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Let's go to Starbucks.
Here, thousands of Starbucks workers who walked off the job have concluded.
What a minute.
It's about a five day strike against the coffee giant. From Rollness, we're joined by Bloomberg's Emily Cohne. Emily, thanks for coming into studio. You get the gold star for coming in the studio. We appreciate that the coveted gold star.
I did it.
What's going on to Starbucks? Why are they striking?
So? Starbucks workers have been in a bitter battle with the company for since twenty twenty one, end of twenty twenty one, when the first store voted to unionize. So they have this growing union presence at Starbucks. I think about five percent of their stores are unionized now and they're in the final stages of negotiating their union contract. So that final stage is when you start talking about
money and wages and all the really contentious stuff. So the company is alleging that the union walked off the left the negotiating table prematurely. The union is saying Starbucks came to the table with no raise offers, so that led to this strike that lasted five days. The last day was Christmas Eve. This is a really important time for Starbucks. People stop into the store to get lattes while they're doing their last minute shopping. They're buying gift
cards as stocking stuffers. But only about two percent of their stores actually closed as a result of that the strike, so probably not a huge impact on the business, but definitely a morale hit for the company. This is something that we're all talking about that we all noticed. There were lots of headlines about it, so about it's unclear about how many stores strike. It was like probably between two hundred and three hundred between what the union is
saying what the company is saying. That's a small percentage of their ten thousand stores, but definitely got a lot of attention.
Just ask you to sort of give us some context into how this holiday retail season went. Now that we're sort of piecing together how many people went out in shopping stories and online and all of that. What are you kind of tracking or following here in the waning days of twenty twenty four when it comes to just sort of how the consumer performed at the end of the year.
Yeah, it's a good question. I think we're seeing a lot of what we have seen throughout the year, which is what we talk about we call the bifurcation of consumer spending, where we see the upper income consumer households making one hundred thousand dollars or more a year doing quite well. They're splurging on gifts, they're getting out there and they're shopping. The stock market's doing well, their houses are worth more than they were a year ago. They
feel pretty good in our shopping. And then at the lower end we see shoppers pulling back, not shopping as much, not splurging. We had a great story last week the CEO of Newell Brands, which is the maker of Sharpie and rubber Maid and Mister Coffee, saying that they're having a much easier time selling three hundred dollars coffee makers than they are selling thirty dollars coffee makers, which tells you everything that you need to know about the economy
right now. The upper income households are spending, the lower ones are pulling back.
How about tariff's I mean, what is the expected impact on the consumer here? I wonder if the folks have voted for Donald Trump, are they aware that in some scenarios tariffs can result in higher prices that we pay for stuff and maybe is that a concern for the.
Consumer out there.
Yeah, it's a really good question. I think it's somewhat ironic that we saw a lot of voters who I think were really frustrated with the cost of their groceries and how much they were spending on things, come out and vote for because they thought he would lower prices. Meanwhile, like Trump's platform is very open and honest about his
protectionist policies, the core of that being increasing tariffs. And if you know how tariffs work, like they most of the time get passed down to the consumer and raise prices. So that is going to be a big theme of our coverage and what we're looking for next year. Obviously, tariffs are really complicated. We don't know what industries are they're going to hit first, what types of products are going to hit, how big they will be, what countries
they will affect. These are all still unknown, but generally speaking, what economists think will happen is that tariffs will raise prices for consumers and will slow economic growth, which ultimately is not great for the consumer, not great for the companies that we cover on the consumer beat. And you know, we got a little bit of a preview of this in the consumer confidence ratings that were just out a
couple weeks ago. They tanked for the first time in a while because of this concern and uncertainty over tariffs.
Very quickly here about thirty seconds. We know consumers are talking about this. How about companies themselves? As you listen to earnings calls and CEO speaking, are they engaging with the notion of what tariffs might mean for their bottom line?
Some are, Some are saying, we just don't know. I think a lot of companies that were maybe already planning on moving their production outside of China or closer to the US are speaking out about it. A lot of companies are just saying they don't know. Walmart obviously said yes, like tariffs will ultimately raise prices for US, So it's
different answers across the board. It'll be really interesting to watch I think there's a lot we don't know that we will learn soon once the new administration enters the White House.
