Kelly Evans (3:15)

What would be some of the caveats? You know we're at a cocktail party tonight or you're talking to your financial advisor, you hear this number. Are there any asterisks we need to keep in mind?

Young Yoo (3:26)

Well, there are a few asterisks. Some. There were some one time gains for tax reasons. For example, I think Meta reported that some of the investment gains that were unrealized from a lot of the mega cap companies, investments in companies like Anthropic and other AI companies, those also juiced up the earnings growth for the quarter as well for Q1. But if you just strip those out, you still see very strong earnings growth. You see strong revenue growth. So when, if there's a question about earnings, look at the revenues. Revenues have grown double digits on a year over year basis. So that tells you that there is a lot of strength and momentum that underpins these numbers. 25% may be a bit overstated if you strip some of these things away, but it's still quite strong.

Kelly Evans (4:08)

Let me go back to what you said quickly. Just on those caveats about earnings growth. When we talk about non operating gains, do you if we were to strip that out, do you know what the growth rate would. Would really kind of the core growth rate would really be.

Young Yoo (4:20)

It's probably closer to 20. I don't have that number calculated in front of you.

Kelly Evans (4:23)

It's still strong.

Young Yoo (4:23)

It's still quite strong. Pretty much what you expect to see for Q2, Q3 and Q4.

Kelly Evans (4:29)

It is that we were speaking with Ed Yardeni yesterday and it's funny because at the time he was saying 18% Q1 he was tracking, Deutsche Bank's got almost 25. LSEG is at 28%. So any of those numbers are, you know, hitting it out of the park. And yet, and Ed mentioned that he expects 20% earnings growth in the quarters to come. I mean, is the market there?

Young Yoo (4:51)

The market is pricing some of that in. Of course, there's still a question mark whether or not that's going to be realized. But what we have now is just an extraordinarily strong capex and business spending cycle. The mantra for years about tech companies and other large cap companies is they're just sitting on a pile of cash and not investing it. Cash is at historic levels coming into the cycle and right now they're investing that cash. It's coming out almost like a gusher. And you're seeing that just flow through the economy and one company's spending is another company's revenue. So you're seeing that multiplier effect among this business spending that's really giving a lot of strength to the economy here.

Kelly Evans (5:29)

What else tells you, because a little bit later on we're going to talk about the consumer is a little bit of a softer area here. I mean, thank God for what's going on in the other parts of the economy because they're not, I think, ready to do the heavy lifting right now. Maybe that will come. What else tells you that there still could be, as you're saying, a lot of fuel to this cycle?

Young Yoo (5:46)

Well, that's right. The consumers aren't going to do the heavy lifting, but that's okay. The reason that there's still a lot of fuel for this cycle is because the data that we're seeing in terms of, say, durable goods orders, new orders, are actually accelerating. They're not just staying at high levels, but they're accelerating. The capex projections by some of the hyperscalers, they're not just staying at the high levels they were a quarter or two ago. They're actually accelerating. So a lot of this cash is getting deployed, invested, and that's really allowing the growth to permeate throughout the economy. But that's. There's some dispersion there because the consumer sector is not seeing the same type of earnings revisions. If we look at Q2 earnings revisions, consumer staples, consumer discretionary, they were on the weekend actually, but tech was still very strong and all this spending and infrastructure is still quite strong.

Kelly Evans (6:33)

I don't know if we can put up that chart again. And it's a bit, you know, a lot to take in, so. Or if you're listening. I can just simply describe it which is we did see growth rates for earnings this strong back in the late 90s. Young you and we all know that that was a classic boom bust cycle where we had the dot com bubble and then we had the dot com crash. Is it concomitant with these kinds of cycles that earnings growth this strong is going to propel the market higher until the point at which both of them correct sharply?

Young Yoo (7:02)

That's right. When you get a capex cycle like we have now in business spending cycle, it doesn't tend to stall out because of consumer spending. It only stalls out when the momentum behind the strength in CapEx and this willingness and desire to invest and spend starts to stall out. But the difference with the late 90s, if you just look at say the proportion of spending as a percentage of market cap or asset values, it might look reasonably similar. But the difference is where the coming from in the late 90s that money was coming from an inflated IPO market where a lot of companies were burning through cash in an unsustainable way. Now that spending is coming from cash on the balance sheets. Yes, there's some accessing of debt and equity markets, but it's a lot of cash, it's a lot of operating earnings and it's a big driver that we think can continue for the quarters to come.

Kelly Evans (7:52)

All right, we'll leave it there. But I just want to ask you with that in mind. You know we were watching the other day the S and p pierced through 7,300. It felt like just a couple of Sessions after crossing 7,000 for the first time or, or maybe going back to that level after the correction we went through. But what are, what's next? I mean could it 7,500, 8,000 yong you what now seems doable for you based on the earnings growth we're talking about?

