You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Affle Car, playing Android otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
In a couple of star wars tech names reporting last night, Amazon a good quarter. Stock up six and a half percent. It's up very close, within a couple of dollars of its all time high, and it is a fifty fifty two week high, buten just a couple of bucks away from its all time high. Meta also reported numbers stocks up twenty percent. This is a trillion dollar market cap stock. It's not like a penny stock. This is a trillion dollar market cap stock. No, and it's up twenty percent.
So some real, real paper money's being made out there for some people. Let's break this stuff down. We can do it with two of our best at Bloomberg Intelligence. Put On Goile, she covers the retail business for Bloomberg Intelligence, and Men Deep Sing, supposedly a tech analyst. We'll see if he's got the goods here today. Let's start with you Amazon. It seems like the consumer is in pretty good shape. What you hear from Amazon last night.
Yeah, thanks Paul. The consumer is an excellence shape and that's part of the strength that we saw on holiday. So the nine percent online sales gain that you saw come from them and twenty percent and third party was pretty impressive and actually probably the best in a few years since after the pandemic. So clearly a sign that the consumer has the funds to spend. But I'd say it also means that the consumers choosing Amazon to spend
their funds there. I think that's very key, as you will see some losers still coming out of the holiday season, but online is gaining traction, and Amazon is what comes to mind when you want to shop online.
So what I found to be really fascinating was like a nugget. I forgot what research report I read it in, but that the cost to serve a customer's order fell by forty five cents a unit last year. Can you how big a deal is that and how hard was it to get there?
So Amazon doesn't disclose how many units they sell, so it's kind of hard to back into that. I'd say it's still a fairly small piece of the cost space. But what I would say is what's going to help them to continue to drive these costs down is just the efficiencies that they've created within their fulfillment network.
Right.
You've heard them talk about getting packages to customers faster, and that's really a function of how they centralized their shipping and distribution networks. And we think that traditionally, when you hear about things coming to you faster, it's usually more expensive, and in the case of Amazon, it's actually cheaper. So it's pretty impressive, and it's all driven by scale.
The trucks are everywhere. I mean, it's just amazing. They gotta be the biggest trucking fleet in the country. I don't know. Let's bring in Man deep sing here. Let's get to the technology aspect of Amazon, which has really been the driver of its profitability and many would argue the stock price performance, Mandy, would you hear from Amazon last night about its cloud business AWS?
I mean, look, I think when you compare it to Microsoft Azure growth, the growth is still kind of far weaker between the two. But Amazon is, you know, much higher run rate, ninety seven billion dollar run rate, so they clearly seem to be stepping up in terms of their generative AI exposure, and they've given investors hope that they will be able to catch up. But look, overall, I think profitability wise, they seem to be doing very
well on the AWS front. AD business continues to work very well for them, you know, twenty six percent growth, So Amazon, I think the diversification play they have and the fact that they seem to capitalize on any new trend, you know, seemingly fast, even though in this case Microsoft Azure clearly still has the strongest momentum when it comes to generative AA.
What I also found really interesting, Mandeep is that with Amazon and even Meta, they're spending more, but the market feels okay about that. I saw the same thing with Exxon too. They're spending a little bit more, but their market's okay with that. What do you make of that?
I mean, look, when you know Meta is growing at over twenty percent, nobody cares about the reality lab losses. They're losing eighteen billion dollars a year on reality labs.
It's okay. They get a pass the moment that growth papers And we saw that in twenty twenty two when they had those negative quarters, everyone you know, start started to complain about you know how irresponsible management was im betting on Metaverse, and yesterday there was not even a mention of Reality Labs, given you know, the beat and rays and the fact that they really seem to be executing very well with twenty five percent layoffs. So it
all comes down to your top line. And if they keep executing the way they did last quarter, I think people don't mind the capex and generative AI. CAPEX actually is a trend that we're seeing across the board from hyperscalers. So what we I heard last night was Meta does have a generative AI play. It may not be on the cloud, but they are deploying their AI assistance everywhere and that seems to be helping engagement.
Hey put them give us this an update on the advertising business for Amazons. I think that's a business not enough people pay attention to or it gets enough credit because there's some big numbers there it is.
