only going to keep going up. 566 00:32:58,240 --> 00:33:01,880 Speaker 1: We're speaking with Bloomberg News economy reporters Mark Naquett and 567 00:33:01,960 --> 00:33:06,040 Speaker 1: Julia Fanzeris as we head into this potentially one of 568 00:33:06,040 --> 00:33:10,760 Speaker 1: the most expensive Memorial Days on record in this country. Julia, 569 00:33:10,800 --> 00:33:13,480 Speaker 1: we've been talking about the price of gas, price of food, 570 00:33:14,280 --> 00:33:20,400 Speaker 1: the potential for these inflation expectations to potentially become unanchored. 571 00:33:20,440 --> 00:33:23,880 Speaker 1: I mean, what is a breaking point for the American consumer? 572 00:33:23,920 --> 00:33:24,680 Speaker 1: Do you see one? 573 00:33:25,600 --> 00:33:27,960 Speaker 7: That's what everyone is looking at. What is going to 574 00:33:27,960 --> 00:33:30,320 Speaker 7: be the point where gasoline prices are so high that 575 00:33:30,400 --> 00:33:33,120 Speaker 7: people start pulling back. Some people say that that is 576 00:33:33,280 --> 00:33:36,680 Speaker 7: five dollars a gallon. Analysts and economists say that's really 577 00:33:36,720 --> 00:33:40,600 Speaker 7: when people start trying to get creative, whether that is 578 00:33:40,760 --> 00:33:45,000 Speaker 7: lumping together their errands, they are trying to either not 579 00:33:45,080 --> 00:33:47,480 Speaker 7: fill up their gas tank all the way. Five dollars 580 00:33:47,560 --> 00:33:50,760 Speaker 7: a gallon is usually the place where that leads to 581 00:33:50,880 --> 00:33:55,840 Speaker 7: demand destruction or people changing their behaviors significantly. But it 582 00:33:55,960 --> 00:34:00,320 Speaker 7: really is unlike anything that the economy has witness in 583 00:34:00,360 --> 00:34:04,080 Speaker 7: a long time. Because even though higher gas prices were 584 00:34:04,520 --> 00:34:07,040 Speaker 7: at the same levels in twenty twenty two when Russia 585 00:34:07,040 --> 00:34:10,120 Speaker 7: invaded Ukraine, consumers are in a different place now. In 586 00:34:10,160 --> 00:34:15,040 Speaker 7: twenty twenty two, they had savings, they were bolstered by 587 00:34:15,040 --> 00:34:18,120 Speaker 7: that right now, we are in higher inflationary periods even 588 00:34:18,200 --> 00:34:21,680 Speaker 7: before the war in Iran, and now you've got sentiment 589 00:34:21,719 --> 00:34:24,920 Speaker 7: in a very low place. So it's quite possible that 590 00:34:25,000 --> 00:34:29,040 Speaker 7: when gasoline hits five dollars a gallon, behavior will start 591 00:34:29,080 --> 00:34:33,040 Speaker 7: shifting significantly. And companies as well have been flagging that 592 00:34:33,200 --> 00:34:36,240 Speaker 7: these higher prices and higher gascots are going to impact 593 00:34:36,480 --> 00:34:39,440 Speaker 7: how consumers are spending. You had Target, you had Home Depot, 594 00:34:39,520 --> 00:34:42,880 Speaker 7: you had Lows, every one of those companies warning about 595 00:34:42,920 --> 00:34:45,680 Speaker 7: the shift in consumer behavior in the second half of 596 00:34:45,719 --> 00:34:46,080 Speaker 7: the year. 597 00:34:46,440 --> 00:34:48,680 Speaker 1: No, we're not far from five dollars a gallon nation 598 00:34:48,800 --> 00:34:51,160 Speaker 1: wide across this country. And as we've been talking about, 599 00:34:51,239 --> 00:34:54,600 Speaker 1: California has been above six dollars a gallon for some time, 600 00:34:54,600 --> 00:34:57,719 Speaker 1: and I've seen those prices in some places along the 601 00:34:57,760 --> 00:35:00,960 Speaker 1: East Coast as well. Mar Okay, if I'm not mistaken, 602 00:35:01,000 --> 00:35:04,720 Speaker 1: you're based in the heartland in Ohio. If we see 603 00:35:04,960 --> 00:35:08,560 Speaker 1: five dollars a gallon in the Midwest, is that a 604 00:35:08,600 --> 00:35:09,440 Speaker 1: breaking point? 