October 3, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss the lack of a weekly jobs report so they turn to AI to get the answers they are looking for. How long with the government shutdown last? Behind job weakness are hints of a productivity revival. Why the stock market keeps going up - even during a government shutdown. Maybe the Fed shouldn't be cutting interest rates. LA's entertainment economy is looking like a disaster movie.
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Episode Transcript
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Speaker 1 (00:00):
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(01:05):
Zada and Mike Armstraw.
Speaker 2 (01:11):
Chuck, Mike and been here with you today on a
job's Friday. The only difference is we don't have a
job report because of the government shutdown. The estimates that
were out there and I guess still are out there,
were that non farm payrolls would see a fifty thousand
person rise, the unemployment rate would stay at four point
(01:34):
three percent, average hourly earnings would be ap point three
percent for the month, three point seven percent year over
year labor force participation rate was expected to stay at
sixty two point three percent, and the U six underemployment
rate expected to remain at eight point one percent. So
(01:55):
that's what the expectations were heading into today. And obviously,
as we say it here right now, there is no
BOLS government jobs report in front of us. But Mike
and I didn't let that stop us. No. Instead, Mike
and I did what any enterprising young person does these days.
(02:15):
It turned on they turned down their AI and said, hey,
what do you think is gonna happen? So here's uh,
we're doing this. We're actually doing this just because again
we have no jobs report. And so Mike, here's here's
the prompt that I gave chat GPT. Okay, create me
data for the jobs report do from the BOLS that
(02:36):
will not be released because of the government shutdown estimate
based on prior trends. That's it. That's that's what I
put in. Would you like would like my prompt?
Speaker 3 (02:45):
I would using data from the ADP Employment Report found here.
I provided the link, and uh the Revellio Employment Report
found here. Again provided the link. Please run an analysis
using that your data says compared their correlation to the
monthly jobs report from the BLS, and then based on that,
please put together prediction for the September jobs report. I'd
(03:08):
like to know how many jobs you predict were created
or lost in September, along with the unemployment rate. So
I didn't ask for wages. I just asked for rate
and jobs created or lost.
Speaker 2 (03:17):
I didn't ask for anything else. But I got a
whole bunch of stuff in here that it gave me. So, Mike,
what was the payroll number that your AI spit out.
It spat out twenty three thousand jobs created, So total
payroll change of plus twenty three thousand in the non
farm payroll numbers, I got plus fifteen. So pretty closest
(03:39):
in the margin era. Yeah, okay, so pretty close there
below the estimate of fifty thousand. But I guess our
ais are just a little bit pessimistic today. Yep, did
yours do private payrolls? Did it split that out or no? Nope,
just headline. Okay, mine did split out private payrolls, which
actually had private payrolls declining by twenty five thousand, but
government up four forty thousand because of new hiring for
(04:03):
state and local governments heading into the start of school season.
I don't know that this necessarily incorporates good seasonal adjustments
because typically that stuff is not picked up this time
of year. But the rationale, it did provide its rationale.
It said, look, ADP showed a private drop, and so
we're gonna go with that. So it explained how it
(04:24):
got there.
Speaker 3 (04:25):
Yeah, reasonable, And yeah, the ADP showed that, and so
I can see how the AI got there.
Speaker 2 (04:32):
Unemployment rate Mike came in at four point three percent.
The reasoning it said that the Chicago FEDS real time
now cast, which they just released about a month ago,
shows steady unemployment, so it did not pick up any
jump in unemployment.
Speaker 3 (04:46):
Yeah, I got four point four percent, and quite honestly,
it didn't give me a whole lot of rational than
twenty three thousand payroll gains is pretty small relative to population,
and therefore, looking at an uptick in unemployment rate labor.
Speaker 2 (05:00):
Force participation, I got flat at sixty two to three.
Same with employment to population ratio, flat at fifty nine six.
Net revisions to July and August thirty thousand negative was
what this said. Based on the recent softening trend and
downside revisions suggests a potential for a small net negative
revision here as well. That'd be pretty bad. So that
(05:21):
was in there. Other things that we had in here.
It did talk about ADP, It talked about jolts, YadA YadA. Yeah,
that's basically it. It did say, look, there's a pretty
good chance that this could be off by seventy five
thousand in either direction. And so understand that you know
(05:42):
this estimate is not perfect. But ultimately we don't have
a job report today. And so the reason that Mike
and I asked this is not because we think that
these numbers are right. They're not. They're not based on
any survey. They are fundamentally wrong. But what they are
based on is the data that is out there from
(06:02):
other data sources that suggests where this report could come
in based on you know, historical relationships and things along
those lines. And so that's I think the reason why
we wanted to do this was not because we think
this proves anything about AI, Like, I don't know if
this is you know, correct, It never will be correct
because there isn't going to be a September jobs report,
(06:24):
it will not exist. What I think this does help
us to do is use something other than our own
brains to say, hey, is there anything that you know
we might be looking at it that needs to be incorporated.
And this is how economists and the FED, by the way,
are going to go about trying to piece together what
they think is going on in the jobs market through
(06:45):
their own models and own you know, assessments. They're gonna
pull from these other sources to try to figure out
what may or may not be happening in the absence
of this job report. So that was really the purpose
of this was just to show how you can kind
of look at this and pull together what you know
could be a projection or set of projections for a
(07:06):
job's report in the absence of one that's actually being delivered. Chuck.
Speaker 3 (07:10):
That's a very nice way of explaining that you and
I were both having jobs report withdrawals, and our hands
were shaking until we could report something about jobs.
Speaker 2 (07:19):
I mean, look, here's the thing. At eight thirty this morning,
I'm sitting there on the BLS website just clicking refresh, Refresh, refresh, and.
Speaker 3 (07:26):
One small tier dripped down into Chuck's beard as he
was hitting refresh at eight thirty one, and nothing was coming.
Speaker 2 (07:33):
So this is where we stand right now with regards
to the government's shutdown. Still no signs of any breaking
of the deadlock. And someone asked me this morning, Mike,
how long do you think this puppy's gonna go? In
my understandials, I got no freaking clue. Like, I have
no idea. It could be over early next week, it
(07:54):
could be over in six years. It probably won't be
six years, but like reasonably, when we look at this,
the online betting markets that are out there right now
are betting on somewhere in the ballpark of like fifteen days.
That's kind of what we're up to. Remember, the last
shutdown that we had at the end of twenty eighteen,
was the longest one that we've ever had. It was
(08:14):
thirty four days. And the thing that eventually broke that
government shut down and you know, kind of got everything
moving again was the fact that remember, government workers, even
the ones that are you know, doing their jobs, they're not, like,
you're not getting paychecks. And so ultimately it was the
(08:35):
combination of air traffic controllers and TSA agents that pretty
much said, look like, we got to call up because
we have to go do something else in order to
pay the bills because there's no money coming in. And
once you get something visible like that showing up where
you have you know, more aircraft being delayed and you know,
things along those lines, that's where you start to see
(08:58):
a break if this goes longer term. So the the
two landmarks that I have in my head are October fifteenth,
because that's gonna be the first government payroll after the shutdown,
and then start of start of not February, start of November,
(09:18):
since that is when you will now have two missed
pay periods that you're looking at for government workers. And
so I think those are my two landmarks as far
as how long this could go. If it's you know,
could there be a resolution sooner. Yeah, there could be
one next week. Like, I have no idea, But right
now you basically have you know, everyone in Congress and
(09:41):
related to government, like trading memes on you know, social
media about you know this that, and everything related to
the shutdown. It doesn't seem like there's much progress being
made right now. Sure doesn't.
