Power Lunch - Washington’s Message for the Market 7/28/22

Episode Date: July 28, 2022

President Biden and Treasury Secretary Janet Yellen have a message for the market: “we’re not in a recession”. Our experts tell us if Wall Street and Main Street agree. Plus, The CEO of mall REIT Kimco Realty shares his view of the economy. And, what an economic slowdown could mean for Apple. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

You're listening to Power Launch in progress. All right. Well, there was Secretary of the Treasury, Janet Yellen, speaking about the state of the economy, saying the U.S. is not in a recession. And in 15 minutes, President Biden is expected to speak also about the economy. She was very careful, Kelly, in her language there, to avoid suggesting that the economy is in recession. In fact, she answered one very interesting question about nominal GDP, that is, non-inflation-adjusted GDP, growing very nicely, but then once you throw in an adjustment for inflation, it turns the economy into those negative GDP numbers that we saw earlier today.

Labor market's strong, household balance sheets good, business bankruptcies low, not the kinds of conditions that you would expect to see if the economy were either in or imminently heading into a recession. That's what she says. Let's bring back our panel. We'll get to Kayla Taushy in just a moment. She asked a question down there. Steve Leasman is in Washington, Dan Clifton,

head of policy research at Stratigas Research Partners, a Baird Company and Tony Frato founding partner of Hamilton Place Strategies and a CNBC contributor. Steve, I'm going to begin with you. You have long experience and knowledge of Secretary Yellen and how she speaks and what she says and how she says it. What did she just tell us? You know, she's trying to walk that fine line between acknowledging what's really happening in the

economy, which is an economy where inflation is very high, and Americans are feeling that and has really soured their opinion about the economy. While there are some aspects of the economy that are doing quite well and have done well so far, whether or not they'll do well in the future is unclear, but the job market being one of them. There are some decent investment numbers. The first half has not been that bad. And it's funny, I don't know, Tyler, if it's a semantic argument or it's a timing argument. It is entirely possible that July or August could be the beginning of a recession. The point that I've been making is it's very difficult for it to be June, because June had those high job

numbers and some decent numbers from the first quarter as well when it came to consumer spending and business spending, but she is acknowledging a significant slowdown. And of course, as I know Tony Frato did, every time the Treasury Secretary says the word dollar, he would have done a shot, if I'm not mistaken. Let me just linger for just one minute, get a quick answer on this distinction between nominal GDP and real GDP, which, of course, was negative by 9 tenths of a percent. So am I understanding correctly that but for inflation, you would have a number that shows the economy growing rather nicely. Right. And but for, you know, the airplane or the engine, we wouldn't be

flying at all, right? I mean, it's sort of like you can't really get rid of that, Tyler. It is interesting and notable that there is very, very strong nominal economic activity. The issue is that how do we count that? We don't count it without inflation because some of that is just people paying higher prices. It is good, though, that the activity is happening, which means that if you were to remove the inflation problem, you could possibly have nominal activity remain at a high level and therefore translate into higher real activity. Tony, let me just ask you if I might. The secretary is selling the idea that Americans are feeling distress and that most of that distress is attached to rising inflation, that there isn't a recession either present or imminent

in the economy. And yet, One of the questioners said, more Americans than not, say we're in a recession. Do you think the American public is buying what Secretary Yellen is selling? Well, no, look, I don't think they're buying it. I don't know that she has much better options in how to talk about it. I mean, I listened to her very, very closely, including the words that Steve noted that gave, got my heart pumping when she started talking, you know, we got the question about the dollar. But it's, look, she has an anchor to talk about, which is.

jobs. It is the best message is one of the strongest job markets in the history of the country. And so that has to anchor their discussion about the economy. And it's true that no one has ever uttered the word recession when we have a 3.6% unemployment rate until this year. So it's clear. I think if you take a step back and just listen, how the American people are hearing this stuff, though, is that they do have angst about what's happening and they've heard negative growth. and it takes a lot of words to describe why they shouldn't feel as bad about it as they do. And then part of the message is a counterintuitive message. So the counterintuitive message for the American people is to say that we need to slow down the economy in order to help mitigate on inflation.

And so it doesn't sound like a positive message to say we need to slow down the speed of the economy, slow down growth in order to solve inflation. that is really a hard message. And all of the attacks on the economy fit on a bumper sticker. And that's just a tough place to be when you're in the administration in this situation. And kind of dancing around the inflation word that really is all that this is about. Let's turn back to Kayla Taoshi, Kayla, for what I thought was also a very pertinent question that you had of her, which is to say, what's her tenure? I mean, you know, not that it's in any jeopardy.

But we are going to start seeing the public looking for accountability. Steve alluded to this others have as well, whether it's from Chair Powell, Janet Yellen, other administration officials, and so on. Well, we know that the chief of staff has told senior staff that anyone who is serving the administration right now is expected to stick around through the midterms. But there are a lot of open questions about what the cabinet and what the administration looks like after the midterm. So that's one of the reasons why that question has been top of mind for a lot of people.

