Chapter 1: What insights does Tom Barkin share about the Iran war's impact on the economy?
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Let's turn to the data. Jobless claims coming in at a nice 213 against an estimate of 215 and the previous number of 212. Lisa, jobless claims and continuing claims speak to the same thing we've been talking about for quite a while. Low hire, low fire. Low fire captured in jobless claims, initial claims being very low. Low hire captured in some very sticky high continuing claims.
Yeah, and if you take a look at the initial claims for a week moving average, it actually has gone lower from 220,000 in the week before to 215,000 essentially with this latest data, so highlighting that. But you're right, continuing claims you've got to pay attention to because it actually kicked upward. to 1.868 million, up from 1.82 million.
A question here about whether that means that people aren't hiring, whether that's the issue, whether this is just a snafu tied to weather or some other disruption, or whether this really does highlight that maybe initial jobless claims don't really show the pain that people are experiencing under the surface.
This labour market has been frozen for quite a while and this data this morning speaks to the same thing. It's the right kind of downside surprise on initial claims and it's the wrong kind of upside surprise on continuing claims. Mike McKee standing by, he's having a look at the data and he's got a special guest for us as well. Good morning, Mike. Good morning, John.
Well, claims are not the only number out this morning that matters. We're also looking at import prices for the month of January. On a month over month basis, they're up two tenths of a percent after a decline in the prior month. And we're also seeing ex-petroleum up four tenths.
That puts kind of a lie to the idea that foreigners are absorbing the tariffs because the prices should go down if that's the case. Also, productivity up 2.8 percent, which sounds good, except it was up by 5.2 percent in the third quarter. So not as great a news as perhaps people had hoped. Let's get a read on how the economy is doing now.
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Chapter 2: How are jobless claims affecting economic forecasts?
We'll head back to normal. And the numbers in the fall, absent the government shutdown, were saying much the same thing. I will say over the last month and with the PCE numbers that we're expecting next week, you've got a couple months of relatively high inflation. That certainly puts pause to any conclusion that we're done fighting this. But we'll see where we go.
Well, slicing, the business leaders are telling you a little more closely, they know consumers are price sensitive and they're worried about that. But are they also in a situation where they've had to absorb too much? And if we see more price increases of inputs, they're going to have to raise prices.
Well, that's where we come back to productivity as being so key to this whole story because most every business I talked to last April that got tariffs was going to pass it on. It was just clear and they needed to maintain margins. The consumer was going to have to take it. And when they experimented with that, they got a lot of pushback.
And so prices didn't increase the way that a lot of those folks expected. Now, their margins have been very steady. And so corporate margins are quite healthy. Earnings were up, I think, 13% fourth quarter year over year. And that's because productivity has allowed people to absorb these hits without having to affect margins and having to pass it on fully in prices.
And when you start seeing good productivity numbers over and over and over again, that gives you some hope that can continue.
What are you hearing from businesses about the other side of your mandate, employment? Obviously, we're seeing low hire, low fire continue.
Yeah, I have to say the businesses I talk to when they describe the labor market, they describe it as pretty open, maybe even loose. Availability is high. Turnover is low. I was with a bunch of poultry processors on the eastern shore who told me that even after losing workers to temporary protected status, they've been able to replace them relatively easily. relatively easily.
And if you can replace poultry workers, I think you've got a reasonably open job market. And of course, going back to the fall, that's what we saw as unemployment was ticking up. I will say the last couple months of employment data has been reassuring. As you've seen, the unemployment rate came down. Jobless claims have stayed low. And so you still hear a relatively loose labor market.
You still hear people not hiring but not firing. But the numbers are even better than I think what you hear.
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Chapter 3: What is the current state of inflation according to Tom Barkin?
I was in Baltimore on Wednesday. And in each of those places, I'm actually not talking to you. I'm talking to chambers of commerce and rotary clubs and people who are interested in what's happening in the economy. And I think there's real value to being in front of these folks and putting a face on the Fed. The design of the Fed was a regional design from the start. And I think part of it was
People wanted to trust and understand the people who are making these important decisions and also to feel listened to. And I take a lot of pride in how much interaction and engagement I have across my five states and District of Columbia. And I hope to continue doing that. But to me, it's not ā and you know this because we've talked a lot before ā
I'm not trying to talk about how many rate cuts I have in my SEP for the next nine months. I'm trying to talk about here's how I see the economy and ask them, how are you seeing the economy? I think I give valuable insight that way.
One last question. Would you like to see Jay Powell stay on as a Fed governor after his term as chair is up?
I like Jay a ton. I think he's done a spectacular job, and I want Jay to do absolutely the best thing for Jay.
Okay. Tom Barkin, thank you very much. The president of the Richmond Fed will send it back to you. Mike McKee, thank you, sir. And that's a top tip for anyone that gets asked that by Mike McKee anytime soon. Just repeat what Tom Barkin just said. I want what's best for Jay. So not going to answer, but I think it was a great answer, frankly.
Honestly, what he said was actually parsing through the vagaries that the Fed is dealing with quite well, talking about how he still sees modestly restrictive policy, not exactly accommodative or neutral. And they did say that companies were having trouble passing along pricing, but that the recent inflationary data does give them pause. So sort of the dual mandate kind of balanced right now.
He seems like he's kind of one to be waiting on the sidelines for more. On inflation, on the energy shock, it keeps coming back to the same thing. The calendar, it depends how long this goes on for. If it's a short-term shock, the textbook says, his words, look through it. If it's longer, the textbook says something else. How much longer is it gonna be? Yeah, and this we don't know.
I think is going to be a really important driver. And frankly, not just for the Federal Reserve, but for the entire market to reassess exactly what that impact is.
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