Speaker 3 (09:51):
Yeah, and it doesn't seem like there's a lot of
pressure from constituents to get something done right now.
Speaker 2 (09:56):
No, And again, the estimates each week you probably see
about a onero point one percent reduction in GDP for
as long as the shutdown goes on. So again, if
it's three four days, it's in, it's negligible. Even if
it goes for a week, basically no impact. You start
getting into like three four weeks, it's like, okay, like
(10:17):
there's there's a meaningful impact to GDP that happens then.
But we're in day three of this puppy, So let's
not you know, let's not assume this thing is going
to go that long. I think that we'll just have
to take it as it comes and see what the
potential economic impacts are. Let's take a quick break here,
and when we come back. We've had some weakness in
(10:39):
jobs over the last few months, but are there signs
that increased productivity is making up for that when it
comes to economic growth. We'll discuss when we return.
Speaker 1 (10:51):
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Speaker 2 (11:24):
We got a piece from the Wall Street Journal. Today's
title is behind job Weakness, Our hints of a productivity
revival is ai the reason? What's the case made in
this piece?
Speaker 3 (11:37):
Mic GDP is going up and employment is, as far
as we know, not moving up terribly quickly, or perhaps
even moving down. So if you've got the economy growing
at the same time as you have fewer hours being worked,
that leads you to really only one conclusion.
Speaker 2 (11:55):
Right then employees are being more productive. Yeah, that's what
I'm getting net. So when we look at this, the
basically the case that is being made here is, Hey,
you had you know, the second quarter the GDP growth
that we saw was you know, stronger than a lot
of people anticipated, even though payroll growth was pretty muted.
(12:19):
And so it's basically saying, look, if that's something that continues,
then you are going to see you know, productivity be
what fills the gap. And because of all this spending
on AI, is it reasonable then to assume that this
is happening because of you know AI. It is AI
driving that productivity boost.
Speaker 3 (12:39):
Is technological advancement making all of us more efficient.
Speaker 2 (12:43):
And it's it's a reasonable theory. I think you need
more than a quarter of economic data to be able
to prove it.
Speaker 3 (12:52):
Well, so can we walk through and I don't have
the answer here, but Chuck, what would be the alternative
alternative explanations to GDP going up at the same time
that employment is moving the other direction?
Speaker 2 (13:03):
Not unheard of, No, the things that you could see.
It could be related to changes in inventories, imports, and exports,
which call me crazy, but I think we've seen some
pretty sizable shifts on those fronts this year. Yeah. Yeah,
there's been some terror stuff going on, so it could
be just related to that and how that impacts you know,
the GDP data that we get. Other things that you
(13:25):
could be seeing. It could be an increase in productivity
due to economies of scale that you get from what
you're doing in the economy. The example I would give
right now, Hey, Mike, is it more productive to build
a really small data center or a really big one?
A really big one because you get all kinds of
economies of scale, which is why you build giant data
(13:47):
centers and not small ones. And we're building a lot
of big ones right now, and we've even shown the
impact that that's had on overall GDP because the shift
in data center construction is big enough that you can
measure it in terms of GDP growth.
Speaker 3 (14:01):
Now, I'd also be willing to bet that if you
are building a giant data center, you are more efficient
on a dollar by dollar basis than say, building a house.
Speaker 2 (14:12):
Sure, so I think curves, fancy roof lines. No, it's
just big rectangles, not cubes. What's what's the what's the
three D version of a rectangle? Mike? Do we have
a word for that? I don't know. Do we have
to make this up again? Three D version of rectangle? Name?
Speaker 3 (14:35):
You can't use a cube to describe that as a
cube definitively just a square.
Speaker 2 (14:40):
A cube is definitively.
Speaker 4 (14:41):
Like rectangular prism, also known as a cuboid.
Speaker 2 (14:46):
Cuboid. I like cuboid. You're a cuboid. Yeah sounds like
a boy band name, right, it does. Uh So in
any case, I think that this is a theory that
we can, you know, keep out there and say, hey,
let's see how this evolves over the next I think
twenty four months. I think like, if you have a
couple of years of this, then we can point to it.
(15:07):
If it's a few quarters, I'm not sure there's anything there. Yeah,
But I mean, look, this is this is why people
are interested in AI. This is the make us more productive.
This is the only promise that AI has is.
Speaker 3 (15:21):
Yeah, it does cool things, and there's all these sorts
of dreams. But if you're looking to you know, boil
it all down to one point, it's will this technology
make us more efficient at the work that we do?
And if so, then that's the holy grail which is
possibly worth the investment, right, which which, by the way,
is the whole thing with any kind of technological advancement
(15:44):
is can I do more with less?
Speaker 2 (15:47):
Right? If you look at construction and the introduction of
power tools, the answer was yes, I can do a
lot more with less. So this for you know, people
who sit in front of a computer screen, whether it's coding, writing, handling,
you know, numbers, this that, whatever it might be, can
it allow you to do more than you would previously
(16:12):
have done such that costs come down and either those
cost savings can be passed on in the form of
higher living standards to everyone else, or profit margins expand
and those additional profits then can be reinvested into additional
technological growth or distributed out to shareholders in the form
of additional wealth. Right, that's what you're looking for out
(16:35):
of this. It's to this point, Mike, I would say,
based on the overall data that we have, I don't
think there are any conclusive facts and evidence that point
to AI having a meaningful higher productivity impact that we
can ascertain in the broad economy. We can certainly point
to individual jobs and uses. I don't think that we
(16:57):
have anything conclusive that says, yes, this is showing up
broadly in the economic data yet. Yeah. I can agree
with you there it may, but we're not there yet.
Let's see great piece from Barons, actually why the stock
market keeps going up even during a government shutdown, Mike.
The best example that I've seen of this is if
you have a sports team that you like, specifically, like
(17:22):
you're an NFL fan, Sure, if you've got questions about
how your team's doing, they've been on like a recent
losing streak, kind of like the jobs reports have been
weak recently. Yeah, the National Football League got it. Guess
what you can't lose on a bye week. If there's
no news that's being published, what do you trade on? Like?
What what do you sell on? Because ultimately, the reason
(17:45):
for investors to make any investing decision is because of
a story that they tell themselves. It could be a
story about valuation, a story about a founder, a story
about economic data, whatever it might be. You tell yourself
a story as to why you're gonna do that. If
there is there's no news that is being released, what,
(18:05):
like you, you can't trade on that, it doesn't exist.
And so in the absence of bad news being released,
generally people invest in the market for one reason, and
that is to make money.
Speaker 3 (18:18):
I guess it helps me fight against that old phrase
that markets hate uncertainty, not really.
Speaker 2 (18:26):
A resolution of uncertainly. We're getting a big dose of uncertainty.
Speaker 3 (18:29):
Right now, we don't know how many jobs were created
for the month of September, we don't know the unemployment
rate currently, we don't know when a government shutdown will.
Speaker 2 (18:38):
End, and markets are doing just fine. So yeah, I'm
with you.
