Daybreak Holiday: Fed Independence, Market Outlook, Retail Breakdown

Thank you so much for joining us on this special
Labor Day edition of Bloomberg Daybreak. US markets are closed
for the holiday. I'm Nathan Hager coming up this hour
with summer all but in the rear view mirror, what's
the outlook for stocks at the end of a volatile
year for equities? We have a special roundtable with Lori
Calvacina of RBC Capital Markets and Invesco Global market strategist
Brian Levitt. Plus we look at how retailers are faring
with school back in session, when we'll speak with Bert Flickinger,
Managing director at Strategic Resource Group. But first we focus
on the economy because September will be a very busy month.
On Friday, we get the jobs report for the month
of August and that will be followed by a FED
rate decision September seventeenth. Let's get a preview with two
of our favorites. Wells Fargo Senior economist Sarah House is
with us along with Jennifer Lee, senior economist at BMO
Capital Markets. What better day than Labor Day to talk
about the labor market. Thanks so much for being with us,
and of course we are just a little more than
a week out from j Powell's comments at Jackson Hole
with his view on labor. Here's what the Chairman had
to say.
Overall, while the labor market appears to be in balance,
it is a curious kind of balance that results from
a marked slowing in both the supply of and demand
for workers. This unusual situation suggests that downside risks to
employment are rising.
So, Sarah, I'll start with you, how should we be
looking at the labor market right now?
Right?
So, I agree with Chairpwel that right now it's in balance,
but it is a very fragile balance, and we continue
to see I think demand for workers remain pretty tepid,
and so that leave supply is really the big question
mark in terms of whether we can maintain this balance
or whether we're going to see the jobs market soften
in a way that becomes more concerning.
So, Jennifer, is that your view as well, is supply
the issue when it comes to where things stand in
the labor market.
It's sort of both. You know, I hate to sound weak,
you know, like a wishuld watching when I'm saying that,
But I'm also very curious about demand. Just given that
we know that businesses have been very hesitant to make
any real hiring firing decisions on the labor front, just
until a lot of this uncertainty over trade and over
inflation passes through. And we see that from all the
different surveys that are out there. And this is why
I think it's also super important to you know, sort
of look at this with a bit of a more
of a skeptical live than usual, just given all the
hoopla over the report over the last month, but look
at all the different surveys that are coming out in
terms including job openings, of the different isms, just to
see what the preaching managers are saying about hiring. So
I think it's I'm kind of leaning toward demand as well.
Interesting that you bring up the hoopla around last month's report.
Of course, this is going to be the first non
farm payrolls report since the firing of the head of
the Bureau of Labor Statistics. It does raise the questions, Sarah,
about whether there is going to be some trust issue
with this report coming out later on this week.
I think there could certainly could be, and I think
this could challenge the response rates even further. So the
declining trend in at least the first response to the
CEO survey has been behind. What's why we're getting such
large monthly revisions. If you look at the by the
third release, it's getting back up to a little over
ninety percent where it has been. But if you have
public authority saying that this data can't be trusted, that
just decreases the incentive for businesses to respond. And so
I think it could actually amplify some of the volatility
and scope of revisions that we see.
What's your trust level in the data right now?
Jen?
Ever since COVID, you know, we know that the responsiblites
have been lower than usual, but revisions in general are
not new. And I'm going to refer to the latest
GDP report for the second quarter. The headline wasn't changed
to much, but the details, you know, it's very interesting
to see all the details and all the revisions to
business investment. So you know that was is going to
raise some questions about the quality of the data, but
I think it's just has to do with you know,
how many people we have on staff to calculate and
collect and all these surveys responses and put and put
them through and of course, again having the survey responders
taking a little bit longer to respond, you know, just
sort of puts a lot of questions into the data.
So this is why, again we have to look at
all the data around jobs, all the data around the
economy to make you know some you know some better
I guess calls on where we see growth.
Well, let's talk about some of that data that you
all are looking at. Sarah, what's going into your forecast
when it comes to how you see the labor market
right now?
Yes, so I'm looking at a lot of the demand indicators,
like some of the pmis that Jen mentioned, so the ISM,
but I also like to look at the regional said
survey pmis, and what they were showing over the past
couple of months is that the degree of hiring remains
very weak. They're kind of hovering around contraction territory, just
right between positive and negative, but they haven't really gotten worse.