It's actually at a run rate of sixty billion now and we think it can get to one hundred billion by twenty twenty eight. So clearly great growth there. And what you have to remember, and when they mentioned this a little, you know, the advertising business is very lucrative it carries about fifty percent profit margins. So if you think about just the run rate they're at, that's thirty billion dollars to the bottom line in the coming year.
That's huge for Amazon, and that's really the backbone of what's driving profitable growth in North America or you could say their retail business.
See that that was revenue that propelled my career? Is that advertising revenue? But during the peak of microos, radio TV, cable TV, maybe in a little bit on newspapers, we.
Still know the radio people. We love the radio to the radio.
Now it's sixteen billion dollars going on Amazon.
Amazing. Hey Mandy, before we let you guys go to your point before. If we keep getting these kind of numbers, can we still call like Meta a growth company even though it's now paying this dividend. Typically you don't see that in the growth of your company. Is like, can all things be true?
I mean, advertising is a very cyclical business. Right now we are coming out of LA trough and ad pricing environment is improving, and if you're an e commerce company, there is nowhere else to go to acquire customers. Given Meta has four billion you know users across its family of apps, so clearly they get that mind share, and it's still a duopoly when it comes to digital ad spending, but I would say we are closer to saturation in terms of that digital ad growth then we were, you know,
a couple of years back. So not a lot of runway in from maintaining that twenty percent plus growth, but the next few quarters I think they clearly will benefit from this at pricing tailvin A right, guys.
That's good.
Yeah, amazing guys, Thanks lot, really appreciated, Mandy P. Sink and Punam Goyle really great. I mean, like I was shocked when I saw those numbers, Like Apple didn't surprise me that much, but when I saw those numbers come through the terminal yesterday on the clothes, I was just totally forged.
Now the thing with Apple, and we've talked to a couple experts today, including gene monsters. If I were investor in Apple, I'd still be really concerned about China. I don't feel like I don't have a call of Hey, is it just the Chinese economy kind of slowing down or is it Chinese people saying I'm not buying Western stuff.
I'm by it. It's more nationalistic. Now that's a concern, although i DC the research firm says Apple's got like it's best market share ever, so I don't know how that's all playing out.
So, but the competition is real no matter which we look at it, It's all about competition.
Yep.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple.
Car Play and and royd Otto with a Bloomberg Business app.
You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty.
Big Tech Earnings. And there's some themes coming across here in terms of AI, in terms of digital advertising that are pretty well, it's pretty constructive here and we've been talking about most of the morning here. We're going to bring in Angela Zino. He's a senior equity analyst and vice president c f R Research. He joins us via Zoom from New York. Angela, I'd love to start with Apple because for me, that's the most fascinating story coming out of big tech. I just don't know which way
to go, and my big big issue is China. Could you give us your sense about how you think China is as an opportunity and as a risk to the Apple story.
Yeah, and I.
Think Apple there's a huge Bullbard debate going on with that name right now. And when I think about Apple, yes, I mean China is absolutely an issue right now. We're talking, you know, a thirteen percent of client revenue in that region when overall you actually did see you know, a broader industry growth in the in you know, the some reporter there mid single digit decline on the constant currency basis from so from that perspective doesn't seem as bad.
My guess is some of the guidance that they alluded to, even though they kind of blamed some of the tough comps from a year ago, probably also indicates that there is going to continue to be some weakness going on in China, probably through calendar twenty twenty four at the very least. So you know, it's China becomes an issue
for Apple becomes ahead wind. We do expect them to continue to lose share, but there is so much good stuff going out outside of China where we think kind of the story really plays out, but specifically in Asia Asia Group seven percent outside of China, and you know, you kind of look at areas that are going to continue to attribute, you know, to that in sold base growth. It's going to be areas like in India and Indonesia over the next decade plus.
So Angelo, what's it going to take for appily at for that because it feels like the straight up China competition is truly what this company is training on.
