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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. Long ago
Speaker 2: and far away, folks, a guy named Farrell was at
Speaker 2: Merrill Lynch with Rosenberg, and between the two of them
Speaker 2: it was two required reads every week. And with Rosenberg
Speaker 2: on page three or four, it was a vertical column
Speaker 2: slicing in inflation like no one down the street. Absolutely,
Speaker 2: no one did it or does it like David Rosenberg. David,
Speaker 2: what is the character the nature of our disinflation?
Speaker 3: Well, inflation like any other price, and of course inflation
Speaker 3: is a changing price. Is not the level always going
Speaker 3: to be dictated by the shape of the demand of
Speaker 3: supply curves in the economy and how those curves are moving.
Speaker 3: So you know, what we're seeing happening, and especially in
Speaker 3: the labor market, is those demand of supply curves are
Speaker 3: moving in a decisive disinflationary pattern. And so that's what
Speaker 3: I'm looking at right now, just how these demand supply
Speaker 3: curves are shifting and as I said, shifting way towards
Speaker 3: lower wage inflation and price inflation in general.
Speaker 2: Some people don't know where those curves are. Some people
Speaker 2: look at them at Little Marshall and Cross. What I'm
Speaker 2: going to suggest you is that's not true. But there
Speaker 2: are times where accelerative tendencies or convexity can move. Is
Speaker 2: supply moves or demand moves. Are we at a point
Speaker 2: where we get jump conditions in disinflation to a much
Speaker 2: lower set.
Speaker 3: Well, the best way I can answer that is almost
Speaker 3: a paraphrase what j Powell said at the podium after
Speaker 3: the lst FMC meeting. You know where he said that
Speaker 3: recession is not the FEDS base case scenario. He's not
Speaker 3: concerned about a collapsing economy. But he talked incessantly about
Speaker 3: the widening slack that we're seeing in the labor market.
Speaker 3: And that's ultimately going to be one of the key
Speaker 3: elements behind any inflation or disinflation. So it's very interesting
Speaker 3: that while he remained a bit of a cheerleader for
Speaker 3: the economy, he's noting that they're getting more comfortable, getting
Speaker 3: more confident over the disinflation. But the emphasis on slack
Speaker 3: emerging the labor market me was very key, and I
Speaker 3: think that what he's really signaling here is that we
Speaker 3: are saying, and whether it's because the productivity numbers have
Speaker 3: consistently come in other than expected and the immigration boom
Speaker 3: that supported population growth and the labor force participation rate,
Speaker 3: that we've had a shift in the supply curve even
Speaker 3: as demand is hung in. Now demand growth isn't what
Speaker 3: it was, say twelve twenty four to thirty six months ago,
Speaker 3: with all the stimulus, but demand growth is holding in.
Speaker 3: But we have a situation where perhaps demand growth is
Speaker 3: running at say two and a half percent on a trend,
Speaker 3: but what if that's bumping against a supply curve that's
Speaker 3: closer to four percent. So all of a sudden, what
Speaker 3: we view as real GDP growth, which is the proxy
Speaker 3: for agrid demand, what looks like two to two and
Speaker 3: a half percent today benchmarked against what the supply curve
Speaker 3: is doing in the economy is almost what zero was,
Speaker 3: say ten to one of your thirty years ago. So
Speaker 3: that's really what's important here, is every single widening gap
Speaker 3: between the growth in every command benchmarked against acurate supply. Right,
Speaker 3: that's on without a recession, you've had cornflation for all
Speaker 3: to talk about sticky, sticky, sticky cornflations come down by
Speaker 3: one hundred and fifty basis points.
Speaker 2: You know, David and Paul Sweeney were at seven o
Speaker 2: eight am at Wall Street time, and where our heads
Speaker 2: are breaking over price theory with David Rosenberg. But the
Speaker 2: answer is all of the Foreign Affairs article in China.
Speaker 2: There's a lot of supply out there. There's a lot
Speaker 2: of Maybe that's what's bringing prices down.
Speaker 4: A lot of supply out there. David, what did the
Speaker 4: what's the labor market telling us about this economy here?
Speaker 4: I mean the market really got freaked out a week
Speaker 4: ago Friday about some of those labor data.
Speaker 3: Well, I don't think that you know, the stock market
Speaker 3: as a stem alone number should have freaked out. I
Speaker 3: was not surprised by the reaction, and the treasury market
Speaker 3: was not surprised at ten year yields on that day
Speaker 3: closed just below four percent, and we were down about
Speaker 3: at least ten basis points that day. I mean, that
Speaker 3: didn't surprise me because we saw a headline number below
Speaker 3: expected downward revisions. The unemployment rate rose. Now you can
Speaker 3: debate us whether or not that's a weather report or not.