Speaker 3 (18:43):
They don't like when that uncertainty resolves into something that
is pretty ugly for the markets and the economy.
Speaker 2 (18:49):
But the uncertainty itself, right, if the uncertainty can't resolve,
why would you do anything, right? I think that's kind
of where you end up getting to when when it's
all said and done on this. So that is again,
I thought this was I thought this was a really
good piece by Barons there when we look at it.
(19:12):
Let's take a quick break here and when we return,
I want to talk about this piece from the Bloomy
Berg and it's by Bill Dudley. Hugh used to be
the president of the New York Fed. It's titled maybe
the Fed shouldn't be cutting interest rates. We'll discuss when
(19:32):
we're back.
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 Rate Field network.
Speaker 4 (20:01):
Well, it's day three of the government shutdown and markets
are on the rise. The Dow Jones is up over
four hundred points or point eight seven percent. The S
and P five hundreds up over twenty four points, a
little over three tens of a percent in the Nasdaq
just barely positive, up six one hundreds of a percent.
Russell two thousand is also up over a percent. Rare
(20:23):
Earth Minor USA Rare Earth is up twenty two percent
after CEO Barbara Humpton told CNBC that the company is
in quote close communication with the White House. Game Stop
shares are down three percent after the company said in
a filing it's selling a combination of assets ranging from
common stock to debt for an undisclosed amount. Applied Material
(20:43):
shares are off two and a half percent after the
company acknowledged in a regulatory filing that new US export
restrictions will hurt revenue. Applied Materials said the restrictions will
lower fourth quarter revenue by about one hundred and ten
million dollars and its fiscal year twenty twenty six revenue
by around six one hundred million dollars. Uranium Energy is
down three and a half percent after planning a secondary
(21:05):
offering of fifteen point five million shares. Goldman Sachs is
the sole underwriter of that Entergy shares are up two
point four percent after announcing plans to provide power for
Google's plan technology investment worth around four billion dollars in Arkansas.
As part of the investment, Google will develop a new
data center in West Memphis, Arkansas. The companies first in
(21:27):
the state, and finally, Gordon Haskett Research Advisors upgraded Zillo
to buy from hold sending the real estate platform up
three point eight percent. The Wall Street researcher said the
recent selloff is overdone, creating an attractive buying opportunity. Zillow
has declined seventeen percent over the past two weeks on
concerns regarding competitive encroachment and legal fees. I am Ben Kitchen,
(21:49):
and that was Wallstreet Watch.
Speaker 2 (21:51):
Mike. We got a piece here from Bill Dudley, former
president of the Federal Reserve Bank of New York, and
I'll just read his opening paragraph because it basically spells
out the whole thing. Should the US Federal Reserve keep
cutting interest rates? Market certainly think it will. Futures prices
suggest the federal funds rate will fall to about three
(22:12):
percent by the end of twenty twenty six from just
about just above four percent. Now, I'm not so sure
that would be a good idea any outlines. Look, there
are three reasons why the Fed would be cutting right now.
Risk management. Hey, we think that we might just be
a little too restrictive, so let's reduce rates to get
into a more comfortable spot. Anticipation. We don't want to
(22:35):
wait to see further deterioration in the labor market because
if we do, it's already too late. And what we
call estimation error. Hey, maybe we're wrong about where the
neutral rate is and we need to revise where we
think that is. So those are the three reasons that
you talk about for cutting. What Dudley outlines in terms
(22:56):
of hey, why would you not be cutting at this
point pretty much boils down to one thing as far
as I can tell, which is, Hey, inflation is still
about a percentage point above the two percent target the
Fed's had for recent history. If you're cutting right now
with signs that inflation may already be rebounding, because second,
(23:19):
the economy actually starts to kick into higher gear. Your
risk inflation becoming a larger problem, and you've got to
reverse that policy in short order. Is that the argument
that he makes, that's the theory. Yeah, I mean, look
a lot easier to.
Speaker 3 (23:33):
I guess vocalize that theory when you're not sitting in
the chair of a voting sitting in the chair of
a voting member. I think, obviously we see a lot
more of these pieces from former FED governors than we
do anything from a sitting one. So do I buy
the argument, Yeah, I just I really have no idea
(23:53):
right now which the bigger risk is. I think though
that it's employment. I think the bigger risk right now
is the jobs market. I think that's being confirmed by
some of the private payroll data we keep getting, as
well as the general attitude.
Speaker 2 (24:08):
Of employers right now. I tend to agree. I mean, again,
could be wrong.
Speaker 3 (24:17):
Not saying that that justifies you know, two percentage point
rate cuts, two percentage points and rate cuts. I just
think that the FED is very likely at this next meeting,
I think, regardless of whether or not they have CPI
and this September jobs report, to keep ongoing here with
lower rates until they get to about a percentage point
(24:38):
lower than where we were this summer.
Speaker 2 (24:40):
And I guess where I were, Like the further we
go this fall, you know that I had made a
statement back in I think it was June. It was
when we were starting to see like an uptick in
initial unemployment claims and or no in continuing claims. I'm sorry, yeah,
And I said, look, if this continues, the case for
the FED is pretty ironclad to start cutting right now
(25:03):
in that you don't want, you know, labor market weakness
to become larger, because if it does, you probably don't
end up having much in the way of inflation anyways, then,
because recessions typically take out any inflationary impulse. If people
aren't buying stuff, there's generally not much inflation that continuing
claims data reversed in pretty short order, within the span
of a few weeks. And I said, look, like, I
(25:25):
don't know you need to do anything. The data for
the last six weeks or so not on claims. Claims
are actually completely fine right now. But the day that
we've been getting the combination of ADP indeed paychecks jolts
the Chicago Fed's new tracker. That's out there. It's all
kind of pointing in the same direction, and that is
(25:46):
the labor market continuing to soften and worsen. And I
guess where I end up on this is, Hey, if
you're worried about inflation becoming a problem nine months from now,
while you have the labor market becoming a problem today,
(26:09):
that's kind of like being like, well, it's mid May
right now and pretty warm. Better put on a jacket
in case it gets cold in December. Yeah.
Speaker 3 (26:19):
The example I give is, you know, a patient coming
in with a gunshot wound and you're trying to treat
their cancer, Like.
Speaker 2 (26:26):
They're both problems, but we need to share it. The
first one. Yeah, it's it's just I think that there
is a higher urgency on the jobs front right now
because we're kind of on the precipice of the labor
market going into a nasty place and we still may
(26:47):
not end up going there. Like that's that's totally possible.
But I'm trying to think of the last time that
I looked at, you know, a piece of labor market
data and was aside from weekly claims, which, again, if
you're in a low high high low fire environment like
weekly claims aren't gonna show a ton But aside from
weekly claims, when's the last time you looked at a
labor market indicator? And we're like, that is unambiguously good news.
(27:11):
It's been a bit, right, But here's what I will say.
Speaker 3 (27:17):
It rings really similar to what we were dealing with
last year, not to this extent, not to that that's
the difference, well to yes, to this extent on the
unemployment rate, right like, we did see a bigger upswing
in a shorter period of time on the rate of unemployment.
And I'm willing to excuse that because again we were
(27:39):
at such an abnormally low unemployment rate back then, but correct,
we did see that uptick a lot faster than we
have here.
Speaker 2 (27:46):
And so.
