September 16, 2025 • 38 mins
In this episode, Mike Armstrong and Paul Lane unpack the latest economic headlines shaping markets. From robust retail sales defying slowdown fears to pivotal Federal Reserve updates, we dive deep into what’s driving the economy. What’s on the table?
- Retail Sales Surge in August – Consumers keep spending, but is it sustainable?
- Fed Governor Drama – Appeals Court denies Trump’s bid to remove Lisa Cook, while Stephen Miran joins the Fed Board.
- Lower Rates & Stocks – A quick take on what cheaper borrowing means for equity investors.
- Fed Strategy – Why the Fed needs to tread carefully and avoid bold promises.
- Massachusetts’ Economic Woes – A closer look at the state’s struggles amid national resilience.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
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(00:20):
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(00:42):
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(01:06):
and Paul Lane.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange. Mike, Paul
and Tucker with you on a Tuesday where the FED
meeting is kicking off tomorrow. We'll be hearing from Fed
officials Jerome Powell on the path of interest rates. This morning,
we receive some retail sales data and continued I guess
just confusion and mixed news about the direction of this economy,
(01:31):
labor market, and inflation. That's the only way that I
can describe it. We described it that way yesterday as well.
In this morning's retail sales report, I think continued to
muddy those waters a bit here, Paul, I want to
start right there with that retail sales report, as we
have markets in slight sell off mode, the NAZAC barely
negative for the day, the Dow off a little bit further.
(01:53):
Eight thirty am this morning, we got a report on
weather and how much consumers are spending across this economy.
And the weather is the weather they're spending. Question is answered,
They are spending. They're spending quite a bit. Who and
where is an interesting question, but spending overall retail sales
(02:14):
advanced six tenths of a percent. Overall that beats the
expectations of a two tenths of percent increase that most
economists polled we're expecting if you exclude motor vehicle parts
and gas stations, which we tend to do because they
can swing things, especially big. I remember, these are not
(02:34):
adjusted for gas prices and things like that. It's just
a regular old print that was up seven tenths of
percent off of expectations of four tenths So, by all accounts,
beating all expectations. And that's in spite of a lot
of complaining and concern that I keep hearing about the
labor market and inflation. So I don't know, Paul, help
(02:56):
me make sense of this report, because I guess my
only making sense of it is we Americans are really
good at one thing, which is spending irresponsibly, and maybe
we're getting more of it here.
Speaker 3 (03:08):
I actually had the reaction at my desk this morning.
I literally said out loud, WHOA when I saw these numbers,
because it was so counterintuitive to all of the general
rhetoric that we've talked about over the last few weeks,
where the backdrop of the economy focus has been weak
labor market, job revisions slowing, growth, and then you have
(03:28):
us on a backdrop of inflation that has remained persistent
and stummered. You would think with those two things, persistent
and stubborn inflation, that would slow down the consumer, right,
You would think with a weaker labor market that would
also lead to the consumer slowing down. And this report
beating expectations pretty handily was quite a surprise, but it
(03:48):
does point to what's been really the story, Mike of
the last geez three four years post pandemic, has been
a extremely resilient consumer. Yeah, and I've many times questioned
how long that that trend could keep going for, and
quite some time in this report just backs that notion
(04:09):
that the consumer is going. The consumer continues to get
out there and spend, and it is surprising to me.
It's nice, it's welcome news, but it it does make
it harder to generate a narrative. If someone asked you,
g Mike or Paul, how's the economy doing after this
(04:30):
prot I would.
Speaker 4 (04:31):
Say, well, a little bit of this and a little
bit of that.
Speaker 2 (04:34):
It's it's mixed, yeah, and we will check in on,
by the way, what all this means for the Fed's
rate decision. Tomorrow, because this is another data point for
them to consider, I suppose as they're making their rate
cutting decision today. But taking a look at some of
the details in the weeds here again, we saw six
tens percent increase overall compared to This is measuring data
(04:57):
from the month of August, by the way, so we're
you know, a month away from it now, or are
sixteen days away.
Speaker 4 (05:02):
From it now compared to year over year.
Speaker 2 (05:04):
Spending up five percent at these retail and food services business.
Excuse me, I didn't say, did I say five ten
percent percent? I said five percent? Okay, sorry, six tens
a percent month of a month, five percent year over
year is where we landed here.
Speaker 4 (05:20):
With this report.
Speaker 2 (05:22):
Motor vehicle and parts dealers up half a percent month
over month. Furniture and home furnishings, this is an area
that we saw a decline that's down three tens a
percent month of a month, but still up year over
year pretty substantially. Electronics and appliance stores up three tenths.
Building materials and garden equipment that barely moved, and that's
(05:44):
in fact down year over year. And so I look
at that one area and say, okay, I think I
can make sense of that given housing activity.
Speaker 4 (05:53):
If you're seeing.
Speaker 2 (05:53):
Building material and guarding, gardening equipment and suppliers, home depot
lows the likes of them falling away little bit. I
think it's because of a lack of home building and
a lack of home improvement projects that are going on.
Food and beverage stores you're up three tens percent, three
percent year over year. Health and personal care barely moved
but still up five percent year over year. Gas stations
(06:16):
moved up month over month, but gas prices overall are
down year over year, so that figure is down. And
then clothing and clothing accessories up a full percentage point
in just a month, giving US an eight percent increase.
Speaker 4 (06:29):
Year over year.
Speaker 2 (06:30):
Sporting goods, hobby musical instruments up eight tens of percent,
four point seven percent year over year. General merchandise stores.
Speaker 4 (06:37):
I don't know what that means.
Speaker 2 (06:39):
Down a little bit, but up year over year. Miscellaneous,
I guess that's your seven elevens. That's down month of
a month, but a big year over year. And then
non store retailers think online up two percent in terms
of sales. Finally, food service and drinking places seven tenths
percent bumps six and a half percent year over year.
(07:00):
I can't I can't paint a picture of this that
explains much of anything to me based on this data.
I mean, here's one takeaway that I have. Consumers were
a bit nervous about the state of things and seemingly
pulled back their spending early on during the tariff announcements.
We saw this April and May. Retail sales data declined
(07:24):
both of those months. April a little bit, May quite
a bit. So, you know, as big as this report
was the upside, the May report on retail sales was
bigger to the downside. By June, people had kind of
settled in, said, you know what, haven't lost my job.
Speaker 4 (07:41):
I know everybody's been warning me that I might.
Speaker 2 (07:43):
I know everybody's been warning me that prices are going
to go through the roof, But haven't lost my job.
Still have my income, and prices aren't through the roof.
I'm going to go back to normal. We saw price
we saw retail sales increase almost a full percentage point
in June, and then the last two months July and August,
we've now seen increases of six tens of percent in
each of those two months. So I buy the normalization
(08:06):
piece on the consumer's part. It's not reflecting and hiring.
You know, you didn't see businesses go out and do
the same thing, right, You didn't say see businesses say, Okay,
we're really nervous about these tariffs, so we're putting off
all of our plans, but then by June we picked
them back up.
Speaker 4 (08:24):
No, because we have not seen the pace of hiring
like I was.
Speaker 2 (08:28):
Maybe I was kind of expecting it to to follow
some of the consumer trends to say, oh yeah, people
are no consumers anywhay. Sorry, businesses rather are no longer
concerned about these tariffs in the same way they're picking
up hiring has not happened.
Speaker 4 (08:41):
So where does the FED go?
Speaker 2 (08:44):
I guess with a report like this, where hey, they're
really worried about the labor market.