Yeah, I mean, it's going to take time first. I mean, but you know, when we think about the actual numbers here in terms of you know, not the top line, but more on the bottom line side of things than on the free cash flow side of things, and that's really what drives we think the valuation is in Apple, it's that free cash flow number. Despite the lower the five billion are so less in expected revenue, the free cash flow number hasn't budget in terms of expectations here
over the next year. And a big reason for that is because of all the kind of improvement they're they're doing on the margin side of things, the better mix on the services, but also the fact that margins are improving not only on the services side, but also on the product side of things. So that's really kind of helping to sustain you know, the actual free cash flow
potential of this company. So you know, you have to be patient if you're an investor in this name and kind of believe in the whole compounding effect over time. But right now, it's tough to really kind of expect significant gains from a stock price perspective here over the next three to six months.
All right, Well, talk about significant games from the stock price perspective. Meta platforms up twenty percent today, all time high. Over two hundred billion dollars of market cap was created just today in trading. So an end. They're paying a dividend. They they've been listening to me. Now the folks at Apple need to listen to me and up their dividend and give me a good three percent dividend yield. Talk to us about Meta here. Boy, it seems like everything's
working there. What's your key takeaway?
Yeah, I think this is as good a quarter as an investor could have asked for. I mean, you're right they initiated the dividend, but you know it implies less than a one percent divit in yield, right. I think it's more kind of you know the fact that they're just demonstrating to investors out they're the conviction they have in that business and kind of some of the guidance that they provided out there. But listen, I think they're
running on all cylinders. Grew the top one twenty five percent actually to one guide points to an acceleration of growth where we actually expected growth to start to decelerate sharply in the first half of twenty twenty five four. You kind of look at how they're doing this. They're
actually keeping operating expenses in check. And there's nothing you know better that Wall Street lights than kind of keeping the opex numbers in check in a world where AI is extremely expensive, and they continue to grow that top line by holding it, you know, by keeping it unchanged. So I think, you know, that's really the key as far as the metastory is concerned, and you really do have to love it if you're an investor.
I mean, Paul does. He's he's been talking about it pretty much all day. But the idea that like the year of Efficiency of twenty twenty three will continue despite the information we got on Reality Labs in terms of how much they're losing and the capex going into it. When do I care about that when it comes to Meta.
As far as you know, losses and reality labs and the potential revenue trajectory there, I mean yeah, I mean, this is a long term vision for the company, so they're looking for they're making these investments for five ten years out from now. You're not going to get the immediate type of return that you're seeing on the AI
side of things. I mean, AI has been absolutely phenomenal for Meta because it's a parent that advertisers are willing to kind of pay up for it because you're you're getting a higher ROI out there, so you know, it makes a lot of sense. You're you're seeing the you know, most of the kind of the the extra CAPEC spends that's going into this company really on the AI side
of things. But as far as those losses are concerned, that's going to that's going to remain because you're not going to see that revenue trajectory really kind of play out for at least kind of another three to five years at your you know, in the basic past case scenario, So.
Angela, if investors are trafficking in the metas of the world, the Google's, even Amazon, they have to have a call on digital advertising? What's your call on digital advertising?
So entering the year it was it was a high single digit growth rate, so you know, it's pretty much going to be a similar growth rate that we saw in twenty twenty three, and our outlook for twenty twenty five also kind of a high single digit growth pace. I think how you're going to get that growth pace is going to be interesting. I mean, it looks like on the social media side of things, you're seeing some additional share gain taking place there relative to what you're
seeing on the search side. I think although alphabet you know, to be fair, did not provide any type of guidance on their end, but it just appears like that momentum continues to really be taking form on the social media side of things. We'll get some additional numbers next week when the snaps and pinterests of the world start reporting, but there are much smaller player in the industry. But I think at the end of the day, the numbers
look pretty good for us. There's probably upside to those assumptions that I've provided to you because of some of that AI play and the fact that you're going to see an acceleration. You know, away from those traditional sources to more of the digital side of things.
Hey, Angelo, taking a look at just the run that we seen with some of these guys on some of the numbers, even in Vidia at another record high today, What stock is most over their skis right now?
That's a great question. That No, that's that's that's a really good question. You know, as far as you know we're concerned. I say the names we like the most, the ones where there were absolute table pounders on our Microsoft and Nvidia. I think those names on any type of pullback, you just continue to load up and buy more of it. You have to love kind of the
meta results here. But if there were a name I were to throw out there right now, it would probably be meta one because of the type of move that you've seen in the in the in the stock today.