But what I heard from Secretary Yellen today was something very different than the rose-colored glasses that the administration officially has been talking about. She said she wants to avoid the semantic battle over whether it is a recession because households are feeling so much discomfort. She said that a slowdown is in progress and that unemployment might need to broach that 5% level to get inflation back down to 2%. She said a mild recession is possible and that we've seen that in the past where maybe the labor market stays strong, but you see consumption and investment really fall off a cliff. And she paid particular attention to the global shock. She highlighted China, COVID lockdown, supply chain log jams, and what's going on in Europe. And I think there is this bigger question about when do Europe and China enter a recession

and how can the U.S. avoid the spillover effects of that, even if the U.S. is the best house in a bad neighborhood. So Secretary Yellen is acknowledging all of those issues and talking about those shocks saying that some countries that have dollar denominated debt are going to have a very hard time paying back their creditors. That could create stress in the system. So she's highlighting a lot of the risks alongside the bright spots and not trying to gloss over this as something where a recession is not possible. Kayla, thank you very much. Kayla, Towsha reporting. Stephen Tony, thank you as well, our Steve Leesman and Tony Frado. As we wait for the president who will be speaking potentially at 2.15 p.m., unless that's been delayed at all, we're also learning more

about the health of the economy from earnings. Bob Bassani is standing by with more on what corporate America is telling us, Bob, the president will have CEOs with him. Yeah, it's a sort of a mixed bag today of reports as we approach the halfway mark for earnings. Today, in fact, after the close, the halfway mark. On the one hand, now we had very positive reports from industrial giant Honeywell. They beat expectations. The CEO said they were confident.

Demand would remain strong in the aerospace business and the energy business that they work in in the second half of the year. pharmaceutical giant Pfizer reported record sales due to COVID vaccines and the antivirals that they make. They affirmed their full year guidance. And Hershey, which saw higher raw material costs, but they were able to raise overall prices, Kelly, 9.5%. Think about this. We're talking mostly chocolate bars. That's quite a price height, 9.5%.

On the other hand, Stanley Black and Decker missed analyst earnings and the revenue expectations for the second quarter. They cut their guidance for the full year due to a combination of higher costs. that hurt margins and lower demand. Remember something, Black and Decker was a darling of the Do-It Yourself crowd during COVID. Like you see, it's gone essentially all the way down and all the way up and back down again. Still, the bottom line on overall earnings is that the much feared earnings apocalypse has not materialized. Estimates for the second half of the year are down slightly from a month ago, but still, as you see here, posting very healthy, expected gains for the rest of the year. As for why we are up today on a down GDP report, Kelly, the market is likely

interpreting this data as a sign that rate hikes are indeed slowing the economy. Now, if you want to believe that this gets us closer to slowing inflation and gets the Fed closer to its goal, then this decline in GDP would be good news because it implies the Fed may not need to continue to raise rates into 2023. And of course, as you saw with the Steve Leasman discussion there, the market overall has a severe disagreement about 2023 with the Federal Reserve. They don't want them raising rates. They say they're going to. Yeah, and it's amazing, Bob, to look at the level of the 10-year yield, which I don't

know what it's telling you right now. I mean, who would have thought that we'd have a GDP report where inflation ate up all the real gains, and you'd respond to that with the bond yield dropping? It's strange. Yeah, well, it's telling you that there's an economic slowdown coming, and the question is what the extent is. It's amazing how many people have jumped on the mild recession bandwagon in the last several days, including yesterday where several key people came on our air and talked about it. Jeff Gunlock did and some other people as well are in the mild recession camp now.

All right, Bob, thank you very much. The Treasury market has been sending its own message about the likelihood of recession as yields fall, as we're just talking about this afternoon, and are way below where they traded just six weeks ago. Let's get to Rick Santelli at the CME. What do you make of all this, Rick? You know, it seems pretty clear to me. The biggest issue we have right now, and I hate to say this, but it's true. And I think Tony kind of walked right to the edge,

is that there's a lot of politics getting played shocking. But it shouldn't be considered a negative, but Janet Yellen paints a very good picture of the economy. Maybe she should get an Oscar for that because I thought it was a tremendous job. But as you look at an intraday of twos and tens, there was very little reaction, whether it was to the president earlier or Janet Yellen. And I think that's very important because the only thing I see going on post-GDP is the Dow Jones Industrial Average, the S&P, the NASDAQ, they're having really good days. I wonder why. There's really no good news.

Matter of fact, if you look at the five bits of news this week, Tyler, consumer confidence was the weakest since February of 21, new home sales was the weakest since April of 2020. Durable Goods was the one bright spot. but it's not really adjusted for inflation. Pending home sales were down almost 20% year over year. GDP was horrible, and initial jobless claims had their second highest level in the last eight months. Listen, jobs, jobs, jobs are good, okay? But consider, consider that if we look at January and February, non-farm was $504,000 and over $700,000. The last four months have been into $300,000.