Speaker 4 (08:50):
But this could be inflationary. It could don't buy it.
Speaker 3 (08:55):
No, I don't think so. I don't think retail sales
gets weighted as heavily in that consideration PI for the
Federal Reserve, where you probably have to attribute some of
this retail sales to inflationary pressures. It's not adjusted for inflation.
It's adjusted for seasonality and things like that. So some
of this increases is likely from some of the cost
(09:16):
increase that we've seen. It still is a really strong
report from a consumer spending side of things, But ultimately
I don't think this really drives the FED to move
in one direction or another. I think that their trajectory
is set in stone. There's too much AMMO on the
labor market front that points to a weaker trend there
(09:36):
to really deviate from their approach. It's a data point
that I'm sure that they look at and review, but
ultimately not enough to move the needle in terms of
their trajectory of very likely cutting rates by a quarter
percent tomorrow.
Speaker 4 (09:49):
Let's take a quick break here on the Financial Change.
Speaker 2 (09:52):
When we come back, I want to talk about that
FED meeting, a bunch of court cases that have been
happening just over the last couple of days surrounding the
FED governors, but really diving into what is going to
happen tomorrow during that press conference that's next here on
the Financial Exchange.
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Speaker 2 (11:23):
So talking about the eleventh hour for a moment, here
we have two, I guess not changes to members of
the voting Central Bank at the Federal Reserve, but at
least two that you know, we weren't really sure would
be able to attend this meeting given where everything was going,
and they apparently will be. So let's start off with
(11:44):
Lisa Cook for reference here if you you know, have
not caught this story, one of the voting members of
the Central Bank, Lisa Cook, has been accused by I'm
trying to remember where the initial accusation came from. I
think is within the Justice Department, but it might.
Speaker 3 (12:02):
A Federal Housing Finance Agency director Bill Polt who publicized
the allegations.
Speaker 2 (12:08):
So the allegations are that Lisa Cook declared two properties
to be her primary residence. One would do this to
get more favorable terms on a mortgage. That is the accusation,
and the President has moved to remove her from that role.
Two courts now have rejected that attempt. They have said
(12:31):
that they have to give Lisa Cook do process to
fight those claims, and the onus is on the White
House to prove that she did this and that it
is cause for firing. I think it probably lands in
the Supreme Court ultimately, but we will see. In either case,
a judge has now said no, you cannot remove her,
(12:52):
and so therefore she will presumably be attending this meeting
coming up here today today and again voting on the
decision of where rates go tomorrow. The second piece, the
Senate has now voted to confirm President Trump's pick Stephen
Moran to the FED Board. He is replacing another Fed
(13:13):
governor who resigned very recently. This is a unique situation.
I believe it's the first time since the nineteen thirties
that a sitting member of the White House, a member
in the White House, is going to sit on the
Governor's board. He is going to be taking a unpaid
(13:33):
leave while working at the Central Bank. And this is
a short term arrangement because this exact seat is up
for a new pick I think in February of next year.
So again it's a pretty unique situation. But nonetheless, he
is going to be also voting at this Federal Reserve meeting.
So okay, none of this should actually change anyone's view
(13:55):
on where interest rates go, and it doesn't really change
my view on where interest rates go. But it's going
to be a weird FED meeting. Like, let's just start
right there. You've got a newly appointed Fed governor that
is coming from the White House, sitting at the Economic
Council of Economic advisors and.
Speaker 3 (14:15):
Who's been very critical, has been.
Speaker 2 (14:17):
Critical of the other members of that FED, and has
been pretty prominent in his views that rates need to
come down. I would think he continues with that viewpoint
in this meeting, but not necessarily. Like if I'm thinking
about how do I want to actually be influential, and
I just come out saying, hey, we should cut rates
(14:37):
by one percent, then everybody's going to laugh me out
of the room and not take me seriously for all
the future FED meeting. So I'm not sure that's what
he does. Lisa Cook again, people are going to pay
attention to what she says, but you have to look
at that situation, say fifty to fifty she's fired in
the next six months, right, So I would think that
is not a terribly influential role either. And then finally
(15:00):
we have the governor himself, J Powell, who is going
to be in that role I think, right until his
term ends. But his term ends in less than a year.
You have seen this with previous FED governors as well.
This is not unique to J.
Speaker 4 (15:14):
Powell.
Speaker 2 (15:15):
But the closer you get to the end of the term,
the less influence you have, the more difficult it is.
To wrangle your members because all of them are vying
for the role of the next FED the head of
the Federal Reserve, and so his influence is going to
be at least under question when it comes to this meeting.
So I don't know that we see any of that
in the meeting, but I am uniquely interested this time
(15:38):
around to see how the governors are actually voting. I
think you're going to have more descents than usual. Yes,
I don't think you will, but you could possibly have
descents in both directions. So again, let's say the FED
cuts rates by quarter percent and they vote on that,
and the majority.
Speaker 4 (15:56):
Vote for that move.
Speaker 2 (15:58):
You could hypothetically have some members that are voting for
fifty base points whereas others are voting for no cuts
at this meeting, which would be again pretty wild and
something that is almost never seen. But to set the
record straight, they are almost definitely cutting by a quarter
percent at this meeting. The only pieces that are under
(16:20):
question and really hoping to learn something about would be
where the rest of the FED thinks that rates need
to go over the course of the next twelve months
given the current economic conditions.
Speaker 3 (16:30):
Yeah, I think you hit all the major points there
the new appointees. What the decision in lies tomorrow is
likely the quarterbase point cut. So other than that, I
don't really anticipate it will be that exciting of a meeting.
I understand the new members and things like that, but
it will be parsing through the tea leaves from maybe
some information on descents versus.
Speaker 2 (16:52):
Because remember, it's not like we get a video of
the actual meeting right like they might be screaming at
each other behind closed doors. We would never know. So
I think that part will be interesting, but none of
us will really know. And I agree with you, Paul.
When it comes to press conference, it's going to be
the same. It's going to be because it has to be.
If you have a panicking federal Reserve, then everybody loses.
(17:14):
So rates come down with Let's talk about what this
practically means for everybody listening right now.
Speaker 4 (17:20):
I mean markets, you know, hype.
Speaker 2 (17:23):
Who knows what's driving markets on any single day, But
the last several days have been pretty positive for markets,
So let's start right there. What do lower rates mean
for equity investors? I guess first and foremost.
Speaker 3 (17:32):
Yeah, so typically the lowering of rates would boost asset values,
all else equal, bar and costs would go down for
businesses to finance their operation from a growth perspective, and
that would lead to higher valuation. So I think that's
part of the movement that we've seen over the last
week or two, is the optimism regarding lowering rates and
thus driving the asset values. From a consumer standpoint, Just
(17:53):
for the listeners out there, what does that mean to you? Hey,
the CDs that I'm getting at the bank, maybe they
were at four and a quarter percent or four and
a half percent, those will likely come down very quickly
to three, seven, five or four percent on money markets.
The same thing applies there potentially on the good side
of things. For those people who are barring whole equi
lines of credit, likely those rates will come down because
(18:15):
those are variable and anything else credit card dots, credit
cards is a little slower to move, but those same
types of things. That's really what the consumer would feel
from an impact standpoint.
Speaker 2 (18:26):
Mortgage rates you have seen come down, it's not really
because I mean, I guess it's sort of attached to
what the FED has been promising to do here, but
not really going to move the needle when they actually
cut rates tomorrow, assuming that they do.
Speaker 4 (18:40):
You mentioned CDs.
