February 7, 2025 • 38 mins
Mike Armstrong and Marc Fandetti react to the job market data that shows the economy added just 143,000 jobs but unemployment fell to 4%. Is the job market weaker than what the data is showing? the University of Michigan sentiment survey shows US consumers feeling worse about inflation and tariffs. Will the job markets performance give the Fed the ammunition it needs to continue the rate cut pause? Where are the best place to put your cash?
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
at business and financial news affecting your day, your city,
(00:44):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting dav five K dot Boston and making
a donation today. Face is the Financial Exchange with Mike
(01:06):
Armstrong and Mark Vandetty.
Speaker 2 (01:11):
Good morning, Happy Friday, Welcome back to the Financial Exchange.
Is Mike Armstrong, Mark Fandetti and Tucker Silva with you
on a job's Friday. We have the jobs report to digest,
yesterday's Amazon earnings that came out, and finally we had
a Michigan consumer sentiment survey, which normally we wouldn't put
in that first segment, but there was some interesting stuff
(01:33):
on inflation expectations there. So let's start off with the
jobs report received this morning at eight thirty a m.
Mark highlights for you what was important, what was unimportant.
This was also accompanied by a year's worth of revision,
so it's a lot to muddle through.
Speaker 3 (01:52):
The headline is unemployment remains very low by historical standards.
Labor market remains quite strong. Whether you look at the
unemployment rate, which is just the number of unemployed people
divided by the labor force, it follows from that that
the number of people who found jobs grew by more
than the labor force did, obviously a positive development. In
(02:15):
a separate survey, business is reported adding one hundred forty
three thousand jobs last month. That seems a little tepid
relative to the pace of say early last year, or
what do you.
Speaker 4 (02:27):
Think our twelve month average was for twenty twenty four, It.
Speaker 3 (02:30):
Was one sixty eight thousand.
Speaker 2 (02:32):
One sixty eight was the month later. Okay, so we're
at one forty three. That's not a huge miss.
Speaker 3 (02:36):
Not alarming, more than enough to provide new jobs for
you entrance into the workforce, which is obviously a key point.
Speaker 2 (02:44):
So earlier last year we saw the unemployment rate ticking
up to that four point three percent range. This was
back in I think June or July of last year.
There was everything written about the sum rule, which indicates
that unemployment it's just a look in turn terms of
recession indicators, which says, hey, if unemployment rises by more
(03:04):
than half a percent on a rolling average basis over
a short period of time, that there could be a
recession or very likely would be a recession in the
near future. That's now gone because the unemployment rate went
up to that four to three level, now back down
to four and according to the revisions, might not have
even ever gotten to that too.
Speaker 3 (03:23):
To the credit of this show, you and Chuck Zada
talked about it a lot at the time, empirical regularities,
as researchers like to call things that have just happened
without any strong theoretical basis. They're made to be broken,
and it was broken.
Speaker 2 (03:35):
It was the main gains in this job's report that
we saw so again headline number one hundred and forty
three thousand jobs created in the month of January, where
we saw those jobs created healthcare continuing to be a
major major contribution to the overall jobs numbers. Forty four thousand.
(03:56):
Healthcare jobs created in the month of January averaged fifty
seven thousand jobs per month in twenty twenty four. Retail
trade added thirty four thousand jobs. There's been really little
net change in twenty twenty four. Social assistance jobs twenty
two k to the upside. Government jobs up thirty two
thousand in January. Healthcare government continue to be one of
(04:21):
the key contributors to job gains over the course of
the last twelve months and really speaks to I think
there's some questions being asked us to what exactly does
that mean, And what it means to me is that
you just couldn't find enough people in these jobs during
COVID and there's still been a long makeup process to
get people back into jobs like teaching, like local government
(04:42):
and healthcare workers in a lot of places.
Speaker 3 (04:45):
Yeah, to me, I try not to look too closely.
This is going to sound odd, but I try not
to look too closely underneath the hood at the composition
of these things. I just focus up, maybe because it's
I'm a generalist. I'm looking just at the unemployment rate
doorically has been associated with, and this will tie into
one of our early lead stories today. I think historically
(05:07):
has been associated with upward pressure on prices. So this
relates directly to unemployment, which will learn more to inflation
excuse me, which will learn more about next week. Because
in the short term these two things, these two variables
are in perfect tension. Low unemployment and low inflation are
historically speaking and for good theoretical reason, not really compatible.
Speaker 4 (05:28):
We will get to the inflation impact shortly.
Speaker 2 (05:30):
But I do want to jump to this piece from
Connor Sen because it speaks to exactly what you're saying.
And my first thought was, oh, good, Mark's going to
tear this piece apart from our good friend Connor over
at Bloomberg.
Speaker 3 (05:40):
Couldn't get through the first v aiography.
Speaker 2 (05:42):
Sorry, point that he makes in this article is that
the job market is actually weaker than it looks, which
is a crazy thing to say when the unemployment rate
is sitting at four percent. Here goes his argument over
the last well, sorry, over the course of twenty twenty four,
there were two point two million million jobs added to
the labor market. I'm sure those numbers have changed with
(06:03):
the revisions out today, but this was his point. Two
point two million jobs created. One point four million were
in the areas of education, healthcare, or government. In the
twenty tens, for example, the contribution from those industries was
closer to seven hundred thousand jobs per seven hundred thousand
positions per year. And so his argument as well, what
(06:26):
if those jobs start stop growing at such a fast pace,
and then goes on to provide no evidence that they
might stop growing at such a pace. I think the
underlying tone of the article as well, Hey, we have
a Trump administration in place here that is talking about
attempting to cut employment in government work pretty substantially. But
I think it does a fairly good job of ignoring
(06:47):
the fact that most of the government jobs that have
been added over the course of the last year and
several years, have not been at the federal level. They've
not been at the IRS, they've not been at the
FBI or Department of Homeland Security. They've primarily been in
local government jobs, working for your town, working for your city,
your state, and you know, educators, things along those lines.
(07:08):
And so I think sometimes we get a little bit
lost in the weeds of these pieces. And I'm not
going to state here, sit here and stay that every
area of the labor market is perfect. But when we
start getting fear pieces like, oh, watch out, the labor
market's not that strong. Even though unemployment it's at four percent,
I have a tough time buying.
Speaker 3 (07:27):
It's it's Friday. So I won't mince words and waste
anybody's time. He doesn't know what he's talking about. I mean,
I'm not a labor market economist either, but I'll start
every comment about the labor market with that statement. So
take anything I'd say with a grain of salt. Though
maybe I know, just by virtue of training, I've come
across a little bit more than the average analyst in
this area. He doesn't know what he's talking about. We don't.
(07:47):
A job is a job, and particularly for purposes of
forecasting inflation and forecasting future job growth. The composition doesn't
really matter now. Personally, I don't like adding more government
sure private sector jobs what sane person would, But that's
no reason to diminish the obvious strength. Frankly, of now,
(08:11):
he may end up being right, by the way, I'm
sorry interrupting myself mid sentence. He may end up being right.
The tide may turn, and the manufacturing and other components
may not step in to pick up the slack.
Speaker 2 (08:22):
But that's the problem with an argument like that is
that it assumes, you know, spells it out. They're like, hey,
if this if this type of hiring slows down, I
think the obvious corollary there is, oh, well, you know,
the Trump administration is talking about intentionally slowing down this
type of hiring, and that is all true.
Speaker 4 (08:39):
But then it assumes that all else is equal. And
there's a few things that.
Speaker 2 (08:42):
We know aren't going to be equal compared to the
last few years. Immigration is probably not going to look
equal to what we saw in twenty twenty three and
twenty twenty four. The state of other areas of the economy.
Manufacturing could change, other places of employment could change, and
so What I hate about these types of arguments is
it seems to run and intentionally contradict what we are
(09:05):
seeing in terms of the facts on the ground about
the state of the labor market. And yes, we two
talk about the sectors, and yes I would prefer to
see a lot more robust manufacturing and technology hiring than
government employee hiring. But the fact of the matter is
all of them still contribute to the state of the
labor market. How many people are still looking for work,
and the reason that some people might not have been
(09:27):
hired in retail might be because they were instead offered
jobs at government.
Speaker 3 (09:30):
I mean nobody ever, we all remember the nineteen eighties
quite fondly. Government employment and military spending specifically exploded during
that decade, made a huge contribution. Nobody thinks that detracts
from the economic miracle relative to the mess of the
late seventies that the nineteen eighties were.
