Synthetic Symposium - AI & AI Discussions
Welcome to The Synthetic Symposium: AI & AI Discussions, where two advanced AI minds engage in thought-provoking conversations about finance, global affairs, and the pressing topics shaping our world. Dive into the digital dialogue as these virtual co-hosts analyze trends, debate strategies, and unravel complex ideas with logic, creativity, and a touch of humor.
Whether you're a finance enthusiast, a tech aficionado, or simply curious about the future, join us for insights and perspectives that only AI can deliver. Explore the crossroads of intelligence and innovation in every episode!
Synthetic Symposium - AI & AI Discussions
Understanding Unemployment and Inflationary Forces
Unravel the mysteries of the November U.S. jobs report with insights from investment director Sam Mnookin as we navigate the unexpected rise in unemployment to 4.2%, despite job growth in key sectors like private and manufacturing, bolstered by the resolution of a Boeing strike. We promise you'll uncover the paradoxes of the labor force, where a drop to 62.5% participation raises questions about wage inflation's impact on daily expenses. Discover how sector-specific trends, such as the increase in construction jobs and the decline in retail roles due to online shopping, reshape the economic landscape. We'll also delve into the intriguing fall in trade and transportation jobs during the festive season and what it might signal for the economy moving forward.
Join us in examining the Federal Reserve’s relentless inflation battle, with Fed Governor Christopher Waller comparing it to an MMA fight. This episode encourages you to look beyond the headlines, exploring the interconnectedness of emotions and economic realities, while considering the cautious optimism emerging from traditionally pessimistic quarters. As we contemplate whether the future brings smooth sailing or potential economic turbulence, we aim to arm you with the knowledge to make informed decisions in these unpredictable times. Stay engaged and curious as we guide you through understanding these economic forces and their implications for the U.S. economy.
All right. So jobs right. You think you know what to expect Kind of unemployment up down, maybe a certain industry makes a splash in the news. But this November report from the US, this one's got some twists. I mean, even folks who follow this stuff closely were surprised. Weird numbers, interesting things happening in specific parts of the economy.
Speaker 2:Yeah, definitely makes you want to take a second look at the headlines, for sure.
Speaker 1:Yeah, for sure. And our guide through all of this is an email analysis from Sam Mnookin. He's an investment director over at IS Okay and he's really broken things down, added some smart commentary. So by the end of this deep dive, you won't just know what happened in November, but you'll get why it matters, like to your own wallet even.
Speaker 2:Yeah, think of it as getting equipped to see past the economic tricks. You know what I mean.
Speaker 1:Right, right, ok, let's start with the big numbers. The overall unemployment rate. It went up a little to 4.2 percent, which, ok, on the surface sounds bad. But then you see, the private sector actually added 194,000 jobs and manufacturing got a boost to like 22,000 jobs, probably because that Boeing strike ended. So kind of confusing, right? How do those two things both happen?
Speaker 2:yeah, well, that's where we got to dig a little deeper. It's about labor force participation, basically the unemployment rate. It only counts people actively looking for work. If someone gets discouraged and just stops there, they're not unemployed anymore in the stats, even though they're not working.
Speaker 1:Huh so the rate can go up, even if there are more jobs, because fewer people are out there trying to get them.
Speaker 2:Exactly, and that's what's happening in this report. Labor force participation actually went down to 62.5 percent in November. Most folks thought it'd go up, especially with, you know, post hurricane stuff. Yeah, but Mnookin's point is the available workers are shrinking and that messes up a lot of the usual economic predictions.
Speaker 1:OK, so less workers. Why do I care? How does this hit my pocket?
Speaker 2:Oh, this is where it gets real. Less workers mean companies have to compete harder for the ones there are, and that means higher wages, which you know sounds good, until those higher wages lead to higher prices for everything else.
Speaker 1:Ah, so that shrinking pool is like adding to inflation. That's hitting me at the grocery store at the pump.
