How "Profitless Prosperity" and Tarrif Refunds Will Affect B2B Marketing Strategy with Taylor St. Germain

[00:00:04] Welcome to Around the Horn in Wholesale Distribution Podcast with Kevin Brown and Tom Burton. Sponsored each week by LeadSmart Technologies, Tom, Kevin and their guests review the news of the week and dive deep into the topics impacting manufacturers, wholesale distribution, independent sales agents, and the global wholesale supply chain. Whether it's M&A, SaaS and cloud computing, B2B e-commerce, or supply chain, we'll be able to get a little bit more.

[00:00:30] With the high chain issues, we peel back the onion with our guests into the topics that impact your business the most. Beautiful morning. Love that song. I was going to give them that one, but I decided to go nice and go right away with the applause. Starting off already, huh? That's right.

[00:00:54] If I want to get harassed and picked on, I can go down the hall and chat with my wife. Okay. Well, I want to make sure you're kept busy while we're here. So, okay, good. Starting off with that. Well, at least it wasn't a gong, you know? So, here comes Taylor. Here comes the gong. Okay, hold off. All right. I'll hold off. Taylor's sitting back there going, why did I accept this? There we go. Why did I accept this invitation? He's saying, right? I've got plenty that he could do today.

[00:01:23] So, anyways, we start off again digressing. So, good morning, Mr. Burton. Good morning, Mr. St. Germain. Good to have you with us again. And thanks for having me. Appreciate it. Appreciate you coming. Are you traveling this week before you? I get a few weeks stretch off. And as much as I love traveling the country, it's a nice break from airplanes. So, I get a couple of weeks to be home with the kid and the wife and I'll take it. The first half of the year was very busy. Yeah.

[00:01:51] How many spots or stops? I did over 30 keynote presentations in the first half of the year. So, that's 30 different cities at least, not including all the client visits and things in between. Astounding. Yeah. Tom, we shouldn't complain about the trip, so we have to take care in there. Yeah. Wow. Keeping up with guys like this is something. So, we'll dive in a little bit, Taylor, about you and about ITR economics before we jump fully into the show.

[00:02:21] But we wanted to welcome everybody. My name's Kevin Brown. I'm here with my lifelong friend and co-host of the show and co-founder of the company we both work at, Tom Burton. And we get together every week on Friday mornings.

[00:02:32] We always say unless someone's on an airplane, although we have done the show from airports, but on an airplane in a hospital or on a planned vacation, we get together and we talk about the news of the week in the economy, supply chain, mergers and acquisitions, sales, marketing, M&A, IT, robotics, and certainly plenty of discussion about AI as well as we do that each week.

[00:02:57] But what we do is we try to take that news of the week, we bring that together, we talk about how that impacts wholesale distribution and manufacturing, hence the title of our show here around the horn and wholesale distribution and manufacturing. We have been doing this for 193 weeks, which means sometime around the next eight to 10 weeks, we're going to have a 200th anniversary show. Got a couple of holidays mixed in between there and a vacation day, I think, and some things like that. But we're coming up on some excitement.

[00:03:25] So stand by for the news about the 200th anniversary show. It's going to be a lot of fun. It's a little celebration to go with all of that should be great as well. But we title our show what we do because it follows the same as the newsletter that we publish. So we publish a newsletter as well called Around the Horn and Wholesale Distribution and Manufacturing. That goes out to 12,000, 13,000 people now that that goes out to around the world.

[00:03:49] Usually on the podcast recorded version of our show, we're having recorded people listening in in five to seven countries typically, and the newsletter goes out to even more different countries. And that newsletter brings that news of the week that we just talked about. Things like jobs reports and tariffs and interest rates and big mergers and acquisitions. What does that really mean to the global markets in wholesale distribution and manufacturing? So we love the conversation. We love having guests like we have today.

[00:04:17] And we love the comments that come in as well from those listening in live. But if you happen to be not listening in live with us, we're live today on LinkedIn, YouTube, and Facebook live. But if you happen to be listening on the recorded podcast on Apple or Spotify or Amazon or wherever that might be, you won't see, first off, you won't see these three handsome faces. But additionally, you will not be seeing the newsletter that we have. So if you'd like to get that newsletter and follow along with us, a few simple ways to get it.

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[00:05:12] The only thing we ask is if you like what you hear, help us get this information out to other people. Hit the subscribe button, the follow button. Leave a review. If the format you're on will allow you to do that. Apple certainly does that. It's a great benefit to us. Raise us up in the algorithms and get us out in front of more people that get to hear conversations like we're going to have today. So we're appreciative of that. One last little housekeeping piece before we jump. We couldn't do this show every week without the help and support of the company that Tom and I work for. Podcasting is not cheap, especially when you get close to 200 episodes.

[00:05:41] And so we have a team behind us that helps us with that and preparing for the show and post-show production. So our show is sponsored by the company that Tom and I work for LeadSmart Technologies. We've developed a solution that we call an enterprise growth platform. And that enterprise growth platform unifies fragmented and siloed data from across an organization, brings it into a single platform. Things like ERP data, marketing automation, e-commerce, other growth tools that are being used, data warehouses.

[00:06:09] We bring all of that data into a single platform where now we're able to use artificial intelligence and other technologies to analyze that data fully across your customer's journey, your internal teams, and your overall business to give insights that aren't coming from silos or buckets, but they're coming from across your business. What does that do? Well, it solves the problem that everybody is trying to solve, which is how do I grow more efficiently in the world that we live in with the turbulent times that we have.

[00:06:37] And when we understand our customers, our teams and our business better because we've brought data together into a single place to use the available technology, we can make better decisions, have faster movement and get alerts and notifications on where there's opportunities and risks. So if your company is digitally transforming, trying to grow faster with fewer people, then we would love to talk to you and help you in that journey. So on to the news, Tom, Taylor, before we get started, let's introduce our guest, Taylor St. Germain.

[00:07:07] You are a senior, what, at ITR? Tell us about you, ITR, and your travels. And again, thank you for being with us for a second time. Thank you so much for having me. Yeah, I'm Taylor St. Germain. I'm a senior economist and business consultant with ITR Economics. I'm one of our public speakers. So when I'm behind the computer, I'm helping clients find their leading indicators, helping them forecast their business, navigate the challenges of the economy.