Speaker 2 (09:47):
Right, Let's take a quick break. When we come back,
I want to shift over to inflation. To your point, Mark,
we had a sentiment survey that came out today, we
have this jobs report. What might this all mean for
the federal Reserve? And how are we seeing markets reacting
so far in trading. That's next here on the Financial Exchange, Business.
Speaker 1 (10:04):
And financial news affecting the markets and your wallet. We've
got it all straight from Wall Street right here on
the Financial Exchange Radio Network Wall Street. Watch a full
update on the markets performance todate weekdays at ten thirty
only here on the Financial Exchange Radio Network.
Speaker 5 (10:38):
All right, This segment of the Financial Exchange is brought
to you in part by the US Virgin Islands Department
of Tourism. The US Virgin Islands are Saint Croix, Saint Thomas,
and Saint John And if you act now, you can
take advantage of a special promotion to Saint Croix experience
of eyeb like no other and get a two hundred
and fifty dollars per person airline credit when you book
a minimum five nights day at participate hing Hotels. Go
(11:01):
to visit USVII dot com and use code Vibe twenty
twenty five to reserve your trip today. Take your next
vacation to Sant Croi in America's Caribbean paradise the United
States Virgin Islands. Go to visit USVII dot com and
use code Vibe twenty twenty five to book your trip.
That's visit USVII dot com and code Vibe twenty twenty five.
Speaker 2 (11:20):
So before we move on from the jobs report, as
we mentioned, one hundred six no, one hundred and forty
three thousand jobs created in the month of January, unemployment
rate dropping to four percent. We had talked leading up
to this about the revisions. They'd do these once a
year revisions, and basically they take all the survey data
that came in later and revise the numbers. So previously,
(11:42):
before today, what we understood about the labor market in
twenty twenty four was that there was an average of
one hundred eighty six thousand jobs created per month. With
the new data that is now being displayed, we're now
showing only one hundred sixty six thousand jobs created per
month in twenty twenty four, which is not a huge drop.
Twenty thousand jobs a month is pretty pretty reasonable in
(12:06):
terms of where the data came in. The expectations were
for a potentially much larger swing.
Speaker 4 (12:12):
And all of that.
Speaker 2 (12:12):
It did revise down the unemployment rate numbers as well,
so overall, not a massive revision, and I don't think
really much to speak of there but you know, definitely
interesting to know that the expectation now or the understanding
of the labor market last year was for slightly fewer
jobs created per month on average in twenty twenty four.
Speaker 3 (12:31):
Yeah, it doesn't change the story.
Speaker 4 (12:33):
It doesn't change the story.
Speaker 2 (12:34):
It's still a good labor market creating jobs at pace
or faster than the number of people entering the labor market.
Speaker 4 (12:40):
So still a relatively good story here.
Speaker 2 (12:43):
Want to shift over to inflation expectations because a few
things are happening today. One, in the bond market, we've
got the ten year treasury up about seven basis points
to four point five zero five percent. And you also
did have the early release of the University of Michigan
consumer sentiment data today. I'm not even sure what time,
(13:05):
but today it was ten yes am, Yes, Eastern time.
Speaker 4 (13:09):
Yes, got it, and andred this data gives us a
few points.
Speaker 2 (13:17):
One, it does just give you an index that you
can go back to the nineteen sixties and look at
in terms of how people are generally feeling about the economy.
But I think importantly for this discussion, gives you some
numbers in terms of inflation expectations and what we saw
here was, in fact consumer sentiment coming down in early
(13:38):
February to what is a seven month low now, and
most of that had nothing to do with job prospects
or you know, anything along those lines. Most of that
drop in sentiment had to do with expectations around tariffs
and inflation. What do you read into this is this?
I always say to take these what I call soft
(14:01):
data points with a grain of salt because they are talking.
Speaker 4 (14:05):
It's not a measurement. It is a survey.
Speaker 2 (14:07):
You're asking somebody how they feel about something, rather than
a binary yes or no type question. So the jobs numbers,
for instance, are you working yes?
Speaker 3 (14:16):
No?
Speaker 2 (14:17):
This is much more how do you think things are
going to develop? And people are oftentimes wrong. But what
does this data mean to you? Mark if there's anything
significant from it.
Speaker 3 (14:28):
It's a big jump. It does get your attention. It's
consistent with what we've seen in financial market.
Speaker 4 (14:33):
It's a big jump to start a one.
Speaker 3 (14:35):
Percentage point increase in year ahead inflation expectations reported by
this survey.
Speaker 2 (14:41):
So last month, when asked, consumers expected prices to rise
at an annual rate of three point three percent over
the course of the next year. Now consumers are expecting
them to rise an annual rate of four point three percent.
Speaker 3 (14:55):
So we pay attention to expectations because of the experience
of the nineteen seventies and because of the insight of
I know, you've heard the name, and I've got to
bring it up every time I think I'm on the show,
because the insight of Milton Friedman and one other guy
had phelps, but Friedman gets the credit. He recognized that
you can't keep fooling people by printing an increasing amount
of money and driving up inflation. Eventually people figure it
(15:16):
out and start to front run it with wage requests,
and then you end up in the vicious cycle that
we had during the nineteen seventies. You could sum that
up by saying Freedman had the insight that you can't
fool people indefinitely. They eventually figure out that the money
supplies growing too fast. They request greater or they demand
greater wages to keep up with it, and this is
(15:37):
how you get the type of persistent breakout inflation. There
were other culprits in the seventies, but the underlying inflation
component was attributable too much money supply, too much demand. Okay,
with that background, inflation expectations have ever since been watched
very closely, sure, because they are part we recognize now
of the inflation process.
Speaker 4 (15:55):
A self fulfilling prophecy.
Speaker 3 (15:57):
That's a that's a great way to put it.
Speaker 2 (15:58):
If you think prices are going to go up in
the future, Yeah, then why would you hold off on
a pressures. If I'm thinking about replacing my car twelve
months from now, and I think it's going to cost
two thousand dollars more than it does today, then I'll
just do it now.
Speaker 3 (16:10):
Yeah, that's a part of it too. There are other
measures of inflation expectations. You've said that surveys are soft,
and you're right in that they are. They meant, they're
meant to elicit somebody's opinion. We also have financial market measures.
There are lots of them. Probably the best known is
the break even, uh, the ten year inflation break even,
which can be derived from the yield on the ten
(16:31):
year treasury, which, as you pointed out earlier, is about
four point five percent and the yield on the ten
year inflation index treasury. We haven'ten able to do that
for very long well, it's like thirty years now, but
since the late nineties. The Treasury is issued inflation protected securities.
If you take the difference, and their yield is therefore real.
What you see quoted is what you get, regardless of
(16:52):
what inflation is. One of the great things about inflation
index treasuries is that they allow us to ascertain what
the market thinks inflation will be over the next ten years.
That number is about two point four percent. It's been
ticking up though, is the larger point over the past
few months, and it's probably all related to Mike. I
think you've already pointed this out tariffs, right. It's been
(17:14):
well publicized that tariffs are tax in are taxes on goods,
and that they push up prices, at least in the
short term.
Speaker 2 (17:21):
So again, this this Michigan consumer Sentiment survey contains a
lot of different data points. The one to me that
matters that is significant is that when you asked people
back in January what they thought inflation would be over
the course of twelve months, on average, they said three
point three percent. In February they said four point three percent.
That is a significant Energy.
Speaker 3 (17:39):
Prices have been coming down, so normally the culprit's gas, right,
but that's not a suspect in this case because gas
and energy have been.
Speaker 4 (17:47):
This to me is a tariff story.
Speaker 2 (17:49):
And I guess my question is when we go get
this data a month from now, if we assume that
there are not tariffs on Canada and Mexico, which big assumption.
Speaker 4 (17:57):
Don't know that that's gonna be the case, erect nos.
Speaker 2 (18:00):
Well, these inflation expectations drop again now that we because
as of Monday, we were all sure that there were
be tariffs on Canada and Mexico, apparently, and now we
don't think so. I'm guessing this survey was conducted, you know,
alongside those expectations, and so maybe those inflation expectations have
fallen a little bit. We'll have to wait and see
the other piece that are by them.
Speaker 3 (18:20):
Can I just ask I didn't think people were paying
that close attention to this stuff, but apparently.
Speaker 4 (18:25):
I absolutely think.
Speaker 1 (18:26):
So.
Speaker 3 (18:26):
Okay, you talk to a lot of clients and a
lot of problems.
Speaker 2 (18:29):
I think when you talk about tariffs on Mexico and Canada,
there is a very different mentality to it than when
you talk about tariffs on China.
Speaker 4 (18:37):
How many people do you.