Speaker 2 (18:41):
I just wanted to bring up a little story that
I had with a client the other day, which is
so common, But he was furious banks with a bank
that I won't name. He had been in a really
good interest rate CD for some time. He was traveling.
It auto renewed, and they renewed him right into to
a one percent CD. Now not the end of the world.
(19:04):
He can pull the money out, but he does have
to pay like three hundred dollars to get his money
out of this stupid CD. And I just want to
warn everybody out there that this is incredibly common. It
happens with money markets at banks, it happens with CDs
at banks, it happens with insurance companies and annuities. They
get you at a teaser rate and then the whole
way they make money is they renew you in some
(19:24):
garbage product when it renews. So buyer beware and keep
your eye out on this stuff. Quick Break Wall Street
Watches next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show Breaking business news is always first right here
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Watch a complete look at what's moving market so far
today right here on the Financial Exchange Radio ne work.
Speaker 5 (20:00):
Markets are pulling back slightly as the FED begins its
two day monetary policy meeting today. Wall Street's also reacting
to better than expected retail sales data from August, where
retail sales increase zero point six percent, higher than estimates
of zero point two percent. Right now, the Dow is
(20:22):
off by about a half a percent, or two hundred
and four points. SMP five hundred is down about a
tenth of a percent. Nasdaq is completely flat at the moment.
Russell two thousand is retreating about half a percent. Ten
year treasure Field is currently flat at four point zero
three four percent. In crude oil at one point three
(20:43):
percent today, trading just above sixty four.
Speaker 1 (20:45):
Dollars a barrel.
Speaker 5 (20:47):
Oracle shares climbing over two percent higher after CBS News
reported that the Cloud Infrastructure Company is among several companies
that would enable TikTok to continue operations in the US
if a framework deal between the US and China is finalized. Meanwhile,
after surpassing three trillion dollars in market cap for the
(21:09):
first time yesterday, shares in Google parent company Alphabet are
dipping slightly today. Elsewhere, shares an arcade and restaurant chain
Dave and Buster are sinking sixteen percent after it logged
another quarter of declining same store sales. Nova Noordez said
its experimental once weekly weight loss injection drug helped patients
(21:31):
reduce their weight by eleven point eight percent after sixty
eight weeks. Novo shares are up over two percent. Chipotle
shares climbing over one percent higher after the burrito chain
authorized an additional five hundred million dollars for share repurchases.
In more news this morning from Tesla after US auto
safety regular regulators opened an investigation into whether some of
(21:55):
the company's electrically powered vehicle doors are defective. This comes
after Tesla stock jumped over three percent yesterday after CEO
Elon Musk purchased about one billion dollars worth of test
The stock shares are up another one and a half
percent today. I'm Tucker Silva and that is Wall Street Watch.
Speaker 4 (22:15):
Uh, Paul.
Speaker 2 (22:17):
We just covered that the FED is very likely to
cut rates at this next meeting. They're likely to do
so by a quarter of one percent. This follows a
trend that they had started back in the late summer
early fall of the last year, and is happening at
a time that I think is a little bit unique
(22:39):
for the Federal Reserve to be cutting rates, I guess,
And that's that's where I want to get to for
a moment here, I guess, before we even talk about data,
I just want to ask anybody listening, and you're welcome
to text us at six one seven three, six two
thirteen eighty five, regardless of what I'm about to tell you,
in terms of data, do prices seem stable to you?
Speaker 4 (23:00):
Do you feel like you know?
Speaker 2 (23:04):
I think the easiest example I can give is do
you know when you go grocery shopping next week for
your family what the price of that basket is likely
to look like? And that's a really important framework for
all this. I know we talk about the data, we
talk about the actual measurements how much did prices actually
move on a month to month basis, But so much
(23:25):
of this is built on expectations that I really think
how human beings actually feel about prices is probably as
important as all these survey results we get. Do you
feel prices are stable right now? Is what I want
to know. My general inkling is not really like when
I talk to people, part of it's because of tariffs,
(23:46):
part of it's just because of the massive swings that
you've seen over the last couple of years, that people
don't feel terribly stable in their expectations for prices. Nonetheless,
the FED is looking at this economy and saying, yeah,
they might be nervous about that, but we're much more
nervous about the labor market right now and the weakness
that we've seen in hiring, and so we think the
(24:07):
prudent thing to do is to cut interest rates. And
I'll be the first to say, I think you can
justify that decision. Sure, I guess my question is what
if they're wrong like they were in twenty twenty two. Again,
completely different scenario here, but we are facing a similar
type of decision making framework, which is, we're more worried
(24:31):
about the state of the labor market than we are
about prices. We think any price increases that we're seeing
right now will be temporary and then wash away in
twenty twenty two, depending on who you ask, they were
kind of right but pretty wrong on that. The part
that they were right about is, yeah, the price increases
that we saw did eventually fade and we got back
to normal inflation within a couple of years. What they
(24:53):
clearly got wrong was just how big the price increases
would be. And so I think there are some that
are at this and saying, Okay, you know, justifiable to
move now, but please be careful because we cannot live
through another period of high inflation like we did just
a few years.
Speaker 3 (25:09):
Yeah, there's been a huge shift to focus primarily on
the labor market, like you just said, and there's been
less emphasis, it seems like, on the inflationary front, and
the tricky spot that they could find themselves in is
that you cut rates here and perhaps you likely cut
again one more time before the end of the year.
And typically when the Fed is cutting rates, they are
(25:31):
trying to aid a slowing economy. As we've just discussed
in the program. It's kind of mixed bag as to
whether you'd say this is a slawn comedy. The labor
market is slowing, so by lowering rates, you are trying
to enhance or trying to create more economic activity, more barring,
more demand for consuming and all these types of things.
(25:52):
But when you're dealing with inflationary pressure like we saw
in twenty twenty two, and where we sit today is
a reflection of the fact that you have to increase
rates to slow down consumption, and so Fandetti always uses
the thermometer or speed limit, anything you want to say
there that would use as a good analogy. The problem
is if we find ourselves in a spot where inflation
(26:13):
is going up and the economy is slowing down. Think
about it as if you're driving a car that is
in neutral and you're trying to put your foot on
the gas. You're not going to go anywhere. There's really
nothing that the FED could do if that were the case.
So I think it bears mentioning that that is a
scenario out there. When you shift away from inflation, and
if it continues to tick up, that becomes problematic because
(26:34):
then the FED basically doesn't have the tool to solve
what that problem would would be if we got to
that point.
Speaker 2 (26:40):
Yeah, I just don't I don't want to jump that far.
Speaker 3 (26:44):
It's a lot would need to go wrong to be there.
Usually what happens for listeners out there is if you
get rising inflation, the economy, you know, comes down to
a point where you just don't have enough consumption and
demand for the products to kind of create that spiral
of increasing inflation.
Speaker 2 (27:04):
I just I think there is this tail risk out there.
I don't think there's a big tail risk of stagflation.
I tend to think we will get one or the other.
I think the real risk to inflation would be that, hey,
with all of the AI investment going on, with the
deportations and retiring baby boomers, that we're just dealing with
(27:26):
this lull in employment right now that is about to
swing to the other direction rather rapidly sometime within the
next year. And if that were to happen, right, retail
sales and everything else has been keeping up even with
this weaker employment scenario. Were that to happen, I don't
think you'd get a recession, but I do think you'd
get some higher inflation, and that the very least the
(27:48):
FED would need to pause their rate cutting cycle if
not swing in the other direction, which again not the
end of the world, but a bit problematic for doing
any sort of planning. Right, I thought rates were be
coming down over the next year. Now they're moving up.