Young Yoo (8:16)

Well, for looking at 20% earnings growth for the next three quarters and we start looking into 2027 as well. In the back half of the year the market's gonna price on 2027 earnings which we think should still hold up and be strong as well. We don't think this capex cycle is coming to an end anytime soon. So we do still expect gains from here. Could we see another 5 to 10% gains in the S&P 500 before the year's out? Yeah, that's probably our base case here. Still some choppiness to come. We don't think it's gonna be a one way market for the rest of the year. But the underlying strength in business spending capital expenditures is not something that's easily derailed here. So we're pretty confident about the markets.

Kelly Evans (8:55)

All right, Young Yoo, thanks very much for making the time today. Appreciate it.

Dean Mackey (8:58)

Thank you.

Kelly Evans (8:58)

Yung Yuma with pnc. Speaking of earnings, it's a mixed bag for the industrial stocks overall posting 6% earnings growth. But while Caterpillar crushed it whirlpool in its report getting crushed today by the Iran war, the company said they're seeing a recession level industry Decline. Here is CEO Mark Bitzer on their earnings call.

David McGregor (9:18)

The US appliance industry demand declined 7.4%

Mark Bitzer (9:22)

in the first quarter with margin being down 10%. This level of industry decline is similar

David McGregor (9:29)

to what we have observed during the

Mark Bitzer (9:30)

global financial crisis and even higher than

Dean Mackey (9:33)

during other recessionary periods.

Kelly Evans (9:36)

And those shares are down more than 13% today. Our next guest says they might need to seek a strategic partner. David McGregor is a senior analyst at Longbow. David, it's great to have you here and you still have a buy rating on the stock. As I understand it, you're, you know, throwing in the towel. But when they say that the industry is going through a period as bad as the financial crisis, what do they mean by quote unquote, the industry, the consumer appliance space,

David McGregor (10:01)

the overall industry as defined by consumer appliance shipments. So this would exclude sort of commercial appliances like laundromats and things like that, but really on the residential side, and it includes sort of the core refrigerators and freezers and washers and dryers and cookers and dishwashers and the things you'd have in your kitch. The overall industry is more excited in that sound bit you just aired, was down 10% in the month of March exiting the quarter, which was down over 7%. So those are the kind of numbers we were seeing back in 070809 when the industry was down, you know, 7, 8, 9%. Those are big numbers. Those are big negative numbers as far as shipments go in the period since then. And so I think that's where it stands out. And I think therein lies the observation about consumer going through kind of a recessionary demand condition.

Kelly Evans (10:52)

And I'm trying to separate out demand side issues from supply side problems. You know, even if it's an increase in, you know, raw materials or something caused by the Iran war, it sounds like what the company or the industry is saying in this case is that households are pulling back on making these big ticket purchases. And maybe that's what you're saying we look at shares of lows in Home Depot, I mean recently at kind of multi year lows as well. So is this a, is this happening picking up Steam? Is this something that just happened out of the blue in March?

David McGregor (11:19)

Well, I think that had been going on for a while, particularly if you stand back and maybe away from appliances for a moment. Just think about consumer discretionary, big ticket. I mean that category has been weak for a while. It's not just appliances, it's lawnmowers. It's all sorts of things and nothing's really changed there. I think in the case of appliances, roughly about 60% of that annual volume is replacement demand. So it's refrigerators give out and you replace them. And the other 40% is the builder channel and discretionary. Now enough's been said and written about the builder channel. We've probably, we don't need to spend time on that now. But the discretionary really got hit hard by, you know, the, the war in Iran and the spike in energy prices and all the uncertainty on interest rates and tariffs and everything else and consumer confidence numbers tanked and, and that really took the discretionary purchase down with it.

Kelly Evans (12:05)

And Whirlpool shares, as we showed a second ago, are down more than 30% year to date. The company in many ways has been the poster child of all these different initiatives going back to the Obama administration with washing machine tariffs and all the rest. So they had tariffs last year. They have raw materials spiking on the Iran war this year. But you're saying this is just PL and simple consumer demand in the face of all these uncertainties. So what should the company do now?

David McGregor (12:29)

It doesn't look like there's a turn coming here anytime soon. I mean, we certainly don't expect the builder channel to recover. They have a number one position to build a channel. If that eventually does play out, then they're an immediate beneficiary of it. But in the meantime it looks like it's going to be sort of a slow grind back. They are pushing through some pricing now. I think that with the most recent 232s, they're going to get some support on that. And the expectation is that that will create more level playing field competitively and that should help. North America is by far the largest part of their overall business. And so the street really tends to focus on North American performance. And there they've guided down to 4% margins this year. They're saying they'll exit the year at about a 6% margin. So they are expecting some kind of a recovery here over the next couple of years. There is a global consolidation going on here, which I think gets to the point of your question. And if you're going to be wrecked tariff barriers around the US Market, which is by far the most attractive appliance market in the world today, a lot of these import brands are going to be facing the decision of whether to buy or build. And, you know, our view is that Whirlpool is an irreplaceable package of assets and it would take one of those competitors anywhere from five to 10 years to. To replace that and to build it. And certainly with the shares trading where they are today, the buy option certainly is looking pretty attractive.