Speaker 2 (18:38):
Know that is the family or friends that live in
closeness family. I think it has a lot to do
with how many people know somebody who works for an automaker,
for example, that you know it does a lot of
trade with UH, with UH, with Canada. You go to
the grocery store and you just know that a lot
of your products are imported from Mexico. So there's just
(19:00):
a closeness between those two things that don't quite apply
to China, even though we do import a ton of
stuff from there. The last piece of this is that
sentiment among Republicans had been increasing since August. This was
the first time it declined since then, and so this
is not necessarily just Democrats crying about everything, which they are.
It's their sentiment deterior to the Lewess and twenty twenty,
(19:22):
but Republicans two taking a step back into of their expectations.
We're gonna take quick break when we come back. Full
market update from Tucker with Wall Street.
Speaker 1 (19:30):
Watch Like us on Facebook and follow us on Twitter
at TFE show. Breaking business news is always first right
here on the Financial Exchange Radio Network. Time now for
(19:52):
Wall Street. Watch a complete look and what's moving market
so far today right here on the Financial Exchange Radio
Network gets.
Speaker 5 (20:00):
Are trading modestly lower at this point as investors react
to the January jobs report posted earlier this morning, where
one hundred and forty three thousand jobs were added last month,
lighter than expectations of one hundred and seventy five thousand
jobs added. However, markets did turn negative after the Michigan
consumer survey showed higher inflation expectations. Right now, the Dow
(20:25):
is off by ninety nine points, nearly a quarter of
a percent. S and P five hundred is off by
about a third of a percent, or eighteen points, and
the Nasdaq is down by two thirds of a percent
or one hundred and twenty eight points. Russell two thousands
off just over half a percent. Ten You're Treasure reeled
up by six basis points now a four point five
zero percent, and crude oil is up just over three
(20:48):
quarters of a percent, trading just above seventy one dollars
a barrel. Amazon off by over three percent after the
tech giant beat fourth quarter earnings and revenue forecasts. However,
the company projected lower than expected sales and operating income
instead of plans to allocate a record amount to capital
expenditure this year. For AI, Meanwhile, Tesla Tesla sales geez
(21:13):
in China fell eleven point five percent last month amid
greater competition from Chinese rivals. Tesla shares are down by
about a third of a percent. Elsewhere, Payment company a
firm Holdings handlely beat earnings in revenue expectations, reporting eight
hundred and sixty six million dollars in revenue for its quarter,
well above forecasts of eight hundred and seven million. Firm's
(21:37):
gross merchandise volume, or the total value of transactions on
its platform, topped ten billion dollars for the first time.
That stock up by twenty one percent. Pinterest up by
eighteen percent after the social media platform posted strong quarterly
results where its revenue jumped eighteen percent year over year.
It's monthly active users also climbed eleven percent from a
(22:00):
year ago. Elf Beauty stock is down by over nineteen
percent after the cosmetics company cut its guidance for the
fiscal year. Bill shares down by thirty two percent after
the billing software companies quarterly revenue guidance disappointed investors, and
shares in video game maker Take two Interactive jumping by
fourteen percent after the company's quarterly loss was narrower than expected.
(22:25):
Its CEO also said this year is shaping up to
be one of its strongest, with grand theft Auto do
out this fall. I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:35):
So Tucker mentioned markets selling off today, and I think
stays in the category for me at least of good
news being bad news. The labor market report was fairly
solid this morning. Unemployment rate remains low, but this inflation
expectation survey out of the University of Michigan speaks to
what that actually means for people when they think about
(22:57):
where prices are going, and so what we're seeing in
bond markets I think responds to this. You've got the
yield on the ten year, like I said, up to
four over four point five percent. US equities largely off,
and those expectations for a rate cut at the next
Federal Reserve meeting coming down as well. Yesterday there is
only a sixteen percent chance of a rate cut at
(23:19):
the next meeting on March nineteenth.
Speaker 4 (23:20):
For the Federal Reserve.
Speaker 2 (23:22):
That's now down to eight and a half percent, basically
cut in half. No chance of a rate cut unless
the economy turns south between now and.
Speaker 3 (23:28):
Then anyone's still asking that is asking the wrong question.
The right question is probably are they gonna have to hunt?
And I know Chuck has asked this. He's been a
little bit mischievous, but I think he's I think the
question is fair. It should always be asked. Sometimes the
answer is no, stupid. Sometimes the answer is Ooh, I
don't know.
Speaker 4 (23:44):
Start with the question the Fed?
Speaker 3 (23:46):
Yeah, oh did I did? I not actually ask the question?
Has the FED loosened too much in the past several months?
Speaker 2 (23:54):
Remember the cut rates by a full percentage point in
the second half of last year.
Speaker 3 (23:58):
So their job is to keep the car going. If
the economy is a car, you want to keep it
going at a constant speed. You're watching your tachometer. You
don't want to go into the red zone. The red
zone means you've printed too much. You've supplied the economy
with too much money. You've hit the throttle a bit
too much. That pushes the economy beyond its productive capacity.
The result is inflation. Now I'm leaving out a so
(24:21):
called supply shocks because they're unpredictable. I'm thinking just about
the core component of inflation. That's the Fed's job is
to keep the core component of inflation at about two percent.
I'm not talking about ex food and energy core that
we often report. I'm talking about underlying inflation, the part
that the Fed can control. They're always trying to keep
that tachometer, the needle on their tachometer, out of the
(24:42):
red zone. It's their perennial task, and that job I
think got a lot harder. I mean a lot this
morning with this hot employment report, not overly hot, but
nothing that suggests weakness.
Speaker 4 (24:55):
I mean, for with un unemployment.
Speaker 3 (24:56):
Rightly, we've only seen that a few times in the
past sixty years. It's hard to impress how unusually strong
a labor market is. An alarming and I don't think
that's overstating it. Jump in inflation expectations, which you're a
key part of the inflation process, I think the FEDS
probably on the edge of its seat, if not outright
(25:18):
standing up this morning.
Speaker 2 (25:19):
So Chuck and I last week we're talking about just
what would need to happen for rates to come down
anytime soon at the Federal Reserve, because they very much
seem locked into where we are today. And his conclusion
was unemployment at four and a half. I was saying
maybe they start talking about it at four three, but
that seems off the table today. Where do things need
to get to in your mind? For remember not you
(25:40):
remember for this federal Reserve? Where do you think things need.
Speaker 3 (25:43):
To get Referring to the same models, not as sophisticated,
but I have the same mental picture as anybody trained
in economics does. You're always thinking about the so called
Phillips curve, this relationship. But you've all heard it. If
you took a macro economics course, you were introduced to
the Phillips curve. It's the relations or not queen inflation. Yeah,
damn it so like it's the relationship between these two things.
(26:05):
They all think in these terms. Certainly the economists preparing
data for them think in these terms. And it would
unemployment above four point five percent trigger further easing? I
don't know. It depends on what inflation of doing. What
if the so called natural rate of unemployment, and there
is such a thing, even if we can't measure it,
what if it's going up now for different reasons? It
(26:28):
does fluctuate. This is another challenge the FED has to
deal with. You can't view the unemployment rate out of
the present outside of the present context. Say compare it
to the eighties or nineties or twenty tens and say, well,
it was fine at for then, it should be fine
it for now. Now the structure of the economy is
constantly changing. Another challenge that the FED faces might go.
Speaker 2 (26:48):
So when it comes to all of this, I think
again grounding it in terms of what it means for you,
and inflation is very obvious. What it means for you
is that prices could go higher if consumers are correct
in the way they responded to surveys recently. What it
means for equity markets I want to hone in there
for a moment too, And ultimately that's unknowable. But I
(27:10):
think there's a few things that are true. One, the
overall sentiment over the course of the last year was that, hey,
the worst of inflation is behind us, and interest rates
can slowly start coming down now because the worst of
inflation is behind us. If that turns out to not
be true, that we have prices, which again as of
(27:31):
the last reading on CPI, they are not surging. They're
up to two point nine percent year over year. That
is not something to be worried about. But if we
get a reversal of that, which again today very obviously
is what markets are concerned about. They're not worried about recession,
they're not worried about Amazon's earnings, they're not worried about
different But if you reverse that narrative and suddenly this
(27:54):
becomes a market where you're saying, oh, yeah, inflation's back
up and maybe the FED needs to pivot to rate hikes,
that is a very different market. That is a completely
about face compared to what we were dealing with a
year ago. And that's what I think about when I
consider what does this data mean for the average person, Well,
it starts to shift the narrative of where we were
(28:15):
six twelve months ago.
Speaker 3 (28:17):
Today's data should jolt the FED. It's not jolting equity markets.