It is slowing. And I love doing jobs, jobs, jobs. And I think it's a very important statistic. But it definitely is a bit of a lagging indicator. And what's more, if you consider the labor force participation rate, last look, was 62.2. It was 63.4 pre-COVID. Why am I mentioning that? Because I think Janet Yellen needed to mention that.

Certainly we're creating a lot of jobs. But the unemployment rate's really nothing to brag about because we're not counting people that could be working, that should be working, that aren't working. And finally, if we consider that interest rates are going down, and they've been going down since the last Fed meeting, not the one yesterday, the one in June, the bond market has had it right. Listen, we could talk about recession and semantics all day long.

The Treasury Complex is telling us the economy is going to slow, and the one thing Kayla did that, to me, Kayla, you get an A-plus today, by bringing up weakness in Europe and Asia, because you can brag about the economy as much as you want. They have a tsunami of weakness that's going to show up based on energy in Europe, and it's going to be very difficult for our economy to grow. Think IMF here. Back to you.

Couldn't agree with you more on that last point about the threats in Europe or in Asia. I worry more, frankly, about what could happen in Europe as the cold weather months come. But on the matter of the labor force participation, I don't mean to pick Nitz here. But my suspicion is that it is as low as it is in part because people have elected to not work. It's their choice. It's not or they're making that choice either because post-pandemic they don't want to do the job they did or post-pandemic they are waiting for higher wages until to bring them out of semi-retirement. No, I couldn't agree more. But yet when I go to my restaurant and I get really rotten service because there's not enough people working, they can't hire them.

I just don't look at that as a positive for the economy. And think about all the layoffs that have been announced, especially in big tech. And housing. Didn't even mention housing. Housing is, listen, layoffs are coming. And that's the precursor along with claims. I agree with what you're saying, Tyler, in principle. But I just think that we need to be more honest here.

The economy is slowing and as great as jobs have been. they have been great. Remember, this recession that we're either going into or the one that we came kind of out of with COVID, this is a unique scenario. We shut down an economy. And I think that that helps explain some of the positives, but I'm positive that it wasn't because of policy. All right, Rick, thanks very much. Rick Santelli. So what is the policy message out of Washington? What does it all mean for your investments? Let's bring in Brian Gardner, Chief Washington. Policy Analyst at Stiefel and Mike Bailey of FBB Capital Partners. Welcome to both of you.

Brian, let me begin with you. There's much hoo-ha this morning about a bill that apparently Senator Manchin has agreed to that is called something like the Inflation Reduction Act of 2022. Where do we find inflation reduction in that bill, Ryan? In the title. That's it. I mean, I don't mean to be overly cheeky, but seriously, I mean, there is no inflation reduction, at least in the short term in that bill. I mean, in any kind of legislation, not this, not just this bill, but any bill. It takes a while to implement and take effect. There's always a lag effect in policy. And so the impact of inflation

on this piece of legislation is 2024. Late 20, 23. optimistically, really 2024. And so looking at the next 12 months, what's the impact from this bill on inflation? None. Do you see, there certainly are, I guess on the other hand, people would point to such things as the ability of Medicare to negotiate for prescription drugs, which might reduce prescription drug costs, speeding up permitting on certain energy projects, that that might be disinflationary, but whatever. Let's set that aside for now. Brian, do you think this law can pass? Yes, I do. Yeah, look, there are a couple of hurdles. We don't know where Senator Sinema is, Senator from Arizona. She's opposed a couple of items in the bill. I don't think they're going to be

deal breakers for her. Carried interest is one of those, but I don't think it's a deal breaker. They're going, Democrats will have to keep all the House Democrats on board because all Republicans will vote against it. And the saw the state and local tax deductibility issue is a big deal for a key group of House members. So that's another hurdle. And just flipping back to the Senate, Senator Durbin just announced that he's out with COVID. You know, the Senate Democrats are only one case away of COVID at any given time for not having 50 votes. So there's a few things going on here. At the end of the day, I think Democrats will overcome all of those, and they will pass this because it's too big not to. But they do have a couple of hurdles that they have to pass clear between now and getting the bill to the president's desk.

Notably, Goldman doesn't think it's going to have much impact because the tax revenue raise kind of funds the spending. So it's not really stimulus. Obviously, it will change some of the character of the economy. Brown, more quickly to you, why do you? you think Manchin changed his tone on this? And do you think that salt will be, you know, a potentially fatal blow? I'm sorry, Kelly. Was that for me? Yes, I'm sorry. Go ahead. Sorry about that. No, no, no, no. I think salt can be. I, I, because it's been such a big deal, such a line in the sand for so many House Democrats, for a core group of House Democrats.

that the mantra has been no salt, no deal. At the end of the day, though, despite what they have been saying for the past year, I think those Democrats are going to undergo such pressure from the White House and Democrats around the country. I have a really tough time seeing them sticking up to that pledge. I think at the end of the day, they're going to flip and vote for the bill. because if they don't get this done now, they're not going to. The House is going to flip in November, most likely. And this is their only shot to get a number of Democratic priorities, and they know that. So they won't, they'll be unhappy, and they'll grind their teeth about not getting salt relief.