Same thing if you look at the NFIB small business
hiring plans in next they've actually picked up a little
bit since the spring, kind of right around the Liberation Day.
And so I think when you look at that, the
fact that layoffs remain very low if you're looking at
initial claims that there actually seems to be maybe some
hints of stability over the past the month or two
in terms of hiring backdrop, and so I think, well, again,
you know, lower supply remains a challenge for payroll growth,
at least on the demand side, it doesn't look like
conditions have gotten materially worse over the past month or two.
And in terms of your outlook, Jen, what are you
looking at. Are we starting to see signs that policy changes, immigration, trade,
artificial intelligence are starting to have an impact on the
labor market.
I think I think they are. And by the way,
I just want to add to to Sarah's list the
Conference Sports survey. You know, I used to get, you know,
super excited when I would be you know, looking at
the number of people that were raising their hands when
they're at being asked you know, our job's hard to
get or our jobs plentiful, And we've sort of noticed
a little bit more of a deterioration on that front.
So again, sort of you know, to what Sarah was saying,
it hasn't changed too much, but we're starting to see
some softness building up. And certainly I think all these
policies are having an impact, certainly on the deportation front,
when we have, you know, the largest largest deportation effort ever,
and you look at the sectors that are super reliant
on on these workers. You know, on agriculture is the
biggest one, but fifty percent of the workers being undocumented
in constructions like twenty percent, leisure and hospitality about ten percent.
So I think it's having a big impact on those
particular sectors and class consequently, we should be although we
haven't seen too much of an impact on inflation.
We're speaking with Jennifer Lee, senior economist at Demo Capital Markets,
as well as WELLS Fargo senior economist Sarah House as
we look ahead to the jobs report coming out later
this week, of course a FED decision later on this month. Sarah,
how important is this Job's report going to be when
it comes to that FED decision?
I think even more than inflation. This is the key
report for whether the Committee decides to walk through the
door for a September rate cut that Palell opened in
his Jackson Hole speech. So I think the Committee broadly
expects some increase in inflation around tariffs. I think the
base case is still that it doesn't still over into
services inflation expectations remain anchored. Even in those they're aware
of the risk that might not happen. So really it
comes down to is the jobs market hanging in there
or is there enough weakening where the Fed does need
to move a little bit more towards neutral posture. So
the Committee still thinks that a policy is at least
modestly restrictive, to varying degrees depending on what FED official.
But I think it really comes down to are we
seeing signs of the labor market weakening to the point
where where the FED really needs to step in and
help cushion cushion the maximum employment side of the mandate.
You have to wonder, Jen, when we did see that
second quarter GDP number revised a little bit higher, whether
policy is as restrictive as some FED voters have said
it is. What's your view on that?
So it's interesting when I first saw the second quarter
GDP report and then, you know, I thought, and some
of the details, especially in the business investment front, you know,
sort of tongue in cheek. My first comment was, and
we're cutting because you know, because it's still is that
the you know, the the US economy is still resilient,
is still holding up, And again, as as Sarah pointed out,
it's all going to come down to this jobs report
because as vecher Peal said, you know that the downside
risk is coming from a job So there's going to
be so much attention paid on that people report. And
by the way, also I'm very curious to see how
revisions were going to go, very very curious.
It was all about the revisions last time around. Is
that still an issue for you, Sarah. Whether we do
continue to see these numbers sort of get revised downward
another surprise once again, potentially, I.
Think increasingly we're looking at what is the three month
average rate of employment and really looking at the jobs
report inclusive of the net revisions, just given that bias
we've had towards downward revisions over the past couple of years,
where it's just not as much about the most recent
print anymore, just given that low initial response rate. But again,
just the credibility of the data seems to be holding
up once just if you allow businesses a little bit
more time to get in. So we'll certainly be paying
heavily a lot of attention to the net revisions, as
I think a lot of market participants will be.
And of course it goes without saying that the Federal
Reserve is under a lot of pressure to cut interest rates.
It seems like every other day President Trump is calling
for that. Jen, how much does that weigh on what
we could get later this month.
That's a tough question and tough thing for me to answer.
You know, I think everyone on the Fed is you know,
you know, everyone's humans, so I'm sure that this is
sort of weighing in the back of their heads. But
you know, everyone is a professional, and everyone knows that
they're supposed to do that they are going to do
what they feel is best for the economy. And some
feel that lower rates are definitely the way to go,
and they should have been, you know, been cutting earlier.