It's jolting bond markets, as evidenced in rising interest rates
on longer term government bonds. To me, it does change
the balance of risks if you will clearly labor markets
not slowing down. That's historically asso Now. I just said
(28:40):
earlier that the natural rate changes. Just because inflation started
to accelerate at four percent in one decade doesn't mean
it will right now. But with core or underlying I
should say inflation. I'll use those two terms synonymously sometimes
somewhere in the high twos, maybe threes, well above the
Fed's gole way below where it was in the extreme
(29:05):
aftermath of COVID, and will probably appsent a so called
supply shock, a big jump in energy prices or something.
Not get back to eight nine percent, but could be
uncomfortably I for the foreseeable future if the FED doesn't
change its posture or at least its rhetoric to bring
in these inflation expectations. Four plus percent inflation expectations are
(29:25):
absolutely unacceptable. The Fed's got to start jawboning those down.
Speaker 2 (29:29):
Let's take a quick break when we come back. There
have been a lot of volatility in terms of interest
rates with the Fed's rate cuts the increase in the
ten year Wail Street Journal has a piece out today.
Three places to get the best returns on your cash.
Will be cover that next here on the Financial Exchange.
Speaker 1 (29:46):
Miss any of the show. Catch up at your convenience
by visiting Financial Exchange Show dot com and clicking the
on demand icon, where you'll find all of our interviews
in full shows. This is your home for the latest
business and financial news in New England and around the country.
This is the Financial Exchange Radio Network. Text us at
six one seven three, six two one eight five with
(30:08):
your comments and questions about today's show and let us
know what you think about the stories we are covering.
This is the Financial Exchange Radio Network.
Speaker 4 (30:28):
Mark a year ago.
Speaker 2 (30:30):
Tools like money markets and things like that, we're paying
up over five percent. This was prior to the Fed
embarking on their rate cutting cycle most recently where they
did bring down rates by a full percentage point, and
there's been more than enough written about the impact on
that to mortgage rates and things like that. So I
won't focus on why this happened. But you saw short
(30:51):
term rates like what you get on a CD or
a money market come down by a full percentage point.
Mortgage rates, on the other hand, go up by a
full percentage point, and so most people didn't really get
a great effect from lowering rates at the Federal Reserve.
Speaker 1 (31:06):
You know.
Speaker 2 (31:06):
Mainly this you know, benefited some consumers who or rather
benefited some investors who saw rates coming down and lowered
yields on low you know, short end deposits, but by
and large not a huge effect for most people and
starts to I'm getting more and more questions. I guess about, Hey,
you know, the rates on my savings account came down,
(31:29):
came down further than the full percentage point in a
lot of cases, or maybe they were only at four
and a half to begin with, and now it's down
to three and a half percent and a lot more
people saying, now it was really easy getting five percent
of my cash. Now I need to think about something else,
so weallster droone brings up a few different things here
to talk about, and the first they bring up is
(31:49):
just a high yield savings account, you know, like I
talked about, that's what people are already seeing, is those
rates coming down into the mid fores, low fours, even
threes in a lot of cases, depending on which bank
you're talking about. There's obviously, you know, certificates of deposits
to look at, and you know, then there's money market
mutual funds as another option that's out there. I think
(32:10):
one of the key things that I would focus on
would be, look, we just got done talking about where
rates could go, and hypothetically are rates going to go
even higher? I would still say that most market participants
at least think that while they might not come down quickly,
rates are probably more likely to come down over the
course of the next year than up over the next.
Speaker 3 (32:32):
Short term though rates the rates rate exerts heavy case.
Speaker 2 (32:36):
Exactly, and therefore the rates that people receive and cash savings,
I'm not sure that that's going to be.
Speaker 3 (32:41):
Yeah, particularly a lot of today's data. I think it
pokes some holes in that that thesis, so to speak.
Speaker 2 (32:46):
I think it does as well. But there's another somewhat
you know, little known fact about these things that I
think is worth considering too. And the Wall Street Journal
artically actually doesn't talk really about treasury bonds, which for
people unfamiliar. You can go and buy a treasury of
a one year maturity, of a six month maturity, really
any maturity that you want, and the rates that you
(33:07):
see on those tend to follow similar types of tools
like CDs. One of the big differences, though, when you
go loan your money to the bank in the form
of a certificate deposit, you pay both federal and state
income taxes on that interest. When you loan the money
to the United States government or one of its agencies,
you do still face federal taxes. On that interest, but
(33:30):
you avoid the state income taxes. Doesn't matter if you
live in New Hampshire, but assuming you live in one
of the other New England states or all but I
think fifteen states across the country that don't have an
income tax, it can actually make a meaningful difference in
your after tax return. The main message that I've been
delivering to my clients at least has been, look, we
don't know where rates will go over the course of
(33:52):
the next few years. Six months ago, I would have
told you very much likely down, but we just don't know.
What Looking at things like CDs, like treasuries and other
tools like that allows you to do is at least
create some certainty with what's.
Speaker 4 (34:05):
Going to happen with your money in the short term.
Speaker 2 (34:07):
If you're sitting on cash, and I know that a
number of people this isn't even a possibility for you know,
the amount of credit card debt and things like that
that's out there is enormous. But if you're sitting there saying, hey,
I've accumulated this bucket of cash. Maybe it was an inheritance,
maybe it was just additional savings of the course the
last few years, and I've seen my rate of return
(34:29):
come down on that, and now I'm in this position
where I just don't know what to do.
Speaker 4 (34:33):
We'd love to talk to you about.
Speaker 2 (34:34):
What those alternatives look like, and it's usually a combination
of a number of different tools. But it is one
of the trickier questions to deal with because you know,
you were sitting on this thing that for years was
paying nothing, suddenly started paying a lot more and that
rate is in the midst of a pretty significant change.
If you want to learn more about the tax implications
(34:56):
of what you have your cash sitting in and alternatives
that might be out there for you, give the folks
at Armstrong Advisory Group a call. Let us educate you
on how the tax scenarios that we all face, depending
on what state we live in, affect how much return
we're able to generate once those taxes are paid. The
number for the Armstrong Advisory Group is eight hundred three
(35:16):
nine three for zero zero one. Again, that's eight hundred
three nine three for zero zero one.
Speaker 1 (35:23):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (35:39):
Just yesterday, we were speaking about the looming deadline on
the federal buyout offer for workers that was sent to
all I think two million workers out there, and a
federal judge in Massachusetts has paused that deadline from yesterday
to I think what was it like a week from now,
something along those lines for this to go into place.
(36:01):
As of yesterday, some forty thousand government workers had agreed
to resign ahead of that deadline. The White House said
it was expecting between five and ten percent of the
federal employees to take the deal, which would have been
closer to one hundred to two hundred thousand employees.
Speaker 3 (36:18):
And many of those who did take it may have
been planning on retiring. You had a couple of examples
of this yesterday from the real world experience, Mike, we
have been planning to retire anyway.
Speaker 2 (36:25):
Yeah, we don't know with any degree of certainty, but
I certainly would be willing to bet that in that
forty thousand is a high concentration of people that were
looking at retirement.
Speaker 4 (36:34):
In twenty twenty five.
Speaker 3 (36:35):
Anyway, well, Bloomberg reported that sixty some odd roughly sixty
five thousand retire in any given years. So, as you
point out, I think yesterday, if you're planning on retiring
anytime through the end of this period during which you
can continue to collect your salary under the Musk scheme,
you would have to you'd be an idiot, forgive me,
but an idiot not to retire today.
Speaker 2 (36:55):
Yeah, So we will see where this plays out. I
think in all likelihood, I don't know. I've read a
fair bit about this and heard a lot of commentary.
There's not a whole lot of question as to whether
or not the White House has the ability to do this.
So I suspect that it will still go through in
some way, shape or form, but being delayed at least temporarily,
which you know, good case if you're one of those
(37:16):
federal employees, a few extra days to consider your options
when it comes to this potential buyout.
Speaker 4 (37:22):
But I once.
Speaker 2 (37:24):
Again, we'll just call into question time after time we
see these promises coming from the Department of Government Efficiency
around how big the sweeping changes are going to be.
They come out with these giant numbers and then once
again they get walked back pretty substantially in terms of
what we actually see, So.
Speaker 3 (37:42):
They really blew credibility in record time. I mean, it
speaks to setting achievable goals in the short term in
any walk of life, but you don't go to your
manager and say I'm in a double sales nextreme.
