Is the Economy Starting to Crack?

Cooling labor data, persistent inflation concerns and the strength of the U.S. consumer are putting the economy under the microscope. Scott Bauer joins Jeff Praissman on this week’s IBKR Market Minute to discuss the latest jobs numbers, CPI and PPI, retail sales, Fed expectations and the market forces investors should be watching next.

Summary – IBKR Podcasts Ep. 416

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hey, everyone. This is Jeff Praissman with Interactive Brokers. It’s my pleasure to welcome back to the IBKR Podcast Studio, Scott Bauer from Prosper Trading Academy. Hey, Scott. How are you? 

Scott Bauer

Great, Jeff. Yourself? 

Jeff Praissman

I’m doing well, and love when you come in every other Wednesday morning, talk about the market, talk about the economy. 

For first-time listeners, we generally talk a little bit about the week before and a little bit about the week after. And for more from Scott, you can go to prospertrading.com and also our website, ibkr.com. Click on Education and you can find all our old podcasts and webinars. So, Scott, the labor market was a big story last week. What were some of the key takeaways from the jobs data and, you know, what does it tell us about the health of the US economy? 

Scott Bauer

It’s a bit different now this week than it was last week, right? After the report came out, yields pulled back, oil prices fell, as the July NFPs came in much lighter than expected. In fact, we saw crude down about 10% last week. Obviously, that’s rallied back quite a bit. 

So what is going on? I mean, the labor market is softening. There was, you know, a lot of talk, maybe excuse that it had to do with the World Cup. Okay, great. We give that, but then what do you make of May and June also being revised lower by over 100,000? So I think that is certainly a concern moving forward. 

Jeff Praissman

As we always talk about, there’s no shortage of data, but looking at the broader picture, were there any signs last week and the beginning of this week that the economy’s accelerating or slowing? What sectors of the market appeared to respond most strongly to the data? 

Scott Bauer

What’s been on fire really are financials. I think it’s 11 weeks in a row financials have been up. We’ve seen kind of the, I don’t want to say the rebirth of the tech trade or so, but, but a lot of these stocks that were, you know, kind of, kind of left out there, you know, weeks ago are, are resurgent again. And so, talk of maybe that, that extended CapEx that people were concerned about, maybe that was a little, you know, a little long in the tooth or so. So, you know, the economy seems to be doing well, but certainly the inflation data is going to be huge here. 

Jeff Praissman

We just had the CPI released this morning, and, you know, we have some important data coming out later this week, like PPI, you know, initial jobless claims, U.S. retail sales. Let’s kind of skip forward to the PPI. So what insight does the PPI provide that the CPI alone does not capture? 

Scott Bauer

Sure. Well, that looks at the producer side of things and not just the consumer. We all feel it individually, personally on, on the CPI side, but PPI shows, you know, what are those businesses doing? What’s happening on that producer side? So, really, just as important.  Sometimes it gets overshadowed by CPI, but PPI is certainly, certainly absolutely just as important as our retail sales data. 

Jeff Praissman

And, you know, retail sales data is going to be, you know, usually offers sort of a, a fresh look at consumer spending. You know, given how much consumers drive a portion of the US economy, well, what could this report tell us about growth heading into the second half of the year? 

Scott Bauer

Boy, Jeff, the consumer has hung in there for months, for years. You know, there’s been all this talk about pullback and the consumer not doing well, yet we’ve seen consumer spending retail sales data actually very, very strong. So especially this time of year, it’s back to school, end of the summer, how is the consumer feeling about the economy right now? And that could really set the stage for what we see in a few months come Christmas season. 

Jeff Praissman

And in your opinion, out of those three, PPI, initial jobless claims and, or US retail sales, which of them have the greatest potential to move the market next week? Or end, end of this week too, I should say. 

Scott Bauer

Think retail sales actually, because we’ve seen initial jobless claims right around that 200,000 number. I know it was a bit lower a couple weeks ago. PPI is going to be what it’s gonna be. But when you really dive down to it, like you said earlier, the consumer is responsible for what? About 68 to 70% of the economy. So we need to see if they are still spending and the health of the consumer. 

Jeff Praissman

Finally, last question, Scott. Beyond the economic calendar, what market theme should investors be monitoring over the next, you know, week or so? You know, inflation, earnings, Fed expectations, AI-related stocks, which we always seem to talk about. Global conflict, which is unfortunately always have to talk about, or, or something else? 

Scott Bauer

I still think front and center, even though it’s getting numb at this point, right, is really global conflict, right? Because each day when we see something new here, we could see oil prices moving considerably, which then flows down, impacts inflation and all sorts of other things. So global conflict to me is still front and center. Earnings season is wrapping up a bit. We still have retailers to go, but then what is the Fed gonna do and where are we with inflation? Is it still sticky? Are we still seeing potentially what was expected to have the Fed raise rates in September that ebbed a little bit, is that gonna stay like that? 

Jeff Praissman

Scott, this has been great as always. For our listeners, you can find more from Scott at prospertrading.com or on our website, ibkr.com. Click on Education, go down to Podcasts, and you can see all the great podcasts that Scott and I have done. All right, Scott, until next time. Thank you. 

Scott Bauer

Thank you very much, sir. Have a great end of the summer here. 

Jeff Praissman

Yeah, absolutely. You too. 

Scott Bauer

Thanks.