Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm Aldana Higher, across Asset reporter with Bloomberg. This
Speaker 1: week on the show, Well, despite all those doom and
Speaker 1: gloom predictions about a recession on the horizon, the job
Speaker 1: market remains red hot, with the unemployment rate at just
Speaker 1: three point five yet with inflation out of four decade high.
Speaker 1: Many economists believe that some pain in the labor market
Speaker 1: is needed to get consumer prices under control. But is
Speaker 1: that necessarily true. We'll get into it with a veteran economist,
Speaker 1: but Voldonna, I have to ask you first, how many
Speaker 1: cups of coffee do you drink? Aday? Do you want
Speaker 1: to guess? I want to guess. I want to say
Speaker 1: zero cups? Zero? Yeah? Zero? Yeah? How did you know?
Speaker 1: Because I felt like it was a trick question even
Speaker 1: though I asked it. Yeah, how could you know? Zero?
Speaker 1: I'm so like hyper usually I know, but it's something
Speaker 1: also very healthy with the cauliflower. I love cauliflower. If
Speaker 1: they were cauliflower coffee, I would have that. Yeah, yeah, no,
Speaker 1: I stopped drinking it. Earlier this year. Actually, no caffeine
Speaker 1: at all. No caffeine really. Yeah, it was giving me
Speaker 1: a headache every time I didn't have it. So I
Speaker 1: don't think it's for health reason. I mean, I think
Speaker 1: it's healthy for you. Right, Well, I don't know. I
Speaker 1: the headache. I've never gotten past the headache I needed
Speaker 1: every day. How do you get out of bed in
Speaker 1: the morning. Then well, I had food poisoning, so I
Speaker 1: couldn't eat anything like at all, and so that's when
Speaker 1: I stopped just drinking it. I don't know now I
Speaker 1: feel about the coffee I drink. How much coffee do
Speaker 1: you drink? Well, the pants are you buying? If you're
Speaker 1: buying I'm buying, Yes, then like five cops. But we're
Speaker 1: not going to Starbucks. That's like seven dollars. Will go
Speaker 1: to like the Little Stance, the little carts. But our
Speaker 1: our guest, actually I think she drinks a lot of coffee.
Speaker 1: I have a feeling. Our guest today is Nila Richardson.
Speaker 1: She's a chief economist at ADP Miila, thanks so much
Speaker 1: for joining us. Oh, it's great to be here with you.
Speaker 1: Thanks for having me. Well, the I think the reason
Speaker 1: we're talking about This is because you had a blog
Speaker 1: post recently where you h It was titled Inflation and Coffee,
Speaker 1: a love story about how you go through how how
Speaker 1: prices have gone up but the Fed's not really paying
Speaker 1: attention to things like food costs, and you said, there's
Speaker 1: a problem with this kind of thinking. So I was
Speaker 1: hoping we could just start out with with you talking
Speaker 1: about this my love of coffee and my dislike of inflation.
Speaker 1: That's a that's a great way to start. Yeah, I mean,
Speaker 1: I do love coffee, and I think that actually coffee
Speaker 1: is a good prop for what's going on in the
Speaker 1: global economy, not just domestically. So coffee prices. You mentioned
Speaker 1: that seven dollar a cup of coffee across the street.
Speaker 1: Coffee prices are actually up almost six from a year ago.
Speaker 1: And you know, when everything is going up, isolating one
Speaker 1: thing seems like you're piling on. But coffee is kind
Speaker 1: of unique because for all those years and months leading
Speaker 1: up to the pandemic, prices were either flat or falling.
Speaker 1: So to see this big surge and you're over your
Speaker 1: coffee prices, it's like for a lover of coffee, it's
Speaker 1: traumatic has been for me. Um, I won't say how
Speaker 1: many cups I drink. I'm generally just a morning coffee person.
Speaker 1: But um, you know, coffee is important to some of us.
Speaker 1: But food prices just rit large have been going up.
Speaker 1: And the point of the blog is, you know, coffee
Speaker 1: represents a global supply chain that's quite complicated, that has
Speaker 1: been affected by the pandemic. It represents the big surge
Speaker 1: in food prices that we've seen over the past year.
Speaker 1: It represents the fact that Main Street sees food and
Speaker 1: gas as inflation. But when the Federal Reserve makes monetary policy,
Speaker 1: they exclude food and gas prices and volatile prices and
Speaker 1: look at core inflation, what's known as those baskets of
Speaker 1: goods that are not affected by something that's really really volatile,
Speaker 1: like coffee. So um, While I get a lot of
Speaker 1: attention to coffee, the Fed doesn't. I'm sure they drink it.
Speaker 1: I guess their argument, Neila, is that, as you say,
Speaker 1: those prices can be so volatile. You know, if there's
Speaker 1: a bad harvest in Columbia or if there's a hurricane,
Speaker 1: the oil prices are going to go up. Are they
Speaker 1: wrong to do that? Though? Do you think I mean,
Speaker 1: should should you know, should the headline number carry more
Speaker 1: weight for the Fed. Do you think I think the
Speaker 1: headline number should carry more weight because it feeds consumer expectations,
Speaker 1: and we know that the long term driver of inflation
Speaker 1: is what people think will happen with inflation. So if
Speaker 1: you think that prices are going up, you are going
Speaker 1: to behave in a way that actually causes prices to
Speaker 1: go up, Like go to trade to Jews and hoard
Speaker 1: a bunch of coffee and your your cart because you
Speaker 1: think that you know next month is going to be higher.
