McKinsey Plots Thousands of Job Cuts in Slowdown for Consulting Industry

Summary

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Bloomberg Intelligence Podcast

Episode: McKinsey Plots Thousands of Job Cuts in Slowdown for Consulting Industry
Date: December 15, 2025
Hosts: Scarlet Fu & Paul Sweeney
Featured Guest: Sridhar Natarajan (Bloomberg News Chief Wall Street Correspondent)

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Overview

This episode centers on McKinsey & Company’s plans to cut thousands of jobs amid a challenging climate for the consulting industry. Hosts Scarlet Fu and Paul Sweeney, joined by Sridhar Natarajan, break down the forces behind McKinsey’s shakeup, the broader slowdown across global consulting, and what it signals for the industry’s future. Key topics include McKinsey’s flatlining revenues, reputational headwinds, the evolving value proposition of management consulting, and the impact of changing client demands—set against the backdrop of the firm’s 100th anniversary.

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Key Discussion Points & Insights

1. McKinsey’s Stagnant Growth and Industry Context

• Revenue Plateau:
  • McKinsey’s annual revenues have hovered between $15B to just over $16B from 2021 to 2025—robust by most standards but flat for the industry’s leader.

    “Any company that earns $15 billion a year, you can't really look at their performance and say, wow, they're in terrible shape... They’ve operated in this narrow band of $15...to $16 billion in annual revenue. For McKinsey, it is a sense that their revenue has flatlined a little bit.”
    — Sridhar Natarajan [03:11]

• Consulting Industry Headwinds:
  • The entire consulting sector is experiencing reduced demand as clients tighten budgets and prioritize expense control.

    “The demand for traditional consulting services may not be as high as it used to be. Companies and clients are getting cost conscious... consulting fees are the first ones thrown out the window, right?”
    — Sridhar Natarajan [05:38]

2. McKinsey’s 100th Anniversary and Internal Messaging

• Notable Quote:
  • “We will kick some ass as we start our second century. … Those who say yes, I can assure you good times are ahead.”
    — Bob Sternfels (McKinsey Global Managing Partner), as paraphrased by Natarajan [03:28]
• Partner Gathering:
  • The company’s centennial partner meeting doubled as a kickoff for 100th anniversary celebrations but also delivered a candid diagnosis: the firm must get leaner in response to internal bloat.

3. Reputational & Geopolitical Challenges

• Recent Controversies:
  • McKinsey has faced distracting scrutiny from several high-profile scandals and controversial projects, including:
    • Involvement in the opioid crisis
    • Criticism over work for Chinese and Saudi entities
    • U.S. government work, notably with ICE
  • These have presented “unwelcome distraction” and complicated the firm’s internal and external messaging. [03:54]

4. Shift in Client Needs & the ‘McKinsey Playbook’

• Commoditization of Advice:
  • The firm’s trademark strategies—streamlining, consolidation, cutting costs—are standard fare across corporate boardrooms, reducing McKinsey’s perceived uniqueness.

    “At this point, what McKinsey recommends is kind of dogma in corporate boardrooms. You don’t need to hire McKinsey to tell you how to do some of these things.”
    — Paul Sweeney [06:16]

  • Natarajan refutes the idea that McKinsey simply recycles generic advice, pointing to repeat business with top-tier clients as proof of realized value.

    "It is an oversimplification... For these big companies to turn to McKinsey again and again tells you that they see value."
    — Sridhar Natarajan [06:26]

5. Global Shifts: China and Saudi Arabia

• China:
  • The government is urging companies to shift away from Western consultants in favor of homegrown firms to build domestic competitive capacity. [07:47]
• Saudi Arabia:
  • McKinsey’s business with Saudi clients, once a half-billion-dollar-a-year revenue stream, is now under pressure as the Kingdom retracts consulting spend, especially on ambitious but faltering ‘vision projects’.