My mortgage rates are getting more expensive again. All these
things are changing. So that's what I see is the
real tail risk here as they're just getting a misread
(28:09):
on the state of the labor market based on nerves
about tariffs plus AI. In some way that could just
be temporary, just like the price increases I think are.
But again, I don't know that I would be making
a different decision where I sitting in J.
Speaker 4 (28:26):
Powell shoes yep or chair. You don't sit and shoes.
Speaker 2 (28:30):
Don't know what you mean, right, stand and shoes, stand
and shoes sit and chairs in either case. We're going
to take a quick break and when we come back,
we're going to talk a little bit more about that consumer.
I want to talk about this retail spending report. I
want to talk about where it's coming from, specifically the
demographics of who is spending who's not. That's next here
on the Financial Exchange text.
Speaker 1 (28:50):
Does six one seven, twenty six to two, one three
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Speaker 2 (29:18):
Paul the folks over at Baron's have an article this morning.
The economy was weak in August, retail sales may buck
the trend. So I guess let's start off was the
economy week in August?
Speaker 3 (29:29):
No, it was red hot, red hot. We saw retail
sales that were much higher than anticipated, coming in at
point six percent month over month, well above expectation.
Speaker 4 (29:39):
I want to say it was universally hot.
Speaker 2 (29:41):
I mean, there's gotta be something we can point to
that was weakness in August. The stock market was up
like crazy, but hiring was bad.
Speaker 3 (29:49):
Oh, I thought we were just talking retail sales.
Speaker 4 (29:51):
No, just generally, like, let's talk about the economy.
Speaker 2 (29:53):
They said their economy was weak in August, So I'm
trying to find evidence to support or deny their argument.
Speaker 4 (30:00):
Oh, lebonomy was weak in audubt.
Speaker 3 (30:02):
Labor market ticking up to four point three percent of employment,
two hundred and sixty three thousand recent jolts claims weekly
job is claims, but those can be kind of volatile
week to week, and you have the revision again backward looking.
But nine hundred and eleven thousand jobs stripped in terms
(30:22):
of job growth from March of twenty five through March
twenty four. Is that directly August.
Speaker 2 (30:26):
No, but that's probably gained nearly two percent in the
month of August. And to your point, yeah, it was
weak hiring, but it wasn't as though we had net
job loss. I guess it is where I would go.
So I don't know. I'm with you. I don't know
that you can universally describe the economy as weak in
(30:47):
the month of August. There were some concerns justifying the
FED to cut rates. This spending report, though, definitely contradicted
that other stuff, and it, I guess is just a
good reminder, which would be the consumer never leads a recession.
People just keep on spending until their car gets hauled
(31:10):
away by the repossessor, until you know, their credit card
gets closed up. People keep on spending if they have
a job and an income coming in and right now
they buy and large do a small percentage points higher
in terms of unemployment.
Speaker 4 (31:27):
But the other piece that I.
Speaker 2 (31:30):
Think is very worth mentioning is this divergence in terms
of who is spending the money.
Speaker 4 (31:36):
This fascinating meal all years.
Speaker 2 (31:39):
It has to me too, and I don't know why
it wasn't really on our radar in past years, because
I'm sure that it has been a growing trend. But
in the second quarter of twenty twenty five, consumers in
the top ten percent of the income distribution and I'll
have to look up what that means in terms of dollars,
but folks who are in the top ten percent of
(32:00):
the income distribution accounted for forty nine point two percent
of the total spending in the second quarter. That's up
from forty eight and a half percent in the first
and it's the highest level since this data point has
been looked at going back to nineteen eighty nine. So
the real story here to me seems to be one
of a diverging wealth and income inequality, where those who
(32:25):
own assets tend to also have higher incomes and are
much more comfortable spending in this economy than the other
ninety percent of consumers.
Speaker 3 (32:35):
This statistic has right around in my head all year.
Where when we get all this conflicting information, and the
retail sales is a great example of it this morning,
mic where we have some weaker labor market data that
we've been digesting and then here comes out a retail
sales number that is very strong, and perhaps this points
to this idea that the top ten percent are powering
(32:57):
this retail sales report or they're accounting for off the spending,
So they're half the reason behind why we saw a
pretty good number for the month of August. And I
continue to come back to this idea, and I haven't
gotten a ton of data on this, but does the
stock market now have more significant impact on the health
and the state of consumers than it did in years
(33:20):
prior because of this divergence that we're seeing here where
the top percent of earners. If you look at the
distribution on who owns stocks as a country, the significant
amount of ownership, you know, a good two thirds plus
is in those people who are in those top income percentiles.
(33:40):
And so what we've seen over the course of this
year is April the market took us very steep dive,
and you pointed to earlier retail sales in April and
May were very tepid on this idea that the uncertainty
around tariffs they've now resumed and it's come in line
with a stock market rally over the course of the
last few months that has been very strong. And not
to say that there's a direct one to one correlation,
(34:02):
but it does seem like more and more, Mike, if
we're going to have the top percent ten percent driving
so much of spending, A lot of their wealth is
tied to the stock market. If they're seeing their net
worth go up, I do think that provides some confidence
for them to get out there and continue to spend.
Speaker 2 (34:17):
By the way, I just took a look, the income
figure you need to reach to be in the net
top ten percent is around one hundred and fifty thousand
dollars as of the most recent data. So if you
have household income of one hundred and fifty k plus,
you would be considered within that top ten percent, that
top decile of income earners.
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Speaker 2 (35:43):
Paul, do you want to talk about earnings reports or
Boston real estate?
Speaker 3 (35:47):
Let's talk Boston real estate.
Speaker 4 (35:48):
Let's go there.
Speaker 2 (35:50):
I have an unpopular opinion, although I'm guessing it's growing.
Speaker 4 (35:55):
Masschusts economy screwed, not.
Speaker 2 (35:58):
Forever to tell, not forever, but I think that we
are in a cyclical trend that is going to be
pretty bad for the Massachusetts economy, and I think that
could spell more real estate listings. It's already been a
story of much higher unemployment, and that's my viewpoint. Three
(36:20):
days from now, we will get state level unemployment data
so we'll see the latest data for the month of
August for Massachusetts. But let me describe to you what's
happened in terms of employment in Massachusetts since December of
last year. I cherry picked December because in December that
was the last time that the Massachusetts unemployment rate matched
the national unemployment rate at four point one percent. Since then,
(36:44):
the national unemployment rate rose from four point one percent
in December to four point two percent in July, and
then now four point three percent in August. In Massachusetts, December,
we're at four point one. By July we're at four
point eight percent. If that had happened on the national stage,
the FED would have already cut rates by at least
(37:05):
fifty basis points, and we would be saying we are
probably in a recession right now as a nation. I
can point to a number of different things here. All
of it would be guesswork. I assume that unemployment in
the education sector, in the biotech sector is all increasing.
I've talked to folks in that area, and now you're
starting to see it in terms of real estate with
(37:27):
apartment owners in the Boston Cambridge area just saying yeah,
we've got more vacancies than we have anytime in recent history.
Speaker 3 (37:32):
Yeah, I mean, you've The biggest issue that they're combating
here is so much of the Boston rental market is
unique and different than New York, for example, which is
much more a month to month structure. So much of
Boston revolves around September first, and for a good reason,
because of a lot of students. And what you've seen
is the amount of students on visas from China and
(37:57):
India has declined substantially. There's been no virtual virtually no
visa appointments for the last few months for those students
in India, so that is leading to impact in the
rental market.
