September 5, 2025 • 38 mins
Chuck Zodda and Mike Armstrong dive into the August payroll data that came in below expectations. What does the jobs data tell us about a September rate cut? Electricity costs are rising twice as fast as inflation. Why is the jobs market so sluggish right now?
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Episode Transcript
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Speaker 1 (00:00):
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a donation today. This is the Financial Exchange with Chuck
(01:06):
Zada and Mike Armstrong.
Speaker 2 (01:11):
Well, it's Chuck, Mike and Tucker with you and wrapping
up the first week in September. No major news today,
so we're just gonna take the rest of the day
off it. Oh no, wait, Michael, there's a BLS job support.
At eight thirty this morning, the Bureau of Labor Statistics
fired up their old abacus's or is it abakai abakai
(01:33):
abakai ye? They fired up the abakai and they said, hey,
for the month of August, we saw a net growth
of twenty two thousand jobs in the United States, which
is poor to quite poor.
Speaker 3 (01:46):
Bad.
Speaker 2 (01:47):
Uh, it's not negative, which is, you know, the best
thing that you can say about it. Unfortunately, the June
numbers were revised down by another twenty seven thousand, from
positive fourteen thousand to negative thirteenth and that's now the
first negative number that we've seen in a jobs report
since twenty twenty. And quite honestly, I'll exclude twenty twenty
(02:08):
from the numbers just because there's some stuff going on
back then, a fire, there was a little bit of
stuff going on, you know, it was kind of a thing.
And so if you in fact as I do exclude
twenty twenty from the numbers, this is the first negative
jobs print since twenty ten, fifteen years. We didn't see
(02:32):
a negative one during the twenty tens aside from the
start of twenty ten.
Speaker 4 (02:36):
Again, what this means is when the surveyors went out
to businesses and asked how many people did you hire?
Speaker 3 (02:42):
How many people to you fire? The revised results that we've.
Speaker 4 (02:45):
Seen over the course the last few months indicated that
they fired some thirteen thousand people. Now again it's all
netted out. Some companies hired, some companies did not. But
these are the estimates now, and that's the first month
of job loss, like Chuck mentioned since twenty ten, if
you exclude the twenty twenty recession.
Speaker 3 (03:03):
Correct. Now, other things that we saw in here.
Speaker 2 (03:05):
The unemployment rate rose from four point two percent to
four point three percent. That is tabulated using a different
survey of households. And so the big reason there not
actually a you know, increase in the you know, a
huge increase in the number of unemployed. You did see
a little bit of an uptick there, but rather it
was more people coming into the labor force who reported
(03:26):
themselves as unemployed and so that was, you know, kind
of the interesting thing where this was a month where
on the household data both the number of unemployed and
employed went up, which is not something that you see,
you know, in the in this magnitude you know too often,
you see it occasionally, it happens from time to time,
but it's just not something that you see. A ton
(03:47):
of other things that we have in here. Construction jobs
now have seen net firings for the past three months.
We've been warning that based.
Speaker 4 (03:58):
On firings or quits, right, these are not measured differently.
Speaker 2 (04:03):
Fewer negative jobs grow. They've seen job losses for the
last three months. Who cares whether you left voluntarily or not.
Speaker 3 (04:10):
It doesn't matter. You're not getting paid anymore.
Speaker 2 (04:12):
And so construction over the last three months now with
negative job numbers in each of those. Manufacturing with another
tough month for job creation as well, down twelve thousand,
now down seventy eight thousand for the year on the
manufacturing side, also starting to see some signs that the
(04:34):
those cuts that were put into effect earlier this year
are now showing up in here. With government jobs down
sixteen thousand. That's expected to accelerate over the next couple months,
simply because those had six months severance offers, many of
which were accepted in February and March, so six months
is as one would expect August and September, so those
(04:55):
will show up.
Speaker 3 (04:56):
I don't think that those.
Speaker 2 (04:57):
Are necessarily going to be something that you you know,
put in as you know, any kind of trend that's
going to develop, because the decisions were made six months ago,
they're not being made anymore, but just something to watch
for over.
Speaker 3 (05:08):
The next month or two.
Speaker 2 (05:09):
Other data that we had in here average weekly earnings
running at about a three point three percent annual growth
rate over the last twelve months. Average hourly earnings ap
point three percent for the month I'm sorry, yes, a
point three percent for the month. But the big one
that I always like to watch in here is the
(05:30):
number that's called aggregate payrolls. And aggregate payrolls is a
fancy way of saying, Hey, show me the number of
jobs added and combine it with wage growth. How much
did payrolls go up? And the big thing on this one,
I like to use it as a proxy for demand
from households because it's pretty much, hey, how many people
(05:53):
are working and how much are they getting paid. And
we've been in a pretty consistent range over most of
the twenty tens and even since the start of twenty
twenty four, where we've generally been, you know, between like
four and three quarters and five and a quarter percent
year over year aggregate payroll growth. This month, that year
(06:14):
over year payroll growth slowed to four point four percent.
So again, I don't know that it's a meaningful inflection downward,
but it's it's slower than it's been. But for the
last three months now, we're running at an annualized rate
of two point four percent on aggregate payroll growth. Two
point four percent to put it in perspective, aside from
(06:36):
the pandemic. The last time we were there was June
of twenty ten. Yeah, it's not good when you see
it moving that slowly, simply because you have concerns about
whether consumer spending can keep up. Now that the counterpoint
to this is if you actually look at Social Security
with holdings over the last two months, they're running at
(06:58):
north of seven percent annualized growth, which is hard to
reconcile because.
Speaker 4 (07:03):
What do we make of that? So Security withholdings up
seven percent, at grid payrolls.
Speaker 2 (07:07):
I don't know what to make of it, because they
normally tie pretty closely. You know, they're typically pretty close
with you know, a couple exceptions here and there. Because
social Security payroll growth, I think it's a great measure
of how the economy is typically doing because you pay
Social Security taxes only on a limited set of income,
(07:27):
so it's not influenced by the people making ten million
dollars or a bunch of investment income and all that stuff.
Social Security you know, FIKA withholdings is fundamentally based on hey,
how much are companies sending to the US Treasury on
a daily basis for workers making less than like one
hundred and seventy thousand dollars a year. So I can't
(07:50):
reconcile these two numbers, and that does have me a
little bit confused as to what's going on, because ultimately
what matters in this is how much peace we're being paid,
And the Social Security numbers are telling me there's no
real problem there, whereas this number is telling me there's
a problem. And it's unusual to have that divergence. I
don't know what it means, but it's going to resolve
(08:11):
itself in the next couple months, either these numbers are
going to have to come up or the Social Security
withholdings are going to start to slide.
Speaker 4 (08:19):
So the last four months now we are sitting at
average payroll growth of what thirty thousand nine.
Speaker 3 (08:27):
Where do we need to be.
Speaker 4 (08:28):
To maintain the unemployment rate at four point three percent?
Speaker 2 (08:31):
We don't know. And that's the humble, honest opinion. And
we don't mean chuck and I don't know. We mean
nobody really knows right now. No. And the reason why
nobody really knows is that no one has a great
picture as to exactly what's going on with immigration right now,
other than the levels are down from where they were
(08:52):
a year ago. And what I mean by this is
we don't know how many immigrants.
Speaker 3 (08:59):
Who were either here league or illegally.
Speaker 2 (09:02):
Have dropped out of the workforce or are just no
longer in the country right now. The estimates that I've
seen are that you have anywhere from about three hundred
thousand to one point five million immigrants that are no
longer in the workforce. And basically what it means then,
because that band is so big in terms of the
(09:23):
number of jobs added per month, that you need to
keep the unemployment rates steady. The estimates that I've seen
are anywhere from like twenty thousand to one hundred thousand.
It's a wide band, and so we really don't know.
Speaker 3 (09:39):
What I can tell.