We know you'd be watching it closely.
Emily con joining us here in the studio in New York getting that gold star from one Paul Sweeney, which is not worth nothing, I promise you, consumer editor here at Bloomberg News, talking about what twenty twenty five is like.
They look like across a variety of sectors.
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Something might not be feeling that's good about is the federal deficit. The incoming Trump administration facing the worst trajectory for federal borrowing in modern day history, with the deficit projected to exceed six percent of GDP next year. At something I spoke about with current Treasury Sectory Jennet Yellen, I asked her about her concerns.
Well, I am concerned about the fiscal out loo can I believe the deficit reduction is necessary to keep us on a sustainable fiscal course.
Now.
President Biden signed into law a trillion dollars of deficit reduction over the next years. He did that in the agreement to raise the debt ceiling. And our budget proposes an additional three trillion dollars of deficit reduction over ten years, and I think that's necessary to make sure that our fiscal path is sustainable. Now, Congress hasn't really done anything to, you know, beyond what I've mentioned, to improve the fiscal outlook,
and I think that's a shame. I'm disappointed in that, and I think Congress needs to work hard on that. There is a threat going forward that many of the provisions on the individual tax side of the jobs, job cuts and tax JCTA enacted by the Trump administration in Congress in twenty seventeen, they will sunset at the end of next year, and many Republicans have expressed a desire to keep all those provisions in place. CBO said that
will cost five trillion dollars over ten years. So that really is and so that would be a blow in a situation where I believe an additional three trillion. You know that not doing the five trillion and three trillion more is necessary, and if the provisions are just extended, this will be a serious blow without finding ways to pay for them. We proposed a lot of pay fors that we think would fairly ask corporations, wealthy individuals to
pay their fair share. We've negotiated an international tax agreement that would create a level playing field worldwide from multinationals. The United States has not yet joined, although many other countries have, and that would be a revenue raising measure that I think would be very valuable, and there is
certainly more so. I do hope that the new administration in Congress will, if they extend features of JCTA, find ways to pay for what they do and also make sure that the benefits go not to the wealthiest individuals but to middle class families.
As Treasury Secretary Jenna Yellen, of course, and joining us now is Lauren sidel Baker. She's an economist at ITR Economics, and Lauren, let me pick up from what the Treasury
Secretary was saying. They're talking about what might happen when it comes to taxes as you look ahead to twenty twenty five, let's zoom in on that variable in particular, how much does that that kind of define or could it define sort of the economic trajectory of the country going forward, whether or not those so called Trump era tax cuts are are extended here in twenty twenty five.
Well, clearly there will be some knock on effects, but generally we're seeing the consumer be in a very stable position. So if we're talking about individual tax rates, yes, that's something we consider in our spending, but our dollars do tend to walk based on many other fundamental factors. The big one that I'm looking at right now is the
strength of the labor market. We've been talking a lot about that recently, but very low new unemployment claims, we have very low layoffs and other discharge discharges excuse me. And generally, if you want a job today with this low unemployment rate, you can typically find one. There are more job openings out there than there are unemployed job seekers.
So at the end of the day, yes, the.
Tax rate matters, but just having that strong consumer position from an employment perspective is what matters more.
And Lauren, we're seeing, we're starting to hear from some of the retailers about some of the retail spending this season, you know, up low single it seems like the consumer is in decent shape.
Is that kind of what your data shows?
That is absolutely what our data show the consumer. We like to complain about a number of factors.
Right we see prices going up.
We've clearly been hit by inflation, but overall, our wages have still been rising, so our purchasing power is actually better off today than it has been at any point in history. So I think that low single digit growth that we're seeing from retailers, in some ways, we were spoiled in the post pandemic kind of stimulus era where consumers just had so much essentially windfall to go out and spend a lot of those very high growth rates in retail spending, those were never going to be sustainable.
So what we're seeing today.