[00:07:35] When I'm not behind the computer, I'm traveling the world, giving economic keynote presentations. And needless to say, it's been one of the busier years I've had personally as far as travel goes, just with all the noise and current events going on. There's nothing happening out there. Yeah, just a couple of things here. But I've got a great team at ITR behind us. Check us out at itreconomics.com. We're on LinkedIn. I host my own podcast called Trends Talk.

[00:08:03] So a number of ways folks can interact with us, get in touch with us. That's super. Your organization is synonymous with wholesale distribution and manufacturing. And the founders of your organization have been out there and known for spotting trends. Tell us a little bit about, kind of briefly, some of the trends that you've spotted.

[00:08:26] And I'm trying to remember exactly from our previous conversations, the striver, is it 94 or 97% you've been accurate on for X number of years?

[00:09:04] Yeah. We have a lot of testimonials from that time. But I say the reason I'm here and the reason we're so popular is doing part to that event. Mm-hmm. And there's some pretty strong predictions about what's coming in three and a half years or so, right? There sure is. Yep. Yeah. Good. Good. Well, if I don't plan well for that, I may be working until I'm 90. So I've got to do some good. There's an opportunity in every downturn. And our job is just to help people prepare the next three and a half years or so.

[00:09:33] Well, I met you a couple of years ago for the first time at an Industrial Supply Association event where you did the closing keynote, which was fantastic. And I tackled you as you're trying to leave the building. And we had a walk through the – I think we were in Nashville. Yes. Gaylord. Yep. In fact, you were smart enough to get out of town. I stayed in town and had dinner that night with our good friend Steve Levy from Infor and ended up having to spend the night in the basement because of a tornado. But I think you were back in Colorado by then. Yeah.

[00:10:03] That's good. I got out just in time. Yep. Yeah. I agree. And you're in the Castle Rock, Colorado area, right? Yep. I'm in Castle Rock about the half an hour south of Denver. And I've been here for the last five years. That's great. Good. Well, Tom, any thoughts and questions before we dive in or should we hit the news? That's what we're here for. That's what we're here for. Let's talk about – well, this morning, Jobs Report came out, which our newsletter comes out on – excuse me, we publish it on Thursday evenings. But it gets out to everybody on Friday morning.

[00:10:32] So we always miss it and a little bit behind, but we talk about jobs reports as they come out or any other reports that come out on Friday mornings, which is – we need to kind of have a discussion with both the Fed and all of the governmental organizations to really release this data on Thursdays, which would be extremely beneficial to us getting this data out for the show in a more timely manner. But so far, no one's responded. So we'll see if we can get that squared away.

[00:10:58] So we have 172,000 jobs added in May, even while there's pressure on everybody in their households. And I've got to fill my tank up after the show today before I take a little drive this afternoon. So thoughts, takeaways on the update to the jobs report? It was much better than was anticipated. Yeah, I haven't seen it. Did they have a bunch of revisions too? Let me look real quick.

[00:11:25] March and April were revised up by a combined 93,000 jobs. So March and April coming in better than we thought. And the biggest gains were leisure and hospitality at 70,000, government at 55,000, and healthcare at 35,000. So how does, Taylor, how does leisure and hospitality grow when everything that we're seeing is pressure on? Summertime, I would assume. But nobody has any money because beef is too expensive and gas is too expensive. If you look at the other credit cards.

[00:11:55] Anyway, well, I'll let Taylor answer. Well, you know, this is something, and I'll make this answer as short as I can because, you know, an economist, I just want to drag this out. But we looked at the different income brackets recently, and if you look at the bottom 40% of earners, those folks are the ones that are feeling the pain of this inflation right now. The top 60% of earners are seeing their incomes generally outpace the rate of inflation. So I think there are still some folks with money out there, and that's why we call it the tale of two economies.

[00:12:24] You think also, Taylor, and obviously today is not a good example of it, but the wealth effect that is created has been created with the stock market gains over the last, you know, especially the last couple months. People feel like, hey, I'm doing great. Yeah, I'm paying more for gas, but, you know, I'm making all this money in my 401k or my investment accounts. Do you think that impacts it as well? I absolutely do. Yeah, absolutely.

[00:12:50] And again, if you look at whether it's the baby boomers and Gen Xers or the top 60% of earners, there's some overlap there. But you absolutely see that reality. Those folks are continuing to get wealthier, whether it's their bank accounts or their investments. Right. And the lower 40%, as you talked about, generally don't have assets like that or in the stock market or certainly not as invested as the upper half. Yeah, that's correct.

[00:13:17] In fact, our research just looked at food, housing, and health care. And those three costs alone were above the long run average for those bottom 40% of earners. So those three things alone are really hitting those bottom 40. So I guess the bottom line, Kevin, is I think people are still taking vacations and going to Disney World and doing all those things regardless. So the next article that we had there kind of talks about the Eurozone inflation increasing.

[00:13:46] We've had inflation increasing slightly here in this country as well. We've got the push on energy prices. That's going to tie us, I guess, to the elephant in the room, just to get Taylor's opinion on all of this, is interest rates this year, no movement, one cut, two cuts, one raise, one cut. What do you see? What's Crystal Ball say?

[00:14:15] I think you're going to see rates stay flat for the majority of the year, but the more we progress into the back half of the year, the more we're going to be discussing an increase. I don't think the conversations going around cuts is going to be relevant much at all with the type of inflation we're seeing. What do you see impacting that potentially to get back to the cutting idea that the president and the administration is pushing towards?

[00:14:42] Well, and I think this gets to Kevin Warsh's trimmed mean concept because I think a lot of Fed officials would say that the inflation we're seeing is really energy related. And so I think the reason they don't want to raise right now or cut right now is they don't want to overreact to the temporary energy inflation increase. So I do think the situation in Iran is weighing very much. Can we come to a peace agreement?

[00:15:09] Can we get some of these conflicts resolved overseas? Because you're starting to see the ripple effects through the secondary markets in the supply chain. Yeah, well, diesel rates up like 55% or something like that, right? What do we expect that's going to happen? It's tough enough to get goods landed, right, with the inflationary pressure of that and tariff pressures from that. So the goods themselves are more expensive. There's shipping challenges with shipping rates up dramatically right now because of what's going on.