Kelly Evans (13:49)

Who would be a couple of those names? Either American names or I don't know if they're European, Asian manufacturers that might be a strategic partner for them.

David McGregor (14:00)

Yeah, I mean, there's, there's a global oligopoly that's developing around South Korean and Chinese manufacturers. And, and in all likelihood, it could be one of those. It could be. There's a couple of European names in the past. Bosch has come up as a name that has been part of that conversation. But, you know, a lot remains to be seen in terms of just how the whole tariff situation plays out. But we certainly look at this as an opportunity. You saw Electrolux partnered up with Medea from China. That was announced a couple of weeks back. I just think that's kind of laying the expectations for what eventually is coming Whirlpool's way.

Kelly Evans (14:36)

Yeah, I take note that the administration backed away from the Spirit bailout or strategic investment, because on some level, I think Whirlpool and all of these companies are trying to figure out if they're going to get a helping hand a la intel for ongoing struggles. And I'm probably pushing the case too far in Whirlpool's instance. But, you know, they are a name that. It's hard to imagine the Trump administration would want to see them tie up with a Chinese partner. Although perhaps they wouldn't mind. I don't know. It just seems like that would be. I couldn't imagine a very warm reaction from the White House for that.

David McGregor (15:11)

Oh, and in fact, back. Just going back a bit, but back in 2006, when Maytag came up for sale or there was a Chinese buyer, that created a lot of political fallout from that and the deal was eventually scuttled. There's a number of years later, but you could eventually see that kind of reaction here as well. So look there's a path forward for Whirlpool. I don't want to leave you with the impression that this is their only option. I mean, a little more level playing field competitively gives them a little more pricing power to have a commanding market share as far as the portfolio goes in the United States. And leveraging off that also contributes heavily to an earnings recovery. So there's a way to grind this back, but it is going to take a few years. And as the global market is consolidating, I don't think you can ignore the fact that this is probably one of the options that's being considered.

Kate Rooney (15:58)

Yeah.

Kelly Evans (15:59)

David, really appreciate you joining us. Thanks so much today. All the best, David McGregor from Longbow. Coming up, the K shaped economy. New numbers say it's getting worse. Speaking of the consumer, we'll have some details on that growing divergence. Plus, while the stock market is booming, the labor market is not. According to our next guest. How much of that is due to I will answer that question ahead of tomorrow's jobs report after the break.

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Kelly Evans (18:01)

Economy is getting more K shaped with high earners humming along while lower income households are lagging. Steve Liesman is here with those details.

Steve Liesman (18:09)

Steve hey Kelly. Yeah, two studies Looking at income disparities, one on wages, the other on gas spending show the K shaped economy growing bigger and wider. Or kier maybe the bank of America Institute finding wealthiest Americans enjoying much bigger wage gains than middle and lower income families on a consistent and growing basis. The report, drawn from actual bank account data and deposits for wages, found wage gains of 6% year on year for the highest income groups and just 1.5% for the lowest. B of A. Economist David Michael Tinsley says the gap could be related to bigger bonuses. Automation could also be undercutting the bargaining power of workers at the bottom end of the wage spectrum. On the spending side, the surge in gas prices hitting the poorest Americans hardest. As you might expect, the New York Fed finding it the wealthiest household, they paid more but kept their gas consumption the same. Low income families, they paid more but cut back on their gas consumption to make ends meet. They were hit harder in March than they were in the 2022 spike of energy prices related to the Russian invasion of Ukraine. Overall real incomes, those are the ones that adjust for inflation. They have been negative in four of the last six months. The two in a row now as inflation takes a bigger bite from paychecks. Meanwhile, Disney, Starbucks, gm, they say the consumer is just fine and looks healthy. But of course, you were just talking about Whirlpool saying that sales have fallen to recession levels and the head of Kraft Heinz saying consumers are, quote, literally running out of money towards the end of the month. So a real set of different pictures there from the corporate side, but the data seems to show that I guess it's what fortune favors the wealthy.

Kelly Evans (19:41)

Well, it's. And you don't want. It's one thing if you run out of money for a washing machine. It's another if you can't afford ketchup. So that's a pretty striking.

Steve Liesman (19:47)

Our CNBC Fed survey, Kelly, found that 80% of Americans, those we polled, a thousand Americans across the country, were doing one of a variety of five things to offset higher gas prices, including more debt. Getting rid of discretionary things, but some also getting rid of essentials.

Kelly Evans (20:05)

Essentials as well. Steve, stay right there. Let's bring in our next guest who has also been tracking a slowdown with consumers. Consumers. Dean Mackey is chief economist at point 72. Dean, listen, your work was contrarian in a bullish way when it, when the economy actually held up better than expected last year. So I don't like to see you taking a bit of a more cautious tilt on the consumer piece here. What do you See going on?