Speaker 1: Not saying I do that. It's that that example is
Speaker 1: a little too real. They're yeah, well, you know, experience
Speaker 1: is our best teacher. So um with the FED. While
Speaker 1: the Fed is not looking at coffee or food or
Speaker 1: gas specifically, when it's really focused on its interest rate policy,
Speaker 1: it is well aware as we all are, that consumers
Speaker 1: see it and that's what consumers are judging. And if
Speaker 1: that feeds back to long term inflation expectations, then we
Speaker 1: have a problem that spirals beyond, you know, the window
Speaker 1: that the FED is executing its policy. And well, I know, Neila,
Speaker 1: you pay a lot of attention to consumers, so maybe
Speaker 1: you can talk a little bit more about consumer sentiment
Speaker 1: right now, because I wanted to ask you if it's
Speaker 1: not the case that the wealth effect is also very
Speaker 1: real right now where we're seeing obviously uh downturn in
Speaker 1: the stock market and also a slowdown in the housing market,
Speaker 1: And does that not also affect the way consumers are
Speaker 1: thinking about things? I think it does. I think that's
Speaker 1: an important attribute of consumers spending. You know, that's the
Speaker 1: bulk of the economy. And so when consumers, especially wealthy consumers,
Speaker 1: feel confident about the economy, they spend more. But at
Speaker 1: the lower end of the income spectrum, it's not about confidence, right, Um,
Speaker 1: you're spending on necessity, so you spend when you have
Speaker 1: it at the lower income and so we've seen a
Speaker 1: transition of who's driving the spending in the economy from
Speaker 1: those people who benefited from those direct payments from the
Speaker 1: federal government through the heart of the pandemic. That translated
Speaker 1: into a lot of spending, which helps the US avoid
Speaker 1: a prolonged downturn and led to a pretty speedy recovery.
Speaker 1: Now on the other side of inflation, when things are
Speaker 1: slowing down in the stock markets and in the housing
Speaker 1: markets because of higher interest rates, you might start to
Speaker 1: see a slowdown in the spending of upper income folks UM,
Speaker 1: where the wealth effect is more prominent in their decision making. Yeah, well,
Speaker 1: I know, Neil. And now at a DP your your
Speaker 1: sort of laser focused on the job market too, So
Speaker 1: let's get into that. A little bit. Wage growth has
Speaker 1: picked up, but it is still lower than the rate
Speaker 1: of inflation, you know, So in other words, what they
Speaker 1: call real wage growth is negative, which means if you
Speaker 1: get a raise, it it doesn't necessarily feel like you're
Speaker 1: getting a raise because you're all your consumer goods are
Speaker 1: rising even faster. And you know that obviously triggers a
Speaker 1: lot of concern about what they call the wage costs spiral,
Speaker 1: you know, where labor demands higher wages to keep up
Speaker 1: with inflation. Are you seeing any signs of that? I mean,
Speaker 1: is that is that a risk that this inflation might
Speaker 1: prove to be stickier than um everyone's hoping. Let me
Speaker 1: take the second part of that question about is there
Speaker 1: a risk that inflation is stickier than we think? Yes. Now,
Speaker 1: the second question that proceeded to that is the wage
Speaker 1: is going to be the main driver of that stickiness.
Speaker 1: I do think that wages because they have accelerated so
Speaker 1: quickly over the past year and a DP data and
Speaker 1: we have some really good data on this, as you know,
Speaker 1: paying over twenty five million workers in the United States.
Speaker 1: It's showing that that that wages wage growth has been
Speaker 1: elevated and is now kind of bottling me out at
Speaker 1: this higher level. So in our latest report for August,
Speaker 1: we show that wage growth for the medium worker who
Speaker 1: stayed in the same job for the past twelve months
Speaker 1: with seven point eight percent. Now they put that in
Speaker 1: perspective in spring of that medium wage growth would have
Speaker 1: been around two percent, so a huge acceleration. But the
Speaker 1: seven point eight percent is basically in line where we've
Speaker 1: been for the past several months. So we're not seeing
Speaker 1: it go up dramatically, um, but it is elevated, and
Speaker 1: I think that's the story of inflation overall. Um. Perhaps
Speaker 1: we are slowing down from acceleration, UM, but for many
Speaker 1: items from coffee to your paycheck, Uh, those prices are
Speaker 1: are elevated and the growth rate or is kind of
Speaker 1: leveling out, it's still growing, right, So do do you
Speaker 1: think there's you know, the only way to cure inflation
Speaker 1: is in part to weaken the job market a little bit. Now,
Speaker 1: I don't think that's the best way at all. I
Speaker 1: think that's a horrible way to care inflation by destroying deman.
Speaker 1: I think that's the worst way. I think a better way,
Speaker 1: a way that you know, involves more than just the FED.
Speaker 1: That's the fed's tool, but it's about productivity. Productivity grows
Speaker 1: you out of inflation when more workers produce more output
Speaker 1: for the same amount of costs. That's what productivity is.
