Consumers showing 'tremendous resilience' amid COVID-19: Economist

Milton Ezrati, Vested Chief Economist, joins Yahoo Finance to discuss the latest retail sales report and other economic indicators impacting the markets.

Video transcript

SEANA SMITH: Investors are trying to make sense of that mixed economic data that we got out this morning. Retail sales for the month of August was much better than what the Street was anticipating that we would see. Jobless claims, however, heading in the wrong direction, up just around 20,000 from the previous week.

So we want to talk a little bit more about this and where we stand in this recovery with Milton Ezrati. He's Vested's Chief Economist. Milton, it's great to see you again. Let's start with the retail sales, number because I think a lot of people are saying, hey, this points to the fact that the consumer is very resilient, especially in the face of the Delta variant. What's your perspective on this and I guess what this tells us about where we are in this recovery?

MILTON EZRATI: Well, resilient is the word. The consensus view was a decline of 8/10 of a percent. I was a little skeptical that it would be that bad, especially after a bad July. But this number blew everybody away. The consumer is showing tremendous resilience.

Delta hasn't improved very much and they're buying. It varies throughout the subsectors, but the balance is that the consumer is optimistic and ready to spend.

SEANA SMITH: Nelson, I also mentioned that jobless claims number, and I bring that up because the labor market. I think that's something that investors have been trying to wrap their heads around, trying to make sense of this stall that we've seen. And we saw jobless claims head in the wrong direction last week-- 332,000, still historically an extremely high number. I guess what needs to happen in order for us to see a bigger bounce back in the labor market?

MILTON EZRATI: Well, I think there are two things. I think we're going to see that now that we've dispensed with the extra unemployment insurance so that people can no longer actually make more sitting at home than they would at work-- so I think we're going to see the participation rate come up. But I think the jobless claims number can be misleading, because if there's a lot of turnover, and there is a lot of turnover because we're in a very different economic environment than we were in pre-pandemic, a lot of turnover is going to create claims.

If those people who make a claim this month get a job tomorrow or next month, it doesn't make the number come down. And if there's a lot of churning, and there is a lot of churning in this economy with new businesses forming, you're going to see these jobless claims numbers remain historically high.

It doesn't mean that there aren't jobs there. It doesn't mean that people aren't finding work. It just means that there's a lot of churning in the market. A lot of people are being let go and new jobs are being created elsewhere.

SEANA SMITH: Nelson, we also got that CPI number, the inflation reading earlier this week-- up just around 3/10 of a percent. Some people are pointing to the fact that, hey, maybe these inflationary pressures, maybe they are transient. Does that strengthen that argument, the transitory argument, in your view?

MILTON EZRATI: Marginally. It gives a little sense to the transitory, the inflation was just an adjustment after the pandemic. But these numbers by no means say we're out of the woods here. And I'm very skeptical that we're going to see a complete decline in the inflation numbers back to where the Fed and the Treasury say they're likely to be-- although I disagree with them.

I think what's important here is this whole decline was really centered on two areas-- use cause-- yes, that was a supply shortage problem, which is what Powell and Yellen said-- but we also saw airfares collapse. That was Delta. People stopped traveling, and they can make a quick adjustment. That's what happened.

To the rest of the numbers, most of them were still well above the Fed's informal target of a 2% annual rate. In fact, only four of the 13 major subcategories of the CPI were within the range the Fed says is acceptable. Everything else was stronger. So I don't think we're out of the woods yet on the inflation, not by a long shot.

SEANA SMITH: Milton, we just heard from President Biden just last hour, and he was talking about-- he was, of course, pushing for his economic agenda saying what's necessary at this point in the recovery to keep this momentum going. I want to play a quick sound bite from what we just heard from the President and then get your reaction. Let's listen.

JOE BIDEN: Each inflection point in this nation's history represents a fundamental choice. I believe that America at this moment is facing such a choice. And the choice is this-- are we going to continue with an economy where the overwhelming share of the benefits go to big corporations and the very wealthy? Or are we going to take this moment right now to set this country on a new path, one that invests in this nation, creates real, sustained economic growth, and that benefits everyone?

SEANA SMITH: Milton, President Biden there pushing for his infrastructure package, also that reconciliation bill that he wants to see passed-- $3.5 trillion. I guess how big of an assist do you see those being to the economy, and also just the direction that the economy will then be headed in over the next several years as a result?

MILTON EZRATI: Well, that's the question. You can't argue with his objectives-- we want a fairer economy, we want it to be spread out more, we don't want just a few rich people to get rich. It's hard to argue with that unless you're one of those few very rich people. But if the question is whether these programs do it-- now, we've had trillions of dollars of stimulus poured into this economy in the last couple of years.

We had the first COVID relief package on the Trump last year-- we had a new one this year, fresh out of the gate in the Biden administration. That's a lot of money. It takes a long time to see the economic impact there. To say we need more is to say that either these efforts were useless, and I don't think President Biden wants to say that his last effort was useless, or to say that it was in the wrong direction. And I don't think he wants to say that.

So he's pushing an agenda. It's a very long-term agenda. He's trying to change the nature of the US economy. I'm not here to judge that yet. But to suggest that the economic momentum we saw, say, in these retail sales numbers-- to say that that will die without still more stimulus is pushing the envelope in terms of economic logic.

We have a lot of momentum here. It's coming out of the pandemic. And there's been a lot of stimulus for it on this economy. That should carry it for quite a while further. I would suggest, since we had good wage gains in this past year but most of them were eaten up by inflation, that the best way to help the working man and the working woman is to try to get this inflation under control.

SEANA SMITH: Milton Ezrati, always great to get your thoughts-- Vested's Chief Economist. We look forward to having you back here soon.