And I'm thinking of a couple of you know, voters
in particular, but not everybody's on board, you know. I
believe it was Boston's Collins who said that wasn't a
done deal just yet. So again, it's all going to
come back down to jobs and what happens with the headline,
with the jobless rates, with the averages with revisions. Also,
I also know that that's the average duration of unemployment
in terms of weeks picked up, has been picking up
the last couple of months as well, and now they're
at the highest since twenty twenty two. So you know,
again it's going to be all about the headline numbers,
but as well the data, the revisions and the details
behind the data.
How much pressure do you think the feed is under
when it comes to politics.
Sarah and I think certainly more than we've seen in decades.
I think just the public nature of it is pretty
obvious here, and I think what that means for the
path of rates ahead is I think it's going to
I think put some questions over the cutting that we
are likely to see. So if you think of tariffs
in the classic sense, if it's okay, it's a one
time increase in prices, it shouldn't lead to persistent inflation.
Policy is still above estimates of neutral, I think that
that does support cutting, but I think there's going to
understand we'd be some questions over what is the committee
motivation to the extent that we do see cuts later.
So it's a close yeah, and.
I think it's safe to say it's probably gonna be
one of the closest watched of FED decisions coming up
later this month, as probably all of them are going
to be for quite some time. Thanks to both of
you for joining us on this Labor Day. That was
Sarah House, senior economist at Wells Fargo and BEMO Capital
Market senior economist Jennifer Lee. And coming up next, we'll
turn from the economy to the stock market with Lori
Calvacina of RBC Capital Markets and Brian Levitt at Invesco.
That says, this special Labor Day edition of Bloomberg Daybreak continues.
It's twenty minutes past the hour. I'm Nathan Hager, and
this is Bloomber Thank you so much for joining us
for this special edition of Bloomberg Daybreak. US markets are
closed for Labor Day. I'm Nathan Hager, and mature now
from the future of the economy to the outlook for
the stock market for the rest of the year. And
what a year this has been. Stock sorted a record
highs in August, but it certainly wasn't a smooth ride
for investors. Of course, we remember the sell off in
April on the tariff concerns. So to look at what's ahead.
As we round out this year, we have another special
roundtable for you joining us now Lori Calvacina, head of
US Equity strategy at RBC Capital Markets, and Investco Global
market strategist Brian Levitt. It is great to have both
of you with us today, and Laurie, I'll start with you.
Have you seen a year like this before?
It's a great question, Nathan, thanks for having me, by
the way, and look, I've been an equity strategy in
some capacity or another for more than twenty five years now.
I've never seen a year like this, And to be honest,
that's something we sort of addressed in our year head Outlook.
You know, way back last November was that it was
you know, we thought forecasting was going to be a
little bit more difficult than usual. This year, there's been
a lot of twists and turns. I think our approach
has just been to stay focused on the data and
call it like we see it.
Brian, how do you map out a rest of the
year after all that we've seen in the last eight months.
The first thing I would say is I don't think
that it's been so out of the ordinary, simply from
the perspective of you know, the market had been up
quite a bit. What tends to derail that this policy uncertainty,
and so we got that. As we move towards more
clarity both on trade policy and with the expectation of
what the Federal Reserve is going to do, the markets recovered,
and they recovered pretty quickly, so it's not entirely out
of the ordinary. All the while, growth slowing in the
US but still resilient, Inflation expectations up a bit, but
still generally stable enough. So oh, that's a good backdrop
for markets. I would expect that the markets and the
or higher on a couple of things. One is going
to be more fed easing, and there you know, a
continuation of this easing cycle. What should support broader parts
of the market. And already you're seeing a broadening of
the US equity market, certainly from where we were in
twenty twenty four.
I have a feeling I might be hearing a bit
of a contrasting view from you, Laurie, after looking at
some of your latest notes. I know you've got a
year end price target on the SMP five hundred a
little bit below where things sit right now at sixty
two point fifty. Where's your conviction right now?
Yeah, you know, and I think where I'm a bit
differentiated right now. To be honest, Nathan is we feel
pretty neutral heading into the balance of the year.
Now.
