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Foreign.
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In the good old days, you knew where you were with the most important economic data on planet Earth. I'm old enough to Remember when the first Friday of the month, 1:30 London time, was proper. US jobs data o'. Clock. But people of the Internet, we live in interesting times. The latest data came out on Wednesday of all days. Today on the show what's actually going on and how this all matches up with the mystery of the great American consumer. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London where it has not rained for fully an hour at the time of recording. First time in ages. And I'm joined down the line all the way from over there in New York City by the iceman Robert Armstrong off of the Unhedged newsletter. Rob, I gather it is slightly warmer over there.
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We have broken the freezing point several times in the last couple of days. And now the snow, which is all the color of gray flannel now, is slowly starting to melt, revealing the horrors hidden within it. I will leave what those are to the imagination of our listeners.
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How delightful. Okay, so what was in these jobs numbers and why were they coming out on a Wednesday of all stupid days?
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It was delayed because there was a semi government shutdown for a couple of days. It was supposed to come out Friday, they came out Wednesday. Things are a bit of a mess over there in Washington. Let's just move on.
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Yeah, it's all a bit higgledy piggledy.
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Because the numbers themselves are complicated enough to read. Let's start with the headline which is 130,000 jobs added, which is the biggest single month total in more than a year.
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Yeah.
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And that is very good.
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And people have been expecting something more like 70,000.
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Yes. So it was a blowout on the headline and you know, the White House immediately went to bragging. And it will surprise you to know that their comments about the jobs report were not subtle. In other words, they did not peel back the onion very much. So let me start peeling it back. Big fact number one, as often happens with the first report of the year, there were a lot of backward facing revisions of old numbers. This is not.
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Yeah, that's kind of how it goes. Right?
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It's how it goes because actually trying to measure. They're not making mistakes over there at the Bureau of Labor Statistics. It's just hard to measure an economy in real time. And as more data comes in, they revise. And the revisions were mostly down so 2025 looks even worse than it looked at the time now. Right. So bad stuff happened last year. The lower. The lows are lower the highs in terms of job creation. The good months are not as good. That happened. That's point number one. But January was still very good. The second big asterisk to put by this excellent number, and it's only a partial asterisk. That's a hard word to say, asterisk. It is, yeah, it is. It's a hard one. Anyway, the second asterisk is that of the 130,000 net jobs added, 123,000 were in healthcare and social assistance.
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Yeah. What's going on with that, Katie?
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I do not know. You know, it could be a bit of a quirk. It could be there's annual contracts that hire people on for the new year. It could, you know, it could be, you know, in any case. But there was a ton of jobs created in these two areas. Now, a couple of things to say about that. Healthcare is a productive part of the economy. It's not like you say, oh, it's healthcare, so the economy isn't that good. It's good that people are getting hired, whatever they're doing, social assistance, you know, these helping professions, these are good things. The reason that's a bit bad news is because what you want to see is the cyclical parts of the economy growing. In other words, the parts of the economy that respond to economic expansion, you want those to be adding jobs. The last year has been terrible on that basis. So like cyclical private sector job creation has been at or even slightly below zero for a year. But the trend since October, and I don't know why October is the magic date, is slightly up. So if you take out government, take out health care, take out social care, look at cyclical sectors, there's a little upward movement since October, which is good news.
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So, yeah, the main, you know, the sort of key takeaway I guess from this is that the US jobs market is in, is in pretty good health. And the unemployment rate also fell just a tiny bit to like 4.3%. There is a school of thought, right, that, okay, last year, when you look at the revisions, was a little bit of a stinker and more of a stinker than we thought it was. But that. Think of it this way, right? So this was an argument laid out to me just the other day by a chap called Steve Cavarone, who's like an equities manager of Federated Hermes. He was in the uk. We met up, blah, blah. Anyway, he was saying, think about it this way. There was an awful lot of capex, right, capital expenditure announced last year. There was all sorts of companies saying, we're going to build a big plant here, we're going to build a big plant there, we're going to build a data center here, we're going to build a data center there. Those projects were all agreed and the financing was all lined up and they all announced how much money they were going to spend on them. But they didn't break ground until kind of now. So actually, you know, he was talking about the example of a place called Lancaster, Pennsylvania.
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I've been to Lancaster, I'm going to.
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Be straight up with you here. I've never heard of it. Anyway, tiny town, large Amish population, kind of not really known for anything else particularly. Along comes coreweave, a big tech company that despite my best efforts, I simply do not understand. But anyway, it's going to build a ginormous AI data center in Lancaster, Pennsylvania.
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Staffed only by women in bonnets.
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It's going to need an awful lot of women in bonnets, but there's going to, it's costing 6 billion bucks. Yeah, but think about it, right? You, you know, there's only so many women in bonnets in Lancaster, Pennsylvania. You're going to need to bring in a lot of construction workers. And to do that work, they're going to need to build a lot of roads and they're going to need a lot of houses to live in and they're going to need, you know, amenities and facilities and yada yada. And so there is this idea that when all of these data centers actually start happening, that's gonna be transformative for some parts of the US that have, you know, signed up to this whole thing. So I, you know, I think maybe Steve's not wrong, maybe that we're just, we're just about to tip over into that period where a lot of this job creation actually starts happening and that the US jobs market just really takes off from here.