Speaker 2 (09:40):
You is that ultimately, spending growth in the US is
powered by two things, more people getting paid and those
people getting paid more, which is why aggregate payrolls matters.
If you slow to job growth of twenty thousand, you know,
jobs per month, and if wage growth you know, continues
to run at three percent, it is tough to have
(10:03):
five percent nominal GDP because you can't spend that money
that you don't have.
Speaker 4 (10:08):
The unemployment rate might matter in that case to the
FED and their decisions about inflation, but in terms of
growth of the economy, it's tough to see consumers growing.
If you're only adding twenty thousand jobs.
Speaker 2 (10:19):
Per month, now you don't need to add two or
three hundred thousand. You could be very contentious clipping along
and saying, okay, I can add one hundred thousand jobs
a month, and that's you know, zero point seventy five
percent in terms of you know, workforce growth for the year,
and if wages run three to three great I've got
my four percent, you know, four and a quarter percent
(10:39):
that I need for aggregate payroll growth, and I'm happy
as a clam. But if you're basically flatlining on the
payroll growth and wage growth, you know, if wage growth
does stagnate for any reason because companies say, hey, like,
we don't need to pay up because the labor market's loosening,
(11:00):
that's where things start to get dodgy, and that's where
recessionary things happen. We're not there yet, mostly because with
labor supply so tight, companies are still paying up for
labor even though they don't.
Speaker 3 (11:10):
Need to grow their labor force much.
Speaker 4 (11:12):
Looking for a glimmer of good news here, Chack and
I don't have much from this report. I suppose one
would be we're at a pretty solid starting point. Four
point three percent unemployment is not a bad place to be,
and so the trend line, while concerning, has not brought
us to a level of unemployment in the total that
we would genuinely concern, genuinely considered to be recessionary. Yet
(11:37):
I guess the other piece would be it definitely shapes
what the FED is likely to do next after this report.
Speaker 3 (11:43):
Yeah, and let's talk a little bit about that.
Speaker 2 (11:45):
Let's take a quick break here, but when we come back,
let's talk about what this means for the FED meeting,
which is now twelve days away, by the way, it's
coming up sneaky quick, and so we'll talk a little
bit about what this report means for the September meeting.
Speaker 1 (12:00):
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(12:20):
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Speaker 2 (12:37):
All right, So this morning job sport came out wasn't
particularly good. Twenty two thousand jobs, created some downward revisions
for June that pushed June to negative territory, first negative
jobs numbers that we've seen since twenty twenty. And we
raised the question at the end of the last segment,
what does this mean for the upcoming FED meeting. Here's
(12:59):
what that means. The FED is going to be cutting
at the September meeting. Only real questions twenty five or
fifty chuck correct. As of right now, we have an
eighty five point seven percent chance of a twenty five
basis point cut and a fourteen point three percent chance
of a fifty basis point cut. And so this is
like the whole crux of the question now is how
(13:22):
large is the cut going to be at this meeting?
And then and then from there, like what's the path
for subsequent meetings as we get into you know, the.
Speaker 3 (13:32):
Rest of the year.
Speaker 2 (13:34):
Currently, the market pretty much pricing in seventy five basis
points of cuts by year end. But this has the
potential to change because remember, in a recession, typically the
Fed might cut anywhere from like two to four percent.
And so the possibility that we have to be aware
of in the short term is, hey, if there is
(13:54):
a recession that develops, you've got kind of the left
tail there of the Fed funds rate lower rates. You know,
they could get priced in where you start saying, hey,
should we be you know, pricing in Fed funds rate
closer to two percent than three percent as the terminal rate. Now,
that also would have to go along with inflation not
being a problem, because it's tough for me to get
(14:15):
to a point where the FED says, hey, inflation is
still running at three percent, and we're gonna cut to
you know, two yeah, because the problem there is the
second that things turn and start accelerating upward, which they
always do.
Speaker 3 (14:32):
Even if you get.
Speaker 2 (14:32):
A recession here, it's they always turn. In my estimation,
it's not likely to be particularly long or deep. Then
you have people, you know, buying up more stuff than
they used to, and that's where three percent inflation turns
into five percent in a hurry. And the Fed's got
to be quick on that other side if they've gone
too far there.
Speaker 4 (14:50):
So let's justify a fifty bases point cut right now.
So on July twenty seventh, that was the last FED
and meeting, if I'm not nope, that's twenty twenty sixth schedule.
July twenty eighth was the last meeting. The decision webs
that you're looking at that I have.
Speaker 2 (15:07):
No idea M and I markets never heard of them neither,
So pretty sure that's right though. What we knew at
that stage this is Pizza's Mike and Eros pizzas for euros.
The oh wait, did you say?
Speaker 3 (15:25):
I meant like Yero but not euros. But they sound
very interesting if they were a money changer that sold pizzas.
Speaker 4 (15:32):
H What we knew at that meeting was a labor
market that had slowed, but not considerably. I don't know
what the running average for the job creation at that
point was, but I think it was in the fifty
to seventy five thousand per month range over the last
three months. Two days after that meeting thereabouts, you got
a massive revision of jobs that resulted in the President
(15:54):
firing the then head of the Bureau of Labor Statistics.
You now have another reading on jobs that showed weak
employment in the month of August and further revisions downward
for the previous few months. You already had two FED
members voting for a cut at that stage. I think
(16:14):
you can pretty easily justify a fifty basis point cut
at this stage if you want to.
Speaker 1 (16:19):
Last time they did it was September.
Speaker 3 (16:20):
Of last year.
Speaker 4 (16:21):
Yes, in the face of pretty similarly weak jobs data.
I think the only caveat would be you haven't seen
the same jump and unemployment that you saw in the
spring and summer of last year.
Speaker 3 (16:33):
And inflation's inflected higher.
Speaker 2 (16:35):
But if you want to look at the labor market
and say, hey, is there enough basis for a fifty
basis point cut?
Speaker 3 (16:42):
The answer is.
Speaker 4 (16:42):
Absolutely, Yeah, absolutely, and I think you will get members
like Waill Theer calling for it and voting for it.
Here's the case for it, quite honestly. Parker Ross, who's
a guy that I follow on X.
Speaker 2 (16:54):
He is the global chief economist at Arch Capital Group,
and park it is a work with I mean again,
if you're the global chief economist, you do a lot
of work with everything, but in particular, he looks at
a lot of labor statistics and one of the things
that he's really worked on is, hey, based on the
ratios and the rates that you see in jolts, what
(17:17):
do we expect private payrolls to actually come in at?
And he's built just a fantastic model that trends it,
which basically shows, hey, if the hiring rate is x
and the separation's rate is why, here's the job growth
that you should expect for you know, kind of a
three month moving averages is where he butters his bread
(17:37):
and basically his model, what it's showing is if the
rate of hires continues on its current trend and the
rate of separations continues on its current trend, you're gonna
have negative job growth within the next month or two,
potentially accelerating to like three to four hundred thousand jobs
lost per month by this time next year. If that
(17:58):
were to continue now, nothing continues for a year, because
you know, things are always wiggling and moving a little bit.
There are no straight lines in economics, at least outside
of you know, China, right where occasionally they have straight
lines in their data, usually because the data set is
discontinued for a little bit and then there's a straight
line connecting the two points. But effectively, this is something
(18:22):
I've been following Parker for you know, a number of years,
and about a year ago he was like, look, if
things continue the way they're going by like this time
right now, you'd have, you know, the danger of being
you know, basically flat in terms of job creation. And
so he's pretty good because he had twenty thousand jobs
created twenty two thousand for the last month. Yeah, so
(18:43):
this is the case for the FED to be cutting
and not just by a quarter percent, but by half
a percent this meeting, and if this were to continue
half a percent each of the next two meetings before
a year end, to get one and a half percentage
points and cuts in before the end of the year.
It's probably probably justifiable. Even with inflation running where it is.