We do tend to view our price target as a compass,
not a GPS, So we always tell people don't get
overly precise. This is a signaling mechanism for how we
feel about the path of stocks from here. And I
would tell you that kind of post labor Day, we
have been concerned that we could be set up for
a little bit of a period of chop and there
are a few reasons for that. One is that seasonally,
if you go back and you look at September and
October during the past five years, September has been down
four out of five and I think October has been
down three out of five. So you know it, it
hasn't been one hundred percent, but this is a period
of the year when we tend to experience some choppiness. Secondly,
if you look at valuation levels, whether you're looking at
S and P market cap weighted, whether you're looking at
the Nasdaq one hundred, which has been you know, kind
of everybody's favorite growth trade, or if you look at
even the top ten market cap names in the S
and P five hundred, which is a really good proxy
for the AI engine. We've been trading close to levels,
you know, that have essentially been in line with where
we peaked out most recently, and the market has been
you know, we've been kind of creeping up to these
news highs in August, but have really had a difficult
time punching through them with any certainty. So, you know,
I think that we are seeing some valuation pressure start
to seep in. And frankly, you know, I don't dis
agree with with Brian on the idea that the FED
cuts provide a tail end, but I've been getting an
airfull from clients about this for the past three months,
so we do think that to some extent, a lot
of this has already been pre baked into stocks.
I'm glad you mentioned valuations because you know, whenever we
see these lofty levels, you record after record broken over
the last several months, there has been the question about
whether this market is heading into an asset bubble. So
I put that question to you, Brian, where do you
sit when it comes to where this market is valued?
Right?
Now the market, the S and P five hundred index
is overvalued compared to certainly it's long term history, but
even it's more intermediate term history, which probably makes more
sense to look at given how the economy and the
markets have evolved. So, yes, you are trading at an
elevated valuation. Reality, as everyone knows, is that valuations are
not timing tools. You'd need to have some catalyst one
way or the other to to either see valuations improve
or valuations correct. What's more interesting, perhaps is if you
look beyond the S and P five hundred, which of
course is just one way of gaining exposure to the market,
the valuations are not all that excessive. I tend to
focus on the median stock in that index, or even
an equal weight index, where valuations are certainly not that excessive,
So it is concentrated, to Lori's point, in the top names. Also,
if you look MidCap, if you look Europe, if you
look emerging markets, you're also dealing with pretty reasonable valuations.
So it is.
Primarily an SMP or a Nasdaq story, and that's a
call on the AI trade rather than the broader market.
As far as market's hitting new highs, that's fairly common.
If you go back to nineteen fifty seven, the stock
market has hit a new high once every two weeks,
and actually you've been better off in investing historically on
days when the market hit a new high than on
just any random days. So I'd advise investors not to
be concerned or very simply because markets that are at
all time highs. You want to think about how market
cycles and market cycles typically end with a lot of
leverage policy tightening, bankers tightening lending standards, credit spreads blowing out.
None of that is happening right now.
We're speaking with Brian Levitt. He is a global market
strategist at Invesco, along with Lori Calvacina, the head of
US Equity strategy at RBC Capital Markets Glad. Brian brought
up the idea of, you know, small to mid cap
stocks as well, because of course there is a lot
of attention, a lot of focus on the S and
P five hundred. How are you viewing some of those
broader names in the stock market right now, Laurie.
So, look, you know, I'm in a former small cap strat,
so I always enjoy talking about this space and I
have seen you know, if I look across the street,
sort of a general impulse to get long the small
caps or to go overweight. And I want to say,
you know, we're certainly not bearish here, but we think
for longer term investors, we like more of a neutral
stance as opposed to you know, kind of recommending and
overweight at this point in time. And I think that
you know, what I feel like I can really see
pretty clearly in my client conversations, is that the excitement
over the FED is something that I think is generating
a lot of interest in the small cap space. And
you know, as Brian mentioned certain areas like small cap,
you know, if you kind of get away from those
biggest market cap names in the S and P five hundred,
you've got much more reasonable valuations. So as I look at,
you know, kind of the onset of cuts coming, you
know exactly when I suppose it's still up for some
debate at least, but we we do understand the impulse
for a trade there, right, And we did see in
August small caps finally broke out of their range that
they had sort of been pinned in. When you look
at the Russell relative to the S and P. So
we did have a you know, kind of a big
breakout after Jackson Hole, and I think you want to
respect that momentum and the interest in the rates trade.
The problem is that if I look since the end
of twenty twenty three, whenever the market dials up FED dubbishness,
we see the hedge fund community kind of pile into
small caps in a very short term oriented way, and
then that trade tends to fizzle out. So you know,
when I'm talking to my small cap PM clients or
longer term investors, I really want to understand the risk
of it fizzling out again. And I think the reason
it keeps fizzling out is that the economic backdrop is
just not strong enough to sustain a longer term out
performance trade. I don't think the FED alone is enough.