I'd also say that the comps do get a little bit more difficult in the second half of this year, So there could be a scenario where as those comps get a little bit more challenging and they need to you know, potentially you know, spend a little bit more, that could kind of set up some potential disppointment later this year for the thought. So that's probably the name where maybe I would raise a little bit of an eyebrow among kind of the you know, the mags have a names right now.
Hey, Angela, thanks a lot, super appreciate it. Angelousio, Vice President, Senior equity analyst at cfr A Research.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on fo card playing Android outo with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
That'd be very, very encouraged by the strong labor numbers I got out today in terms of giftness, economy growing.
Yeah, but I still think that the idea of like people still feel bad and then the number is still good and bridging that gap and how that winds up playing out. We're still really early in twenty twenty four, but how that plays out I think really interesting.
Yeah, I guess that's a messaging story for you know, the politicians out there. You know, you got a GDP print better than expected. Everybody kind of has a job, wages are going up, inflations coming down.
But man, but then you have to wonder, does that mean that we were going to wind up seeing the FED not cut in May, and then does that keep conditions tighter? And then you have real rates actually increasing, et cetera, et cetera, and then it actually does wind up hurting later sort of the longer you push it off, then are we headed for something a lot harder.
Yeah, that's a great point, and that's kind of the discussion now. I guess it's all about May. Jonny Biley joins us. She's a chief workforce analyst at inmploy Bridge joins us on zoom from Pompino Beach, Florida.
What is it?
What are we doing wrong here?
I don't want to be in Florida.
Be in Florida right now because it's been we haven't seen the sun in like two weeks, that's true.
I don't know I was in Florence. So if we're reassigning bet.
Well, pretty Jony, thanks so much for joining us here. I'd love to get your thoughts here and kind of what we saw on this job's uh date data print this morning? How do you how do you kind of deal with it?
Well, definitely a big surprise right this morning, and I don't think anyone predicted numbers that would be that high. I think maybe Goldman Sachs said it was going to be about two hundred and fifty thousand, but never expected over three hundred and fifty thousand jobs created. And the reason I think it really is a surprise is we are still you know, seeing.
Layoffs, you know, not just in the big tech.
Companies, but we're seeing more and more employers that are you know, cutting back.
Now, there is some optimism about.
Twenty twenty four. Certainly the companies that we work with at employee Bridge, I would say our hiring managers are cautiously optimistic and they are saying that they are predicting, you know, a better year of growth of job growth in twenty twenty four than twenty twenty three, but we're not seeing the robust growth that this report actually shows.
Well, let's talk about the one thing that confused me the most in the report, and that average hourly work week goes down, which basically means maybe there's a demand problem, but wages go up. What does that mean?
Yeah, I was surprised by that number as well.
So we are seeing people working a little bit less. The hours you know worked per week did decline, and to your point seeing wages go up so substantially. That was a surprise as well. We're not seeing as much wage movement. We track wage data as well. Employ Bridge focuses primarily on the supply chain sector, so manufacturing, construction, drivers, transportation, and I'll tell you wages have been pretty pretty flat. But when we see hours go down, it is the demand.
You know, the employers are not demanding right that workers are working overtime or you know, working really that full forty hour work week.
We're not near that level.
So it definitely is a supply and demand issue. And again I think something that would be concerning in this report. But there were some real bright spots in the report, you know, seeing professional and business services add I believe it was seventy four thousand jobs. That was a big number, and we had seen some declines in that sector. I did go back and look at the revisions and they
have revised them upwards. So you know, those are more of the white collar professional jobs, and that definitely came back stronger.
Than I think anyone predicted.
We did see that also increase in the Jolts Report, the job opening report that came out earlier in the week. There was a big increase in the professional service sector job posting.
So that is a good sign.
That can mean some good things for twenty twenty four that employers are you know, hiring more of those skills positions.
Where are these people working, Jonny, Are they coming back to the office or is it three days a week, four days a week. I mean, we're we're like the last people to ask because we're in five days a week, so you know, but we're we're the normal people. What are they doing?
Yeah, So it is interesting.