(19:04):
The problem is what you do on the back end
of it. Usually recessions are what kill inflation. What if
it doesn't because the situation is different this time in
terms of deglobalization, plus the one piece I keep coming
back to, electricity prices keep rising because of all this
data center construction and electricity prices are in every business.
Speaker 3 (19:26):
Let's take a quick break. When we return, it's Wall
Street Watch.
Speaker 1 (19:39):
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 markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (19:59):
Well the August joh this report is here in markets
have reverse course and are now in negative territory after
only twenty two thousand jobs were added last month, well
below forecasts of seventy five thousand. The government also revised
its numbers from earlier in the summer and said that
the economy lost a net thirteen thousand jobs in June,
(20:19):
marking its first decline since December of twenty twenty. Right now,
the Dow is down by six tenths of one percent,
or two hundred and eighty two points lower. SMP five
hundred is down about a half a percent, Nasdaq down
three tenths of one percent or sixty two points lower.
Russell two thousand is actually up by four tenths of
one percent. Ten year treasure reil down ten basis points
(20:40):
at four point zero seven to six percent, and crude
oil down over two percent lower trading rate at sixty two.
Speaker 1 (20:48):
Dollars a barrel.
Speaker 5 (20:50):
Broadcom shares are jumping ten percent after the chip and
software maker swung to a profit, beating expectations for its
quarterly sales. The company also noted its AI related revenue
sword sixty three percent higher. Lukawa of Surewood News will
join us in the next hour with his insight on Broadcom. Meanwhile,
(21:10):
Lululemon shares are tanking sixteen percent after the ath leisure
war companies full year guidance missed estimates. Lulu also cut
its outlook, citing tariffs elsewhere. DocuSign lifted its annual outlook,
amit a push to ramp up AI offerings shares in
the electronic signature company up seven percent. Smith and Weston
(21:31):
posted better than expected earnings in sales driven by demand
for new products, shares in the gunmaker or climbing ten percent,
and a new financial filing revealed that Tesla's board is
asking investors to prove a new pay package for CEO
Elon Musk that could be worth as much as one
trillion dollars over the next decade. Tesla shares are rising
(21:53):
nearly three percent. I'm Tucker Silva and that is Waaltree Watch.
Speaker 2 (21:58):
So we've got a few different choices as to what
we can talk about now. The first is, I'm sorry
anytime that I hear about someone getting paid a trillion dollars,
I kind of want.
Speaker 3 (22:07):
To dig into it, okay.
Speaker 2 (22:09):
Second, Mike asked a question to me as we headed
to our last break, and the question was, Hey, why
do you think hiring is sluggish right now?
Speaker 3 (22:18):
And so we could talk about that.
Speaker 2 (22:20):
And then Tucker's we were heading to break, said I'm
interested in hearing more about electricity costs.
Speaker 3 (22:25):
Take your peck.
Speaker 2 (22:26):
Tucker can bend chime in and let us know where
he thinks we should go. Yell really loud, Ben, what
do you think we should talk about?
Speaker 3 (22:34):
Louder?
Speaker 5 (22:35):
We can't hit the doors closed?
Speaker 3 (22:37):
Can he open it? What I'll like that cost? Okay,
Ben wants to talk about electricity. So here's the thing.
I was poking around this morning.
Speaker 2 (22:47):
And when you look at electricity costs nationwide, they are
up six point two in the last year.
Speaker 4 (22:56):
Okay, So I double the pace of inflation of the
life last year.
Speaker 3 (23:00):
Yes.
Speaker 2 (23:01):
So I went and said, okay, like, let's I'm curious,
you know, what's that compared to as far as the
norm like, what do we normally see? And what I
found was that aside from four periods in the last
forty years, this is the highest rate of electricity price
growth that we've seen. The four periods are as follows
(23:24):
twenty twenty two. For obvious reasons, the price of everything
went up double digit ish, Like you don't get to
nine percent inflation without a bunch of things going up
really fast.
Speaker 3 (23:34):
Yep. So that's one of them.
Speaker 2 (23:36):
Number two. Two thousand and eight. A lot of you
might remember the financial crisis of two thousand and eight.
Not many of you remember that oil prices went through
the roof and at gas prices went through the roof
in the summer, and then everything blew up after yep,
so that was another one two thousand and six. I
don't remember this quite honestly, partly because I wasn't paying
(23:56):
my own electric bill at this point. I was still
you know, young, and and well that wasn't not cool.
But in any case, electricity prices by March of two
thousand and six were going up fifteen point nine percent annually.
Speaker 3 (24:09):
I have no idea whether.
Speaker 2 (24:10):
Why precipitated this, but it was the only other instance
was July of two thousand and one, where they went
up about nine percent annually, and so other than that,
you really struggle to find a time where electricity prices
went up even more than five percent, and most of
the time they were going up one to three percent annually.
So the reason that I bring this up as a
(24:31):
problem is that, look, if the prices of certain things
go up, it's not really a big deal to everyone.
As an example, if the price of aluminum goes up,
if you're making cars or refrigerators or buildings, you're like,
this kind of sucks. We got to raise our prices
(24:52):
because you know, our our input costs are going up.
If you're raising cows or if you are selling T
shirts doesn't matter to you.
Speaker 4 (25:03):
And so this is something we call elasticity of demand Chuck,
which is if electricity, if beef prices go up, everyone
but Chuck might switch to chicken or fish. Chuck keeps
time buying beef. He I get rid of I get
rid of all the other food in order to afford
the bait. If coffee prices go up, I don't know
what people will switch to. I won't switch, but these
(25:24):
are things that you have. Mike switches to ham elastic
demand on if prices start going through the roof, you
generally switch your buying behavior. There's no elasticity of demand
when it comes to electricity prices, whether they are up
ten percent, down fifteen percent. Raise your hand if you
keep the lights on more. When electricity prices are going
up by one percent instead of seven percent, nobody.
Speaker 2 (25:45):
And it's every business that's affected. Find me a business
where electricity prices don't matter at all. Yeah, baby sitting's probably.
Speaker 3 (25:56):
The only one.
Speaker 1 (25:57):
Sure.
Speaker 2 (25:58):
And even like even that, it's like, okay, find me
another one. Yeah, I'm not even saying like daycare, like
the price that goes up when just babysitting in your home,
babysitting in someone else's home where you don't pay the
electric bill, you know, like Other than that, it's kind
of hard to find a business where electricity prices.
Speaker 3 (26:16):
Don't matter at all.
Speaker 2 (26:18):
So where I'm going with this is those price increases
are going to hit a wide range of businesses. Restaurants
have to deal with electricity price increases. How do they
pass that along to their customers? Retail has to deal
with it, Industrial you know, logistics in this and that
has to deal with it. You go through every business
(26:40):
in the country somewhere on there, aside from babysitting, there's
a line item for expenses of utilities yep, and electricity
is a big component of that. Obviously, my only counterpoint,
Chuck here would be, yes, electricity does feed its way
into everywhere. My counterpoint would be cherry picking one a
(27:01):
line item even if we are quite certain that it
did go up, and have a tough time seeing it
going down in the future, right. I think that would
be The other thing is if AI spend continues going up,
then there's only one direction electricity costs go. Yes, could
we see something else that counters that We're seeing a
ton of weakness in housing, do we see shelter costs
moderate and therefore the overall inflation scenario moderate too, Like,
(27:24):
there's always that possibility that in spite of something significant
driving prices higher, oh, something else fell off a ledge here,
and so overall, while electricity costs up, yeah, my rent
didn't go up, and so I'm still fine. But this
is the problem is in order for that to happen,
demand for those other things has to drop as well, yep.