[00:15:38] We had an article last week that we talked about about the six choke points to global shipping. And you start thinking about the Strait of Hormuz, Panama Canal, Suez Canal, and there's the Bosphorus Straits and some of those different areas around the world. And you've got conflict in one of the most important ones right now.

[00:16:00] I think one of the things we're seeing not only the pressure on cost of fuel, but the impact on farmers with the challenge with fertilizers and so forth. It's coming from that, from the urea and nitrogen and helium and all of the other things that are coming out of the Strait of Hormuz right now. So we've got those pressures there.

[00:16:20] So when you look at that and then diesel fuel up, it's going to be hard enough to get it to Long Beach or Houston or Savannah or Newport in New York, wherever it might be. And then you've got to put it on a truck to get it delivered somewhere or a rail car using diesel, and those prices are up 50 plus percent. So a lot of pressure there. Just going back and wrapping up our, I'm looking at Polymarket here on the screen here.

[00:16:49] We try and look at this every week. I'm in September, so this is the September sort of vote on things. And it's changed a little bit. I think this was no change was might have been 72% or whatever last time.

[00:17:07] But the decrease has gone down, the 25-point basis point decrease, and the increase has gone up as far as the Polymarket markets here. I'm very interested in your take. I think we have another article on this, Taylor, coming up about the idea of an increase.

[00:17:31] But there's just nothing in my, that I can see that an increase would improve any situation whatsoever right now. I just can't see in any way that, you know, because even the 10-year, right, which is up at around 4 and 5, 4.6, a lot of that is influenced by, again, maybe not directly fuel prices, but the war in Iran and the uncertainty associated with that.

[00:17:59] And that's been driving up, I think, the bond prices and so forth. I just, if you look at the job market, you look at all of these things, I just, there's nothing to me that, there's no good that can come out of an increase other than the fact that we don't want it. But there's just no, I don't know, what's your thought on that? Yeah, and the jobs numbers in the coming months, I think are really going to make or break that. You know, I think the stock market's pretty upset today because the job numbers were so good.

[00:18:28] But I would agree with you, you know, my concern would be the Fed overreacting to the energy element of this. If you look at our oil price forecast, yeah, we had higher oil prices in the second and third quarter of this year, no doubt. But by the fourth quarter, we were, we had oil dropping back down to $70 per barrel. And so if the Fed's increasing rates and then we see oil drop back down as it usually does six months after these big current events, then they would have overreacted to the energy component of this.

[00:18:58] And there's a lot of damage that can come from an overreaction. You bet. Especially, you know, one of the best performing data sets right now is CapEx. Business to business spending is at a record high. The growth rate's accelerating. Increase those interest rates and that can have a big impact on a data series like that. Yeah. So what's your, I actually still believe that a cut makes sense.

[00:19:22] Maybe not next month, maybe not July, but I think in the September timeframe to me, again, granted things can happen between now and September. But I actually, if I were on the board of governors and they haven't called me and asked me, yeah, but maybe they will before their meeting. When I was in Cleveland a few weeks ago, Tom, I put your card actually in the mail slot with a note that said available. It's funny. I haven't heard from them.

[00:19:48] I'm sure they're just debating on how they, what level of compensation. Yeah. That must be. What it would take to get you. Yeah. But it's coming. I know it is. How much is the signing bonus is probably still being debated. That's what they're working on. But anyway, I still think there's a lot, there's good that could come out of the thing. It could actually bring down the bond rates, the bond market a bit.

[00:20:13] It could certainly cut our cost of our debt and everything. I don't know what, do you have a thought on, on a cut or is that, are we just better off staying status quo? You know, the thing that worries me outside of the energy part, because again, I think we don't want to overreact to that, is the supply chain element and how quickly inflation can run away on that side of things.

[00:20:40] And if you cut how quickly we can get runaway inflation on top of that. So I do think we have to be careful. Now, do I think a quarter point cut leads to those things? No, I don't. So I would tend to agree with you there. Now, if ultimately I'm the Fed chair and this is my job on the line, I'm probably holding because I don't think you can make a mistake holding either way. But I don't see harm in a quarter point cut given where we are here today.

[00:21:10] And I think that's what Kevin Wors is coming at with his trim mean idea. He says, you know, if you exclude the outliers, we're above 2%, but just barely above 2%. So I imagine that's his argument. Of holding. Of holding or even discussing a cut. Yeah.

[00:21:39] Do it in September. And you've got to see what you feel and raise it that same quarter percent in November. And then you're going to slow down anyways. And you're going to see the slowdown of December coming in. And then you've got a new year. But it doesn't seem too risky to look at doing that. There are just two elements I'd add to this that I do worry about related to inflation, though. First of all, electricity prices.

[00:22:07] If you look at those state by state, they're like quadruple the rate of inflation in some states. Yeah. And that is an element. Well, it is in California. Yeah. Yeah. Yeah. Luckily, here in Colorado, I'm thanking myself for putting solar panels on my house. That's for sure. All my neighbors made fun of me years ago. And now who's laughing there? But everyone's going to be doing that, too, here. But the other thing is the material prices. I do.

[00:22:32] You know, if you look at some of these commodities, you know, I've had clients passing 25 to 50 percent price increases because of things like copper, aluminum and steel. So there are certain elements of inflation that do concern me with where we are today. But again, I think a lot of those are related to the conflict in Iran. Yeah. So what happens if conflict's over? Strader Hormuz is open. What, in your mind, is the recovery time to that?

[00:23:02] And then we start seeing some cuts, potentially. I think, you know, 27, we already had a lower rate of inflation in both our PPI and CPI forecast. And part of that was because of a slowing of GDP growth and industrial growth. And so if you resolve some of these issues, I think going into 27, that conversation around decreases is back on the table because you had a slower economy forecasted during that time anyway.

[00:23:28] So I think you could set us up for a good year for 27, a better year than what we're forecasting, if you are able to lower rates in 27 with a lower rate of inflation. Interesting. Okay. So before we go too far ahead and we can really stick with our economic discussions here, I don't know if I had an opportunity to ask you this previously, but when you joined us.

