00:00Your recent note caught the attention of our Talia Torella about how the consumer is not OK.
00:07Walk us through that.
00:09Well, there is a K-shaped recovery or consumer that the upper end is doing reasonably well.
00:17But the question is always kind of how what's the change look like?
00:21And the change for the upper end consumer is beginning to show signs of stress.
00:25Now, whether that's because a lot of the federal workers would fall in that 100,000 plus category or whether it's something else,
00:32what we are seeing is that upper income consumers are increasingly saying that their real incomes are expected to decline over the next year.
00:40And their job separation anxiety is actually quite high, particularly relative to kind of lower income cohorts,
00:47probably because a lot of the jobs that had been being created were actually kind of, you know,
00:53health care and kind of other jobs that in many cases tend to be, you know, kind of lower income side of things.
01:00And so I think, yes, they're doing fine for now, but there are signs of stress and ignoring them is something that can lead to trouble.
01:09Yeah, I got to tell you, Drew, I see that anecdotally right now with people looking for jobs who have been making good money and got laid off.
01:18And, you know, I've been looking for jobs for months at this point.
01:21When do we if we haven't already, how does that then manifest in data?
01:25And we're not necessarily getting it from the government, but how does that manifest in data that investors can react to, Drew?
01:30Well, I think the one way it will manifest itself is a decline in service sector spending,
01:35which we have been seeing, at least through the August numbers, which were the latest ones we had before the shutdown.
01:42You know, what tends to happen when you have to worry about things or when people begin to adjust their lifestyles in ways that shouldn't really be adjusted.
01:51And by that, I mean, you know, buying a cup of coffee in the morning is not a decision that should really tax most people's brains
01:56or that they should really think about if they're feeling good about their job prospects or that they have a job.
02:02And what we're seeing is people are pulling back on those kinds of purchases.
02:06And when that happens, you know, if you're not buying a cup of coffee, you're not going to buy a car.
02:12And so we're beginning to see that roll off on the service sector spending side of things.
02:17And, yes, maybe people are in the upper income tier are still splurging on certain things,
02:22or maybe there's a cohort within that upper income cohort that's still splurging on certain things.
02:26But the reality of it is it seems like it's beginning to shift into a kind of a lower growth dynamic.
02:32And, of course, we can't find any of the data or we don't have the data to know whether or not that, in fact, is happening.
02:39Drew, how much of tariffs are a problem, given what we saw today, that there is some leakage in and there may be more coming?
02:48I mean, it's obviously not what was feared back in April, but how how bad is it, Johnny, as Ed McMahon used to say?
02:58And Google that if you don't know what he's talking about, because you should know.
03:01Drew's old enough. He'll know.
03:02I do know, unfortunately, because I am old enough.
03:06I meant that for the rest of the audience out there in our control room.
03:12You know, I do think we're going to see a pass-through.
03:14I think it's going to happen.
03:15It's not going to be a full pass-through, nor is it going to lead to kind of this kind of, you know, wage price spiral type inflation story.
03:24It's going to be a one-time adjustment, and the Fed should look through it.
03:28But, you know, I was just complaining to you, Mike, though, you know, what about all the credit card surcharges that I'm now paying for?
03:33It seems like everything went up by 3 percent on top of the 3 percent inflation rate, because every time I pull out my credit card, I have to pay a lot more to kind of just use it.
03:41And so I think, you know, once again, it's going to be something that people notice and are affected by it.
03:50But one of the things that's actually helping people right now is that gas prices are actually extraordinarily low, particularly relative to where they had been.
03:58And so we look at gas prices relative to kind of how much you have to work to get there.
04:03So how many minutes of your work life does it cost you to buy a gallon of gasoline?
04:07And when you look at it that way, it's actually, you know, quite contained and well below where it had been the last couple of years, which is probably helping people continue to spend.
04:16So how many minutes of your work life does it cost you to buy a gallon of gasoline?
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