And that means that the economy gets wamp wompy, and
(27:48):
it's it's just a really tough situation that we find
ourselves in right now. And the electricity one, quite honestly,
you can point directly to the data center construction, yeah,
and say this is it because the estimates that we're
seeing now. Last year, US data centers chewed up about
four percent of electricity nationwide. By twenty twenty eight, the
(28:12):
estimates are for it to be twelve percent. And we
are not building that much new generation capacity because you
can permit a data center and get it built in
twelve to eighteen months, eighteen to twenty four months. Talk
to anyone who handles permitting for utility scale electricity projects,
(28:33):
they will tell you it is a seven to ten
year process. And that's the ballgame. Like, that's the whole
thing when it comes to this. So if if you
want to know where I would focus my efforts on
over the next year or two in terms of deregulation,
it's making it easier to build power plants, you know,
(28:55):
like and you know, figuring out ways to speed that
construction up because the demand is going to be there.
And quite honestly, like if you're a big believer in AI,
the country or the company or whoever you think is
gonna win the AI game also has to win the
power generation game, right and right now, the US is
(29:15):
not doing a great job at that.
Speaker 3 (29:17):
We haven't done a great job at it for forty
or fifty years.
Speaker 2 (29:24):
It's been a while, you know, Like this is not new.
This is something that's been a problem probably you know,
since the nineteen eighties.
Speaker 4 (29:32):
Quite honestly, now I see an attitude change towards it.
We will see if it actually leads to anything, because well,
I've seen an attitude shift where folks are more comfortable
with the idea of nuclear I have not seen an
attitude short shift towards building that nuclear near me.
Speaker 2 (29:50):
Give me a million dollars a year and I'll put
one in my basement. If you get one that I
can wear on my head, just a little portable one
I carry around. I do that because if it goes wrong,
you don't know, true, you know, like really you want
to be as close as possible to it if something
goes wrong, you know, like you don't want the long,
(30:12):
painful like problem. All Right, I'm just saying, you know,
let's take a quick break when we return, do we
want to cover any of those other topics that we
talked about.
Speaker 3 (30:25):
Yeah, let's talk about why of the job market? Okay,
I get my taken. Why is the job market so sluggish?
Right now?
Speaker 1 (30:31):
Text es six one seven three six two one three
eight five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. Find daily interviews
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Subscribe to our page and get caught up on anything
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(30:52):
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Speaker 3 (31:02):
I guess the.
Speaker 2 (31:02):
Question of prior segment, why is the labor market so stagnant?
Speaker 3 (31:08):
Right now?
Speaker 4 (31:09):
Let's start by admitting that we can't possibly know anything
we do is gonna be guessing here, an educated guess
to why it is, as to why it's happening, right, Sure,
we can't know why Walmart is hiring fewer people or
anybody else is. I have three possible explanations, and it's
probably a combination of all these.
Speaker 2 (31:29):
And other factors. Okay, let me write these down. Immigration,
enlighten me, talk, talk to me. We're talking about weakness
and job creation. If there are fewer people to hire,
especially in some industries like construction, then it could lead
to weak hiring numbers just because you can't find the people.
If it were just that, though, wouldn't you see job
openings moving up still but hirings not?
Speaker 1 (31:52):
Right?
Speaker 4 (31:52):
So this might explain some of it, but obviously doesn't
explain all of it. Okay, Teriff uncertainty is my number two. Yep,
AI is my number three.
Speaker 3 (32:00):
That's it. Those are my three.
Speaker 2 (32:05):
Okay, I'll throw a few more logs on the fire. Sure,
the housing market sucks, and when the housing market sucks,
the construction hiring market sucks. Not only that, the mortgage
hiring market not good. Anything related to you know, moving
and this and that like all that stuff slows down.
So I think that's a big piece that that is
(32:26):
at play here.
Speaker 4 (32:29):
I didn't think it was good enough to just talk
about like recession worries, like yeah, that that might be
playing a role into here as to why companies are
worried about hiring.
Speaker 2 (32:37):
No, but that's like that's that's that bit, like that's
unique to that business, Like that's why no one, like
if talk to any contractor out there right now, or
talk to any GC out there right now. And this
is actually really interesting. The gcs that I talked to,
their subs are reaching out to them on a more
frequent basis, being like, hey, do you have any work
(32:58):
for me? Because there's not enough going on for them,
And that stuff that I wasn't hearing a year or
two ago is you know, subs reaching out saying hey,
you got any work, or when they're bidding on stuff
bidding below where the GC was expecting to see interesting
because they want the job and they don't have enough
(33:19):
work going on.
Speaker 3 (33:20):
On the AI side.
Speaker 4 (33:22):
I actually don't think that the technology itself is leading
to a lack of hiring, but I do think that
there is this attitude that is moving through boardrooms at
big companies right now about we need to project that
we're having success on artificial intelligence, and the easiest way
to do so is point towards a lack of need
(33:42):
for new employees, and so whether or not we're successfully
implementing AI or not. I think companies like Salesforce, like Google,
like Facebook are hiring strategically, with Facebook going on a
spree recently, but wanting to point to big numbers and say, look,
we added no headcount in the last order because of
the impact of artificial intelligence, whether it's true or not.
(34:04):
And so I think that is playing not just through
the tech space, but through many different companies, financial services
and others.
Speaker 2 (34:10):
The big thing is, I do think that this weakness
that we're seeing in the labor market right now, I'm
not sure how much longer it lasts from here. You know,
I could see a case where it's like maybe another
six months or so, and maybe nine months. But there's
some pretty significant tax incentives in the big beautiful bill
that passed earlier this summer that really should start to
(34:34):
spur some additional investment over the next twelve to eighteen months.
Is just like it takes companies time to come up
with those plans and things like that, And so I
think there's a pretty convincing case that by the second
half of next year you start to see things, you know,
inflecting upward, you know, at a pretty decent clip. But
it's the question of, Hey, what's the path that we
follow between now and then? Does it bottom out? Does
(34:55):
it get worse? Like, do we see any improvement before then?
I don't really know still, but I do tend to
think there's some stuff in there that should have a
pretty positive impact as we get into twenty twenty six.
Speaker 5 (35:06):
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Speaker 1 (36:10):
The proceeding was paid for and the views expressed are
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Speaker 4 (36:21):
Last piece, I want to talk about tariffs. If you
are a company that puts your plans, you're hiring plans
on ice back in April, I don't know that you
are thawing them out now.
Speaker 3 (36:36):
It depends probably on the company. It depends a lot.
Speaker 4 (36:39):
But like I'm just thinking through this, right, if if
I had uncertainty about where tariffs were going to be,
I was getting to a point where it is looking
fairly clear as of a few weeks ago, or at
least clearer than it was. And now you've got the
looming Supreme Court case, and I'm trying to think that through, Like,
if it gets affirmed that the White House has the
power to do this, then okay, I'm back where I
(37:01):
was a few weeks ago in terms of getting more certainty.
If it gets tossed out.
Speaker 2 (37:07):
No idea then, because my estimation would be the very
next day the White House is going back to the
drawing board and trying to figure out how they implement
tariffs under new different rules or existing rules. And you're
back to where you were in April in terms of
uncertainty on tariffs.
Speaker 3 (37:26):
Yeah. So I don't know.
Speaker 4 (37:28):
Again, that doesn't affect every industry, It doesn't affect every company,
doesn't affect every company's hiring plans. But I do think
it is playing a role, and this uncertainty now tossed
into the middle of it exacerbates that a little bit.
Speaker 2 (37:40):
For now, Tucker, do you want to give us another
efficiency efficiency?
Speaker 4 (37:44):
I'll tell that that was an amazing recovery, Tucker, because
I would have been just laughing and unable to complete
the sentence.
Speaker 3 (37:51):
So that was one of those.
Speaker 5 (37:52):
Words that you just stumble over and then you're like,
I can't say this word, right, Yeah, which can't happen.
Speaker 2 (37:56):
I mean, look, I still have ones that, even though
I know the right way to pronounce them, I struggle
with each time.
Speaker 5 (38:01):
Efficiency.
Speaker 2 (38:02):
The one that always gets me that I still have
to think about dispensary because I.
Speaker 3 (38:07):
Still want to say I still want.
Speaker 2 (38:09):
To say dispensary. But it's not dysentery. It's a dispensary.