Speaker 1: That's what gets you out of the inflation wage price
Speaker 1: spiral conundrum. But that takes some other muscles that the
Speaker 1: economy hasn't really used all that well. It takes business investment,
Speaker 1: it takes government investment in jobs and workers. It takes
Speaker 1: more um partnerships with community colleges to build an agile
Speaker 1: and skilled workforce in the places that the economy needs it.
Speaker 1: So we're relying on a tool that is blunt, yes,
Speaker 1: but also painful by its own by the fed's own words.
Speaker 1: And there are better tools we just we we haven't
Speaker 1: had to use them in this economy until now. So then,
Speaker 1: can you talk a little bit more about the jobs market,
Speaker 1: because we have been having a very strong jobs market
Speaker 1: where we're getting numbers that are just so much better
Speaker 1: than a lot of times what economists are expecting overall.
Speaker 1: How long do you foresee that happening? And do you
Speaker 1: foresee a potential slowdown in the jobs numbers? Yeah, the
Speaker 1: slowdown isn't inevitable in the job numbers. I mean, we've
Speaker 1: already seen it. You can't expect an economy in normal times.
Speaker 1: They're as close to normal as we're going to get
Speaker 1: from here on out. To produce half a million or
Speaker 1: four hundred thousand jobs a month. That's not the US
Speaker 1: economy or any economy I'm aware of. Um, something more
Speaker 1: normal makes sense, and I think what you're seeing that
Speaker 1: is not necessarily a slowdown, but a normalization of job
Speaker 1: gains and post pandemic, right, And so we're still seeing
Speaker 1: some really solid job growth. And what we're hearing from
Speaker 1: clients at ADP is that they're still trying to find
Speaker 1: qualified workers. That's the top concern of many of our
Speaker 1: especially small business clients, who have been out competed by
Speaker 1: larger companies who were really aggressive and hiring over the
Speaker 1: last year. There's those large companies are slowing down, but
Speaker 1: they're just making room for smaller companies to higher instead.
Speaker 1: So when we think we'll see some pretty steady games ahead, um,
Speaker 1: but slower than what we've seen over the past six months. Right. Well,
Speaker 1: you know it's interesting. You know, I keep thinking back
Speaker 1: to uh I forget who invented it, but it's called
Speaker 1: the misery index, you know, and it's basically just very
Speaker 1: simple formula. Yeah, the inflation rate to the unemployment rate,
Speaker 1: and you know that's supposed to give us an indication
Speaker 1: of how miserable we all are. I mean, I guess
Speaker 1: it depends on how much coffee you had in the
Speaker 1: day to on an individual basis, but you said it.
Speaker 1: Let the records say I I did not say that data.
Speaker 1: But you know, I think the of the the issue
Speaker 1: is that the you know, the unemployment rate can obviously
Speaker 1: be very low, but if that inflation is high, real
Speaker 1: wage growth is negative, it sort of makes a lot
Speaker 1: of people miserable. Rather than say, in a recession where
Speaker 1: you get tempercent unemployment, you've got ten percent of the
Speaker 1: people miserable, as you know what I mean, as opposed
Speaker 1: to in this environment, you seem to have everybody miserable
Speaker 1: with inflation. So is that the equation do you think
Speaker 1: that the FED is trying to solve right now that
Speaker 1: UM inflation is almost a bigger sort of destabilizing risk
Speaker 1: in society and the economy then a recession and and
Speaker 1: sort of, you know, a recession is the lesser of
Speaker 1: two evils for the FED trying to trying to sort
Speaker 1: of chart its course. Yeah. I think that's a great question, Mike.
Speaker 1: I mean, it's always positioned as inflation or recession. But
Speaker 1: you know, I'm embarrassing to think that you can have both,
Speaker 1: especially when I don't have coffee. But for the for
Speaker 1: the FED, I mean, it really is and in my
Speaker 1: view two for the very reason that you said, inflation
Speaker 1: is job number one for the economy because without getting
Speaker 1: inflation under control, workers don't benefit from a growing economy.
Speaker 1: All of their paychecks are eaten up by inflation. And
Speaker 1: so in order to get that product ativity that leads
Speaker 1: to growth, you have to have inflation that's manageable. The
Speaker 1: the the economy just can't operate without having stable prices UM.
Speaker 1: And so I think the FEDS priority list is in
Speaker 1: the right order. It has to be about inflation until
Speaker 1: inflation is under control. But then, Nila, how realistic or
Speaker 1: maybe unrealistic is the FEDS to present target on inflation. Yeah,
Speaker 1: those goal posts probably would They would love to move them. Um.
Speaker 1: Some of those uh, disinflationary forces that we've relied on
Speaker 1: for the past ten years leading up to the pandemic
Speaker 1: are just not working so well anymore. The whole idea
Speaker 1: of the globalization bringing prices down, of having just in
Speaker 1: time inventory that kept priced and costs low, those things
Speaker 1: are kind of fragmenting at the scenes. And the way
Speaker 1: that we're sourcing um really um things like semiconductors around
Speaker 1: the world. It changes the landscape for inflation um. And
Speaker 1: so in my view, this episode of inflation is just
Speaker 1: one of a future world where inflation is more frequent
Speaker 1: and more persistent. It's not that the FED is doing, um,
Speaker 1: a one and done battle with inflation. This is going
Speaker 1: to be an ongoing war um and so what they
Speaker 1: do now I think sets the tone for the future.