Speaker 2:Yep, exactly, it's like a domino effect, starting right there in the job market and these connections. That's kind of what we're going to unpack in this whole deep dive.
Speaker 1:Love it. Okay, let's get into some specifics, because some of these industries are doing really wonky things. For instance, construction jobs went up by 10,000, but retail jobs tanked like down 28,000. All those Black Friday reports saying online shopping was huge is that connected?
Speaker 2:I mean it's got to be right. We're seeing people just change how they shop totally that convenience online. It means less folks needed in those actual store.
Speaker 1:So retail jobs is that just going to keep going down? I mean, what's the future there?
Speaker 2:Tough to say for sure, but definitely something to watch. As tech gets even better, online shopping is only going to get more normal.
Speaker 1:Here's another weird one Trade and transportation. They lost 23,000 jobs. It's like peak holiday season, Shouldn't they be hiring to get all those gifts delivered?
Speaker 2:Yeah, that's a head scratcher for sure Could be a temporary thing, maybe some specific event messed with things or logistics got backed up, right but it could also mean those industries are slowing down and that can ripple out to the whole economy. We'll need to see what December's numbers look like.
Speaker 1:Fingers crossed. Last one, but a big one Finance they added a decent chunk 17,000 jobs. At first glance sounds good. More jobs.
Speaker 2:Not so simple Finance jobs. They usually come with higher salaries. So, yeah, more jobs is good, but all those folks now have more money to spend and remember what we were saying.
Speaker 1:More spending, more inflation. The dominoes again.
Speaker 2:Exactly, and Mnookin points out, this throws off the wage data, which is something the Fed, the Federal Reserve, they're keeping a very close eye on. So let's talk about what all this means for interest rates, shall we? Now this is where things get even spicier. The Fed when they decide on rates, it ain't just about one jobs report. They look at a bunch of economic stuff plus, like, the overall mood of the markets.
Speaker 1:It's like a puzzle with a million pieces all moving around Right A puzzle. Mnookin initially figured this November report would be like the thing for the Fed's December decision on whether to cut rates. But then he mentions a speech by Fed Governor Christopher Waller. This speech seems to muddy the waters a bit. What's the big deal about it?
Speaker 2:Oh, waller's speech. It's like a little peek into how the Fed thinks. For example, he made a distinction between industries that are super sensitive to rate changes and those that aren't really affected, and he said even after a big rate cut 75 basis points, some areas are still struggling. So it's like the Fed saying, hey, what we're doing is working to fight inflation, but we might need to keep rates higher for longer to really get it under control.
Speaker 1:So hold off on more cuts for now. Is that what he's hinting at?
Speaker 2:Not necessarily. He did have a pretty colorful way of describing the Fed's fight against inflation.
Speaker 1:Ooh, tell me, tell me.
Speaker 2:He compared the Fed to an MMA fighter, said something like overall, I feel like an MMA fighter who keeps getting inflation in a chokehold, waiting for it to tap out, yet it keeps slipping out of my grasp at the last minute.
Speaker 1:Whoa OK, vivid. What's he getting at with that?
Speaker 2:Well, I think he's showing how much the Fed wants to bring inflation down, but also that it's proving to be a tough opponent.
Speaker 1:This ain't over yet, so the Fed's in for a long one, and that affects all of us, right?
Speaker 2:Big time. Borrowing money, whether it's for a house, a car, even starting a business, could stay expensive for longer than we'd like. And inflation well, that just keeps eating away at what our money can actually buy Groceries, gas, everything.
Speaker 1:Manoukian also mentions this neutral rate the Fed's aiming for and it seems like that's going up. Break that down for me. What is it and why is it important if it's higher?
Speaker 2:OK, so the neutral rate? Think of it as like the perfect spot for interest rates. It's the rate where the economy can grow at a good pace without making inflation worse. If rates are lower than neutral, people borrow and spend too much. Prices go up, but if rates are higher than neutral, well, that chokes off the economy's growth.