But at the end of the day, they'll take a bill with no salt. Hold the salt. All right. Mike, let's turn to you and get some investing advice against this context that we're all talking about here of potentially a slowing economy, high inflation. and so forth. It seems to me that you draw a distinction in technology between companies that are ad-dependent, i.e. Facebook, Google, and those that are not, in your list is of potential buys, Taiwan Semiconductor, also Progressive Insurance, and United Health. This is a fairly defensive, I would say, posture. Am I reading it right? I think that's fair in particular, two of the three games there, United Health and Progressive. Definitely counter cyclical, pretty blue chippy, a little bit more kind of a premium valuation.

So I would agree with you. There's some little bit of a defensive angle there. To be fair, I might push a little bit, something like United, but they're growing earnings kind of 12, 13, 15%. That's pretty powerful. Progressive, it is cyclical, but there's a very nice long-term market share story there. The other one is Taiwan Semi. So definitely a little bit kind of out of the norm in terms of something folks typically look at. But, you know, I would not call this one defensive. It's cyclical. There's a lot of growth built into it. You are betting on a semicycle.

I think you're betting on cloud computing. We saw good numbers at Microsoft or probably get good numbers out of Amazon there. That really feeds back into, you know, what kind of chips are coming out of, you know, fabs such as Taiwan semi. So I think there's, you know, I think you do want to maintain a portfolio with a little bit of defensive, a little bit of growth and some cyclicality. So these are a few names I think that fit in a bill. Quick, quick final question. You say you thought the numbers out of Microsoft were good numbers. Do you feel, why do you feel that way? Because some people said, well, they weren't really.

And also, what do you feel about alphabet and those numbers? Absolutely. So just taking a look at Microsoft, for example, I think we saw Azure and, you know, cloud computing growing in the 40s, you know, 40% plus. That's pretty powerful. I mean, I think as a Microsoft investor, which we are, it would be great to have a beat, you know, something close to 50%, etc. But again, if thinking through that food chain, Microsoft is their growing demand for these high-end chips, 40% a year. That's a massive clip. So where those chips come from? You can look at the chip companies. You can also look at who's making them. That's some serious demand. So we can switch gears a little bit and look at Alphabet. So they've got a small cloud computing business that did pretty well. But the other piece is the online ad. So that's definitely been a big source spot this earning season.

Snapchat blew up. Meta's definitely struggling. It does seem like at the moment, Google and Alphabet are probably the best house in a tough neighborhood at the moment. a lot of dynamics there. But at the moment, so pretty favorable in terms of what we're seeing at Alphabet. All right, gentlemen, we have to leave it there. But thank you so much for your time today. Brian Gardner and Mike Bailey. And coming up, we are waiting for President Biden's remarks on the economy.

Let's look at the room where it's going to happen. That out of Hamilton, folks, the room where it happens. Some CEOs will be there for this discussion. Business leaders on the economy. We'll talk to the head also of the Maul Riet Kimco, he'll be with us, has a unique view of the consumer spending habits, and the company just raised its guidance and dividend. The stock up nearly 10% this month, as we had to break. Take a look at JetBlue and Spirit Shares after the two announced a merger that will create the nation's fifth largest airline after the deal with Frontier fell apart.

Frontier's not crying about this, are they? Look at that number. Wow, up 16%. Welcome back to Power Lunch. I'm Dominic Chu. What you're looking at right now is a live shot as we wait for President Biden to begin speaking later on this afternoon, meeting with business leaders on the economy overall. In the meantime, while we're waiting for the president, we are looking at crypto-linked stocks moving higher on the day as the price of Bitcoin jumps nearly 5% back above near that 24,000-ish level. As you can see, they're just a hair below 23,800. Check up, though, check on shares of Coinbase up about 5%. Also, micro, micro, strategy, Marathon Digital, each up around 4% apiece. Zooming out a bit on these socks, though, they've launched some major gains over the course of this month. Marathon Digital, by the way, has sort about 140% so far just in July. Micro Strategy is up 60% and Coinbase is up 31%.

But maybe the most important to note here, these stocks are still holding on to very big losses for the overall years you can see here. So yes, a very good couple of weeks. We'll wait and see Tyler if it becomes any better. Back over to you. All right, Dom. Thank you very much. And as we await President Biden's remarks on the economy, our next guest has a unique pulse of Main Street and the consumer.

Kimco Realty owns more than 500 shopping centers in the U.S. Its tenants include TJX, Home Depot, Albertsons, Walmart, to name a few. Connor Flynn is the CEO of Kimco Realty. Glad to have him back. Posted an earnings beat, raised guidance, increased its dividend. All things that investors like to hear, Connor. Congratulations on that. Thanks, Tyler.

