4. 60. >> IT WAS 4.
03 A COUPLE OF HOURS AGO. >> WE'LL CHECK BACK. THANKS.
>>> INVESTORS ARE ADJUSTING RATE CUTS WITH FUTURES PUTTING A 0% CHANCE ON A HALF-POINT CUT. THAT WAS THE CONVENTIONAL, AND BY NOT LONG AGO I MEAN LAST WEEK. THE CHANCE FOR A QUARTER-POINT CUT IS NOW AT 85% FOLLOWING FRIDAY'S BLOW-OUT JOBS REPORT WHICH CAUGHT MANY BY SURPRISE, BUT NOT OUR NEXT GUEST.
HIS FIRM NAILED IT. THEY BASICALLY GOT FRIDAY'S NUMBER EXACTLY RIGHT, BUT HE SAYS WE SHOULDN'T EXPECT TO SEE THESE KINDS OF GAINS GOING FORWARD. JOINING ME IS TOMMY SIMON, ALONG WITH OUR STEVE LIESMAN, WELCOME TO YOU BOTH.
TOM, NOT TO BRING YOU HERE. BOTH YOU AND I KNOW AND STEVE KNOW HOW IMPORTANT IT IS TO GET IT RIGHT. THERE ARE A NUMBER OF TECHNICAL THINGS KIND OF ALL COMING TOGETHER.
WHAT WERE THOSE AND WHY DON'T YOU EXPECT SIMILARLY STRONG RATINGS IN THE LAST COUPLE OF MONTHS? >> SURE. THANK YOU FOR HAVING ME.
YES, TO YOUR POINT, IN ECONOMIC FORECASTING GETTING SOMETHING RIGHT DOESN'T GIVE YOU MUCH CONFIDENCE THAT YOU'LL CONTINUE TO GET IT RIGHT, UNFORTUNATELY. THAT BEING SAID, THERE WERE A NUMBER OF TECHNICAL FACTORS LYING UNDERNEATH THE SURFACE THAT GAVE ME THIS HUNCH THAT WE COULD HAVE A STRONG SIDE SURPRISE. SO FIRST UP, SEASONAL ADJUSTMENTS AND SEASONALITY IS PRETTY EXTREME IN SEPTEMBER BECAUSE YOU HAVE WORKERS COMING BACK TO SCHOOLS THAT HAVE RE-OPENED FROM SUMMER BREAK.
OFTENTIMES THAT ENDS UP BEING PLUS OR MINUS A MILLION OVER THE COURSE OF THE SUMMER AND THE INVESTMENT FACTOR IS BIG. IN THIS CASE, IT'S TRYING TO PUSH DOWN THE NUMBERS AND NORMALIZE IT AND WHAT WE'VE SEEN IN THE POST-COVID PERIOD, IN MY VIEW IS THAT THE SEASONALS HAVE BEEN TAKING OUT LESS IN THE MONTHS WHERE THEY TAKE MONTHS OUT SO THERE'S THAT. AND THE DEBT MODEL WHICH IS RUNNING HOT AND GENERATING A LOT OF JOBS AND BASED ON THE ASSUMPTION THAT SMALL BUSINESS CREATION RATES ARE SMALLER THAN 2021 AND 2022.
THE RE-OPENING STORY HAS MOSTLY PLAYED OUT AND WE'VE MATURED PAST THAT AND THERE ARE A NUMBER OF QUIRKS THAT ARE DIFFICULT TO UNDERSTAND. >> SURE. >> RESIDENTIAL CONSTRUCTION HAS BEEN POSITIVE FOR THREE YEARS NOW, SOMETHING LIKE THAT AND THIS IS AS WE'RE SEEING THE RATES OF HOME CONSTRUCTION FALL SIGNIFICANTLY AND THE RATE OF COMPLETIONS OF THOSE PROJECTS EXCEED THE RATE OF NEW PROJECTS SO THAT'S UNUSUAL.
USUALLY, THAT STARTS TO BE KIND OF AN IMPETUS FOR LOWER CONSTRUCTION PAYROLLS AND THAT WILL COME AT SOME POINT, BUT SO FAR WHATEVER IS BOOSTING THEM UP IS STILL INTACT, IT SEEMS. >> IF THE NUMBER IS TOO GOOD TO BE TRUE, MY WORD, NOT YOURS, YOU'D THINK THE MARKET WOULD WAKE UP AND START DISCOUNTING THAT A LITTLE BIT, BUT IF ANYTHING, IT'S GOING THE OTHER WAY. IT'S SAYING MORE OR LESS, WE TAKE THIS AT FACE VALUE AND OVER THE WEEKEND I'M SURE STEVE SAW THIS, TOO.
THE NUMBER OF STRATEGISTS RAISING THEIR YEAR-END PRICE TARGETS AND RAISING THE EXPANSION INTO NEXT YEAR. THIS SEEMS TO HAVE BEEN A CATALYST FOR MASSIVE UPWARD REVISION AND BROAD, BULLISH SENTIMENT ON THE MARKET AND THE ECONOMY. IS THAT A MISTAKE?