[00:23:51] But, you know, we had an article earlier that we were discussing that was from CNBC and talked about the Eurozone inflation rising to 3.2%. You know, their target is 2%. Our target is 2%. Most of the world's target is 2%. We use 2% because in the 80s, some politician in New Zealand in a hallway said it's a good number, right? What's your takeaway on, sorry that I harp on this, Tom, but we have somebody that actually knows.

[00:24:20] You know, we joke on this, the show, Taylor, that, you know, neither of us are economists. We just pretend to be occasionally. So since we have a senior economist with us, what's your takeaway on the metrics that are used to currently look at not just inflation, but even other economic factors? But let's just key in on inflation for the moment. What's your takeaway when we've got, you know, Tom just a few minutes ago had Polymark get up, right?

[00:24:49] And we had a really good discussion last week. We were talking about this, is that, you know, Polymark and prediction markets are just such an interesting phenomenon because if you get enough people taking part in a market like that, you can change trends pretty quickly. And we saw that in the presidential election in 2024. These things have become really, really quite interesting for us.

[00:25:17] But the point, my question behind that is we have so much live data. We have amazing tools with artificial intelligence and machine learning and so forth. And so much, it seems like what we're basing these rates and so forth on are pretty antiquated when we look at the technology. That's, you know, when was the last time we saw Tom on this show that we've talked about?

[00:25:44] When was the last time we quoted any government statistic that is an economic statistic that are tracking the economy that haven't been revised? Right. Why do we need to revise if we have live data available? So anyways, I'm a little soapboxing there. I just love your take on are we in a place where maybe we should rethink not just wholesale change, but maybe bring some other factors in to make some decisions on? Yeah.

[00:26:09] And it's something that we've done at ITR in the last year is bringing these data sets that are more representative of the moment and time we're in. Because like you mentioned, everything that's released lags and then gets revised. So it's because of the survey and sampling mechanics. I'm not going to bore everyone with those behind how these government organizations put things together.

[00:26:31] But, you know, rather than showing historical GDP in our GDP forecast, I bring up the weekly GDP tracker in all my keynotes now because I can tell you on a week to week basis how we did, you know, just the week prior or how we're trending in the week that we're in. So, you know, I do think there's an element of that that needs to be brought into this conversation here. And it gets to your initial point, which is, is this 2% inflation really something that we have to care about? Maybe like we've been told we need to in the past.

[00:27:00] If we can bring in some of these live metrics and prove that we're growing above or below our rate of potential, maybe 3% inflation is fine with a 3% GDP weekly number. Right. And so I do think it brings more light into some of those conversations that we've all just been told, no, that's always how the way it's, it's always the way it's been. Right. Well, if you use the trimmed model too, right, that was just going to can bring that down as well. Right.

[00:27:28] And maybe there's a hybrid approach of looking at a multiple different, you know, numbers and deciding rather than just this one sort of arbitrary milestone that's out there. Well, and I think that's what the, what we've seen from the president talking about with things is the idea of that looking at it from a standpoint of we've got, you get, it kind of goes back to that. What do you call the trimmed mean? Was it? Yep. Yep. Exactly.

[00:27:57] If you, if you get rid of the outliers, right, things look pretty good. Right. So what should, why are we stuck in these old metrics that we've used forever is the question, I guess. Yeah. And again, I think for me, it depends how impactful those outliers are to businesses and people.

[00:28:16] And so I guess maybe that's where I'd push back on the Fed's trim mean a little bit is if you're excluding some outliers just based on math, well, those outliers could be very important in terms of their impact on people and businesses. So I think I'm okay with the conversation of looking at a distribution or adjusting some of the metrics, but let's make sure we're not excluding metrics just to get to the conclusion that we want to get to. Yes. Yes. That's really, that's a really good point, right?

[00:28:42] Just don't, don't dig into, for the digging in stake to try and make you be right. Right. Good, good, good, good, good. Okay. Well, my, that's just my, my takeaway on all this is just when we're using, I'll just say, you know, antiquated metrics at some level. And, and, you know, we talk about this pretty regularly and I have strong opinions on this and my, my thought isn't get rid of it and start over, but it's like, why don't we use some real time data? Right.

[00:29:12] Not saying use Polymarket, CalShare, any of those things, but you know, there's, there's more data available to us. All right. Mr. Burton, where are you taking us next? You know, let's, let's, if you're up for it, let's move ahead and maybe even to a little bit more about tariffs and some of the refund stuff, which is getting quite interesting. I have to admit is if they would have just listened to the show a month ago, all of, we have solved all of this for them and now they're just figuring it out themselves.

[00:29:43] But, so let's, let's start here, I guess. Maybe the, there is some new tariffs that are now coming out. I can't keep track of all these sections, section 301, 232, all that kind of stuff. I don't know, Taylor, do you have a handle on this on kind of what tariffs are what and are they happening or not happening? And there's talking here about Japan and, you know, I thought Japan we had to deal with, but maybe we don't have a deal with.

[00:30:10] And so it's almost like we need like a re reboot on where everything sits on all this tariff stuff. Yeah. Yeah. I think the recent announcement was the, the terror, I think it was 60 countries. Correct me if I'm wrong, that president Trump's looking at increasing tariffs on now. Yeah. You know, our parent company Crow has an entire team dedicated to tariffs and trade just to try to keep us all, keep us all in the loop on this.

[00:30:38] So it gives you the background on how complicated this situation. Our parent company has an entire group of individuals that just do this every day. Yeah. So you were right about that, right? It's the article, so CNBC article that we're discussing there. And it says, Office of US Trade Representative, right? Which is the office that using those other sections now, that is the office that has to.

[00:31:02] So when we were looking at the IEPA, the president just waved a black Sharpie and said, these are the new tariffs. And actually, what got me thinking about it is, I think that's when I met you. I met you for the first time, Taylor, on Liberation Day. Yes. Right? Because, it's right. So April of last year.

[00:31:26] Because Brian Wild from NAW spoke right before you, I believe, and probably nailed it 75%. I don't think anybody thought that the president was going to hold up all of these big lists of, you know, Micronesia, you know, and the Marshall Islands and, you know, Turks and Caicos or whatever having tariffs on them.

