When it comes to the economy which is what investors really want to know about what did we learn from the markets this week on
the economy. So
if we start with today and the jobs number I don't want to say on the surface it was strong. I think there was you could you
could nip take a little bit with the average work week down as you mentioned David. Wages are coming down. But I think that the
shift in the market maybe had less to do with some change in outlook for the economy because you just sort of for whatever
reason saw speculative juices sort of kick in. Again the leadership back in those highly speculation driven lower quality
segments of the market which at this point looks a little bit more like your typical bear market rally where you see just some
counter trend moves versus some new assessment of either the inflation or the economic
landscape. And I'm not sure that the jobs data changed that to any significant degree either. So so Alan what about from your
point of view as a as an investor here. Is it time to say maybe there is error for a bear market rally or is this just a tiny
blip. I believe the real earnings head will come in second half as
we're seeing we're hearing from companies especially retailers saying they're already seeing weakness from consumers. And I
believe this is a tiny blip. Rates are up investment sentiment is down and consumers especially to the middle to the lower
level of income level they're getting squeezed. And we're already seeing consumer down trading today.
Lazard what about the consumer. It's pulled us through so many times before it's such a large portion of the US economy that we
kind of the consumer yet again. I don't I don't think so. I don't know that we see a significant implosion. But what you're
seeing in the data already is a slowdown in demand a slowdown in spending especially in the stay at home area. The goods oriented
side of the economy which if there's a silver lining that bodes well for those components of metrics like CPI and inflation.
Does that was the breeding ground for the inflation problem with which we're still dealing. So that's a positive sign. Yeah.
There's this debate out there about excess savings and the strength of household balance sheets. David we talked about that
earlier today. And the only rub with that analysis is if you do it in the aggregate it doesn't pick up the fact that most of
that. Call it excess savings is concentrated up the income spectrum. And that's where the wealth effects of the net worth
decline courtesy of the bear market as well as housing comes into play. And then you look at the lower end and you see the
increase in revolving credit. That's not a good sign when just to fund your day to day expenses requires taking on a bit more
credit card debt. So I think that the surge that was represented by the consumer and the economy coming out of the lockdowns I
think that's that's very much in the rearview. Allan what about that component parts of the spending. Because
coming out the lockdown as Lizzie was just talking about it was mainly goods. Are we seeing services spending now really pick up
the slack and maybe carries through. I think you know we heard from companies like Wal-Mart and
Target saying the merchandise side of sales have turned the other way. And in terms of services you know we're also seeing a
lot of travel cancellations or a lot of congestion at airports meaning there is still service demand on the services side of
consumer demand. Yet you know that's something that can turn very quickly. And I think the other you know we had a good jobs
report today but unlike three months ago we're also seeing headlines. You know companies especially in the tech side are
you know eliminating jobs. So I don't think you know things are you know we were in for a more difficult time for sure. And
going back to your question about how consumers are doing. We're also hearing from retailers how they've actually stocked up
inventory during a time when demand was starting to fall. So I think from a corporate earnings perspective for a lot of these
retailers we're going to see a squeeze and that's not going to be really pretty at all. So David Ellen makes a good point about
the the demand side of the equation. And payrolls payrolls are a coincident indicator. And I think especially given the potential
inflection point we sit in we have to start looking at those not even just leading indicators like unemployment claims which on a
four week average are up almost 70000 from the low. But the leading leading indicators and that's where you're starting to
stack up more than just to anecdotal evidence whether it's the announcements of hiring freezes job cut announcements all of
those happen before you get the pickup in claims which in turn then leads to down the downfall in payrolls. And the last thing
to sort of fall or rise in the case of the unemployment rate are those lagging indicators. And I think that may suggest that the
we may be in this sort of final window of pretty strong payroll numbers if we continue to see that evidence stack up. So listen
let's be honest. Sorry. Go ahead please Ellen. One other thing I wanted to add is you know we're talking about inflation and
maybe energy prices are starting to flatten out a little bit. And control of inflation may start raising. Another concern that
I have is housing costs tend to lag from the period of interest rate hikes. So you know taking
into account shelter costs is a big component of the price index. You know that's another pressure that's going to continue
to weigh in on consumers. Again putting more pressure on consumer sentiment and wallets less than one of the reasons we
look at all these numbers so carefully is to try to figure out what the Fed is likely to do is the path the Fed over the next
two three four months basically baked in particular. And me ask you. We got CPI numbers next week. Retail sales numbers. Is that
likely to change the Fed's mind. So I think seventy five is is almost assuredly baked in for the July meeting and probably
either 50 or 75 at the September meeting. But that trajectory and how the markets are pricing and whether it's 50 whether it's
seventy five will be somewhat dependent on that. The data we get between the July meeting and the September meeting and there's
another payroll report there's the inflation data. And I would expect that you would have to see not just an easing in
inflation but the combination of an easing in inflation and deterioration in the labor market that forces the Fed to put now
their focus on both of their mandates. Right now they are almost solely focused on the inflation mandate. But if we saw that
improvement and inflation deterioration the labor market they they may have to sort of temper some of the more hawkish
language. But I think it would only be if the combination of those things happened.
Ellen was and make such a good point about the tightness in the labor market and it takes me back to the question about
recession. Been a lot of talk about the danger of recession over the next year or two years. Even at the same time I'm not sure
we can have a recession with full employment. Given the tightness. Should we really be thinking about recession at all.
I think it is totally relevant to talk about recession because as Liz Ann said in terms of payroll numbers I do agree with her
assessment. We're sort of at the last point. And just as I mentioned before you know companies as demand falls they will
tighten and tighten their headcount as well which means that I don't think
the job market is going to be as robust as it is today. And hence you know when a recession does come it will be driven by
the fact that there is slower growth and people are losing jobs and that's going to really accelerate inflation coming down. At
which point the Fed will have to focus on an employment number as well as inflation. And David if you go back and you look at
at all modern day recessions and you look at where payrolls were at the start of the recession which of course doesn't get dated
until well after the fact that the nature of how recessions are dated the NBER when they declare we're in one in order to date
when it's started by month they go back to the peak in the aggregate get data they track including payrolls. So in fact if
you look at even the back to back brutal recessions in the early 80s the really tough mid 70s recession payrolls were not only
high. They continued to rise in the early part of the recession. And the average increase in the unemployment rate heading into a
recession is only three tenths. In fact if you look at a chart of the unemployment rate it's always at or near its low point at
the start and at or near its high point and typically still rising at the end. So you just have to understand the whole
notion of peaks in the data. We don't know now that we're at a peak but you ultimately get to that point and then they backdate
the start to the peak.