February 10, 2026 • 38 mins
Paul Lane and Marc Fandetti break down a weaker-than-expected retail sales report and explain why a single data point matters far less than long-term economic trends. The hour also previews a critical week of jobs and inflation data, examines the Federal Reserve’s policy challenges, puts claims of 15% economic growth into historical perspective, and explores how wealth, labor, and capital are reshaping today’s economy.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:06):
Paul Lane, and Mark Vandetti.
Speaker 2 (01:11):
Welcome, welcome, welcome to this Tuesday edition of the Financial
Exchange as we shake off some of the Super Bowl
hangover that didn't really go our way in the New
England area. But this week for US and the Financial
Exchange is sort of like our super Bowl week in
terms of the amount of economic data that is coming
out this week. It is truly a very busy week
(01:33):
in terms of what we'll see. We have a retail
sales report that we're going to get into and just
a moment that was released at eight thirty this morning.
We're gonna get a jobs report tomorrow, and then we
are also going to get a CPI inflation report on Friday.
Speaker 3 (01:48):
Is very rare that you have all those reports within
the span of one week.
Speaker 2 (01:52):
Typically they are broken out into the one a week
cadence by the way the scheduling is released. But our
super Bowl mark, we got it all this week. We
got a little bit of labor, a little bit of inflation,
and then a little bit of the consumer pulse with
retail sales, and we'll start with that this morning. A
very weak retail sales report that came out for the
(02:15):
month of December, and US, we're expecting for spending to
grow zero point four percent month over month in the
month of December. We saw that the spending for the
holiday season in the month of December was flat, and
if you look back year over year on the spending trend,
it basically was down in effect, where you had retail
sales from last year in December of twenty twenty four
(02:37):
to December of twenty twenty five growing two point four percent.
But that's against the backdrop of inflation that was running
about two point seven percent over the same span of time.
So really a not a very strong report here at all.
There were sever areas that were quite weak. Some of
this was a little bit anticipated. We did see some
soft spending on autos and home furnishing and appliances, and
(03:00):
that was sort of perhaps baked in, but but worse
than anticipated here. And as a result of that, you've
got markets that are in relatively mixed territory, slightly positive.
On the equity side of things, I don't think they're
as concerned. We do see that the bond markets are
having a pretty sharp reaction here, where we've got the
US ten year treasury off about five bass points down
(03:21):
from four point two percent to four point one five percent,
and so Mark, I'll throw it right to you. Just
initial reactions from this release this morning on the retail
sales side.
Speaker 3 (03:30):
Of things, I have no reaction.
Speaker 4 (03:32):
You really shouldn't.
Speaker 3 (03:33):
It's like, oh God, we're up to a rough start.
Have to I'm going to throw them out the window.
Speaker 4 (03:38):
Do I have to do it yet? Said kidding, I
really don't. Though you made a good you made a
good analogy, because it's it's not the right way to
think about markets to the super Bowl, and in a
game any sport, every play matters, you could always look
off you hadn't missed that free throw or whatever, the
game's outcome would have been different. That is not true
of day to day movements in market, nor is it
(04:01):
especially not true, nor is it true with respect to
day to day movements and statistics in economic statistics. Nobody
looks back in the fourth quarter of two thousand and
eight and says I, had retail sales just gone the
other way, we would And I'm using an extreme example there,
because that the the individual observations, the data we get
from month to month, they're not it's gonna send it's
(04:23):
gonna sound a little silly, but they're not like individually,
They're not as important individually as is the trend that.
Speaker 3 (04:30):
They point to.
Speaker 4 (04:31):
So and you could say, well, each one is the
sequence is an important part of the trend. So you
can't while you can't dismiss any one data point, nor
can you read much into it. Now, you guys do
a daily show here, so you have to come on
the air and talk about whatever the news is and
try to make some inference from it. But that's not
the way a researcher would would look at it. So
(04:52):
I always kind of I struggle with how to how
to make these minute to minute releases kind of relate
and relevant. If something falls through the floor and it's
confirming what other data is saying, that might be interesting.
But this is kind of an anomally, Paul, because all
other indicators, with the exception of some softness in the
(05:13):
labor market, which we'll get to YEP, are pointing toward
reasonably strong economic growth, which we measure using GDP. Another
topic we're going to get to, A big component of
which just in an accounting sense, is spending.
Speaker 2 (05:26):
Is consumption, and the month of November's numbers were quite
strong so that is the backdrop heading into this month
that we did see in November a over half percent
increase month of a month on retail sales. You know
some mentioning today that perhaps what we saw in December
was some of the effects from some of the tariffs,
(05:46):
just because of some of the areas. But like you said,
it has to be a larger trend before you're willing
to go and point in that direction. Like like you said,
you're trying to analyze these on the fly and do
the best that you can to pick out where the
trends could really be good analogy.
Speaker 4 (06:00):
Maybe you know the people who say global warming it's
called out today. Well, first of all, it's called global
warming because it's not just how you feel when you
walk outside your house. But secondly, you get to look
at average temperatures and there is something funky going on.
I'm not saying what its cause is, I'm not qualified to,
but that's an example of focusing on one like data
point and not thinking about larger trends over not just
(06:23):
weeks and months, but really years.
Speaker 2 (06:26):
Right and on the spending front, if you look back
at some of the larger trends, like you were mentioning
we have had really strong economic growth. It is important
to point that out. Q three GDP was at four
point four percent as of its most recent revision. We're
looking at for Q four of GDP about four point
two percent at the moment, though that's.
Speaker 3 (06:47):
Supposed to be revised a little bit here today.
Speaker 2 (06:50):
Of that growth that we've seen in the economy, there
has been a three and a half percent growth in
consumer spending. That does make up a bulk of some
of the GDP growth that we've seen.
Speaker 3 (07:01):
It's about two thirds.
Speaker 2 (07:03):
When you're looking at economic growth is tied to what
is the consumer getting out there and spending. So it
is worth noting that, hey, December did come in weaker
than anticipated from a spending perspective, but like Mark has mentioned,
you got to string together a couple months of that
data to really point to it being significant. Because we
did have that November number was quite strong.
Speaker 4 (07:25):
And it's not a natural way to react because somebody
presents you with a number, it's either big bigger than expected.
It's always relative expectations that matters, I guess, because markets
are pricing in in theory what's expected. It's natural to think, well,
I'm supposed to react to this. The media is talking
about it. These guys on the radio were talking about it.
It must mean something, and not necessarily.
Speaker 2 (07:49):
On the other front, retail sales just anything else. I
think that it is worth pointing out here I mentioned
the weakness on autos and home furnishings and appliance. We
did see some other areas that saw a little bit
in the way of gains. We saw building materials for
garden equipments accrease one point two percent. We saw gains
(08:10):
at sporting goods stores almost up a half percent there,
But it was those furniture stores and clothing retailers that
saw a bit of a decline. As I mentioned to
kick off the show, really big week in terms of
economic reports being released. The retail sales one was one
that came out this morning, but tomorrow we'll get the
jobs report, which I would argue is probably the most
(08:31):
significant of the week, just given the amount of scrutiny
and focus on the labor market, and in particular, not
only will we get what we anticipate for January's gains
in the labor market, which is estimated to be around
seventy thousand jobs that were added for the month of January.
We had fifty thousand that were added in the month
(08:52):
of December. The unemployment rate it sits at four point
four percent. But not only are we going to get
updates on those figures, we will also get a backward
looking revision as to how many jobs were added from
March of twenty four through March of twenty five. So
certainly that is going to be of a lot of
focus for what the Federal Reserve does from an interest
(09:14):
rate policy perspective, and what markets will be looking at
tomorrow morning when that comes out.
Speaker 4 (09:18):
Mark yeah for perspective. In twenty twenty two, coming out
of what twenty twenty one, coming out of COVID, four
million new jobs were added according to the so called
Establishment Survey of Payrolls. That number jumped in twenty twenty
two to six point two million, just staggering. So the
economy was growing fast, too fast. That's why we had inflation.
(09:38):
The economy was exceeding it's it's speed limit, it's productive capacity,
if you'll like, and then things started to cool off.
