High interest rates and high price levels are squeezing the consumer: Nancy Lazar
Costs are confounding consumers, and the three most important conclusions from last week were real consumer spending, employment weakening and price levels actually do matter. I want to bring it down. Piper Sandler, chief global economist, Nancy Lazar. Nancy, the first thing is, is you say, listen, forget about inflation, right? The the way economists talk about it, it's price levels that matter. By the way, I say Amen, but tell us more. Oh, no question, it's price levels. We haven't had this big of an increase in prices or the past four years since the late 1960s, IE my whole career we've had modest inflation, 3% inflation, 2% inflation. But on average price levels are very are egregiously high. The price of the new car has come down for the past five months, but they're still 20% higher than they were 2019. Cereal baked bakery products up 25% from 2019. And it's not just on the consumer side, it's also on the industrial side. But we can we can touch on that in a minute. So it's two things that are really, really squeezing the consumer right now. It's one, high interest rates and banks tightening lending standards and you're seeing car don't consider rates go up as a result of that. And then two, these high price levels at which which again is, is unique classically. We talk about oil prices being a headwind to the consumer today. It's cereal, car, furniture, clothing, fast food prices, etcetera. You know, and, and for me, I, I happen to just, I, I like to listening to, to, to these conference, to these earnings calls. We saw SW last week lay an egg. General Mills lay a massive egg. They actually lower prices and volumes still plummeted. Nike, again, you know, laid an egg. And these are companies that are saying the consumers as hurt. We see consumer sentiment going down. So the question now is where does this lead to Federal Reserve? I mean, should they, should they be acting sooner in your mind? No, because inflation is still sticky, particularly on the service sector where you've also seen big, big increases. And that's in part because the unemployment rate, although it's increased, it's still historically tight at just four, at just 4%. So no, we don't think the Fed should preemptively ease. We think they should ease after it's perfectly clear the unemployment rate has gone up to make sure that indeed you're squeezing inflation out of the system. the Fed wasn't preemptive this cycle. the Fed acted late. If you go back to 1985 and 1995, even to 1967, the Fed preemptively tightened before inflation became a problem. This time around, the Fed waited until after inflation accelerated. And so if anything, they were late tightening and they should be late in easing to make sure inflation is faced out. They were caught flat footed and still paying for those sins. I cannot let you go without getting your thoughts on Friday's job Support you. You more or less nailed it. Last Friday I was in, I was in the studio when a number came across. Of course, he used AI to help you, so I don't know if that's cheating or not. Well, everybody's using AI, so you can't say it's cheating any anymore. We're still running the model. We'll have an estimate out tomorrow. But at the end of the day, you are seeing the deterioration in the employment backdrop. You're seeing it in the number of hours worked. You're seeing it in temp employment. You see it in household employment. You see it in downward revisions to payroll as you as you, as you mentioned the employment report in the ISM. So we really have seen I would say a full House of weak economic data over the past week, starting with continuing claims, durable good orders, housing and today's construction spending report and also ISM. What fiscal stimulus? Hey, real quick, I'm out of town, but I do have to ask them because of the sticky inflation, what supersedes that on the job site? Would a 4.2% unemployment number matter enough that it supersedes that sticky inflation? We think four or five is, is our number. We think there's a spit to you of four or five. Nancy, thank you very much. Appreciate it.