Speaker 2 (37:52):
So we will see where this all plays out, but
for the time being, at least the promise on the
the biout of federal workers has been put on put
on ice by a federal judge in Massachusetts. Quick break,
But a lot more to cover in the second hour,
including more tariff talk where we're talking about and specifically
(38:13):
in the insurance industry. That's next here on the Financial Exchange.
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
at business and financial news affecting your day, your city,
(00:44):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting dav five K dot Boston and making
a donation today. Face is the Financial Exchange with Mike
(01:06):
Armstrong and Mark Vandetty.
Speaker 2 (01:11):
Good morning, Happy Friday, Welcome back to the Financial Exchange.
Is Mike Armstrong, Mark Fandetti and Tucker Silva with you
on a job's Friday. We have the jobs report to digest,
yesterday's Amazon earnings that came out, and finally we had
a Michigan consumer sentiment survey, which normally we wouldn't put
in that first segment, but there was some interesting stuff
(01:33):
on inflation expectations there. So let's start off with the
jobs report received this morning at eight thirty a m.
Mark highlights for you what was important, what was unimportant.
This was also accompanied by a year's worth of revision,
so it's a lot to muddle through.
Speaker 3 (01:52):
The headline is unemployment remains very low by historical standards.
Labor market remains quite strong. Whether you look at the
unemployment rate, which is just the number of unemployed people
divided by the labor force, it follows from that that
the number of people who found jobs grew by more
than the labor force did, obviously a positive development. In
(02:15):
a separate survey, business is reported adding one hundred forty
three thousand jobs last month. That seems a little tepid
relative to the pace of say early last year, or
what do you.
Speaker 4 (02:27):
Think our twelve month average was for twenty twenty four, It.
Speaker 3 (02:30):
Was one sixty eight thousand.
Speaker 2 (02:32):
One sixty eight was the month later. Okay, so we're
at one forty three. That's not a huge miss.
Speaker 3 (02:36):
Not alarming, more than enough to provide new jobs for
you entrance into the workforce, which is obviously a key point.
Speaker 2 (02:44):
So earlier last year we saw the unemployment rate ticking
up to that four point three percent range. This was
back in I think June or July of last year.
There was everything written about the sum rule, which indicates
that unemployment it's just a look in turn terms of
recession indicators, which says, hey, if unemployment rises by more
(03:04):
than half a percent on a rolling average basis over
a short period of time, that there could be a
recession or very likely would be a recession in the
near future. That's now gone because the unemployment rate went
up to that four to three level, now back down
to four and according to the revisions, might not have
even ever gotten to that too.
Speaker 3 (03:23):
To the credit of this show, you and Chuck Zada
talked about it a lot at the time, empirical regularities,
as researchers like to call things that have just happened
without any strong theoretical basis. They're made to be broken,
and it was broken.
Speaker 2 (03:35):
It was the main gains in this job's report that
we saw so again headline number one hundred and forty
three thousand jobs created in the month of January, where
we saw those jobs created healthcare continuing to be a
major major contribution to the overall jobs numbers. Forty four thousand.
(03:56):
Healthcare jobs created in the month of January averaged fifty
seven thousand jobs per month in twenty twenty four. Retail
trade added thirty four thousand jobs. There's been really little
net change in twenty twenty four. Social assistance jobs twenty
two k to the upside. Government jobs up thirty two
thousand in January. Healthcare government continue to be one of
(04:21):
the key contributors to job gains over the course of
the last twelve months and really speaks to I think
there's some questions being asked us to what exactly does
that mean, And what it means to me is that
you just couldn't find enough people in these jobs during
COVID and there's still been a long makeup process to
get people back into jobs like teaching, like local government
(04:42):
and healthcare workers in a lot of places.
Speaker 3 (04:45):
Yeah, to me, I try not to look too closely.
This is going to sound odd, but I try not
to look too closely underneath the hood at the composition
of these things. I just focus up, maybe because it's
I'm a generalist. I'm looking just at the unemployment rate
doorically has been associated with, and this will tie into
one of our early lead stories today. I think historically
(05:07):
has been associated with upward pressure on prices. So this
relates directly to unemployment, which will learn more to inflation
excuse me, which will learn more about next week. Because
in the short term these two things, these two variables
are in perfect tension. Low unemployment and low inflation are
historically speaking and for good theoretical reason, not really compatible.
Speaker 4 (05:28):
We will get to the inflation impact shortly.
Speaker 2 (05:30):
But I do want to jump to this piece from
Connor Sen because it speaks to exactly what you're saying.
And my first thought was, oh, good, Mark's going to
tear this piece apart from our good friend Connor over
at Bloomberg.
Speaker 3 (05:40):
Couldn't get through the first v aiography.
Speaker 2 (05:42):
Sorry, point that he makes in this article is that
the job market is actually weaker than it looks, which
is a crazy thing to say when the unemployment rate
is sitting at four percent. Here goes his argument over
the last well, sorry, over the course of twenty twenty four,
there were two point two million million jobs added to
the labor market. I'm sure those numbers have changed with
(06:03):
the revisions out today, but this was his point. Two
point two million jobs created. One point four million were
in the areas of education, healthcare, or government. In the
twenty tens, for example, the contribution from those industries was
closer to seven hundred thousand jobs per seven hundred thousand
positions per year. And so his argument as well, what
(06:26):
if those jobs start stop growing at such a fast pace,
and then goes on to provide no evidence that they
might stop growing at such a pace. I think the
underlying tone of the article as well, Hey, we have
a Trump administration in place here that is talking about
attempting to cut employment in government work pretty substantially. But
I think it does a fairly good job of ignoring
(06:47):
the fact that most of the government jobs that have
been added over the course of the last year and
several years, have not been at the federal level. They've
not been at the IRS, they've not been at the
FBI or Department of Homeland Security. They've primarily been in
local government jobs, working for your town, working for your city,
your state, and you know, educators, things along those lines.
(07:08):
And so I think sometimes we get a little bit
lost in the weeds of these pieces. And I'm not
going to state here, sit here and stay that every
area of the labor market is perfect. But when we
start getting fear pieces like, oh, watch out, the labor
market's not that strong. Even though unemployment it's at four percent,
I have a tough time buying.
Speaker 3 (07:27):
It's it's Friday. So I won't mince words and waste
anybody's time. He doesn't know what he's talking about. I mean,
I'm not a labor market economist either, but I'll start
every comment about the labor market with that statement. So
take anything I'd say with a grain of salt. Though
maybe I know, just by virtue of training, I've come
across a little bit more than the average analyst in
this area. He doesn't know what he's talking about. We don't.
(07:47):
A job is a job, and particularly for purposes of
forecasting inflation and forecasting future job growth. The composition doesn't
really matter now. Personally, I don't like adding more government
sure private sector jobs what sane person would, But that's
no reason to diminish the obvious strength. Frankly, of now,
(08:11):
he may end up being right, by the way, I'm
sorry interrupting myself mid sentence. He may end up being right.
The tide may turn, and the manufacturing and other components
may not step in to pick up the slack.
Speaker 2 (08:22):
But that's the problem with an argument like that is
that it assumes, you know, spells it out. They're like, hey,
if this if this type of hiring slows down, I
think the obvious corollary there is, oh, well, you know,
the Trump administration is talking about intentionally slowing down this
type of hiring, and that is all true.
Speaker 4 (08:39):
But then it assumes that all else is equal. And
there's a few things that.
Speaker 2 (08:42):
We know aren't going to be equal compared to the
last few years. Immigration is probably not going to look
equal to what we saw in twenty twenty three and
twenty twenty four. The state of other areas of the economy.
Manufacturing could change, other places of employment could change, and
so What I hate about these types of arguments is
it seems to run and intentionally contradict what we are
(09:05):
seeing in terms of the facts on the ground about
the state of the labor market. And yes, we two
talk about the sectors, and yes I would prefer to
see a lot more robust manufacturing and technology hiring than
government employee hiring. But the fact of the matter is
all of them still contribute to the state of the
labor market. How many people are still looking for work,
and the reason that some people might not have been
(09:27):
hired in retail might be because they were instead offered
jobs at government.
Speaker 3 (09:30):
I mean nobody ever, we all remember the nineteen eighties
quite fondly. Government employment and military spending specifically exploded during
that decade, made a huge contribution. Nobody thinks that detracts
from the economic miracle relative to the mess of the
late seventies that the nineteen eighties were.
Speaker 2 (09:47):
Right, Let's take a quick break. When we come back,
I want to shift over to inflation. To your point, Mark,
we had a sentiment survey that came out today, we
have this jobs report. What might this all mean for
the federal Reserve? And how are we seeing markets reacting
so far in trading. That's next here on the Financial Exchange, Business.