    “Saudi Arabia had become one of McKinsey’s most important clients globally. ... they don’t necessarily see a lot of room for rapid growth.”
    — Sridhar Natarajan [08:16]

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Notable Quotes & Memorable Moments

• On McKinsey's Outdated Playbook:

  “Anytime you bring a whiteboard, I’m out of there. I can’t think like it. So I went and traded stocks for a living after that.”
  — Paul Sweeney reflects on his own McKinsey interview experience [05:05]

• On the Practical Realities of Consulting Today:

  "In the moment, it might be funny, but to some extent it is an oversimplification of what they do... They're clearly doing something that companies value."
  — Sridhar Natarajan [06:26]

• On China’s Consulting Trends:

  “Good job relying on all of these Western firms to figure out how you need to modernize... but they are also encouraging them now to turn to homegrown consulting firms.”
  — Sridhar Natarajan [07:48]

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Important Segment Timestamps

• [02:40] — Introduction to McKinsey’s centennial and job cuts
• [03:11] — Analysis of McKinsey’s financial performance
• [03:54] — Addressing the firm’s recent controversies
• [05:05] — Personal (irreverent) account of the McKinsey interview process
• [05:38] — Shrinking demand for consulting services and client budget shifts
• [06:16] — Commoditization of McKinsey’s advice; value debate
• [07:47] — Geopolitical landscape: Consulting in China
• [08:16] — Saudi Arabia’s retreat as a major client; consulting revenue impact

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Takeaways

• McKinsey’s job cuts are a reaction to a plateau in revenue and reflect broader challenges in the consulting sector: changing global politics, client retrenchment, and the diminishing exclusivity of “consultant wisdom.”
• Despite headwinds, McKinsey maintains prestige and deep client relationships, with repeat business from the world’s largest firms and governments.
• The firm’s future will hinge on adapting its value proposition, distinguishing itself beyond cost-cutting, and navigating reputational and geopolitical complexities as it enters its second century.

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For listeners seeking a deep dive into the current travails and future prospects of the consultancy world’s most storied name, this episode offers indispensable, plainspoken analysis.

Transcript

[A]

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Bloomberg Audio Studios Podcasts Radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. You know what firm is celebrating 100 years?

[E]

What?

[B]

McKinsey really? Yeah, it's 100 years in business and of course they kind of invented the modern consultancy business overall. But what's interesting is of course, the solutions that they tend to prescribe. You know, streamlining and cutting down staff and consolidating is something that they now need to do to themselves.

[C]

Okay.

[B]

Sridhar Natarajan is Bloomberg News's chief Wall street correspondent. He's been writing about this and Sri, this all comes on the heels of a pretty, I don't want to say disappointing, but lackluster five years.

[F]

And that's, that's probably the best way to describe it, right? Any, any company that earns $15 billion a year, you can't really look at their performance and say, wow, they're in terrible shape. But around 2021, McKinsey had revenue at the $15 billion mark. Here we are in 2024, 25. By the time this year ends, we're going to be 16 billion, just a little bit over. So they've operated in this narrow band of $15 billion to $16 billion in annual revenue, which is great. Any other management consulting firm would absolutely love to post numbers like that. For McKinsey, it is a sense that their revenue has flatlined a little bit. And you did mention their 100 year celebrations, right? Which 2026, that is when they will turn 100. So they had this annual partner gathering which also doubled up as this kickoff for their 100 year festivities. And for those who were there, who listened to Bob Sternfels, the global managing partner at McKinsey, the de facto leader, you could sense some plain spoken bravado. His words to his partners were, we will kick some ass as we start our second century. He was asking people, are you in for this mission? And those who say yes, I can assure you good times are ahead. Because it is also an acknowledgment that the last few years have been rocky, not just from its standpoint of its financial health, but you have to think about some of the challenges and the controversies that McKinsey has had to navigate. The opioid scandal, some of the criticism over their work in China and Saudi Arabia and even back home here in the US with ice, for instance. These are questions that were asked and stuff that McKinsey has had to answer. And it presented an unwelcome distraction. But the bottom line is for this firm is when it looks at its numbers, it does realize people won't like hearing this. But at management levels, that's how they talk about it. It realized that there was some bloat and the message that's percolating through the firm right now is it's time to get leaner.

[C]

I was interviewing with McKinsey when I was in business school and like second round, they asked me to get up on a whiteboard and sketch out kind of like a business flow model. I just turned to them and said, thank you, but no thank you and walked out the door. Anytime you bring a whiteboard, I'm out of there. I can't think like it. So I went and traded stocks for a living after that. Sri, why has revenue been flat here? Is there some concern that maybe all this AI spending is taken away from other budgets where maybe I don't need the consulting or that's certainly the concern.