Speaker 3 (27:48):
I guess my point would be we saw something that
we have never seen in modern history last year when
it comes to the unemployment rate going up by more
than half percent, and then pausing, maybe we're seeing something
that we haven't seen in quite some time.
Speaker 2 (28:03):
With the labor market now possible and again but by
the end of I've said by November, but you know,
by Thanksgiving, we'll know. I don't know if that's gonna
be the case, given what we may or may not
get for economic data over the next month. Now, so
I now revise that to hey, by the end of
the year, we'll know. But you got to start seeing
some green shoots on the job side of things, and
(28:27):
we're just not seeing those yet. Like there hasn't been
an inflection point that we've reached there. It still is
something where what you can say, the weakness in the
labor market is not affecting the broader economy at all.
Retail sales just fine. You look at what's going on
with you know, the AI boom, it's cranking right along.
(28:51):
The housing market is weak. With the housing market, it's
been weak for the last two years. And this is
not a new phenomenon. So I don't think that you
can point to what's going on labor market and say
this is causing problems X, Y, and z in the
economy because it's not showing up anywhere else yet. Which
gets back to the conversation we had yesterday of hey,
are we less dependent on labor income to drive the
(29:13):
economy now than at any other point in history? And
the answer there could very well be maybe, which then
raises the question should the FED be cutting if this
doesn't matter.
Speaker 3 (29:24):
As much, Yeah, let's take a break, and then I
want to come back with that because ultimately we're worried
about a recession of what that does to the entire
economy and are we actually seeing signs of that. That's
next year on the Financial Exchange.
Speaker 1 (29:39):
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Speaker 5 (30:13):
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Speaker 2 (30:41):
Mike. Last segment, we were talking about, Hey, the labor
market's showing some real signs of weakness. But then raise
the question, hey, if it's not showing up in the
broader economic data. And the main reason that historically you
want to try to maintain full employment. I guess there's two,
depending on you know, which perspective you're looking at. A
(31:02):
you don't want, you know, in generally, you just don't
want a bunch of people to be unemployed. It creates
problems for their families and for you know, larger society
as a whole. But also the reason that the FED
cares about is it generally causes you know, recession. And
so I guess the question is, hey, if if lower
employment growth no longer necessarily is that direct path to recession?
(31:25):
Which is a big If we're still not convinced that,
then is there the case that maybe the FED doesn't
need to be doing anything right now?
Speaker 3 (31:32):
Yeah, so that's a really complicated question, and I'm with you,
I don't buy it, I know, But what we can
say is that higher unemployment is not usually what leads
us into a recession.
Speaker 2 (31:46):
No, it usually comes last. It's a lagging indicator. The
reason being you don't stop hiring because you're nervous about
a recession. You stop hiring because demand slows down for you,
and you say, I don't need as many people. So
and is what leads labor.
Speaker 3 (32:02):
Right, And so in some ways, I guess I look
at this period of time and say, Okay, you know,
it could just be a slowdown that again finds a
new normal, in which case does the FED need to
be cutting rates here?
Speaker 2 (32:16):
Yeah?
Speaker 3 (32:17):
It is really tough to look at and say, oh, yeah,
the FED needs to be dramatically lower.
Speaker 2 (32:22):
With their interest rates setting policy right now. Because the
thing is, if you look at demand and where it's
coming from now. On the consumer side, retail sales are fine,
haven't cracked at all. If you look at kind of
the business investment side, is AI demand weakening at all
in terms of you know, construction, no, no strengthening Still housing, Yeah,
(32:46):
you can make a case that, you know, housing investment
continues to be weak, but it's been weak for a
couple of years now. Like this is a story dating
back to twenty twenty three, even late twenty two, like,
that's nothing new. So I guess I look at it
and I say, if you're not seeing signs of demand cracking,
do you need to end up cutting because you're not
(33:10):
necessarily likely to see unemployment rise then. And part of
this also is it then gets at the complicated thing
of hey, we've got lower labor supply now because of
boomers retiring and more deportations. If labor supply is lower
and the unemployment rate doesn't rise as a result, what's
the point of cutting anyways. Yeah, So it's all to say,
(33:31):
this is a very unique, very messy situation that the
Fed's dealing with, and we're all just trying to understand,
you know, how this is moving because it's something that
we haven't seen in recent history in this fashion.
Speaker 4 (33:45):
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Speaker 2 (34:44):
Mike. Do we want to talk asset based investing, subprime
credit troubles or LA's entertainment industry. It's got entertainment, Chuck.
This is kind of an undercovered story in that the
LA economy is is kind of a mess. Now, California
in general, I mean, look, so California's basically three things.
(35:04):
When you look at its economy. It is entertainment, it's tech.
Those are the things people often think of, but agriculture
is a huge part also. You know, like you get
out of the major cities, and I mean California, it's
not the bread basket of America, but it's absolutely the
fruit and nut basket of America. There you go. You know,
it's like you talk whether you're talking you know, almonds,
(35:25):
you're talking tomatoes, watermelon, like this is where the stuff
comes from. Grapes for my by the way, or just
eating them. I was about to say that the grapes
the last month or so have been fantastic. I don't
know if you're a big grape guy, but they've been
nice and firm, really good.
Speaker 4 (35:44):
But what about the California raisins.
Speaker 2 (35:47):
I'm not a raisin fan personally, I don't enjoy raisins.
It's just me la. Hollywood slowing down not great. A
couple things that are potentially contributing to this in terms
of you know why this could be happening. The first
is overall between streaming and movies into theaters, budgets are
(36:10):
way down because everyone's trying to figure out how to
make money in a different world where making money on
those items has been challenging in recent years. So according
to the data from a prod pro nearly thirty percent
fewer movies and TV shows with budgets of at least
forty million dollars began shooting last year compared to two
years prior. So you've got a real reduction in the
(36:33):
dollars that are flowing in that direction. Other things that
you are seeing out there in terms of questions about,
you know, artificial intelligence and how that might be used
in filmmaking in the future, there are certainly questions about
that as well. You have questions as to hey, when
(36:56):
you look at the types of movies that have you know,
brought people to theaters before, you know, for the last
decade it's been superhero movies and Star Wars and all
those big budget things. Do people still have the same
demand for that? We're not seeing it in the ticket sales.
So overall you end up in a situation where the
entertainment industry, which is the lifeblood of LA is really
(37:20):
a kind of dodgy spot.
Speaker 3 (37:21):
Right now, did you see the story of Marvel moving
from Georgia to the UK? No, So there again reportedly
Marvel Studios moving to the UK, and a whole lot's
been written about it, a lot of political stuff. But
one of the reasons citing was, you know, obviously cost
and tax incentives. Georgia has a massive tax incentive out there,
and so that was part of reason why they were
(37:43):
there in the first place. But one thing they specifically
cited was much lower healthcare and just general costs with
filming in the United Kingdom and being located in the UK,
which I found.
Speaker 2 (37:56):
Very interesting, very very interesting.
Speaker 3 (37:59):
Yeah, it was a it was a case about you know,
universal healthcare in the UK and the cost of carrying
healthcare in the United States.
Speaker 2 (38:06):
Hmmm, interesting, I did. I didn't see that. I have
to poke around for it. Let's take a quick break here.
We still got a whole nother hour to go on
the financial exchange. Back in just a bit.