What we typically see, you know, when the FED you know,
is cutting, it's around a recession, and that's when you
get the big long term small cap out performance cycles.
If you look to the mid nineties adjustments cuts that happened,
you only got short term small cap out performance. What
do we see in that economic backdrop right now? Well,
my economists are looking for one point three percent GDP
this year in real terms one point six percent next year,
and consensus has been very similar, maybe a touch higher,
but it's still stuck in that one to two percent range.
Average GDP is around two and a half percent, and
we tend to see small caps really only sustain out
performance trades when you're above that two and a half
percent mark. Other indicators you could look at economically would
be nonfarm payrolls. If you're in an accelerating job growth environment,
that's good for small relative to large, but stagnant job
growth or accelerating job growth typically is not. And another
good barometer is zism manufacturing. It's been stuck in a
rut for a while now. You really want to focus
on the direction of travel there when that tends to
move up. Small caps have an outperformance cycle relative to
large that can be sustained, but that one has just
you know, we watch it every month hoping it's going
to break out, and it just it's just stuck in
a rut, which I think is a testament to some
of the kind of mixed vibes that are still out
there right now.
Well, I guess there's still a debate about, you know,
whether the economy is headed into a slow down. We've got,
you know, GDP indicators showing that we're still above three
percent at least as far as the second quarter goes. So, Brian,
what are you thinking as far as whether the economy
is headed into a slowdown and whether this is all
about the market expecting that we're going to see rate
cuts that can continue to keep this rally going.
I think it's pretty clear that we're heading into a slowdown.
If you look at leading indicators of the US economy.
To Lori's point, they're not doing much. They're not doing
enough to suggest that you're going to see a significant
breakout in US economic activity. And part of that has
to do with the tariffs, where we know that that's
going to slow some activity. We know that's going to
slow some consumerism, and it's an essence why the Federal
Reserve is looking to lower rates. The risk to that
call is, of course, if inflation expectations begin to break
out and the Fed has to back off of it.
So I don't think that's going to be the case.
My expectation is the economy will slow. That slow down
in the economy will be viewed favorably by the market
because a little of the bad news is good news mentality,
where the Federal Reserve will be able to cut rates.
I agree with Lori's point that in order for these
other more reasonably valued parts of the market to help perform,
you're going to need a catalyst. And right now, looking globally,
there's just not a lot of pickup in activity and
in essence, when there's not a lot of leading indicators
pointing higher, you need a policy response. So hopefully we
start to see we see more of that out of China,
more of that out of the United States, and the
expectations the hope is that you start to see leading
indicators recover as you move out into twenty twenty six.
For now, it is leading indicators that are pointing to
below trend growth then maybe even accelerating a little bit.
And you know it almost hate to say it, but
in that environment, that still tends to favor higher quality,
megacap growthier type businesses, and that's what's been out performing recently.
Yeah, certainly has, if not for the last few months.
Thank you for this, both of you for joining us
on this special Labor Day Bloomberg Daybreak that is Brian
Levitt Global Market strategist at Invesco, along with Lori Calvacina,
head of US equity strategy at RBC Capital Markets. And
coming up next, we're going to focus in on retail
now that school's back in session. Bert Flickinger joins us
from Strategic Resource Group. That says, this special Labor Day
edition of Bloomberg Daybreak continues. It's thirty eight minutes past
the hour. I'm Nathan Hager, and this is Bloomberg. Thank
you so much for joining us on this special edition
of Bloomberg Daybreak. US markets are closed for the Labor
Day holiday. I'm Nathan Hager. School's back in session, and
with tariffs impacting profits, we thought we'd wrap up this
Daybreak special with a focus on retailers. And who better
to do that with then Bert Flickinger, Managing director at
Strategic Resource Group. Great to have you with us on
this holiday edition. Bert, and you know, if the holidays,
you know, Christmas, New Year's of the super Bowl for retail,
back to school season's got to be the all star game.
So how's it looking.
It's looking, Nathan that Labor Day is going to be
the turning point for the entire year for calendar twenty
twenty five, Labor Day through New Year's Day, holidays, and
then into calendar year twenty six. Why is that important?