Speaker 2 (38:07):
I'm sorry, I think it's going to be a bit
of a tough spell for Massachusetts residents, landlords.
Speaker 4 (38:11):
Et cetera.
Speaker 2 (38:12):
Quick break, A lot more to cover in the second
hour of the Financial Exchange.
Speaker 4 (38:16):
Stay tuned, we'll be right back
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(01:06):
and Paul Lane.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange. Mike, Paul
and Tucker with you on a Tuesday where the FED
meeting is kicking off tomorrow. We'll be hearing from Fed
officials Jerome Powell on the path of interest rates. This morning,
we receive some retail sales data and continued I guess
just confusion and mixed news about the direction of this economy,
(01:31):
labor market, and inflation. That's the only way that I
can describe it. We described it that way yesterday as well.
In this morning's retail sales report, I think continued to
muddy those waters a bit here, Paul, I want to
start right there with that retail sales report, as we
have markets in slight sell off mode, the NAZAC barely
negative for the day, the Dow off a little bit further.
(01:53):
Eight thirty am this morning, we got a report on
weather and how much consumers are spending across this economy.
And the weather is the weather they're spending. Question is answered,
They are spending. They're spending quite a bit. Who and
where is an interesting question, but spending overall retail sales
(02:14):
advanced six tenths of a percent. Overall that beats the
expectations of a two tenths of percent increase that most
economists polled we're expecting if you exclude motor vehicle parts
and gas stations, which we tend to do because they
can swing things, especially big. I remember, these are not
(02:34):
adjusted for gas prices and things like that. It's just
a regular old print that was up seven tenths of
percent off of expectations of four tenths So, by all accounts,
beating all expectations. And that's in spite of a lot
of complaining and concern that I keep hearing about the
labor market and inflation. So I don't know, Paul, help
(02:56):
me make sense of this report, because I guess my
only making sense of it is we Americans are really
good at one thing, which is spending irresponsibly, and maybe
we're getting more of it here.
Speaker 3 (03:08):
I actually had the reaction at my desk this morning.
I literally said out loud, WHOA when I saw these numbers,
because it was so counterintuitive to all of the general
rhetoric that we've talked about over the last few weeks,
where the backdrop of the economy focus has been weak
labor market, job revisions slowing, growth, and then you have
(03:28):
us on a backdrop of inflation that has remained persistent
and stummered. You would think with those two things, persistent
and stubborn inflation, that would slow down the consumer, right,
You would think with a weaker labor market that would
also lead to the consumer slowing down. And this report
beating expectations pretty handily was quite a surprise, but it
(03:48):
does point to what's been really the story, Mike of
the last geez three four years post pandemic, has been
a extremely resilient consumer. Yeah, and I've many times questioned
how long that that trend could keep going for, and
quite some time in this report just backs that notion
(04:09):
that the consumer is going. The consumer continues to get
out there and spend, and it is surprising to me.
It's nice, it's welcome news, but it it does make
it harder to generate a narrative. If someone asked you,
g Mike or Paul, how's the economy doing after this
(04:30):
prot I would.
Speaker 4 (04:31):
Say, well, a little bit of this and a little
bit of that.
Speaker 2 (04:34):
It's it's mixed, yeah, and we will check in on,
by the way, what all this means for the Fed's
rate decision. Tomorrow, because this is another data point for
them to consider, I suppose as they're making their rate
cutting decision today. But taking a look at some of
the details in the weeds here again, we saw six
tens percent increase overall compared to This is measuring data
(04:57):
from the month of August, by the way, so we're
you know, a month away from it now, or are
sixteen days away.
Speaker 4 (05:02):
From it now compared to year over year.
Speaker 2 (05:04):
Spending up five percent at these retail and food services business.
Excuse me, I didn't say, did I say five ten
percent percent? I said five percent? Okay, sorry, six tens
a percent month of a month, five percent year over
year is where we landed here.
Speaker 4 (05:20):
With this report.
Speaker 2 (05:22):
Motor vehicle and parts dealers up half a percent month
over month. Furniture and home furnishings, this is an area
that we saw a decline that's down three tens a
percent month of a month, but still up year over
year pretty substantially. Electronics and appliance stores up three tenths.
Building materials and garden equipment that barely moved, and that's
(05:44):
in fact down year over year. And so I look
at that one area and say, okay, I think I
can make sense of that given housing activity.
Speaker 4 (05:53):
If you're seeing.
Speaker 2 (05:53):
Building material and guarding, gardening equipment and suppliers, home depot
lows the likes of them falling away little bit. I
think it's because of a lack of home building and
a lack of home improvement projects that are going on.
Food and beverage stores you're up three tens percent, three
percent year over year. Health and personal care barely moved
but still up five percent year over year. Gas stations
(06:16):
moved up month over month, but gas prices overall are
down year over year, so that figure is down. And
then clothing and clothing accessories up a full percentage point
in just a month, giving US an eight percent increase.
Speaker 4 (06:29):
Year over year.
Speaker 2 (06:30):
Sporting goods, hobby musical instruments up eight tens of percent,
four point seven percent year over year. General merchandise stores.
Speaker 4 (06:37):
I don't know what that means.
Speaker 2 (06:39):
Down a little bit, but up year over year. Miscellaneous,
I guess that's your seven elevens. That's down month of
a month, but a big year over year. And then
non store retailers think online up two percent in terms
of sales. Finally, food service and drinking places seven tenths
percent bumps six and a half percent year over year.
(07:00):
I can't I can't paint a picture of this that
explains much of anything to me based on this data.
I mean, here's one takeaway that I have. Consumers were
a bit nervous about the state of things and seemingly
pulled back their spending early on during the tariff announcements.
We saw this April and May. Retail sales data declined
(07:24):
both of those months. April a little bit, May quite
a bit. So, you know, as big as this report
was the upside, the May report on retail sales was
bigger to the downside. By June, people had kind of
settled in, said, you know what, haven't lost my job.
Speaker 4 (07:41):
I know everybody's been warning me that I might.
Speaker 2 (07:43):
I know everybody's been warning me that prices are going
to go through the roof, But haven't lost my job.
Still have my income, and prices aren't through the roof.
I'm going to go back to normal. We saw price
we saw retail sales increase almost a full percentage point
in June, and then the last two months July and August,
we've now seen increases of six tens of percent in
each of those two months. So I buy the normalization
(08:06):
piece on the consumer's part. It's not reflecting and hiring.
You know, you didn't see businesses go out and do
the same thing, right, You didn't say see businesses say, Okay,
we're really nervous about these tariffs, so we're putting off
all of our plans, but then by June we picked
them back up.
Speaker 4 (08:24):
No, because we have not seen the pace of hiring
like I was.
Speaker 2 (08:28):
Maybe I was kind of expecting it to to follow
some of the consumer trends to say, oh yeah, people
are no consumers anywhay. Sorry, businesses rather are no longer
concerned about these tariffs in the same way they're picking
up hiring has not happened.
Speaker 4 (08:41):
So where does the FED go?
Speaker 2 (08:44):
I guess with a report like this, where hey, they're
really worried about the labor market.
Speaker 4 (08:50):
But this could be inflationary. It could don't buy it.
Speaker 3 (08:55):
No, I don't think so. I don't think retail sales
gets weighted as heavily in that consideration PI for the
Federal Reserve, where you probably have to attribute some of
this retail sales to inflationary pressures. It's not adjusted for inflation.