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Katie, if you squint aggressively enough, you.
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Can take my varifocals off.
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Yeah, you can see this in the data. So there were 30,000 construction jobs added in January and construction, which has not had an easy time because our housing market and even our non residential real estate market has been very slow here in this country. Two of the last three months we've seen positive ads in, in construction. So that is a good sign alongside, by the way, one of my favorite indicators of cyclical activity in the jobs report is the temporary help line because like you don't hire temps when business is bad and temporary help is perking up alongside. Perking up alongside construction now. So I dug down a little bit on these construction numbers. Now we're getting really geeky here. And to our listeners who are not geeks, sorry.
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I promise it won't take long.
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The subcategory of construction jobs in the report that is growing is something called non residential specialty trade contractors.
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Oh my lord, this really is nerdy. Yeah.
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These are specialized firms performing specific construction activities such as electrical work, plumbing, painting and concrete installation, primarily on commercial and industrial projects. That line has been jumping up in the last two or three, four months has been coming up. And that sounds a lot like somebody who's wiring up servers inside a data center to me or pouring the concrete foundation for the data center. Now, I don't know. And I asked around and nobody really knows if we are seeing the AI boom in the job markets yet. But I think we might be and that would be good.
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And if people do know the answer to that, unhedgedt.com tell us your thoughts and then we will pass them off as our own.
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I mean, they're spending so much money. If you're. I don't know, what's the number now? Just for the big five, it's like half a trillion in capex just for the very largest companies, maybe even more like that has to hire somebody somewhere, right? Yeah, I would think, you know. Yeah, just like leakage, you're going to get somebody hired at some point.
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Yeah.
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Now, one way we could track that is you could say if you're a man or a woman who pours concrete or does wiring or drives a truck that delivers a server, are your wages going up? Like, is there so much demand for those specific kinds of work that those wages are going up? I don't know the answer to that question should do. But wages, wage growth has been solid, right. It's running just. It's been running very solidly for the last year at just under 4%. It's been very steady. And again, that speaks to the general point you made that the job market is solid. I would note, however, that it's solid but not dynamic right now. And what we'd like to see is more dynamism. There's not enough new jobs being created for any economy. I think nobody's getting fired. The unemployment rate is low and stable. Everything is solid. But you'd like to see more pep, spark, Joie de vie.
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Yes.
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In the job market, we're word of your choice.
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You know, speaking of joie de vivre, you don't see a lot of it in US retail sales data or in measures of kind of consumer confidence. Right. So again, so this week we had some, you know, quite shiny upbeat jobs data, but some kind of meh, retail data. What's happening there?
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Well, I'll start with the weird thing about it, which is just as we see the trend in cyclical job creation just starting to turn up in a slight way back in October, we see the trend in retail sales and as we all know, consumption is the engine of the US Economy because we love to buy things here.
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Yeah, you Americans love spending a bit of money.
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But since October, the trend in retail sales has been starting to drift down, down. So in a way, the two series are telling kind of opposite stories. And of course, the mystery that we've talked about on this show and I've written about in the newsletter is how can an economy that is growing so well and where consumption is so good create so few new jobs? Well, we're seeing the two, the mystery slowly solve itself as retail sales gets a little weaker and the job market gets a little stronger. So we do see some convergence here. But it is an interesting question. Why? What explains this weakening?
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Yeah, and you were chatting about this on the POD last week on a day that I wasn't here about. Is it, is it politics? Are people sounding downbeat about their personal economic prospects as a reflection of a dissatisfaction or satisfaction with the political scene? Like nobody knows, like it is, like survey data, like that is quite odd, isn't it? And I can't put my finger on it, but it is interesting.
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Okay. One thing we know is that this economy, because rates, interest rates are at a higher level than they were at a couple of years ago and the job market for young people is not as good as it was a couple of years ago. We know that there is a slice of consumers, mostly young, mostly low income and holding some kind of debt, whether on a credit card or on an auto loan probably. They probably don't have a mortgage that is feeling the strain. And the rate of credit card and auto loan delinquency continues to go up and is at a level that's not a million miles away from what we saw like in the aftermath of the great financial crisis. So somebody's under strain here. Right? And maybe that. Now I, by the way, don't believe in the K shaped economy story. This is different from that story. But I do agree that there is a slice of consumers, lower income, younger and in debt, that is having trouble. And we see it in credit card delinquency. We see it in household savings rates. So that's part of the story, I think. And the longer this goes on, the harder it is for those people.