Speaker 1: So um, Yeah, I actually forgot your original question I
Speaker 1: got in my own tandent, But I said, how how
Speaker 1: how unrealistic is two percent? And and so maybe just
Speaker 1: to add to your point, how how much longer do
Speaker 1: you foresee them? You know, if if we're going to
Speaker 1: be continuing to seek persistent inflation fro how much longer
Speaker 1: do you think? Yeah, I I don't have a crystal
Speaker 1: ball in the length of time, um, but I think
Speaker 1: it could be the inflation does stay a bit elevated,
Speaker 1: or for the purpose of this audience, that interest rates
Speaker 1: half to stay um at higher higher levels than they
Speaker 1: are now in order to keep inflation under control for
Speaker 1: several months or even you know, and the next year
Speaker 1: or two. Uh. And that's probably not great news for
Speaker 1: a lot of people. Um, But the two percent target,
Speaker 1: I don't think the Federal Reserve would change that at
Speaker 1: this point. Um. You don't change the goal post in
Speaker 1: the middle of the game. You have to wait till after.
Speaker 1: And that's because it's not just about inflation. It's about
Speaker 1: the Fed's credibility and changing it to to something higher. Um.
Speaker 1: They kind of already did that before the pandemic, but
Speaker 1: that was to get inflation up, and now they're trying
Speaker 1: to push it down, and so changing the target to
Speaker 1: three or four percent, as I've seemed suggested, really would
Speaker 1: they have their credibility would take a hit in doing that,
Speaker 1: you know, Neila, Obviously it used to be not so
Speaker 1: much anymore, but he used to always be. Every month
Speaker 1: in the market, the biggest main event of the month
Speaker 1: was the Job's report, and which means that two days earlier,
Speaker 1: you guys come in, ADP comes in and scoops the
Speaker 1: government with your own jobs report, and that is also
Speaker 1: highly anticipated but by everyone and often market moving. I
Speaker 1: understand you guys have made some changes to the methodology.
Speaker 1: Could you tell us a little bit about you know,
Speaker 1: about what you did. Absolutely, and honestly, Mike, the Jobs
Speaker 1: Week is still my favorite time of the month. I'll
Speaker 1: let you guys break down the CPI, but I'm always
Speaker 1: looking forward to jobs Week. You can't take vacation those weeks.
Speaker 1: I take it world. I don't have to be in
Speaker 1: the office, but now when one to, Honestly, I miss
Speaker 1: all the fun. But what we've realized that ADP is
Speaker 1: the need for real time data, especially during the pandemic
Speaker 1: um and we knew that with the scale we had
Speaker 1: and the breath of data that we could offer paying
Speaker 1: over twenty five million workers, that we could be more
Speaker 1: than just a today forecast of the BLS numbers. We
Speaker 1: could actually provide an independent estimate based on ADP client
Speaker 1: UH actual pay of what's going on in the labor market.
Speaker 1: So this is not survey data. This is real pay data,
Speaker 1: and it's very well crowd source. We have we we
Speaker 1: our whole business model is based around paying people and
Speaker 1: paying them on time, and so it's it was an
Speaker 1: important I think advancement and the way that we use
Speaker 1: data as an estimate, and I think it's not going
Speaker 1: to be the first. The need for real time data
Speaker 1: on the economy from the private sector has grown exponent exponentially.
Speaker 1: The government institutions realize this. They are incorporating some of
Speaker 1: this in their own statistical infrastructure. It's just another supplement
Speaker 1: of what's going on in the economy. There's a lot
Speaker 1: of people who will talk about the future of work
Speaker 1: and give you a forecast, but when you look and
Speaker 1: see what's actually going on in the economy, that really
Speaker 1: helps drive business decisions because it's based on something real,
Speaker 1: on a model. Yeah, I was, yeah, I was gonna ask,
Speaker 1: you know. Okay, So every month the government, I think
Speaker 1: in the Establishment Survey, they survey something like a hundred
Speaker 1: and some thousand businesses and get the responses. You guys
Speaker 1: have the actual hard data from twenty some million pay rolls.
Speaker 1: Isn't that a more You know, I'm kind of a
Speaker 1: softball for you here, Nila, But isn't that a It
Speaker 1: seems to me like you have a more accurate view
Speaker 1: on the labor market than the government. Should the market
Speaker 1: be paying more attention to your report than the BLS reports?
Speaker 1: You think the market should pay a lot of attention
Speaker 1: to the ADP National Employment Report. So I'm on record
Speaker 1: for saying that. And it is an independent estimate, and
Speaker 1: I would say that the b the b LS estimate
Speaker 1: is also an important and has a long lived lifespan
Speaker 1: in terms of providing data. So I am not on
Speaker 1: the record is saying that this is a replacement for
Speaker 1: government data. I don't think that. I think that this
Speaker 1: is a private sector view, uh that is highly complementary
Speaker 1: to government resources. And it doesn't have to be an
Speaker 1: either or it should be an And so this audience
Speaker 1: is sophisticated. They're really good with numbers. They can hold
Speaker 1: two numbers together. And what we've tried to do at
Speaker 1: a DP is make it as easy as possible. So
Speaker 1: when we launched the new n e R, we did
Speaker 1: it with twelve years of weekly data, cut by sector,
Speaker 1: cut by geography, industry, and establishment size. So it's really
Speaker 1: an opportunity dig into the numbers c where the n
Speaker 1: E R and the BLS matchup, see where they differ,
Speaker 1: see how it performs over the business cycle. And we're
Speaker 1: really excited to be able to provide that level of detail.