[00:31:49] But, you know, that, I think the idea behind that was we're putting it across the board so nobody can come back and claim that they were unfairly targeted. But now we're looking at them having to use these other statutes. And I think it was three of the four additional statutes, there had to be research and documentation done by the U.S. Trade Representative Office. And that's what this article is talking about.

[00:32:15] They proposed additional tariffs on up to 12.5% on imports from 60 economies around the world. And they're tying this, and it's interesting, you had commented on our previous topic about making adjustments to metrics that are used is to not adjust the metrics to fit our solution. Right? Well, now that's pretty much exactly what's happening here.

[00:32:43] We're in this setting related to tariffs is that they have to go now and prove that they're meeting within these specific statutes that they want to use. And one of them is tied to forced labor and other labor issues. Right? So now that I can't remember which one of that is, I don't think, oh, Section 301 talks about that forced labor-related imports and that causing an unlevel playing field. Right?

[00:33:10] And I guess what the president's been saying or the administration's been saying all along related to this is, we're just looking for a level playing field and level trading. So this one in particular is doing that. Yep. Tom, additional thoughts on that? I just, I don't know how we keep track of all of this. And then you, you know, look, if I'm a manufacturer or what do they call it? What do they call the people that were the, not the system of record, but the...

[00:33:40] Importer of record? Pardon? Importer of record? Importer of record, yeah. So I'm here for you. Yeah. How do I know right now what I should be doing or not doing? I don't know. It just seems very, it seems like a Rubik's Cube, right? It's changing all the time. And then you have the refund part of it, which we'll touch on here in just a minute. I don't know. It just seems like it would be, look, at least before when he held up those signs, you knew what you were doing. Right?

[00:34:09] We're doing this much for this country and all of this. It's like, I don't know. It seems very difficult to keep track of. And it definitely seems to be changing all the time. Well, and I think that's a good point, Tom. And Taylor, I want to come back to you here in just a second related to this. But we have another article from our friends at Modern Distribution Management there that talks about this earlier this week.

[00:34:33] There was a presidential proclamation temporarily lowering Section 232 duties, another one of the statutes, right? On certain agricultural equipment, residential HVAC products, and mobile industrial machinery offering targeted relief for distributors but leaving a much broader metal tariff kind of intact. So I would say, Tom, to your comment is it's even more of a struggle when now we're saying which tariff is it? But then, well, which products?

[00:35:02] And do I have some products if I'm an HVAC distributor or a manufacturer? Actually, do I have some products that are tied to this that, oh, I have some easing on this? But how long does easing go? And is Congress going to come push back? It's a difficult time to make decisions. Yeah. And, you know, I'd add one of the unintended consequences we see of this. We follow an economic policy uncertainty index. This thing has been higher than normal for, you know, the better part of two and a half years.

[00:35:32] And the reason that matters to us, and I'm sure it seems straightforward, is we are forecasting GDP growth and industrial production growth, industrial output growth, but at a slower rate over the next three years relative to where we were in really the past cycles of the last decade. So I do think, you know, I hear this comment from our clients, and it's one of my favorite. He said, it was a gentleman. He said, I voted for this president. I am okay with tariffs.

[00:36:02] I will adjust as a business leader as I do to any legislation, but stop flip-flopping and changing these things. And I think his comment, again, there is, it's just, listen, I can adapt to a new reality, but if the new reality is a moving target, that's really difficult for me. Yeah.

[00:36:19] There's varying degrees of, there's varying, while I say this, while trying to put certainty to this, which that what the administration wanted to do with the tariffs, there is so much uncertainty that goes with this and these ups and downs. And, I mean, how do you do, how do you do planning for 2027 when you have some assumptions of what you've seen so far, but then now we have some easing on some of these types of products.

[00:36:49] But then with, you know, a statement being made by, you know, President Xi in China that could just change things completely. And we've got another, you know, 75% or 145% tariff on Chinese goods that is coming through one of these other Section 232 or 301 or whatever it might be.

[00:37:12] So, I would, I think we've even talked about it here, about that being the challenge for a distributor or manufacturer either side of that. And to your point, you had somebody flat out tell you that, right? No. Just, I, and I, and I think if you, I'll throw this out to both of you to argue the point, but I think if you look at the goals of the administration, as we mentioned earlier, right?

[00:37:40] Who, who doesn't like the idea of less drugs and who doesn't, especially for our audience here, right? And wholesale distribution and manufacturing, who doesn't like the idea of lower interest rates, onshoring and subsidies to support manufacturing growth. You know, if you're a distributor in that setting, you're looking at that and saying, hey, my manufacturers are doing great things because they're onshoring.

[00:38:05] And we've got stability to, right, we could go back to kind of maybe some just in time inventory levels and some things like that because we have some certainty because some things are being made in this country. I can look at that and say, wow, and then interest rates are manageable again. So, why wouldn't I want to go do some M&A transactions or build some new distribution centers?

[00:38:33] There's now one of the sections of our newsletter each week is called Industry Scuttlebutt, and almost all of that is tied to new distribution centers opening. So, people are still doing a lot right now. But imagine when you look at an M&A as, you know, there's still plenty of M&A going on. But look at what it could be in that setting if we had some stability. Yeah, I think the stability is, or the instability is taking away from the objectives, right?

[00:38:59] And certainly clouding the objectives in terms of even if the objectives are being met to some degree, right? It's like, is this worth it, you know, from the instability that's going on? Yeah. Are we ready to move into the refund aspect of it?

[00:39:18] I was just going to move that direction about this article from earlier in the week about Trump moves to halt universal tariff refunds is an article from industrial distribution. So, back to the, come on, give me some stability here is, and this is funny to me because I said it on this show, as soon as the Supreme Court struck down the Emergency Powers Act,

[00:39:47] I thought the administration would immediately move to block tariffs being refunded. But they didn't do it immediately. Well, they didn't, and here's my take, and should your take, Taylor, on this. But, so, there was $166 billion of tariffs more or less collected. As of yesterday or the day before, $88 billion have been, there's been $88 billion submitted for refunds. So, about half have been submitted for refunds.

[00:40:17] I don't think they expected that many to come in that fast, right? I think they thought, and remember Trump even said, hey, if you don't apply for a refund, I'll... I'll think of you favorably. Yeah, I'll give you a favor, or you'll be on my good list, or whatever, you know. He's moving to the North Pole. Right. You'll be a good boy. But, you know, a lot of, obviously, they've come in fast and furious.