I think, you know, one of the big concerns out there certainly is commercial real estate because you can see in large cities that people are not coming back to work. They're not in the office buildings employers, you know, in this again mostly in the white collar you know, professional service jobs and also in healthcare, we do see that, like there's opportunities to even work you know remote or go to a hybrid schedule, and employees don't necessarily want to go back to the office.
They like the flexibility, and I do have some concerns about that.
I think there there are a lot of benefits, right of collaboration and working together and these social aspects. I have some big concerns about our younger generations that are just getting into the workplace. I have two children in college, you know, I don't want them to have their first job and like be working from home.
They're going to miss out.
On so many great experiences and building those professional, you know, communication skills.
So I do have some concerns about it.
But right now, for the most part, we're seeing hybrid models remote work. Of course, that's very different in the trades and in supply chain where people really have to be on site.
Yeah, Hey, Joni, thanks a lot. We really appreciate it. It's really fun to dissect all of this with you. Thank you so much for joining us to a bilely chief workforce Analyst at employee Bridge on January. Job support just coming in a lot better than estimated.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten Amy's there on applecar.
Play and Android Otto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Big tech still strong, high yields. Maybe that hurts equities. Maybe you wind up having a FED that's going to push out its rate cuts. That's going to be negative for equities, But the economy is strong, that should be good for equities. Do you guys get all that? You got that? We're good to go? Now, Well, let's ask someone who knows more than us, James Demmert. He is chief investment officer at main Street Research. Hey, James, there's
a lot of conflicting resource narratives here. What's the right one for you?
Good morning, Alex and Paul. I think the narrative is again investors get really caught up with FED talk, and you know, just look at the basic fundamentals here. We had to blowout jobs report. What does that tell us? Investors should know the economy is really resilient, right, I mean, that's really great data there this morning. And then I think at the same time, you know, there's a concern that people are sort of caught up with the FEED has to keep cutting rates or has to start right away.
And they're doing the right thing. I mean, they're they're luckier or smart, They've got the economy right where they want it. Who would have guessed? And so I think investors here should realize inflation's gone. The PCEE their favorite number right, less than three, very close to where they want it to be. They don't need to cut. And you've got a resilient economy. What that means, new business cycle, new ball market. Keep it simple, Investors, don't overthink this.
Earnings are what drive stocks in phase one. That's where we are. Focus on earnings. Look at Meta right, look at Amazon, look at Microsoft. Focus on earnings. Yes, higher rates can have an effect negati effect on certain parts of the market. If rates are higher for longer, we can talk more about that.
Yeah.
I mean, I'm former equity analyst, so I like to think earnings matter. I spent so much time trying to figure out wh the earnings are going for some of these companies build these monster models. What are you seeing so far, James? Again, today is all about to fed. But again, we've had a ton of earnings, including some big tech last night. What do you see in some of the earnings that we've had so far?
Well, I think you know, one of the things investors should really focus on here is you know what's driving these earnings. And one of the things I think that all of us should be excited about you're already seeing it in tech earnings. Is this effect of AI right A, that's going to be a tailwind for better productivity growth within companies that should lead to higher stock places over time. We're also, and I think this is really important, the META numbers show us that as an equity MLS, you
can appreciate this. We've gone through an era of efficiency what we call it otherwise, I know it's cost cutting, and that cost cutting that a lot of companies have done over the last eighteen months as they had inflation fears and market fears is now coming to be very rewarded. So I think, you know, the cost cutting is obviously increasing margins. Meta a really good example, but that's going
on across all sectors. And then you've got this sort of forward looking productivity growth that we're really excited about. And that's why we think not just a new business cycle, but maybe a supercycle.
Supercycle, a business supercycle. But hey, if we wind up having higher for longer now the economy actually is heating up and it's just kind of firing on all cylinders, doesn't that at some point isn't that bad for equities?