Is these growth rates come back down to something more sustainable, a little bit more healthy for our kind of retail sector. But this is overall growth. It's slowing growth, yes, but it is still positive movement. And many of the fundamental leading indicators that we see today are putting in place an even better growth picture.
In twenty twenty five.
Lauren, I wondered what stood at to you from the most recent comments from the FED chair from Jerome Powell. Of course, he is adamant as he always has been, that the FED is data driven. There's this kind of complementary argument about the FED being data point driven. What if you've taken away just about their approach to the numbers, to the economic data that we've been getting, and what they're going to sort of treat as paramount most important here.
In twenty twenty five.
Yes, there's the FED favorite, the PCE flavor, all of that, But when the FED looks at that kind of panoply of data at the dashboard down in Washington, d C. What's most important to them and indeed what's most important to you here as we turn the corner into twenty twenty five.
So the FED, with their duel mandate, we always have this kind of seesaw effect. Where are they putting more attention more focus. For a while, it was inflation, because that was the side of their dual mandate that really got away from us with very very high inflation numbers.
Once we saw inflation start to come down, and I will be absolutely clear, even those core PC numbers were not yet at the fed's target two percent rate, but we're moving enough in that direction that they shifted their focus away from the inflation side and toward that labor market side. Now the labor market, well, some directional deterioration is happening. This is coming from such a tight starting point.
This is still a tight labor market. So I think if we do see as we at ITR have been saying, we expect to see inflation start to build in the back half of twenty twenty five, I think it will be very easy for that focus to shift back to inflation very quickly. That's something we saw in especially the dot plot that came out in the most recent meeting. BED officials are starting to scale down their expectations for the number of cuts we'll get in twenty twenty five. Again,
this is something we've had on our horizon for a while. Now, we do see those mounting inflation pressures coming back.
Not to the recent highs. I don't want to.
Scare anyone, but starting to see some of those fundamental pressures build. I don't think we're going to be comfortably at that two percent rate, and with the labor markets still relatively healthy again. It's going to be very easy to shift away from that side of the dual mandate. And I don't expect that we'll get rate hikes anytime soon, but by the end of twenty twenty five, it's not unimaginable that we could even see rates not just level off, but start to climb again.
Lauren, new administration coming in.
We don't know a lot about their economic policies, but what we do know is tariffs are on the table. Potential changes to immigration and migrant policy are on the table. Some have suggested that those two in and of themselves could be inflationary.
Is that a material risk for you?
Absolutely.
We don't know a lot about those programs, but we do know that they tend historically to be inflationary. Tariffs, I mean, the inflation is almost built into the goal right to increase the cost of foreign imports. Back in the twenty eighteen Trump taraff round, we did see even domestic producers they felt like they had a little more wiggle room right with the cost of their competition products going up, So we saw domestic producers increase their prices back in twenty eighteen.
Immigration, if we see mass deportations.
Again, I mentioned there are more jobs available than there are job seekers, So taking, however, many million people kind of out of our labor force, even if they are not documented legal workers today, that will cause a little bit more upside pressure on wages. So we don't have full details. It remains to be seen what is actually policy proposal versus campaign rhetoric.
But if we do tend in that direction, which.
Seems a pretty good bet at this point, those would tend to put more upside pressure on prices.
And we know that the FED is now wrestling with all of these various permutations of what could happen and what effect that could have on the economy. Lauren, let me ask you about the so called neutral rate and the Fed's necessary obsession with kind of figuring that out. Of course it can't pinpoint it in real time, but what's your sense of where it is? How much of a struggle this has been, indeed it's going to be
for the FED here going forward? You mentioned the fact that they haven't reached that inflation target of two percent? Is it coming into any better focus here as we get into twenty twenty five?
So we have to keep in mind that is made up of academics, So something like where is the neutral rate? That's a very academic argument. We will never know in real time. We'll only look back and say what did we get right and what did we get wrong? So at this point, I'm not sure it matters where the neutral rate is. What does matter is how many of these fundamental factors will be increasing inflation and then those add on risks right from the policy side that you
just mentioned. What will that do to the inflation rate? How much does the FED need to move to keep inflation and check versus our labor market issues? Those are really long term demographic problems. So that's not something that's quite so easy to just for the FED to kind of put their hand on the scale to tilt that down to show balance in the labor market.