Let's take it quits, say Friday here on the Financial Exchange.
Speaker 3 (38:18):
We're back on the Oregon Trail. When we return
The Financial Exchange is produced by Money Matters Radio and
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(01:06):
Zada and Mike Armstrong.
Speaker 2 (01:11):
Well, it's Chuck, Mike and Tucker with you and wrapping
up the first week in September. No major news today,
so we're just gonna take the rest of the day
off it. Oh no, wait, Michael, there's a BLS job support.
At eight thirty this morning, the Bureau of Labor Statistics
fired up their old abacus's or is it abakai abakai
(01:33):
abakai ye? They fired up the abakai and they said, hey,
for the month of August, we saw a net growth
of twenty two thousand jobs in the United States, which
is poor to quite poor.
Speaker 3 (01:46):
Bad.
Speaker 2 (01:47):
Uh, it's not negative, which is, you know, the best
thing that you can say about it. Unfortunately, the June
numbers were revised down by another twenty seven thousand, from
positive fourteen thousand to negative thirteenth and that's now the
first negative number that we've seen in a jobs report
since twenty twenty. And quite honestly, I'll exclude twenty twenty
(02:08):
from the numbers just because there's some stuff going on
back then, a fire, there was a little bit of
stuff going on, you know, it was kind of a thing.
And so if you in fact as I do exclude
twenty twenty from the numbers, this is the first negative
jobs print since twenty ten, fifteen years. We didn't see
(02:32):
a negative one during the twenty tens aside from the
start of twenty ten.
Speaker 4 (02:36):
Again, what this means is when the surveyors went out
to businesses and asked how many people did you hire?
Speaker 3 (02:42):
How many people to you fire? The revised results that we've.
Speaker 4 (02:45):
Seen over the course the last few months indicated that
they fired some thirteen thousand people. Now again it's all
netted out. Some companies hired, some companies did not. But
these are the estimates now, and that's the first month
of job loss, like Chuck mentioned since twenty ten, if
you exclude the twenty twenty recession.
Speaker 3 (03:03):
Correct. Now, other things that we saw in here.
Speaker 2 (03:05):
The unemployment rate rose from four point two percent to
four point three percent. That is tabulated using a different
survey of households. And so the big reason there not
actually a you know, increase in the you know, a
huge increase in the number of unemployed. You did see
a little bit of an uptick there, but rather it
was more people coming into the labor force who reported
(03:26):
themselves as unemployed and so that was, you know, kind
of the interesting thing where this was a month where
on the household data both the number of unemployed and
employed went up, which is not something that you see,
you know, in the in this magnitude you know too often,
you see it occasionally, it happens from time to time,
but it's just not something that you see. A ton
(03:47):
of other things that we have in here. Construction jobs
now have seen net firings for the past three months.
We've been warning that based.
Speaker 4 (03:58):
On firings or quits, right, these are not measured differently.
Speaker 2 (04:03):
Fewer negative jobs grow. They've seen job losses for the
last three months. Who cares whether you left voluntarily or not.
Speaker 3 (04:10):
It doesn't matter. You're not getting paid anymore.
Speaker 2 (04:12):
And so construction over the last three months now with
negative job numbers in each of those. Manufacturing with another
tough month for job creation as well, down twelve thousand,
now down seventy eight thousand for the year on the
manufacturing side, also starting to see some signs that the
(04:34):
those cuts that were put into effect earlier this year
are now showing up in here. With government jobs down
sixteen thousand. That's expected to accelerate over the next couple months,
simply because those had six months severance offers, many of
which were accepted in February and March, so six months
is as one would expect August and September, so those
(04:55):
will show up.
Speaker 3 (04:56):
I don't think that those.
Speaker 2 (04:57):
Are necessarily going to be something that you you know,
put in as you know, any kind of trend that's
going to develop, because the decisions were made six months ago,
they're not being made anymore, but just something to watch
for over.
Speaker 3 (05:08):
The next month or two.
Speaker 2 (05:09):
Other data that we had in here average weekly earnings
running at about a three point three percent annual growth
rate over the last twelve months. Average hourly earnings ap
point three percent for the month I'm sorry, yes, a
point three percent for the month. But the big one
that I always like to watch in here is the
(05:30):
number that's called aggregate payrolls. And aggregate payrolls is a
fancy way of saying, Hey, show me the number of
jobs added and combine it with wage growth. How much
did payrolls go up? And the big thing on this one,
I like to use it as a proxy for demand
from households because it's pretty much, hey, how many people
(05:53):
are working and how much are they getting paid. And
we've been in a pretty consistent range over most of
the twenty tens and even since the start of twenty
twenty four, where we've generally been, you know, between like
four and three quarters and five and a quarter percent
year over year aggregate payroll growth. This month, that year
(06:14):
over year payroll growth slowed to four point four percent.
So again, I don't know that it's a meaningful inflection downward,
but it's it's slower than it's been. But for the
last three months now, we're running at an annualized rate
of two point four percent on aggregate payroll growth. Two
point four percent to put it in perspective, aside from
(06:36):
the pandemic. The last time we were there was June
of twenty ten. Yeah, it's not good when you see
it moving that slowly, simply because you have concerns about
whether consumer spending can keep up. Now that the counterpoint
to this is if you actually look at Social Security
with holdings over the last two months, they're running at
(06:58):
north of seven percent annualized growth, which is hard to
reconcile because.
Speaker 4 (07:03):
What do we make of that? So Security withholdings up
seven percent, at grid payrolls.
Speaker 2 (07:07):
I don't know what to make of it, because they
normally tie pretty closely. You know, they're typically pretty close
with you know, a couple exceptions here and there. Because
social Security payroll growth, I think it's a great measure
of how the economy is typically doing because you pay
Social Security taxes only on a limited set of income,
(07:27):
so it's not influenced by the people making ten million
dollars or a bunch of investment income and all that stuff.
Social Security you know, FIKA withholdings is fundamentally based on hey,
how much are companies sending to the US Treasury on
a daily basis for workers making less than like one
hundred and seventy thousand dollars a year. So I can't
(07:50):
reconcile these two numbers, and that does have me a
little bit confused as to what's going on, because ultimately
what matters in this is how much peace we're being paid,
And the Social Security numbers are telling me there's no
real problem there, whereas this number is telling me there's
a problem. And it's unusual to have that divergence. I
don't know what it means, but it's going to resolve
(08:11):
itself in the next couple months, either these numbers are
going to have to come up or the Social Security
withholdings are going to start to slide.
Speaker 4 (08:19):
So the last four months now we are sitting at
average payroll growth of what thirty thousand nine.
Speaker 3 (08:27):
Where do we need to be.
Speaker 4 (08:28):
To maintain the unemployment rate at four point three percent?
Speaker 2 (08:31):
We don't know. And that's the humble, honest opinion. And
we don't mean chuck and I don't know. We mean
nobody really knows right now. No. And the reason why
nobody really knows is that no one has a great
picture as to exactly what's going on with immigration right now,
other than the levels are down from where they were
(08:52):
a year ago. And what I mean by this is
we don't know how many immigrants.
Speaker 3 (08:59):
Who were either here league or illegally.
Speaker 2 (09:02):
Have dropped out of the workforce or are just no
longer in the country right now. The estimates that I've
seen are that you have anywhere from about three hundred
thousand to one point five million immigrants that are no
longer in the workforce. And basically what it means then,
because that band is so big in terms of the
(09:23):
number of jobs added per month, that you need to
keep the unemployment rates steady. The estimates that I've seen
are anywhere from like twenty thousand to one hundred thousand.
It's a wide band, and so we really don't know.
Speaker 3 (09:39):
What I can tell.
Speaker 2 (09:40):
You is that ultimately, spending growth in the US is
powered by two things, more people getting paid and those
people getting paid more, which is why aggregate payrolls matters.