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So let's sort of move over to what the Federal Reserve does about this, right? The central bank is in this situation where it looks like the economy is kind of firing not exactly on all cylinders, but on most of its cylinders, all things equal, that points to stronger growth or strongish growth at least, and probably relatively high inflation. But then you do have, as you were just, you know, describing, you do have parts of the population that are struggling and would love to see lower interest rates. And you see Donald Trump in the White House struggling very noisily and would see lower interest, struggling in his own way and very much calling for lower interest rates. So, you know, I thought it was interesting that after the payrolls data, right, like I say, payrolls data was like the Mac daddy of the global data calendar. It's the number one piece of data that markets move on this time around. They were like, you know, whatever.
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I was surprised. I was surprised, Katie, that estimates of, of Fed cuts for the year didn't move much. I think this report, I mean, it's just one month and we had a bad year last year and like one good month against, you know, bad revisions for 2025, May, those kind of balance out. But if you think the job market is getting stronger, there's less reason for the Fed to cut. Right. Because remember, inflation, although it's not really going up anymore, is stubbornly closer to 3% than the 2% target. Right. And it just seems to be stuck there. So that says to you, don't cut rates. Inflation is still above our target. And the reason to move when the rate, when the inflation rate is to something rather than a straight up two, is because the job market is faltering. Well, the unemployment rate is low and stable. So I would think the Fed has a very good reason to hold for the rest of the year or hold until something changes. Yeah, hold until the data moves.
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Yeah. The gangster move here would be raise rates. Do it. Kevin Wash first day in the job in May, assuming you get confirmed.
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But I think they, I think they have a good reason to hold and it surprises me. And this probably means the market is right and I am wrong. It is surprising to me that, for example, the futures market still sees one or two cuts this year. I just don't see the case for it.
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Yeah.
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Inflation above target, unemployment rate stable. That says hold to me. That says we're near the neutral rate says hold. Stick to your guns. I don't really care.
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Let's do what the President wants. Don't do what the President wants, to do what the data tells you. We're going to need a lot of popcorn over the course of this year, I predict.
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And of course, it is worth mentioning because we already talked about AI. The Fed chair, presumptive, is a believer in the AI productivity story, meaning he thinks because there's going to be higher productivity, you can have lower rates and not see inflation go up because the capacity of the economy to produce things goes up. Right. So you can have more activity without causing inflation. I think that's a totally intellectually respectable thing to think, but we just don't.
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Know if it's right.
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Can convince the rest of the committee that that is the case.
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Yeah, it's really setting up for a lively welcome to Kevin Walsh.
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I agree with you, Katie, the popcorn is in the microwave. This is gonna be fun to watch.
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Don't burn it. Now, listen, before we get the popcorn on, let's come back in one second with Long Short. Alrighty. It's time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got?
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I am Long Volatility. Katie. I think it's going to be a wild year in stock markets, as distinct from saying it's going to go up and down as ever. I don't know whether it's going to go up and down, but I think this thing that has happened with the software companies where they all got punched in the face because people think everybody's going to be able to write their own software with AI. My prediction is that kind of thing is going to keep happening with AI. I think it's an important enough technology that it's going to keep people guessing for a couple of years now and it's going to really matter to business models and stocks are just going to whipsaw around and we just got to buckle up at this point.
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Yeah.
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It's not like everybody's going to calm down in a month or two.
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Right. You think we're in it for the long haul?
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Yeah, we are.
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Speaking of disruption, I am Short sugar. I don't know if you saw the story.
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What do you have against sugar?
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Well, here's the thing.
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Are you against puppy dogs, too?
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No. Here's the thing. See it here on our very pages from the very lovely Susanna Savage. Sugar prices have tumbled to their lowest level in more than five years as, yes, weight loss drugs accelerate a drop in demand. So how about that? Everyone is losing weight. Nobody.
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I mean, that's. These actually two. I mean, these are the two big things, right? The weight loss, drugs and AI. These are game changers.
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Yeah. Similarly, we had a separate story. Shares in the Magnum Ice Cream Company. They make Cornettos and Ben and Jerry's ice cream, yada yada. They had a 3% drop in sales volume in the fourth quarter. Everyone is shrinking. Nobody is eating sugar. The sugar price.
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That's why I'm never taking these drugs, Katie. Like I could stand to lose a couple of pounds. I do not care. Like the pleasure I get from food at this point in my life is such an important thing. Yes, like anything that. That denies me the pleasure of overeating. I'm just not going in for that.
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Yeah, well, it's you against everyone else keeping the sugar price stable. But it's interesting, isn't it? Like the whole, you know, the weight loss drug economy. Apparently, like airlines stand to save a lot of money on fuel. I was reading. Because all the passengers are lighter. This sounds to me like rubbish, but maybe it's a real thing. Maybe we haven't really got our head around the weight loss economy yet.
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Anyway, long airlines, short ice cream.
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Rob and I are not shrinking. So unless we do disappear entirely, which is unlikely, then we will be back in your ears next week. Please listen up then. And in the meantime, thank you for your attention to this matter. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forehead. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free and a 30 day free trial is available to everyone else. Just go to ft.com unhedgedoffer I'm Katie Martin. Thanks for listening.
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Sam.