It's adjusted for seasonality and things like that. So some
of this increases is likely from some of the cost
(09:16):
increase that we've seen. It still is a really strong
report from a consumer spending side of things, But ultimately
I don't think this really drives the FED to move
in one direction or another. I think that their trajectory
is set in stone. There's too much AMMO on the
labor market front that points to a weaker trend there
(09:36):
to really deviate from their approach. It's a data point
that I'm sure that they look at and review, but
ultimately not enough to move the needle in terms of
their trajectory of very likely cutting rates by a quarter
percent tomorrow.
Speaker 4 (09:49):
Let's take a quick break here on the Financial Change.
Speaker 2 (09:52):
When we come back, I want to talk about that
FED meeting, a bunch of court cases that have been
happening just over the last couple of days surrounding the
FED governors, but really diving into what is going to
happen tomorrow during that press conference that's next here on
the Financial Exchange.
Speaker 1 (10:07):
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Speaker 2 (11:23):
So talking about the eleventh hour for a moment, here
we have two, I guess not changes to members of
the voting Central Bank at the Federal Reserve, but at
least two that you know, we weren't really sure would
be able to attend this meeting given where everything was going,
and they apparently will be. So let's start off with
(11:44):
Lisa Cook for reference here if you you know, have
not caught this story, one of the voting members of
the Central Bank, Lisa Cook, has been accused by I'm
trying to remember where the initial accusation came from. I
think is within the Justice Department, but it might.
Speaker 3 (12:02):
A Federal Housing Finance Agency director Bill Polt who publicized
the allegations.
Speaker 2 (12:08):
So the allegations are that Lisa Cook declared two properties
to be her primary residence. One would do this to
get more favorable terms on a mortgage. That is the accusation,
and the President has moved to remove her from that role.
Two courts now have rejected that attempt. They have said
(12:31):
that they have to give Lisa Cook do process to
fight those claims, and the onus is on the White
House to prove that she did this and that it
is cause for firing. I think it probably lands in
the Supreme Court ultimately, but we will see. In either case,
a judge has now said no, you cannot remove her,
(12:52):
and so therefore she will presumably be attending this meeting
coming up here today today and again voting on the
decision of where rates go tomorrow. The second piece, the
Senate has now voted to confirm President Trump's pick Stephen
Moran to the FED Board. He is replacing another Fed
(13:13):
governor who resigned very recently. This is a unique situation.
I believe it's the first time since the nineteen thirties
that a sitting member of the White House, a member
in the White House, is going to sit on the
Governor's board. He is going to be taking a unpaid
(13:33):
leave while working at the Central Bank. And this is
a short term arrangement because this exact seat is up
for a new pick I think in February of next year.
So again it's a pretty unique situation. But nonetheless, he
is going to be also voting at this Federal Reserve meeting.
So okay, none of this should actually change anyone's view
(13:55):
on where interest rates go, and it doesn't really change
my view on where interest rates go. But it's going
to be a weird FED meeting. Like, let's just start
right there. You've got a newly appointed Fed governor that
is coming from the White House, sitting at the Economic
Council of Economic advisors and.
Speaker 3 (14:15):
Who's been very critical, has been.
Speaker 2 (14:17):
Critical of the other members of that FED, and has
been pretty prominent in his views that rates need to
come down. I would think he continues with that viewpoint
in this meeting, but not necessarily. Like if I'm thinking
about how do I want to actually be influential, and
I just come out saying, hey, we should cut rates
(14:37):
by one percent, then everybody's going to laugh me out
of the room and not take me seriously for all
the future FED meeting. So I'm not sure that's what
he does. Lisa Cook again, people are going to pay
attention to what she says, but you have to look
at that situation, say fifty to fifty she's fired in
the next six months, right, So I would think that
is not a terribly influential role either. And then finally
(15:00):
we have the governor himself, J Powell, who is going
to be in that role I think, right until his
term ends. But his term ends in less than a year.
You have seen this with previous FED governors as well.
This is not unique to J.
Speaker 4 (15:14):
Powell.
Speaker 2 (15:15):
But the closer you get to the end of the term,
the less influence you have, the more difficult it is.
To wrangle your members because all of them are vying
for the role of the next FED the head of
the Federal Reserve, and so his influence is going to
be at least under question when it comes to this meeting.
So I don't know that we see any of that
in the meeting, but I am uniquely interested this time
(15:38):
around to see how the governors are actually voting. I
think you're going to have more descents than usual. Yes,
I don't think you will, but you could possibly have
descents in both directions. So again, let's say the FED
cuts rates by quarter percent and they vote on that,
and the majority.
Speaker 4 (15:56):
Vote for that move.
Speaker 2 (15:58):
You could hypothetically have some members that are voting for
fifty base points whereas others are voting for no cuts
at this meeting, which would be again pretty wild and
something that is almost never seen. But to set the
record straight, they are almost definitely cutting by a quarter
percent at this meeting. The only pieces that are under
(16:20):
question and really hoping to learn something about would be
where the rest of the FED thinks that rates need
to go over the course of the next twelve months
given the current economic conditions.
Speaker 3 (16:30):
Yeah, I think you hit all the major points there
the new appointees. What the decision in lies tomorrow is
likely the quarterbase point cut. So other than that, I
don't really anticipate it will be that exciting of a meeting.
I understand the new members and things like that, but
it will be parsing through the tea leaves from maybe
some information on descents versus.
Speaker 2 (16:52):
Because remember, it's not like we get a video of
the actual meeting right like they might be screaming at
each other behind closed doors. We would never know. So
I think that part will be interesting, but none of
us will really know. And I agree with you, Paul.
When it comes to press conference, it's going to be
the same. It's going to be because it has to be.
If you have a panicking federal Reserve, then everybody loses.
(17:14):
So rates come down with Let's talk about what this
practically means for everybody listening right now.
Speaker 4 (17:20):
I mean markets, you know, hype.
Speaker 2 (17:23):
Who knows what's driving markets on any single day, But
the last several days have been pretty positive for markets,
So let's start right there. What do lower rates mean
for equity investors? I guess first and foremost.
Speaker 3 (17:32):
Yeah, so typically the lowering of rates would boost asset values,
all else equal, bar and costs would go down for
businesses to finance their operation from a growth perspective, and
that would lead to higher valuation. So I think that's
part of the movement that we've seen over the last
week or two, is the optimism regarding lowering rates and
thus driving the asset values. From a consumer standpoint, Just
(17:53):
for the listeners out there, what does that mean to you? Hey,
the CDs that I'm getting at the bank, maybe they
were at four and a quarter percent or four and
a half percent, those will likely come down very quickly
to three, seven, five or four percent on money markets.
The same thing applies there potentially on the good side
of things. For those people who are barring whole equi
lines of credit, likely those rates will come down because
(18:15):
those are variable and anything else credit card dots, credit
cards is a little slower to move, but those same
types of things. That's really what the consumer would feel
from an impact standpoint.
Speaker 2 (18:26):
Mortgage rates you have seen come down, it's not really
because I mean, I guess it's sort of attached to
what the FED has been promising to do here, but
not really going to move the needle when they actually
cut rates tomorrow, assuming that they do.
Speaker 4 (18:40):
You mentioned CDs.
Speaker 2 (18:41):
I just wanted to bring up a little story that
I had with a client the other day, which is
so common, But he was furious banks with a bank
that I won't name. He had been in a really
good interest rate CD for some time. He was traveling.
It auto renewed, and they renewed him right into to
a one percent CD. Now not the end of the world.