Speaker 1 (10:04):
And financial news affecting the markets and your wallet. We've
got it all straight from Wall Street right here on
the Financial Exchange Radio Network Wall Street. Watch a full
update on the markets performance todate weekdays at ten thirty
only here on the Financial Exchange Radio Network.
Speaker 5 (10:38):
All right, This segment of the Financial Exchange is brought
to you in part by the US Virgin Islands Department
of Tourism. The US Virgin Islands are Saint Croix, Saint Thomas,
and Saint John And if you act now, you can
take advantage of a special promotion to Saint Croix experience
of eyeb like no other and get a two hundred
and fifty dollars per person airline credit when you book
a minimum five nights day at participate hing Hotels. Go
(11:01):
to visit USVII dot com and use code Vibe twenty
twenty five to reserve your trip today. Take your next
vacation to Sant Croi in America's Caribbean paradise the United
States Virgin Islands. Go to visit USVII dot com and
use code Vibe twenty twenty five to book your trip.
That's visit USVII dot com and code Vibe twenty twenty five.
Speaker 2 (11:20):
So before we move on from the jobs report, as
we mentioned, one hundred six no, one hundred and forty
three thousand jobs created in the month of January, unemployment
rate dropping to four percent. We had talked leading up
to this about the revisions. They'd do these once a
year revisions, and basically they take all the survey data
that came in later and revise the numbers. So previously,
(11:42):
before today, what we understood about the labor market in
twenty twenty four was that there was an average of
one hundred eighty six thousand jobs created per month. With
the new data that is now being displayed, we're now
showing only one hundred sixty six thousand jobs created per
month in twenty twenty four, which is not a huge drop.
Twenty thousand jobs a month is pretty pretty reasonable in
(12:06):
terms of where the data came in. The expectations were
for a potentially much larger swing.
Speaker 4 (12:12):
And all of that.
Speaker 2 (12:12):
It did revise down the unemployment rate numbers as well,
so overall, not a massive revision, and I don't think
really much to speak of there but you know, definitely
interesting to know that the expectation now or the understanding
of the labor market last year was for slightly fewer
jobs created per month on average in twenty twenty four.
Speaker 3 (12:31):
Yeah, it doesn't change the story.
Speaker 4 (12:33):
It doesn't change the story.
Speaker 2 (12:34):
It's still a good labor market creating jobs at pace
or faster than the number of people entering the labor market.
Speaker 4 (12:40):
So still a relatively good story here.
Speaker 2 (12:43):
Want to shift over to inflation expectations because a few
things are happening today. One, in the bond market, we've
got the ten year treasury up about seven basis points
to four point five zero five percent. And you also
did have the early release of the University of Michigan
consumer sentiment data today. I'm not even sure what time,
(13:05):
but today it was ten yes am, Yes, Eastern time.
Speaker 4 (13:09):
Yes, got it, and andred this data gives us a
few points.
Speaker 2 (13:17):
One, it does just give you an index that you
can go back to the nineteen sixties and look at
in terms of how people are generally feeling about the economy.
But I think importantly for this discussion, gives you some
numbers in terms of inflation expectations and what we saw
here was, in fact consumer sentiment coming down in early
(13:38):
February to what is a seven month low now, and
most of that had nothing to do with job prospects
or you know, anything along those lines. Most of that
drop in sentiment had to do with expectations around tariffs
and inflation. What do you read into this is this?
I always say to take these what I call soft
(14:01):
data points with a grain of salt because they are talking.
Speaker 4 (14:05):
It's not a measurement. It is a survey.
Speaker 2 (14:07):
You're asking somebody how they feel about something, rather than
a binary yes or no type question. So the jobs numbers,
for instance, are you working yes?
Speaker 3 (14:16):
No?
Speaker 2 (14:17):
This is much more how do you think things are
going to develop? And people are oftentimes wrong. But what
does this data mean to you? Mark if there's anything
significant from it.
Speaker 3 (14:28):
It's a big jump. It does get your attention. It's
consistent with what we've seen in financial market.
Speaker 4 (14:33):
It's a big jump to start a one.
Speaker 3 (14:35):
Percentage point increase in year ahead inflation expectations reported by
this survey.
Speaker 2 (14:41):
So last month, when asked, consumers expected prices to rise
at an annual rate of three point three percent over
the course of the next year. Now consumers are expecting
them to rise an annual rate of four point three percent.
Speaker 3 (14:55):
So we pay attention to expectations because of the experience
of the nineteen seventies and because of the insight of
I know, you've heard the name, and I've got to
bring it up every time I think I'm on the show,
because the insight of Milton Friedman and one other guy
had phelps, but Friedman gets the credit. He recognized that
you can't keep fooling people by printing an increasing amount
of money and driving up inflation. Eventually people figure it
(15:16):
out and start to front run it with wage requests,
and then you end up in the vicious cycle that
we had during the nineteen seventies. You could sum that
up by saying Freedman had the insight that you can't
fool people indefinitely. They eventually figure out that the money
supplies growing too fast. They request greater or they demand
greater wages to keep up with it, and this is
(15:37):
how you get the type of persistent breakout inflation. There
were other culprits in the seventies, but the underlying inflation
component was attributable too much money supply, too much demand. Okay,
with that background, inflation expectations have ever since been watched
very closely, sure, because they are part we recognize now
of the inflation process.
Speaker 4 (15:55):
A self fulfilling prophecy.
Speaker 3 (15:57):
That's a that's a great way to put it.
Speaker 2 (15:58):
If you think prices are going to go up in
the future, Yeah, then why would you hold off on
a pressures. If I'm thinking about replacing my car twelve
months from now, and I think it's going to cost
two thousand dollars more than it does today, then I'll
just do it now.
Speaker 3 (16:10):
Yeah, that's a part of it too. There are other
measures of inflation expectations. You've said that surveys are soft,
and you're right in that they are. They meant, they're
meant to elicit somebody's opinion. We also have financial market measures.
There are lots of them. Probably the best known is
the break even, uh, the ten year inflation break even,
which can be derived from the yield on the ten
(16:31):
year treasury, which, as you pointed out earlier, is about
four point five percent and the yield on the ten
year inflation index treasury. We haven'ten able to do that
for very long well, it's like thirty years now, but
since the late nineties. The Treasury is issued inflation protected securities.
If you take the difference, and their yield is therefore real.
What you see quoted is what you get, regardless of
(16:52):
what inflation is. One of the great things about inflation
index treasuries is that they allow us to ascertain what
the market thinks inflation will be over the next ten years.
That number is about two point four percent. It's been
ticking up though, is the larger point over the past
few months, and it's probably all related to Mike. I
think you've already pointed this out tariffs, right. It's been
(17:14):
well publicized that tariffs are tax in are taxes on goods,
and that they push up prices, at least in the
short term.
Speaker 2 (17:21):
So again, this this Michigan consumer Sentiment survey contains a
lot of different data points. The one to me that
matters that is significant is that when you asked people
back in January what they thought inflation would be over
the course of twelve months, on average, they said three
point three percent. In February they said four point three percent.
That is a significant Energy.
Speaker 3 (17:39):
Prices have been coming down, so normally the culprit's gas, right,
but that's not a suspect in this case because gas
and energy have been.
Speaker 4 (17:47):
This to me is a tariff story.
Speaker 2 (17:49):
And I guess my question is when we go get
this data a month from now, if we assume that
there are not tariffs on Canada and Mexico, which big assumption.
Speaker 4 (17:57):
Don't know that that's gonna be the case, erect nos.
Speaker 2 (18:00):
Well, these inflation expectations drop again now that we because
as of Monday, we were all sure that there were
be tariffs on Canada and Mexico, apparently, and now we
don't think so. I'm guessing this survey was conducted, you know,
alongside those expectations, and so maybe those inflation expectations have
fallen a little bit. We'll have to wait and see
the other piece that are by them.
Speaker 3 (18:20):
Can I just ask I didn't think people were paying
that close attention to this stuff, but apparently.
Speaker 4 (18:25):
I absolutely think.
Speaker 1 (18:26):
So.
Speaker 3 (18:26):
Okay, you talk to a lot of clients and a
lot of problems.
Speaker 2 (18:29):
I think when you talk about tariffs on Mexico and Canada,
there is a very different mentality to it than when
you talk about tariffs on China.
Speaker 4 (18:37):
How many people do you.