Well, it could be, and it could be bad for the economy, and it could, you know, bring the inflation boogeyman back. And that's why again investors should just get over their anticipation the Fed has to cut. I think the Fed's doing the right thing. They see this economy is strong. The last thing they want to do is cut. I think that's exactly where we'd end up in that risk of oh gosh, now it's you know, they've really juiced it by lowering rates when it was already pretty
smoke and hot. I think the Fed sort of just sit back and does nothing. And let's face it, it might be that, you know, everybody anticipates all these rate cuts, even the FED does this year, it could be the economy strong enough that they don't need to do any and earnings then will drive stocks. So I think as long as the FED keeps their hand on the tiller very carefully here, the economy can grow all by itself. The market is obviously pushing interest rates up today. Let
the market do that. Keep the Fed out of the out of the way, and I think the economy can be perfectly fine and not overheat.
James, I like big numbers as much as the next person. Big round numbers, and you've got them in your research. You say, over the next ten years, the Dow, Jones industrials could cross one hundred thousand, s and P fifteen thousand, NASDAK fifty thousand, all within the next ten years or so. What's kind of the thesis that get you those kind of numbers?
Yeah, Dow one hundred k, right, yep, you know some historic reference. I just finished my recent book which is really about the market and what it does over time, and so you know, really what we're using is some data points. One is if it is a new business cycle, which we believe it is, and if it's an AI driven productivity growth type of cycle. What we're doing is we're attaching what would growth rates be for companies, and we can see earnings tripling over that seven to ten
year period. That's usually as long as a business cycle lasts. Ten is a long time. I'd say seven to eight nine years, we'll probably see earnings triple again with this AI tailwind and that sort of just through the math. Right, the Dow goes to one hundred grand, the SMP goes to fifteen, and the Nasdaq and the SMP probably you know, we'd say Nasdaq is fifty thousand, because that's the core of where that AI really is going to provide better earnings growth.
WHOA, that feels like a lot. What's your downside to that thesis? Like, what what would be your risk to that?
Well, that's a good point. I mean, you can't just say, Wow, that's going to happen and let's put it all an index monet and go go home or come back in ten years. I think there's a lot of risks in this, and one of them is, well a lot of them are the obvious ones, right, you know, if we fall it into a significant recession, maybe because the Fed doesn't manage the interest rate cycle correctly, I think I think I'd give them the faith that that's not going to happen.
But we also have you know, we have national debt. That's a problem. Usually that's taking taken care of. As it was in the nineties we had such a big economy. We actually filled the debt back that hole that the debt was creating. We filled it up by capital gain saxes on corporations. So but you've got some stuff going on, and of course we have this geopolitical risk. You know, they can always turn the world upside down, which is why you know, in our case we use risk management tools.
I think it's very important investors, you know, things like stop loss orders are really important. Know how much equity exposure you need. Even if I say down one hundred K, I'm not saying investors you should be fully one hundred percent in stocks. Understand your planning, how much risk you need to take, and only have enough equity exposure to get the return that you need because there are those risks out there, and there's some ways to protect yourself.
What are some of the sectors that you think are interesting right here, James, A lot of folks, you know, we got a lot of tech numbers over the last couple of days showing some pretty good strength there. What are some sectors you guys.
Like, Yeah, I know, right, it's the elephant. We are big fans of tech, and that's where we're overweighted. But I gots you know, if you look at just about every other sector of the market, and this is important. If you look at Ford pe earnings pees, right, you usually pes or are not correct when you're starting a new business cycle because the e is going to be bigger than people expect because of the earnings of the profit margins. So we look at valuation and we look
at what sectors look good. Oh, it's not just tech, it's the financials, the historically cheap, it is the industrial companies historically cheap. A lot of this stuff is less than fifteen times earnings. I think even you know, if you wanted to reach out into the remarket which has gotten crushed, or the small cap stocks which are not acting well today but they certainly would thrive over the
next few years, I think investors should look there. So I think pretty much broadly across all sectors, you're going to see some better earnings from these low valuations. And again you're gonna have the AI tailwind. I mean, AI is going to have a tremendous effect on healthcare, and we were really excited about that as well. Low valuations.
That's all right, James, thanks a lot. That was a bullish view to a Friday. We appreciate it. James Emmert. He's a chief investment officer at main Street Research.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with.
The Bloomberg Business app.
You can also listen live on Amazon Alexa from our flo USIP New York station just say Alexa playing Bloomberg eleven thirty.