It's demographics.
That's not something they can fight with birth rates, right, That just isn't what the FED is here to do.
So, Lauren, what is your GDP call for twenty twenty five and what are the real variables there that could kind of move that one way or the other.
I do expect solid steady GDP growth. We're looking for about two and a half percent growth, in twenty twenty five. Again, a lot of those fundamental leading indicators that we tend to follow, they're showing upturn. We've had much more subdued growth lately, especially in things like our manufacturing economy, our industrial sector, but we see green shoots going forward. We see with this lower interest rate environment, now having had some room to run, businesses are looking to invest next year.
There will be.
Of course added policy implications, but the general underlying fundamental factors those are the ones that we find much more consistently important to business investment and to the long term growth of the economy. So I'm looking for steady consumer spending to really be the engine fueling that growth, but.
A resurgence in business investment.
The government side of GDP, they keep on spending, as we just heard from Yellen. So I do fully expect steady but rather broad based growth in twenty twenty five.
I'll ask you lastly just to place this the US economy in a wider context, to global context. It does seem that things here are much better, certainly than they are in many parts many parts of Europe. Do you expect for that to persist?
I think the.
Reasons that our economy is doing better than Europe. Those are very foundational and it's a strong foundation. So we see a lot of foreign direct investments still coming into the United States. I don't think the re onshoring story has completely played out. There is more movement in that direction globally. We're just in a point of nationalism as opposed to globalism.
The pendulum is shifting that direction.
So with our strong consumer base that did get a little bit more boost than their European counterparts from that pandemic era stimulus spending. Yes, I think we are in a broad kind of strong position that's going to encourage the foreign direct investment to keep flowing this way. So for the foreseeable future, I think the US is a very good place to do business.
All right, Lauren, thank you so much. We appreciate that.
As always, Lauren sidel A Baker its economics, getting your thoughts on economic conditions out there are Federal Reserve and maybe a little bit of a peak ahead to twenty twenty five.
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What do you go for?
Let's talk about real estate now.
New home sales in the US rebounded last month as builders and consumers sealed deals that have been delayed by storms in the South, and buyers took advantage of heavy sales incentives. He's the Best Freeman set of Luxury real Estate broke which Brown Harris Stevens had to say about the market.
All real estate is local, so it depends on where you are and what the demand is. I'll give you an example, a place like Palm Beach. You put something on the market, there is a swarm of people who want to buy. But that's obviously more typically more high end, more expensive Connecticut. There's no supply, so when people put their homes on the market, there's a rush of people to line up to bid on the homes. I think once we have more supply than we're going to get
prices to come down. And if sellers start to put their homes on the market and buyers get into the market, we start to see fluidness and supply and demand intersect, which is a healthy housing market, which we didn't have in twenty twenty four.
Well, you talk about Palm Beach, you talk about Connecticut. I'm going to be selfish and ask about Manhattan.
What does the supply picture look like there and how does that feed into the pricing dynamic.
We have a decent supply, you know, the market in the city has been pretty flat. High end has done well, which it usually does because it's discretionary. I mean, look at Wall Street. The bonuses are going to be incredible. You know, a lot of people are saying the stock market is obviously pushes or drives a real estate market here, and it's been very frothy, and people are saying, is there a bubble coming? Do we know?
I don't.
It's unclear to us, but I do think that, you know, people are it's been moderate, it's been decent. I would like to see a pickup in that market. There's been a big portion of this market that's been cash. So remember the mortgage rates don't necessarily impact our byers and sellers as much, although it does play into it.
When you think about that tension, that push pull between renting and buying, I feel like you're so close to the ground where you see people making that decision in real time. What are they choosing at this point in time? Is there a reason to wait to buy and rent for now instead?
I think, you know, it's like they say, renting is more like dating. It's temporary, and so if you don't like it. I have a friend who's renting right now in the Upper east Side in one bedroom. She doesn't like the neighborhood. She's like, I'm definitely moving out. It's sort of like you're dating before you get married, right, And so I think if you want to commit to economic security in building intergenerational wealth, you buy a home.