If you slow to job growth of twenty thousand, you know,
jobs per month, and if wage growth you know, continues
to run at three percent, it is tough to have
(10:03):
five percent nominal GDP because you can't spend that money
that you don't have.
Speaker 4 (10:08):
The unemployment rate might matter in that case to the
FED and their decisions about inflation, but in terms of
growth of the economy, it's tough to see consumers growing.
If you're only adding twenty thousand jobs.
Speaker 2 (10:19):
Per month, now you don't need to add two or
three hundred thousand. You could be very contentious clipping along
and saying, okay, I can add one hundred thousand jobs
a month, and that's you know, zero point seventy five
percent in terms of you know, workforce growth for the year,
and if wages run three to three great I've got
my four percent, you know, four and a quarter percent
(10:39):
that I need for aggregate payroll growth, and I'm happy
as a clam. But if you're basically flatlining on the
payroll growth and wage growth, you know, if wage growth
does stagnate for any reason because companies say, hey, like,
we don't need to pay up because the labor market's loosening,
(11:00):
that's where things start to get dodgy, and that's where
recessionary things happen. We're not there yet, mostly because with
labor supply so tight, companies are still paying up for
labor even though they don't.
Speaker 3 (11:10):
Need to grow their labor force much.
Speaker 4 (11:12):
Looking for a glimmer of good news here, Chack and
I don't have much from this report. I suppose one
would be we're at a pretty solid starting point. Four
point three percent unemployment is not a bad place to be,
and so the trend line, while concerning, has not brought
us to a level of unemployment in the total that
we would genuinely concern, genuinely considered to be recessionary. Yet
(11:37):
I guess the other piece would be it definitely shapes
what the FED is likely to do next after this report.
Speaker 3 (11:43):
Yeah, and let's talk a little bit about that.
Speaker 2 (11:45):
Let's take a quick break here, but when we come back,
let's talk about what this means for the FED meeting,
which is now twelve days away, by the way, it's
coming up sneaky quick, and so we'll talk a little
bit about what this report means for the September meeting.
Speaker 1 (12:00):
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(12:20):
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Speaker 2 (12:37):
All right, So this morning job sport came out wasn't
particularly good. Twenty two thousand jobs, created some downward revisions
for June that pushed June to negative territory, first negative
jobs numbers that we've seen since twenty twenty. And we
raised the question at the end of the last segment,
what does this mean for the upcoming FED meeting. Here's
(12:59):
what that means. The FED is going to be cutting
at the September meeting. Only real questions twenty five or
fifty chuck correct. As of right now, we have an
eighty five point seven percent chance of a twenty five
basis point cut and a fourteen point three percent chance
of a fifty basis point cut. And so this is
like the whole crux of the question now is how
(13:22):
large is the cut going to be at this meeting?
And then and then from there, like what's the path
for subsequent meetings as we get into you know, the.
Speaker 3 (13:32):
Rest of the year.
Speaker 2 (13:34):
Currently, the market pretty much pricing in seventy five basis
points of cuts by year end. But this has the
potential to change because remember, in a recession, typically the
Fed might cut anywhere from like two to four percent.
And so the possibility that we have to be aware
of in the short term is, hey, if there is
(13:54):
a recession that develops, you've got kind of the left
tail there of the Fed funds rate lower rates. You know,
they could get priced in where you start saying, hey,
should we be you know, pricing in Fed funds rate
closer to two percent than three percent as the terminal rate. Now,
that also would have to go along with inflation not
being a problem, because it's tough for me to get
(14:15):
to a point where the FED says, hey, inflation is
still running at three percent, and we're gonna cut to
you know, two yeah, because the problem there is the
second that things turn and start accelerating upward, which they
always do.
Speaker 3 (14:32):
Even if you get.
Speaker 2 (14:32):
A recession here, it's they always turn. In my estimation,
it's not likely to be particularly long or deep. Then
you have people, you know, buying up more stuff than
they used to, and that's where three percent inflation turns
into five percent in a hurry. And the Fed's got
to be quick on that other side if they've gone
too far there.
Speaker 4 (14:50):
So let's justify a fifty bases point cut right now.
So on July twenty seventh, that was the last FED
and meeting, if I'm not nope, that's twenty twenty sixth schedule.
July twenty eighth was the last meeting. The decision webs
that you're looking at that I have.
Speaker 2 (15:07):
No idea M and I markets never heard of them neither,
So pretty sure that's right though. What we knew at
that stage this is Pizza's Mike and Eros pizzas for euros.
The oh wait, did you say?
Speaker 3 (15:25):
I meant like Yero but not euros. But they sound
very interesting if they were a money changer that sold pizzas.
Speaker 4 (15:32):
H What we knew at that meeting was a labor
market that had slowed, but not considerably. I don't know
what the running average for the job creation at that
point was, but I think it was in the fifty
to seventy five thousand per month range over the last
three months. Two days after that meeting thereabouts, you got
a massive revision of jobs that resulted in the President
(15:54):
firing the then head of the Bureau of Labor Statistics.
You now have another reading on jobs that showed weak
employment in the month of August and further revisions downward
for the previous few months. You already had two FED
members voting for a cut at that stage. I think
(16:14):
you can pretty easily justify a fifty basis point cut
at this stage if you want to.
Speaker 1 (16:19):
Last time they did it was September.
Speaker 3 (16:20):
Of last year.
Speaker 4 (16:21):
Yes, in the face of pretty similarly weak jobs data.
I think the only caveat would be you haven't seen
the same jump and unemployment that you saw in the
spring and summer of last year.
Speaker 3 (16:33):
And inflation's inflected higher.
Speaker 2 (16:35):
But if you want to look at the labor market
and say, hey, is there enough basis for a fifty
basis point cut?
Speaker 3 (16:42):
The answer is.
Speaker 4 (16:42):
Absolutely, Yeah, absolutely, and I think you will get members
like Waill Theer calling for it and voting for it.
Here's the case for it, quite honestly. Parker Ross, who's
a guy that I follow on X.
Speaker 2 (16:54):
He is the global chief economist at Arch Capital Group,
and park it is a work with I mean again,
if you're the global chief economist, you do a lot
of work with everything, but in particular, he looks at
a lot of labor statistics and one of the things
that he's really worked on is, hey, based on the
ratios and the rates that you see in jolts, what
(17:17):
do we expect private payrolls to actually come in at?
And he's built just a fantastic model that trends it,
which basically shows, hey, if the hiring rate is x
and the separation's rate is why, here's the job growth
that you should expect for you know, kind of a
three month moving averages is where he butters his bread
(17:37):
and basically his model, what it's showing is if the
rate of hires continues on its current trend and the
rate of separations continues on its current trend, you're gonna
have negative job growth within the next month or two,
potentially accelerating to like three to four hundred thousand jobs
lost per month by this time next year. If that
(17:58):
were to continue now, nothing continues for a year, because
you know, things are always wiggling and moving a little bit.
There are no straight lines in economics, at least outside
of you know, China, right where occasionally they have straight
lines in their data, usually because the data set is
discontinued for a little bit and then there's a straight
line connecting the two points. But effectively, this is something
(18:22):
I've been following Parker for you know, a number of years,
and about a year ago he was like, look, if
things continue the way they're going by like this time
right now, you'd have, you know, the danger of being
you know, basically flat in terms of job creation. And
so he's pretty good because he had twenty thousand jobs
created twenty two thousand for the last month. Yeah, so
(18:43):
this is the case for the FED to be cutting
and not just by a quarter percent, but by half
a percent this meeting, and if this were to continue
half a percent each of the next two meetings before
a year end, to get one and a half percentage
points and cuts in before the end of the year.
It's probably probably justifiable. Even with inflation running where it is.
(19:04):
The problem is what you do on the back end
of it. Usually recessions are what kill inflation. What if
it doesn't because the situation is different this time in
terms of deglobalization, plus the one piece I keep coming
back to, electricity prices keep rising because of all this
data center construction and electricity prices are in every business.