Three point three million jobs in twenty twenty two, two
point one million jobs in twenty twenty three. Excuse me,
three point three million, two point one million in twenty
twenty four, and we twenty twenty five through we had
(09:59):
we got December, right, this is we're gonna get January.
So we got yeah, this is for the full year
one point four a million, but subject to revision, right right,
So clear downward trend, but off a feverish, unnaturally hot pace.
So the question I struggle with is not that you asked,
but uh, is this just a normalization? I mean, unemployment
it's at four point four percent. If you put that
(10:21):
in a hat, that rate, and you pulled that out
of the hat, and whatever you pulled out of hat
was going to be the unemployment rate, you'd be really
proud of yourself. That's extraordinarily low in historical terms. But
there are some people who think what it should be
three I guess or I don't know.
Speaker 2 (10:35):
Well, it's it's something that just looking forward, that is
worth scrutinizing, because if you do see a significant uptick
on the unemployment rate, you would imagine that you'd see
weakening consumer spending and there would be.
Speaker 3 (10:49):
From it.
Speaker 4 (10:49):
But maybe that's just the norm. I don't know, is
that just the normalism? And I'm throwing a lot, a
lot of thrown out, a lot of rhetorical stuff here
that's not very helpful. But my point is as a researcher,
you never really know what if the economy is so
called natural rate, it's non inflationary rate has jumped to
five and a half. I don't think so, but historically
it was between five and six. It got below five
in the late nineteen nineties in the productivity miracle that
(11:14):
was brought about by it allowed unemployment to be very
low without inflation. Taking up question is where are we now?
Speaker 2 (11:25):
We're going to take a quick break here on the
Financial Exchange. When we come back, a lot more to
talk about in what is a very busy week, previewing
inflation as well as some other economic reports that are
due out in this busy week.
Speaker 3 (11:36):
Right after this break.
Speaker 1 (11:38):
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Speaker 5 (12:02):
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Speaker 2 (12:23):
As I was mentioning in the earlier segment, really big
week this week in terms of economic reports. We'll get
the jobs report tomorrow, and then on Friday we will
get the CPI inflation report for the month of January.
So we're gonna spend a couple minutes here just talking
about that report that is due out on Friday. Inflation
has run at two point seven percent year over year
(12:45):
in terms of what we're anticipating for Friday's release we're
looking at I believe it was two point four percent
in terms of what they're anticipating for the inflation on
the consensus for Friday's numbers. But something that is in
big focus as you head into to twenty twenty six.
(13:05):
There has been perhaps some arguments mentioned out there that
I don't put a lot of weight in that there
will be post holiday adjustments by retailers that will be
reflected in this January report. These price adjustments will will
tick up. A lot of that is seasonally adjusted, when
you know typically retailers will go in in January and
adjust prices, so a lot of these reports adjust for
(13:26):
that fact of seasonality. So I don't know if necessarily
that will be a huge piece of it, but certainly
that is a big focus part of the dual mandate
for the Federal Reserve, and dovetails into the next item
here to address is not only are we going to
get the inflation report on Friday, but also it is
going to be another indicator for the Federal Reserve to
(13:50):
sort of assess in terms of what they're going to
do from an interest rate perspective. If we take a
look right now at the CME futures market, about a
week ago, you had, in terms of the probabilities of
where interest rates were going to go from the Federal
Reserve a ninety percent probability that they were going to
continue to stay the course in the next upcoming meeting
(14:10):
on March eighteenth and keep interest rates at three and
a half to three point seventy five percent on that
Fed funds rate. With some of the retail sales reports
numbers that we got this morning, and just some of
the trends over the course of the last few days
or so. It is now at about close to an
eighty ten split of holding rate static versus potentially pricing
in a little bit more of a likelihood of a
(14:32):
cut here heading into this next meeting.
Speaker 4 (14:34):
Yeah, this relate the fed's UH dilemma, and it's always
in a bit of a pickle because unemployment and inflation,
and you could substitute for unemployment vacancies GDP relative to potential.
There are a lot of ways to measure slack in
the economy, and the best way changes over time. That's
a challenge in and of itself. The FED is always
trying to determine is the economy running too hot, too cold,
(14:57):
or just right? Just right means demand is grow swing
no faster than supply. The FED you can think of
as controlling demand. They print money, lower interest rates, or
take money out of the economy. It's a little more
complicated than I'm obviously portraying it, but this gives you
the gist of it. Take money out of the economy,
they slow demand and thus slow inflation. Fed's always asking
(15:21):
is the economy again growing too fast relative to its
productive capacity. Is demand outpacing supply. Demand really outpaid supply.
In twenty twenty two and twenty twenty three, we saw
the result inflation was that all the Fed's fault. No, Now,
the FED can control inflation in the very long run,
money supply lines up, money supply growth lines up well
with inflation in the long run, doesn't line up well
(15:42):
with it in the short run. There too many other
factors buffeting the economy globally that impact inflation. So the
Fed's job, needless to say, is hard. But ultimately responsibility
for stable, low, long term inflation lies with the Fed
because that's driven by the supply of money, which they control.
Speaker 2 (16:03):
Sure, what we're looking at is also a focus is
the neutral rate, which is basically this idea of hey,
where where should interest rate policy be? That neither, like
you were just kind of alluding to as some of
the responsibility stimulates or constraints growth. That is sort of
what the FED is always trying to feel around and find.
But it's something that is abstract. You're never going to
(16:23):
know exactly where it is. It's more of a feeling
out process, and some of these reports help to give
a little bit of guidance, but as you mentioned, it's
really hard to balance. The two focuses are that inflation
and job grop of the feder Reserve. And on the
inflationary front, it is about two and a half percent
that we're anticipating on the year over year over year
(16:45):
number from an increase on the inflationary front. But right
now investors are pricing in that there would be two
rate cuts this year. You've got the FED on their
most recent projections projecting in one of course, will have
Kevin Warsh succeeding Jerome pal in May of this year,
so that is going to be a focus. On the
(17:07):
last Federal Reserve meeting vote, you had ten people who
had voted to keep rates where they were at about
three and a half to three point seventy five percent,
and two dissenting.
Speaker 3 (17:16):
So that is all on the table.
Speaker 2 (17:19):
Over the course of the next couple of days, we'll
get more economic data points there and then that meeting
though is not going to be to the middle of March.
Speaker 4 (17:27):
If you want a little framework for thinking about the FED,
the Thermostat analogy is Okay, I use it a lot,
you love it, but it's flawed. Yeah, as much as
I can love anything. I guess ah, but that's it.
Dose My emotional issues are not what we're talking about here.
The idea with the thermostat analogy is, well, the fed's
job is to heat the economy up when it's running
too cold, and vice versa. The problem with that analogy
(17:48):
is that the FED doesn't know what the actual temperature
is right now, so it's got to guess at that.
The FED doesn't know when the furnace is going to
come on or the HVAC system is going to come on.
You bump it up a couple of degrees because somebody
in the house can lanes. It might not come on
for six months if you're the FED. This is that
that's another problem with my little thermistat analogy. Another problem
is that you don't know what the temperature is going
to be outside by the time the freainging hvac does
(18:10):
come on.
Speaker 3 (18:11):
Yeah, in my house, different rooms kind of heat up
in different ways just to do the piping there too,
so that that probably plays in.
Speaker 4 (18:17):
These are the problems you have when you live in
a seventy five hundred square.
Speaker 3 (18:20):
Foot yeah right home.
Speaker 4 (18:22):
Most of us never we'll just never know those struggles no,
but the thermostat analogy is okay. But it's actually if you
think about why it's a bad analogy, it helps you
understand the challenges the FED faces. Imagine if when you
went to change your thermostat, you didn't know exactly what
it was outside, and you didn't know exactly when the
HVAC was going to come on, and you don't really
know exactly how the temperature in one room relates to
(18:43):
the room in another, so you can sort of adjust
the temperature in your house, but good luck. That's the
challenge the FED faces. And that's why the thermostat analogy,
although it's the best I can come up with to date,
why it kind of fails.
Speaker 2 (18:56):
It's it's hard and you only they only have so
many tools to fix it, and one of the ones
that we talk about most frequently is the interest rate one.
They can also control the monetary supply.