The Financial Exchange is produced by Money Matters Radio and
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(00:20):
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(00:42):
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heroes by visiting dav five K Dog Boston and making
a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstraw.
Speaker 2 (01:11):
Chuck, Mike and been here with you today on a
job's Friday. The only difference is we don't have a
job report because of the government shutdown. The estimates that
were out there and I guess still are out there,
were that non farm payrolls would see a fifty thousand
person rise, the unemployment rate would stay at four point
(01:34):
three percent, average hourly earnings would be ap point three
percent for the month, three point seven percent year over
year labor force participation rate was expected to stay at
sixty two point three percent, and the U six underemployment
rate expected to remain at eight point one percent. So
(01:55):
that's what the expectations were heading into today. And obviously,
as we say it here right now, there is no
BOLS government jobs report in front of us. But Mike
and I didn't let that stop us. No. Instead, Mike
and I did what any enterprising young person does these days.
(02:15):
It turned on they turned down their AI and said, hey,
what do you think is gonna happen? So here's uh,
we're doing this. We're actually doing this just because again
we have no jobs report. And so Mike, here's here's
the prompt that I gave chat GPT. Okay, create me
data for the jobs report do from the BOLS that
(02:36):
will not be released because of the government shutdown estimate
based on prior trends. That's it. That's that's what I
put in. Would you like would like my prompt?
Speaker 3 (02:45):
I would using data from the ADP Employment Report found here.
I provided the link, and uh the Revellio Employment Report
found here. Again provided the link. Please run an analysis
using that your data says compared their correlation to the
monthly jobs report from the BLS, and then based on that,
please put together prediction for the September jobs report. I'd
(03:08):
like to know how many jobs you predict were created
or lost in September, along with the unemployment rate. So
I didn't ask for wages. I just asked for rate
and jobs created or lost.
Speaker 2 (03:17):
I didn't ask for anything else. But I got a
whole bunch of stuff in here that it gave me. So, Mike,
what was the payroll number that your AI spit out.
It spat out twenty three thousand jobs created, So total
payroll change of plus twenty three thousand in the non
farm payroll numbers, I got plus fifteen. So pretty closest
(03:39):
in the margin era. Yeah, okay, so pretty close there
below the estimate of fifty thousand. But I guess our
ais are just a little bit pessimistic today. Yep, did
yours do private payrolls? Did it split that out or no? Nope,
just headline. Okay, mine did split out private payrolls, which
actually had private payrolls declining by twenty five thousand, but
government up four forty thousand because of new hiring for
(04:03):
state and local governments heading into the start of school season.
I don't know that this necessarily incorporates good seasonal adjustments
because typically that stuff is not picked up this time
of year. But the rationale, it did provide its rationale.
It said, look, ADP showed a private drop, and so
we're gonna go with that. So it explained how it
(04:24):
got there.
Speaker 3 (04:25):
Yeah, reasonable, And yeah, the ADP showed that, and so
I can see how the AI got there.
Speaker 2 (04:32):
Unemployment rate Mike came in at four point three percent.
The reasoning it said that the Chicago FEDS real time
now cast, which they just released about a month ago,
shows steady unemployment, so it did not pick up any
jump in unemployment.
Speaker 3 (04:46):
Yeah, I got four point four percent, and quite honestly,
it didn't give me a whole lot of rational than
twenty three thousand payroll gains is pretty small relative to population,
and therefore, looking at an uptick in unemployment rate labor.
Speaker 2 (05:00):
Force participation, I got flat at sixty two to three.
Same with employment to population ratio, flat at fifty nine six.
Net revisions to July and August thirty thousand negative was
what this said. Based on the recent softening trend and
downside revisions suggests a potential for a small net negative
revision here as well. That'd be pretty bad. So that
(05:21):
was in there. Other things that we had in here.
It did talk about ADP, It talked about jolts, YadA YadA. Yeah,
that's basically it. It did say, look, there's a pretty
good chance that this could be off by seventy five
thousand in either direction. And so understand that you know
(05:42):
this estimate is not perfect. But ultimately we don't have
a job report today. And so the reason that Mike
and I asked this is not because we think that
these numbers are right. They're not. They're not based on
any survey. They are fundamentally wrong. But what they are
based on is the data that is out there from
(06:02):
other data sources that suggests where this report could come
in based on you know, historical relationships and things along
those lines. And so that's I think the reason why
we wanted to do this was not because we think
this proves anything about AI, Like, I don't know if
this is you know, correct, It never will be correct
because there isn't going to be a September jobs report,
(06:24):
it will not exist. What I think this does help
us to do is use something other than our own
brains to say, hey, is there anything that you know
we might be looking at it that needs to be incorporated.
And this is how economists and the FED, by the way,
are going to go about trying to piece together what
they think is going on in the jobs market through
(06:45):
their own models and own you know, assessments. They're gonna
pull from these other sources to try to figure out
what may or may not be happening in the absence
of this job report. So that was really the purpose
of this was just to show how you can kind
of look at this and pull together what you know
could be a projection or set of projections for a
(07:06):
job's report in the absence of one that's actually being delivered. Chuck.
Speaker 3 (07:10):
That's a very nice way of explaining that you and
I were both having jobs report withdrawals, and our hands
were shaking until we could report something about jobs.
Speaker 2 (07:19):
I mean, look, here's the thing. At eight thirty this morning,
I'm sitting there on the BLS website just clicking refresh, Refresh, refresh, and.
Speaker 3 (07:26):
One small tier dripped down into Chuck's beard as he
was hitting refresh at eight thirty one, and nothing was coming.
Speaker 2 (07:33):
So this is where we stand right now with regards
to the government's shutdown. Still no signs of any breaking
of the deadlock. And someone asked me this morning, Mike,
how long do you think this puppy's gonna go? In
my understandials, I got no freaking clue. Like, I have
no idea. It could be over early next week, it
(07:54):
could be over in six years. It probably won't be
six years, but like reasonably, when we look at this,
the online betting markets that are out there right now
are betting on somewhere in the ballpark of like fifteen days.
That's kind of what we're up to. Remember, the last
shutdown that we had at the end of twenty eighteen,
was the longest one that we've ever had. It was
(08:14):
thirty four days. And the thing that eventually broke that
government shut down and you know, kind of got everything
moving again was the fact that remember, government workers, even
the ones that are you know, doing their jobs, they're not, like,
you're not getting paychecks. And so ultimately it was the
(08:35):
combination of air traffic controllers and TSA agents that pretty
much said, look like, we got to call up because
we have to go do something else in order to
pay the bills because there's no money coming in. And
once you get something visible like that showing up where
you have you know, more aircraft being delayed and you know,
things along those lines, that's where you start to see
(08:58):
a break if this goes longer term. So the the
two landmarks that I have in my head are October fifteenth,
because that's gonna be the first government payroll after the shutdown,
and then start of start of not February, start of November,
(09:18):
since that is when you will now have two missed
pay periods that you're looking at for government workers. And
so I think those are my two landmarks as far
as how long this could go. If it's you know,
could there be a resolution sooner. Yeah, there could be
one next week. Like, I have no idea, But right
now you basically have you know, everyone in Congress and
(09:41):
related to government, like trading memes on you know, social
media about you know this that, and everything related to
the shutdown. It doesn't seem like there's much progress being
made right now. Sure doesn't.
Speaker 3 (09:51):
Yeah, and it doesn't seem like there's a lot of
pressure from constituents to get something done right now.
