00:00We are, you know, two and a half months into this conflict into a basically functionally closed Strait of Hormuz
00:07and the effects of that around the world and especially in the U.S. are very evident.
00:11And coming out of this, you know, contrary to the president's true social post from what, two weeks ago, the
00:16floodgates might open today if there is actually a resolution reached.
00:20Again, I think the big if there, but we are looking at the fallout of this extending certainly through the
00:25end of the year and likely into next summer, I would put it at about 12 months, just given the
00:30fallout of fertilizer, of oil, other petrochemical products like plastics.
00:35I saw this morning in India, they no longer have Diet Coke because they all come in aluminum cans.
00:40They can't get aluminum cans.
00:41And so I think the effects of this are going to be wide ranging and I don't anticipate price effects
00:48from the shock to come down.
00:50Back to where they were beforehand until the end of the year.
00:54Well, that's incredible to consider.
00:55The end of the year obviously puts us past the midterms and there's a question of where consumers and voters
01:00will be sentiment wise when they go to vote in November.
01:03And obviously a lot of that sentiment is tied to gas prices specifically.
01:07How long does it take for $4.50 gallons of gas to filter through into a wider pullback in consumer
01:15spending?
01:16That's a good question.
01:16You know, this morning we saw Secretary Duffy tell consumers across the country that it's a great time to go
01:22on a road trip.
01:23I'm not sure if he's saying that because we see that airfare prices are up, you know, 30 percent over
01:29the last few months.
01:30So he's saying if you're going to travel, take your car rather than deal with the jet fuel prices.
01:34But I think the question really is what and I don't think we know the true extent, but what kind
01:39of long term damage has been done to oil capacity in the Middle East, given whether it's shipping, refining, drilling?
01:46There are some long term effects of that.
01:49And I think we don't quite yet know how much capacity is affected by that.
01:52We're not totally sure where OPEC stands right now, given the news last week from the Saudis.
01:58And so I think a lot of it is less dependent on the exact conflict in the war, but where
02:02oil prices go and how long it takes them to come down.
02:05With gas prices at 455, we are seeing really detrimental levels of consumer sentiment, the lowest on record ever recorded
02:14by the University of Michigan.
02:15Consumer confidence is low.
02:17In fact, we saw Whirlpool saying in their earnings call yesterday that these are recession levels of consumer confidence, cutting
02:25their outlook by 20 percent, given where they think consumers are in buying appliances, where commercial purchases will be.
02:33And I think all of that, people are really on ice.
02:35As Charlie was mentioning, Planet Fitness signups are down.
02:38Why would you sign up for the gym right now if you're not sure if you can afford the gas
02:41bill that's coming?
02:42Well, and that's an economist way of looking at it.
02:44I'm wondering if it's people who are on GLP-1s instead.
02:46Why work out if you can take a pill or a shot?
02:49That's a separate conversation, Liz.
02:50To this notion, though, of spending slow down, is it at least less bad than it could be because of
02:59higher tax refunds?
03:00Is there something of an insulating effect there?
03:02I think what we have seen with gas prices and tariffs and the health care expiration, the expiration of those
03:10subsidies, we have basically offset any bump we would have gotten from those tax refunds.
03:14So Neil Mahoney and Ryan Cummings out of Stanford estimated this week that they are entirely wiped out by those
03:20three counter effects.
03:21I also think that we didn't fully expect the effects of that tax law to go into effect on the
03:27opposite side of the equation, those health care and snap cuts.
03:31But families will start to be hammered by those in the coming months as those start to go into effect,
03:36especially on food stamps.
03:38For low- and middle-income Americans, they are not seeing the benefits of this tax bill.
03:42And I think we kind of further see this K-shaped economy entrenched, given that those tax refund bumps are
03:49really going to high-income consumers, which are just – they have a lower propensity to spend.
03:54And even if they are spending it, they really cannot prop up the entire economy.
03:58Well, and of course, prices you're paying factors into that whole confidence equation, but so too does your confidence in
04:03your ability to retain or get a job if you need one.
04:06We obviously have a payrolls report due tomorrow morning.
04:09Liz, what are you looking for?
04:10What are you expecting in terms of the health of the labor market?
04:13The thing that I am really looking at is are we seeing any sort of broad-based growth in those
04:17job gains, which over the past year we have not.
04:19So many of those job gains have been concentrated in the health care sector, which is one affected by that
04:25budget law.
04:26And a lot of health care folks are pulling back in anticipation of those Medicaid cuts going into effect.
04:32And then on top of that, really looking at the wage growth level.
04:35So we have seen wage growth really slow down over the past few months.
04:39We have not yet bottomed out on that, I don't think.
04:42And so, you know, Bank of America was out with a report this morning showing that wage growth for the
04:47top income folks are, is it 6%, whereas for middle and low income is hovering below inflation levels right now.
04:55And so tomorrow I'm looking at those.
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