Odd Lots: Lots More on the Growing Risks to the US Labor Market
Bloomberg, Hosted by Joe Weisenthal and Tracy Alloway
Release Date: February 28, 2025

Introduction

In this episode of Odd Lots, hosts Joe Weisenthal and Tracy Alloway delve deep into the burgeoning risks facing the US labor market. Joined by John Turek, founder and CEO of JST Advisors, the discussion navigates through the complexities of economic slowdown indicators, the interplay between inflation and federal policies, and the imminent impact of new tariffs on the economy.

Economic Indicators and Signs of Slowdown

The conversation kicks off with an observation from Joe Weisenthal about the current economic landscape:

"I feel like we are in a moment where actually there just aren't really many people talking about the economy because we're either so transfixed by the goings on in Washington or certain big tech stories like AI that we're in a period where there is this lull of like just the meat and potatoes of like what's happening with initial claims, what's happening with housing starts, what's happening with the jobs report."
(02:28)

Key Points:

• Slowing Economic Activity: Both hosts note a noticeable slowdown in traditional economic discussions, overshadowed by political and technological narratives.

• Inflation Concerns: Tracy Alloway highlights signs of rising inflation, questioning the Federal Reserve's shifting focus:

  "There's also signs of inflation picking back up. And so that kind of raises the question about what's the Fed's reaction function here."
  (03:35)

• Yield Curve Dynamics: The episode discusses the recent drop in 10-year Treasury yields from 4.65% on February 12th to 4.2886% by March 27th, indicating potential economic uncertainties.

  "The curve. It's a weird time. John Turek, what do you think what happened that we were at 4.65% on the 10 year February 12th and right now we're at 4.2886."
  (04:14)

Insights from John Turek on Policy Impulses and Market Reactions

John Turek provides a comprehensive analysis of the multifaceted policy impulses affecting the economy:

"The market has had to adjust to a policy impulse that seemed to be unambiguously positive to one that's more mixed."
(04:25)

Key Points:

• Mixed Policy Impulses: Initial optimism driven by policy changes has transitioned to uncertainty due to uneven implementation and broader scope, including unexpected tariffs.

• Inflation and Real Yields: Despite steady breakeven inflation rates, the real yields on 10-year Treasuries have declined, reflecting market adjustments to more complex economic signals.

• Economic Stability Concerns: Turek emphasizes that while the nominal GDP has remained stable, underlying economic activities like consumption and housing are showing uneven performances.

  "Consumption is much more uneven and very biased towards the high end. Outside of the AI Capex cycle, there really isn't that much Capex. And we've seen that housing has been in a lull now for a while and hiring isn't that high."
  (05:55)

Labor Market Vulnerabilities and Federal Policies

The discussion shifts to the labor market's current state and vulnerabilities introduced by federal employment cuts:

"I still kind of get the sense that it's pretty stable. But I would say that we feel a bit more vulnerable given that we don't have the cushion of a decent hiring rate."
(07:21)

Key Points:

• Stable Yet Vulnerable: While unemployment remains stable with respectable payroll growth, the low hiring rate makes the labor market more susceptible to shocks.
• Impact of Federal Employment Cuts: Recent federal job cuts, primarily in Washington D.C., contribute to increased vulnerability, as the labor market lacks a robust buffer to absorb these shocks.
• Potential for Rapid Unemployment Growth: Turek warns that even minor negative payroll impulses could lead to significant increases in unemployment rates due to the fragile hiring landscape.

Stock-Treasury Correlation and Market Hedging

Joe Weisenthal introduces an intriguing observation about the relationship between stocks and Treasuries:

"Are we potentially looking at signs that we might go back to something resembling more pre Covid patterns? And is that a sign that the price on the so called Fed put is not so far out of the money as it had been in recent years?"
(08:41)

Key Points:

• Reemerging Inverse Correlation: Historically, stocks and Treasuries moved inversely, providing a hedging mechanism. Post-COVID, this correlation had weakened, but recent trends suggest a possible return to pre-pandemic patterns.

• Fed Put Implications: The potential restoration of the inverse correlation may imply that the Fed's protective measures (Fed Put) are more reliable than previously anticipated.

• Uncertainty Remains: Turek cautions that while trends are emerging, the full implications of tariff impacts and price-setting behaviors are still unfolding.

  "I think that what's different to me about this time versus Trump 1.0 is the psychology of, of price setting is totally different."
  (09:36)

Impact of Tariffs on the US Economy

A significant portion of the discussion centers around the newly introduced tariffs and their immediate and long-term effects:

"The impact is like fairly mechanical. So, you know, it immediately has its effects impact. It immediately has its, you know, direct trade impact."
(16:45)

Key Points:

• Immediate Economic Effects: Tariffs are expected to have a direct and prompt impact on trade balances and corporate earnings.
• Corporate Response: A critical question is whether corporations will absorb the increased costs or pass them onto consumers through higher prices.
• Global Economic Absorption: Given the expansive scope of current tariffs compared to previous implementations (notably those targeting China), the global economy's ability to absorb these changes remains uncertain.
• Psychological and Planning Challenges: The unpredictability introduced by swift tariff implementations complicates business planning and could hinder economic growth.

Political Dynamics and Business Sentiments

The episode explores the intersection of political allegiance and business sentiments, particularly among the Republican base:

"There are a lot of clearly politically inclined respondents who are excited about the Trump administration and then say, but we're worried about trade."
(19:03)

Key Points:

• Republican Constituency: Many Republican small business owners and entrepreneurs express support for the Trump administration's broader policies but oppose specific measures like tariffs.
• Balancing Act: This creates a dynamic tension where political support does not always align with business interests, especially concerning trade policies.
• Future Surveys: Alloway anticipates that upcoming NFIB surveys will reflect this nuanced stance, showcasing support for Trump policies while expressing concerns over the economic impacts of tariffs.

Conclusion

As the episode wraps up, Joe and Tracy emphasize the precarious state of the US labor market amidst shifting economic indicators and policy changes. With tariffs set to take effect imminently, the full ramifications on corporate earnings, inflation, and overall economic growth remain to be seen. The conversation underscores the importance of monitoring both immediate mechanical impacts and the broader psychological effects on the economy.

"We just don't really know yet how price setters are going to internalize this past."
(11:24)

Final Thoughts and Production Credits

Odd Lots is produced by Carmen Rodriguez and Dashiell Bennett, with additional support from Moses Ondahm and Cale Brooks. The sound engineering is handled by Blake Maples, and Sage Bauman serves as the head of Bloomberg Podcasts. The hosts encourage listeners to rate, review, and subscribe to stay informed on the latest in finance, markets, and economics.

For a deeper dive into the topics discussed, subscribing to Bloomberg's Odd Lots podcast is highly recommended.