(19:04):
He can pull the money out, but he does have
to pay like three hundred dollars to get his money
out of this stupid CD. And I just want to
warn everybody out there that this is incredibly common. It
happens with money markets at banks, it happens with CDs
at banks, it happens with insurance companies and annuities. They
get you at a teaser rate and then the whole
way they make money is they renew you in some
(19:24):
garbage product when it renews. So buyer beware and keep
your eye out on this stuff. Quick Break Wall Street
Watches next.
Speaker 1 (19:40):
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 Wall Street.
Watch a complete look at what's moving market so far
today right here on the Financial Exchange Radio ne work.
Speaker 5 (20:00):
Markets are pulling back slightly as the FED begins its
two day monetary policy meeting today. Wall Street's also reacting
to better than expected retail sales data from August, where
retail sales increase zero point six percent, higher than estimates
of zero point two percent. Right now, the Dow is
(20:22):
off by about a half a percent, or two hundred
and four points. SMP five hundred is down about a
tenth of a percent. Nasdaq is completely flat at the moment.
Russell two thousand is retreating about half a percent. Ten
year treasure Field is currently flat at four point zero
three four percent. In crude oil at one point three
(20:43):
percent today, trading just above sixty four.
Speaker 1 (20:45):
Dollars a barrel.
Speaker 5 (20:47):
Oracle shares climbing over two percent higher after CBS News
reported that the Cloud Infrastructure Company is among several companies
that would enable TikTok to continue operations in the US
if a framework deal between the US and China is finalized. Meanwhile,
after surpassing three trillion dollars in market cap for the
(21:09):
first time yesterday, shares in Google parent company Alphabet are
dipping slightly today. Elsewhere, shares an arcade and restaurant chain
Dave and Buster are sinking sixteen percent after it logged
another quarter of declining same store sales. Nova Noordez said
its experimental once weekly weight loss injection drug helped patients
(21:31):
reduce their weight by eleven point eight percent after sixty
eight weeks. Novo shares are up over two percent. Chipotle
shares climbing over one percent higher after the burrito chain
authorized an additional five hundred million dollars for share repurchases.
In more news this morning from Tesla after US auto
safety regular regulators opened an investigation into whether some of
(21:55):
the company's electrically powered vehicle doors are defective. This comes
after Tesla stock jumped over three percent yesterday after CEO
Elon Musk purchased about one billion dollars worth of test
The stock shares are up another one and a half
percent today. I'm Tucker Silva and that is Wall Street Watch.
Speaker 4 (22:15):
Uh, Paul.
Speaker 2 (22:17):
We just covered that the FED is very likely to
cut rates at this next meeting. They're likely to do
so by a quarter of one percent. This follows a
trend that they had started back in the late summer
early fall of the last year, and is happening at
a time that I think is a little bit unique
(22:39):
for the Federal Reserve to be cutting rates, I guess,
And that's that's where I want to get to for
a moment here, I guess, before we even talk about data,
I just want to ask anybody listening, and you're welcome
to text us at six one seven three, six two
thirteen eighty five, regardless of what I'm about to tell you,
in terms of data, do prices seem stable to you?
Speaker 4 (23:00):
Do you feel like you know?
Speaker 2 (23:04):
I think the easiest example I can give is do
you know when you go grocery shopping next week for
your family what the price of that basket is likely
to look like? And that's a really important framework for
all this. I know we talk about the data, we
talk about the actual measurements how much did prices actually
move on a month to month basis, But so much
(23:25):
of this is built on expectations that I really think
how human beings actually feel about prices is probably as
important as all these survey results we get. Do you
feel prices are stable right now? Is what I want
to know. My general inkling is not really like when
I talk to people, part of it's because of tariffs,
(23:46):
part of it's just because of the massive swings that
you've seen over the last couple of years, that people
don't feel terribly stable in their expectations for prices. Nonetheless,
the FED is looking at this economy and saying, yeah,
they might be nervous about that, but we're much more
nervous about the labor market right now and the weakness
that we've seen in hiring, and so we think the
(24:07):
prudent thing to do is to cut interest rates. And
I'll be the first to say, I think you can
justify that decision. Sure, I guess my question is what
if they're wrong like they were in twenty twenty two. Again,
completely different scenario here, but we are facing a similar
type of decision making framework, which is, we're more worried
(24:31):
about the state of the labor market than we are
about prices. We think any price increases that we're seeing
right now will be temporary and then wash away in
twenty twenty two, depending on who you ask, they were
kind of right but pretty wrong on that. The part
that they were right about is, yeah, the price increases
that we saw did eventually fade and we got back
to normal inflation within a couple of years. What they
(24:53):
clearly got wrong was just how big the price increases
would be. And so I think there are some that
are at this and saying, Okay, you know, justifiable to
move now, but please be careful because we cannot live
through another period of high inflation like we did just
a few years.
Speaker 3 (25:09):
Yeah, there's been a huge shift to focus primarily on
the labor market, like you just said, and there's been
less emphasis, it seems like, on the inflationary front, and
the tricky spot that they could find themselves in is
that you cut rates here and perhaps you likely cut
again one more time before the end of the year.
And typically when the Fed is cutting rates, they are
(25:31):
trying to aid a slowing economy. As we've just discussed
in the program. It's kind of mixed bag as to
whether you'd say this is a slawn comedy. The labor
market is slowing, so by lowering rates, you are trying
to enhance or trying to create more economic activity, more barring,
more demand for consuming and all these types of things.
(25:52):
But when you're dealing with inflationary pressure like we saw
in twenty twenty two, and where we sit today is
a reflection of the fact that you have to increase
rates to slow down consumption, and so Fandetti always uses
the thermometer or speed limit, anything you want to say
there that would use as a good analogy. The problem
is if we find ourselves in a spot where inflation
(26:13):
is going up and the economy is slowing down. Think
about it as if you're driving a car that is
in neutral and you're trying to put your foot on
the gas. You're not going to go anywhere. There's really
nothing that the FED could do if that were the case.
So I think it bears mentioning that that is a
scenario out there. When you shift away from inflation, and
if it continues to tick up, that becomes problematic because
(26:34):
then the FED basically doesn't have the tool to solve
what that problem would would be if we got to
that point.
Speaker 2 (26:40):
Yeah, I just don't I don't want to jump that far.
Speaker 3 (26:44):
It's a lot would need to go wrong to be there.
Usually what happens for listeners out there is if you
get rising inflation, the economy, you know, comes down to
a point where you just don't have enough consumption and
demand for the products to kind of create that spiral
of increasing inflation.
Speaker 2 (27:04):
I just I think there is this tail risk out there.
I don't think there's a big tail risk of stagflation.
I tend to think we will get one or the other.
I think the real risk to inflation would be that, hey,
with all of the AI investment going on, with the
deportations and retiring baby boomers, that we're just dealing with
(27:26):
this lull in employment right now that is about to
swing to the other direction rather rapidly sometime within the
next year. And if that were to happen, right, retail
sales and everything else has been keeping up even with
this weaker employment scenario. Were that to happen, I don't
think you'd get a recession, but I do think you'd
get some higher inflation, and that the very least the
(27:48):
FED would need to pause their rate cutting cycle if
not swing in the other direction, which again not the
end of the world, but a bit problematic for doing
any sort of planning. Right, I thought rates were be
coming down over the next year. Now they're moving up.
My mortgage rates are getting more expensive again. All these
things are changing. So that's what I see is the
real tail risk here as they're just getting a misread
(28:09):
on the state of the labor market based on nerves
about tariffs plus AI. In some way that could just
be temporary, just like the price increases I think are.
But again, I don't know that I would be making
a different decision where I sitting in J.
Speaker 4 (28:26):
Powell shoes yep or chair. You don't sit and shoes.
