Growth will be ‘accelerated’ by second stimulus package: Economist

Vested Chief Economist & Author Milton Ezrati joins Yahoo Finance’s Akiko Fujita to break down the latest on economic recovery, as U.S. consumer sentiment inches higher and stimulus negotiations continue.

Video Transcript

AKIKO FUJITA: Let's kick things off though with that economic data we got out today. And for that we want to bring in Milton Ezrati. He is the Vested chief economist and author. And, Milton, it's good to have you on on this Friday.

Let me just first get your reaction to those retail sales numbers. Certainly a strong one, but we've gotten a bit of a mixed picture on data this week. You look at yesterday, what we got on those initial unemployment claims certainly not coming down at the level that some would like to see. And then we got industrial production, which seems to point to another direction in the economic recovery.

MILTON EZRATI: Well, it's going to be uneven. I think the important thing is the retail sales number. It confirms the kind of good employment numbers we got earlier in the month. I think the economy is coming back in the reopening very nicely. Obviously we're a long way from where we were before the pandemic, but it's coming back very nicely.

I would take the initial claims for unemployment insurance less as a sign of weakness than as a sign of turnover. We have a lot of companies that have gone bust. The bankruptcies are up tremendously. That is a legacy of the shutdowns and the lockdowns. And those people are being thrown out of work because a lot of companies haven't revealed the shutdown or the end of employment until they actually file.

And so what we're seeing is a lot of firms are laying people off. Other people are rehiring. The employment numbers we got earlier in the month is a net figure. The initial claims are just the people who are making their claims now. If they find a job in a week, they don't count on those numbers.

AKIKO FUJITA: Let me get back to what you said about those retail numbers because, you know, there was some thinking early on that those stimulus checks coming from the government, as well as the enhanced unemployment benefits, were helping support some of that spending early on in the pandemic. We haven't seen that upped clearly. We've been following the developments out of Washington. But these strong numbers that we got today, what's supporting that right now?

MILTON EZRATI: Well, there were two things supporting it. One is that there has been a tremendous surge in housing sales. And you mentioned in the list, one of the leading things was home improvement, and that's the first thing someone does when they buy a new house. They go out to Lowe's or Home Depot or whoever they use and spend a lot of money. There's that.

The other thing is the jobs number. I'm not saying we can't use some stimulus from Washington, and I wish they would get off the-- never mind. They would move. But the important thing is we have had a large net increase in jobs-- almost 11 million new jobs since the lows of April. We're still way behind where we should be or would like to be, but that too-- those people are earning incomes and they're spending money.

[INTERPOSING VOICES]

--opens there are more opportunities to spend money.

AKIKO FUJITA: How much of that job growth that you've talked about though you thinking can continue in the absence of any kind of stimulus coming from Congress? We've got what looks like essentially a three-way negotiation right now between the White House, the Democrats, and then the Republicans in the Senate. Is this piecemeal approach, even if that passes before the election-- is that what's going to get it done in terms of continuing the recovery in the labor market?

MILTON EZRATI: Well, I think-- I don't think-- I don't think it's necessarily-- it will accelerate it. I don't think it's a difference between growth or not. As the economy reopens, we will have growth. But if we get something from Washington it will be accelerated. What we'd like to do is get back to those pre-pandemic levels as soon as possible so we could use that to get the economy back to prosperity.

I don't know if it's necessary for growth though. It's not the question of plus or minus more, plus, or plus with an extra boost. I can't forecast the political thing. I know that Pelosi is under a lot of pressure from her rank and file who want to go home before the election and say, look what I got you. I know the president would like to do the same thing. The Republicans in the Senate probably are less enthusiastic, which is why their numbers are the lowest. But I don't know how this is going to turn out. It's-- it is really an impasse.

AKIKO FUJITA: Let's talk about the other data that we got today, and that's industrial production because manufacturing is another one of those areas where we've seen an uneven recovery. We were talking yesterday about the huge job losses that we have seen as a result of the pandemic in that particular sector. How are you seeing the recovery on that front right now?

MILTON EZRATI: Well, I do believe that although the industrial production numbers are moving in an uneven path, that we are seeing recovery there. We've seen growth in the employment on almost every major category the Labor Department follows, and I think that's a more immediate number. We have to realize that with the industrial production, a lot of companies maybe are-- will have filled the pipeline and held back on output or have to accelerate at times to refill the pipeline, and that makes for a very uneven picture on the industrial production figures.

AKIKO FUJITA: And in the absence of stimulus, I mean you said that you don't think necessarily that the lack of stimulus, at least in the immediate term, is going to slow the recovery. Additional stimulus would be good to help accelerate it. Where do you see the monetary policy-- is the piece to this continued recovery right now? We've heard Jay Powell talk a lot about the need for fiscal policy to work alongside the central bank to keep the recovery going. Where do you see that piece falling in?

MILTON EZRATI: I don't think there's much more Jay Powell and his friends at the Fed can do. They've brought rates down nearly to zero. They're engaging in quantitative easing. They need the help of the fiscal authorities to get some oomph into this thing, and as I said, it would accelerate the recovery. Monetary has already done what it can do, and it needs the support of the fiscal authorities now.

AKIKO FUJITA: And, Milton, finally I heard you say, you know, you don't necessarily want to wade into politics here. But we are just less than three weeks out from the presidential election. You've heard the pitches from both candidates talking about-- the president saying that his second term will lead to millions of more jobs. You've heard Joe Biden criticize the president's economic policies as well. Does the outcome of the election on November 3rd change the trajectory in your mind of the economic recovery, you know, regardless of which policy is in place? How are you looking at that right now?

MILTON EZRATI: Well, I think that-- it will change the trajectory. It will change the mix of the economy. What Mr. Trump is saying is he will be-- he will stay the course on his regulatory reform. He will give tax cuts. He told-- he promised tax cuts for low-income Americans on payroll taxes. He's already given the country a tax cut in 2017. He will follow that course. That is definitely a pro-business, pro-employment course.

What Biden is talking about-- he's going to raise taxes, or at least some taxes. It's unclear exactly what. He's going to raise taxes, but then he's going to put in an enormous fiscal stimulus program. So that could actually-- Biden could actually accelerate the economy faster than Trump if he followed true to the policies he's been talking about that are on his website.

But it would be much more of a consumer-driven, housing-driven recovery than Bush, who-- Bush, excuse me-- than Trump, who's pro-business is supporting-- Freudian slip there-- whose-- [INAUDIBLE] whose pro-business is supporting a more-- a broad-- well, I shouldn't say broad-based, but a more business-oriented recovery.

AKIKO FUJITA: OK, well we'll certainly be watching that with just a few weeks left to go before the election. Milton Ezrati, good to talk to you today. Thanks so much for your time.

MILTON EZRATI: Pleasure to be here.