605 00:35:09,600 --> 00:35:12,839 Speaker 6: I think so. I mean economists talk about the four 606 00:35:12,920 --> 00:35:15,920 Speaker 6: dollars per gallon barrier, that there's sort of a psychological 607 00:35:16,160 --> 00:35:19,759 Speaker 6: effect on consumers when you know they see that four 608 00:35:19,960 --> 00:35:23,520 Speaker 6: zero zero at their corner gas station. So if we 609 00:35:23,600 --> 00:35:26,520 Speaker 6: hit five dollars a gallon, I think that's just gonna 610 00:35:27,080 --> 00:35:31,360 Speaker 6: you know, exacerbate you know, concern that people have, particularly 611 00:35:31,360 --> 00:35:34,400 Speaker 6: about gas prices, but about you know, prices in general. 612 00:35:34,640 --> 00:35:37,640 Speaker 6: That's the funny thing about inflation. You know, the rate 613 00:35:37,640 --> 00:35:42,680 Speaker 6: of inflation really spiked after the coronavirus pandemic in twenty 614 00:35:42,719 --> 00:35:46,399 Speaker 6: twenty two, and the rate of inflation has come down 615 00:35:46,440 --> 00:35:50,920 Speaker 6: since then, but prices really havepen So consumers are already 616 00:35:51,120 --> 00:35:54,279 Speaker 6: sort of stressed by high prices and they haven't seen 617 00:35:54,360 --> 00:35:56,640 Speaker 6: prices return to what they were before COVID. 618 00:35:56,880 --> 00:36:00,440 Speaker 1: So, Julia, what are people that you're speaking to looking 619 00:36:00,480 --> 00:36:04,239 Speaker 1: for in terms of finding some relief as we head 620 00:36:04,280 --> 00:36:09,000 Speaker 1: into the summer season and the potential for even higher prices, 621 00:36:09,239 --> 00:36:10,640 Speaker 1: at least in the short term. 622 00:36:10,840 --> 00:36:13,080 Speaker 7: It doesn't look like there is going to be relief soon. 623 00:36:13,160 --> 00:36:17,080 Speaker 7: I mean, as Mark mentioned, these higher prices are likely 624 00:36:17,120 --> 00:36:19,840 Speaker 7: going to stay for quite a bit longer. It is 625 00:36:19,880 --> 00:36:23,000 Speaker 7: going to be difficult to rain those in so Americans 626 00:36:23,040 --> 00:36:27,200 Speaker 7: are trying to find creative ways to shift their budgets, 627 00:36:27,440 --> 00:36:30,719 Speaker 7: but it really is something that the spending is going 628 00:36:30,760 --> 00:36:33,759 Speaker 7: to have quite a significant pullback. 629 00:36:34,840 --> 00:36:38,000 Speaker 1: And Mark, as I mentioned, you cover the intersection of 630 00:36:38,320 --> 00:36:42,600 Speaker 1: government and politics with the economy. It seems like the 631 00:36:42,600 --> 00:36:46,560 Speaker 1: economy has been topic a for voters for months. 632 00:36:46,600 --> 00:36:46,839 Speaker 6: Here. 633 00:36:47,200 --> 00:36:50,000 Speaker 1: If we stay at these kind of levels heading closer 634 00:36:50,040 --> 00:36:54,719 Speaker 1: to November, what's the potential impact, We could have. 635 00:36:55,520 --> 00:36:59,600 Speaker 6: A very big impact. I mean, you already saw elections 636 00:37:00,239 --> 00:37:05,520 Speaker 6: in Virginia and New Jersey last November sort of turn 637 00:37:05,600 --> 00:37:12,840 Speaker 6: on this issue of affordability, and that's only intensified. The 638 00:37:12,920 --> 00:37:16,759 Speaker 6: Democrats in particular, are running their their mid term campaigns, 639 00:37:17,080 --> 00:37:21,080 Speaker 6: you know, almost exclusively on the issue of affordability, you know, 640 00:37:21,160 --> 00:37:25,279 Speaker 6: and tried to draw a contrast between, you know, what 641 00:37:25,440 --> 00:37:28,040 Speaker 6: President Trump promised to do when he took office to 642 00:37:28,120 --> 00:37:31,839 Speaker 6: lower prices and what's actually happened. And I think you'll 643 00:37:31,840 --> 00:37:35,400 Speaker 6: see a lot of these elections in November sort of 644 00:37:35,440 --> 00:37:38,040 Speaker 6: turning on this, this question of who has the best 645 00:37:38,120 --> 00:37:42,440 Speaker 6: approach to bring down prices, and I think it could be, 646 00:37:43,080 --> 00:37:45,680 Speaker 6: you know, perhaps the defining issue in a lot of 647 00:37:45,719 --> 00:37:48,479 Speaker 6: these congressional races and determining who, you know, which party 648 00:37:48,560 --> 00:37:50,040 Speaker 6: gets control of the House and Senate. 649 00:37:50,840 --> 00:37:53,799 Speaker 1: Julia, we've heard some approaches from the White House on 650 00:37:54,760 --> 00:37:57,799 Speaker 1: getting prices down does it seem like some of the 651 00:37:57,840 --> 00:38:00,640 Speaker 1: policy proposals that have been put out there could have 652 00:38:00,960 --> 00:38:01,640 Speaker 1: an impact. 653 00:38:02,000 --> 00:38:05,120 Speaker 7: Oil analysts don't see it having a significant impact. And 654 00:38:05,160 --> 00:38:08,680 Speaker 7: the reason is, first off, you have a lack of 655 00:38:08,840 --> 00:38:12,160 Speaker 7: crude supply, obviously because of the effective closure of the 656 00:38:12,160 --> 00:38:15,919 Speaker 7: Strait of Horror moves, but also refineries in the US 657 00:38:16,040 --> 00:38:19,759 Speaker 7: right now are running very high levels, and they are 658 00:38:19,800 --> 00:38:22,600 Speaker 7: actually running with jet fuel because that right now is 659 00:38:22,640 --> 00:38:25,400 Speaker 7: creating higher margins. So these refineries don't have as much 660 00:38:25,440 --> 00:38:27,960 Speaker 7: of an incentive to be creating as much gasoline. So 661 00:38:28,560 --> 00:38:32,120 Speaker 7: even though these proposals might decrease gasoline costs a bit, 662 00:38:32,239 --> 00:38:35,360 Speaker 7: it is only until we have more supply in the 663 00:38:35,400 --> 00:38:39,160 Speaker 7: market and more refining capacity that prices are significantly going 664 00:38:39,239 --> 00:38:43,040 Speaker 7: to lower, or if demand pulls back enough that prices 665 00:38:43,120 --> 00:38:45,480 Speaker 7: also decrease. But that is a lot harder to. 666 00:38:45,480 --> 00:38:48,560 Speaker 1: Happen and a lot of time to come. Thank you 667 00:38:48,600 --> 00:38:51,120 Speaker 1: for this to both of you. That's Julia Fanzeri's and 668 00:38:51,239 --> 00:38:55,160 Speaker 1: Mark Niquett covering the economy for Bloomberg News. Thanks as 669 00:38:55,160 --> 00:38:58,840 Speaker 1: well to Bloomberg Intelligence Senior analyst Jen Bartashis and Lindsay 670 00:38:58,960 --> 00:39:01,399 Speaker 1: Dutch for the look ahead to the retail earnings this week, 671 00:39:01,600 --> 00:39:04,440 Speaker 1: and Mike McKee and Anna Wong of Bloomberg Economics. Thanks 672 00:39:04,480 --> 00:39:07,040 Speaker 1: to them as well, and thanks to you for taking 673 00:39:07,080 --> 00:39:08,920 Speaker 1: some time out of your Memorial Day to join us. 674 00:39:09,440 --> 00:39:12,600 Speaker 1: I'm Nathan Hager. Stay with us. Top stories and global 675 00:39:12,640 --> 00:39:15,160 Speaker 1: business headlines are coming up right now