[F]

On the forward, perhaps, but just in the last few years the reality of the industry and McKinsey in some ways is the flag bearer for the industry. But there are perhaps other major consulting firms that are struggling even more. And the fact is that the demand for traditional consulting services may not be as high as it used to be. Companies and clients are getting cost conscious. When your clients are not able to post great revenue growth, the only other lever that they can pull is expenses. And consulting fees are the first ones thrown out the window, right?

[C]

Advertising is the first one, I think.

[F]

Advertising, then consulting fees perhaps.

[B]

But is McKinsey Solutions so out of the box? I mean, at this point, what McKinsey recommends is kind of dogma in corporate boardrooms. You don't need to hire McKinsey to tell you to how to do some of these things.

[F]

Look, and I think the way you're framing it is just just a little bit more of a polite way of some of the memes that you see out there, right? Which is this idea that all that consulting firms do is grow revenue and cut costs. In the moment it might be funny, but to some extent it is an oversimplification of what they do. Because if you look at the list of clients that they've racked up, we talked about them starting out in 1926. University professor who advised a local meatpacker, Armours & Co. From that what they've grown up to. They are the go to advisor to blue chip companies from Coca Cola and Goldman Sachs to everyone else and also countries that span the globe. And a lot of these people are repeat clients. So you have to assume that it's not as simple as rote advice that they're doling out. Because for these big companies to turn to McKinsey again and again tells you that they see value in most of what they do. There might be some extreme cases on either side. One, it might be some undesirable work and two, it might just be obvious advice. But for the most part, they're clearly doing something that companies value and countries.

[B]

Value. Speaking of countries, you mentioned China and Saudi Arabia. China wants its companies to continue to bring in consultants, but they just want them to be homegrown.

[D]

Consultants.

[F]

Right. And like that seems to be the push in China, which is good job relying on all of these Western firms to figure out how you need to modernize and be ready to compete on a global scale. But they are also encouraging them now to turn to homegrown consulting firms. Saudi Arabia is a completely different channel. We have a person at McKinsey who estimated that in the prior decades of 2014-2024, McKinsey earned at least at least $500 million a year from the Kingdom, which is either with companies affiliated with Saudi Arabia or the government itself. But the challenge in Saudi Arabia is also obvious. You've seen some of the recent headlines where they're pulling back on consulting expenses. Some of these pie in the sky projects are not working out as they had hoped for. And again, consulting fees are going away and Saudi Arabia had become one of McKinsey's most important clients globally. So that is obviously also a place where they don't necessarily see a lot of room for rapid.

[C]

Growth. Stay with us. More from Bloomberg Intelligence coming up after.

[A]

This. What is actual investing? We believe that it's a real world task to deliver thoughtful capital deployment. It's not about speculating over the short term. It's about understanding the long term opportunities for companies through technological progress or new business models. So we seek out those exploring big new ideas that will change the world. Then we back them to give those ideas time to flourish. Baillie Gifford Actual Investors Find out.

[C]

[e-mail] support for the show comes from public on public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index. With AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are completely customizable and based on your thesis, not someone else's. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by.

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O O.com youm're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app Listen on Demand. Wherever you get your podcasts or watch us live on YouTube, we are monitoring the latest on Netflix, his bid for Warner Brothers discovery. I think we're in week.

[C]

Two or week three where we, I don't just been out there for a long time and I think it's going to take a long.

[B]

Time to. Absolutely. So I mean, they were thinking 12 to 18 months could be longer. Of course, we need to bring in Jennifer Reed, Bloomberg Intelligence senior litigation analyst who's been on top of all the regulatory concerns. And Jen, you heard what Lisa was saying about this letter that the CO CEOs Greg Peters and Ted Sarandos have released. Did we learn anything new from that letter that helps clarify any and clear up the.

[D]

Regulatory murkiness? I mean, I think not. I think what they said in the letters, what they had to say, you know, right now they are trying to convince the shareholders of Warner Brothers that they're going to be a better buyer than Paramount. They're in a fight for the assets and they've heard what the concerns are, that it's going to kill the movie theater experience and kill movie theaters, that people will lose jobs, people who create content will lose jobs because it's one fewer buyer of content. And so they're just trying to assuage these people that that won't be the case if they, if Netflix ends up actually being the buyer of Warner Brothers down.