The reason is seventy percent of Americans in living paycheck
to paycheck and Nathan, for the first time in US history,
you look on the Bloomberg terminal, all twelve monthly expenditure
areas are up, and that's the first time that's ever happened.
So healthcare, food, utilities, phone tax is, housing, insurance, close
and shoe debt, transportation, education, entertainment. So America is really
cash squeezed. But at the same time, there's a lot
of retail doing well. It's reported on Bloomberg terminal and
Bloomberg around the clock between Bloomberg Europe, Asia and America.
So there's good news and a lot of bright spots
in retail despite some cloud cover coming around the corner
on the horizon.
Well, let's talk about some of that good news. I'm
guessing based on what you're saying, that we're seeing a
lot of that good news in sort of the lower
end retail space. Is that what I'm hearing?
Definitely lower end price impact to find this costco all
the wind COO legal Trader Joe's doing exceptionally well, putting
up record numbers. The irony, Nathan is Amazon is not
making money from Whole Foods and Amazon Fresh and bricks
and mortar retail. Amazon's the powerhouse and number one retailer worldwide,
and Amazon Online and Amazon overall's doing better than ever before.
But retail's real killy heeal department stores. As you've reported
well for a long time, department stores are struggling. Yet
there's a big bright spot in Dillard's capitalizing on Penny Macy's,
Belk and others, and especially Cole's, which is really struggling. Target,
which is the big surprise. Last year you reported this
stock price of targeted at over two hundred and thirty.
It's struggling to stay above one hundred now, and Targets
keeping the people who caused the problems to solve the problems.
Where I think, Nathan, you're in. My big, big concern
is Target's been going for sixty five years. Eighty to
ninety percent of all Target purchase decisions are made or
influenced by women, and Target has yet to have a
women CEO. And Target has the best women executives in
the business. So that's a decratic question we have to ask,
especially when you consider the best in the brightest women
Carol Myerwitz a TJX to your point, spectacular results. Beth
Ford turned around Land of Lakes co Op, great results,
Peggy Davies turning around the Private Label Manufacturers Association, great results.
So the women are out performing the men. But women
are only fifteen percent of the CEOs. And you get
more women CEOs, especially in the department and specialty stores,
you'll have a real retail renaissance and requiem.
You know, you could talk about so many factors that
go into the challenges that we've seen from some of
those names you just mentioned, like Target, like Cohle's, they've
had the CEO issues as well, along with you know,
potential impact of tariffs politics as well. I mean, what
are some of the biggest issues that are holding back
some of these companies that used to dominate for so long.
Nathan, Our biggest concerned strategic resource group, when you see
it on the Bloomberg terminal every day, is everything from
screw worms to tariffs. So screwworms can impair and impede
the livestock and affect humans pets, cattle, and only twenty
percent of the sterile flies to combat the disease are produced,
so this has been a catastrophe in Maico, Central America,
South America. Now moving towards the Texas border, meat prices
are limited high every day in the Chicago commodity markets,
is reported by Bloomberg. Farmers are getting the lowest crop
prices on a cash for bushel basis in fifteen years,
so we should have the lowest meat prices in history.
Yet because of the screw worm, the African swine flu
in Asia, and the Avian high pathogen bird flu, protein
is the highest price in history and the farmers are
going out of business at record levels. So for the administration,
last administration in this administration hasn't been prepared enough in
my professional informed opinion on the school and the tariffs.
To your point, Nathan, that's an artificial inflation. So we
not only have the highest prices in history going into
Labor Day weekend, we're going to have higher prices for holidays,
So toys will be the highest prices in history for Christmas, Sonica, Kwanza,
as well candy and confection and Bloomberg reported earlier that
because of the fifty percent tariffs coming out of Brazil,
coffee and weed and cattle are going to be at
all time highs coming out of those countries too.
We're speaking with Bert Flickinger. He is the managing director
of Strategic Resource Group. Given all those factors, Bert, I mean,
we've seen over the last few months that despite things
like tariffs, like some of these exogenous factors, the consumer
has managed to hold up. How much longer do you
think the consumer can still hold up against all.
Those consumers holding up, Nathan, And interestingly, because the consumers
are outsmarting the stores, We're writing a book the explosive
growth of private labels eclipsing national brands for the first
time on Peggy Davies' leadership at the Private Label Manufacturers Association.