Because if the stock market plummets and your coinage goes way down, you know that you just look at your You're looking at your portfolio, go damn, I have less money. The stinks. Versus, if you bought a home and that value goes down, you have a roof over your head, do you have a place where you can eat, sleep, have dinner, have fun, and it's sort of it goes up in value. So I think that we have to think about the housing market as a law term investment,
and it is still the American dream. It's a commitment to your future.
All right.
That was best Friedman.
She is the CEO of luxury real estate brokerage of Brown Harris Stevens. Let's keep on this real estate story here, residential real estate. We do that with Russell Galbot. He is managing Principal Crest Heights. Russell, thanks so much for joining us here Residential real Estate, South Florida. Is there any reason for this market not to continue to be strong going forward? It just seems like everybody up here on this island of Manhattan has moved down to Florida.
I don't know what's going on.
I think you're right on that, Paul. In fact, we're very fortunate in South Florida. Somebody says that it's always location, and they're quite correct. Not every city is born equally, and not every state is equal. So we're very excited about what's happening South Florida. We're cautiously optimistic for the future, and things seem to be really going in our way.
Talk a bit about what it has going for it. I know again there's enthusiasm among many companies to move large offices down there, save for the weather, which of course we're all in VSF here in Manhattan. What are the draws and what has South Florida done to incentivize companies to move down there.
So look, capitalism and business follows the path of least resistance, and Florida has created that path because we have spent so much money on infrastructure and created the schools and the housing and all of the other things that are necessary, such as are cultural centers of excellence and support and more housing. So we're very, very pleased to be in South Florida. As I said to you earlier, we have a thousand people coming to our state every day and it is doing incredibly well.
I don't know where you're putting them down there? Are you building new communities? Where do you build new communities?
You can't build any more on the coast because since the fifties the coast has been pretty full up.
Where are you putting people?
Well, we're putting people inland as well, So we're building all over and South Florida. You know, we still have a great amount of land to build, and we're really creating urbanism. In the last ten years in Miami, we have for the first time a true urban urbanism. And the way we started that was our cultural centers of excellence in the downtown area and the Edgewater area. So and we have a new train now that goes directly to Orlando with numerous stocks in between, as well as
public transportation at second to none. We've also put a lot of energy into our school systems, including private schools, charter schools, and we've embraced the concept of excellence, something that other states had forgotten. And we're very proud of what's happening in the state of Florida, for sure.
Well let's talk about some of those other states.
And I'm curious as you kind of pull back and look at the health of the residential real estate sector more broadly, where you see bright spots, where you see growth, maybe not as strong as in your beloved South Florida, but you're seeing positive and promising signs.
So you know, I often joke that the greatest real estate salesman we had in South Florida was Deblasio, and to some extent it's true because he sent it off a lot of people to South Florida. So I think that between Florida and Texas, I mean, we're truly growing states. And the reason is that we welcome entrepreneurship. We make it easy to form your companies. And I think what happened here is with COVID, so many people work from
home and create businesses from home. It used to be that you weren't proud to say you're a capitalist, but things have changed. Elections change things, and today I think people would be proud to say that they're a capitalists, proud to say that they're working at home. And when you can work at home, why would you want to not be in an area where we have beautiful beaches, sunshine and incredible weather, and that is places like South Florida.
Interest rates, presumably the Federal Reserve, they're cutting rates, they're how do you think that's going to impact your business, your market over the next year, twelve to twenty four months.
Well, first of all, I think the fact that interest rates are stable is very important, and I think the public is starting to feel that we know where interest rates are in the near future, and maybe they'll come down a few more quarter points, But I think that that's the most important thing. And I'll tell you next next year will be fifty years that I'm building condominians.
My first condominium was in nineteen seventy five. In nineteen eighty one, interest rates were sixteen point one percent for condos and you know what we still sold. Then The average over the last one hundred years has been six point five. The median is five point six. So we're right in the range. Yes, we have to come down another point or two, maybe half a point next year, but I think we're okay when it comes to interest rates. Today.