Speaker 3 (19:05):
Those are really the.
Speaker 4 (19:06):
Well those are by controlling the supply of money, you
control I mean, ultimately they print money.
Speaker 2 (19:10):
Right taking a look at markets here, we've got the
Dow Jones up about two hundred and fifty plus points.
They're rallying about a half percent plus. We've got the
S and P five hundred up about sixteen points or so,
or a quarter of our percent. We're gonna have much
more on the markets when we come back from this rate.
We've got Wall Street Watch and much more here on
the Financial Exchange.
Speaker 3 (19:30):
Stick with us, Like.
Speaker 1 (19:40):
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 markets so far today
right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Well, markets aren't positive Territory modestly, as Walter reacts to
a somewhat underwhelming retail sales report from the month of
December to cap off the holiday season, where sales climb
zero point four percent, down from zero point six percent
in November. Traders are also sifting through more fourth quarter
earnings from the likes of Coca Cola, CBS Health, and Spotify.
(20:23):
Right now, the Dow is up over half a percent,
or two hundred and sixty two points higher, S and
P five hundred up about a quarter percent or seventeen
points higher. NASDAC also up about a quarter percent or
fifty points higher. RUSTED two thousand mostly flat, edging higher.
Tenure treasure reel down four basis points at four point
one four to nine percent, and crude oil up about
(20:46):
a third of a percent higher, trading at sixty four
dollars and fifty five cents a barrel. Beverage giant Coca
Cola reported earnings this morning that missed revenue expectations for
the fourth quarter, while it's adjusted earnings beat. The company
guided for twenty twenty six organic revenue growth of four
to five percent and comparable earnings growth of seven to
(21:06):
eight percent. Coke stock is down over one and a
half percent to this point. Meanwhile, audio streaming company Spotify
seeing its stock rally eighteen percent after the company saw
its monthly active users grow to seven hundred and fifty
one million, up eleven percent from the same period a
year ago and above street forecasts. Spot excuse me. Spotify's
(21:29):
premium subscribers also increased ten percent to two hundred and
ninety million. Elsewhere, Taiwan Semiconductor posted its higher highest monthly
revenue ever to four hundred and one point three billion
dollars in January, up thirty seven percent from a year ago.
Shares are up by one percent, sticking with the chip sector,
(21:49):
where On Semiconductor saw its sales decline and its two
biggest businesses and narrowly missed revenue expectations for the previous quarter.
That stock is up by about three percent. CBS Health
reported fourth quarter earnings and revenue that beat expectations with
a health insurer also held its twenty twenty six profit guidance. However,
(22:10):
the stock is up by two percent, and after today's close,
we'll see more earnings from the likes of Ford, Robinhood
and Gilead Sciences. I'm Tucker Silvan.
Speaker 1 (22:21):
That is Wall Street watch.
Speaker 2 (22:23):
President Trump stating that his federal pick for or his
pick for the Federal Reserve chair, Kevin Warsh, can get
the economy to hit fifteen percent growth. Unclear what statistic
he was trying to tie that to. Perhaps GDP growth,
that's what you'd think when you're economic growth, But that
fifteen percent is an absolutely staggering number. Over the course
(22:43):
of the last five decades, GDP growth in America has
averaged two point eight percent, So the idea that it's
going to do five times that is particularly as developed
as the economy that we are, is a little bit staggering.
Speaker 4 (22:57):
Let's let's talk about that. Let's is that plausible? Is
that a plausible statement? Can the Fed get the economy
to grow fifteen percent just a year over year? The
answer is, what do you think it is? No, yes, absolutely,
if they can do that, actually it would all be
it would all be inflation. I assume, Yeah, it's obvious.
It's almost a trick question. Yes, say come on, are
you kidding me? But and I don't think this is
(23:18):
what the.
Speaker 2 (23:18):
We're gonna have to hide her into the desk if
we run at fifteen percent inflation.
Speaker 4 (23:22):
It's useful to keep this in mind. You can measure
what's GDP gross domestic product. It's just an accounting construct.
It's what we spend, what the government spends, what businesses spend,
and then a little adjustment for so called net exports.
But just think of it as the sum total of
all the spending in the economy. There are other ways
to look at economic output. You can look at the
income side of the equation. For example, they should give
(23:42):
you roughly the same answer. So GDP is for better
for worse. How we measure how we're doing, how the
economy is doing? So could the FED get the economy
to grow at fifteen percent. Yeah, I can get the
economy to grow at one hundred percent. The problem is
that you're not adjusting for inflation. In the nineth teen seventies,
for example, the mid nineteen seventies. In seventy three, GDP
(24:04):
grew was quite an inflation every year. The CPI year
over year was about six percent, but GDP growth even
nete of that was high, but total they growed eleven
and a half percent. The highest GDP again nominal, which
is a fancy way of saying without the not adjusting
for exactly Yeah, GDP growth in nineteen seventy eight was
(24:25):
thirteen percent. Seven percent of that was inflation. Right now,
I'm this is a little bit sloppy the way I'm
doing it, But the point is the fedkin engineer any
growth rate, but it's not leading to higher living standards.
If most of that growth or half of it, and
some of the examples I gave is coming from increases
(24:46):
in the price level, nobody's any better off. Now. I
don't think that level of subtlety was happening in the
analysis that lie behind whatever it is you're reading there.
But I will tell you just in the interest of
not just saying, well, what a stupid statement. Who would
say something like that? A more interesting question maybe because
we try to learn together on this show and maybe
impart something to the audiences. Could that happen? Yeah, fed
(25:09):
can do that. You wouldn't probably wouldn't like that, but yeah,
the Fedkin engineer really any growth rate?
Speaker 3 (25:15):
No, I don't think it's very interesting, dude, It is
very interesting.
Speaker 2 (25:17):
That is interesting because no one would speak glowingly about
the nineteen seventies for those levels of economic growth. No
one would reminisce back is how great things where. It's
quite the contrary.
Speaker 4 (25:28):
This is why it's important to when someone's telling you something,
ask for perspective. You gave some good perspective. You pointed
out in the last fifty years, GDP growth has been
you said, you're talking about real GDP growth adjustment for
replace it has been nearly three percent. Three percent was
about the average of the second half of the twentieth century.
Since then, it's been about two percent. That that's a
big slowdown. It doesn't sound like a lot, but in
(25:49):
terms of standards of living, we'd be about forty percent
richer had GDP continued to grow at the rate of
the previous century. It's useful to have some of these,
some of these fact about the economy in your back
pocket if you're into this stuff, even if you're only
into it casually, so that you know how to call
BS on something that's obviously BS.
Speaker 3 (26:11):
It's interesting the fifteen percent.
Speaker 2 (26:12):
It's good you put in perspective that it is possible
because I wasn't thinking about the inflationary part.
Speaker 3 (26:18):
Of it, that it could make it possible.
Speaker 4 (26:20):
So, yeah, it's like I said, I can make everybody
a millionaire. Give me control of the money supply. I'll
make you all million billionaires, trillionaires, pick how many zeros
you want. You're not gonna be any better off than
you are today. It's just gonna have to tag a
bunch of zeros onto.
Speaker 2 (26:34):
The prices of everything. Yeah, a little bit like that.
Kevin Warsh is set to be appointed in May of
this year, but also there is the current hearing going
on regarding the federal budget building renovation products, so perhaps
he gets delayed his appointment a little bit. But certainly
President Trump has some high expectations for him, so we'll
(26:56):
see how that all plays out.
Speaker 4 (27:00):
But you understand in light of what we've been talking
about for the past forty five minutes. Now nearly you
can't come into that job with a preconception about interest
rates thinking they only need to come down, because, as
we've been discussing, it's about striking the right balance given
where unemployment or whatever your measure of slack is in
the economy, and where not only inflation is today, but
where you think it will be.