Speaker 3: The BLS said that the hurricane had just a marginal impact,
Speaker 3: but you had widening slack in the labor market and
Speaker 3: wage growth continued to recede. So this was just a
Speaker 3: schmorgas board, a very benevolent events as far as the
Speaker 3: treasure market was concerned. Was it a recessionary statistic, although
Speaker 3: I'm still in the recession camp. It's been a long wait. No,
Speaker 3: But it was certainly a disinflationary report, and that's what
Speaker 3: the bond market had to see. And you see, the
Speaker 3: thing is that the Non Farm and Household Survey came
Speaker 3: out exactly two days after the foi C meeting. Now,
Speaker 3: I would posit that if J. Powell didn't concentrate so
Speaker 3: much of his attention on the other part of the
Speaker 3: dual mandate, which is a labor market, where he talked
Speaker 3: about that incessantly from the podium. Then maybe the market
Speaker 3: reaction wouldn't have been so acute, especially in the bond market.
Speaker 3: But he told you where his attention is shifting, and
Speaker 3: so that's what made the employment number so much more important.
Speaker 3: But it really reinforced his message that even without the
Speaker 3: economy collapsing, we are seeing widening disinflationary slack converged in
Speaker 3: the labor market. And that's all you really have.
Speaker 2: To now, David folded into the stock market, which you
Speaker 2: do so well, and I want you to fold in.
Speaker 2: The idea of nominal GDP comes in because inflation comes
Speaker 2: in in a Rosenberg flash fashion. Maybe real GDP's QUI
Speaker 2: scenter solid or comes in and all of a sudden,
Speaker 2: corporations are struggling for revenue growth. Alohol Depot is that
Speaker 2: our twenty twenty.
Speaker 3: Five Well, it probably is, because what was important about
Speaker 3: home Depot wasn't what they said about their current sale,
Speaker 3: the very weak guidance that they provided that was really
Speaker 3: I think the source of disappointment today. And it's following
Speaker 3: a string of companies, primarily in the consumer space, which
Speaker 3: are really struggling, and all the eyes of course are
Speaker 3: on technology and the general of AI wave and technology
Speaker 3: call it over thirty percent of the stock market, a
Speaker 3: much lower share of the economy. And what's important, I
Speaker 3: think from I guess a macro perspective taking the queue
Speaker 3: from the stock market, is that the only sector among
Speaker 3: the eleven s and P five hundred sectors this year
Speaker 3: that's in the red is consumer discretionary, which may be
Speaker 3: less than ten percent of the stock market capitalization. It
Speaker 3: doesn't get that much attention because everybody is just focused
Speaker 3: on the sex that's provided by the technology sector. But
Speaker 3: discretionary consumer spending is forty percent of GDP. And so
Speaker 3: what the stock market is telling you for all the
Speaker 3: naysayers out there a both because the recession hasn't come,
Speaker 3: therefore it's never going to come. But you have a
Speaker 3: disconnect between the components of the stock market, their shares
Speaker 3: and the shares that actually are.
Speaker 5: In the economy.
Speaker 3: So the consumer discretionary space being the only sector down
Speaker 3: but the dominant force in domestic demand I think is
Speaker 3: a red flag as far as the economic goal look
Speaker 3: is concerned.
Speaker 4: So, David, how do you view the US consumer I mean,
Speaker 4: I guess it's hard to even say there is a
Speaker 4: common consumer out there. There seems to be many strata
Speaker 4: out there. How would you characterize consumer demand out there?
Speaker 3: Well, you know, everybody's talking about the K shaped economy,
Speaker 3: but you are even starting to see some of the
Speaker 3: strains emerge in the higher end. And the higher end
Speaker 3: has been held up because they're not as dead heavy
Speaker 3: as low and middle income households. They're not as dead heavy,
Speaker 3: therefore not as vulnerable to the interst rate shot of
Speaker 3: the past couple of years. And of course they've benefited
Speaker 3: from the wealth effect from what the stock market has
Speaker 3: given them, and now the stock market seems to be
Speaker 3: topping out. But in the end, recessions are caused by
Speaker 3: slight changes at the margin, and you're seeing those strains
Speaker 3: really emerge amongst low income households, which spend one hundred
Speaker 3: percent of their income. And I think, actually, you know,
Speaker 3: the biggest bombshell was what Brian moynihan said on Facination
Speaker 3: on Sunday, Because you know, these bank CEOs, let's face it,
Speaker 3: they're normally a pretty cheery bunch, but he's talking about
Speaker 3: their sample size, Oh, of only sixty million consumer accounts.
Speaker 3: Hillis Ergo the other consumer bank, and he didn't just
Speaker 3: say that consumer spending is slowing. He said, it's slowing sharply.