Speaker 2 (28:30):
Don't know what you mean, right, stand and shoes, stand
and shoes sit and chairs in either case. We're going
to take a quick break and when we come back,
we're going to talk a little bit more about that consumer.
I want to talk about this retail spending report. I
want to talk about where it's coming from, specifically the
demographics of who is spending who's not. That's next here
on the Financial Exchange text.
Speaker 1 (28:50):
Does six one seven, twenty six to two, one three
eight five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. The Financial Exchange
Show podcast drops every day on Apple, Spotify, and iHeartRadio.
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Speaker 2 (29:18):
Paul the folks over at Baron's have an article this morning.
The economy was weak in August, retail sales may buck
the trend. So I guess let's start off was the
economy week in August?
Speaker 3 (29:29):
No, it was red hot, red hot. We saw retail
sales that were much higher than anticipated, coming in at
point six percent month over month, well above expectation.
Speaker 4 (29:39):
I want to say it was universally hot.
Speaker 2 (29:41):
I mean, there's gotta be something we can point to
that was weakness in August. The stock market was up
like crazy, but hiring was bad.
Speaker 3 (29:49):
Oh, I thought we were just talking retail sales.
Speaker 4 (29:51):
No, just generally, like, let's talk about the economy.
Speaker 2 (29:53):
They said their economy was weak in August, So I'm
trying to find evidence to support or deny their argument.
Speaker 4 (30:00):
Oh, lebonomy was weak in audubt.
Speaker 3 (30:02):
Labor market ticking up to four point three percent of employment,
two hundred and sixty three thousand recent jolts claims weekly
job is claims, but those can be kind of volatile
week to week, and you have the revision again backward looking.
But nine hundred and eleven thousand jobs stripped in terms
(30:22):
of job growth from March of twenty five through March
twenty four. Is that directly August.
Speaker 2 (30:26):
No, but that's probably gained nearly two percent in the
month of August. And to your point, yeah, it was
weak hiring, but it wasn't as though we had net
job loss. I guess it is where I would go.
So I don't know. I'm with you. I don't know
that you can universally describe the economy as weak in
(30:47):
the month of August. There were some concerns justifying the
FED to cut rates. This spending report, though, definitely contradicted
that other stuff, and it, I guess is just a
good reminder, which would be the consumer never leads a recession.
People just keep on spending until their car gets hauled
(31:10):
away by the repossessor, until you know, their credit card
gets closed up. People keep on spending if they have
a job and an income coming in and right now
they buy and large do a small percentage points higher
in terms of unemployment.
Speaker 4 (31:27):
But the other piece that I.
Speaker 2 (31:30):
Think is very worth mentioning is this divergence in terms
of who is spending the money.
Speaker 4 (31:36):
This fascinating meal all years.
Speaker 2 (31:39):
It has to me too, and I don't know why
it wasn't really on our radar in past years, because
I'm sure that it has been a growing trend. But
in the second quarter of twenty twenty five, consumers in
the top ten percent of the income distribution and I'll
have to look up what that means in terms of dollars,
but folks who are in the top ten percent of
(32:00):
the income distribution accounted for forty nine point two percent
of the total spending in the second quarter. That's up
from forty eight and a half percent in the first
and it's the highest level since this data point has
been looked at going back to nineteen eighty nine. So
the real story here to me seems to be one
of a diverging wealth and income inequality, where those who
(32:25):
own assets tend to also have higher incomes and are
much more comfortable spending in this economy than the other
ninety percent of consumers.
Speaker 3 (32:35):
This statistic has right around in my head all year.
Where when we get all this conflicting information, and the
retail sales is a great example of it this morning,
mic where we have some weaker labor market data that
we've been digesting and then here comes out a retail
sales number that is very strong, and perhaps this points
to this idea that the top ten percent are powering
(32:57):
this retail sales report or they're accounting for off the spending,
So they're half the reason behind why we saw a
pretty good number for the month of August. And I
continue to come back to this idea, and I haven't
gotten a ton of data on this, but does the
stock market now have more significant impact on the health
and the state of consumers than it did in years
(33:20):
prior because of this divergence that we're seeing here where
the top percent of earners. If you look at the
distribution on who owns stocks as a country, the significant
amount of ownership, you know, a good two thirds plus
is in those people who are in those top income percentiles.
(33:40):
And so what we've seen over the course of this
year is April the market took us very steep dive,
and you pointed to earlier retail sales in April and
May were very tepid on this idea that the uncertainty
around tariffs they've now resumed and it's come in line
with a stock market rally over the course of the
last few months that has been very strong. And not
to say that there's a direct one to one correlation,
(34:02):
but it does seem like more and more, Mike, if
we're going to have the top percent ten percent driving
so much of spending, A lot of their wealth is
tied to the stock market. If they're seeing their net
worth go up, I do think that provides some confidence
for them to get out there and continue to spend.
Speaker 2 (34:17):
By the way, I just took a look, the income
figure you need to reach to be in the net
top ten percent is around one hundred and fifty thousand
dollars as of the most recent data. So if you
have household income of one hundred and fifty k plus,
you would be considered within that top ten percent, that
top decile of income earners.
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Speaker 2 (35:43):
Paul, do you want to talk about earnings reports or
Boston real estate?
Speaker 3 (35:47):
Let's talk Boston real estate.
Speaker 4 (35:48):
Let's go there.
Speaker 2 (35:50):
I have an unpopular opinion, although I'm guessing it's growing.
Speaker 4 (35:55):
Masschusts economy screwed, not.
Speaker 2 (35:58):
Forever to tell, not forever, but I think that we
are in a cyclical trend that is going to be
pretty bad for the Massachusetts economy, and I think that
could spell more real estate listings. It's already been a
story of much higher unemployment, and that's my viewpoint. Three
(36:20):
days from now, we will get state level unemployment data
so we'll see the latest data for the month of
August for Massachusetts. But let me describe to you what's
happened in terms of employment in Massachusetts since December of
last year. I cherry picked December because in December that
was the last time that the Massachusetts unemployment rate matched
the national unemployment rate at four point one percent. Since then,
(36:44):
the national unemployment rate rose from four point one percent
in December to four point two percent in July, and
then now four point three percent in August. In Massachusetts, December,
we're at four point one. By July we're at four
point eight percent. If that had happened on the national stage,
the FED would have already cut rates by at least
(37:05):
fifty basis points, and we would be saying we are
probably in a recession right now as a nation. I
can point to a number of different things here. All
of it would be guesswork. I assume that unemployment in
the education sector, in the biotech sector is all increasing.
I've talked to folks in that area, and now you're
starting to see it in terms of real estate with
(37:27):
apartment owners in the Boston Cambridge area just saying yeah,
we've got more vacancies than we have anytime in recent history.
Speaker 3 (37:32):
Yeah, I mean, you've The biggest issue that they're combating
here is so much of the Boston rental market is
unique and different than New York, for example, which is
much more a month to month structure. So much of
Boston revolves around September first, and for a good reason,
because of a lot of students. And what you've seen
is the amount of students on visas from China and
(37:57):
India has declined substantially. There's been no virtual virtually no
visa appointments for the last few months for those students
in India, so that is leading to impact in the
rental market.
Speaker 2 (38:07):
I'm sorry, I think it's going to be a bit
of a tough spell for Massachusetts residents, landlords.
Speaker 4 (38:11):
Et cetera.
Speaker 2 (38:12):
Quick break, A lot more to cover in the second
hour of the Financial Exchange.
Speaker 4 (38:16):
Stay tuned, we'll be right back
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