Nice to see you. What do your results of your business, and you posted, I guess, an EPS loss accounting from some write downs of stock in Albertsons that you own? But what do your results and higher revenues tell you about, A, the state of the economy and most especially the state of the consumer? Yeah, it's really interesting, Tyler. When you look at the portfolio and the results that the team produced this quarter, we're very proud. Up and down the portfolio and the metrics, you know, occupancy gains, pricing power. and our leasing spreads are up over 16%. And you look at our earnings growth of significant growth there.

It's really a telling story that retailers are opening stores, and there's a lot of demand being driven by the customer today. Our traffic is up year over year as well. And one of the more interesting tidbits, I think, from our report today, is that the small businesses are actually growing dramatically throughout our portfolio. And that, I think, is an indicator of some of the strength in the economy, is those smaller businesses really are at record demand highs for our spaces in our grocery

anchored shopping centers. Occupancy stands where compared with where, let's say a year ago? We're up to 95.1% occupied today. We still think there's more room to run there. And there's a lot more demand we see from, again, some of the larger players, the anchors that we have, as well as the smaller businesses that are expanding. So it's a nice spot to be because there's really a convergence of value and convey. that the shoppers are looking for today.

And that's what our local grocery anchored shopping centers provide, is that combination. And we see three major trends that we're still benefiting from through this pandemic. First, the suburbanization effect. A lot of people move to that first-ring suburb. And that's the Kimco consumer. We're really concentrated in the first-ring suburb of the major metro markets. Second, the work-from-home dynamic, a hybrid model that most are working from, obviously benefits the local shopping center and those trips that you take to grab a bite to eat in the morning or afternoon.

And then third, probably the most important is the last mile of distribution fulfillment point. That's what's really changed to the pandemic. And Target came out recently and said that when they utilize their stores for last mile distribution of fulfillment, it's 40% cheaper than using a large distribution center. And that's why we feel like the future of retail is really focused on that last mile. Connor, it's Kelly here. Are we in a recession based on how your business is doing? And can you compare and contrast today's environment with past recessions that you have experienced? You don't see the recessionary warning signs yet. We're cautiously optimistic as we have to

continue the momentum that we're seeing. We're also experiencing a reopening trade. So again, there's a lot of cross currents that are going on today. Typically what happens in when we see a recession or recessionary warning signs, there's a pullback in retailer demand. And we have not seen that. We're still in record demand levels. We also are not seeing any pullback in traffic. The consumer is above last year's traffic patterns. And again, that would be a retraction if it were a recessionary warning sign.

And we still have pricing power. Our new leasing spreads are up over 16%, which means that, again, we're able to push rents as the demand outpaces supply. So we're looking for cracks. We're cautiously optimistic about the business and the visibility of our growth and our earnings. But we continue to watch the consumer really resonates today with the Omni Channel approach. They want to shop, how they want to shop, when they want to shop. And it's that Omni Channel approach where, again, if you want to shop online, pick it up in store,

or at the curbside pickup program that we've coined to the launch nationwide or delivered to the home from the local store, that's what's really working today. And Kimco really provides that. I need a quick answer here. You mentioned sort of inferentially increases in small shop occupancy. It is up by 3.7% over the second quarter of 2021. What kinds of shops and what accounts for that? Why do you think that's happening?

So that's that small business engine that I'm so excited about seeing really strengthen throughout the portfolio. It's a combination of medical. So a lot of those urgent care facilities that you've probably seen, a lot of pediatric care, as well as quick service restaurants, but a lot of services have come back to the shopping center as well. Air and nail salons, a lot of fitness and boutique concepts like that. So it's really a combination that's really driving it.

And it's really robust across the portfolio. Connor, always good to see you, sir. Thanks for having me. We'll see you around. Connor Flynn, Kimco. It's like you can hear it from him. What's going on with the recession or lack there of? We are waiting for the president's comments on the economy.

ahead on the show, we'll get the traders take on those growing. I'm not going to say it again. Recession fears, we will. We'll be back right here in a moment on Power Lunch. Stay with us. Don't go anywhere. All right. Let's take a look at the markets right now, at least the equity markets.

All are higher by roughly 1% or a little bit more, a little bit less in the case of NASDAQ. This follows on yesterday's gain. The Dow had been up as much as 391. It is now up 350 points. The S&P 500 up 46 or 1.1% NASDAQ is up 100 points at 12,133. We're still waiting for the president's comments on the economy along with I see Janet Yellen there, who just spoke a few moments ago over at the Treasury Department, about a block away from the White House.