Speaker 2 (18:38):
Know that is the family or friends that live in
closeness family. I think it has a lot to do
with how many people know somebody who works for an automaker,
for example, that you know it does a lot of
trade with UH, with UH, with Canada. You go to
the grocery store and you just know that a lot
of your products are imported from Mexico. So there's just
(19:00):
a closeness between those two things that don't quite apply
to China, even though we do import a ton of
stuff from there. The last piece of this is that
sentiment among Republicans had been increasing since August. This was
the first time it declined since then, and so this
is not necessarily just Democrats crying about everything, which they are.
It's their sentiment deterior to the Lewess and twenty twenty,
(19:22):
but Republicans two taking a step back into of their expectations.
We're gonna take quick break when we come back. Full
market update from Tucker with Wall Street.
Speaker 1 (19:30):
Watch Like us on Facebook and follow us on Twitter
at TFE show. Breaking business news is always first right
here on the Financial Exchange Radio Network. Time now for
(19:52):
Wall Street. Watch a complete look and what's moving market
so far today right here on the Financial Exchange Radio
Network gets.
Speaker 5 (20:00):
Are trading modestly lower at this point as investors react
to the January jobs report posted earlier this morning, where
one hundred and forty three thousand jobs were added last month,
lighter than expectations of one hundred and seventy five thousand
jobs added. However, markets did turn negative after the Michigan
consumer survey showed higher inflation expectations. Right now, the Dow
(20:25):
is off by ninety nine points, nearly a quarter of
a percent. S and P five hundred is off by
about a third of a percent, or eighteen points, and
the Nasdaq is down by two thirds of a percent
or one hundred and twenty eight points. Russell two thousands
off just over half a percent. Ten You're Treasure reeled
up by six basis points now a four point five
zero percent, and crude oil is up just over three
(20:48):
quarters of a percent, trading just above seventy one dollars
a barrel. Amazon off by over three percent after the
tech giant beat fourth quarter earnings and revenue forecasts. However,
the company projected lower than expected sales and operating income
instead of plans to allocate a record amount to capital
expenditure this year. For AI, Meanwhile, Tesla Tesla sales geez
(21:13):
in China fell eleven point five percent last month amid
greater competition from Chinese rivals. Tesla shares are down by
about a third of a percent. Elsewhere, Payment company a
firm Holdings handlely beat earnings in revenue expectations, reporting eight
hundred and sixty six million dollars in revenue for its quarter,
well above forecasts of eight hundred and seven million. Firm's
(21:37):
gross merchandise volume, or the total value of transactions on
its platform, topped ten billion dollars for the first time.
That stock up by twenty one percent. Pinterest up by
eighteen percent after the social media platform posted strong quarterly
results where its revenue jumped eighteen percent year over year.
It's monthly active users also climbed eleven percent from a
(22:00):
year ago. Elf Beauty stock is down by over nineteen
percent after the cosmetics company cut its guidance for the
fiscal year. Bill shares down by thirty two percent after
the billing software companies quarterly revenue guidance disappointed investors, and
shares in video game maker Take two Interactive jumping by
fourteen percent after the company's quarterly loss was narrower than expected.
(22:25):
Its CEO also said this year is shaping up to
be one of its strongest, with grand theft Auto do
out this fall. I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:35):
So Tucker mentioned markets selling off today, and I think
stays in the category for me at least of good
news being bad news. The labor market report was fairly
solid this morning. Unemployment rate remains low, but this inflation
expectation survey out of the University of Michigan speaks to
what that actually means for people when they think about
(22:57):
where prices are going, and so what we're seeing in
bond markets I think responds to this. You've got the
yield on the ten year, like I said, up to
four over four point five percent. US equities largely off,
and those expectations for a rate cut at the next
Federal Reserve meeting coming down as well. Yesterday there is
only a sixteen percent chance of a rate cut at
(23:19):
the next meeting on March nineteenth.
Speaker 4 (23:20):
For the Federal Reserve.
Speaker 2 (23:22):
That's now down to eight and a half percent, basically
cut in half. No chance of a rate cut unless
the economy turns south between now and.
Speaker 3 (23:28):
Then anyone's still asking that is asking the wrong question.
The right question is probably are they gonna have to hunt?
And I know Chuck has asked this. He's been a
little bit mischievous, but I think he's I think the
question is fair. It should always be asked. Sometimes the
answer is no, stupid. Sometimes the answer is Ooh, I
don't know.
Speaker 4 (23:44):
Start with the question the Fed?
Speaker 3 (23:46):
Yeah, oh did I did? I not actually ask the question?
Has the FED loosened too much in the past several months?
Speaker 2 (23:54):
Remember the cut rates by a full percentage point in
the second half of last year.
Speaker 3 (23:58):
So their job is to keep the car going. If
the economy is a car, you want to keep it
going at a constant speed. You're watching your tachometer. You
don't want to go into the red zone. The red
zone means you've printed too much. You've supplied the economy
with too much money. You've hit the throttle a bit
too much. That pushes the economy beyond its productive capacity.
The result is inflation. Now I'm leaving out a so
(24:21):
called supply shocks because they're unpredictable. I'm thinking just about
the core component of inflation. That's the Fed's job is
to keep the core component of inflation at about two percent.
I'm not talking about ex food and energy core that
we often report. I'm talking about underlying inflation, the part
that the Fed can control. They're always trying to keep
that tachometer, the needle on their tachometer, out of the
(24:42):
red zone. It's their perennial task, and that job I
think got a lot harder. I mean a lot this
morning with this hot employment report, not overly hot, but
nothing that suggests weakness.
Speaker 4 (24:55):
I mean, for with un unemployment.
Speaker 3 (24:56):
Rightly, we've only seen that a few times in the
past sixty years. It's hard to impress how unusually strong
a labor market is. An alarming and I don't think
that's overstating it. Jump in inflation expectations, which you're a
key part of the inflation process, I think the FEDS
probably on the edge of its seat, if not outright
(25:18):
standing up this morning.
Speaker 2 (25:19):
So Chuck and I last week we're talking about just
what would need to happen for rates to come down
anytime soon at the Federal Reserve, because they very much
seem locked into where we are today. And his conclusion
was unemployment at four and a half. I was saying
maybe they start talking about it at four three, but
that seems off the table today. Where do things need
to get to in your mind? For remember not you
(25:40):
remember for this federal Reserve? Where do you think things need.
Speaker 3 (25:43):
To get Referring to the same models, not as sophisticated,
but I have the same mental picture as anybody trained
in economics does. You're always thinking about the so called
Phillips curve, this relationship. But you've all heard it. If
you took a macro economics course, you were introduced to
the Phillips curve. It's the relations or not queen inflation. Yeah,
damn it so like it's the relationship between these two things.
(26:05):
They all think in these terms. Certainly the economists preparing
data for them think in these terms. And it would
unemployment above four point five percent trigger further easing? I
don't know. It depends on what inflation of doing. What
if the so called natural rate of unemployment, and there
is such a thing, even if we can't measure it,
what if it's going up now for different reasons? It
(26:28):
does fluctuate. This is another challenge the FED has to
deal with. You can't view the unemployment rate out of
the present outside of the present context. Say compare it
to the eighties or nineties or twenty tens and say, well,
it was fine at for then, it should be fine
it for now. Now the structure of the economy is
constantly changing. Another challenge that the FED faces might go.
Speaker 2 (26:48):
So when it comes to all of this, I think
again grounding it in terms of what it means for you,
and inflation is very obvious. What it means for you
is that prices could go higher if consumers are correct
in the way they responded to surveys recently. What it
means for equity markets I want to hone in there
for a moment too, And ultimately that's unknowable. But I
(27:10):
think there's a few things that are true. One, the
overall sentiment over the course of the last year was that, hey,
the worst of inflation is behind us, and interest rates
can slowly start coming down now because the worst of
inflation is behind us. If that turns out to not
be true, that we have prices, which again as of
(27:31):
the last reading on CPI, they are not surging. They're
up to two point nine percent year over year. That
is not something to be worried about. But if we
get a reversal of that, which again today very obviously
is what markets are concerned about. They're not worried about recession,
they're not worried about Amazon's earnings, they're not worried about
different But if you reverse that narrative and suddenly this
(27:54):
becomes a market where you're saying, oh, yeah, inflation's back
up and maybe the FED needs to pivot to rate hikes,
that is a very different market. That is a completely
about face compared to what we were dealing with a
year ago. And that's what I think about when I
consider what does this data mean for the average person, Well,
it starts to shift the narrative of where we were
(28:15):
six twelve months ago.
Speaker 3 (28:17):
Today's data should jolt the FED. It's not jolting equity markets.