You're in the building business and there is so much speculation, some concern about what terift policies might mean for any number of goods. But I imagine timber, other construction supplies high on the list. There is it something that you are thinking about with any real seriousness? Is it something you're just monitoring? So how are you looking at some of the policy proposals pronouncements that we've heard from the president?
Elivet Look, governance is extremely important. When you see how our particular governor in the state of Florida has run streamlining processes, creating local a great, great law that will allow for workforce housing, and you see the level of competency exercised by our legislation. Our bodies are sentate in our house.
It is really terrific.
And then you compare us to cities or states like California where they have builders remedy. It's a difference between day and night. So government does count. I'll tell you another benefit that South Florida has with the recent elections in Mexico, in South America and Columbia and so on and so forth, we're going to get a huge influx because South Florida, Miami especially is such a cultural diverse community. It is the most cultural diverse community I think in the state in the United States.
Yeah, it is an extraordinary story there, Russell.
Part and partial to that is I think in the construction business, you go to any construction site around the country, it feels like there's a lot of migrant and labor there, legal and illegal. How concerned is your industry about what might be stricter immigration, maybe even forced repatriation of certain people out there that may be critical to the workforce.
You know, the workforce is extremely important in South Florida, and we do have a culturally diverse workforce as well, but we believe that most of them are are fully legitimate and and are welcomed into our country. And the great thing about South Florida is that it's been building now through the last four years when other parts of the country have been stagnant, and therefore we've had a lot of immigration into Florida of actually great construction workers.
So the quality of our product has been maintained and we're the recipient of that. Now. It may cause problems in such states as New York and other states that receive so many of this illegal immigration. Thank god, in South Florida, we were not recipients of that. In fact, our recipients are a thousand people are the people of economic substance, the people who want to search for excellence
and want to have the right schools and infrastructure. So while places like New York may have gained those illegal immigrants, Florida gained the wealthy and medium wealthy who wanted a change.
Rus So let's talk about climate Imagine. It's something you have to keep in front of mind as you undergo the developments that you're undergoing. And there in South Florida we make a little light here of how much better the weather is than it is here in New York. But you have to be thinking about climate change and
rise of sea levels and the like. How is it shaping the kind of development projects that you have been undertaking the way that you think about what residentss look like long term there in South Florida.
I think that's a great question, by the way, and we do follow ULI and all.
Of the issues of racing sea levels.
Buildings are going to have to come out of the ground higher out of the ground, and build taller and leave more open space. And I think that's what you're seeing in South Florida. People are beginning to recognize that climate change is real and that there's ways to deal with it and ways to handle it. And we certainly have a legislature and a governor that's relentlessly focused on new legislation to ensure the safety and welfare of our residents.
Some of those laws again like live Local we're in and inspections where we have a forty year certification, forty five year certification, those types of laws, that type of leadership is what makes South Florida different.
Russell, one of the challenges I do hear about Florida, particularly real estate ownership in Florida is insurance. Getting some of that insurance against whether you know, the floods, the hurricanes, and that is a challenge for the state.
How would you like to see that play out.
That is probably one of our biggest challenges in the state of Florida, and we deal with it every day. I believe that that the state itself is going to have to get more involved, and they are getting more involved. And by the way, the increases in insurance has been becoming less and less each year.
Interesting because we've heard from a lot of insurance companies that continues to be a challenge there. But again, you're right, folks are coming down. They're to figure that out. Russell, thank you so much for joining us, Russell Gal. But Cresent Heights principle certainly chemical.
I mean, it's just thriving.
But point about insurance, I know this was something that came up with the context of those hurricanes earlier this year. Just the number of individuals quoted in the news who said that, you know, they've seen their premiums go up by a ton and have to worry about it. So if it's not an issue for everybody, I think it's likely to be a bigger deal.
And you've seen a lot of the private insurans you know, have pulled out over out of the state over the years. Warren Buffett made his insurance business made a I think a pretty high profile re engagement with Florida a couple of years ago.
Thought that that.
Again there was an opportunity there, given the risk, to maybe make some good return there.
But I know that has been a challenge.
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