00:00 Speaker A
Well, while trade policy and big tech are dominating markets today, we have to touch on the economic data that we got this morning as well. First quarter GDP revisions showing the economy contracting at a slightly less severe rate, shrinking by two-tenths of a percent compared to the three-tenths we saw last month. For more on that, I want to bring in my co-host for the hour. We’ve got Paul Gruenwald, S&P Global Ratings global chief economist. And also joining us to discuss, we’ve got Julie Beal, chief market strategist and portfolio manager at Kane Anderson Rudnick. I want to start with my co-host for the hour, Paul, great to have you. Talk to me about how you are viewing the totality of the economic data we got this morning.
00:49 Paul Gruenwald
Yeah, well, let’s start with the GDP. The big number, as you said, was unchanged. It’s still slightly negative. There’s two big pieces that kind of moved in opposite directions. The first one has to do with the front-running of the tariffs, because remember that story, we pulled in a lot of imports and they were stocked. So we got a little bit of inventory, you know, uplift, which was good. Um, but then we had a more serious, I would say, downward revision to consumption growth. So, 1.8 to 1.2 is a big move. 1.8’s kind of soft landing territory, 1.2’s a little bit harder. So that’s negative. We’ll have to wait for the future revisions, but I think the takeaway is Q1 looked a little bit softer than we thought originally.
02:00 Speaker A
And Julie, to bring you into the conversation, to Paul’s point, it seems like that softness and consumption data might have been on the bond market investors’ minds this morning. What does that signal to you about risks to stocks if we do start to see a softening in consumers consuming?
02:25 Julie Beal
Yeah, I mean, I think so much of what we can really attribute to the growth that we’ve enjoyed for the last few years has been on the backs of the strength of the consumer, and that’s really been tied to the health of, you know, economic gains that we’ve seen in jobs. What makes me a little bit nervous is when I look at some of the economic data, you’re seeing more and more people choosing to do gig economy work. And I worry that that’s actually the work that’s the weakest in an economic situation, right? Suddenly, Uber rides are not as important. Suddenly, you’re not DoorDashing quite as much. And so, if we hit a patch where there’s a weakness in consumer spending, I worry it has a duplicative effect on, you know, the ability for people to kind of continue to find income as they, as prices continue to go up.
03:30 Speaker A
And of course, the impact that that can have on earnings growth going forward. Paul, bringing you back into the conversation here, where do you see the American consumer today?
03:43 Paul Gruenwald
Yeah, well, she made a very good point. It’s really the consumer and the labor market that are put together. Since the Fed and other central banks started to raise rates, we’ve had this really resilient nexus of labor demand and consumption. If that cracks, and we, it hasn’t cracked yet, but we’ve got some weakness. If that starts to crack, I think we go into a down leg with weaker growth. Labor market was okay today. We had a little bit of an uptick in claims, you know, ongoing claims a little bit higher, but we’re nowhere near the panic zone. So if this is a soft landing, which was the original call this year, we’re okay. But, you know, we’re going to have to watch the data for the next couple of months, consumer spending and the labor market.
04:39 Speaker A
Let’s talk about the labor market a bit because it also seems that it’s taking longer for people to get jobs and that entry-level work is getting increasingly challenging to get. How concerned are you about that?
04:56 Paul Gruenwald
Well, we saw two things. We don’t see a lot of layoffs, but we also don’t see a lot of hiring. So that kind of, you know, quits and new hires, things kind of softened up a bit. It looks like firms are on hold. We’ve got all this policy uncertainty, you know, the ruling last night by the court on the AIIPA might be a little bit of a boost, but we still have this overhang on everything. So that’s actually what we’re watching, right? If people start to move away from the discretionary spending, which is the first crack you would see, then, you know, what’s in that bucket? Is it eating out? Is it travel? Is it, you know, DoorDash and things like that? So we’ll watch that kind of consumer discretionary bucket first. The essentials are probably going to go through any kind of slowdown, but the discretionary stuff is really where we start to see the delta.