Speaker 2 (09:56):
No, And again, the estimates each week you probably see
about a onero point one percent reduction in GDP for
as long as the shutdown goes on. So again, if
it's three four days, it's in, it's negligible. Even if
it goes for a week, basically no impact. You start
getting into like three four weeks, it's like, okay, like
(10:17):
there's there's a meaningful impact to GDP that happens then.
But we're in day three of this puppy, So let's
not you know, let's not assume this thing is going
to go that long. I think that we'll just have
to take it as it comes and see what the
potential economic impacts are. Let's take a quick break here,
and when we come back. We've had some weakness in
(10:39):
jobs over the last few months, but are there signs
that increased productivity is making up for that when it
comes to economic growth. We'll discuss when we return.
Speaker 1 (10:51):
Text us six one seven, three, six two thirteen eighty
five with your comments and questions about today's show and
let us know what you think about the stories you're covering.
This is the Financial Exchange Radio Network, breaking business and
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Financial Exchange Radio Network.
Speaker 2 (11:24):
We got a piece from the Wall Street Journal. Today's
title is behind job Weakness, Our hints of a productivity
revival is ai the reason? What's the case made in
this piece?
Speaker 3 (11:37):
Mic GDP is going up and employment is, as far
as we know, not moving up terribly quickly, or perhaps
even moving down. So if you've got the economy growing
at the same time as you have fewer hours being worked,
that leads you to really only one conclusion.
Speaker 2 (11:55):
Right then employees are being more productive. Yeah, that's what
I'm getting net. So when we look at this, the
basically the case that is being made here is, Hey,
you had you know, the second quarter the GDP growth
that we saw was you know, stronger than a lot
of people anticipated, even though payroll growth was pretty muted.
(12:19):
And so it's basically saying, look, if that's something that continues,
then you are going to see you know, productivity be
what fills the gap. And because of all this spending
on AI, is it reasonable then to assume that this
is happening because of you know AI. It is AI
driving that productivity boost.
Speaker 3 (12:39):
Is technological advancement making all of us more efficient.
Speaker 2 (12:43):
And it's it's a reasonable theory. I think you need
more than a quarter of economic data to be able
to prove it.
Speaker 3 (12:52):
Well, so can we walk through and I don't have
the answer here, but Chuck, what would be the alternative
alternative explanations to GDP going up at the same time
that employment is moving the other direction?
Speaker 2 (13:03):
Not unheard of, No, the things that you could see.
It could be related to changes in inventories, imports, and exports,
which call me crazy, but I think we've seen some
pretty sizable shifts on those fronts this year. Yeah. Yeah,
there's been some terror stuff going on, so it could
be just related to that and how that impacts you know,
the GDP data that we get. Other things that you
(13:25):
could be seeing. It could be an increase in productivity
due to economies of scale that you get from what
you're doing in the economy. The example I would give
right now, Hey, Mike, is it more productive to build
a really small data center or a really big one?
A really big one because you get all kinds of
economies of scale, which is why you build giant data
(13:47):
centers and not small ones. And we're building a lot
of big ones right now, and we've even shown the
impact that that's had on overall GDP because the shift
in data center construction is big enough that you can
measure it in terms of GDP growth.
Speaker 3 (14:01):
Now, I'd also be willing to bet that if you
are building a giant data center, you are more efficient
on a dollar by dollar basis than say, building a house.
Speaker 2 (14:12):
Sure, so I think curves, fancy roof lines. No, it's
just big rectangles, not cubes. What's what's the what's the
three D version of a rectangle? Mike? Do we have
a word for that? I don't know. Do we have
to make this up again? Three D version of rectangle? Name?
Speaker 3 (14:35):
You can't use a cube to describe that as a
cube definitively just a square.
Speaker 2 (14:40):
A cube is definitively.
Speaker 4 (14:41):
Like rectangular prism, also known as a cuboid.
Speaker 2 (14:46):
Cuboid. I like cuboid. You're a cuboid. Yeah sounds like
a boy band name, right, it does. Uh So in
any case, I think that this is a theory that
we can, you know, keep out there and say, hey,
let's see how this evolves over the next I think
twenty four months. I think like, if you have a
couple of years of this, then we can point to it.
(15:07):
If it's a few quarters, I'm not sure there's anything there. Yeah,
But I mean, look, this is this is why people
are interested in AI. This is the make us more productive.
This is the only promise that AI has is.
Speaker 3 (15:21):
Yeah, it does cool things, and there's all these sorts
of dreams. But if you're looking to you know, boil
it all down to one point, it's will this technology
make us more efficient at the work that we do?
And if so, then that's the holy grail which is
possibly worth the investment, right, which which, by the way,
is the whole thing with any kind of technological advancement
(15:44):
is can I do more with less?
Speaker 2 (15:47):
Right? If you look at construction and the introduction of
power tools, the answer was yes, I can do a
lot more with less. So this for you know, people
who sit in front of a computer screen, whether it's coding, writing, handling,
you know, numbers, this that, whatever it might be, can
it allow you to do more than you would previously
(16:12):
have done such that costs come down and either those
cost savings can be passed on in the form of
higher living standards to everyone else, or profit margins expand
and those additional profits then can be reinvested into additional
technological growth or distributed out to shareholders in the form
of additional wealth. Right, that's what you're looking for out
(16:35):
of this. It's to this point, Mike, I would say,
based on the overall data that we have, I don't
think there are any conclusive facts and evidence that point
to AI having a meaningful higher productivity impact that we
can ascertain in the broad economy. We can certainly point
to individual jobs and uses. I don't think that we
(16:57):
have anything conclusive that says, yes, this is showing up
broadly in the economic data yet. Yeah. I can agree
with you there it may, but we're not there yet.
Let's see great piece from Barons, actually why the stock
market keeps going up even during a government shutdown, Mike.
The best example that I've seen of this is if
you have a sports team that you like, specifically, like
(17:22):
you're an NFL fan, Sure, if you've got questions about
how your team's doing, they've been on like a recent
losing streak, kind of like the jobs reports have been
weak recently. Yeah, the National Football League got it. Guess
what you can't lose on a bye week. If there's
no news that's being published, what do you trade on? Like?
What what do you sell on? Because ultimately, the reason
(17:45):
for investors to make any investing decision is because of
a story that they tell themselves. It could be a
story about valuation, a story about a founder, a story
about economic data, whatever it might be. You tell yourself
a story as to why you're gonna do that. If
there is there's no news that is being released, what,
(18:05):
like you, you can't trade on that, it doesn't exist.
And so in the absence of bad news being released,
generally people invest in the market for one reason, and
that is to make money.
Speaker 3 (18:18):
I guess it helps me fight against that old phrase
that markets hate uncertainty, not really.
Speaker 2 (18:26):
A resolution of uncertainly. We're getting a big dose of uncertainty.
Speaker 3 (18:29):
Right now, we don't know how many jobs were created
for the month of September, we don't know the unemployment
rate currently, we don't know when a government shutdown will.
Speaker 2 (18:38):
End, and markets are doing just fine. So yeah, I'm
with you.
Speaker 3 (18:43):
They don't like when that uncertainty resolves into something that
is pretty ugly for the markets and the economy.