[C]

The road. Red headline crossing the Bloomberg Terminal. Nick reiner arrested by LAPD bail set at $4 million. That's according to Bloomberg News. We'll have some more reporting on that going forward. If you were advising the Warner Brothers Discovery board, which deal would you recommend from a regulatory standpoint? What just the least amount.

[D]

Of risk? Oh, I think from an antitrust perspective, it would be Paramount. And the reason is because there are overlaps. Both companies have risk, both companies raise antitrust issues. But I think the issues that are raised by the Paramount bid may be more easily defensible or easily more easily fixed than the issues that come up with Netflix. And then you also have, you know what we've seen in the news that it seems that the owners, the people who are behind Paramount, are allies with the administration. And this administration has said that they will be involved in this and that obviously gives them a leg up with respect to.

[B]

That situation. Jen, you noticed noted in your research that there was a consumer lawsuit filed against Netflix's bid for Warner Brothers, and it's a proposed class action suit as well. Does that matter? Does that make a difference to what we're seeing.

[D]

Right now? You know, it does. I'll say that these consumer lawsuits seeking to block a deal sort of aligned alongside any kind of federal or state scrutiny that would occur. They are rarely successful. And this is usually because the Department of Justice or the ftc, whoever the reviewer is at the time, is really considered the expert in antitrust. Right. And a judge would prefer to sit back and let that play out and see what happens there than to be the one to decide to block a deal because that's what the consumers are looking for. It's not, you know, money, which is what you usually see in a class action, but to enjoin the closing of the deal. But it adds risk no matter what. It's yet another piece of opposition that you never know. Could turn into something along with states. Right. That could get involved, that could align with this consumer action or align with the federal agency, the Department of Justice, that could end up going after a deal. So, yes, it adds risk. I would say it's a limited risk, but.

[C]

It does. So if Paramount wins, there's going to be just my understanding of the media business, a lot more job losses. Because for every set designer, every writer that Warner Brothers has, Paramount has one.

[D]

As well.

[C]

That's right. And I would argue the synergies, and I've seen research that the synergies, I.e. job cuts, are 2x Paramount versus Netflix. Does that factor into what the regulators.

[D]

Look at? It does. You know, it didn't as much in the past, but this has been a trend in the last 10 years. They will look at the impact on workers. This is what we call in the antitrust world a monopsony issue. Too few buyers of a service and the Department of Justice is coming off success with that theory of harm. They were able to block Simon and Schuster from acquiring Penguin, Penguin Random House. And it was all about fewer bidders for top selling authors and similar. Right. Fewer bidders for content, for writers, for creatives. And so they won that in court recently. And so it is a theory that they could, they could pursue and it's a viable antitrust theory.

[B]

Of harm. My other question for you, and I guess this should have been the, the first question I asked you is Netflix has promised all kinds of things. They're going to continue to release Warner Brothers movies and theaters. They promise no overlap or studio closures. Netflix has a habit, a tendency of going back on their word. They, you know, reverse course on advertising, they reverse course on live sports. So how much can we really trust legally any of what.

[D]

They'Re saying. Nothing. You really can't. And honestly, sometimes there are consent orders, settlements entered with the government where these kinds of promises are memorialized in. And even in that case, what antitrust practitioners would tell you is that it some often fails. Right. That those. And the companies would say, look, we're publicly traded companies. We have a fiduciary duty to our shareholders. Economic conditions change, things change. And so that had to change our strategy. So really what they say today doesn't have a lot of meaning. Now, if it were memorialized in a consent order, maybe it has a little bit more clout because then somebody could go after it in court if they fail to abide by those promises. But even in those cases, you know, this doesn't mean.

[C]

Very much. Do we know which regulatory body, the Department of Justice or the Federal Trade Commission, which one's going to review this deal? Do.

[D]

We care? It'll very likely be the Department of Justice because they have experience in this area that that's how these deals are cleared to one or.

[C]

The other. So do I hire like DOJ counsel just to argue my case or to the dudes at Simpson, Thatcher or whoever they have those people? Do I hire a specialist law firm to.