Dean Mackey (20:27)

Yeah. I think real consumer spending is clearly slowing. We've seen that over the past two quarters, and I do think it's related to what you're talking about. Real wage and salary income growth has slowed down markedly. It turned negative in the first quarter, and we think that's going to be negative for the first half of the year as a whole, primarily because of that surge in inflation that we're seeing.

Kelly Evans (20:46)

You know, Dean, this would be such a different economy if not for AI, if it hadn't come on the scene, you know, going back to 2022. But even in the last six months or so, it sounds like. Would you say from the top level data that it really is doing the heavy work of carrying this expansion forward?

Dean Mackey (21:03)

Well, if we look at the different sectors, the only thing that's not slowing in the economy right now is the categories that are related to AI. So equipment spending, intellectual property, product spending. One thing I'd note though, is that a lot of the equipment spending is on imported goods. So it's not necessarily translating directly into real GDP growth in a significant way. Some of it is, but that's one reason why we have seen real GDP growth slow to only 1.2% annualized over the last two quarters, in spite of the fact that AI spending is quite strong.

Steve Liesman (21:39)

I'm just wondering, Kelly, how all this shakes out, because my comment of Fortune favors the wealthy is not as glib as it may sound in that the spending from the wealth and the wealth effects and the wealthy who are getting these wage gains could be enough to paper over these other issues we're talking about. You care on a human level about what's happening to low income Americans, but whether and how much you care on a macro level, beyond those individual stocks, for example, and I just mean on an economic not.

Kelly Evans (22:11)

But that's actually why Dean's observations jumped out to me. It'd be one thing if we said, Steve, your survey is picking this up, but the consumption data is fine. But it's another thing when he's saying the consumption data is fine.

Steve Liesman (22:21)

Well, what I think Dean's talking about, Dean, you had this decline from 1.9to 1.6 on consumer spending in the GDP accounts. That's not terrible. It's not 2%, but it's not falling off the cliff, right?

Evan Sohn (22:36)

Yeah.

Dean Mackey (22:36)

I mean, I'd characterize it more as we had been running at a 2.5, 3, 3.5% consumer spending growth rate. Now we're running in the 1 1/2 to 2% range. And I think that's going to slow further in the second quarter. So it is having an effect. We're not contracting, it's not recessionary, but it is a big slowdown from where we've been.

Steve Liesman (22:55)

If you look at now Dean complicated it by being accurate, which I want to uncomplicate by being a little inaccurate. And I'll explain how. Now if you look at just the contribution of information processing equipment and add an intellectual property, they combined were 2% or sorry, 1.5% of the 2% GDP.

David McGregor (23:16)

Wow.

Steve Liesman (23:17)

Where Dean is being accurate is you also want to subtract the portion of that that comes from imports because that does subtract from it.

Kelly Evans (23:24)

But the point still remains.

Steve Liesman (23:25)

The point is really important, Kelly, that you bring up, which is whether or not not what's happening with AI is papering over not just not growth, but maybe a deterioration in other parts of the economy. And Dean, that's the part to worry

Kelly Evans (23:38)

about if it's true and it goes. I think Steve, you and I were talking about this a while ago as well, how there should almost be one interest rate for a high investment and one for the rest of the economy, but that gets or you know, Jim Paulson has called this the boom bust or he has some term like that for the economy. So Dean, how do you categorize on a broader level what's happening here, especially how the Fed should think about it? It.

Dean Mackey (23:58)

Well, I think certainly the AI is helping economic growth and helping us avert an even sharper slowdown. On the other hand, it is hurting on the inflation side, I should say so. Information processing equipment prices in the PC Price Index rose 8.6% year on year in the most recent data. So this boom is translating into higher inflation as well. So the Fed can't take one without the other. We're running a 3.2% core PC inflation. We didn't see that once in the 30 years prior to Covid.

Kelly Evans (24:32)

Wow.

Steve Liesman (24:33)

This is the opposite of what Kevin Warsh is thinking. For now, the productivity boom lowest. You have the Federal government borrowing 1.2 trillion. You've got a trillion being spent by AI. That demand for capital along with what Dean is talking about, which is the upward push on prices from the demand for all the stuff is creating inflation, not getting rid of it until the productivity, God willing, hits the economy.

Kelly Evans (25:00)

Dean, quickly, before you go, what does this mean for the labor market?

Dean Mackey (25:04)

Labor market's holding up okay. You know, one of the things reasons for that is that the break even level of job growth is not much above zero at this point.

Kelly Evans (25:12)

Wow.

Dean Mackey (25:13)

So even modest job growth keeps the unemployment rate steady. So it's not as though, you know, households are really feeling it on the nominal wage and salary side. It's just that the surge in inflation is making their real income growth turn

Kelly Evans (25:25)

negative 3.2% percent on the core, and we didn't see that in the 30 years prior to now. It's I, I think I'm settling the case for those who said inflation would remain sticky post Covid, I was cut in the regression camp, but I think the sticky camp is winning.

Steve Liesman (25:36)

I'm all for looking through Just get through it before you look through it, right? I mean, you don't want to preemptively

Kelly Evans (25:42)

look through something that's a, that's a bumper sticker. Get through it.