Speaker 1: And and last note on this, we did it in
Speaker 1: collaboration was the Stanford Digital Economy Lab. Standard has been
Speaker 1: a great partner, but we wanted to make the methodology
Speaker 1: as rigorous um and transparent as possible, so partnering was
Speaker 1: important for us. Can you talk more about the differences
Speaker 1: between your number and the b l S number because
Speaker 1: you because your yours comes out two days before the
Speaker 1: b S BLS number, inevitably somebody tends to point out
Speaker 1: that there is a discrepancy between the two, that they
Speaker 1: don't always match up, and sometimes the gap is pretty wide.
Speaker 1: So maybe you can tell us a little bit more
Speaker 1: about that lately. And you shouldn't expect them to match
Speaker 1: up because they're totally different samples. The BLS is based
Speaker 1: on the c S Survey run by the Census Department,
Speaker 1: which essentially asked establishments how many people did you pay
Speaker 1: this week? Right? So to survey data, and there is
Speaker 1: some issues around survey response rates that have been um
Speaker 1: made more apparent during the pandemic. We're all feeling a
Speaker 1: little survey fatigue these days, and establishments are no different. UM.
Speaker 1: So what the ADP data does is it it says
Speaker 1: not how many employees did you pay this week? Establishment,
Speaker 1: but we count how many employees are actually on your payroll.
Speaker 1: So it's a slight difference in and also perspective UM.
Speaker 1: And it's based on actual pay data. So if you
Speaker 1: look at your paycheck and you get that and direct
Speaker 1: deposit UM, that's what we're counting basically for all of
Speaker 1: our establishments. But the great thing about the number is
Speaker 1: we have such a breath and scale that we actually
Speaker 1: rewait that number with the Quarterly Census of Employment and Wages.
Speaker 1: I remembered it q c W, which is a near
Speaker 1: consensus of all the establishments in the countries, about nine
Speaker 1: d upwards of you know, fool data on all the
Speaker 1: businesses in the US. And so now we have something
Speaker 1: that is a private sector view, but it is really
Speaker 1: waited to to uh look at the national average. And
Speaker 1: I realized that that's a long answer, so any more detail.
Speaker 1: We have the technical note on our website ADP or
Speaker 1: I dot not dot org. And thank you for not
Speaker 1: like cutting me off, because I think I would have
Speaker 1: cut myself off if I had gone on on something.
Speaker 1: But you guys are so so polite. I'm actually not
Speaker 1: that polite because I'm I said, inevitably somebody points out
Speaker 1: the discrepancy between the A d P and the BLS.
Speaker 1: I'm that person. Yeah, yeah, don't don't worry, Nila. DNA
Speaker 1: is not played at all. I'm not sorry, Nila. Well, Nila,
Speaker 1: I know um and in sort of past stops at
Speaker 1: your career, maybe more so, but you definitely keep a
Speaker 1: pretty close eye on the housing market too, and we've
Speaker 1: seen obviously, uh some softening. They're uh not only in
Speaker 1: home sales, but actual prices have finally seemed to come
Speaker 1: off the boil a little bit. I forget the supperlative,
Speaker 1: like the biggest you know, month over month drop in
Speaker 1: in over a decade or something, the less case Shiller Index.
Speaker 1: How do you see housing um sort of landing from
Speaker 1: this red hot housing market that we had, And are
Speaker 1: there sort of knock on effects to GDP and inflation
Speaker 1: that could come as a result the tail when to
Speaker 1: housing is long. I'll start their demographics is destiny in
Speaker 1: the housing market. And you have a whole bunch of
Speaker 1: young people, millennials who still want to buy a house. Yes,
Speaker 1: they've been stunned a little by the rapid increase in
Speaker 1: both house prices and mortgage rates, but that's demographic tail
Speaker 1: and it's still singing loud and clear, and and so
Speaker 1: to me, I think the fact that where we are
Speaker 1: actually saying weakness in the economy is like the I
Speaker 1: was hanging through right because you already had a stricken
Speaker 1: market that has been undersupply chronic lander supply for over
Speaker 1: a decade. So this is the supply shortage story and housing.
Speaker 1: It's not about the pandemic. It's not about recent rises
Speaker 1: in lumber. This has been going on for ten years
Speaker 1: um and it was only because rates were supernaturally low
Speaker 1: that anybody could afford a house. And now you've taken
Speaker 1: that away. But it doesn't just affect demand, it affects supply.
Speaker 1: If you look at home builder sentiment, it has plummeted
Speaker 1: because not only has um the cost of constructing of
Speaker 1: house gone up, so has their financing costs. So you're
Speaker 1: depressing the entire housing market. With a higher interest rate,
Speaker 1: it's become smaller, and yet you still have this huge
Speaker 1: tail when coming. So I think of this as temporary.