People can save five thousand dollars a year just on
food and beverages, buying higher quality, better produced, fresher private
label product than they can the national brands. Because the
national brands, Nathan, have one page in their playbook, including
my Alma Mater, Procter and Gamma is race prices, race
prices some more. Bloomberg got reported on the Terminal that
Smuckers is raising coffee prices for the third time in
this calendar year. I mean, come on, give shoppers a break.
So consumers are migrating to private label. So with all
the high twelve monthly expenditure costs, if a family of
five can save five thousand dollars a year switching for
branded product or private label which is higher quality Trader Joe's,
all the costs go Kirkland, Kroger, et cetera, they're going
to be able to balance out their bills and keep
spending for gifts and the holidays, and for maybe a
few affordable luxuries for the parents and people who were
heads of household. So it's not all grim because private
labels revolutionizing the world and raising shoppers standards of living.
And despite all the price gouging, despite all the tariffs,
despite all the livestock diseases, private labels saving the day
for across America and across the world.
Oh, it's got to be said, there aren't a whole
lot of private labels when it comes to some of
those gifts that people might be thinking about for their
kids and their families heading into the holiday season. What
could this mean when it comes to holiday shopping later
on into the rest of this.
Year, look at Saratoga Springs as an example. Nathan for
Bloomberg is the vintage stores which are ubiquitous across the country,
whether they're spiritually based stores, Goodwill, Salvation Army, et cetera.
Savers people are buying pre owned clothes, well tailored one
to five dollars a garment for the cost of a
nickel or a penny of what they'd pay on a
percent basis at a department store. So saving on private
labels one piece, saving on clothing and apparel and pre
owned product and all the way to pre owned cars
is a big way to save. And that's the way
the shoppers saving itself until food prices come down. As
we get through these livestock diseases at the end of
crop here twenty twenty six, and is we get through,
hopefully the crisis created by the administration again of lowering
the value of food stamps or SNAP Supplemental Nutrition Assistance
Program Women and Infants and Children's Program, which seems absurd
at the highest food prices in history, to lower the
funding for the people most in need for food and
beverage to feed families, especially breakfast which many American consumers
are skipping because the high cost of cereal, milk and banana,
and it's so important for people's performance at work, especially
even more important for kids' performance in school. So the
government really needs to reevaluate the food stamp cuts and
the wick cuts and reinstate them so people can afford
to eat and afford to pay their rents and not
get evicted from their homes and not lose the leases
on their cars.
Can in private labels, though, Bert, what can all this
mean when it comes to the returns for some of
these companies that in the past have relied on you know,
name brand items to boost their profits into the rest
of the year.
You're you're asking an important point, Nathan. On the Bloomberg terminal,
They're they're two key metrics. One is that the big
top twenty five brand manufacturers Craft, Kellogg, Coke, Pepsi productor Smuckers,
et cetera, they're selling less hecta leaders or less less
per hundredweight product. Uh So in terms in terms of that,
people are being able to afford to eat less and
uh can't afford to buy branded product. With private label,
they can afford to feed their families, whether it's shoes, clothes, UH,
consumable food and beverage product, and the taste profile whether
it's Wegmans or Western Laws, mob Law or Tops Markets
in Buffalo, or Safeway or Kroger or Costco, which is
a particularly strong all the legal wind coach Trader Joe's.
The examples are very numerous on the Bloomberg that the
private label companies and the price impact companies are dominating.
And at Cornell College of Agriculture and Life Sciences, where
I teach us an adjunct executive lecture, they proved through
their clinical labs that the private label product is as
good or better than the national brands because since Warren
Buffett took over the control of Craft, there's no rule
of food days and cheese and craft singles. It's all
kinds of cheese food where if you buy Land of
Lakes you get one hundred percent cheese, or if you
buy private label cheese from Crystal Farms, it's one hundred
percent cheese. So people live better, live healthier, live longer,
and have more productive days at school and a work
with private label brands than they will with national brands
which have been diluted with a lot of mulsifiers, fillers
from candy and confection all the way to cheese and
ice cream and other top ten power categories for consumers
across America.
All right, lots to consider in the retail space as
we head into the rest of this year. Thank you
for this, Bert, really great having you on with us.
That was Bert Flickinger, Managing director at Strategic Resource Group.
Thanks as well to RBC Capital Markets, Lori Calvacina, in
Vesco's Brian Levitt, Wells Fargo, Sarah House and DEMO Capital
Markets Jennifer Lee. Thanks of course to you as well
for listening. I'm Nathan Hager. Stay with us. Today's top
stories and global business headlines are coming up right now.