[D]

Do this? I will tell you, you hire a big antitrust firm where many of the partners probably came from the Department of Justice or Federal.

[B]

Trade Commission. That.

[D]

Revolving.

[B]

Door. Yes. Final question to you, Jen. Is the burden all on Netflix to prove that this is not an antitrust breaking deal, or does Warner Brothers Discovery have a role to play here? They've been.

[D]

Fairly quiet. Well, the burden, if they have a deal and it goes before the Department of Justice, the burden is on the Department of Justice actually to prove that the deal raises antitrust concerns. I think they have a fairly easy burden because we right off.

[B]

With the overlap streaming question is, is the burden on Netflix to defend against that? Was it on Warner.

[D]

Brothers Discovery? Once there's an agreement signed, it will be up to both of them, mostly Netflix as the buyer, but the seller also has to be a participant and cooperate in defending.

[B]

The deal. What does Warner Brothers do in.

[D]

The meantime? Right now I think they should just be sitting quietly because it might be there's a battle for the assets and it might be there are yet higher bids coming which would be a benefit to them. So it seems to me that I think they've been fairly quiet. Seems to me that's probably a good strategy.

[C]

For them. Boy, I'm looking at this, the, this, the Paramount acquisition. They've got on the lawyers, Cleary. They've.

[G]

Got.

[C]

Kravath. Yeah. They got Latham. I mean, three of the.

[D]

Monster.

[C]

Firms. Yes. Now you're serious. Each of those firms and including the firms representing Netflix, they probably had to say proceed with this deal. We think it will.

[G]

Pass.

[D]

Muster. Right? Well, what they say is we think we can defend this. I don't think any lawyer would say for sure we're clearing this deal for you. They would say, look, we think we have defenses and that if those defenses don't work before the Department of Justice, you have yet another shot before a judge. Because it isn't really at the end of the day up to the Department of Justice. It's up to a federal judge. You have to go to court and the Department. You can win. Emerging companies can win these deals.

[C]

In court. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. On public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are completely customizable and based on your thesis, not someone else's. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for.

[A]

By Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors llc SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete Disclosures available at public.comDisclosures.

[B]

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[C]

Live on YouTube Scarlet Fu and Paul Sweeney we're live here in our Bloomberg Interactive Broker Studio in New York City. We are streaming live on YouTube as well. You know we love the big take stories. These are really interesting topics. They are deeply researched research, deeply sourced and get a lot of resources and they are just awesome and a lot of cool graphics. For people like me who likes graphics, this one's a good one. A shadowy global network to help Trump make millions in meme coins. I can't follow all of the places and exposure that President Trump and his family has in the crypto space, But I know Meme coins is certainly one of them. So let's check in with the author. Zeke Fox, investigative reporter for Bloomberg News, joins us live here in our Bloomberg Interactive Broker studio. Meme Coins. President Trump and his family.

[E]

What's the story? Yeah, so during his first term just a couple of years ago, Trump was calling crypto a scam. But as he prepared to take office this time, he and his family started two big crypto ventures. And for this story, I went deep on kind of the silliest one, which is the Trump and.

[C]

Melania meme coins. I forgot.

[E]

About that one. Yeah. So this was on the eve of inauguration. The president and then his wife both announced they were creating new cryptocurrencies that didn't do anything at all. And these are, like, transparently useless. It's kind of like a gambling game. And at the time, this was really hot in crypto. So many people dived in that on paper for just a second. The Trump meme coin. The Trump family had $50 billion of holdings of this meme coin. But this is a crypto world where things can go poof overnight. The best estimates we found, from chain analysis and bubble maps to crypto research firms, were that the Trump family made about $350 million of real profit on.

[B]

These meme coins. Who helped them market these coins? Who helped them, you know, presumably profit off of that? That. That's the. The gist of your story. And was it a difficult.

[E]

Question to answer? Yeah. Like, on the one hand, the whole thing sort of happened in the open, and it felt like there was. We sort of knew what happened. On the other hand, as I tried to dive in and figure out who was behind this, it was really tough. You'd think that people might be proud to say that they'd helped the president with an important business venture, but really, nobody was talking. The trail took us in a very convoluted way, but it ended up with a guy who uses an icon of a cartoon cat wearing an astronaut suit. On Twitter, he goes only by meow. And he runs a crypto exchange, or he was the co founder of a crypto exchange called Meteora that was actually home to a ton of these giant meme coin launches. And all of them, or most of them, seem to follow this pattern where they go up a lot on hype when they got announced and then soon crash. And we were trying to figure out who knew what when the trail took us to Istanbul, to Singapore. You got to read the story to see how.