So we brought up a University of Michigan sentiment. So this is a wonderful indicator. The inflation expectations also can tend to use market tend to move markets. We got the final read for January. Here's where they stacked up. Michigan sentiment up to seventy nine current conditions, lower than the last read, but at eighty one point nine. Expectations much stronger actually at seventy seven point one, and the one year inflation expectations at two point nine. We've kind
of been around that level for a while. We want to do is bring you direct analysis from the person who knows these numbers, who did these numbers, and for that we're doing with Joanne Shue, University of Michigan Surveys of Consumer Director. She joins us, Now, Joan, always good to see you on a you miss day. What's your take from the numbers.
This is telling us that consumers are really starting to feel more sure that the inflation slowdown is going to continue. They had been reserving, judge for much of the fall of twenty twenty three, you know, not really sure if the slowdown was going to persist or if inflation was going to come back. And at this point they're feeling much more confident about it, and that is the main thing that's supporting this very large increase in sentiment that's been continuing on for two months now.
So, Joanne, the good sentiment numbers that you're talking about, you know, I guess coincide or let me let me ask you to what extent do they coincide with the fact that, again we get the non farm payroll number came in today really strong kind of everybody who wants a job has a job. That figures into your data as well, right.
Oh, absolutely. You know, consumers are by and large they're workers, and so they recognize that labor markets are strong. And that's also bearing out when we ask people about where they think their incomes are going in the year ahead. Their income expectations have strengthened over the last few months, and that's very much supporting strong consumer spending as well as their strong levels of.
Sen Joanne, is there any divide between if the respondents identify as Democrat or Republican.
So there is typically a partisan gap in sentiment and this month is no different. As it turns out, this two month increase, Republicans saw most of that gain in December and we're not particularly changed in January. Independence as well as Democrats, they also saw a gain in December and continued to gain in January as well.
For all three political groups, we're.
At the highest level of sentiment in a couple of years now, So interesting, what.
Is your sense? I mean, we need your survey work. I mean, is a recession still kind of on the table, or if you take your data, you take the GDP print, you take the labor print. I'm not sure I can make a recession call here.
Consumers actually are quite split on what they think is going to happen with the economy going forward. There's still forty eight percent of people who are expecting challenging, you know, bad times with business conditions ahead, compared with forty one percent to expect good times ahead. Now, this isn't to
say that we will be in a recession. You know, consumer sentiment numbers are about seven percent below average, so they are not nowhere close to the lows we were seeing last year, but the fact that we're on an upward trajectory, we're pretty much back to the same upper trajectory that we've been seeing since the all time historic low from June twenty twenty two, and that definitely bodes well for in terms of supporting GDP growth in the months ahead.
Here's what I find confusing, Joanne, because if you wind up having respondents feeling better about the economy, which would imply like, Okay, maybe the FED is going to cut rates, so I can feel a little bit of pressure ease. But then because of that we see an acceleration which then increases GDP, which then means the FED has to keep rates higher for longer and not cut. Is any of that track and the data and the conversations that you have, I mean, I think this is you ask
an interesting question. And the reason this is interesting is because you know, the survey is not happening in a vacuum.
Policy makers, including FED policy makers, are are reacting to lots of data, including ours, and when we are asking consumers what they think is happening now, they you know, they are folding in their own expectations for where FED policy is going to go. We have the largest share expecting rate cuts since two thousand and eight, So consumers
are absolutely expecting rate cuts in the year ahead. Now, of course, you know, if all the strong indicators in the economy lead the FED to, you know, take to exercise more caution in their rate cuts, I think we'll see that play out in consumer expectations, especially as it passes through to consumer interest rates and credit conditions. But in this very moment, you know, consumers are expecting much more strengthen the economy than they were expecting six months ago, a year ago.
All right, Joanne, it's good to catch up with you. We'll get you for that preminary February read too, Joanneshu, University of Michigan, Surveys of Consumers, Director Paul. Do you feel better than I do?
I do? I think the I feel like I can really see the end in sight for the FED, and that's all I need. That's really all I need. And I think if earnings are going to kind of stay in there relative to where the market's disc and I think the market's set up for a pretty good move here. And then we've seen a lot of it. We've seen it. We are Yeah, The question is how much do we see in November and December.
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you will get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot com, the iHeart Radio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal