Morning Brew Daily - Jobs Report Off By 800K!? & Ford’s $1.9B Pivot Away From EV SUVs

Episode Date: August 22, 2024

Episode 393: Neal and Toby discuss the Bureau of Labor Statistics’ anticipated revision which removed 800,000 jobs from last year’s jobs report. The largest in the last 15 years. Then, the FTC’s plan to ban noncompete agreements in the US has run into a roadblock as a federal judge says, not so fast. Next, Ford once pledged to make big investments in all-electric vehicles but has since reversed course as it scraps its latest EV model plans. Plus, Neal shares his favorite numbers from big banks’ bad deal with Elon Musk, the rise of ‘boommates’, and the super long wait time for US visas. Meanwhile, Starbucks is using its secret weapon that might be able to save slumping sales: the Pumpkin Spice Latte, betch.  Visit https://www.massmutual.com/ for all your financial planning needs Get your Morning Brew Daily T-Shirt HERE: https://shop.morningbrew.com/products/morning-brew-radio-t-shirt?_pos=1&_sid=6b0bc409d&_ss=r&variant=45353879044316  Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Misleading movie reviews 03:00 - Jobs Report Revision  07:50 - Blocked FTC Noncompete Ban 12:10 - Ford EV Spending  17:30 - 'X' Financing Troubles 19:45 - World Cup Visas 21:50 - Boomer Roommates 24:00 - PSL Coming Back Learn more about your ad choices. Visit megaphone.fm/adchoices

Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, AFLAQ plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morningbrewerdaily. That's aflack.com slash morning brewdaily. Good morning Brewed Daily show. I'm Neil Fryman.

And I'm Toby Howell. Today, Ford walks back its electric vehicle plans as it loses money hand over battery. Then like a margarita you get at an all-inclusive resort, U.S. employment growth has been watered down. It's Thursday, August 22nd. Let's ride. All right, we got to start off with a truly absurd development in the saga of Megalopolis, an upcoming movie, 40 years in the making from Godfather director, Francis Ford Coppola. Yesterday, a Megalopolis trailer

was released showing nasty quotes from reviewers about Coppola's other movies, such as the Godfather and Apocalypse Now, when they first came out. It was an attempt to show that the negative early reviews for Megalopolis, and there have been many, were just another instance of critics hating a Coppola

movie that would end up being a masterpiece. There's just one problem. These quotes seem to be made up out of thin air. The reviewers never said any of those things. about his other movies. When this was brought to light, Lionsgate said it would remove the trailer,

calling it an error in their vetting process. How does something like this happen? Well, I saw a lot of critiques of this, mainly because it's morally wrong to make up quotes, but also they could have gotten away with it if they decided to cite some obscure regional reporter from a small newspaper, but instead they had to invoke these legendary,

very fact-checkable movie reviewers, critics like Andrew Seris, Roger Ebert, the big names in the biz. This isn't the first time, though, that a studio has played a little fast and loose with these fake film critique quotes. Most famously, in the early 2000s, Sony was actually busted for making up a critic named David Manning, who supposedly wrote for a small outlet from suburban Connecticut. It ended in a big debacle for Sony, big egg on their face moment, where they actually had to pay some people who saw those Manning endorsed movies $5. dollar, so who knows, maybe go see Megalopolis and you could have a tiny settlement coming

your way. Now a word from our sponsor, Mass Mutual. Neil, I saw you messing around on the Mass Mutual website the other day. What were you doing? Well, they have this savings calculator that you can play with. It helps you see if you're on track for the retirement you want. Yeah, see, I'm more of a vibes guy when it comes to retirement. I know you are, but you probably shouldn't be. The Mass Mutual Retirement calculator lets you plug in your age and your desired retirement date then estimates what your nest egg might be based on your current income and savings rates. Oh, so very much not vibe space. Gonna need to take that one for a spin.

I mean, that's just the calculator. Mass Mutuals, financial professionals can help you take it to the next level as you plan for your retirement or financial future. All right, all right. I'm convinced. Less math for me to do anyways. Spoken like a true English major. If you want to see if you're on track for retirement, head to massmutual.com for more.

Data from the Labor Department's monthly jobs report has painted a pretty robust picture of the labor market over the last year with lots of jobs being added every month, but it wasn't finished painting quite yet. Yesterday, the Labor Department revised its jobs estimates to show that the U.S. economy added a lot less jobs than previously reported. It had said that it had overstated job growth by about 810,000 in the 12 months ending in March. That means the economy was adding roughly 174,000 jobs per month, rather than the 242,000 jobs that they had previously reported. Neil, what percent difference is that? 28 percent, thank you, Neil. I was about to say it. Now revisions are not out of the ordinary for the Labor Department as part of their annual process.

They go back and reconcile their monthly survey data with more accurate data that is less timely from state employment offices. But this is a big one. In fact, the 28 percent downward revision is the large. adjustment issued since 2009? Yeah, I mean, this is a, obviously, a big revision. It was not a surprise. We knew this was coming for weeks now, so Wall Street was ready, and, you know, markets didn't react all that much, showing that this wasn't the worst case scenario. Some expectations had it that we could, you know, be overestimating the number of jobs added by one million. Then it came in around 810,000. So really, this is nothing to panic about and think

anyone's, you know, selling stocks and mass, they just aren't. But it does show that the job growth picture that we thought had happened over 2023 and into 2024 was a little weaker than expected. And the cracks in the labor market that showed up in a big way in July may have been starting to appear a little earlier that we just didn't know about. So it all, it goes to show that the, the Fed cutting interest rates next month is 100 percent. ago and the focus on the labor market is truly warranted away from inflation and towards whether unemployment growth is slowing down. And part of the reason why we knew this was coming is that revisions of the job growth numbers wasn't really, or the jobs growth numbers weren't

really in line with other data around the labor market that we are seeing stuff like the number of job openings, hiring rate, employee turnover. Those were all painting this picture that there has been this significant slowdown in the labor market over the past years. But then we kept getting these really, really juicy jobs reports numbers every month. And everyone was kind of scratching their head saying, what is going on? So we did feel like a revision was coming. Just digging into, how do you even get those monthly payroll figures then? And why were they so off? Why are readjusting them so much? So these monthly surveys are surveys. They talk to roughly 119,000 businesses and other employees, which is a large size, like 119,000, but it's not

reflective of the entire labor market. So it makes it reliable, but, not perfect. So that's why they do these yearly reviews. They go back and see where we overestimating, where we underestimating. So that's where you get some of these revisions from, because $119,000 is just not a perfect look at the employment. Yeah, they go to like state unemployment offices and get actual documentation there and then match it up with the surveys. And then it comes out to certain revisions. And this one is a big one. You mentioned other data points that show the labor market weakening that hadn't showed up in the actual jobs report. Well, there was one earlier this week that raised some alarm bells.

There was a Fed survey that found that the share of people who think they're likely to be unemployed over the next four months reached a record high, and they started the survey in 2014. So in the last 10 years, there never has been this many people who think they're going to be unemployed in the next four months. But at the same time, a rising number of people also expect to receive a job offer in the next few months compared to a week ago. So what that shows, what those two data points show is maybe there's a lot of churn expected

in the job market where people expect to laid off, but to get laid off, but also to be able to get a job shortly thereafter. Meanwhile, let's talk about Jerome Powell because he's about to give this big speech in Jackson hole tomorrow, which will lay out the path for interest rate cuts and his overall views on the economy. It'll be very interesting whether he mentions these revisions in his speech, whether he's actually revising his speech based on the revisions, because he doesn't specifically always speak to particular data points, but I think because of this massive revision,

we are all looking to see whether Holt talk about a weakening jobs market and mention what just happened yesterday. Yeah, the two big things from the speech is how big and how fast these interest rate cuts might be, you said 100% earlier. I'm going to bump it down to maybe 99% just so we have that wiggle room. But yeah, all eyes are on Jerome Powell's big speech in Jackson Hole tomorrow. The FTC's ban on non-compete clauses has been struck down by a Texas judge, slamming the breaks on the agency's plan to free up American workers to switch jobs to rival companies. U.S. District Judge Ada Brown ruled that the FTC lacked the authority to issue the rule in the first place, saying the role of an administrative agency is to do as told by Congress not to do what the agency thinks it should do.

The ban, which was issued in April, was going to take effect nationwide next month. So what was the goal? The FDC wanted to make it illegal for employers to sign their employees to contracts that keep them from switching jobs to competitors. The agency argued that these non-compete clauses, which affect one in five American workers or 30 million people, depress wages, limit innovation, and stifle economic growth. Businesses tell a different story. They say non-competes are critical for protecting their income.

intellectual property, they want assurances that the trade secrets that give them a leg up over the competition won't be gifted to a rival when an employee leaves. So within hours of this rule being issued in the spring, a tax services firm in Texas sued the FDC, got some backing by the Chamber of Commerce and other business groups, and ultimately won non-competes live to see another day. This judge was saying not only did you overstep your bounds here, you are a government agency. You were kind of, your job is to do, as told by Congress, not do what you think is right in this instance. But the Brown also wrote that it was just an inconsistent and flawed ruling in general because they, she said that they failed to consider evidence supporting non-compete

clauses. She wrote that they failed to find alternatives to the rule that it just issued. So that was generally along the lines of why this was ruled. But yeah, the FDC, this was a big crusade for them. they really do think that non-competes really depresses your chances as an employee to negotiate with other people on the market to find yourself a bigger salary. If you are bounded by these non-competes, you can't go out and offer your services to competitors and hopefully get yourself a bump in salary. So that's why they went after this. I don't think that this is the end of the saga yet, but it's definitely a setback for the FTC. Yeah, I mean, look at what the FDC is saying. They're saying that by removing non-competes, they could boost workers' earnings by at least $4.4.

$400 billion over the next decade because a great time to get a raise is when you move jobs or threaten to move jobs. And if that gets taken off the table, then you're kind of stuck in the role you are. One of the major criticisms of non-competes is that they have kind of been expanded to have a purview of what they originally intended to do. Originally, it was like, okay, you're a tech executive. You are privy to certain company's secrets. And now you're moving from Apple to Google. And like that is, you know, really bad for Apple because we just invent. invested a ton of money in you. But they have grown to, you know, account for one in five American workers, hairstylists, all of these sort of professions that don't require any level of, you know,

very intensive IP secrets or things like that. So they have just become so humongous and so pervasive across all industries that a lot of critics say, look, what are we doing here? There's like, you know, this person does not need to be bound by a non-compete class. If they go to a rival, it doesn't really matter. And the FTC did say they'd carve out for those high-level executives, but they did say it represents less than 1% of the entire workforce. So there's not that many Google execs trying to go to Apple. There are a lot more just normal workers who are bound by these things. One big industry that was going to be affected is the healthcare industry. Roughly 35 to 45% of doctors are bound by non-competes. Hospitals say that, hey, we need to

bind these doctors under non-competes to keep them from leaving their jobs and taking their patients with them. So they were kind of holding their breath around this. But yeah, That was a major industry that was going to be affected that won't be now. Yeah, well, you said the saga is not over, and it definitely is not, because there are actually multiple lawsuits winding their way through various state courts. A Pennsylvania judge allowed the non-compete clause to continue. So the total opposite of what this Texas judge just ruled, experts say this is probably going to make its way to the Supreme Court.

Ford is tossing its electric vehicle strategy in a reverse, canceling plans for two electric cars and reducing it. its spend on EVs. The two cars on the chopping block were an all-electric three-row SUV that had already seen its fair share of delays, but it's also delaying the release of its next-gen electric pickup truck to 2027. All in all, it's decreasing its spending on EVs to 30% of its annual capital expenditures down from about 40% previously. It's been a rough go for Ford so far when it comes to EVs. It is forecasting that the unit will lose as much as $5.5 billion this year. as it has struggled to compete with lower-cost international competitors and also tepid demand from consumers.

Neil, this is a big old 180 degree, especially from Ford CEO Jim Farley, who led the company's push into EVs and is now leading its pivot out from that same push. But looking at the losses, it was clear here that something had to change. Ford has no idea how to make money from electric vehicles. The problem is these batteries are so expensive and so big, and they can't make them for cheap. enough like they do in China. So the fact is they're losing $44,000 per electric vehicles sold. They're going to lose $5 billion this year. And when you are a big public company, you have to do something called, you know, earn profits. And the fact is Ford just doesn't know how to do this. In gasoline cars, the bigger the car, the more profitable it is. That's why they've been leading

into SUVs and pickup trucks. For EVs, it's completely swapped. The bigger it is, the more expensive, a battery cost to build for it, and then it just costs so much to make, and you can't sell it for a profit. So that is the big problem that Ford needs to solve. They say, if we can't make a profit within 12 months of releasing a vehicle, we're just not going to do it. And taken together, these changes mean that the company is offering no new EVs in the consumer market for the next two years, a big blow to the EV, quote unquote, revolution. So what are they doing instead? Well, one, they're pivoting more to these gas electric hybrid models. We have talked about Toyota before and how they kind of were ahead of the curve in the sense that they embrace hybrid models

right from the start of the EV revolution that have been doing very well. Now Ford is saying, like, all right, I think we should meet consumers where they are. They want cars that still have gas capabilities, but they also want that very efficient and long range. So these gas electric hybrid models are once again part of their plan. But yeah, it's very expensive. to be wrong in the car business because you just have all these sunk costs. I mean, they are writing down this non-cash charge of about $400 million related to the manufacturing assets that it built up in order to produce these electric cars that they're no longer going to use. So it's just tough. Like if you miscalculate, you put in all these sunk costs, you build these factories to produce

these batteries and suddenly you're not going to do it. But sometimes you just have to bite the bullet because if you're losing $44,000 a car, it's just not a sound business decision. Up next, Hold on to your horses and call your mothers. It is Neal's numbers. Coming up next. This is Euphoria Calvin Klein. The new Elixir Collection, featuring three perfume intense scents, inspired by a unique orchid accord, paired with vanilla,

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that will make you feel like getting awarded a PhD from Knowledge University. For my first number, if you are a bank who helped Elon Musk finance his Twitter takeover, you might want to hit mute. The $13 billion that Musk borrowed to buy the platform has turned out to be the way. worst merger finance deal for banks since the 2008 financial crisis and among the worst of all time, according to the Wall Street Journal. When Elon Musk wanted to take Twitter private in 2022, he received loans from seven banks, including Morgan Stanley and Bank of America, to help him pay the $44 billion needed to acquire it. Typically, banks that provide loans for takeovers sell this

debt really quickly, so it's not a drag on their balance sheets. But that's exactly what these loans have become thanks to Twitter's brutal financial performance since Musk took over and rebranded it as X. The banks can't sell this debt because they'll lose so much money on it. So it's had to linger on their balance sheets for years now. These unsold loans referred to as hung in the industry have been hanging longer than any similar unsold deal since 2009. Pitchbook says, Toby, you think they regret loaning the money to Elon. Yeah, the obvious question is, why would the banks have ever done this deal? Why would they underwrite a loan for a deal for a company that even Elon at the time was calling massively overvalued? And I think the answer is it was just