[00:40:41] I think they've paid out, they said now, about $22 billion of the $88 billion that have come in. But, yeah, I think they probably go, oh, crap, right? This money is going to potentially go out a lot faster and a lot more than we thought. Maybe we better throw some sand in the gears. I don't know. What's your thought, Taylor?

[00:41:03] Well, and, you know, one thing President Trump wanted to do was increase tax receipts and increase the amount of income coming in to help with the debt problem. It's part of his campaign promise. This is counter to that. You know, the other thing that I think of as an economist, now I'm a business guy. Anything that benefits businesses, you know, all right.

[00:41:22] But there's this reality, too, if businesses already increased their prices and passed along the tariff costs, now they're getting a refund when they've already passed along a lot of these increases. And now, again, generally good for some businesses. So I don't want to act like I'm counter to that. But, boy, that can create ripple effects through the economy as well. And, again, it gets back to these unintended consequences.

[00:41:47] It's like I said, tariffs are easy, refunds are messy is usually the phrase we use. But, yeah, so my job is always to connect it back to the broader economy. And that's what I think about. I know from working with all my consulting clients, most of them have passed along these tariff increases. And so if they're all of a sudden getting refunds now, the question they have for me is, what are my customers going to come to me and tell me? Well, there's an article that we have here on that, right?

[00:42:15] But we've talked about this for actually a couple of months. I mean, this is – and I think we're seeing a little bit of it. My suggestion was, look, this isn't fair, right? The refund process is not fair. But if I'm a manufacturer or the importer of record or the people there, I could really be a real goodwill PR move to my customers and say, hey, you know what? I am getting some money back.

[00:42:44] And here is how I am going to make sure that I'm sharing the wealth. Now, in one of the articles, Kevin, I don't remember which of those it was. Costco has already announced that they're going to do that. Walmart has already announced they're going to do that. And other distributors and other manufacturers have at least made some statements that says, here's how I'm going to share the wealth. Interestingly enough, like Grainger and a lot of the big public distributors have not said anything yet at this point.

[00:43:14] But to me, this is a – and in fact, they even mentioned that some distributors were saying, hey, if our manufacturers or suppliers don't come straight with us, we're going to find other options that are here. I think there's a real opportunity to strengthen relationships and build PR. And you don't have to give all of it away. Maybe you're – it's part of it, right? I mean, there's – again, it's just being more transparent on the whole thing. And that's what we've been saying for a couple of months.

[00:43:41] And it looks like that is starting to happen to at least some degree. Yeah, but, I mean, I think it's so much more complicated to do. And, I mean, I just use this example, right, to take it to the next layer. I do the show from my home office before I go into the office later this morning. Monday morning, 6.30 a.m., there's going to be a lumber truck that delivers lumber to my house.

[00:44:08] And there's going to be a roofing supply company that's coming with roofing supplies because we're replacing all the fascia on our house and a brand new roof. Well, guess what? That's lumber from Canada, most likely, right? Don't know exactly where the roofing materials were made. Could very easily be in Southeast Asia, if not China. And that all got passed on to my contractor through the distributor. And guess what happened? We got this original project quoted over a year ago.

[00:44:37] And there's, what would that percentage be? 15 plus percent, close to 20% increase in the previous quote. Now, I'm sure some of that is because I can quote. But if you stop and think about that, I'm the downstream on that project, right? So manufacturer passed on to distributor. Distributor passed on to the contractor. Contractor passed it on to me. It's ugly, right?

[00:45:06] And so I think if you start thinking about that and I look at that and say, okay, if I'm Joe Consumer, now that I fortunately live in a place and work for a good company and have a wonderful business partner. If I haven't mentioned how great my business partner is recently. You've been drinking this morning? No, I just thought I'd be kind. Okay. And yeah, it's, I think it's good to do once in a while.

[00:45:32] The, I joke, Taylor, I don't know if you remember this, Tom and I have been friends since kindergarten. And now we run a company together. But I always say I have, I have one compliment a month for him. It's all I'm, it's all I do. Just one. But anyways, point, you know, point being is that, that, that in price increase does not impact me like it might impact other people. Um, so I take this back as the president saying, no, no, no, let's not flood these dollars into the economy.

[00:46:01] Cause there is other risks of that getting too much money flowing back into the economy too quick, but let's give this money out to the people that deserve it with those $2,000 checks. Now Congress has to approve that, but I tell you what, if you're Joe homeowner, that's, you know, you may be struggling a little bit more and say, wow, I have things I need to do on my house. Just use my example. And the government wants to give me $2,000 out of this. Keep those tariff monies.

[00:46:30] Don't give those tariff monies back. Give me money because I'm never going to get that back in reality, uh, across the board, no matter what Costco or Walmart says. Yeah. I, Tom, I don't, I don't remember. I didn't read that component about, uh, Costco, but I, but I do believe coming. Tom, you made a comment a few weeks ago that, you know, they should know exactly what I spent as a Costco user and exactly what their tariffs are. But that's a lot of time and energy and work to go in to get that done.

[00:47:00] And then the cost of putting those dollars out, what does that mean to the balance sheet at Costco now? Right. I don't know. Go ahead. But again, if I, I feel better as a Costco member, right. That they're actually looking to do something about it. It'll, I'll probably get like another 50 cents on my rebate check that I get every year. It's, it's not going to be. Is it PR or is it meaningful? I guess is the question. Right. It's building goodwill.

[00:47:26] And I think as a, as a supplier, the distributor, we have that, they have that offer, even as a distributor, potentially with the end user, there is an opportunity, right. To be transparent and to build goodwill and strengthen relationships. And is it going to be perfect? Of course not. But it's, it's, it's something. We're just doing nothing about it and, you know, hoping that it blows over. Right.

[00:47:53] So before we move past this, there's another article there. We have a chart there about the IEPA refunds could get caught up in legal limbo. There's, this was interesting. This article, this was from Yahoo Finance and quoting some things from Bloomberg with that. And I don't know if you have that. Let's see. It's probably a prior one to that, Tom. That's an AI slide.