Speaker 2 (18:49):
But the uncertainty itself, right, if the uncertainty can't resolve,
why would you do anything, right? I think that's kind
of where you end up getting to when when it's
all said and done on this. So that is again,
I thought this was I thought this was a really
good piece by Barons there when we look at it.
(19:12):
Let's take a quick break here and when we return,
I want to talk about this piece from the Bloomy
Berg and it's by Bill Dudley. Hugh used to be
the president of the New York Fed. It's titled maybe
the Fed shouldn't be cutting interest rates. We'll discuss when
(19:32):
we're back.
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 Rate Field network.
Speaker 4 (20:01):
Well, it's day three of the government shutdown and markets
are on the rise. The Dow Jones is up over
four hundred points or point eight seven percent. The S
and P five hundreds up over twenty four points, a
little over three tens of a percent in the Nasdaq
just barely positive, up six one hundreds of a percent.
Russell two thousand is also up over a percent. Rare
(20:23):
Earth Minor USA Rare Earth is up twenty two percent
after CEO Barbara Humpton told CNBC that the company is
in quote close communication with the White House. Game Stop
shares are down three percent after the company said in
a filing it's selling a combination of assets ranging from
common stock to debt for an undisclosed amount. Applied Material
(20:43):
shares are off two and a half percent after the
company acknowledged in a regulatory filing that new US export
restrictions will hurt revenue. Applied Materials said the restrictions will
lower fourth quarter revenue by about one hundred and ten
million dollars and its fiscal year twenty twenty six revenue
by around six one hundred million dollars. Uranium Energy is
down three and a half percent after planning a secondary
(21:05):
offering of fifteen point five million shares. Goldman Sachs is
the sole underwriter of that Entergy shares are up two
point four percent after announcing plans to provide power for
Google's plan technology investment worth around four billion dollars in Arkansas.
As part of the investment, Google will develop a new
data center in West Memphis, Arkansas. The companies first in
(21:27):
the state, and finally, Gordon Haskett Research Advisors upgraded Zillo
to buy from hold sending the real estate platform up
three point eight percent. The Wall Street researcher said the
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has declined seventeen percent over the past two weeks on
concerns regarding competitive encroachment and legal fees. I am Ben Kitchen,
(21:49):
and that was Wallstreet Watch.
Speaker 2 (21:51):
Mike. We got a piece here from Bill Dudley, former
president of the Federal Reserve Bank of New York, and
I'll just read his opening paragraph because it basically spells
out the whole thing. Should the US Federal Reserve keep
cutting interest rates? Market certainly think it will. Futures prices
suggest the federal funds rate will fall to about three
(22:12):
percent by the end of twenty twenty six from just
about just above four percent. Now, I'm not so sure
that would be a good idea any outlines. Look, there
are three reasons why the Fed would be cutting right now.
Risk management. Hey, we think that we might just be
a little too restrictive, so let's reduce rates to get
into a more comfortable spot. Anticipation. We don't want to
(22:35):
wait to see further deterioration in the labor market because
if we do, it's already too late. And what we
call estimation error. Hey, maybe we're wrong about where the
neutral rate is and we need to revise where we
think that is. So those are the three reasons that
you talk about for cutting. What Dudley outlines in terms
(22:56):
of hey, why would you not be cutting at this
point pretty much boils down to one thing as far
as I can tell, which is, Hey, inflation is still
about a percentage point above the two percent target the
Fed's had for recent history. If you're cutting right now
with signs that inflation may already be rebounding, because second,
(23:19):
the economy actually starts to kick into higher gear. Your
risk inflation becoming a larger problem, and you've got to
reverse that policy in short order. Is that the argument
that he makes, that's the theory. Yeah, I mean, look
a lot easier to.
Speaker 3 (23:33):
I guess vocalize that theory when you're not sitting in
the chair of a voting sitting in the chair of
a voting member. I think, obviously we see a lot
more of these pieces from former FED governors than we
do anything from a sitting one. So do I buy
the argument, Yeah, I just I really have no idea
(23:53):
right now which the bigger risk is. I think though
that it's employment. I think the bigger risk right now
is the jobs market. I think that's being confirmed by
some of the private payroll data we keep getting, as
well as the general attitude.
Speaker 2 (24:08):
Of employers right now. I tend to agree. I mean, again,
could be wrong.
Speaker 3 (24:17):
Not saying that that justifies you know, two percentage point
rate cuts, two percentage points and rate cuts. I just
think that the FED is very likely at this next meeting,
I think, regardless of whether or not they have CPI
and this September jobs report, to keep ongoing here with
lower rates until they get to about a percentage point
(24:38):
lower than where we were this summer.
Speaker 2 (24:40):
And I guess where I were, Like the further we
go this fall, you know that I had made a
statement back in I think it was June. It was
when we were starting to see like an uptick in
initial unemployment claims and or no in continuing claims. I'm sorry, yeah,
And I said, look, if this continues, the case for
the FED is pretty ironclad to start cutting right now
(25:03):
in that you don't want, you know, labor market weakness
to become larger, because if it does, you probably don't
end up having much in the way of inflation anyways, then,
because recessions typically take out any inflationary impulse. If people
aren't buying stuff, there's generally not much inflation that continuing
claims data reversed in pretty short order, within the span
of a few weeks. And I said, look, like, I
(25:25):
don't know you need to do anything. The data for
the last six weeks or so not on claims. Claims
are actually completely fine right now. But the day that
we've been getting the combination of ADP indeed paychecks jolts
the Chicago Fed's new tracker. That's out there. It's all
kind of pointing in the same direction, and that is
(25:46):
the labor market continuing to soften and worsen. And I
guess where I end up on this is, Hey, if
you're worried about inflation becoming a problem nine months from now,
while you have the labor market becoming a problem today,
(26:09):
that's kind of like being like, well, it's mid May
right now and pretty warm. Better put on a jacket
in case it gets cold in December. Yeah.
Speaker 3 (26:19):
The example I give is, you know, a patient coming
in with a gunshot wound and you're trying to treat
their cancer, Like.
Speaker 2 (26:26):
They're both problems, but we need to share it. The
first one. Yeah, it's it's just I think that there
is a higher urgency on the jobs front right now
because we're kind of on the precipice of the labor
market going into a nasty place and we still may
(26:47):
not end up going there. Like that's that's totally possible.
But I'm trying to think of the last time that
I looked at, you know, a piece of labor market
data and was aside from weekly claims, which, again, if
you're in a low high high low fire environment like
weekly claims aren't gonna show a ton But aside from
weekly claims, when's the last time you looked at a
labor market indicator? And we're like, that is unambiguously good news.
(27:11):
It's been a bit, right, But here's what I will say.
Speaker 3 (27:17):
It rings really similar to what we were dealing with
last year, not to this extent, not to that that's
the difference, well to yes, to this extent on the
unemployment rate, right like, we did see a bigger upswing
in a shorter period of time on the rate of unemployment.
And I'm willing to excuse that because again we were
(27:39):
at such an abnormally low unemployment rate back then, but correct,
we did see that uptick a lot faster than we
have here.
Speaker 2 (27:46):
And so.
Speaker 3 (27:48):
I guess my point would be we saw something that
we have never seen in modern history last year when
it comes to the unemployment rate going up by more
than half percent, and then pausing, maybe we're seeing something
that we haven't seen in quite some time.