Speaker 3: And you have all these other economists and I know
Speaker 3: they show up on your show, is talking about oh well,
Speaker 3: traffic at airports and traffic at restaurants and traffic at
Speaker 3: theme parks. Everything's fine. And that was laid to rest
Speaker 3: by Brian Monahan, who said, oh, yes, for sure, traffic
Speaker 3: is strong. But here's the problem is that spending spending
Speaker 3: per person.
Speaker 5: Yeah, I'll take that down.
Speaker 3: Also, stop by the way, traffic doesn't go into GD right.
Speaker 2: But to put a bow on this, and I want
Speaker 2: to get your market conviction here of what you're doing
Speaker 2: if you're not all in cash. But to mister Moinianne's point,
Speaker 2: revenue is price dynamics in unit dynamics, and so in
Speaker 2: the airline business they're popping unit dynamics nicely. But the
Speaker 2: prediction here has to be a Rosenberg like price drifts away.
Speaker 2: There's no pricing power.
Speaker 3: Is there no pricing power? And you know, there's obviously
Speaker 3: a bit of a disconnect. I've got to say I'm
Speaker 3: not a conspiracy theorist, but the government data have been
Speaker 3: so far off. The more anecdotal survey data, and of
Speaker 3: course what corporate executives have been saying, and what about
Speaker 3: the Beige Book? And I was actually hardened by the
Speaker 3: fact that at least J Pebbell gave some lip service
Speaker 3: to the base Book, which is the most comprehensive, albeit
Speaker 3: non data assessment of the US economy that comes with
Speaker 3: every six weeks.
Speaker 5: And you're a hundred.
Speaker 3: Percent right, Tom, Every single basebook this year, even during
Speaker 3: that temporary inflation blift caused by insurance costs beginning of
Speaker 3: the year that caused the FED to sort of step back,
Speaker 3: every single bag book is talking about an ongoing loss.
Speaker 5: Of corporate pricing power. And of course you're not about
Speaker 5: pricing power.
Speaker 3: It's not about levels, and it's the bomb. Market does
Speaker 3: not respond to levels, the responds to change. And what's
Speaker 3: happening is that you see when the corporate sector, we're
Speaker 3: raising prices was nobody's business in twenty two, nobody cared.
Speaker 3: Everybody was willing to accept the price increases in the
Speaker 3: consumer sector because you were flush, right with that two
Speaker 3: tillion dollars the stimulus checks. They see all of a sudden,
Speaker 3: the stimulus checks are gone. The same is rate It
Speaker 3: barely more than three percent is a fraction of the
Speaker 3: pre COVID range of seven to eight percent, and all
Speaker 3: of a sudden, without the cash cushion, people see, look
Speaker 3: at these price levels.
Speaker 2: Now.
Speaker 3: The thing is that, and this is what I'm looking at,
Speaker 3: corporate profit margins are still in the top half of
Speaker 3: the historical range. So companies actually have the capacity to
Speaker 3: reduce their prices. I don't think we're going back to
Speaker 3: where you're worth two or three, but they have capacity
Speaker 3: to lower their prices in response to what was obviously
Speaker 3: a consumer revolt right now against these prices. And that,
Speaker 3: by the way, is when you build it to a
Speaker 3: deflace eight deflationary environment times steadfastly bullish all the treasury.
Speaker 2: Market, thank you, and we'll get the yield calls the
Speaker 2: next time around. A lot of people will all of
Speaker 2: a sudden looking.
Speaker 5: For Rosenberg like yields. David Rosenberg Rosenberg.
Speaker 2: Research can't say enough about his work. Seemshaw, who joins
Speaker 2: us right now. Seemashaw is with principal Grow were thrilled
Speaker 2: that she could join us this morning with a great
Speaker 2: perspective from London. I want to get to the flap
Speaker 2: at the moment, which is sort of the global wrap
Speaker 2: around the carry trade in Japan. But I want to
Speaker 2: bounce off what Lisa Matteo just said, which is people
Speaker 2: are considering layoffs. Are we just really setting ourselves up
Speaker 2: a la home depot alla, generous motors and others where
Speaker 2: companies are really going to start managing headcount?
Speaker 5: Is that what you feel in the air.
Speaker 6: Hey, tom So? I mean, look, that is really important news.
Speaker 6: If we start to hear more companies talking about layoffs
Speaker 6: and it really is a concern, I would say that
Speaker 6: at the moment though, I mean I think what we've
Speaker 6: been hearing on the street and across the board is, yes,
Speaker 6: companies are revisiting their labor costs. It makes sense. You know,
Speaker 6: they're looking at hire every financing costs, particularly with the
Speaker 6: funding wall coming up, and so as a result of that,
Speaker 6: they're looking at everything and they have to you know,
Speaker 6: balance off any additional cost somewhere else. And the thing
Speaker 6: that they are looking at is appraising where on the
Speaker 6: lob cost site that they can pull back on. We
Speaker 6: haven't as yet seen layoffs, but we have seen snipping
Speaker 6: around at the edges where they're produced hours, earnings, et cetera.