Speaker 3 (19:26):
Let's take a quick break. When we return, it's Wall
Street Watch.
Speaker 1 (19:39):
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 markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (19:59):
Well the August joh this report is here in markets
have reverse course and are now in negative territory after
only twenty two thousand jobs were added last month, well
below forecasts of seventy five thousand. The government also revised
its numbers from earlier in the summer and said that
the economy lost a net thirteen thousand jobs in June,
(20:19):
marking its first decline since December of twenty twenty. Right now,
the Dow is down by six tenths of one percent,
or two hundred and eighty two points lower. SMP five
hundred is down about a half a percent, Nasdaq down
three tenths of one percent or sixty two points lower.
Russell two thousand is actually up by four tenths of
one percent. Ten year treasure reil down ten basis points
(20:40):
at four point zero seven to six percent, and crude
oil down over two percent lower trading rate at sixty two.
Speaker 1 (20:48):
Dollars a barrel.
Speaker 5 (20:50):
Broadcom shares are jumping ten percent after the chip and
software maker swung to a profit, beating expectations for its
quarterly sales. The company also noted its AI related revenue
sword sixty three percent higher. Lukawa of Surewood News will
join us in the next hour with his insight on Broadcom. Meanwhile,
(21:10):
Lululemon shares are tanking sixteen percent after the ath leisure
war companies full year guidance missed estimates. Lulu also cut
its outlook, citing tariffs elsewhere. DocuSign lifted its annual outlook,
amit a push to ramp up AI offerings shares in
the electronic signature company up seven percent. Smith and Weston
(21:31):
posted better than expected earnings in sales driven by demand
for new products, shares in the gunmaker or climbing ten percent,
and a new financial filing revealed that Tesla's board is
asking investors to prove a new pay package for CEO
Elon Musk that could be worth as much as one
trillion dollars over the next decade. Tesla shares are rising
(21:53):
nearly three percent. I'm Tucker Silva and that is Waaltree Watch.
Speaker 2 (21:58):
So we've got a few different choices as to what
we can talk about now. The first is, I'm sorry
anytime that I hear about someone getting paid a trillion dollars,
I kind of want.
Speaker 3 (22:07):
To dig into it, okay.
Speaker 2 (22:09):
Second, Mike asked a question to me as we headed
to our last break, and the question was, Hey, why
do you think hiring is sluggish right now?
Speaker 3 (22:18):
And so we could talk about that.
Speaker 2 (22:20):
And then Tucker's we were heading to break, said I'm
interested in hearing more about electricity costs.
Speaker 3 (22:25):
Take your peck.
Speaker 2 (22:26):
Tucker can bend chime in and let us know where
he thinks we should go. Yell really loud, Ben, what
do you think we should talk about?
Speaker 3 (22:34):
Louder?
Speaker 5 (22:35):
We can't hit the doors closed?
Speaker 3 (22:37):
Can he open it? What I'll like that cost? Okay,
Ben wants to talk about electricity. So here's the thing.
I was poking around this morning.
Speaker 2 (22:47):
And when you look at electricity costs nationwide, they are
up six point two in the last year.
Speaker 4 (22:56):
Okay, So I double the pace of inflation of the
life last year.
Speaker 3 (23:00):
Yes.
Speaker 2 (23:01):
So I went and said, okay, like, let's I'm curious,
you know, what's that compared to as far as the
norm like, what do we normally see? And what I
found was that aside from four periods in the last
forty years, this is the highest rate of electricity price
growth that we've seen. The four periods are as follows
(23:24):
twenty twenty two. For obvious reasons, the price of everything
went up double digit ish, Like you don't get to
nine percent inflation without a bunch of things going up
really fast.
Speaker 3 (23:34):
Yep. So that's one of them.
Speaker 2 (23:36):
Number two. Two thousand and eight. A lot of you
might remember the financial crisis of two thousand and eight.
Not many of you remember that oil prices went through
the roof and at gas prices went through the roof
in the summer, and then everything blew up after yep,
so that was another one two thousand and six. I
don't remember this quite honestly, partly because I wasn't paying
(23:56):
my own electric bill at this point. I was still
you know, young, and and well that wasn't not cool.
But in any case, electricity prices by March of two
thousand and six were going up fifteen point nine percent annually.
Speaker 3 (24:09):
I have no idea whether.
Speaker 2 (24:10):
Why precipitated this, but it was the only other instance
was July of two thousand and one, where they went
up about nine percent annually, and so other than that,
you really struggle to find a time where electricity prices
went up even more than five percent, and most of
the time they were going up one to three percent annually.
So the reason that I bring this up as a
(24:31):
problem is that, look, if the prices of certain things
go up, it's not really a big deal to everyone.
As an example, if the price of aluminum goes up,
if you're making cars or refrigerators or buildings, you're like,
this kind of sucks. We got to raise our prices
(24:52):
because you know, our our input costs are going up.
If you're raising cows or if you are selling T
shirts doesn't matter to you.
Speaker 4 (25:03):
And so this is something we call elasticity of demand Chuck,
which is if electricity, if beef prices go up, everyone
but Chuck might switch to chicken or fish. Chuck keeps
time buying beef. He I get rid of I get
rid of all the other food in order to afford
the bait. If coffee prices go up, I don't know
what people will switch to. I won't switch, but these
(25:24):
are things that you have. Mike switches to ham elastic
demand on if prices start going through the roof, you
generally switch your buying behavior. There's no elasticity of demand
when it comes to electricity prices, whether they are up
ten percent, down fifteen percent. Raise your hand if you
keep the lights on more. When electricity prices are going
up by one percent instead of seven percent, nobody.
Speaker 2 (25:45):
And it's every business that's affected. Find me a business
where electricity prices don't matter at all. Yeah, baby sitting's probably.
Speaker 3 (25:56):
The only one.
Speaker 1 (25:57):
Sure.
Speaker 2 (25:58):
And even like even that, it's like, okay, find me
another one. Yeah, I'm not even saying like daycare, like
the price that goes up when just babysitting in your home,
babysitting in someone else's home where you don't pay the
electric bill, you know, like Other than that, it's kind
of hard to find a business where electricity prices.
Speaker 3 (26:16):
Don't matter at all.
Speaker 2 (26:18):
So where I'm going with this is those price increases
are going to hit a wide range of businesses. Restaurants
have to deal with electricity price increases. How do they
pass that along to their customers? Retail has to deal
with it, Industrial you know, logistics in this and that
has to deal with it. You go through every business
(26:40):
in the country somewhere on there, aside from babysitting, there's
a line item for expenses of utilities yep, and electricity
is a big component of that. Obviously, my only counterpoint,
Chuck here would be, yes, electricity does feed its way
into everywhere. My counterpoint would be cherry picking one a
(27:01):
line item even if we are quite certain that it
did go up, and have a tough time seeing it
going down in the future, right. I think that would
be The other thing is if AI spend continues going up,
then there's only one direction electricity costs go. Yes, could
we see something else that counters that We're seeing a
ton of weakness in housing, do we see shelter costs
moderate and therefore the overall inflation scenario moderate too, Like,
(27:24):
there's always that possibility that in spite of something significant
driving prices higher, oh, something else fell off a ledge here,
and so overall, while electricity costs up, yeah, my rent
didn't go up, and so I'm still fine. But this
is the problem is in order for that to happen,
demand for those other things has to drop as well, yep.
And that means that the economy gets wamp wompy, and
(27:48):
it's it's just a really tough situation that we find
ourselves in right now. And the electricity one, quite honestly,
you can point directly to the data center construction, yeah,
and say this is it because the estimates that we're
seeing now. Last year, US data centers chewed up about
four percent of electricity nationwide. By twenty twenty eight, the
(28:12):
estimates are for it to be twelve percent. And we
are not building that much new generation capacity because you
can permit a data center and get it built in
twelve to eighteen months, eighteen to twenty four months. Talk
to anyone who handles permitting for utility scale electricity projects,
(28:33):
they will tell you it is a seven to ten
year process. And that's the ballgame. Like, that's the whole
thing when it comes to this. So if if you
want to know where I would focus my efforts on
over the next year or two in terms of deregulation,
it's making it easier to build power plants, you know,
(28:55):
like and you know, figuring out ways to speed that
construction up because the demand is going to be there.