Speaker 1: Whatever we're seeing in prices, it will um readjust again
Speaker 1: once people get over the sticker shock of a higher
Speaker 1: mortgage um and we won't fix it unless we build
Speaker 1: more homes, especially at the affordable sector. So last comment
Speaker 1: on this. You know we used to have a housing
Speaker 1: policy in the US, and you know it survived both
Speaker 1: Democratic and Republican administrations. We don't really have a national
Speaker 1: policy around homeownership the way we did when that you
Speaker 1: started my career. It's almost like it's a forgotten goal
Speaker 1: of the of the American dream to be a homeowner.
Speaker 1: Have we given up on it? What would you like
Speaker 1: that policy to to look like? I think it starts
Speaker 1: with affordable housing, whether it's rental or ownership. But because
Speaker 1: it used to be back in the olden times, like
Speaker 1: maybe two thousands um, home ownership was your your path
Speaker 1: to the middle class. If you bought a home and
Speaker 1: you had that for savings and it grew over time,
Speaker 1: then you created wealth for you and your family. Now
Speaker 1: you need wealth to buy a house. It's like, let
Speaker 1: me go create my wealth first, maybe in bitcoin or
Speaker 1: the stuff market, and then I can afford a house.
Speaker 1: We've inverted the American dream where you have to get
Speaker 1: wealthy first before you can become a homeowner. And I
Speaker 1: think that that's part of the discontent that you're seeing
Speaker 1: show up in the consumer sentiment numbers, and that's not
Speaker 1: going to be solved by just getting inflation down. That's
Speaker 1: kind of something that we're stuck with, and we need
Speaker 1: to actually be intentional about affordable housing. I'm really happy
Speaker 1: you brought this up because one of the questions I
Speaker 1: had for you is about where and how we're seeing
Speaker 1: the unequal effects of the FED hiking rates. So housing
Speaker 1: potentially is one area. I don't know if you had
Speaker 1: something else on mine. I do know you tracked this
Speaker 1: very closely. Credit card costs. I mean, uh, it's the
Speaker 1: reason why the country has stayed a flow. It's on
Speaker 1: the backs of the consumer. It's always the case, but
Speaker 1: the consumer has been incredible. It's like higher egg prices, okay,
Speaker 1: I'll buy it. Higher airline care is okay, I'll buy it.
Speaker 1: But they're starting to buy it less out of savings
Speaker 1: and more on credit card balances, and as someone who
Speaker 1: has studied Canada and looked at what the effect of
Speaker 1: consumer debt can do to an economy, and this is
Speaker 1: before the pandemic. Are friendly neighbors to the north or
Speaker 1: a tale sign of what could happen if consumer debt
Speaker 1: in the United States starts to rise and then explode
Speaker 1: to keep up with the current piece of spending. So
Speaker 1: I think it's really a watch point, especially for those
Speaker 1: in the lower income strata, because those are the ones
Speaker 1: who are affected most by inflat ship, by higher rental,
Speaker 1: higher rents, and higher food prices and gas prices. So
Speaker 1: guess hopefully they'll get some relief on that. Well, one
Speaker 1: area where there is uh some debt relief is the
Speaker 1: student loan issue. Um with the you know, the Biden
Speaker 1: program to forgive uh some student loans. How do you
Speaker 1: see that playing out? Is that gonna add some inflationary
Speaker 1: risks or is it you know, going to uh sort
Speaker 1: of have a more positive effect on the on the
Speaker 1: growth side that will would out weigh any inflation concern.
Speaker 1: It's a great question. I don't know. I'll just say
Speaker 1: it frankly. I wrote about student debt for goodness in
Speaker 1: my Main Street macro blog last week. And you know,
Speaker 1: the question of whether student did is a mountain or
Speaker 1: a mole hill when it comes to inflation is still
Speaker 1: to be determined, because who knows if people You know,
Speaker 1: there's been a forbearance on student debt repayment for for
Speaker 1: a while now, um so forgiving it out right, who
Speaker 1: knows what effect that will have? Will people buy more
Speaker 1: refrigerators because they don't have to pay and they haven't
Speaker 1: been paying a student loan debt? I do not know that. Um,
Speaker 1: I don't know what the marginal increase on inflation will be.
Speaker 1: What I do know, though, is that people with college
Speaker 1: degrees are much better served in the recession than people without.
Speaker 1: I do know that college enrollment is dropping, and I
Speaker 1: do know that productivity in the US is also on
Speaker 1: the decline. So we need a skilled workforce that I
Speaker 1: do know, and how to get there is an important
Speaker 1: question to ask for the future. Whether or not college
Speaker 1: is out of reach for people these days is another
Speaker 1: question that I think deserves some policy consideration. So, Nila,
Speaker 1: before the pandemic, you and I used to get together
Speaker 1: all the time at the Bloomberg golfices and we would
Speaker 1: talk about the stock market and drink coffee. We would
Speaker 1: drink coffee, yes, so much coffee from the Bloomberg golfice is,
Speaker 1: and we would talk about a love of New Jersey, right,
Speaker 1: I think, yeah, very fond memories of that. But anyway,
Speaker 1: you said recently in a note that the that the
Speaker 1: market isn't necessarily in lock step with the economy, and
Speaker 1: I wanted to ask you about this and what you
Speaker 1: mean meant by it. I think the market is reflecting
Speaker 1: some of the angst and the uncertainty that's been on
Speaker 1: Main Street all along. Now, so I'm gonna actually reverse
Speaker 1: my position on the market. I think the market was acting,
Speaker 1: in certainty fortified by the fact that they felt like
Speaker 1: they understood what the Fed would do, the inflation would
Speaker 1: come down and there soon be a pivot. And I
Speaker 1: think there's now a recognition that that may not happen,
Speaker 1: or it may take longer to happen than previously desires.