Speaker 2 (27:21):
Exactly a great piece here today in the Wall Street Journal,
this is by Greg ibb. The big money in today's
economy is going to capital, not labor, and he did
a fantastic view sort of of where we've been. If
you look back in nineteen eighty, IBM was the bell
of the ball, the most valuable company in the United
(27:41):
States with over four hundred thousand employees and the largest
market cap at that point in time. Today, if you
look at the same sort of pinnacle position of the
most valuable company in the United States, Nvidia has that
slot where he makes the point that they are twenty
times more valuable and five times more and this is
adjusted for inflation compared to where IBM was back in
(28:05):
the nineteen eighties, though it only has one tenth of
the workforce, and Vida employs about forty thousand people compared
to the four hundred thousand that IBM employed. And specific
to this broader context of these two behemoth companies of
one of yesteryear, though still around today but not in
the same scope and scale, and the one today in
(28:27):
video that dominates the markets is in particular just a
analysis on where all that money, where are the profitability
is going And it breaks down first from a broader perspective,
and we just hit it on a little bit that
GDP is just trying to encompass economic growth, all the
value that's being added to the economy. And if you
(28:47):
look specifically at a manufacturing business what it produces in
terms of its goods, it has its sales and then
it has its input the costs that are associated that
go in to building out those goods.
Speaker 3 (29:01):
The difference between the two the sales less the costs.
Speaker 2 (29:04):
All that excess is usually distributed out through wages and
profits and interests. And what has changed so dramatically over
the last forty years, as Greg get pointed out in
this piece here, is that much more of that profitability
was going to the labor force back in nineteen eighty
and that percentages has dramatically decreased over the course of
(29:26):
the last forty years. That fifty eight percent of those
gains from what businesses we're selling were going to the
labor force. That number sits at about fifty one percent today.
And he does that by measuring out gross domestic income
just to sort of get a sense for what is
the labor force actually taking away from the profitability of
the firms. Rather a lot more of that money and
(29:48):
profitability rather than going to the actual workforce and form
of wages, is going to household wealth in terms of
people who have stock ownership. And I just thought it
was an interesting analysis that you the.
Speaker 4 (30:02):
Right statistic, And I don't know why he didn't use it.
His share of labor compensation. It's actually this series is
reported by it's in various databases. You can actually get
it on FRED sometimes we talk about FRED. It's accessible
and it's easy to read. You can make your own
charts and all that crap. If you're into that SHAREFF
labor comp Yeah, is now And it's exactly the definition
is exactly what it sounds like. How much of the
(30:24):
economy's income goes to labor it's at zero point five
six eight today about fifty seven percent. In nineteen seventy
it was about sixty five percent. So that's the most
widely followed measure of how well how income's being abortioned.
And one way to think about this is that productivity
(30:45):
has been going up faster than wages. If you think
about a unit labor cost is compensation divided by what output?
Am I thinking about that?
Speaker 1 (30:57):
Right?
Speaker 2 (30:57):
Well? Basically, yes, this idea that then of Daniel actual
employees in this country relative to it, there were forty
years ago, far fewer people who work in manufacturing, but
more goods produced, right that general concept, Yeah.
Speaker 4 (31:08):
And the composition of the labor force is a result
how much of it is unionized bargaining power. When comp
is not rising as fast as productivity, that so you're
not get you're not reaping the full benefits of your
increased productivity. When that happens, by necessity, the share of
(31:34):
income that goes to workers has to fall.
Speaker 2 (31:36):
And that's what we've seen in since twenty nineteen. Profits
are up forty three percent from the S and P
five hundred companies, but average hourly wages are only up
three percent adjusted for inflation over that period of time.
And so there's a lot more meat on the bone
here that I want to get into because I think
it is a really interesting piece to sort of examine
(31:56):
and sort of furthers the concepts that we've talked about
regarding the K shape economy that we sort of sit
and today. So we're gonna take a quick break here
on the Financial Exchange. When we come back, we'll be
talking more about this piece as well as the S
and P S five hundred's next target of seven thousand
right after this break here on the Financial Exchange.
Speaker 1 (32:14):
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Speaker 2 (33:16):
Spinning back here to this story that was part of
the Wall Street Journal this morning, where it goes over
just sort of the shift that we've seen in the
economy specific to some companies in the United States over
the course of the last forty years, where there has
been a big shift from capital, or rather two capital
from labor. Where basically labor was receiving fifty eight percent
(33:39):
of the total proceeds of economic output as measured by
gross domestic income, which is kind of similar to the
concept of GDP in nineteen eighty. That percentage sits at
the third quarter of last year at fifty one percent,
So we've dropped from fifty eight percent of sort of
the benefits being reaped by a company going to the
labor the staff on hand through the course of wages
(34:02):
and bonuses and other types of coverage to now down
to fifty one percent. And so where has that money
gone if it's not going to labor, A lot more
of it has gone to profits. And ultimately, if you
follow out that chain, more profits of a company, typically
you see increase earnings and as a result, you see
the stock price going up of companies, just very broadly speaking.
(34:25):
And so it hits on this idea that I have
mulled over a lot where it just seems like mark
to me, and this helps put some numbers behind it,
but it's not exactly precise. That the stock market has
a lot more bearing on sort of consumer spending and
sort of the amount of optimism that folks have for
(34:47):
the economy, particularly in the higher end of things, than
it did five years ago, ten years ago. And maybe
that's just emblematic of what's been a really great run
for markets over the last three or four years or so.
There is a stat that Greg Get points to here
in the Walt Your Journal piece that if you look
back at twenty nineteen, household stock wealth was two hundred
(35:07):
percent of their annual disposable income. That figure now sits
at three hundred percent today, and obviously that is reflective
of a really good five or six year run for
the markets. But the amount of money people have on
the hire income side of things that is invested in
stocks is three times what they would make from an
annual disposable income. And so this is a point that
(35:27):
I've mulled over and I do feel like has more
impact than it did previously how the market's fare and
how that impacts consumer behavior.
Speaker 4 (35:34):
And it's a double edged sword. This is a big area.
So I'm not going to pretend to have any deep
insights with respect to your last comment, though the effect
you're describing has been pretty well documented. It's called the
wealth effect, and it's exactly what it sounds like. It's
the percentage of stock gains. If stocks go up one percent,
how much does spending go up? Somewhere between three, five,
(35:58):
maybe seven cents. The wealth effect is somewhere in the
load to mid single digits. That changes. But most researchers
agree that there is such a thing. Is it bigger
and is it more stable now than it used to be?
And if so, what happens when stocks crash when they
inevitably do. There was a time when a crash inequities,
(36:21):
I don't think nineteen twenty nine. That didn't bode well
for investment, but it didn't freak people. It did freak
people out, I shouldn't say that, but it didn't immediately
cause a drop in people's net worth. It did immediately
cause a drop in some types of spending. Though interestingly,
very few people own equities in those days. We're not
talking nearly on hundred years ago, which is why I
bring it up. What would the effect be like today?
(36:43):
I don't know.
Speaker 3 (36:44):
Yeah.
Speaker 2 (36:44):
Doug Petta is strategists at BCA Research. He estimated that
a ten percent stock return, including dividends taxed at the
highest marginal rate, would boost spending capacity as much as
an eighteen percent rise in income. Again, that's just one
research take on it, but sort of furthering this idea
that I've multied the.
Speaker 4 (37:03):
Problem with approaches like that. I do that occasionally internally
when I say to the group, here's the wealth effect,
and here's how you estimated. Is that you can't assume
that those relationships will will hold They're not very good
at they don't hold up really well as as forecasters.
Speaker 2 (37:18):
Taking a look around at markets, market's largely in positive
territory here, shaking off a weak retail sales report that
we got earlier this morning, with the Dow jones up
about two hundred and thirty points are close to half percent,
the S and P five hundred is up about fourteen
points zero point one eight percent, and the Nasdaq is
is relatively flat, only up about twenty six points at
(37:41):
the moment. The US ten year Treasury is off about
five basis points, sitting at about four point one point
five percent on that retail sales miss, and we've got
oil sitting at around sixty four dollars a barrel, not
moving too much. The most interesting area the market in
twenty six in terms of volatility has definite and gold
and silver, but they're not being nearly as volatile as
(38:03):
they've been in the past, with gold only off about
one percent today, sitting at a little over five thousand
dollars an ounce, and silver's off about two percent. That's
all the time that we have for the first hour
here on.
