New Century Advisors Chief Economist Claudia Sahm Talks Jobs Data
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Bloomberg Audio Studios. Podcasts. Radio. News. Joining us now is someone who's been much maligned and has been fearless in her academics of saying, you know what, I'm associated with the dreaded R-word recession, but I don't see it out there. Claudia Somm has nailed that call. She's chief economist at New Century Advisors, and she joins us here this morning. Claudia, my distant memory is Jeffrey Frankel

at Harvard saying, okay, there's a jobs mandate, there's an interest rate inflation mandate, but real GDP and maybe distant nominal GDP really matter. Can a dearth of GDP shift the labor market and shift the Fed?

Well, absolutely. I mean, these are all growth and employment are absolutely tied together, not necessarily quarter by quarter. And I think, you know, if you're referring to the first quarter, the small decline in GDP, like there is a lesson from that. But it is not that we are falling into a recession. It's that we are facing a major cost shock with an increase in tariffs and businesses were responding to that and consumers that caused a lot of disruption in the numbers. So that's one example where, you know,

You know, that first quarter GDP decline is giving us a sense of where we're headed, but it's more about where we're headed working through these tariffs, which eventually will have some effects on employment, even if we're not seeing them today. Okay, away from the SOM recession mania, are you modeling out 4% year-over-year CPI? Is that in the new century advisor's realm of thinking?

So I think that's absolutely in the realm of possibility and certainly feel very confident we have. We are facing slowing growth, rising unemployment and faster inflation. Now, magnitudes are going to be absolutely crucial. And I think a really big question for the Fed in particular is they think about their policy is the duration.

Right. If this is if we're just seeing a kind of a blip, a move up in inflation that recedes as we adjust to the tariffs or maybe the tariffs go away. But that that's like a key question that we are far from having the answers to. See this. You see how she does this at the University of Michigan and they get on the X axis. She's looking at the duration. Yeah. She's looking at the length of this, the lengthiness of the magnitude.

Claudia, can this economy avoid a recession? I mean, again, I see a jobs number today. I think about Tom's theory that companies and people adapt. Can this economy avoid a recession?

Absolutely. I mean, we have all the ingredients of a recession. We have the tariffs, we have the slow immigration, we have the federal cuts and other factors. We have massive uncertainty. Like really, I mean, we are pointed towards a recession. And yet we are in the very early stages. And we see some attempts by businesses to build some buffers, like a big inventory bill, getting ahead of the tariffs. I mean, we're

Nobody wants to lay off workers. Nobody wants to cut back on their spending, right? Like people are trying to make adjustments. So, but what needs to happen is these aggressive policies have been put in place. These cost shocks, they have got to be dialed back and really quickly. I mean, there's some damage done already that we're going to deal with costs

as this year goes on. But magnitudes matter and avoiding the recession, in particular, the recession dynamic is when that shock, it just spreads through the whole economy. And we really have got to nip this in the bud before you have those feedback effects take hold. When you see a lot of companies, again, we're probably 70% away through the earning cycle here. A lot of companies are, as you said, either pulling their guidance or

or if they still have guidance, they're saying, we're concerned here. We've got a lot of variability around our businesses. What do you take away from some, what you heard from corporate America so far? Okay, so-

Clearly, these are big shocks. There's a lot of uncertainty. I think the other place I found pretty interesting reading this time was going through the Fed's Beige Book, which has a similar kind of talking to business context, talking to nonprofits and the communities. And you just hear over and over again, contingency planning, getting ready, like potentially cutting hours, but not there yet.

But it is so clear that a massive amount of time and energy is being spent on this. What do we do when it hits? - Well, Claudia, you've sat in the offices at the Fed, folks. This is not the romance of some big fancy table in the Eccles building. This is the meat and potatoes of doing PhD work

at the greatest central bank in the world? And the answer is you guys like smooth curves, gradual change. We just had Gene Soroka in of the Port of Los Angeles, flew in just to talk to John Tucker. Claudia, he sees a jump condition, a discontinuous event at his port. How do fancy people like you fold in the reality of longshoremen and truckers in Los Angeles?

It's a moment where to some extent you have to look at the models but put them to the side. There's no macroeconomic model that's going to give you the kind of discontinuities, the kind of very sharp turns that you're seeing in the data. I mean, that's why we should expect we had this massive surge in imports that had a big effect on the composition of GDP in the first quarter.

we're going to probably see a snapback. From that shipping, those imports are going to the floor. So don't come to me and say, oh, GDP is 3% in the second quarter. All's great. That could be under the hood telling us we've got a big problem in the second half of this year. So you have to respond to those discontinuities, particularly when you can tie them back to a story. There's noise all the time that you want to look through.

This isn't noise, right? Like we're responding to something big. And then that's why that outlook is important in the judgment. Claudia, with great respect for your impact on American economics. I think everybody wants to know this unfair question, but I'm going there on this strange Friday. What is your counsel to Hassett of Pennsylvania Council?

Besson of Yale and Greer, our trade representative, as they counsel the president. These guys are legit academics. What should they do with this unique presidency? They need to slow it down.

Right. I, you know, I disagree with the policies they're pursuing, but I'm strong. I'm very concerned about the way in which they're being pursued. This is very aggressive. This is very fast and it can potentially cause a lot of damage. So even if you're in the spirit of having more industrial policy, having higher tariffs, a smaller government, like there's a way to do this that doesn't cause maximal damage. Right. And I'm very concerned. And I think the White House and you hear some messaging from them that, you know,

tariff rates aren't sustainable with China and we're doing negotiations but like we need to see some action that actually pulls back uh these costs before it's too late Dr Sam thank you so much Claudia Sam joins us new Century advisors here to summarize Paul pretty buoyant report uh yeah I think so I'm just looking at it here and I'm looking at the wages Tom I mean on an annualized basis wage growth

Still pretty solid at 3.8% growth on an annualized basis.

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