Speaker 6: But not quite the job layoffs at this point.
Speaker 2: What sector do we watch to see the trend? The
Speaker 2: easy answer for Global Wall Street it's a financial sector.
Speaker 5: But what sector would you pay attention to?
Speaker 6: It's a financial sector cently, but it's really the consumer
Speaker 6: discretionary because that remember that the consumer site has been
Speaker 6: the key driver for the broader, ye broader US economy.
Speaker 6: If you're starting to see pullback on that area, well
Speaker 6: then that really does start to question the strength the
Speaker 6: resilience of the US economy. So that's a bit I think,
Speaker 6: which would be the really concerning side, And suddenly any
Speaker 6: areas which are really interest rate sensitive the bit that
Speaker 6: would be more cyclical and would be I guess bit
Speaker 6: more of an advanced warning that there's economic pressures building.
Speaker 4: So Sam mcgiven that, I guess, you know, you think
Speaker 4: about a week ago Friday, with the job data really
Speaker 4: kind of spook the market, how do you think the
Speaker 4: Federal Reserve is kind of leaning at this point?
Speaker 6: So I think this is the big question that everyone
Speaker 6: is thinking through. So I think similar to I mean,
Speaker 6: the first thing to member is that you know, just
Speaker 6: as we are absorbing the ecomic data as it comes out,
Speaker 6: that is exactly what the feathers do that. I don't
Speaker 6: think they have any additional information on top of what
Speaker 6: we do. But what we can see in assuming that
Speaker 6: the inflation data today and tomorrow are fairly well behaved,
Speaker 6: it means that they can shift their focus points to
Speaker 6: the other side of their mandate. Now, we do think
Speaker 6: that they will have to err on the side of caution.
Speaker 6: You know, maybe think about front loading of those rate cuts,
Speaker 6: whether that's back to back twenty five bases point cuts.
Speaker 6: If you have a worse labor market report come the
Speaker 6: beginning of September than certainly a fifty bases point move
Speaker 6: starts to come on to board. But the thing that
Speaker 6: you're seeing already is that FRED speakers are not all
Speaker 6: unanimous in the idea that the labor market is slowing,
Speaker 6: that inflation is under control. So I think there's a
Speaker 6: bit of consensus building that still needs to go on
Speaker 6: behind the scenes.
Speaker 4: And Suman, we had some the manufacturing I know, this
Speaker 4: is a services driven economy here in the US seventy
Speaker 4: percent or so, but the manufacturing market, manufacturing economies week,
Speaker 4: we had some weak isms last week. What do you
Speaker 4: make of that?
Speaker 6: Well, it's concerning, I mean, I think with the isms
Speaker 6: for the last year or so, i'ld say that they
Speaker 6: haven't been the best indicative of what's actually going on
Speaker 6: selling the hard data, So we want to take that
Speaker 6: with a pinch of salt. But this is the thing
Speaker 6: with the US of commune. I don't think en was
Speaker 6: in denial about this. They're really our pockets a weakness.
Speaker 6: It's definitely not the point I don't end what's making
Speaker 6: the point that the whole US economy is looking really strong.
Speaker 6: So I were saying manufacturing segments of housing, they're the
Speaker 6: areas where you are seeing weakness. And to your point
Speaker 6: before you know, services is the main driver. So that's
Speaker 6: a bit that if that starts to turn and starts
Speaker 6: to topple, then actually the picture for the US economy
Speaker 6: starts to really really deteriorate. The manufacturing side is clearly slowing.
Speaker 6: I think that has come through in a number of
Speaker 6: bits of data.
Speaker 2: So where do you have nominal GDP. I mean, we're
Speaker 2: sitting here this morning in New York team we're looking
Speaker 2: at home depot with you know, not shocking that's the wrong.
Speaker 5: Word, but.
Speaker 2: Abruptly negative same store sales numbers. Is that just an
Speaker 2: indication that nominal GDP not only under five percent, but
Speaker 2: can begin to threaten a nominal GDP growth to three
Speaker 2: point nine percent.
Speaker 6: So what we're seeing in our podcast as we get
Speaker 6: through to the second half of the year is that
Speaker 6: you see GDP slowing down towards that trend level somewhere
Speaker 6: between the one point seventy to two point two percent
Speaker 6: on a real GDP basis. So I do think I mean,
Speaker 6: I think the home depot is a concern because we
Speaker 6: do typically look at that. It's a bit of a
Speaker 6: forward looking indicator of what is building up in terms
Speaker 6: of strains amongst consumers. So it's one thing that we
Speaker 6: do need to really focus on and take notice of
Speaker 6: that news story. But I think that we should be
Speaker 6: expecting that, look, the use of company isn't going to stay.