[C]

Close we got. So is the Trump meme coin.

[E]

Still in existence? Yeah, these things never really die, but there's no excitement around it anymore. The price is down about 90%.

[C]

From its peak. Where do I.

[E]

Find the price? You know, their coinmarket coin is a pretty big crypto tracking site. But one funny thing we found in reporting this was talking to meme coin traders. A lot of them said that Trump actually killed this boom. Like for a while we were all having a lot of fun trading these meme coins, but the, the Trumps made so much money off theirs that the gamblers in the casino were like, you know what, we're, we've emptied our pockets, we got, we're done with this. We need bring on prediction markets. We need something different.

[B]

To gamble on. So our meme coins, they've, they've peaked already, they've died or I mean, they're still there, but no one's making money off of them the way.

[E]

They used to. Yeah, it's a little bit like, if you remember the NFT bubble, the like digital crypto art, for a minute, it's hot and people are making good money. They're telling their friends and then at some point people just, they crashes and people move on. So a lot of the same people who are in on NFTs got in on meme coins. And while this was, while this was running, it was a great business. We talked to one 22 year old who started one of the biggest meme coin creation and trading apps. His company, which just had a few employees, generated $1 billion from the, during this meme coin bubble. But now a lot of the people who are excited about meme coins have moved on to prediction markets where the Trump family has its own.

[B]

Interests as well. Yeah, Don Jr. Right, has some pretty big stakes or has a pretty key role in some.

[E]

Of the companies. Yeah, he's an advisor to both Kalshee and Polymarket, the two big prediction markets. And then the Trump family's social media platform, Truth Social, has announced plans to create its own prediction market. But it's kind of a pattern where the Trump family has these business interests in this kind of gray area market. And then the Trump administration is creating rules that are legalizing these markets and helping.

[C]

Make them grow. Has President Trump or his family or his administration commented on your story or about the meme coin.

[E]

Part of it? So the press secretary got back to us, not really getting into the specifics, but just saying, hey, the Trump family would never engage in conflicts of interest. But not really addressing how they manage, having interest in both the business side and being in charge of.

[C]

Drafting the rules. And I guess no.

[E]

One cares anymore. I'd like to think that people still care. But you know, when it came normally you have like let's say this was the stock market and somebody created like a penny stock that went up, you know, a thousand x and crashed. Yeah. Somebody would be diving in. They'd be digging through people's messages. They've been trying to figure out what happened. Meme coins. A few weeks after Trump was elected, the SEC put out a statement that basically said not our business. Nobody has stepped up to look.

[C]

Into these yet. All.

[B]

Right, very good. There's the answer to.

[C]

Your question, Paul. Yeah, there's answer to my question. I think maybe the definitive report is your article here. Zeke Fox, investigative reporter for Bloomberg News, joining us here in our Bloomberg Interactive Broker studio. Again, it's a you can read this big Take story on the Bloomberg terminal [e-mail] bigtake so you can read Zeke's article as well as all the other Big Take stuff. And again, every day they come out with just blockbuster stories, really, really well sourced as well. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public on public you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are completely customizable and based on your thesis, not someone else's. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid.

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[C]

Us live on YouTube. All right, Scarlet Fu and Paul Sweeney. We're live here in our Bloomberg Interactive Broker studio in New York City. We are streaming live on YouTube so check us out there. Look at the 10 year yield down a little bit here, we're down to 4.17% here. Looks like the Fed is in a rate cutting mode that should benefit a number of industries, including the housing market as well. So let's check in on that. Drew Reading. He's the homebuilder analyst for Bloomberg Intelligence. Drew, what's your 2026 outlook for the home builder segment there? The folks that are out there building the homes will lower interest rates. Will.