And quite honestly, like if you're a big believer in AI,
the country or the company or whoever you think is
gonna win the AI game also has to win the
power generation game, right and right now, the US is
(29:15):
not doing a great job at that.
Speaker 3 (29:17):
We haven't done a great job at it for forty
or fifty years.
Speaker 2 (29:24):
It's been a while, you know, Like this is not new.
This is something that's been a problem probably you know,
since the nineteen eighties.
Speaker 4 (29:32):
Quite honestly, now I see an attitude change towards it.
We will see if it actually leads to anything, because well,
I've seen an attitude shift where folks are more comfortable
with the idea of nuclear I have not seen an
attitude short shift towards building that nuclear near me.
Speaker 2 (29:50):
Give me a million dollars a year and I'll put
one in my basement. If you get one that I
can wear on my head, just a little portable one
I carry around. I do that because if it goes wrong,
you don't know, true, you know, like really you want
to be as close as possible to it if something
goes wrong, you know, like you don't want the long,
(30:12):
painful like problem. All Right, I'm just saying, you know,
let's take a quick break when we return, do we
want to cover any of those other topics that we
talked about.
Speaker 3 (30:25):
Yeah, let's talk about why of the job market? Okay,
I get my taken. Why is the job market so sluggish?
Right now?
Speaker 1 (30:31):
Text es six one seven three six two one three
eight five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. Find daily interviews
and full shows of the Financial Exchange on our YouTube page.
Subscribe to our page and get caught up on anything
and everything you might have missed. This is the Financial
(30:52):
Exchange Radio Network.
Speaker 3 (31:02):
I guess the.
Speaker 2 (31:02):
Question of prior segment, why is the labor market so stagnant?
Speaker 3 (31:08):
Right now?
Speaker 4 (31:09):
Let's start by admitting that we can't possibly know anything
we do is gonna be guessing here, an educated guess
to why it is, as to why it's happening, right, Sure,
we can't know why Walmart is hiring fewer people or
anybody else is. I have three possible explanations, and it's
probably a combination of all these.
Speaker 2 (31:29):
And other factors. Okay, let me write these down. Immigration,
enlighten me, talk, talk to me. We're talking about weakness
and job creation. If there are fewer people to hire,
especially in some industries like construction, then it could lead
to weak hiring numbers just because you can't find the people.
If it were just that, though, wouldn't you see job
openings moving up still but hirings not?
Speaker 1 (31:52):
Right?
Speaker 4 (31:52):
So this might explain some of it, but obviously doesn't
explain all of it. Okay, Teriff uncertainty is my number two. Yep,
AI is my number three.
Speaker 3 (32:00):
That's it. Those are my three.
Speaker 2 (32:05):
Okay, I'll throw a few more logs on the fire. Sure,
the housing market sucks, and when the housing market sucks,
the construction hiring market sucks. Not only that, the mortgage
hiring market not good. Anything related to you know, moving
and this and that like all that stuff slows down.
So I think that's a big piece that that is
(32:26):
at play here.
Speaker 4 (32:29):
I didn't think it was good enough to just talk
about like recession worries, like yeah, that that might be
playing a role into here as to why companies are
worried about hiring.
Speaker 2 (32:37):
No, but that's like that's that's that bit, like that's
unique to that business, Like that's why no one, like
if talk to any contractor out there right now, or
talk to any GC out there right now. And this
is actually really interesting. The gcs that I talked to,
their subs are reaching out to them on a more
frequent basis, being like, hey, do you have any work
(32:58):
for me? Because there's not enough going on for them,
And that stuff that I wasn't hearing a year or
two ago is you know, subs reaching out saying hey,
you got any work, or when they're bidding on stuff
bidding below where the GC was expecting to see interesting
because they want the job and they don't have enough
(33:19):
work going on.
Speaker 3 (33:20):
On the AI side.
Speaker 4 (33:22):
I actually don't think that the technology itself is leading
to a lack of hiring, but I do think that
there is this attitude that is moving through boardrooms at
big companies right now about we need to project that
we're having success on artificial intelligence, and the easiest way
to do so is point towards a lack of need
(33:42):
for new employees, and so whether or not we're successfully
implementing AI or not. I think companies like Salesforce, like Google,
like Facebook are hiring strategically, with Facebook going on a
spree recently, but wanting to point to big numbers and say, look,
we added no headcount in the last order because of
the impact of artificial intelligence, whether it's true or not.
(34:04):
And so I think that is playing not just through
the tech space, but through many different companies, financial services
and others.
Speaker 2 (34:10):
The big thing is, I do think that this weakness
that we're seeing in the labor market right now, I'm
not sure how much longer it lasts from here. You know,
I could see a case where it's like maybe another
six months or so, and maybe nine months. But there's
some pretty significant tax incentives in the big beautiful bill
that passed earlier this summer that really should start to
(34:34):
spur some additional investment over the next twelve to eighteen months.
Is just like it takes companies time to come up
with those plans and things like that, And so I
think there's a pretty convincing case that by the second
half of next year you start to see things, you know,
inflecting upward, you know, at a pretty decent clip. But
it's the question of, Hey, what's the path that we
follow between now and then? Does it bottom out? Does
(34:55):
it get worse? Like, do we see any improvement before then?
I don't really know still, but I do tend to
think there's some stuff in there that should have a
pretty positive impact as we get into twenty twenty six.
Speaker 5 (35:06):
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Speaker 4 (36:21):
Last piece, I want to talk about tariffs. If you
are a company that puts your plans, you're hiring plans
on ice back in April, I don't know that you
are thawing them out now.
Speaker 3 (36:36):
It depends probably on the company. It depends a lot.
Speaker 4 (36:39):
But like I'm just thinking through this, right, if if
I had uncertainty about where tariffs were going to be,
I was getting to a point where it is looking
fairly clear as of a few weeks ago, or at
least clearer than it was. And now you've got the
looming Supreme Court case, and I'm trying to think that through, Like,
if it gets affirmed that the White House has the
power to do this, then okay, I'm back where I
(37:01):
was a few weeks ago in terms of getting more certainty.
If it gets tossed out.
Speaker 2 (37:07):
No idea then, because my estimation would be the very
next day the White House is going back to the
drawing board and trying to figure out how they implement
tariffs under new different rules or existing rules. And you're
back to where you were in April in terms of
uncertainty on tariffs.
Speaker 3 (37:26):
Yeah. So I don't know.
Speaker 4 (37:28):
Again, that doesn't affect every industry, It doesn't affect every company,
doesn't affect every company's hiring plans. But I do think
it is playing a role, and this uncertainty now tossed
into the middle of it exacerbates that a little bit.
Speaker 2 (37:40):
For now, Tucker, do you want to give us another
efficiency efficiency?
Speaker 4 (37:44):
I'll tell that that was an amazing recovery, Tucker, because
I would have been just laughing and unable to complete
the sentence.
Speaker 3 (37:51):
So that was one of those.
Speaker 5 (37:52):
Words that you just stumble over and then you're like,
I can't say this word, right, Yeah, which can't happen.
Speaker 2 (37:56):
I mean, look, I still have ones that, even though
I know the right way to pronounce them, I struggle
with each time.
Speaker 5 (38:01):
Efficiency.
Speaker 2 (38:02):
The one that always gets me that I still have
to think about dispensary because I.
Speaker 3 (38:07):
Still want to say I still want.
Speaker 2 (38:09):
To say dispensary. But it's not dysentery. It's a dispensary.
Let's take it quits, say Friday here on the Financial Exchange.
Speaker 3 (38:18):
We're back on the Oregon Trail. When we return
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