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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: We continue to expect another slight increase in the unemployment

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Speaker 2: rate to four point seven percent in December. Veronica joins us. Now, Veronica,

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Speaker 2: thank you so much for being here, Thanks for having

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Speaker 2: me holiday. Wondering from your perspective how much the data

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Speaker 2: that we got earlier this month was actually valid and

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Speaker 2: that people are discounting it too much.

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Speaker 1: Yeah, I think there's a lot of that going on.

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Speaker 1: And if we saw the unemployment rate next Friday, the

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Speaker 1: first week back back to work, if we saw that

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Speaker 1: at something like four point seven, I think people will

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Speaker 1: believe it a lot more, because, yeah, there's a lot

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Speaker 1: of issues with the November October data. We don't know

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Speaker 1: how much the government shut down affected new measurement of

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Speaker 1: those months, but December should be relatively clean, and if

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Speaker 1: it stays pretty high, I think that's a more concerning

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Speaker 1: sign for people.

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Speaker 3: How Come this labor market is weak? I don't get it,

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Speaker 3: because you've got incredible earnings growth, right, so corporate the

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Speaker 3: mayor is doing very well, and there are no new

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Speaker 3: people coming into this country, right, there's no immigration. The

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Speaker 3: demographics trend like everyone's old. There are no young people

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Speaker 3: like it should be companies are fighting for employees.

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Speaker 2: Yeah.

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Speaker 1: Yeah, I mean there's been this issue of you know,

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Speaker 1: is it labor supply is it labor demand. We've been

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Speaker 1: dealing with us for a couple of years now. You know,

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Speaker 1: back in twenty twenty four, when we saw the unemployment

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Speaker 1: rate increase, the excuse was also, it's more immigration. I

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Speaker 1: don't think we can use immigration to explain the bad data.

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Speaker 1: You know, different sides of immigration to explain bad data.

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Speaker 1: But I think what's happened is that labor demand has

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Speaker 1: just weakened more than labor supply, and that's why you've

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Speaker 1: seen the unemployment rate rising. It's this low hiring still

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Speaker 1: low firing dynamic. But I would be worried that low

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Speaker 1: hiring can only last for so long before maybe you

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Speaker 1: do see some layoffs.

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Speaker 3: Is that because technology and AI have made the few

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Speaker 3: employees that companies hold on to more productive.

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Speaker 1: I'm a little hesitant to conclude that that's what's happening now.

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Speaker 1: That might be part of the story, absolutely, and we

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Speaker 1: could see larger productivity gains from AI longer run. But

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Speaker 1: this really started a couple of years ago. This really

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Speaker 1: started maybe summer of twenty twenty three when we saw

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Speaker 1: this pullback and hiring, and I do worry that it

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Speaker 1: started in more rate sensitive sectors like manufacturing small businesses.

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Speaker 1: The pullback has really been there. And so yeah, it

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Speaker 1: doesn't necessarily matter if equities are doing well in earnings

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Speaker 1: or find small businesses are going to be more rate sensitivenfacturer.

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Speaker 3: I thought we're bringing manufacturing that we have.

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Speaker 1: Been losing manufacturing jobs I think every month this year,

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Speaker 1: but that predates this year also, and it is a

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Speaker 1: rate sensitive sector.

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Speaker 2: Well, this sort of speaks to the question of is

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Speaker 2: the FED restrictive and this is the big debate restrictive

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Speaker 2: for who? Because on one hand, you do see companies

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Speaker 2: filing for bankruptcy at the fastest clip going back to

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Speaker 2: twenty twenty. On the flip side, you see AI companies

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Speaker 2: screaming ahead, digital Bridge being purchased for four billion dollars

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Speaker 2: at a fifteen percent being. So can you square that?

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Speaker 1: Yeah, I mean there's this fifurcation across all parts of theomy.

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Speaker 1: And I think there's a lot you know that has

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Speaker 1: already been said about the k shape economy for consumers.

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Speaker 1: You know, higher income consumers are spending, but We definitely

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Speaker 1: see that in sectors also, and you know, the smaller

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Speaker 1: businesses who are more rate sensitive. I think rates are

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Speaker 1: are restrictive here, so.

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Speaker 2: You expect a significant number of rate cuts. Let's just

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Speaker 2: postulate that we do see an increase further in the

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Speaker 2: unemployment rate to four point seven percent as you expect.

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Speaker 2: What does that mean for January twenty eighth.

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Speaker 1: Yeah, I think they're going to be cutting really Yeah,

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Speaker 1: so we are penciling in another cut in January, another

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Speaker 1: one in March. And it's just this kind of idea

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Speaker 1: that you've clearly gotten more concerned on the labor market

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Speaker 1: side of your mandate. If the unemployment rate is something

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Speaker 1: like four to seven that we think we'll see in December,

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Speaker 1: we will have hopefully more inflation data by March that

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Speaker 1: we trust again, you know, early twenty twenty six data.

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Speaker 1: If you're seeing inflation slowing and data that you believe again,

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Speaker 1: and you're less concerned on the inflation side of the mandate,

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Speaker 1: you're more concerned on employment, why wouldn't you be at

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Speaker 1: the midpoint of neutral, which would be cuts in January

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Speaker 1: in March to get either.

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Speaker 2: The counter argument is if you get rate cuts, potentially

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Speaker 2: two by the end of March. At the same time

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Speaker 2: that you have the one big beautiful bill, the tax

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Speaker 2: refunds and potentially an additional two thousand dollars stimulus or

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Speaker 2: whatever else might be coming down the pike, Don't you

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Speaker 2: risk reigniting inflation that never died.

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Speaker 1: Yeah, I'm not so concerned about that right now. You know,

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Speaker 1: the inflation driven by lower rates more stimulative monetary policy,

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Speaker 1: you'd expect to see it first in a sector like housing,

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Speaker 1: and you definitely don't see that yet. You don't see

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Speaker 1: those signs yet. Home prices have been slowing, new rents

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Speaker 1: have been slowing a lot. We already know that in

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Speaker 1: the inflation data. There is this lag issue of shelter

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Speaker 1: inflation that's going to I think, be slowing all of

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Speaker 1: next year. All of the potential fiscal stimulus, you know,

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Speaker 1: maybe larger tax refunds, the business tax incentives that were

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Speaker 1: part of the bill from the summer. Those can help

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Speaker 1: support growth. But I would worry that the main determinant

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Speaker 1: of if people are spending or not is if they

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Speaker 1: have a job and what their labor income is, and

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Speaker 1: that we have seen slowing already, and you would think

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Speaker 1: consumption with Slothan.

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Speaker 2: Too, Veronica Clark, Thank you so much for being gared

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Speaker 2: for holding down the fort for the economics team at Citigroup.

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Speaker 2: Veronica Clark of Citygroup Global Markets