Speaker 3 (38:13):
The Financial Exchange. We're going to take a quick
Speaker 2 (38:15):
Break, but we've got much much more to cover here
on the second hour stick with us here on the
Financial Exchange
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(01:06):
Paul Lane, and Mark Vandetti.
Speaker 2 (01:11):
Welcome, welcome, welcome to this Tuesday edition of the Financial
Exchange as we shake off some of the Super Bowl
hangover that didn't really go our way in the New
England area. But this week for US and the Financial
Exchange is sort of like our super Bowl week in
terms of the amount of economic data that is coming
out this week. It is truly a very busy week
(01:33):
in terms of what we'll see. We have a retail
sales report that we're going to get into and just
a moment that was released at eight thirty this morning.
We're gonna get a jobs report tomorrow, and then we
are also going to get a CPI inflation report on Friday.
Speaker 3 (01:48):
Is very rare that you have all those reports within
the span of one week.
Speaker 2 (01:52):
Typically they are broken out into the one a week
cadence by the way the scheduling is released. But our
super Bowl mark, we got it all this week. We
got a little bit of labor, a little bit of inflation,
and then a little bit of the consumer pulse with
retail sales, and we'll start with that this morning. A
very weak retail sales report that came out for the
(02:15):
month of December, and US, we're expecting for spending to
grow zero point four percent month over month in the
month of December. We saw that the spending for the
holiday season in the month of December was flat, and
if you look back year over year on the spending trend,
it basically was down in effect, where you had retail
sales from last year in December of twenty twenty four
(02:37):
to December of twenty twenty five growing two point four percent.
But that's against the backdrop of inflation that was running
about two point seven percent over the same span of time.
So really a not a very strong report here at all.
There were sever areas that were quite weak. Some of
this was a little bit anticipated. We did see some
soft spending on autos and home furnishing and appliances, and
(03:00):
that was sort of perhaps baked in, but but worse
than anticipated here. And as a result of that, you've
got markets that are in relatively mixed territory, slightly positive.
On the equity side of things, I don't think they're
as concerned. We do see that the bond markets are
having a pretty sharp reaction here, where we've got the
US ten year treasury off about five bass points down
(03:21):
from four point two percent to four point one five percent,
and so Mark, I'll throw it right to you. Just
initial reactions from this release this morning on the retail
sales side.
Speaker 3 (03:30):
Of things, I have no reaction.
Speaker 4 (03:32):
You really shouldn't.
Speaker 3 (03:33):
It's like, oh God, we're up to a rough start.
Have to I'm going to throw them out the window.
Speaker 4 (03:38):
Do I have to do it yet? Said kidding, I
really don't. Though you made a good you made a
good analogy, because it's it's not the right way to
think about markets to the super Bowl, and in a
game any sport, every play matters, you could always look
off you hadn't missed that free throw or whatever, the
game's outcome would have been different. That is not true
of day to day movements in market, nor is it
(04:01):
especially not true, nor is it true with respect to
day to day movements and statistics in economic statistics. Nobody
looks back in the fourth quarter of two thousand and
eight and says I, had retail sales just gone the
other way, we would And I'm using an extreme example there,
because that the the individual observations, the data we get
from month to month, they're not it's gonna send it's
(04:23):
gonna sound a little silly, but they're not like individually,
They're not as important individually as is the trend that.
Speaker 3 (04:30):
They point to.
Speaker 4 (04:31):
So and you could say, well, each one is the
sequence is an important part of the trend. So you
can't while you can't dismiss any one data point, nor
can you read much into it. Now, you guys do
a daily show here, so you have to come on
the air and talk about whatever the news is and
try to make some inference from it. But that's not
the way a researcher would would look at it. So
(04:52):
I always kind of I struggle with how to how
to make these minute to minute releases kind of relate
and relevant. If something falls through the floor and it's
confirming what other data is saying, that might be interesting.
But this is kind of an anomally, Paul, because all
other indicators, with the exception of some softness in the
(05:13):
labor market, which we'll get to YEP, are pointing toward
reasonably strong economic growth, which we measure using GDP. Another
topic we're going to get to, A big component of
which just in an accounting sense, is spending.
Speaker 2 (05:26):
Is consumption, and the month of November's numbers were quite
strong so that is the backdrop heading into this month
that we did see in November a over half percent
increase month of a month on retail sales. You know
some mentioning today that perhaps what we saw in December
was some of the effects from some of the tariffs,
(05:46):
just because of some of the areas. But like you said,
it has to be a larger trend before you're willing
to go and point in that direction. Like like you said,
you're trying to analyze these on the fly and do
the best that you can to pick out where the
trends could really be good analogy.
Speaker 4 (06:00):
Maybe you know the people who say global warming it's
called out today. Well, first of all, it's called global
warming because it's not just how you feel when you
walk outside your house. But secondly, you get to look
at average temperatures and there is something funky going on.
I'm not saying what its cause is, I'm not qualified to,
but that's an example of focusing on one like data
point and not thinking about larger trends over not just
(06:23):
weeks and months, but really years.
Speaker 2 (06:26):
Right and on the spending front, if you look back
at some of the larger trends, like you were mentioning
we have had really strong economic growth. It is important
to point that out. Q three GDP was at four
point four percent as of its most recent revision. We're
looking at for Q four of GDP about four point
two percent at the moment, though that's.
Speaker 3 (06:47):
Supposed to be revised a little bit here today.
Speaker 2 (06:50):
Of that growth that we've seen in the economy, there
has been a three and a half percent growth in
consumer spending. That does make up a bulk of some
of the GDP growth that we've seen.
Speaker 3 (07:01):
It's about two thirds.
Speaker 2 (07:03):
When you're looking at economic growth is tied to what
is the consumer getting out there and spending. So it
is worth noting that, hey, December did come in weaker
than anticipated from a spending perspective, but like Mark has mentioned,
you got to string together a couple months of that
data to really point to it being significant. Because we
did have that November number was quite strong.
Speaker 4 (07:25):
And it's not a natural way to react because somebody
presents you with a number, it's either big bigger than expected.
It's always relative expectations that matters, I guess, because markets
are pricing in in theory what's expected. It's natural to think, well,
I'm supposed to react to this. The media is talking
about it. These guys on the radio were talking about it.
It must mean something, and not necessarily.
Speaker 2 (07:49):
On the other front, retail sales just anything else. I
think that it is worth pointing out here I mentioned
the weakness on autos and home furnishings and appliance. We
did see some other areas that saw a little bit
in the way of gains. We saw building materials for
garden equipments accrease one point two percent. We saw gains
(08:10):
at sporting goods stores almost up a half percent there,
But it was those furniture stores and clothing retailers that
saw a bit of a decline. As I mentioned to
kick off the show, really big week in terms of
economic reports being released. The retail sales one was one
that came out this morning, but tomorrow we'll get the
jobs report, which I would argue is probably the most
(08:31):
significant of the week, just given the amount of scrutiny
and focus on the labor market, and in particular, not
only will we get what we anticipate for January's gains
in the labor market, which is estimated to be around
seventy thousand jobs that were added for the month of January.
We had fifty thousand that were added in the month
(08:52):
of December. The unemployment rate it sits at four point
four percent. But not only are we going to get
updates on those figures, we will also get a backward
looking revision as to how many jobs were added from
March of twenty four through March of twenty five. So
certainly that is going to be of a lot of
focus for what the Federal Reserve does from an interest
(09:14):
rate policy perspective, and what markets will be looking at
tomorrow morning when that comes out.
Speaker 4 (09:18):
Mark yeah for perspective. In twenty twenty two, coming out
of what twenty twenty one, coming out of COVID, four
million new jobs were added according to the so called
Establishment Survey of Payrolls. That number jumped in twenty twenty
two to six point two million, just staggering. So the
economy was growing fast, too fast. That's why we had inflation.
(09:38):
The economy was exceeding it's it's speed limit, it's productive capacity,
if you'll like, and then things started to cool off.
Three point three million jobs in twenty twenty two, two
point one million jobs in twenty twenty three. Excuse me,
three point three million, two point one million in twenty
twenty four, and we twenty twenty five through we had
(09:59):
we got December, right, this is we're gonna get January.
So we got yeah, this is for the full year
one point four a million, but subject to revision, right right,
So clear downward trend, but off a feverish, unnaturally hot pace.