Kayla Taushy is at the White House. Hi, Kayla. Tyler, we've all made our way back here to the White House complex after that press conference at the Treasury Department, just about a block away. The purpose of the event that is about to begin is to hear it first from the companies like Bank of America, Marriott, Deloitte, and TIAA, are consumers, our companies, investing, traveling, manufacturing, spending. The White House wants to hear from these industries directly, to put the words, to hear directly from them. You already heard the president today speaking about the Inflation Reduction Act of 2022, what he believes that will do to reduce inflation, potentially spur growth. And he was talking about the administration's argument, echoing that

argument that the U.S. is not in a recession technically because of how much strength there is. But the purpose of this event is to hear it from corporate America, hear what they have to say, where there are bright spots in the economy, where there might be weaknesses. And as we just heard from Secretary Yellen, while the economy is strong, there is definitively a slowdown in progress. Kelly and Tyler, the elephant in the room is inflation. And, um, Perhaps it's an elephant we're all talking about now with the Inflation Reduction Act. But how should we expect the president to talk about it, characterize it, explain where it came from, explain what the plan is for tackling that? Do you think it's even going to come up at all?

I'm not sure it's going to come up in this format right here, Kelly. The president already talked about it at length earlier today. And the Treasury Secretary was asked specifically by a reporter from the Wall Street Journal exactly how much she estimated that would have an impact on inflation. She said she didn't know, but here's the president. Hey, Tim. You were really good, no, my God. Thank you. Hello, folks.

Can I hear me up in the stage here? Well, let me begin by saying, I apologize. Being a little late, there's a vote going on right now, I'm a mild interest in, and I apologize for keeping you waiting. First of all, I want to thank the CEOs from some of the people. America's leading companies from technology and financial services to travel and retail. And we're here, we'll hear directly about the outlook for their businesses and the economy from their perspective and how we transition from a historic economic recovery to a stable,

steady growth and lower inflation without letting go of all the historic gains we made over the last 18 months. But before we get started, I want to say two things about the GDP report we received this morning. First, it's important to start with what we know before this morning's report. Our job market remains historically strong. Our economy created more than 9 million jobs since I came to office in no small part because the people on this stage. Our economy created more than 1 million jobs in the second quarter. The same period as today's GDP report covers. And our unemployment rate is 3.6 percent near a record historic low. Secondly, households and businesses, the engines of our economy continue to move forward.

Just this past week, SK Group from Korea was here at the White House to announce $22 billion in new investments in semiconductors, advanced batteries, and electric vehicle chargers, and medical devices. That's on top of the $200 billion in clean energy investments in America from other businesses since we took office. powering the strongest rebound in American manufacturing in three decades. Now, there's no doubt we expect growth to be slower than last year, the rapid clip we had. But that's consistent with the transition to a stable, steady growth and lower inflation.

There are going to be a lot of chatter today on Wall Street and among pundits about whether we are in a recession. But if you look at our job market, consumer spending, business investment, we see some of economic progress in the second quarter as well. And yesterday's Fed chairman, the Fed chairman, Paul said, made it clear that he doesn't think the U.S. economy is currently in a recession. He said, quote, there are too many areas of economic where the economy is performing too well. And I said too well, T-O-O-2-L. He pointed to the labor market as an example.

The best thing we can do right now is put our economy in a better position to make the transition to stable, steady growth for Congress to, and is steady, stable growth is for Congress to act. It's the best thing we can do. They're voting right now, as I said. I applaud by the bipartisan effort to get the Chips Act to my desk to sign a law, which would advance our nation's competitiveness and technological edge by boosting our domestic semiconductor production and manufacturing. Another thing that Congress should do is to pass the Inflation Reduction Act to lower prescription drug costs, which would reduce the deficit, I might add, and help these inflationary pressures and ensure that 13 million Americans can continue to save an average of $800 per year in their health care premiums.

Both of these bills are going to help the economy continue to grow, bring down inflation, and make sure we aren't giving up. on all the significant progress we made in the last year. I'm going to stop there and begin the meeting. But thanks to the CEOs for joining me. And let me start with you, Brian. And thanks for taking all my phone calls, pal, on the Bank of America. I want to ask you a question.

Your bank serves many Americans across the country. What are you seeing right now in terms of financial health of your consumers? What's the bank records tell you about the financial health? Well, thank you, Mr. President. It's good to see you recovering. That Bank of America, we have you have 60 million consumers and 35 million core checking accounts for Americans.

And so a couple key points. Number one, they're spending more money. Through the first 25 days of July 22, they've spent 10% more than they spent in July of 2021, the first 25 days. And that's consistent with what we saw in the whole second quarter in earlier this year. The second key point, I'd say, Mr. President, is their balances are much higher than they were in a pandemic. And so if you look at people of sort of $100,000 income families and our client base, you'll see if their balances go from three to five to seven times more than they were in a pandemic.