Speaker 1: Because what's happened I think over the course of that
Speaker 1: month is that we got another CPI reading and the
Speaker 1: core inflation bumped up instead of going down. And that
Speaker 1: was surprising. Um. It was even surprising to me who
Speaker 1: wasn't as sanguine about inflation. The inflation story is what
Speaker 1: I what I saw in the market. So I actually
Speaker 1: do think that the markets are reflecting uncertainty. I don't
Speaker 1: know how long the markets will do that, but that's
Speaker 1: the same uncertainty that mainStreet is feeling right now. Right Well,
Speaker 1: Nila Richardson, chief economist at ADP, is always a treat
Speaker 1: to get your take on the world and all things
Speaker 1: involving the economy. But I have to say, as a
Speaker 1: veteran of this show, you know, we cannot let you
Speaker 1: go until we hear about the craziest thing you saw
Speaker 1: in markets this week. Uh so, I'm confident you came prepared.
Speaker 1: But let's let's start with you. Okay, you're gonna love
Speaker 1: this one, all right. I think there's a company called
Speaker 1: horse Kicks Kicks. They're making custom designed high end sneakers
Speaker 1: for I give you this. No, I had to send
Speaker 1: it to her actually because I told her, go get
Speaker 1: your horse a sneak skis all right, Now, what's our
Speaker 1: market angle? Well, it's just okay, the price and everything,
Speaker 1: it's just a crazy story. So I had to I
Speaker 1: had to use this. The company builds itself as the
Speaker 1: world's first online custom sneaker retailer exclusively for horses. They
Speaker 1: have hoof sized versions of classic sneakers like Air Jordan's.
Speaker 1: I'm not joking. They're really, like, incredibly funny looking, and
Speaker 1: they cost guess how much per shoe? A thousand per shoe,
Speaker 1: and a horse has at least two needs to two shoes, right,
Speaker 1: couldn't need to strap on a regular pair of Jordan.
Speaker 1: I know you would think, yeah, no, they're actually so
Speaker 1: when you look at the pictures, they're tiny. They're really small,
Speaker 1: like little children sneakers or something. So four five thousands
Speaker 1: of yeah, my goodness, Yeah, to make your horse look
Speaker 1: very stylish. Had that all right? That's pretty good one.
Speaker 1: I'll give you that, all right, And that's pretty stiff competition.
Speaker 1: But but I don't know what do you got first?
Speaker 1: You got something crazier than uh whore Sarah Jordan's. I
Speaker 1: don't know if I can top that. I mean, I'll
Speaker 1: stick with there's so many crazy things going on that
Speaker 1: you are looking for crazy thing data points. I am,
Speaker 1: I am, I'm taken with this. This idea that California
Speaker 1: has replaced Germany as the fourth largest economy, that is
Speaker 1: pretty interesting. Yeah, it is interesting, And I wonder what
Speaker 1: California does with that information, because I mean, that's a
Speaker 1: lot of responsibility for California right and right now. Um,
Speaker 1: they've thrown a lot of political weight into the Supreme
Speaker 1: Court of protecting pregnant pigs. I am curious. Being the
Speaker 1: fourth largest economy in the world, what other things do
Speaker 1: we think California will do with that kind of stature.
Speaker 1: So I guess I posted as a question for the
Speaker 1: markets California do next, I would saying I think that
Speaker 1: was our own Matt Winkler here, bloombergy. That that's you
Speaker 1: didn't see that? That? That's really good. I like, it's
Speaker 1: pretty good. I mean it makes sense. It's you know,
Speaker 1: it's huge land wise, it's huge population wise. Uh, it's
Speaker 1: still a kind of valley and everything. You know, it
Speaker 1: makes sense. Almonds, Almonds, Yeah, almonds, Yeah, almonds are a
Speaker 1: big deal. Cauliflowers. They grew a lot of coliflowers. Oranges.
Speaker 1: All right, two good crazy things. I like them both.
Speaker 1: I'll give you mine. And first I have to ask,
Speaker 1: what's the most you've ever paid for a pair of earrings?
Speaker 1: I've never bought earrings Tom, you've never bought earrings and
Speaker 1: you do not have pier stairs. I've never noticed you
Speaker 1: got the headphones. You always have the headphones on, but
Speaker 1: you never bought them, not even wants you make your own. No,
Speaker 1: I just don't wear them. Right, But you do have
Speaker 1: Pierce steers. But how do they stay? I don't know.
Speaker 1: I've just never won them. More importantly, do you nil out?
Speaker 1: I think you have, if I remember correctly, you have
Speaker 1: song is not daughters? Right, So I have sons who
Speaker 1: I taught to shop very well for their mama. What
Speaker 1: do you think the most they've ever spent on a
Speaker 1: parier rings for mom is over at that Short Hills Mall.
Speaker 1: I know you're a high roller at the Short Hills Mall,
Speaker 1: but my small it is a nice sman my my
Speaker 1: sons do enjoy that. It's not my my shopping cart,
Speaker 1: but which they do enjoy it. I would say, given there,
Speaker 1: since I know how much they make in allowance, I
Speaker 1: would say the most is for Christmas, maybe fifty bucks.