[G]

That help their business? So we actually think that 2026 is going to be another challenging year from a fundamental perspective for the builders. If you think about the weakness that we've had in demand over the last several quarters, it leaves much of the group coming into the year with backlogs that are down anywhere from 10 to 40%. And that's ultimately what translates into revenue over the next, call it three to nine months. In addition, I think you're going to see further pricing pressure as builders look to adjust prices to meet market demand. So we're going to have further base price reductions and I think builders are going to have to continue to lean on incentives because it's something that home shoppers have become accustomed to and you know, they're looking for deals when they're out there in the market. So, you know, slow top line growth. And I think that incentive dynamic is also going to continue to pressure gross margins as we get into next year. You know, on the, on the positive side, we do have lower rates. So I do think that orders can grow next year. Year, you know, we're looking at a six and a quarter rate, call it right now, last year we're almost 100 basis points higher heading into the spring. So lower rates and community count growth could support orders. But I think that revenue and margins are going to.

[C]

Be down this year. What's the relationship historically Drew, between new housing.

[G]

And existing home sales? So the new home market is historically about 15% of overall housing transactions. So a much smaller piece of the market. You know, they've, they've performed vastly differently over the last couple of years. If you look at the existing home market, we've been bumping along a 4 million annualized run rate of home sales for about three years now. And that's about 20% below normalized levels. So there's been a lot of pressure because the mortgage rate lock, in effect affordability. We have seen an improvement in demand in the resale market as rates have come down. You know, we're looking at purchase applications, which is the most high frequency data point that we have. So we have Seen some improvement. And we think, you know, looking into 2026, you could see growth in the resale market anywhere from 5 to 10%. Call it. But keep in mind that's off.

[C]

A historically low level. What's the. Has the tariffs impacted the new home building market? I'm thinking lumber and all the other materials used in building a home. Has that had an.

[G]

Impact on the profitability? Yeah, good question. To this point, it really hasn't. We've heard from a number of builders who haven't seen much of a cost increase in 2025. I think you could see as you get into 2026, that become more of a problem. You know, we did an analysis that looked at all the tariffs that have come through, and, you know, it shows that there could be a $10,000 cost increase per home as it relates to tariffs. Now, when you think about who's likely to feel that the most, it probably won't be the large single family product. They've got a lot of scale, they've got a lot of leverage, and they've had success in pushing back against their suppliers. I think you're more likely to see the pinch among smaller private home builders who just don't have that scale and ability to push back. So to this point, it hasn't had a big impact, But I think that's something you need to watch as we.

[C]

Look into next year. Are they still building like crazy down there in Florida and Texas and Tennessee and.

[G]

Those kinds of states? Yeah, that's a good question. I mean, during the pandemic, that's where a lot of people were flocking to. There was a lot of construction down there. If you look at inventory levels now in the south, they're actually at the highest level on record. So that's where we're seeing a lot of the weakness. In the new home market, there's so much inventory. Builders have had to get increasingly aggressive on prices, you know, to move inventory, a lot of incentives in the market, a lot of base price reductions. So that's really where we've seen the weakness. And if you contrast that to some of the stronger markets, it's really a tale of a couple of regions. You have the Midwest and the Northeast, which tend not to be boom markets. We didn't see the same type of inventory growth there, and you're seeing a lot more price stability. On the other hand, you mentioned the south, but you also have the west, where there was a lot of inventory growth, and we're.

[C]

Seeing similar pricing pressure. So is there still a housing shortage in this country and if so, how.

[G]

Does it right itself? Yeah, another good question and one that's frequently debated. Just take a step back. You'll hear estimates of anywhere to a million to 5 million unit housing shortage. But I think it's a more complex answer in that the shortage, so called shortage is probably more at lower price points. So there's a mismatch between where there's theoretically demand, which would be at lower price points, and what's available out there in the market. So it's really affordability problem that's holding things back. How do, how do we get, I mean the government has talked of about all sorts of things in order to boost production and help builders to build more homes at reasonable prices. Whether it's, you know, dangling carrots in front of local municipalities to get them to reduce their regulations, you know, whether it's trying to knock down the price of building materials. There's a lot of different things, but I don't really think that there's necessarily any one single silver bullet that's going to solve this problem. I think at the end of the day you have home prices that are up more than 50% since 2019. And I think we need to let kind of the basic laws of supply and demand kind of take course in.

[B]

Order to write that. This is the Bloomberg Intelligence podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live every Every weekday on YouTube and always.

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