Steven Ricchiuto, Mizuho U.S. Chief Economist, discusses his outlook on inflation and job market recovery post-pandemic.
SEANA SMITH: Well, earnings are a big factor in today's move. But investors are also keeping a close eye on some of the econ data that we got out this morning. Jobless claims dropping to the lowest level that we've seen in about 19 months. We also got existing home sales for the month of September showing a rebound. It was actually the strongest pace that we have seen since January.
So let's talk about where things stand today. And for that, we want to bring in Steven Ricchiuto. He's the US chief economist at Mizuho. And Steven, a couple of things going on, because there are signs that the recovery is slowing. Of course, there's lots of worry about inflation, also what we're seeing in terms of the supply chain crisis. But some of the recent data that we've gotten out has actually been pretty strong and trending in the right direction. So what's your assessment of where we stand today?
STEVEN RICCHIUTO: I mean, the economy is still on a solid upward trajectory. There's no doubt about that. What we're really arguing over is the degree to which the economy is running above trend. And there was a lot of presumption that the third quarter was going to be exceptionally robust, and estimates for the third quarter have come down dramatically. But the outlook for the fourth quarter and the first quarter of next year certainly are positive.
And I think that's what's coming through in terms of data like the existing home sales numbers today, which shows there's still a high degree of confidence out there in workers who are looking to, you know, purchase that home and move forward with their lives. And that's a confidence level that shows you that the economy is still on a sound trajectory, even though there are some concerns out there by people in terms of near terms growth and the inflation story. No one seems to be anticipating that anything here is going to be derailing this expansion. And I think it's going to be a very long expansion, indeed.
ADAM SHAPIRO: Well, when we talk about a potentially long expansion, Steven, help us understand, what is the true definition of the labor shortage? Is it a labor shortage of entry level, what used to be lower paying positions? Or is it a labor shortage of qualified people?
STEVEN RICCHIUTO: Well, it's really a combination of both, to be honest with you. And it's also a geographic shortage issue that's taking place at the same time. You know, in an environment of remote working, you need more plug-compatible people in order to bring on board because it's harder to train in a remote work environment. So therefore, there's some of that.
But there's also a dislocation in terms of a lot of the lower wage jobs, where a lot of the population moved from areas where a lot of the services that were provided are no longer needed. But now the areas where the services are additionally needed because of the increased influx of population, it's longer for those service workers to move geographically into those areas to, you know, satisfy that demand. So there's always this, you know, transition period that takes place. That's the frictions that undergo in the labor market, and that's a lot of what we're experiencing right now.
SEANA SMITH: Given that transition period that you're talking about, I guess, how long do you expect it to take in order for it to work itself out?
STEVEN RICCHIUTO: Well, it's going to-- I mean, in terms of the price aspects of this, it's going to take a full year. In terms of the wage aspects of this, it's probably going to take a full year as well, but lagged behind the price increase. And that then implies that basically, you know, the labor market will take at least a full year to get back to a more normal level.
Now, will all those 5 million so jobs that are missing at this current juncture from pre-COVID going to return? The answer is, some of those jobs may not return, but there will be alternative jobs created in other industries to make it up. But it's going to take time. I don't expect a full return in the job market to where we were pre-COVID for at least two, if not three years.
ADAM SHAPIRO: Going back to something you said at the beginning of our discussion about the fourth quarter and first quarter perhaps being stronger than initially people had thought. Third was going to be the blockbuster, and then we'd slow down. Perhaps have we actually created a better playing field with lowered expectations in the quarter we're getting the earnings for now and a more smooth transition into whatever is going to be normal after, say, first quarter of next year?
STEVEN RICCHIUTO: Well, I mean, you're asking a great question. And the answer really is, the outlook for earnings for next year continues to be positive. I mean, if growth is 3.5%, which is my number, which is still lower than the consensus of 4.4%, 3.5% is still very consistent with double digit earnings growth. And double digit earnings growth is what really needs to be in the marketplace to drive us up again in 2021 and 2022 for another 10-plus percentage point year in the equity market. So yes, we're on track for another good year in 2022.
SEANA SMITH: Steven, what's your assessment just of the strength of the consumer right now? Because we've seen some conflicting reports when it comes to some of those sentiment numbers, like consumer sentiment, consumer confidence, and then what we're seeing reflected in the retail sales number. So how-- I guess, how are you looking at the consumer? What should we expect heading into the holiday season?
STEVEN RICCHIUTO: Well, there are a number of mistaken expectations about the consumer. One, there is no pent-up demand for consumer spending. The stimulus provided during the COVID-19 lockdown period satisfied a lot of that demand. The consumer is actually back to pre-COVID levels and actually beyond pre-COVID levels. So there is no pent-up demand. There are the resources in order to drive spending going forward. But you have to keep in mind, price is a limitation. You know, we have trained Americans over the past 30-some odd years to wait for sales. And, you know, one-year period, we're not going to reverse that.
With the rise in-- rise in prices that we're seeing take place in the economy, I think the biggest detriment to the economy going into the holiday season is going to be an attempt to pass on those increased costs to the consumer. And I think what a lot of companies that are giving you earnings right now and saying they think they can pass it on, the emphasis is on think. I think they're going to discover they can't pass it all on.
SEANA SMITH: It will be interesting to see how all of that plays out, and only time will tell. Steven Ricchiuto, always great to speak with you. US Chief Economist at Mizuho.