Steve Liesman (25:45)

Get through before you look through it.

Kelly Evans (25:47)

Dean, thank you very much. Dean Mackey with point 72. Steve, thank you as well. Speaking of K shaped Coming up, a divide in the restaurant space. Today, McDonald's was in the green after earnings were better than expected. It's selling a little bit now, but Shake Shack's big earnings miss has those shares on pace for their worst day on record and their lowest level in more than two years. Those details next.

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Kelly Evans (28:13)

Welcome back. All of those positive earnings stats notwithstanding, the market is tilting towards session lows right now. Worst performer is the Russell, down 1.8%. But we also have the Dow down 2/3 of a percent. 410 for the S&P. 210 for the NASDAQ. The S and P and Nasdaq hitting a record high earlier today. And check out Shake shack plunging nearly 30% for its worst day on record after a big earnings miss. While McDonald's had an initial gain after their earnings beat, they're fractionally lower now. We were just talking about the K shaped economy. Is this emblematic of a growing consumer divide? Let's ask Brandon Gomez. And what did we. So you've been tracking all of these restaurant results. Are you picking up on it? It's is this consumer divide or is this operational problem?

Brandon Gomez (28:53)

Yeah, I mean it's a nuanced conversation because every company is handling it different. We kicked it off with Domino's. They said there was going to be a lot of headwinds ahead. And so we really are talking about the consumer divide here. Right. But although on the surface they are selling the same products, we're talking about McDonald's and Shake Shack here. The economics underneath are very different. So we're going to unwrap it. Look, a six or eight dollar McDonald's value meal built around pricing speed and scale. That positioning tends to hold even when consumers get more selective, which is why even a modest beat sat investors. Like today, Shake Shack is a different story. You're closer to 15 or $20 lunch occasions, more discretionary premium, and more exposure when consumers start pulling back. Now management pointed out on the call to a roughly $12 base meal as value, but the brand still sits higher on the optionality curve. Now that shows in how they're trading today. Right? Shake Shack is still valued like a growth company. So when growth slows, the reaction gets amplified, as you saw today. Now on the calls, McDonald's acknowledged the macro background isn't impro, saying it may be getting a little bit worse. Shares slipped on that along with softer April comps that were expected. Shake Shack also called out some softness in late March and pointed to weather which it flagged higher beef costs as well, though said inflation is easing and it's finding offsets elsewhere in the supply chain. Now, the big question, Kelly, is whether consumers are actually pulling back and trading down or if we can read more into into what the mix is here.

Kelly Evans (30:18)

Is there also an America International tilt here? Because I thought chat called out some weak tourism and it was kind of maybe relying on that customer weakness.

Brandon Gomez (30:27)

McDonald's does point to weather there as well. Again, we know sort of how these weather headwinds go. We'll see those in retrospect, especially as the quarters continue broadly, would you say, so far.

Kate Rooney (30:35)

Brandon?

Kelly Evans (30:35)

What, what like if forgetting all of these narratives, what would you say the narrative is from the restaurant earnings today? Are they picking up on a divide, a slowdown like we were just hearing on the consumer front or operationally they're finding ways to, to kind of get through this.

Brandon Gomez (30:48)

Yeah. So it's going to depend. Again, coming you hear from DoorDash, right. DoorDash even today, which you may not even consider as a part of this group or strong, but what they're saying is super strong and they're actually mitigating a lot of the fuel costs for their delivery drivers. And so there's companies like that early on in the quarter when we were talking about Domino's, that was brought up as an issue for Domino's because of delivery pizza. We don't think about how those things come into the play there. But again, the consumer is still spending. When you look at Starbucks and you look at Chipotle, which was very much an inline quarter. And so it really is sort of this specific demographic based on the company. But again, we're sort of seeing how it's playing out in real time. It seems like they're starting to trade down as opposed to trading up.

Kelly Evans (31:22)

That's a great point, Brandon. Thank you. Appreciate it. Brandon Gomez, let's get back to the broader market taking a leg lower. We're getting some news on the Iran war. Eamon Jabers has the story. Eamon.

Eamon Jabers (31:31)

Yeah, Kelly, this is a report from the Wall Street Journal just in the past couple of moments. The Journal reporting that Saudi Arabia and Kuwait have lifted restrictions on US Military access to bases and airspace in the region. And that would appear to clear the way now for the United States to go back to that so called Project Freedom effort to maintain a coordination for trips through the Strait of Hormuz for commercial shipping. Remember, there was some reporting yesterday that the United States President Trump backed off of that program in response to Saudi pressure about the overall effort and the Saudi lockdown of its bases in the region was designed to force the US Hand. Now we're seeing this report from the Wall Street Journal that says that the Saudis have agreed to reallow those access to the military bases and airspace in the region and that that would then clear the way for the president to go back to what he was doing earlier in the week, which was this Project Freedom effort to open up the straits. So in terms of the Saudi thinking on this and the White House response, we're going to wait for a little bit more detail, but it does appear to be relatively significant development here in a week that's already seen a lot of them.