So the question I struggle with is not that you asked,
but uh, is this just a normalization? I mean, unemployment
it's at four point four percent. If you put that
(10:21):
in a hat, that rate, and you pulled that out
of the hat, and whatever you pulled out of hat
was going to be the unemployment rate, you'd be really
proud of yourself. That's extraordinarily low in historical terms. But
there are some people who think what it should be
three I guess or I don't know.
Speaker 2 (10:35):
Well, it's it's something that just looking forward, that is
worth scrutinizing, because if you do see a significant uptick
on the unemployment rate, you would imagine that you'd see
weakening consumer spending and there would be.
Speaker 3 (10:49):
From it.
Speaker 4 (10:49):
But maybe that's just the norm. I don't know, is
that just the normalism? And I'm throwing a lot, a
lot of thrown out, a lot of rhetorical stuff here
that's not very helpful. But my point is as a researcher,
you never really know what if the economy is so
called natural rate, it's non inflationary rate has jumped to
five and a half. I don't think so, but historically
it was between five and six. It got below five
in the late nineteen nineties in the productivity miracle that
(11:14):
was brought about by it allowed unemployment to be very
low without inflation. Taking up question is where are we now?
Speaker 2 (11:25):
We're going to take a quick break here on the
Financial Exchange. When we come back, a lot more to
talk about in what is a very busy week, previewing
inflation as well as some other economic reports that are
due out in this busy week.
Speaker 3 (11:36):
Right after this break.
Speaker 1 (11:38):
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Speaker 5 (12:02):
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Speaker 2 (12:23):
As I was mentioning in the earlier segment, really big
week this week in terms of economic reports. We'll get
the jobs report tomorrow, and then on Friday we will
get the CPI inflation report for the month of January.
So we're gonna spend a couple minutes here just talking
about that report that is due out on Friday. Inflation
has run at two point seven percent year over year
(12:45):
in terms of what we're anticipating for Friday's release we're
looking at I believe it was two point four percent
in terms of what they're anticipating for the inflation on
the consensus for Friday's numbers. But something that is in
big focus as you head into to twenty twenty six.
(13:05):
There has been perhaps some arguments mentioned out there that
I don't put a lot of weight in that there
will be post holiday adjustments by retailers that will be
reflected in this January report. These price adjustments will will
tick up. A lot of that is seasonally adjusted, when
you know typically retailers will go in in January and
adjust prices, so a lot of these reports adjust for
(13:26):
that fact of seasonality. So I don't know if necessarily
that will be a huge piece of it, but certainly
that is a big focus part of the dual mandate
for the Federal Reserve, and dovetails into the next item
here to address is not only are we going to
get the inflation report on Friday, but also it is
going to be another indicator for the Federal Reserve to
(13:50):
sort of assess in terms of what they're going to
do from an interest rate perspective. If we take a
look right now at the CME futures market, about a
week ago, you had, in terms of the probabilities of
where interest rates were going to go from the Federal
Reserve a ninety percent probability that they were going to
continue to stay the course in the next upcoming meeting
(14:10):
on March eighteenth and keep interest rates at three and
a half to three point seventy five percent on that
Fed funds rate. With some of the retail sales reports
numbers that we got this morning, and just some of
the trends over the course of the last few days
or so. It is now at about close to an
eighty ten split of holding rate static versus potentially pricing
in a little bit more of a likelihood of a
(14:32):
cut here heading into this next meeting.
Speaker 4 (14:34):
Yeah, this relate the fed's UH dilemma, and it's always
in a bit of a pickle because unemployment and inflation,
and you could substitute for unemployment vacancies GDP relative to potential.
There are a lot of ways to measure slack in
the economy, and the best way changes over time. That's
a challenge in and of itself. The FED is always
trying to determine is the economy running too hot, too cold,
(14:57):
or just right? Just right means demand is grow swing
no faster than supply. The FED you can think of
as controlling demand. They print money, lower interest rates, or
take money out of the economy. It's a little more
complicated than I'm obviously portraying it, but this gives you
the gist of it. Take money out of the economy,
they slow demand and thus slow inflation. Fed's always asking
(15:21):
is the economy again growing too fast relative to its
productive capacity. Is demand outpacing supply. Demand really outpaid supply.
In twenty twenty two and twenty twenty three, we saw
the result inflation was that all the Fed's fault. No, Now,
the FED can control inflation in the very long run,
money supply lines up, money supply growth lines up well
with inflation in the long run, doesn't line up well
(15:42):
with it in the short run. There too many other
factors buffeting the economy globally that impact inflation. So the
Fed's job, needless to say, is hard. But ultimately responsibility
for stable, low, long term inflation lies with the Fed
because that's driven by the supply of money, which they control.
Speaker 2 (16:03):
Sure, what we're looking at is also a focus is
the neutral rate, which is basically this idea of hey,
where where should interest rate policy be? That neither, like
you were just kind of alluding to as some of
the responsibility stimulates or constraints growth. That is sort of
what the FED is always trying to feel around and find.
But it's something that is abstract. You're never going to
(16:23):
know exactly where it is. It's more of a feeling
out process, and some of these reports help to give
a little bit of guidance, but as you mentioned, it's
really hard to balance. The two focuses are that inflation
and job grop of the feder Reserve. And on the
inflationary front, it is about two and a half percent
that we're anticipating on the year over year over year
(16:45):
number from an increase on the inflationary front. But right
now investors are pricing in that there would be two
rate cuts this year. You've got the FED on their
most recent projections projecting in one of course, will have
Kevin Warsh succeeding Jerome pal in May of this year,
so that is going to be a focus. On the
(17:07):
last Federal Reserve meeting vote, you had ten people who
had voted to keep rates where they were at about
three and a half to three point seventy five percent,
and two dissenting.
Speaker 3 (17:16):
So that is all on the table.
Speaker 2 (17:19):
Over the course of the next couple of days, we'll
get more economic data points there and then that meeting
though is not going to be to the middle of March.
Speaker 4 (17:27):
If you want a little framework for thinking about the FED,
the Thermostat analogy is Okay, I use it a lot,
you love it, but it's flawed. Yeah, as much as
I can love anything. I guess ah, but that's it.
Dose My emotional issues are not what we're talking about here.
The idea with the thermostat analogy is, well, the fed's
job is to heat the economy up when it's running
too cold, and vice versa. The problem with that analogy
(17:48):
is that the FED doesn't know what the actual temperature
is right now, so it's got to guess at that.
The FED doesn't know when the furnace is going to
come on or the HVAC system is going to come on.
You bump it up a couple of degrees because somebody
in the house can lanes. It might not come on
for six months if you're the FED. This is that
that's another problem with my little thermistat analogy. Another problem
is that you don't know what the temperature is going
to be outside by the time the freainging hvac does
(18:10):
come on.
Speaker 3 (18:11):
Yeah, in my house, different rooms kind of heat up
in different ways just to do the piping there too,
so that that probably plays in.
Speaker 4 (18:17):
These are the problems you have when you live in
a seventy five hundred square.
Speaker 3 (18:20):
Foot yeah right home.
Speaker 4 (18:22):
Most of us never we'll just never know those struggles no,
but the thermostat analogy is okay. But it's actually if you
think about why it's a bad analogy, it helps you
understand the challenges the FED faces. Imagine if when you
went to change your thermostat, you didn't know exactly what
it was outside, and you didn't know exactly when the
HVAC was going to come on, and you don't really
know exactly how the temperature in one room relates to
(18:43):
the room in another, so you can sort of adjust
the temperature in your house, but good luck. That's the
challenge the FED faces. And that's why the thermostat analogy,
although it's the best I can come up with to date,
why it kind of fails.
Speaker 2 (18:56):
It's it's hard and you only they only have so
many tools to fix it, and one of the ones
that we talk about most frequently is the interest rate one.
They can also control the monetary supply.
Speaker 3 (19:05):
Those are really the.
Speaker 4 (19:06):
Well those are by controlling the supply of money, you
control I mean, ultimately they print money.
Speaker 2 (19:10):
Right taking a look at markets here, we've got the
Dow Jones up about two hundred and fifty plus points.