It's jolting bond markets, as evidenced in rising interest rates
on longer term government bonds. To me, it does change
the balance of risks if you will clearly labor markets
not slowing down. That's historically asso Now. I just said
(28:40):
earlier that the natural rate changes. Just because inflation started
to accelerate at four percent in one decade doesn't mean
it will right now. But with core or underlying I
should say inflation. I'll use those two terms synonymously sometimes
somewhere in the high twos, maybe threes, well above the
Fed's gole way below where it was in the extreme
(29:05):
aftermath of COVID, and will probably appsent a so called
supply shock, a big jump in energy prices or something.
Not get back to eight nine percent, but could be
uncomfortably I for the foreseeable future if the FED doesn't
change its posture or at least its rhetoric to bring
in these inflation expectations. Four plus percent inflation expectations are
(29:25):
absolutely unacceptable. The Fed's got to start jawboning those down.
Speaker 2 (29:29):
Let's take a quick break when we come back. There
have been a lot of volatility in terms of interest
rates with the Fed's rate cuts the increase in the
ten year Wail Street Journal has a piece out today.
Three places to get the best returns on your cash.
Will be cover that next here on the Financial Exchange.
Speaker 1 (29:46):
Miss any of the show. Catch up at your convenience
by visiting Financial Exchange Show dot com and clicking the
on demand icon, where you'll find all of our interviews
in full shows. This is your home for the latest
business and financial news in New England and around the country.
This is the Financial Exchange Radio Network. Text us at
six one seven three, six two one eight five with
(30:08):
your comments and questions about today's show and let us
know what you think about the stories we are covering.
This is the Financial Exchange Radio Network.
Speaker 4 (30:28):
Mark a year ago.
Speaker 2 (30:30):
Tools like money markets and things like that, we're paying
up over five percent. This was prior to the Fed
embarking on their rate cutting cycle most recently where they
did bring down rates by a full percentage point, and
there's been more than enough written about the impact on
that to mortgage rates and things like that. So I
won't focus on why this happened. But you saw short
(30:51):
term rates like what you get on a CD or
a money market come down by a full percentage point.
Mortgage rates, on the other hand, go up by a
full percentage point, and so most people didn't really get
a great effect from lowering rates at the Federal Reserve.
Speaker 1 (31:06):
You know.
Speaker 2 (31:06):
Mainly this you know, benefited some consumers who or rather
benefited some investors who saw rates coming down and lowered
yields on low you know, short end deposits, but by
and large not a huge effect for most people and
starts to I'm getting more and more questions. I guess about, Hey,
you know, the rates on my savings account came down,
(31:29):
came down further than the full percentage point in a
lot of cases, or maybe they were only at four
and a half to begin with, and now it's down
to three and a half percent and a lot more
people saying, now it was really easy getting five percent
of my cash. Now I need to think about something else,
so weallster droone brings up a few different things here
to talk about, and the first they bring up is
(31:49):
just a high yield savings account, you know, like I
talked about, that's what people are already seeing, is those
rates coming down into the mid fores, low fours, even
threes in a lot of cases, depending on which bank
you're talking about. There's obviously, you know, certificates of deposits
to look at, and you know, then there's money market
mutual funds as another option that's out there. I think
(32:10):
one of the key things that I would focus on
would be, look, we just got done talking about where
rates could go, and hypothetically are rates going to go
even higher? I would still say that most market participants
at least think that while they might not come down quickly,
rates are probably more likely to come down over the
course of the next year than up over the next.
Speaker 3 (32:32):
Short term though rates the rates rate exerts heavy case.
Speaker 2 (32:36):
Exactly, and therefore the rates that people receive and cash savings,
I'm not sure that that's going to be.
Speaker 3 (32:41):
Yeah, particularly a lot of today's data. I think it
pokes some holes in that that thesis, so to speak.
Speaker 2 (32:46):
I think it does as well. But there's another somewhat
you know, little known fact about these things that I
think is worth considering too. And the Wall Street Journal
artically actually doesn't talk really about treasury bonds, which for
people unfamiliar. You can go and buy a treasury of
a one year maturity, of a six month maturity, really
any maturity that you want, and the rates that you
(33:07):
see on those tend to follow similar types of tools
like CDs. One of the big differences, though, when you
go loan your money to the bank in the form
of a certificate deposit, you pay both federal and state
income taxes on that interest. When you loan the money
to the United States government or one of its agencies,
you do still face federal taxes. On that interest, but
(33:30):
you avoid the state income taxes. Doesn't matter if you
live in New Hampshire, but assuming you live in one
of the other New England states or all but I
think fifteen states across the country that don't have an
income tax, it can actually make a meaningful difference in
your after tax return. The main message that I've been
delivering to my clients at least has been, look, we
don't know where rates will go over the course of
(33:52):
the next few years. Six months ago, I would have
told you very much likely down, but we just don't know.
What Looking at things like CDs, like treasuries and other
tools like that allows you to do is at least
create some certainty with what's.
Speaker 4 (34:05):
Going to happen with your money in the short term.
Speaker 2 (34:07):
If you're sitting on cash, and I know that a
number of people this isn't even a possibility for you know,
the amount of credit card debt and things like that
that's out there is enormous. But if you're sitting there saying, hey,
I've accumulated this bucket of cash. Maybe it was an inheritance,
maybe it was just additional savings of the course the
last few years, and I've seen my rate of return
(34:29):
come down on that, and now I'm in this position
where I just don't know what to do.
Speaker 4 (34:33):
We'd love to talk to you about.
Speaker 2 (34:34):
What those alternatives look like, and it's usually a combination
of a number of different tools. But it is one
of the trickier questions to deal with because you know,
you were sitting on this thing that for years was
paying nothing, suddenly started paying a lot more and that
rate is in the midst of a pretty significant change.
If you want to learn more about the tax implications
(34:56):
of what you have your cash sitting in and alternatives
that might be out there for you, give the folks
at Armstrong Advisory Group a call. Let us educate you
on how the tax scenarios that we all face, depending
on what state we live in, affect how much return
we're able to generate once those taxes are paid. The
number for the Armstrong Advisory Group is eight hundred three
(35:16):
nine three for zero zero one. Again, that's eight hundred
three nine three for zero zero one.
Speaker 1 (35:23):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (35:39):
Just yesterday, we were speaking about the looming deadline on
the federal buyout offer for workers that was sent to
all I think two million workers out there, and a
federal judge in Massachusetts has paused that deadline from yesterday
to I think what was it like a week from now,
something along those lines for this to go into place.
(36:01):
As of yesterday, some forty thousand government workers had agreed
to resign ahead of that deadline. The White House said
it was expecting between five and ten percent of the
federal employees to take the deal, which would have been
closer to one hundred to two hundred thousand employees.
Speaker 3 (36:18):
And many of those who did take it may have
been planning on retiring. You had a couple of examples
of this yesterday from the real world experience, Mike, we
have been planning to retire anyway.
Speaker 2 (36:25):
Yeah, we don't know with any degree of certainty, but
I certainly would be willing to bet that in that
forty thousand is a high concentration of people that were
looking at retirement.
Speaker 4 (36:34):
In twenty twenty five.
Speaker 3 (36:35):
Anyway, well, Bloomberg reported that sixty some odd roughly sixty
five thousand retire in any given years. So, as you
point out, I think yesterday, if you're planning on retiring
anytime through the end of this period during which you
can continue to collect your salary under the Musk scheme,
you would have to you'd be an idiot, forgive me,
but an idiot not to retire today.
Speaker 2 (36:55):
Yeah, So we will see where this plays out. I
think in all likelihood, I don't know. I've read a
fair bit about this and heard a lot of commentary.
There's not a whole lot of question as to whether
or not the White House has the ability to do this.
So I suspect that it will still go through in
some way, shape or form, but being delayed at least temporarily,
which you know, good case if you're one of those
(37:16):
federal employees, a few extra days to consider your options
when it comes to this potential buyout.
Speaker 4 (37:22):
But I once.
Speaker 2 (37:24):
Again, we'll just call into question time after time we
see these promises coming from the Department of Government Efficiency
around how big the sweeping changes are going to be.
They come out with these giant numbers and then once
again they get walked back pretty substantially in terms of
what we actually see, So.
Speaker 3 (37:42):
They really blew credibility in record time. I mean, it
speaks to setting achievable goals in the short term in
any walk of life, but you don't go to your
manager and say I'm in a double sales nextreme.
Speaker 2 (37:52):
So we will see where this all plays out, but
for the time being, at least the promise on the
the biout of federal workers has been put on put
on ice by a federal judge in Massachusetts. Quick break,
But a lot more to cover in the second hour,
including more tariff talk where we're talking about and specifically
(38:13):
in the insurance industry. That's next here on the Financial Exchange.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com