Kelly Evans (32:48)

Kelly Although, Eamon, to me this reads like a little bit of progress. So it's interesting. I don't know if we should even tie it to the, you know, to the price of oil markets moving lower. You know, this would seem supportive of a narrative in which we're maybe moving toward a conclusion on this front.

Eamon Jabers (33:05)

It certainly could be seen that way.

Steve Liesman (33:07)

Yeah.

Eamon Jabers (33:08)

I mean, you could look at this as evidence that there's a deal taking place behind closed doors and the Saudis don't want to be on the wrong side of the US when that, when that deal actually happens.

Kelly Evans (33:17)

All right. Nevertheless, we've seen oil prices back into positive territory, meaning moving higher after initially declining this morning. Eamonn, thanks for now. We appreciate it. Aiming jabbers. Let's get to Seema Modi now for the CNBC news update.

Seema Modi (33:30)

Seema Hi, Kelly. Here's what we're watching at this hour. Florida is reportedly in talks with the Trump administration to close the immigration detention center known as Alligator Alcatraz. The New York Times reports talks are in preliminary stages, but come as the facility has cost the state hundreds of millions of dollars to operate. The center has become a flashpoint in the administration's immigration enforcement since it opened last year. In other news, the Netherlands Health Institute says it has tested three people who were medically evacuated yesterday from from a cruise ship in West Africa and two came up negative for hantavirus. While the third is still being analyzed, the World Health Organization says dozens of people left the ship before they knew about the outbreak and countries worldwide are trying to track those passengers. Three people have died from the virus on board. And White House Press Secretary Carolyn Levitt announcing the birth of her second child today. Viviana, who was born on May 1. Levitt said she is, quote, perfect and has healthy. In a post on social media wishing her the best.

Kelly Evans (34:26)

Kelly back to you pretty name. Viviana Sima. Thank you very much. Coming up, we're seeing a productivity cycle play out in real time. That's according to Revealio Labs. Evan Stone, I'll tell you what it means for workers and for the economy ahead of tomorrow's jobs report. That's next. Challenger, Gray and Christmas reporting a 38% surge in job cuts in April from the month before. More than 80 layoffs in fact, as cuts in tech continue to mount. Meantime, new data from Revelio Labs shows the economy added just 66,000 jobs last month, although that actually might be very strong. According to Dean Mackey, job openings fell yet again, extending a multi year decline. Evan Sohn is managing director at Revelio Labs. He joins me here. And I don't know if you caught this. First of all welcome. But we spoke with Dean just a few moments ago who said we like we might have break even basically is acceptable for job growth. Meaning even if we, we had 5,000 jobs added, that might be enough to keep this economy going right now.

Evan Sohn (35:29)

So first of all, thank you so much for having me. It's great to be live. Live actually in studio.

Kate Rooney (35:34)

Studio.

Evan Sohn (35:35)

It's been, it's been pretty wild. It's been been a long time. And yeah, you know, look, anytime it's positive is always good. We're not getting back to this 150,000amonth number. We're showing 66,000 so that's still a positive. I think it's how we're showing the 66,000 that's actually interesting. The growth is coming from healthcare, finance and construction with real serious down numbers in retail and hospitality logistics.

Kelly Evans (36:01)

We always hear that it's basically just healthcare and government jobs kind of keeping this all going. Is there some truth to that?

Evan Sohn (36:07)

So we're finally seeing construction. I think that's really coming from the AI boom.

Kelly Evans (36:11)

True.

Evan Sohn (36:12)

And I think that's really interesting to see. What's happening is that companies are investing lots of money into AI. And what's that doing? That's really chip purchasing purchases. That's really consulting services. And we could talk about that too. And then the construction side of that, of those data centers that need to get built.

Kelly Evans (36:26)

Are we seeing a consulting jobs boom because of AI?

Evan Sohn (36:28)

Yeah, we actually saw a growth of 50% year over year growth in terms of job postings for IT consulting.

Kelly Evans (36:35)

Wow.

Evan Sohn (36:35)

So if you broke out it from like sort of in house it to IT consulting and IT consulting and professional services and all those numbers are really on the rise in terms of companies staffing up to handle those AI products projects reminds me a lot, Kelly, of like the Y2K days where companies are just beefing up outside services to handle that overall development that need to happen to get companies ready for Y2K.

Kelly Evans (36:58)

It's fascinating. If you're looking for a job viewers, you do list some of the neat companies who are literally involved in kind of posting these. These job openings. So there are a variety of things going on here. What else do you pick up on overall is happening in the labor market?