They're rallying about a half percent plus. We've got the
S and P five hundred up about sixteen points or so,
or a quarter of our percent. We're gonna have much
more on the markets when we come back from this rate.
We've got Wall Street Watch and much more here on
the Financial Exchange.
Speaker 3 (19:30):
Stick with us, Like.
Speaker 1 (19:40):
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 markets so far today
right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Well, markets aren't positive Territory modestly, as Walter reacts to
a somewhat underwhelming retail sales report from the month of
December to cap off the holiday season, where sales climb
zero point four percent, down from zero point six percent
in November. Traders are also sifting through more fourth quarter
earnings from the likes of Coca Cola, CBS Health, and Spotify.
(20:23):
Right now, the Dow is up over half a percent,
or two hundred and sixty two points higher, S and
P five hundred up about a quarter percent or seventeen
points higher. NASDAC also up about a quarter percent or
fifty points higher. RUSTED two thousand mostly flat, edging higher.
Tenure treasure reel down four basis points at four point
one four to nine percent, and crude oil up about
(20:46):
a third of a percent higher, trading at sixty four
dollars and fifty five cents a barrel. Beverage giant Coca
Cola reported earnings this morning that missed revenue expectations for
the fourth quarter, while it's adjusted earnings beat. The company
guided for twenty twenty six organic revenue growth of four
to five percent and comparable earnings growth of seven to
(21:06):
eight percent. Coke stock is down over one and a
half percent to this point. Meanwhile, audio streaming company Spotify
seeing its stock rally eighteen percent after the company saw
its monthly active users grow to seven hundred and fifty
one million, up eleven percent from the same period a
year ago and above street forecasts. Spot excuse me. Spotify's
(21:29):
premium subscribers also increased ten percent to two hundred and
ninety million. Elsewhere, Taiwan Semiconductor posted its higher highest monthly
revenue ever to four hundred and one point three billion
dollars in January, up thirty seven percent from a year ago.
Shares are up by one percent, sticking with the chip sector,
(21:49):
where On Semiconductor saw its sales decline and its two
biggest businesses and narrowly missed revenue expectations for the previous quarter.
That stock is up by about three percent. CBS Health
reported fourth quarter earnings and revenue that beat expectations with
a health insurer also held its twenty twenty six profit guidance. However,
(22:10):
the stock is up by two percent, and after today's close,
we'll see more earnings from the likes of Ford, Robinhood
and Gilead Sciences. I'm Tucker Silvan.
Speaker 1 (22:21):
That is Wall Street watch.
Speaker 2 (22:23):
President Trump stating that his federal pick for or his
pick for the Federal Reserve chair, Kevin Warsh, can get
the economy to hit fifteen percent growth. Unclear what statistic
he was trying to tie that to. Perhaps GDP growth,
that's what you'd think when you're economic growth, But that
fifteen percent is an absolutely staggering number. Over the course
(22:43):
of the last five decades, GDP growth in America has
averaged two point eight percent, So the idea that it's
going to do five times that is particularly as developed
as the economy that we are, is a little bit staggering.
Speaker 4 (22:57):
Let's let's talk about that. Let's is that plausible? Is
that a plausible statement? Can the Fed get the economy
to grow fifteen percent just a year over year? The
answer is, what do you think it is? No, yes, absolutely,
if they can do that, actually it would all be
it would all be inflation. I assume, Yeah, it's obvious.
It's almost a trick question. Yes, say come on, are
you kidding me? But and I don't think this is
(23:18):
what the.
Speaker 2 (23:18):
We're gonna have to hide her into the desk if
we run at fifteen percent inflation.
Speaker 4 (23:22):
It's useful to keep this in mind. You can measure
what's GDP gross domestic product. It's just an accounting construct.
It's what we spend, what the government spends, what businesses spend,
and then a little adjustment for so called net exports.
But just think of it as the sum total of
all the spending in the economy. There are other ways
to look at economic output. You can look at the
income side of the equation. For example, they should give
(23:42):
you roughly the same answer. So GDP is for better
for worse. How we measure how we're doing, how the
economy is doing? So could the FED get the economy
to grow at fifteen percent. Yeah, I can get the
economy to grow at one hundred percent. The problem is
that you're not adjusting for inflation. In the nineth teen seventies,
for example, the mid nineteen seventies. In seventy three, GDP
(24:04):
grew was quite an inflation every year. The CPI year
over year was about six percent, but GDP growth even
nete of that was high, but total they growed eleven
and a half percent. The highest GDP again nominal, which
is a fancy way of saying without the not adjusting
for exactly Yeah, GDP growth in nineteen seventy eight was
(24:25):
thirteen percent. Seven percent of that was inflation. Right now,
I'm this is a little bit sloppy the way I'm
doing it, But the point is the fedkin engineer any
growth rate, but it's not leading to higher living standards.
If most of that growth or half of it, and
some of the examples I gave is coming from increases
(24:46):
in the price level, nobody's any better off. Now. I
don't think that level of subtlety was happening in the
analysis that lie behind whatever it is you're reading there.
But I will tell you just in the interest of
not just saying, well, what a stupid statement. Who would
say something like that? A more interesting question maybe because
we try to learn together on this show and maybe
impart something to the audiences. Could that happen? Yeah, fed
(25:09):
can do that. You wouldn't probably wouldn't like that, but yeah,
the Fedkin engineer really any growth rate?
Speaker 3 (25:15):
No, I don't think it's very interesting, dude, It is
very interesting.
Speaker 2 (25:17):
That is interesting because no one would speak glowingly about
the nineteen seventies for those levels of economic growth. No
one would reminisce back is how great things where. It's
quite the contrary.
Speaker 4 (25:28):
This is why it's important to when someone's telling you something,
ask for perspective. You gave some good perspective. You pointed
out in the last fifty years, GDP growth has been
you said, you're talking about real GDP growth adjustment for
replace it has been nearly three percent. Three percent was
about the average of the second half of the twentieth century.
Since then, it's been about two percent. That that's a
big slowdown. It doesn't sound like a lot, but in
(25:49):
terms of standards of living, we'd be about forty percent
richer had GDP continued to grow at the rate of
the previous century. It's useful to have some of these,
some of these fact about the economy in your back
pocket if you're into this stuff, even if you're only
into it casually, so that you know how to call
BS on something that's obviously BS.
Speaker 3 (26:11):
It's interesting the fifteen percent.
Speaker 2 (26:12):
It's good you put in perspective that it is possible
because I wasn't thinking about the inflationary part.
Speaker 3 (26:18):
Of it, that it could make it possible.
Speaker 4 (26:20):
So, yeah, it's like I said, I can make everybody
a millionaire. Give me control of the money supply. I'll
make you all million billionaires, trillionaires, pick how many zeros
you want. You're not gonna be any better off than
you are today. It's just gonna have to tag a
bunch of zeros onto.
Speaker 2 (26:34):
The prices of everything. Yeah, a little bit like that.
Kevin Warsh is set to be appointed in May of
this year, but also there is the current hearing going
on regarding the federal budget building renovation products, so perhaps
he gets delayed his appointment a little bit. But certainly
President Trump has some high expectations for him, so we'll
(26:56):
see how that all plays out.
Speaker 4 (27:00):
But you understand in light of what we've been talking
about for the past forty five minutes. Now nearly you
can't come into that job with a preconception about interest
rates thinking they only need to come down, because, as
we've been discussing, it's about striking the right balance given
where unemployment or whatever your measure of slack is in
the economy, and where not only inflation is today, but
where you think it will be.
Speaker 2 (27:21):
Exactly a great piece here today in the Wall Street Journal,
this is by Greg ibb. The big money in today's
economy is going to capital, not labor, and he did
a fantastic view sort of of where we've been. If
you look back in nineteen eighty, IBM was the bell
of the ball, the most valuable company in the United
(27:41):
States with over four hundred thousand employees and the largest
market cap at that point in time. Today, if you
look at the same sort of pinnacle position of the
most valuable company in the United States, Nvidia has that
slot where he makes the point that they are twenty
times more valuable and five times more and this is
adjusted for inflation compared to where IBM was back in
(28:05):
the nineteen eighties, though it only has one tenth of
the workforce, and Vida employs about forty thousand people compared
to the four hundred thousand that IBM employed. And specific
to this broader context of these two behemoth companies of
one of yesteryear, though still around today but not in
the same scope and scale, and the one today in
(28:27):
video that dominates the markets is in particular just a
analysis on where all that money, where are the profitability
is going And it breaks down first from a broader perspective,
and we just hit it on a little bit that
GDP is just trying to encompass economic growth, all the
value that's being added to the economy. And if you
(28:47):
look specifically at a manufacturing business what it produces in
terms of its goods, it has its sales and then
it has its input the costs that are associated that
go in to building out those goods.