Speaker 6: It's not going to stay, not going to continue to accelerate.
Speaker 6: I would expect that atlantic GDP now tracker to be
Speaker 6: coming down as a month and the quarter progresses. But
Speaker 6: I think a trend level for GDP for the second
Speaker 6: half of this year makes sense, with maybe a further
Speaker 6: slowdown at the beginning of next year before the red
Speaker 6: cants start to really come in and second half of
Speaker 6: next year starts to look a little bit stronger.
Speaker 5: Look, so let me cut to the chase.
Speaker 2: What does a stock market do if I've got trending
Speaker 2: tepid sea mishaw like.
Speaker 5: We're going to get through the year.
Speaker 2: Is there a way that equities manage to be resilient
Speaker 2: or even in proven price.
Speaker 6: I think that they do. So I think that there's
Speaker 6: actually a window, actually a Frienny long window where equities
Speaker 6: can do okay. Now, for the first month or two,
Speaker 6: I think it is going to be challenging because the
Speaker 6: market is going to respond to every single bit of data,
Speaker 6: and ineptly across any bit of data, there's going to
Speaker 6: be pockets which you are weak, so that volatility uncertainty continues.
Speaker 6: But I think the key thing is this, in terms
Speaker 6: of a recession outlook, even if there is a genuine
Speaker 6: economic slowdown coming through, given the resilience and the balance
Speaker 6: sheet strength of households and corporates, is it likely that
Speaker 6: the Fed can't come to save the US economy with
Speaker 6: various red cuts. So I try to put the chance
Speaker 6: of recession fairly low, which means that after a bit
Speaker 6: of volatility and pullback, I think the equity market can
Speaker 6: still eke out some positive gains as we get through
Speaker 6: twenty twenty four into twenty twenty five.
Speaker 5: That's her first ball of a week.
Speaker 4: Yeah, there you go.
Speaker 2: Doing it.
Speaker 4: I mean, have we been talking about a recession for
Speaker 4: two maybe three years now? When when do we typically
Speaker 4: how often do recessions typically happen? And aren't we overdue?
Speaker 6: So look, it depends whichever indicator you're looking at. But
Speaker 6: I mean, if you're thinking about what happens post for
Speaker 6: tightening around now is when you're meant to be in recession.
Speaker 6: So certainly with the sum rule, with the jobs numbers,
Speaker 6: et cetera, maybe it'll kind of falls together nicely that
Speaker 6: this is the time that we should be in recession.
Speaker 6: But if you look across the broader environment, you know
Speaker 6: we're not really seeing signs of that. The concern, of course,
Speaker 6: is always that once you see some layoffs, it becomes
Speaker 6: something which is self reinforcing and it can unravel very
Speaker 6: very quickly, which is why these news stories around companies
Speaker 6: announcab layoups is really really important. But as I said,
Speaker 6: as long as you have strong household and corporate balance sheets,
Speaker 6: then actually a weakness in the labor market should not
Speaker 6: be able to mutate into that kind of hard landing.
Speaker 2: Sumer Sea, thank you so much. The Principal Assets Management,
Speaker 2: their chief Global Strategies greatly appreciate that.
Speaker 5: Folks.
Speaker 2: Actually, when we quote PPI, Paul and I have no
Speaker 2: idea what we're talking about.
Speaker 5: Now.
Speaker 2: Mcke's in my ear telling me what to do. But
Speaker 2: the reason we're doing it is to give Sarah House
Speaker 2: time to digest the numbers. Senior economist at Wells Fargo,
Speaker 2: an expert on this. Sarah House, does this PPI set
Speaker 2: confirm disinflation in place?
Speaker 1: I think it confirms that we are seeing that disinflationary
Speaker 1: trend still underway. So we did see I think some
Speaker 1: improvement in terms of the headline and the traditional core,
Speaker 1: although if you look at what we refer to as
Speaker 1: the core core in the PPI, so that strips out
Speaker 1: an addition to food and energy trade services, which are
Speaker 1: measured in margins. That did come in a little bit
Speaker 1: firmer than expected, which I think is consistent with slowing inflation,
Speaker 1: but it's a gradual slope.
Speaker 2: So there's a summary for you in the summary and
Speaker 2: the support we get on economic indicators. Always with Commonwealth,
Speaker 2: our economic indicators is Sarah House today brought you by Commonwealth,
Speaker 2: supporting more than two thousand independent financial advisors with a
Speaker 2: two to one advisor to staff ratio small firm attentiveness,
Speaker 2: big advisor impact.
Speaker 5: Go to Commonwealth.
Speaker 4: Sarah, what do you think the Federal Reserve? How do
Speaker 4: you think this Federal Reserve will kind of look at
Speaker 4: these numbers this morning in totality?