Evan Sohn (37:12)

So first, I think the sound bite for the month really is a market boom without a job boom. We've seen that before in the recovery sort of post 2008. We really saw the market recover without the job recover. But we're seeing that happen today too. The market's doing incredibly well, yet we're not really seeing the jobs there. The other number that when you look at the jolt number that was really surprising for us is that hiring was up. So hiring is actually pre pandemic levels. So we're seeing a hiring up, which is why we're showing 66,000 job. But the quit rate is actually lower. The quit rate. So we've seen this bifurcation between, between people, companies that are hiring but no one's quitting. That really creates a lot of stress in the overall market itself. You know, we rely on people to quit and leave and get a better job, a better paying job for whatever reason. And that opens up a new slot for someone else to come in if that quit rate is low.

Mark Bitzer (38:06)

Right.

Evan Sohn (38:06)

All of a sudden now there's really creating that actual tension and the hiring becomes incredibly purposeful.

Kelly Evans (38:11)

The job market sounds to me kind of like the housing market, which is to say a little bit frozen. And sometimes I wonder if they're actually related. You know, if you're not going to leave your house because you have a 2% mortgage, maybe there's no reason to change your job either.

Evan Sohn (38:21)

That's right. That's right. And frozen's probably the right word to use. Right. We have this really serious again, if we the job markets wants to see dynamicism, right. They want to see people moving around when it's not moving. That's really what causes issues. And the wages actually went down a little bit in certain jobs. So you expect to see, gee, if there's a tight market and no one wants to quit, you might want to start seeing wages come up. But I think people are now are just very reticent to leave a job. And so maybe taking a job at a less pay.

Kelly Evans (38:50)

But for more stability we have to leave it there. But usually you pre preview the jobs report for us. Can you give us a little stone preview as well? This is not your, this is, this is aira. Some common, some common ground there. But yeah, it would be fun to

Evan Sohn (39:02)

know what so first of all, thank you so much to CNBC has been our longtime partner in the in the Irish Zone conference named after my brother. This is our 31st year doing it.

Kelly Evans (39:11)

And when is it? Monday?

Evan Sohn (39:12)

It's Tuesday. Tuesday all day. It's, it's incredible. We have an incredible lineup or Orlando Bloom is there and David Einhorn, Larry Robbins, Gavin Baker, Jonathan Ross. Incredible programs, incredible sponsorships.

Kelly Evans (39:28)

We'll have a lot more to talk about. Yes. In the next coming days. But I love we give a jobs preview and maybe a sewn preview as well. Some of those great ideas that always come from that conference. Evan, thanks for making the time.

Evan Sohn (39:37)

Thanks so much, Kelly.

Kelly Evans (39:38)

Appreciate it. Evan Sohn from Avelio Labs. Coming up, anthropic growing 8,000% in the first quarter, but that's left executives scrambling to keep up. Those details are next. OpenAI reportedly missing those internal revenue and user targets. Meantime, rival Anthropic having the opposite problem, blowing past growth expectations. While it may be a good problem to have, it is creating challenges for their executives. Kate Rooney has more in today's tech chat.

Kate Rooney (40:10)

Kate hi Kelly. So we did hear for the first time just how fast Anthropic is growing. And it was apparently a lot faster than the company actually expected. Here's how CEO Dario Amadei put it yesterday at their cloud code, I should say, developer conference in San Francisco in

Kelly Evans (40:28)

the first quarter of this year.

Evan Sohn (40:30)

We saw if you were to annualize

Kelly Evans (40:33)

it 80x growth per year. That is the reason we have had difficulties with compute.

Evan Sohn (40:38)

Right. We've planned for anything from it only

Kelly Evans (40:40)

grows a little to it grows 10x.

Evan Sohn (40:43)

And yet we saw 80x.

Kate Rooney (40:46)

So Kelly Amade called it exponential growth. He said that is one reason investors have flocked to the company. We did see some investors at the conference yesterday. He also said that is what dry is what's driving this scramble that we're seeing for compute. The CEO highlighted Anthropic's new deal with SpaceX that came out yesterday. It's now called SpaceX AI as they're calling it. Anthropic will, they say, use all of the capacity at the data center they have in Memphis, Tennessee. It is the latest of a string of compute deals that have happened recently. Anthropic teamed up with Amazon and Google in the last couple of weeks for a combined 10 gigawatts of capacity. Those also came with a 25 billion and $40 billion investment, respectively. Amade says, quote, we are going to acquire as much compute as we can, which could bode well for the hyperscalers. Kelly, they do have one big customer out there.

Kelly Evans (41:33)

All right, good problems to have. Kate, thank you very much. Appreciate it.

Kate Rooney (41:37)

Thanks, Kate.

Kelly Evans (41:37)

Kate rooney, Coming up, Halo is one of the newest acronyms on Wall street. But it's not just investors looking to rotate into hard assets with low obsolescence. Job seekers are doing the same thing, boosting this mystery chart by 30% over the past three months. There's no way anyone is going to get this. We're going to reveal the name and talk to the CEO. Send me your guest at Kelly cnbc. We'll be right back after.

Kate Rooney (42:18)

Welcome back.