>> I WOULDN'T CALL IT A MISTAKE, NECESSARILY. YOU CAN ONLY DO SO MUCH WITH THE INFORMATION THAT IS IN FRONT OF YOU AND YOU CAN ONLY MAKE YOUR BEST JUDGMENT BASED ON YOUR PAST EXPERIENCES AND WHAT NOT. IN THIS CASE, WHEN PEOPLE TRY TO DISCREDIT THE STRENGTH OF A LABOR MARKET REPORT THEY LOOK FOR INCONSISTENT DETAILS, AND IF YOU WERE DOING THAT THIS TIME AROUND YOU WOULD STILL BE LOOKING FOR THEM BECAUSE THERE WAS NOTHING IN THE DATA AT ALL THAT WAS IN ANY WAY, WEAK, AND TO THAT POINT WE HAVE UPWARD REVISIONS FOR THE LAST COUPLE OF MONTHS.
>> TRUE. >> THIS IS FOLLOWING A YEAR-LONG PERIOD OF TIME WITH DOWNWARD REVISIONS AND EVERYONE IS LOOKING AT THE 818,000 FEWER JOBS CREATED IN THE LAST YEAR AND IS NOW STILL FOCUSED ON THE SLOWER PERIOD OF GROWTH THAT WE SAW IN THE END OF 2022 AND THE BEGINNING OF '23. MAYBE THAT WAS THE RECESSION.
>> I AM SO GLAD YOU PUT IT THAT WAY AND TO MAKE IT THROUGH YOUR FORECAST IS FROM QUARTER-POINT CUTS AND MUCH LIKE THE MARKET AND EXACTLY WHEN TOM JUST SAID IS DID THE SLOWDOWN ALREADY HAPPEN? >> YEAH. FIRST OF ALL, HATS OFF TO T THOMAS.
ECONOMISTS DO A STRUT AFTER GETTING THE NUMBER CLOSE TO RIGHT AND THAT'S REAL GOOD WORK RIGHT THERE. >> THANK YOU. >> I THINK WHAT'S HAPPENED, KELLY, IS AN ADJUSTMENT FROM THE REASONS WHY THE MARKET THOUGHT THE FED WAS CUTTING.
I THINK YOUR QUESTION IS A GOOD BEEN, BUT WHY IS THE MARKET TAKING THIS AT FACE VALUE? WE HAVE TO THINK ABOUT WHERE THE MARKET PSYCHOLOGY WAS WITH THE JOBS NUMBER. THERE WAS A REAL CONCERN THAT THE JOBS MARK WAS WEAKENING FAST AND WE HAD A COUPLE OF BAD REPORTS AND SO WHAT THIS DID WAS DRAW PEOPLE BACK TO REALLY BE WHERE THE FED IS.
THIS IDEA OF POWELL STEPPING FORWARD AND SAYING, HEY, WE'RE NOT CUTTING BECAUSE OF WEAKNESS AND BEFORE THE JOBS NUMBER, YEAH, YOU SAY THAT, BUT WE DON'T BELIEVE YOU. NOW WE KIND OF BELIEVE THEM AND IF YOU THINK ABOUT WHERE WE ARE NOW, WE'RE NOW AS YOU SAID, DIALED OUT THE 50 FOR NOVEMBER AND NOW ON THE QUARTER AND BY THE WAY, THERE'S A 15% PROBABILITY OF NO CUT AND THEN YOU LAYER THAT IN TO DECEMBER AND THERE'S STILL A PROBABILITY THAT IF YOU CUT THE CORNER AND THE 11% PROBABILITY THEY DON'T DO IT AGAIN AND THE MORE LIKELY PROBABILITY THAT THEY'LL CUT ANOTHER QUARTER. SO ANOTHER 50.
GUESS WHAT, KELLY, THAT'S WHERE THEY ARE WITH THE FED OFFICIALS AND WHAT WE'VE GONE FROM IS HEY, THE FED IS GOING TO CUT BECAUSE THE ECONOMY IS WEAKENING FAST TO, HEY, THE FED'S GOING TO CUT BECAUSE RATES ARE TOO HIGH RELATIVE TO INFLATION AND THE ECONOMY IS OKAY. >> AND STEVE, WHERE DOES THIS LEAVE US NOW FOR THE NEXT COUPLE OF WEEKS WITH THE NEXT BIG EVENT BEING THE ELECTION AND OTHER THAN CPI BEING, YOU KNOW, NEGATIVE AND I JUST CAN'T IMAGINE WHAT WOULD MOVE THE MARKET MUCH IN TERMS OF ITS EXPECTATIONS FOR NOVEMBER. >> THE CPI IS SOMETHING TO BE FOLLOWED AND THE CPI AND THE PPI WILL COME OUT WITH PCE FOR THE END OF THE MONTH AND THAT'S THE IMPORTANT METRIC.
I'M SEEING FORECAST FOR PCE BE RELATIVELY TAME OR THE INFLATION RELATIVELY TAME FOR THIS QUARTER.