Speaker 1:So if the Fed thinks this neutral rate is higher than they thought before, they're going to have to keep rates higher longer to hit that sweet spot.
Speaker 2:Exactly that's Mnookin's point. He's saying, yeah, a cut is likely in December, but after that maybe not as many as people were thinking.
Speaker 1:OK, so takeaway here interest rates probably staying up there for a while. Not just a Wall Street thing, this is hitting regular folks.
Speaker 2:A hundred percent. These like technical sounding details. They really do affect us day to day.
Speaker 1:All right. So we got this jobs report, confusing as heck. A Fed that's going to wrestle inflation no matter what and now interest rates likely staying high. You'd think that's enough, but Mnookian throws in a curveball. He talks about this economist, david Rosenberg, who's known as a perma bear.
Speaker 2:Oh yeah, david Rosenberg, who's known as a perma bear oh yeah, David Rosenberg, classic perma bear. For anyone who doesn't know, that means he's basically always expecting the economy to go bad, like always looking for the next crash.
Speaker 1:Right. But here's the wild part. Even Rosenberg, mr Doom and Gloom himself is starting to sound well kind of hopeful.
Speaker 2:Yeah.
Speaker 1:He wrote this analysis where she basically admitted he might have been too negative on the economy.
Speaker 2:Huh, that is interesting. When someone like Rosenberg starts changing his tune, people notice. It's like even the most hardcore pessimists are seeing some potential for things to go right.
Speaker 1:Mnookin even says, those who spend their lives as bears are now trying to find reasons to join the bull camp and, as you can see in David's case, they are finding them.
Speaker 2:It's crazy how much of economics is just like psychology. If enough people believe things will get better, they invest more, they spend more and that can actually make things better. Self-fulfilling prophecy, you know.
Speaker 1:So wait, are we saying how people feel about the economy is just as important as the actual numbers?
Speaker 2:For sure. Sentiment drives markets. It affects decisions people make. It's powerful the mood of investors, of everyday consumers. It can literally shape where the economy goes.
Speaker 1:Wow, it's like we're all part of this giant economic mood ring or something.
Speaker 2:Kind of yeah, that's one of the things that makes economics so interesting Always something new to learn.
Speaker 1:Okay, recap time. We got this jobs report more questions than answers. We got the Fed ready to beat inflation into submission, even if it means keeping those rates high, and we got a perma-bear economist seeing a little sunshine A lot to digest.
Speaker 2:It is, but that's just how it is. The economy's complicated, always changing, always throwing curveballs.
Speaker 1:And NW Mnookin. He gives us this recommendation seems totally random. He wants us to read an academic paper by a Chinese scholar, lin Hongyu. Kind of a weird jump. But he says it ties into our whole economic chat in a cool way.
Speaker 2:Oh, I think I see where he's going with this. Remember when we were talking about how, like sentiment psychology, how that affects the economy. Well, knowing how other countries see the US, especially big players like China, that's huge EE for understanding the whole global situation.
Speaker 1:So it's like got to broaden our view, not just US data right, yeah. Got to see the bigger picture.
Speaker 2:Exactly. Mnookin even quotes Nietzsche to make his point. He says he who fights with monsters should look to it that he himself does not become a monster. When you gaze long into the abyss, the abyss gazes also into you. It's deep, right. But the point is, if we only focus on our own economic problems, we miss what's happening around us and how our actions impact other countries, how they see us.
Speaker 1:OK, yeah, starting to connect the dots. So what's this Chinese scholar, Lin Hongyu? What's he saying about the US?
Speaker 2:Well, his paper argues that American politics you know, the rise of guys like Trump, how divided the country's gotten it's actually affected how the US interacts with its allies and its influence on the world stage in general.
Speaker 1:Wait. So what happens inside the US politically can screw up its economic standing globally.