[00:48:18] It's the black one with, there you go, where this, the judge that got involved in this originally talked about the appeal. It said that it's kind of some of the notes that I got out of this was, you know, he's talking about this, this personal opinion from this judge coming in, talking about how the DOJ's legal maneuvering is threatened to undermine the ongoing claim system that has already processed 85 billion in refunds. But there's this, this conflict that's coming from this.

[00:48:48] So this chart, you wish we'd maybe spend a couple of minutes talking about this chart. Sure. Go for it. Well, I just, it's, it's, it, this whole thing back to just makes me think about back to the comment Taylor made earlier is, you know, that the gentleman that he was talking with that says, Hey, look, I'm all for these, but let me know exactly what's going to happen. And now we've got, okay, these IEPA refunds, right? Not, not the other statutes, but these IEPA refunds could get caught up in this legal limbo

[00:49:15] and could, could really impact the whole, the whole process. Of course. You know, and I think 20 billion's already gone out, right? Yeah. Really quickly. Yeah. We didn't think, I mean, I, I even thought it would be September before it was out and, you know, we had Nick and you are even farther out when we did our whole. I was beginning, I was early into the new year. Right. So I think what they said is like, holy crap. A, there's a lot of people that have requested this and B, the money's starting to flow out pretty fast.

[00:49:44] We got to throw sand into this gear pretty quick. And they did and they will. And yeah, it'll, it'll mess up the whole thing probably. All right. Well, what's, what's the, we have, you know, we say this all the time, right? We're not economists. Although, you know, I'm realizing Tom in listening to some of the things that Taylor is saying today, who is, who is officially someone who does this for a living as opposed to our armchair quarterbacking that we do, so to speak, is we have gotten a handful of

[00:50:12] things right over the last couple of years too, with all of this and the things that we've talked about. But I, I'm really intrigued right now because I, it took quite a while for the government to jump in. And like I said, I, as soon as the Supreme Court had their ruling come down, I said, there's, it's whether you can't, obviously you can't appeal the Supreme Court, but you can file other lawsuits against it and so forth. Right. I expected that right away.

[00:50:39] I, I think we're dealing with an administration right now that probably thinks, I don't suggest that other administrations have not thought strategically. I think every administration thinks strategically, but I think this one uses some different business acumen and, and deal making and so forth that I think of, and I'm far from a historian, but I think of any administration, we might look back in 10, 15 years on this administration

[00:51:08] and see later how some dots connected that had been planned all along that we didn't see were happening. And I, I don't know if I'm articulating that well, but I don't know what you guys think about that. But I think there could be a lot more gamesmanship about the timing of these things. Cause I expected that they would do this right away. Maybe there's some, some leverage plan that says, well, let's let it get started.

[00:51:35] Then throw the wrench into things or Tom, what did you say? Sand in the gears. It was just, just one guy's thoughts on what could be going on. Yeah. Brian from NAW on liberation day at the ISA conference. He said a quote, which I loved. He said, this man wrote the book called the art of the deal and people are surprised by what he's doing. And that I've stuck with that quote from Brian ever since. I think that's, I, I, I tend to agree with you there.

[00:52:04] I was, I was at the NAW executive summit in, in DC. The, it was the weekend that the, that made massive snow storm came through the middle of the country and the East coast. So it was hard to get there and a lot fewer people there. And I had listened to Brian pretty closely before, but when he gave his whole, you know, it was a great event, right? We had former president Bush was there for a fireside chat and Sean Duffy transportation secretary there. It was great.

[00:52:34] Tom's coming with me to that in next January. Cause it's just the people, the caliber of people that you get there and you're in a small room, you know, with maybe a couple hundred people, you feel like you're really in, in, in the, in the know with them. But Brian was really, really, you could, you could feel there's no love for, for the, the, the current administration with him.

[00:52:57] Uh, and so, um, as he was talking about these things and he, it was right before the Supreme court's ruling came down, but he was no ifs, ands, or buts that it was going to come down the way it came down and he was pretty clear on that, but I think to your point, right? Yeah. I mean, look at the history and you know, this guy's he's, he's not afraid of anybody. He's willing to talk to anybody. He's willing to negotiate anything and he's willing to change what he did before. So nothing to that point.

[00:53:25] I'm going to, I'm going to use that quote and remember that as well, uh, that nothing should surprise us here, but I think it is going to be interesting and it would be, well, I guess, you know, Taylor, you, you, you, you work in a field and have the experience to bring all of these economic factors together. What's your take on where we sit with tariffs six months from now? Will we have given out the billions of dollars that were taken in or will there be some negotiations to that?

[00:53:54] Will we be having more tariffs coming through? And by the way, nobody listens to this show and it's not recorded. So I was going to say, if I knew what was on president Trump's mind, the wealth us three would have, uh, from the inside I'd have for you would be incredible. Um, when we look, I'm going to use historical precedents in this, you know, came from Brian, uh, bully or our, our former CEO in, he said, you know, we still have tariffs in place from the last four administrations.

[00:54:25] It often takes a major economic event for us to change our perspective on tariffs. We do not have that coming for the next three and a half years, uh, as, as you alluded to earlier. So I would expect to continue to see, yes, I'm sure some, there's some changes for the countries that negotiate with president Trump and maybe come to the table and give him some concessions there. But this idea that tariffs will be going away or that we won't see more.

[00:54:54] I wouldn't subscribe to that. Um, he's, I think president Trump has, he has increased tax receipts substantially since he's come into office and he is really trying to generate income and using tariffs as a tool to be able to do that. So I don't see tariffs going away. Um, if you want to talk about when the next downturn comes, I think that would be the most logical timeframe. Whenever you think that downturn is, we don't have to get into when, when the downturn is,

[00:55:23] when there's a next major recession, which we know there will be one eventually here in the U S I would expect that's when some of these policy decisions around tariffs are evaluated. But in the near term, I don't think that's the case. Okay. Um, so one last thing before we move out and Tom, I'd like to kind of, if you can maybe jump ahead to our, uh, our AI segment and talk about that and its impact on business and the economy and most important, uh, lead distribution manufacturing.