Speaker 1: That sounds reasonable to me. Yeah, I have no idea.
Speaker 1: My wife I bought one pair of diamond earrings that
Speaker 1: were forversary, but otherwise, Okay, what if I were to
Speaker 1: tell you don't know who Blue Ivy is Beyonce's child.
Speaker 1: Beyonce's child. Yonce and jay Z have a child named
Speaker 1: Blue Ivy. Everybody knows this. I thought for a second
Speaker 1: you were trying to stump USh is ten years old.
Speaker 1: I don't know, you know. I mean, I know I'm
Speaker 1: a hip, hip old guy. I don't know about you, though,
Speaker 1: I don't you know. I mean, I mean it's Beyonce,
Speaker 1: So Beyonce's daughter, Blue Ivy and jay Z's thoughter as well.
Speaker 1: You know. She went earring shopping at what was it is?
Speaker 1: Some kind of it was the Wearable Art Gala in
Speaker 1: Los Angeles. Uh an auction which gives it our market angle.
Speaker 1: Uh And the story's courtesy of of Venity Fair. She
Speaker 1: bought a pair of diamond ear rings. Um from some
Speaker 1: designer who I think I should uh know who she is?
Speaker 1: But Lorraine Schwartz, Lorene Schwartz, famous earring designer. What do
Speaker 1: you think Blue Ivy paid for a pair of diamond
Speaker 1: earrings at the Wearable Art Galla in Los Angeles? Why?
Speaker 1: She's ten years old? She was the better, She had
Speaker 1: the paddle and she she hit the bid. Uh. I
Speaker 1: don't know. I imagine Blue Ivy's got some revenue coming
Speaker 1: in CREP speaking engagements, and I think she you know,
Speaker 1: sorry for the prices precise. What do you think blu
Speaker 1: Ivy spends on a pair of diamond earrings at auction?
Speaker 1: Am I going first? You always go first? Yes? Yes, okay,
Speaker 1: it has to be some absurd amount. But I thought
Speaker 1: fifty was was an absurd amount. Yeah, okay, but obviously
Speaker 1: bluv won't spend that little. Okay, let's go with seventy dollars.
Speaker 1: Seventy five thousand dollars. Uh, Neil, what do you think
Speaker 1: you're taking the I'll let you. You can do the
Speaker 1: over the under on seventy five thou, but if you
Speaker 1: go over you and it's under, then you lose, right, Yeah, yeah, yeah,
Speaker 1: I know. Whatever the result, my sons are going to
Speaker 1: ask for a higher allows. Since this is a newsy thing,
Speaker 1: I'm gonna say over. But I can't imagine how much
Speaker 1: over it would be From seventy, I'll go up to hundred.
Speaker 1: All right, I think you in with the over eighty
Speaker 1: thou smackers on a pair of diamond he Wow, I
Speaker 1: was closed, Yes, you were close, pretty close. You're pretty close.
Speaker 1: You win. I think you win because you were closer
Speaker 1: that way. Wait, you can't go over? Yeah I win
Speaker 1: a right, yeah, sorry you aners. Okay, I was gonna
Speaker 1: say ten to be honest, and then you you broke
Speaker 1: out with the seventy five thousand. I was like, okay,
Speaker 1: but ten year old time of hearings. Well, it'll only
Speaker 1: go up from here. I'm sure I'll probably worth more
Speaker 1: now that she that she owns what goes on, right,
Speaker 1: I just cannot imagine a ten year old. Every sort
Speaker 1: of earring or piece of jewelry my kids owned at
Speaker 1: that age is you know, handmade. It's covered in you know,
Speaker 1: melted gummy bears and uh made an arts and craft right,
Speaker 1: and just completely lost. So we'll see what to keep
Speaker 1: track of. I want to go to the playground and
Speaker 1: just follow her around. If she's wearing those eighty dollar
Speaker 1: earrings in case she drops, well, congratulations to Blue Ivy
Speaker 1: on her eighty dollar diamonds, and she is welcome to
Speaker 1: do all of our Christmas shopping. I know my girls
Speaker 1: have like four earring holes in their ears. They keep
Speaker 1: adding new ones, So I don't know if you need
Speaker 1: an eighty thousand dollar pair for every you have to
Speaker 1: raise their lawns to. Yeah, this is not good news
Speaker 1: for me. It's the bottom lineing the father of three daughters.
Speaker 1: But Niller Richardson, who is a Tirp by the way,
Speaker 1: I'm very happy to say I've got a daughter econ
Speaker 1: major at the University of Maryland, and I'm proud to
Speaker 1: uh proud to share the the Tirp pride with Nila.
Speaker 1: So it's an excellent economic tradition that she has just joined.
Speaker 1: So congratulations, I agree, I agree, thank you. What do
Speaker 1: we say? Go Tirps six and two Bowl eligible and football.
Speaker 1: So that's that's a good record. Yeah, all right, Neil,
Speaker 1: I think that's all our time. Thank you so much.
Speaker 1: It's always a real pleasure to catch up with you,
Speaker 1: and I hope we can do it again, something I
Speaker 1: have so too. Thanks for having me. Thank you, Nila.
Speaker 1: What goes up? We'll be back next week and so
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