Speaker 2:That's his argument. He thinks all the unpredictability, maybe even chaos, in US politics the last few years it's made other countries nervous. They're not sure what to expect and that makes them hesitant to invest in the US or make long term deals.
Speaker 1:Which obviously hurts the US economy.
Speaker 2:Exactly Less. Foreign investment trade relationships get weaker and that overall instability, it can definitely slow down economic growth.
Speaker 1:Like another domino effect. Right, Something happens in US politics and it ripples out all over the world, eventually hitting the global economy.
Speaker 2:Exactly. That's why Mnookin's saying hey, pay attention to this bigger geopolitical stuff when you're trying to figure out the US economy. The numbers by themselves. They don't tell the whole story.
Speaker 1:This is getting pretty deep, huh. The jobs report, what the Fed's doing, how the world sees the US it's all connected.
Speaker 2:Absolutely. It's like a complex puzzle. You need time, you need to look at it from different angles. Then you can really understand what's going on.
Speaker 1:Right. So on that note, let's start putting those pieces together. See what picture we get.
Speaker 2:Yeah, sounds good. Let's recap everything we've learned and see if we can make some sense of it all.
Speaker 1:So, wow, we have covered a lot in this deep dive Started with this jobs report. Seems simple enough, but yeah. We just kept finding more stuff like all tangled up together Labor force, what's happening in specific industries? The Fed trying to walk this tightrope with interest rates, even how the whole world sees the US economy Wild.
Speaker 2:It's like we tugged on one little thread and this whole giant tapestry unraveled.
Speaker 1:Exactly, and that's got to be the big takeaway for anyone listening. When you see those economic headlines, don't just be like, oh OK, that's what's happening. There's always more to it. Always Dig deeper, think about the context and remember the economy. It's like this huge system where everything's connected.
Speaker 2:Right, One single number, like the unemployment rate. It's just a tiny piece of the puzzle. Got to see the whole thing, the trends, how people are feeling, global stuff too.
Speaker 1:So next time someone's like, oh, did you hear about the jobs report? You'd be like hold on, there's way more to it than that. Exactly It'll be the econ whiz at the water cooler, dropping knowledge bombs. Before we finish up, though, this thing you were saying about sentiment, how people feel about the economy that really got to me Like it can actually change things just because we're optimistic or scared.
Speaker 2:Oh, it's powerful stuff. If businesses, regular people, if they're feeling good about the future, they take more risks, they invest, they spend Right, and that can create this upward spiral, the economy grows.
Speaker 1:But if it's all fear and uncertainty, well, Then we psych ourselves out and things actually DO go bad. Which brings us back to Rosenberg, our perma bear buddy.
Speaker 2:Yeah.
Speaker 1:If he's starting to see some light, does that mean we're good?
Speaker 2:Yeah.
Speaker 1:Recession's off the table.
Speaker 2:Well, it's a good sign, that's for sure. It means even the super pessimists are spotting some potential for things to turn around. But economics it's not like you know a perfect formula. There's always something unexpected.
Speaker 1:that could happen, so not out of the woods yet, but maybe we can be a little more hopeful than a few months ago.
Speaker 2:I think so. Yeah, it's complicated, there's definitely challenges out there, but there's good stuff happening too. I think the key is stay informed, stay involved and be ready to adapt.
Speaker 1:Love that. Ok, folks, one last thought for you to chew on before we go. We talked about how everything's connected, how our feelings can affect the economy and how it's important to look past those simple headlines. So here's the question If even the perma bears are seeing a way forward, what does that mean for the US economy? Smooth sailing, some solid growth years, or are we going to hit another rough patch? The answer well, it's never easy, but if you understand the forces at work, you can be part of the conversation, Make smart choices for yourself.
Speaker 2:Yeah, really well put. And remember learning about the economy. It's a journey, always something new to discover, something new to think about.
Speaker 1:So stay curious, keep those questions coming and join us again next time for another deep dive into the world of economics.