An Update on the Domestic Economy from Kris

Kris gives an update on our domestic economy, labor market, second quarter earnings and consumer spending.

Transcript:

Hi. My name's Kris Venezia. I'm an advisor at Eckman Wealth Management. Today, I’m going to be talking to you about earnings. We're in the heart of earnings season. I think the first thing we were certainly paying attention to was on the labor side — what's happening in the labor market. We know the labor market is extremely tight. Are there any clues as you flip through some of the commentary as to what's happening in the labor market?

I think the biggest takeaway, the broadest takeaway is businesses are saying it's getting easier to hire. They’re also saying there's less turnover, which coincides with some of the statistics you start to see. So good news there on the labor side, certainly saying easier to hire, you know, employers able to retain employees.

I think the one nugget I kind of pull is I like to look at Domino's. You know, they've talked a lot about having a tough time hiring delivery drivers. They've said they've had an easier time hiring delivery drivers, you know, trying to meet that demand they have for delivery drivers, but that's getting easier for them. They're holding on to more of their their workforce both in the kitchen and with delivery drivers. So certainly good news in the labor market there. Good trends emerging there.

I think the other thing we look for as we're looking through this earning season is just on the consumer. What's happening with the consumer? We know the consumer has held up surprisingly well. I'll call it surprisingly well. We continue to get commentary, whether it be from banks, card companies, we continue to get commentary that the consumer is holding up extremely well.

And the biggest thing looking at the service side is just the consumer’s been spending so much on experiences, restaurants, hotels, cruises, gambling, casinos. That trend has continued. What's interesting to me, too, is if you look especially through the airlines and cruises, they're continuing to see bookings go farther out. American Express has a lot of data on consumer trends with restaurants and airlines. They own one of the reservation platforms called Resy. You know, they noted the same thing, continuing to see people going out to eat, continuing to bookings extending out into the fall and even maybe a little bit into the winter.

So consumer still spending a lot, still prioritizing experience as opposed to goods, buying physical things like, you know, refrigerators. Consumers largely did that a lot in 2021. Some of those stimulus checks, you know, not going back, you know, PCs, electronics, even apparel is a little weak in some categories. But in terms of experiences, we're still seeing a consumer that wants to get out and wants to spend money.

The trend that has emerged in this earning season — MasterCard, Visa really hit on it a lot.

Airlines hit on it, too. — It's just international. Consumers when it comes to travel in the U.S. are starting to prioritize international travel, which is a difference as opposed to really heavy domestic. You know, you're starting to see more and more people choose to fly abroad, vacation abroad. So a little bit of a change in where the consumer's traveling as they travel. We look at these earnings reports.

So broadly, I think the things are first, you know, earnings relatively intact. Certainly you're always going to have pockets in areas. Texas Instruments, to me, stood out as one that was a little weak or Microsoft - investors a little disgruntled, I’d say with AI. I think there was an expectation from investors that AI would have a larger impact faster than Microsoft is saying it's going to. So some selling pressure on Microsoft.

But largely and broadly, you're seeing most of these companies come out, beat expectations and even in some cases, you know, I'd say like big tech like Meta, Alphabet, which is Google, you know, really starting to see even some growth in some areas. As you as you look at those two companies.

Market History: What Led to the 2008 Great Recession?

Daryl Eckman shares his perspective on this important part of history here:

Transcript:

Hi everybody. My name's Daryl Eckman, Eckman Wealth Management. And today, I want to talk to you all about the financial crisis of 2008, otherwise known as the Great Recession. Why it happened? How did it happen? Maybe a few things we can learn from that. This goes all the way back to 2008. And arguably, we still are feeling the same effects from that period of time.

So it goes all the way back to the Clinton administration. There's plenty of blame to go around, but the Clinton administration wanted to increase owner occupancy of houses in this country from 60% to 70%. So the housing lending laws were relaxed during that period of time. People were applying for mortgages to qualify with just stated income, which means whatever they put down on their mortgage applications through a mortgage lender, they would just put down whatever they thought they could sort of get away with.

I hate to put it that way, but there was a lot of falsification or exaggeration of income and that at the time was not caught. It wasn't verified. So just stated income; didn't have to supply a 1099 or anything like that. That coupled with low interest rates, I think really hastened the real estate market. It started to inflate and we had what was called subprime loans, and that was for people that had poor credit and they were trying to get a house.

And so the banks would charge a little higher interest rate and even though the people were, I guess there was more risk involved that they would default. So that happened and it just started to set this thing in motion.

Fast forward to the Bush administration, and this was not corrected during the first Bush administration. Things were kind of kept pretty much as is. Things were going well. We had an economic boom from 2000, well, I would say all the way up to 2008, there was this great incline. You saw housing prices going up by large single digits and in some years double digits. And so you had these very low interest rates and things were just going great.

Well, there was a bump in the road that hit eventually that was going to have an impact that just absolutely rippled through the entire financial system because real estate is so much involved with so many things in the overall financial system. And it came out of the borders of this country into, well, it was already being done — the same kind of thing replicated, replicated in other countries. And so it went through the entire banking system.

