Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: We continue to expect another slight increase in the unemployment
Speaker 2: rate to four point seven percent in December. Veronica joins us. Now, Veronica,
Speaker 2: thank you so much for being here, Thanks for having
Speaker 2: me holiday. Wondering from your perspective how much the data
Speaker 2: that we got earlier this month was actually valid and
Speaker 2: that people are discounting it too much.
Speaker 1: Yeah, I think there's a lot of that going on.
Speaker 1: And if we saw the unemployment rate next Friday, the
Speaker 1: first week back back to work, if we saw that
Speaker 1: at something like four point seven, I think people will
Speaker 1: believe it a lot more, because, yeah, there's a lot
Speaker 1: of issues with the November October data. We don't know
Speaker 1: how much the government shut down affected new measurement of
Speaker 1: those months, but December should be relatively clean, and if
Speaker 1: it stays pretty high, I think that's a more concerning
Speaker 1: sign for people.
Speaker 3: How Come this labor market is weak? I don't get it,
Speaker 3: because you've got incredible earnings growth, right, so corporate the
Speaker 3: mayor is doing very well, and there are no new
Speaker 3: people coming into this country, right, there's no immigration. The
Speaker 3: demographics trend like everyone's old. There are no young people
Speaker 3: like it should be companies are fighting for employees.
Speaker 2: Yeah.
Speaker 1: Yeah, I mean there's been this issue of you know,
Speaker 1: is it labor supply is it labor demand. We've been
Speaker 1: dealing with us for a couple of years now. You know,
Speaker 1: back in twenty twenty four, when we saw the unemployment
Speaker 1: rate increase, the excuse was also, it's more immigration. I
Speaker 1: don't think we can use immigration to explain the bad data.
Speaker 1: You know, different sides of immigration to explain bad data.
Speaker 1: But I think what's happened is that labor demand has
Speaker 1: just weakened more than labor supply, and that's why you've
Speaker 1: seen the unemployment rate rising. It's this low hiring still
Speaker 1: low firing dynamic. But I would be worried that low
Speaker 1: hiring can only last for so long before maybe you
Speaker 1: do see some layoffs.
Speaker 3: Is that because technology and AI have made the few
Speaker 3: employees that companies hold on to more productive.
Speaker 1: I'm a little hesitant to conclude that that's what's happening now.
Speaker 1: That might be part of the story, absolutely, and we
Speaker 1: could see larger productivity gains from AI longer run. But
Speaker 1: this really started a couple of years ago. This really
Speaker 1: started maybe summer of twenty twenty three when we saw
Speaker 1: this pullback and hiring, and I do worry that it
Speaker 1: started in more rate sensitive sectors like manufacturing small businesses.
Speaker 1: The pullback has really been there. And so yeah, it
Speaker 1: doesn't necessarily matter if equities are doing well in earnings
Speaker 1: or find small businesses are going to be more rate sensitivenfacturer.
Speaker 3: I thought we're bringing manufacturing that we have.
Speaker 1: Been losing manufacturing jobs I think every month this year,
Speaker 1: but that predates this year also, and it is a
Speaker 1: rate sensitive sector.
Speaker 2: Well, this sort of speaks to the question of is
Speaker 2: the FED restrictive and this is the big debate restrictive
Speaker 2: for who? Because on one hand, you do see companies
Speaker 2: filing for bankruptcy at the fastest clip going back to
Speaker 2: twenty twenty. On the flip side, you see AI companies
Speaker 2: screaming ahead, digital Bridge being purchased for four billion dollars
Speaker 2: at a fifteen percent being. So can you square that?
Speaker 1: Yeah, I mean there's this fifurcation across all parts of theomy.
Speaker 1: And I think there's a lot you know that has
Speaker 1: already been said about the k shape economy for consumers.
Speaker 1: You know, higher income consumers are spending, but We definitely
Speaker 1: see that in sectors also, and you know, the smaller
Speaker 1: businesses who are more rate sensitive. I think rates are
Speaker 1: are restrictive here, so.
Speaker 2: You expect a significant number of rate cuts. Let's just
Speaker 2: postulate that we do see an increase further in the
Speaker 2: unemployment rate to four point seven percent as you expect.
Speaker 2: What does that mean for January twenty eighth.
Speaker 1: Yeah, I think they're going to be cutting really Yeah,
Speaker 1: so we are penciling in another cut in January, another
Speaker 1: one in March. And it's just this kind of idea
Speaker 1: that you've clearly gotten more concerned on the labor market
Speaker 1: side of your mandate. If the unemployment rate is something
Speaker 1: like four to seven that we think we'll see in December,
Speaker 1: we will have hopefully more inflation data by March that
Speaker 1: we trust again, you know, early twenty twenty six data.
Speaker 1: If you're seeing inflation slowing and data that you believe again,
Speaker 1: and you're less concerned on the inflation side of the mandate,
Speaker 1: you're more concerned on employment, why wouldn't you be at
Speaker 1: the midpoint of neutral, which would be cuts in January
Speaker 1: in March to get either.
Speaker 2: The counter argument is if you get rate cuts, potentially
Speaker 2: two by the end of March. At the same time
Speaker 2: that you have the one big beautiful bill, the tax
Speaker 2: refunds and potentially an additional two thousand dollars stimulus or
Speaker 2: whatever else might be coming down the pike, Don't you
Speaker 2: risk reigniting inflation that never died.
Speaker 1: Yeah, I'm not so concerned about that right now. You know,
Speaker 1: the inflation driven by lower rates more stimulative monetary policy,
Speaker 1: you'd expect to see it first in a sector like housing,
Speaker 1: and you definitely don't see that yet. You don't see
Speaker 1: those signs yet. Home prices have been slowing, new rents
Speaker 1: have been slowing a lot. We already know that in
Speaker 1: the inflation data. There is this lag issue of shelter
Speaker 1: inflation that's going to I think, be slowing all of
Speaker 1: next year. All of the potential fiscal stimulus, you know,
Speaker 1: maybe larger tax refunds, the business tax incentives that were
Speaker 1: part of the bill from the summer. Those can help
Speaker 1: support growth. But I would worry that the main determinant
Speaker 1: of if people are spending or not is if they
Speaker 1: have a job and what their labor income is, and
Speaker 1: that we have seen slowing already, and you would think
Speaker 1: consumption with Slothan.
Speaker 2: Too, Veronica Clark, Thank you so much for being gared
Speaker 2: for holding down the fort for the economics team at Citigroup.
Speaker 2: Veronica Clark of Citygroup Global Markets