Speaker 3 (29:01):
The difference between the two the sales less the costs.
Speaker 2 (29:04):
All that excess is usually distributed out through wages and
profits and interests. And what has changed so dramatically over
the last forty years, as Greg get pointed out in
this piece here, is that much more of that profitability
was going to the labor force back in nineteen eighty
and that percentages has dramatically decreased over the course of
(29:26):
the last forty years. That fifty eight percent of those
gains from what businesses we're selling were going to the
labor force. That number sits at about fifty one percent today.
And he does that by measuring out gross domestic income
just to sort of get a sense for what is
the labor force actually taking away from the profitability of
the firms. Rather a lot more of that money and
(29:48):
profitability rather than going to the actual workforce and form
of wages, is going to household wealth in terms of
people who have stock ownership. And I just thought it
was an interesting analysis that you the.
Speaker 4 (30:02):
Right statistic, And I don't know why he didn't use it.
His share of labor compensation. It's actually this series is
reported by it's in various databases. You can actually get
it on FRED sometimes we talk about FRED. It's accessible
and it's easy to read. You can make your own
charts and all that crap. If you're into that SHAREFF
labor comp Yeah, is now And it's exactly the definition
is exactly what it sounds like. How much of the
(30:24):
economy's income goes to labor it's at zero point five
six eight today about fifty seven percent. In nineteen seventy
it was about sixty five percent. So that's the most
widely followed measure of how well how income's being abortioned.
And one way to think about this is that productivity
(30:45):
has been going up faster than wages. If you think
about a unit labor cost is compensation divided by what output?
Am I thinking about that?
Speaker 1 (30:57):
Right?
Speaker 2 (30:57):
Well? Basically, yes, this idea that then of Daniel actual
employees in this country relative to it, there were forty
years ago, far fewer people who work in manufacturing, but
more goods produced, right that general concept, Yeah.
Speaker 4 (31:08):
And the composition of the labor force is a result
how much of it is unionized bargaining power. When comp
is not rising as fast as productivity, that so you're
not get you're not reaping the full benefits of your
increased productivity. When that happens, by necessity, the share of
(31:34):
income that goes to workers has to fall.
Speaker 2 (31:36):
And that's what we've seen in since twenty nineteen. Profits
are up forty three percent from the S and P
five hundred companies, but average hourly wages are only up
three percent adjusted for inflation over that period of time.
And so there's a lot more meat on the bone
here that I want to get into because I think
it is a really interesting piece to sort of examine
(31:56):
and sort of furthers the concepts that we've talked about
regarding the K shape economy that we sort of sit
and today. So we're gonna take a quick break here
on the Financial Exchange. When we come back, we'll be
talking more about this piece as well as the S
and P S five hundred's next target of seven thousand
right after this break here on the Financial Exchange.
Speaker 1 (32:14):
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and iHeartRadio. Hit that subscribe button and leave us a
five star review. You're listening to the Financial Exchange Radio Network.
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(32:35):
Exchange Radio Network.
Speaker 5 (32:43):
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Speaker 2 (33:16):
Spinning back here to this story that was part of
the Wall Street Journal this morning, where it goes over
just sort of the shift that we've seen in the
economy specific to some companies in the United States over
the course of the last forty years, where there has
been a big shift from capital, or rather two capital
from labor. Where basically labor was receiving fifty eight percent
(33:39):
of the total proceeds of economic output as measured by
gross domestic income, which is kind of similar to the
concept of GDP in nineteen eighty. That percentage sits at
the third quarter of last year at fifty one percent,
So we've dropped from fifty eight percent of sort of
the benefits being reaped by a company going to the
labor the staff on hand through the course of wages
(34:02):
and bonuses and other types of coverage to now down
to fifty one percent. And so where has that money
gone if it's not going to labor, A lot more
of it has gone to profits. And ultimately, if you
follow out that chain, more profits of a company, typically
you see increase earnings and as a result, you see
the stock price going up of companies, just very broadly speaking.
(34:25):
And so it hits on this idea that I have
mulled over a lot where it just seems like mark
to me, and this helps put some numbers behind it,
but it's not exactly precise. That the stock market has
a lot more bearing on sort of consumer spending and
sort of the amount of optimism that folks have for
(34:47):
the economy, particularly in the higher end of things, than
it did five years ago, ten years ago. And maybe
that's just emblematic of what's been a really great run
for markets over the last three or four years or so.
There is a stat that Greg Get points to here
in the Walt Your Journal piece that if you look
back at twenty nineteen, household stock wealth was two hundred
(35:07):
percent of their annual disposable income. That figure now sits
at three hundred percent today, and obviously that is reflective
of a really good five or six year run for
the markets. But the amount of money people have on
the hire income side of things that is invested in
stocks is three times what they would make from an
annual disposable income. And so this is a point that
(35:27):
I've mulled over and I do feel like has more
impact than it did previously how the market's fare and
how that impacts consumer behavior.
Speaker 4 (35:34):
And it's a double edged sword. This is a big area.
So I'm not going to pretend to have any deep
insights with respect to your last comment, though the effect
you're describing has been pretty well documented. It's called the
wealth effect, and it's exactly what it sounds like. It's
the percentage of stock gains. If stocks go up one percent,
how much does spending go up? Somewhere between three, five,
(35:58):
maybe seven cents. The wealth effect is somewhere in the
load to mid single digits. That changes. But most researchers
agree that there is such a thing. Is it bigger
and is it more stable now than it used to be?
And if so, what happens when stocks crash when they
inevitably do. There was a time when a crash inequities,
(36:21):
I don't think nineteen twenty nine. That didn't bode well
for investment, but it didn't freak people. It did freak
people out, I shouldn't say that, but it didn't immediately
cause a drop in people's net worth. It did immediately
cause a drop in some types of spending. Though interestingly,
very few people own equities in those days. We're not
talking nearly on hundred years ago, which is why I
bring it up. What would the effect be like today?
(36:43):
I don't know.
Speaker 3 (36:44):
Yeah.
Speaker 2 (36:44):
Doug Petta is strategists at BCA Research. He estimated that
a ten percent stock return, including dividends taxed at the
highest marginal rate, would boost spending capacity as much as
an eighteen percent rise in income. Again, that's just one
research take on it, but sort of furthering this idea
that I've multied the.
Speaker 4 (37:03):
Problem with approaches like that. I do that occasionally internally
when I say to the group, here's the wealth effect,
and here's how you estimated. Is that you can't assume
that those relationships will will hold They're not very good
at they don't hold up really well as as forecasters.
Speaker 2 (37:18):
Taking a look around at markets, market's largely in positive
territory here, shaking off a weak retail sales report that
we got earlier this morning, with the Dow jones up
about two hundred and thirty points are close to half percent,
the S and P five hundred is up about fourteen
points zero point one eight percent, and the Nasdaq is
is relatively flat, only up about twenty six points at
(37:41):
the moment. The US ten year Treasury is off about
five basis points, sitting at about four point one point
five percent on that retail sales miss, and we've got
oil sitting at around sixty four dollars a barrel, not
moving too much. The most interesting area the market in
twenty six in terms of volatility has definite and gold
and silver, but they're not being nearly as volatile as
(38:03):
they've been in the past, with gold only off about
one percent today, sitting at a little over five thousand
dollars an ounce, and silver's off about two percent. That's
all the time that we have for the first hour
here on.
Speaker 3 (38:13):
The Financial Exchange. We're going to take a quick
Speaker 2 (38:15):
Break, but we've got much much more to cover here
on the second hour stick with us here on the
Financial Exchange
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