So recession watch, folks, these days, I don't know when
it comes to Wall Street, it reminds me of my
favorite Twilight Zone episode where everyone decides that these aliens
are our friends.
But there's one researcher who cracks the code.
Unfortunately, it was too late for her to save her
colleagues from being whisked away to their planet where they
were put on a menu with all the other earthlings.
Well, my next two guests never stopped working to crack
the code, which is why the work is incorporated by
so many on Wall Street.
Joining me now, Chief Economist at New Century Advisors, Claudia
Sam, along with the our friend Michael Kantowitz at Piper
Sandler.
By the way, both of you in recent months have
seen seemingly backed off your own work or at least
the implications of your own work.
Claudia, let me go go with you.
I mean, are we now potentially on the cusp of
recession, the sombre, the recession indicator?
I think a lot of what we see in the
labor market, it's sending the right cautionary message.
Things have cooled off.
We should be concerned.
And yet in the context of a very unusual, very
disrupted economy of the past four years, they're not flashing
red.
I mean, we have to set these in context.
And that's been tricky because this this cycle kicked off
by the pandemic.
Are they splashing yellow?
Yes, OK, no, there, there, there.
There are very serious reasons to be concerned about the
labor market, not that we are on the edge of
a recession or we're just right in one, but those
are very serious risks being headed towards potentially 3 months,
six months.
We should be thinking about that.
And there are policymakers that should be thinking hard about
that.
Mike, Mike, a couple couple months ago when we had
the Lydia mentioned the 6.9 million up 13% year over
year with the unemployed number.
I saw an article where you, you know, you kind
of downplayed it a little bit.
Where are we now with your work?
Yeah, though it's that, that my rule triggered 3 months
ago and it, it's, it's continued to rise.
We've got about a 12% increase in the in the
year of year change in unemployed people and forward-looking indicators
that I look at that have been consistent across history,
IE 80 years of data are still pointing for that
to continue to move higher.
So Goldman put out a note saying that there are
fewer immigrants, right, fewer migrants coming into the country.
So right now they say 150,000 monthly jobs will keep
the unemployment rate stable.
Mike, are you buying that and, and how do you
factor that into your work?
I think it's difficult to dispute it, but I also
think it's difficult to attribute the entire rise in unemployment
due to labor supply given all of the anecdotal data
and alternative data that employment has been showing you, like
losses in temp employment, hours worked declining, small business hiring
declining, profit growth slowing.
So there's that.
We have all the signals there.
And I agree with Claudia, we're not we're not.
The economy is not falling off a Cliff, but there's
a lot of warning signs that suggest it's not just
a supply story.
So Claudia, let me pick up on that on the
supply side with respect to, to, to the migrant story,
which has been something very unique to 2024.
Also on the demand side, because there is growing speculation
that all of this government job, you know, which is
mostly state and local, a lot of that money actually
came from the federal government a year ago and that
may be running out.
So how would that sort of impact your thinking?
Both of those are examples of us rebalancing the economy.
The labor shortages were huge early in the in the
recovery.
And then we had a big increase in immigration that
helped among other workers coming in to solve that.
So that's been a good story.
It pushes up maybe temporarily, the unemployment rate and yet
maybe not if the demand isn't there.
And as with the state and local sector, they have
been a big part of the job story in the
last few months or in the, you know, in the
last several months.
But they were ones that had a lot of catch
up to do hiring that they didn't do earlier.
So like these things can all be part of a
good news.
We're getting everything back in order and balance and we
can move forward.
But they are all consistent with the if we have
further weakening and demand for workers, we just start to
see the layoff rate move up.
We're close enough to the danger zone that you're you're
moving in into a recession, then the yield curve steepening,
right?
Apparently this usually happens at the start of rate cut
cycles.
And of course, it's associated Mike, with with the recessions,
although the rate, the yield curve in of itself as
an indicator has lost a lot of it's, I don't
know, people are saying it doesn't work anymore.
Should we pay heed to it?
I'm pretty sure that's happened in every occurrence, Charles.
So I think the jury's still out.
But again, I think it's, it's all the data collectively
that you try to distill out what, where, where the
economy is going from here.
And yeah, I, I have the view that we're in
this kind of soft deluxe backdrop, a moderation in inflation
and a gradual softening and cooling in the economy and
the labor and the labor force.
Which is why even though we have the unemployment rate
increasing, which certainly in two late 2000 and late O
seven was the beginning of the catalyst of the beginning
of the bear market.
I don't think that's the case today.
There's still a tremendous amount of focus of investors on
inflation.
And the good news about unemployment rising is that it
takes a lot of the pressure off of the inflation
pressures.
All right, So before we wrap it up, I've got
to get an assessment of where you think the Fed
will cut rates and maybe if you think, Claudia, that
you know where you want would like to see them
cut and where you think they may begin to cut.
I would have liked to have seen them already cut.
I think the inflation progress have been real in the
outlook for inflation, which has come to pass was very
favorable.
But it's the Fed.
They're being very cautious and they were leaning very hard
on the labor market being as strong to give them
more time.
They need to stop leaning on the labor market.
And I think we hear that from them.
They're going to try as best they can to go
slow and gradually.
And I hope the economy he holds up with them
as they have waited.
And so we should, we should get going.
All right.
Hey, listen, by the way, I'm in the camp with
dude, I'm no economist.
But Mike, it felt maybe three or four Fed meetings
ago when, when all of a sudden Jay Powell kept
bringing up labor as a shock, you know, and doing
AQ and a session even when I'd even prompted.
I was guessing maybe 4.14 point 2.
But so many folks have said no, they need to
see maybe 4 1/2% before they start cutting.
Are you, are you on board with that?
No, I think, I think that's outrageous.
I, I think the Fed should be cutting proactively and
cautiously so they don't have to cut reactively and aggressively,
which is always bad news for the economy because it
creates a much bigger whipsaw in the macro cycle.
So I agree with Claudia, they should be cautiously starting
to cut rates, not be so data dependent.
There's plenty of evidence that higher rates are having an
impact on on the economy.
I'm not saying they should aggressively cut, but they they
certainly, in my opinion, have enough evidence to start the
start the cycle.
Wow, I have them both you on at the same
time as like like a NBA All Star game.
Claudia and Michael, thank you both very much.
Appreciate it.
See you soon.
Thanks, Charles.