So then came… the banks were failing, the small banks were all failing. The large banks were going through what was called the asset test. The Fed, the banking system, the bank regulators were shutting down the small banks and there was a huge bail out in the big banks. There was testimony before Congress.

It was just very acrimonious. It was crazy. I can remember sitting at my desk there, I think I was at Piper Jaffray at the time, and I remember seeing money being transferred from this area to that area. People were even wondering whether the US government treasuries were a good place to have their money. It was going into gold for a few days. It was it was really quite maddening. And it was really actually as a financial advisor, at my level, and I would say even up the chain, there were a number of people that were just scratching their head trying to figure out what was going on. The Secretary of Treasury under George Bush and the Bush administration went to Harry Reid and Nancy Pelosi... and he was asking for I believe the figure was $800 billion for the bailout. And then there was another something like $700 billion that was reduced to $475 billion that was later added to that. I think it might have been the at the beginning of the Obama administration.

So we had this this issue that was going on. It continued on. Nobody was buying any homes at that time. There was only selling going on. The banks were pulling in their lending practices. And you had bank examiners actually sitting right next to the loan officer; what little activity that was going on in the bank banking that the bank examiners were really not in the business of making loans. Their job was really to not make a loan, actually finding a way that they wouldn't be.

So we had the stock market that corrected to the point where we saw 40 and 50% retraction of the major indices and bank stocks were down 80%. It was just mayhem. We saw failures in Freddie Mac, Fannie Mae, which are quasi governmental agencies. We saw Lehman fold, Lehman Brothers, AIG. It was just very not pretty. And so the Fed started what was called quantitative easing, at that time. There was a lot of heavy handedness with the Sarbanes-Oxley initiative that was put into place on a six foot tall page of legislation that was put into place.

So then you had actually now a whole group of lawyers, attorneys that were coming into the banking system and also advising the remaining banks and what they had to do. So I'm going to stop there and just leave you to your own conclusions on how that was. In fact, I probably will do a follow up on this at some point in time and talk about how we have been we have worked our way out of it, but there still is some remnants of the financial crisis of 2008.

The Labor Market: Low Unemployment Rate & Another 200k Jobs Added in June

Kris Venezia discusses the state of the labor market here:

Transcript:

Hi, my name is Kris Venezia from Eckman Wealth Management. And today I'm going to be talking to you about the labor market, which is and has been for a couple of years now, incredibly hot. So I'm talking to you on Friday, July 7th. We got a nonfarm payroll report today. In that report, the headline numbers: 209,000 jobs were added in the month of June. Unemployment rate sitting at 3.6%.

Now, there's two specific parts of the nonfarm payroll that I'm paying attention to because I think they are the two most important parts that pertain to inflation, which is still stubbornly high. So the first one of those is wages. We get a reading in the nonfarm payroll report on hourly wages. The first number is .4%. - that's how much it went up month over month from May to June. 4.4% is your year-over-year number on wages. Those numbers are higher than policymakers would like, indicating more inflationary than policymakers would like.

The second part I want to point out in this jobs report is on labor force participation, which is around 62%. It's been at the same level for the last four months. It's below pre-pandemic levels. And it's been a really big point of frustration for policymakers and economists when it comes to that fight against inflation, because the labor market, because the labor force, we have these fewer people participating in the labor market than pre-pandemic levels, but we have all these jobs that have been created since the pandemic started. So there's this imbalance between people looking for work and the number of jobs available, and that creates inflationary pressure.

The positive when it comes to labor force participation is this prime age group, which is 25 to 54. I didn't come up with those numbers. That is decided by the Bureau of Labor Statistics put this report together. That's what they indicate is the prime age working group, which is 25 to 54. That age group is participating at higher levels than we've seen in a couple decades. They have more full time jobs than we've seen in a couple of decades. So we are seeing participation from that 25 to 54 age group.

The problem seems to be in that over 55 age cohort. And if you look at what happened during COVID, people maybe got laid off and got severance packages and decided to bridge that into retirement. You also had some people who, you know, 2020 - 2021, were looking at the 401k and looking at their job and deciding, Hey, this is a great time to retire.

So really, when you look at that labor market imbalance, the key area that stands out to me is that we have this over 55 age group that has left the labor market to retire. You know, they've worked a long time, deserved that retirement. But we're trying to fill those gaps and we're struggling to fill that gap between number of jobs available and people looking for work. And just to give you an idea of what that is, there's over one and a half jobs available for every person looking for a job.

So clearly, a labor market imbalance, but trends are heading in the right direction. Job openings have fallen below 10 million. You know, labor force participation with that prime working group continues to slowly tick up. So there's some progress on that front. But there still is this massive imbalance in the labor market. And you can see it when you're going out and about. I'd say look at restaurants, service industry type jobs. You'll probably notice now that I pointed this out, you'll see more help wanted signs in those industries because those are the industries right now that are trying to fill that labor gap that's been been left by that 55 plus group, which is retired.

So there's a nice little overview on the labor market for you once again, Kris Venezia - Eckman Wealth Management. Make sure to subscribe. We'll have more of these videos coming out for you weekly. Thanks.