Elon must. They wanted to get into banking with the richest man in the world. The banks have been able to collect these hefty interest payments from X along the way. I mean, Elon has said that their annual yearly interest payment is $1.5 billion. So they aren't explicitly losing money, but you're right. They are lingering on its books. Twitter's valuation, or X's valuation has plummeted to around $19 billion, according to the company. Servicing the loans isn't helping X's financial health. So everyone is regretting every decision they made around this deal, especially the bankers themselves,

because these deals linger on the balance sheet, and it affects the compensation if you are a banker at one of these companies. I mean, Barclays sat down its big team of executives in a room in New York City last year and said, hey, listen, all of your bonuses are going to be 40% less, partially due to this Twitter deal on the books. And a lot of the executives took the bonuses and then promptly left the company, about 50 of the 200, ended up leaving after that. So it's causing havoc all up and down from balance sheets to boardrooms.

No one is happy around this. My second number is 677 days, which is the current wait time in Bogota, Columbia, to get an interview for a travel visa to the United States. That is an egregious wait time, but it also presents a major headache for one, subset of the population, soccer fans. The United States, along with Canada and Mexico, is hosting the World Cup in 2026, and fans who are desperate to show up and support their teams from all around the world are facing the very real prospect that they can't get their travel visas in time for an event that starts in 26. That's how backlog the U.S. immigration system is,

according to NPR. And it's not just Colombia. The wait time for a visitor visa in New Delhi, India can extend up to 386 days. The U.S. has visa waiver programs with 41 countries, but if you're not from one of those places and want to attend the World Cup in two years, the thing you hear from officials is don't wait, apply now. And the backlog is so severe that it's caught the attention of Congress. A bipartisan group of 21 senators is pushing the Biden administration to establish a White House task force on global sports events because it's not just the World Cup that needs visitors. The U.S. is also hosting the 28 Summer Olympics in L.A. And the 2034 Winter Olympics in Utah. And preventing international fans from visiting would just

be a huge own goal. It would be a huge own goal, especially because the World Cup is going to be the biggest one ever. And I don't just mean because I think there's going to be a lot of hype around it. It literally has more teams than a previous. Usually it's been 32. It's expanding to 48 teams. So even more countries are going to be interested in coming and seeing their teams play. it puts fans in such a tough spot, though, because you are having to think multiple years in advance, you don't even know if your country is actually going to make the World Cup at this point, so you could go through the whole process

and not even end up qualifying for the World Cup. So people are rushing to apply now. It's just a really bad situation. Yeah, just a staggering number of how long it takes, and immigration is such a politically sensitive issue. And Cotter for the last World Cup, they offered expedited visas, but it just doesn't seem like that's politically palatable here in the United States at this point.

For my final number, I want to introduce a new term boommates. It's when your roommate is a boomer. And it's on the rise during this era of skyrocketing housing costs. Bloomberg reported that almost 1 million people over the age of 65 now live with unrelated housemates. And roommate finder sites like Spare Room are seeing a surge in older users looking for people to live and play mahjong with. In fact, it's the cohort with the fastest growth.

In all, one in four roommates in the U.S. is 45 or older, a share that's more than doubled over the past 10 years. It's just not exactly a secret what's going on here. Boomers are retiring, but their costs have soared, whether it's rent that's gone up 33% since COVID started or higher mortgage payments. And just like younger people, they're finding it helpful to share those costs with a roomie. There's also just more older people in general. In 2012, there were 43 million Americans, age 65 and older. and in 2022, there were $58 million. Toby, would you consider having a booming? Absolutely. That sounds amazing. Just whine down at night with a cup of tea, maybe a show on. It sounds very nice. Yeah, just because you are older doesn't mean you're automatically well off. We've talked a lot about how boomers are a very rich generation, but that doesn't extend to everyone. So of course, some people are struggling, especially with these rent costs skyrocketing. One person Bloomberg spoke to runs the New York Foundation for Senior Citizens, which is this nonprofit that has a program that focuses on matching older adults,

roommates. And when she started the program, a lot of the motivation for sharing a room was potentially loneliness because you, as you age, like you want someone to live with and talk to you. But now there's been a huge uptick in people looking for roommates for financial reasons. So it does, it kills two birds with one stones. Like you are less lonely and you also have less of a financial burden. So I'm all in on boommates. I think you would like it too. I would too. I'd love living with someone who could impart some wisdom. I think I need. I think I need some of that. You are all no doubt well aware of Starbucks's struggles at this point. So the drink chain is breaking out the big guns in order to bust it out of its slup.

I'm not talking about its new $100 million man CEO Brian Nicol. I'm talking about the pumpkin spice latte. On this fine summer Thursday, August 22nd, Starbucks is breaking out the big guns. The PSL is returning for the 21st straight year today, the earliest it's ever made its debut. bringing back the fall drink this early in the year. Smells like fall, but it also smells of desperation. Starbucks has been facing a major slowdown in sales in recent month, and it's hoping its most popular seasonal menu will drive sales in traffic like it has done in the past.

Neil, new CEO, but same old PSL. It is a juggernaut. You just got to play the hits. I mean, this is a very important time for Starbucks. We make a lot of PSL jokes, but this is a huge sales driver. I mean, typically in the past, this week when they release the PSL, has been their biggest sales week of the year. So it's very important for them to get this out in front of consumers and maybe drive a little more hype and excitement around a chain that's been, you know, slowing down. There's been declines in quarterly sales growth for the past two quarters.

Maybe the PSL is just what it needed to get the reversal going. And we have seen extremely strong consumer demand for anything fall related, anything Halloween. We've talked about summer wean trend on social media where people are just busting out the Halloween decorations very, very early. A lot of companies are selling, putting their Halloween goods on display in August. Starbucks does say that around 10% of its sales comes from running the hits, returning favorites of its most seasonal menu. So you're right. It is very important. I do think, too, that this could not be going any better for Brian Nicol either.

He's stepping into the CEO role in September right in the middle. of Pumpkin Spice Lottay season. So right away, I think he can point at rising sales and a lot of momentum, even though it's totally out of control that people just love PSL this month. So I think he's happy that he's timed this very nicely. How long do you think the Pumpkin Spice phenomenon industrial complex can last? Because, I mean, everyone, Starbucks is considered with, you know, inaugurating the trend into the public consciousness in 2003.

This is the 21st year they've done it. And then everyone has copied them. everyone has a pumpkin spice, not only drink, but food and fragrance, and literally any product you can go down the line. But there's signs of some consumer fatigue. Nielsen found that there were 5% fewer pumpkin spice products last year than the previous year. Do you think peppermint can overtake it?

I don't know. I tend to not want to bet against pumpkin spice because I do think that even though it's starting earlier and earlier, it still just signify something larger, which is the changing of the seasons a little bit of a crisp coming to the air. And I think people just associate it so much with that moment that it's not going to go away anytime soon. I have been a convert, by the way. I used to hate it. I thought it was disgustingly sweet. But now something about it, like I do love, it's still disgustingly sweet, but maybe my ballot has changed a little bit. So I'm Team PSL, even though it feels utterly wrong to be talking about that. Are you going to

go on today? In mid-August, yes, I probably will. Well, they got lucky with the New York weather here. I mean, it's definitely a little cooler and you kind of feel okay getting a fall drink. Let's wrap it up there. Thanks so much for starting your morning with us and have a wonderful Thursday. I swear to God, this is the longest week ever. Thank you so much for the birthday wishes yesterday, too. I will respond to those as soon as I can. And if you want to send an email about anything else, shoot a note to Morning Brew Daily at Morningbrew.com.

Also, don't forget to share this podcast with someone if you enjoy it. Toby, who should they share it with today? I want you guys to share it with the first person in your phone's contact whose name starts with V. So Valerie, you are in for a big morning brew daily day today. All right, cool. Share it with Valerie or Victor or... I got nothing. Veronica.

Veronica. All right, let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham is our associate producer. Yuchenoa Ogu is our technical director. Billy Minino is on audio. Now hair and makeup can't leave for arrival.

a podcast and we love it. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.