Speaker 1: Yeah, so, I think they'll be digging into the details
Speaker 1: in terms of what specifically feeds into the PCE measure.
Speaker 1: So I think, like economists and like a lot of
Speaker 1: market participants, getting a lot more dialed in into the
Speaker 1: granularity of the PCE and CPI combo what it means
Speaker 1: for the Feds in preferred inflation measure. But I think
Speaker 1: they'll be looking at a number that still seems like
Speaker 1: it's consistent with the first quarters flare up in inflation
Speaker 1: being just that a flare up and again not really
Speaker 1: derailing the disinflationary trend that started last year.
Speaker 4: So give us your thoughts here, Sarah about this economy here.
Speaker 4: I think a lot of folks are concerned that the
Speaker 4: Fed is it's too late in cutting rates and that
Speaker 4: the risks of inflation a recession are really there and
Speaker 4: maybe the Fed's not recognizing them. How do you think
Speaker 4: about that?
Speaker 1: Yeah, so when I look at the labor market data,
Speaker 1: and this isn't just about the July jobs report that
Speaker 1: we got a little over a week ago, but really
Speaker 1: the array of jobs market data, which shows that not
Speaker 1: only are conditions softening, but they're really back to where
Speaker 1: they were and kind of pre pandemic in some cases
Speaker 1: even mid twenty tens. I think that you are seeing
Speaker 1: that that downward momentum is concerning, and I think the
Speaker 1: recession risks have risen. But the good news is that
Speaker 1: the FED has room to dial back the level of
Speaker 1: restrictiveness that we're seeing. And I don't think a recession
Speaker 1: is a foregone conclusion, but the FED needs to get
Speaker 1: going in or to support the labor market, especially given
Speaker 1: that I think we've seen that disinflationary trend in place
Speaker 1: and no longer as much of a concern.
Speaker 2: Let's get up to CPI to Marlin Sarah House, I mean,
Speaker 2: you've got a model on an Excel spreadsheet, one part
Speaker 2: real GDP and one part your measure of inflation equals
Speaker 2: nominal GDP. Let's go through each part right now, Where
Speaker 2: are you forward on real GDP twelve months?
Speaker 1: Yeah, so we're looking for real GDP to slow, so
Speaker 1: probably somewhere closer to one and a half two percent
Speaker 1: over the next twelve months, and I think that is
Speaker 1: consistent with the slowdown that we're seeing in the jobs
Speaker 1: market what that means for consumer income, but with inflation
Speaker 1: slowing too, that does mean that.
Speaker 2: So what's your inflation number that you're overlaying on a
Speaker 2: one and a half to two one point seventy five
Speaker 2: percent center tendency.
Speaker 1: Yeah, so when you're looking at core PCEE, probably somewhere
Speaker 1: right around two percent, maybe two and a quarter, so
Speaker 1: further progress, not quite all the way back to the
Speaker 1: Fed six percent target, but we think against the labor
Speaker 1: market good enough as much.
Speaker 4: This is critical.
Speaker 2: So you're talking about modeling a center tendency sub four
Speaker 2: percent nominal GDP.
Speaker 1: Roughly four percent, Yeah, given that inflation is probably going
Speaker 1: to be a little bit about it.
Speaker 2: I'm just trying to make some news here. It's a
Speaker 2: slow day here. Sarah alse wells Fargo with us. Sarah,
Speaker 2: what are we going to see tomorrow with the CPI
Speaker 2: at eight thirty?
Speaker 1: Yeah, So we're looking for a zero point two percent
Speaker 1: increase on both the headline and the core. So that's
Speaker 1: in line with the consensus, but I think the details
Speaker 1: are going to be really important. So to what extent
Speaker 1: are we still seeing outright goods deflation? And are we
Speaker 1: seeing more progress on the services side, both in housing
Speaker 1: but also the non housing services that have been such
Speaker 1: a concern for the Fed.
Speaker 4: So, Sarah, I mean, I guess you know, one of
Speaker 4: the issues here is the consumer. We're also going to
Speaker 4: hear from the consumer later this week. How's the US
Speaker 4: consumer out there from your perspective, Yeah, so.
Speaker 1: The US consumer is hanging in there, but we do
Speaker 1: think that households are increasingly constrained in their spending. So
Speaker 1: credit is more expensive, harder to get, so we're seeing
Speaker 1: less use of it. At the same time, not as
Speaker 1: much of that of that excess savings from the pandemic,
Speaker 1: And so it really comes down to the jobs market,
Speaker 1: and they'rew slower dog growth, slower nominal wage growth. That
Speaker 1: means slower slower income growth as well, right, And so
Speaker 1: we think that's where where you get that slow down
Speaker 1: in consumer spending is consumers just don't have as much
Speaker 1: to fall back on. And so they're getting more cautious
Speaker 1: as a result, but you still have positive real income gains,
Speaker 1: and so that's keeping overall spending in positive territory.