And by the way, they have grown in the month of July versus June so far, which is good news. So they have some money in their accounts still to help them through as the economy. resets and settles in. The third thing is on their borrowing. Our credit statistics are better than they ever been, much better than 19, which was a pretty good credit year for banks. So delinquencies are low. They haven't gone up in the month of July. There's lots of credit availability for our customers, their ability to borrow in the home equity lines that are credit cards. Obviously, the most rates, rates, sense of parts of the economy due to what the Fed is trying to achieve and slowing down the economy and getting on more sound footing, mortgages and car loans

and things like that have slowed down, but that's an intended outcome. And so even in accounts, you could also see that they're receiving paychecks, because we can see that, you know, recurring payments, that's good. So the consumers on good spending has the balance is borrowing, and then the question is what they're spending on, and travel and experiences versus goods. They bought everything they could, they bought a lot of stuff when they were cooped up at home. They're now out traveling and experiencing a world due to the vaccines

and the condition of the COVID pandemic. But unfortunately, as you noted earlier in their comments, they've had to spend more on gas. But the good news is if you look at June versus July, the year-of-year growth has gone from a 40-plus percent growth rate in spending on gas to 30 percent. So it's starting to come down as you've seen the price of oil stabilized. Then the last thing I'd add is just what's on their mind when we talk to the same things you read about the paper. They're worried about inflation because prices go up. They worry about rent increases because half the consumers in America don't have a mortgage that they're renting or paying on a monthly basis. And they're worried about, frankly, a lot of our consumers are

saving, putting money in the market and when markets down. The good news is it seems that we stabilize on those matters and we go forward. So right now they're doing what we wanted to do, which is being employed, some of the stresses in the system. There's no discounting that. And we're trying to help all those customers through the stress. That stress has been mitigated by the work that your administration, prior administrations did to help people through the pandemic and also just the strong employment that you spoke about. Well, Brian, thanks a lot. I really do appreciate your, and thanks for always being

available for your input. I appreciate a great deal. And now I have a question for the CEO of Marriott, who is very disappointed to hear they're investing in travel. A great concern to Tony. The travel and hospitality industry is experiencing, and did experience, tremendous hardship during the pandemic. But the recovery now is experiencing is a very different experience.

Things look really up for your industry right now. And how would you describe the industry today and how do you see the path of demand through the end of the year? I know that's, you can't, no, nothing's guaranteed. But what's your sense? Well, thank you, Mr. President, for the invitation today. I think what we've learned over the last couple of quarters is really the resilience of travel. And when we look at our forward booking data, we see real evidence of that resilience. And what's interesting, we think about our business through three demand segments, leisure, business travel, and group. The recovery has clearly been led by leisure.

And in fact, last year, leisure demand got back to where we were pre-pandemic. But what's encouraging is we're seeing real recovery in the other two segments. Business transient's been a slower recovery, but as we see more and more folks returning to the office, we see continued improvement. And maybe the biggest surprise has been the pace at which group demand has come back. And we group, correct. And we fully expected social group to recover quickly with all of the canceled weddings and bar mitzvahs and family reunions. But now we're seeing strong and consistent recovery in business group travel as well. So quite encouraging.

We get lots of questions about what's driving this recovery in the face of rising interest rates, high inflation environment, fuel prices and the like. But I think there's a series of factors. You and Brian both touched on one, which is the elevated savings rates we see across the country. There continues to be deep pent-up demand as a result of the pandemic. I think there's a bit of a psychographic shift away from consumption of hard goods towards investment and experiences, which is helping our business a great deal. And then when we look on a global basis, the continued opening of borders, the easing

of restrictions that restricted travel, is having a massive impact on our global business. And maybe I'll just close by thanking your administration and in particular Secretary Ramundo for your work to eliminate the inbound international testing requirement. We think that's going to be very impactful on the travel and tourism sector. And in fact, the U.S. Travel Association just came out and said, they expect the direct impact of that change to be an incremental more than 5 million visitors to the U.S. in the balance of this year, spending more than $9 billion. Well, I mean, that sounds pretty encouraging.

overall, not just for this summer, but looking forward. One of the things I want to ask you about is that the, obviously, the pandemic had a profound negative impact. But right now, as I look out there, and I've traveled around the world a lot of late going to various conferences, there seems to be a willingness or an inclination for business to travel more, instead of everybody sitting and zooming everything, it seems to me in-person movement of personnel in businesses around the country

and I see it more around the world, quite frankly, seems to be on the up. Is that accurate or is that just a perception? President, and in fact, we see two principal drivers. I think number one, businesses that customer-facing, consulting firms, law firms, accounting firms, they will tell you that the best way for them to optimize their business is to be in-person, embedded in their customers' offices every day. And I think the last few years have reminded us of the power of in-person interaction. The other thing we see is rapidly growing demand for training. Many employers across this country rely heavily on the strength of their corporate culture, and as they're hiring thousands of new employees, it's really hard to immerse those employees in a culture via teams or Zoom. And so the

demand we see rising for in-person training has been quite significant. Well, I want to get off on this. Corningman knows something about this, but there's so many new jobs on the horizon in the tech-related field, that the need to train personnel to be able to handle these jobs is totally within our capacity, but it's needed. It's not like it's on-the-job training

for a lot of these things. And so one of the things we're looking at, our economic team, Secretary, is how we engage everything from community colleges to other entities to train people for the need that exists in that community, in that community. And so it's totally consistent with what you're saying,

because there are going to be a lot. And we're talking about potentially a lot of jobs. I mean, we're talking about thousands of jobs. And, but again, a lot of it requires some, you know, training. It's not all on-the-job training. Well, thank you very much for talking to me about that, Tony. And now what I'd like to do is there's an outfit called Cornyn, right, Mwanda?