Kelly Evans (42:18)

We are at session lows across the board after record highs earlier on for the S and P&NASDAQ. The Wall Street Journal reporting the Trump administration is looking to restart its mission in the Strait of Hormuz as early as this week. That's got the dow down about 3/4 of a percent right now. WTI green 1%. Apple also hitting its first record high since December and it's up 5 out of the last 6 days for a 7% gain in that time. It's also on track for a seventh straight week of gains which is its longest stretch in a couple of years since December of 23. Speaking of tech, software stocks are also getting a boost from that blowout guidance from Datadog this morning. Its shares are back at a six month high on pace for their second best day on record. And remember, Katie Stockton told us here on Tuesday, Tuesday that the software sector is more compelling as a turnaround and newfound source of leadership. And IGV ETF is now 25% off of its recent low. Elsewhere, shares of Universal Technical Institute are mystery chart from earlier sliding 8% today after reporting a slight revenue miss and margin pressures from investments in the second quarter. But UTI also posted 14% year on year growth in new student start charts and plans to launch two campuses and 12 new programs this year. That's helping to Push shares up 30% since January. Let's bring in UTI CEO Jerome Grant. Jerome, welcome and explain how this, how your campus works.

Mark Bitzer (43:43)

Ah, great. Thank you for having me. It's wonderful to be on the show. Yeah, it's, we're in a, we're in a really big sea change right now in in terms of the job market, I think there's a structural change moving from you know, AI driven to hands on courses. And so what we're seeing from it is double digit growth in our, in, in our enrollments. As more people are, are saying maybe I, I should go into the trades, which is a great trend to be seeing out there in the market because the supply and demand curve in this area is, is continues to be pretty far out of whack.

Kelly Evans (44:22)

I know a lot of people say the trades are AI proof, but a lot of people are also using AI to help with things rang a light bulb to checking on the dishwasher, to, you know, figuring out, you know, what to do with other problems around the house that they previously might have called someone for help with.

Mark Bitzer (44:39)

Absolutely. I mean we, we wouldn't call ourselves AI proof, we call ourselves AI enabled. Is that the AI technologies and the diagnostics in the auto market, in the healthcare markets. We have 17 healthcare campuses around the country and the, the AI is actually really embedded in everything we do. And so what we're doing is we're training the workforce for that AI enabled skill trades market.

Kelly Evans (45:03)

Right. And so you mentioned a couple of areas in particular you say, you know, H vac, aviation, electrical. I mean you mentioned autos and healthcare. So how strong is demand and where in particular is, you know, are you looking to kind of fill those openings right now?

Mark Bitzer (45:17)

You touched on three, three of the biggest ones. It's interesting. Your last, your last segment on anthropic is one of the biggest demands we're seeing right now is from manufacturers who are looking to build data centers, to build warehouses, to, to build these sorts of things. And what they can't find is they can' H vac techs to put their air conditioning in, they can't find welders to build their buildings and that's slowing their progress. And that's exactly where we live. And so we're leaning in quite heavily to continuing to drive enrollment in those highly populated areas between UTI and Concord.

Kelly Evans (45:54)

You've got 34 campuses in eight or nine states. How much do you think your grand growth could be helped by the demand that you're getting from the AI Boom?

Mark Bitzer (46:05)

Well, we've got a plan in place to build between two and five campuses a year now for the next five years to start 20 new programs across our two divisions also over the next five years. And the interesting thing is that at the end of that five year period, we will not have made a dent in the supply and demand problem in the country. And so there is a sort of endless demand that's building up in this space that we're working as hard as we can with the resources we have to try to satisfy.

Kelly Evans (46:39)

Would you ever partner directly with some of the major tech companies?

Mark Bitzer (46:42)

Oh, absolutely. One of the hallmark features of Universal Technical Institute is industry alignment. We have 34 manufacturer partners. We run Porsche's training centers, Mercedes training centers and things along those lines. We've done a partnership with Heartland Dental. We have acute demand in the, in the, excuse me, in the dental space to build co branded Heartland and Concord campuses. And so, you know, not only would we, but we're already in active conversations with some of these manufacturers and employers to think about how we might be able to solve the problem in a more B2B area as opposed to, you know, just opening up campuses around the country.

Kelly Evans (47:22)

And finally, what kind of salaries would people working in these fields make and after how long going through when you your programs?

Mark Bitzer (47:29)

You know, Kelly, this is one of the big surprises out there that I think, you know, has longstanding sort of stigma that the skilled collared worker is not earning money. Whereas you might see welders that are starting at 30 to $50 an hour, auto technicians 25 to $30 an hour. And three years into their job they're making, you know, six figure salaries that are, that are out there in the market. This is actually where the trend is leading. Right. We're spending a lot of time just trying to get people to understand that this all exists, that these are stable jobs and growing and they pay really, really well.

Kelly Evans (48:08)

Right. I think they're waking up to that fact as we see how strong demand is. Jerome, thanks very much. Jerome grant, Universal Technical Institute that's it for us, but stay tuned for a special BI Coastal edition of Power Lunch right after this break. You've been listening to the the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.

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