Speaker 2: Sure, fold in your work economics into the Wells Fargo
Speaker 2: yield guess and where I want to go. I mean,
Speaker 2: I can go ten year nominal, but I'm going to
Speaker 2: go the ten year inflation is just to yield. It's
Speaker 2: in two beeps, it's in five beeps over two cups
Speaker 2: of Starbucks black coffee one point seven seven percent. How
Speaker 2: much down can real yields come when you model in
Speaker 2: a maybe four percent nomenal GDP.
Speaker 1: Well, I think if you continue to see the improvement
Speaker 1: on the inflation side, they can they can come in
Speaker 1: a little bit more. And I think especially as if
Speaker 1: you get the FED cutting, which we think that they'll
Speaker 1: actually cut pretty aggressively here in the rest of the
Speaker 1: rest of the year. So there's there's probably still still
Speaker 1: some room to go. But we're not going back to
Speaker 1: the pre pandemic days by any means. So we think
Speaker 1: that FED easing is going to be more recalibration and
Speaker 1: not a move to accommodativeness.
Speaker 2: Thanks so much, greatly appreciate that Sarah House with us
Speaker 2: with Wills Fargo.
Speaker 5: They're Senior Economistic.
Speaker 2: Your Daily front Pages, the Less of Hour, Lisa, what
Speaker 2: do you have? All Right?
Speaker 7: We've talked about how artificial and intelligence like a lot
Speaker 7: of college kids are taking.
Speaker 1: Courses in it.
Speaker 7: But it turns out a lot of older Americans, we're
Speaker 7: talking about seniors, they are starting to take classes in
Speaker 7: artificial intelligence. I mean, think about it. They've gone through
Speaker 7: a lot of transitions, right, you had the icebox to
Speaker 7: the refrigerator, you had radio to TV.
Speaker 1: Ye had they went.
Speaker 7: Through all these transports.
Speaker 5: Icebox I didn't point to.
Speaker 2: I don't have a clear memory, but I have a
Speaker 2: memory of my mother waiting for the ice truck, okay
Speaker 2: to come down.
Speaker 7: Okay, so you're in there, you're in there, all right.
Speaker 4: So there here's bar Barbara Winston. I saw ice boxes
Speaker 4: turn into refrigerators. That is how long I've been around.
Speaker 4: But I think this is probably this being AI is
Speaker 4: the greatest technical revolution that I'll see in my lifetime.
Speaker 4: That's saying something because just Barbara Winston is eight.
Speaker 7: Years exactly, and they're interested. I mean, think about it,
Speaker 7: like there are some things like these classes at senior centers.
Speaker 7: Now it could help them because it makes them easier
Speaker 7: to get things like medical appointments, like a I can
Speaker 7: help you at that. But it's also teaching them about
Speaker 7: the other side of it, like being successible, susceptible to
Speaker 7: misinformation like deep fakes, and seniors are very subceptible. Yeah,
Speaker 7: I think yeah.
Speaker 2: Social note it's percolating with zel the banks. The government's
Speaker 2: looking at the banks as they should be. It's I
Speaker 2: think not the bank's fault. But the fact is all
Speaker 2: this new technology leads to people be careful out there.
Speaker 5: Ye. Yeah, I get stuff all the time, all the time. Yeah.
Speaker 5: It used to be simple.
Speaker 2: It was a letter from Nigeria and you could yes,
Speaker 2: take Nigeria.
Speaker 5: It's not as simple as that anymore.
Speaker 3: No.
Speaker 7: You get them on your phone too. You get these
Speaker 7: weird text messages. What's crazy. We were just talking about
Speaker 7: the Olympics, right, but you remember what was missing from
Speaker 7: this year's Olympics was baseball, right, and softball have to
Speaker 7: point that out. Okay, but it's coming back in twenty
Speaker 7: twenty eight.
Speaker 4: Right.
Speaker 7: It's in Los Angeles. So MLB players want to play,
Speaker 7: but as you know, the lead doesn't let them. So
Speaker 7: it's kind of this back and forth about what's going on,
Speaker 7: so they never really allowed them one thing, you know,
Speaker 7: it coincides with their season, so they would have to
Speaker 7: shut down, right, I mean, but players want to play,
Speaker 7: you have show show hey Otani, He told Sports Illustrated
Speaker 7: he wants to play. Bryce Harper has been fighting for it.
Speaker 7: Aaron Judge says, it would be a dream to play
Speaker 7: in the Olympics. But could that shut down? You know
Speaker 7: what could that mean? I mean they're already cramming. You
Speaker 7: think one hundred and sixty two games into one hundred
Speaker 7: and eighty days. If they prolong it, Hockey tried it tests,
Speaker 7: they went for about two weeks. They went dark and
Speaker 7: injured and people and that's the other thing. Injuries, Like
Speaker 7: that's another thing. I mean. And then if you, let's
Speaker 7: say you postpone it, you extend the season, then you're
Speaker 7: you're competing with the NFL.