And you're the CEO of a great company. And look, you know, we've seen an inflection point in U.S. manufacturing over the last year. And by that, I mean, you know, I can recall in the last administration, I'm not criticized the last administration, the previous four years, and even at the end of the end of our administration, Obama Biden. The question was, are we still going to be the manufacturing hub of the world? Are we still, are we in manufacturing where are we going to sit? We're going

to do all these other things, but what about manufacturing? And so you've seen in that inflection point manufacturing in the U.S. Can you describe from me what you're seeing at Corny? What's your outlook on the manufacturing sector? Talk to me a little bit about that. that if you could sure mr president first of all you're right the last 18 months has been tremendous growth for us manufacturing and we've seen that in our results and that continues but there's some subtle things going on as well we just did our quarter to earnings so the numbers are fresh in my mind we're still having good strong year-over-year growth sales up about 7% earnings up about 8%. And so the growth rate continues in a little bit lower rate than it's been

the last 18 months, though. But that good top line, there's a lot going on underneath the surface. So what's driving us is very strong demand for optical communications. Think optical fiber for technologies like 5G, broadband access, cloud, uh, communications. computing, very strong demand for fiber optics. Again, that's the CEO of Corning speaking to the president, along with other CEOs about the state of the economy, including the view from Bank of America, Marriott, some major pillars here. Kayla Taushy is standing by to recap what the key message or takeaway is here, Kayla, which seems to be this idea that the economy is still healthy.

Yeah, here, Kelly, the Biden administration is leaning on corporate America and leaders of these specific companies to talk about how, Yes, while growth is slowing in manufacturing, in travel, and in mortgage lending, for instance, that balance sheets are still strong, that consumers are still healthy, and that these companies are still hiring in most cases. Here, the White House is trying to illustrate by showing, not telling necessarily, that the economy is still in a good place, despite the fact that this morning's GDP print showed a contraction by nearly 1% for the second quarter. And also, Kelly, I found it interesting that President Biden repeatedly

said to the chairman and CEO of Bank of America, Brian Moynihan, thanks for taking my call. There's been a sense from the business community that there hasn't been enough private outreach from the administration to get a read on the economy. Their president Biden was trying to dispel that notion, Kelly. All right. Kayla, thank you very much. It's been a very busy afternoon at the White House. We've heard from the president a few times.

We've heard from the Treasury Secretary. When we come right back, we'll pick things up. Take a look at these markets. The president gets a human being on the line when he makes one of those calls. Yes, the answer quickly right away, don't they? They don't put them on hold. Let's be right back. Welcome back, everybody, for all the talk about recession.

Today, stocks are near session highs. Dows up 365 points right now. S&P's up 48. That's 1.2%. NASDAQ up 1% after a strong day yesterday. The major question is what kind of economic slowdown are we in or anticipating? How might it impact Apple? Which reports earnings after the bell?

Tom Forte is a senior research analyst at DA Davidson. And Tom, what are the most important things their audience needs to know and be on the lookout for? Great. So the biggest challenge for Apple is supply chain. They were looking for a $4 to $8 billion negative impact in the June quarter.

And there's reason to believe that those challenges persisted in the September quarter. The other thing for Apple is the majority of the revenue is outside the U.S. The strong dollar was expected to have a 300 basis point drag on sales this quarter, likely going to be consistent next quarter.

So I think supply chain and strong dollar are two important challenges for Apple. Are they priced in? I mean, we've spent all day here, you know, days really talking about all of these challenges. So the argument that they're priced in is the strength you've seen in Google and Netflix, which both missed, but you saw a relief rally in both stocks. So I do think where you look at where Apple shares are trading now, this are 32-week high, that a lot of the bad news is priced in. So perhaps they could miss, but sometimes, stock could still rally, then it will depend on, are there comments in the September quarter

materially worse than expected? And I guess we're about to find out. Quick thought on sales in China of Apple products. They're not the number one cell phone seller there, but they do derive a lot of revenue out of China. Quick thought there is it sounds like they had a sale in China, which is highly unusual. But when you think about the zero COVID policy there, the challenges has had on supply chain and consumer spending, not a big surprise, but you could see some incremental pressure there on sales to the Chinese consumer, which would be tough for Apple. You a buyer into these earnings? I'm a buyer in the relief rally as reflected in what you saw with Google and Netflix,

which both missed but had relief rallies out of the quarter. All right. Tom, thanks for your time. We appreciate it. All right. Thank you. Busy hour we just had there. Oh, yeah. Treasury Secretary, the President, everything. Thanks for watching, Powerline.