Speaker 2 (28:03):
With the labor market now possible and again but by
the end of I've said by November, but you know,
by Thanksgiving, we'll know. I don't know if that's gonna
be the case, given what we may or may not
get for economic data over the next month. Now, so
I now revise that to hey, by the end of
the year, we'll know. But you got to start seeing
some green shoots on the job side of things, and
(28:27):
we're just not seeing those yet. Like there hasn't been
an inflection point that we've reached there. It still is
something where what you can say, the weakness in the
labor market is not affecting the broader economy at all.
Retail sales just fine. You look at what's going on
with you know, the AI boom, it's cranking right along.
(28:51):
The housing market is weak. With the housing market, it's
been weak for the last two years. And this is
not a new phenomenon. So I don't think that you
can point to what's going on labor market and say
this is causing problems X, Y, and z in the
economy because it's not showing up anywhere else yet. Which
gets back to the conversation we had yesterday of hey,
are we less dependent on labor income to drive the
(29:13):
economy now than at any other point in history? And
the answer there could very well be maybe, which then
raises the question should the FED be cutting if this
doesn't matter.
Speaker 3 (29:24):
As much, Yeah, let's take a break, and then I
want to come back with that because ultimately we're worried
about a recession of what that does to the entire
economy and are we actually seeing signs of that. That's
next year on the Financial Exchange.
Speaker 1 (29:39):
Miss any of the show. Catch up in your convenience
by visiting Financial Exchange Show dot com and clicking the
on demand icon, where you'll find all of our interviews
and full shows. This is your home for the latest
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This is the Financial Exchange Radio Network. The Financial Exchange
(30:00):
Dreams live on YouTube. Like our page and stay up
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Speaker 5 (30:13):
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Speaker 2 (30:41):
Mike. Last segment, we were talking about, Hey, the labor
market's showing some real signs of weakness. But then raise
the question, hey, if it's not showing up in the
broader economic data. And the main reason that historically you
want to try to maintain full employment. I guess there's two,
depending on you know, which perspective you're looking at. A
(31:02):
you don't want, you know, in generally, you just don't
want a bunch of people to be unemployed. It creates
problems for their families and for you know, larger society
as a whole. But also the reason that the FED
cares about is it generally causes you know, recession. And
so I guess the question is, hey, if if lower
employment growth no longer necessarily is that direct path to recession?
(31:25):
Which is a big If we're still not convinced that,
then is there the case that maybe the FED doesn't
need to be doing anything right now?
Speaker 3 (31:32):
Yeah, so that's a really complicated question, and I'm with you,
I don't buy it, I know, But what we can
say is that higher unemployment is not usually what leads
us into a recession.
Speaker 2 (31:46):
No, it usually comes last. It's a lagging indicator. The
reason being you don't stop hiring because you're nervous about
a recession. You stop hiring because demand slows down for you,
and you say, I don't need as many people. So
and is what leads labor.
Speaker 3 (32:02):
Right, And so in some ways, I guess I look
at this period of time and say, Okay, you know,
it could just be a slowdown that again finds a
new normal, in which case does the FED need to
be cutting rates here?
Speaker 2 (32:16):
Yeah?
Speaker 3 (32:17):
It is really tough to look at and say, oh, yeah,
the FED needs to be dramatically lower.
Speaker 2 (32:22):
With their interest rates setting policy right now. Because the
thing is, if you look at demand and where it's
coming from now. On the consumer side, retail sales are fine,
haven't cracked at all. If you look at kind of
the business investment side, is AI demand weakening at all
in terms of you know, construction, no, no strengthening Still housing, Yeah,
(32:46):
you can make a case that, you know, housing investment
continues to be weak, but it's been weak for a
couple of years now. Like this is a story dating
back to twenty twenty three, even late twenty two, like,
that's nothing new. So I guess I look at it
and I say, if you're not seeing signs of demand cracking,
do you need to end up cutting because you're not
(33:10):
necessarily likely to see unemployment rise then. And part of
this also is it then gets at the complicated thing
of hey, we've got lower labor supply now because of
boomers retiring and more deportations. If labor supply is lower
and the unemployment rate doesn't rise as a result, what's
the point of cutting anyways. Yeah, So it's all to say,
(33:31):
this is a very unique, very messy situation that the
Fed's dealing with, and we're all just trying to understand,
you know, how this is moving because it's something that
we haven't seen in recent history in this fashion.
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Speaker 2 (34:44):
Mike. Do we want to talk asset based investing, subprime
credit troubles or LA's entertainment industry. It's got entertainment, Chuck.
This is kind of an undercovered story in that the
LA economy is is kind of a mess. Now, California
in general, I mean, look, so California's basically three things.
(35:04):
When you look at its economy. It is entertainment, it's tech.
Those are the things people often think of, but agriculture
is a huge part also. You know, like you get
out of the major cities, and I mean California, it's
not the bread basket of America, but it's absolutely the
fruit and nut basket of America. There you go. You know,
it's like you talk whether you're talking you know, almonds,
(35:25):
you're talking tomatoes, watermelon, like this is where the stuff
comes from. Grapes for my by the way, or just
eating them. I was about to say that the grapes
the last month or so have been fantastic. I don't
know if you're a big grape guy, but they've been
nice and firm, really good.
Speaker 4 (35:44):
But what about the California raisins.
Speaker 2 (35:47):
I'm not a raisin fan personally, I don't enjoy raisins.
It's just me la. Hollywood slowing down not great. A
couple things that are potentially contributing to this in terms
of you know why this could be happening. The first
is overall between streaming and movies into theaters, budgets are
(36:10):
way down because everyone's trying to figure out how to
make money in a different world where making money on
those items has been challenging in recent years. So according
to the data from a prod pro nearly thirty percent
fewer movies and TV shows with budgets of at least
forty million dollars began shooting last year compared to two
years prior. So you've got a real reduction in the
(36:33):
dollars that are flowing in that direction. Other things that
you are seeing out there in terms of questions about,
you know, artificial intelligence and how that might be used
in filmmaking in the future, there are certainly questions about
that as well. You have questions as to hey, when
(36:56):
you look at the types of movies that have you know,
brought people to theaters before, you know, for the last
decade it's been superhero movies and Star Wars and all
those big budget things. Do people still have the same
demand for that? We're not seeing it in the ticket sales.
So overall you end up in a situation where the
entertainment industry, which is the lifeblood of LA is really
(37:20):
a kind of dodgy spot.
Speaker 3 (37:21):
Right now, did you see the story of Marvel moving
from Georgia to the UK? No, So there again reportedly
Marvel Studios moving to the UK, and a whole lot's
been written about it, a lot of political stuff. But
one of the reasons citing was, you know, obviously cost
and tax incentives. Georgia has a massive tax incentive out there,
and so that was part of reason why they were
(37:43):
there in the first place. But one thing they specifically
cited was much lower healthcare and just general costs with
filming in the United Kingdom and being located in the UK,
which I found.
Speaker 2 (37:56):
Very interesting, very very interesting.
Speaker 3 (37:59):
Yeah, it was a it was a case about you know,
universal healthcare in the UK and the cost of carrying
healthcare in the United States.
Speaker 2 (38:06):
Hmmm, interesting, I did. I didn't see that. I have
to poke around for it. Let's take a quick break here.
We still got a whole nother hour to go on
the financial exchange. Back in just a bit.
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