Speaker 5: Each were way more in this. Did we lose break
Speaker 5: dancing after the way you didn't like it? Snoop was
Speaker 5: up with the stands, Knodd and Off was so bored.
Speaker 5: What else do you have?
Speaker 2: This one?
Speaker 7: This? The San Francisco FED says Middle low income America dynamit.
Speaker 2: We got a problem. Excuse me, you gotta tell Ari.
Speaker 2: On YouTube, when we talk about baseball, we lead with
Speaker 2: the Red Sox. Need images, even if it's about Los Angeles,
Speaker 2: we show the Red Sox first.
Speaker 5: Okay, next new rule, Okay.
Speaker 7: San Francisco Fed survey middle and low income Americans. They're
Speaker 7: running out of disposable cash, but they're on track to
Speaker 7: have less than they were on pace before the pandemic.
Speaker 7: So here's what that survey showed. Just to break down
Speaker 7: the numbers, the top twenty percent of households by income,
Speaker 7: they saw their liquid assets, so we're talking about things
Speaker 7: like cash and funds and savings, checking money market accounts.
Speaker 7: They rose sharply in twenty twenty early twenty twenty one,
Speaker 7: but then they dropped. They're now about two percent below
Speaker 7: what would have been about the pandemics impact. So it's
Speaker 7: even worse for those households that represent the lowest eighty
Speaker 7: percent by income. So it's just showing how much they have.
Speaker 2: Is I can say, and I'm so glad you did this.
Speaker 2: I can't say enough about this, folks. I follow the
Speaker 2: and there's people to keep this. A percent of Americans
Speaker 2: living paycheck to paycheck. To me is a social statement
Speaker 2: and it's shocking.
Speaker 4: I mean, it's just and you're seeing it in some
Speaker 4: of the earnings numbers. We've heard from a lot of
Speaker 4: the consumer companies this, I mean from the fast food
Speaker 4: companies all the way across the board.
Speaker 7: Okay, yeah, definitely. And then this is the last one,
Speaker 7: a music one. Okay, we've been talking about vinyl all
Speaker 7: the time. Everybody's going into vinyl with me. But now
Speaker 7: it's about audio cassettes. That's what the kids doing.
Speaker 2: It's gen z.
Speaker 7: Yes, they are listening to audio cassettes. The reason why
Speaker 7: you have a lot of these stars they're putting out
Speaker 7: their new music onto cassette, like the Musk Graves, Taylor Swift,
Speaker 7: Olivia Rodrigu, du Alipa, Ariana Grande cassettes.
Speaker 1: Kiss.
Speaker 5: I want to listen to Vampire on cassettes.
Speaker 7: Yes, because they're saying, well, here's the thing. When you
Speaker 7: compare it with vinyl, the kids are saying that it's
Speaker 7: cheaper and it's more portable.
Speaker 4: That's what we said back into seventies.
Speaker 5: I think I could go all day on this. I'll
Speaker 5: give you one story.
Speaker 2: Brockton will understand this Brockton's their producer.
Speaker 5: He'll understand this. If you can sit in.
Speaker 2: The burger King and I twenty five, I twenty four
Speaker 2: and four ninety five, and you bribe your kids by
Speaker 2: feeding them Burger King, and you sit there with a
Speaker 2: pencil turning the cassette wheel because a foot and a
Speaker 2: half of tapes.
Speaker 5: Out on your lap in the car.
Speaker 4: Yep, that's how you do it.
Speaker 5: That was technology. And they want to go back to that.
Speaker 7: They want to go back to it. They're just they're
Speaker 7: pushing their parents. The parents are going into the attic,
Speaker 7: the garage, they're trying to find the boom boxes.
Speaker 3: The kids can play the tape.
Speaker 5: Does anybody in the control room have a turntable in
Speaker 5: their house? You do?
Speaker 4: You do?
Speaker 2: You're probably playing Jay Giles ben Right Brockton, Yeah, I
Speaker 2: mean I got Jay Giles Vinyl Well.
Speaker 4: The first album I ever listened to and was born
Speaker 4: to run on my sister's cassette player in her bedroom.
Speaker 4: I was not allowed to take the cassette player out
Speaker 4: of the bedroom, so I had to sit on her
Speaker 4: floor on the shag rug a teal shagrug seventy five,
Speaker 4: listening to Borner Run cassette. That's how good that was.
Speaker 7: Look at that memory. Oh my first final was Donnie
Speaker 7: and Marie Goe Coconut. It's my firks finals.
Speaker 4: I mean, Goda love it. She's a news reporter. Donnie
Speaker 4: and Marie.
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