[00:55:49] But, uh, last was either last week or the week before the EU voted, uh, I don't know about unanimously, but voted to accept the terms of the, uh, economic agreements, right. Versus tariff agreements, right. So now we have an economic agreement in place, whether the tariffs are reasonable or not. What's, and it was something that Tom and I talked about at length because, you know, it's,

[00:56:18] if you think about it, if they're accepting the tariffs, well, tariffs are blocked by IEPA. We don't exactly know how these other ones are going to go. What it appears is that you've got the EU that has said, Hey, look, this guy's going to figure this out, how to have tariffs in place. Let's cut a deal. Right. And now we have a trade deal as opposed, which is what this is looking like. Is that Taylor, is that your take that the EU is more of a trade deal now versus a tariff deal, which should then be able to help avoid tariffs.

[00:56:49] And again, back to the art of the deal, so to speak is maybe this, this is where this was headed all along is let's just get to the place where we make fair trade deals. And because I have these, these levers or the, I'll just call them different hammers of different statutes. And, you know, the EU is saying, uncle, we know you're going to get these through. So let's just agree to a trade deal now. Maybe that was the plan all along. Any takeaway on that? Yeah.

[00:57:18] And, you know, I think that's how, I think president Trump's going to frame this as a win with, with these negotiations. I mean, the reality is if you look at our import export relationship, since president Trump's put tariffs in place, we are relying on far less on China and Canada, and we are relying far more on the EU and that's on both, both sides, import and export. So I do think the administration recognizes how important the EU is to the US, even more important than it's been throughout recent history.

[00:57:47] And I think he put this as a, again, art of the deal of, I'm not going to come down on you all as much. And as a result, we're going to see a positive relationship here, positive benefits for the economy. That's great. Tom, any final takeaways on that? No, I'm ready for AI. Okay.

[00:58:11] We're going to bypass our supply chain section and our manufacturing distribution segment and jump straight into. So take us away into AI. You want to talk a little bit about adoption use cases or where are you thinking about this? Yeah, no, this first article I thought was interesting from MDM, you know, AI adoption accelerates, but business use cases stay narrow.

[00:58:37] And what I'm seeing, and I don't even think this applies to distributors yet, but if you look at the broader market or broader industry, right, where are people getting value out of AI is coding, quote unquote, right? And it's even more than coding, it's software engineering, right? How do I use AI to facilitate software engineering, whether that's reviewing things that I've already

[00:59:07] built and trying to find bugs or security issues or whatever, but also the ability to create a whole lot of new applications and software and whatever at speeds that were pretty much impossible before. Not only just speed, but reliability and quality. I mean, the code that we're producing through AI is obviously faster, but the quality and the reliability is better than if it were being done by hand.

[00:59:34] And the interface is better and it doesn't break as much and it's more multimodal. I mean, all the things that were difficult are removed. And I think we've really just started to scratch the surface of how AI will impact this whole, I'll just call it software engineering area in organizations.

[00:59:58] I think if I was thinking about this this morning, if that's all AI ever did was really just restructured how we do software engineering in organizations and the way that we approach it and how we utilize it and leverage it, we'd probably get our ROI from all these data centers and everything that's going on there. So the use case is very narrow. On the other side, I think in the distribution side, we're not seeing, at least I'm not seeing

[01:00:26] a whole lot of AI coding taking place. I'm seeing sort of efficiency plays. Hey, is there some low hanging fruit for some efficiencies? So can I get my orders that are coming in on pieces of drywall put into my ERP easier and stuff like that? Which is fine. And there's nothing wrong with some of the efficiencies that are there. But I'm not seeing, and again, this is some of our customers where we are seeing a little

[01:00:56] bit of a more strategic use of it and saying, hey, how do I really use this? As Kevin mentioned in the beginning, right, about growth, how do I use this to really meaningfully figure out how to grow the business? And not just financially, but grow relationships with customers, have more customers, grow better relationships with my suppliers and my employees and all of those things. So this growth concept is not just money, although that's an aspect of it.

[01:01:24] It's how do I just raise the bar on a number of different areas? And I think we're just barely starting to scratch the surface of that. But man, at least what I'm seeing day in and day out on the work that I'm doing, there's certainly a lot of opportunity there. So that's my take. Taylor, love your thoughts on what you're seeing out there, all the companies you're talking to, kind of what they're thinking and all that. I mean, I would agree with you.

[01:01:50] Most companies we talk to right now, it's an efficiency play. There was a survey done by, I believe, the Census Bureau. And it was actually asking businesses, not just how many of you are using chat GPT or driving an efficiency play. But how many businesses have a scalable, repeatable AI process? So getting that definition a little bit more into actual business operation in the numbers for firms with 250 or less employees was 8%.

[01:02:20] The number with firms 250 or more employees was 11%. So I still do, to your point, Tom, I think we're scratching the surface of this. I think most businesses still haven't actually put this into a process that's scalable, repeatable business operation type process. Most clients I speak with say, you know, this isn't something that's reducing our headcount today. But with some of the efficiency gains, it's helping with our margins in the face of higher inflation. And it might reduce our need to increase future headcount.

[01:02:50] So that really seems to be where AI is. But I agree. We're still in large language model territory. Wait till you get quantum computing mixed in with AI. I think there's going to be a lot of interesting things that go on. And even local models or industry models and so forth that comes with that as well, as we think about that. You know, I think where we're sitting right now and across business in general, but let's talk to wholesale distribution and manufacturing, I think is where, you know, I'm thinking one

[01:03:20] particular distributor that Tom and I've had some discussions with. You know, they bought a few hundred Chet GPT licenses and just let their people go with this. See how it might help them. Is that AI adoption? Not really. Right. And then, but what you see is a lot of that, maybe some things or some organizations are doing some general things with co-work or maybe even, you know, writing some, you know, there might

[01:03:48] do a little bit of vibe coding here and there on some things. But I think what we really are seeing is people are using Pick Your Poison, Clawed, Perplexity, you know, Chet GPT to do some generic research, maybe help with some writing, maybe marketing's using it in some places. And then they've bought a piece of software or two that are off the shelf saying, you know, AI, which many of them are AI washed at this point, as we call it, right? It's yeah. Is it really? And, but that's where most people are sitting right now.

[01:04:17] I would almost suggest, and this is kind of a brutal thing to say, but there are the real true AI driven use cases that are driving business change are so few and far between in, specifically in wholesale distribution, that it's, it's dozens, not hundreds that are getting, maybe

[01:04:42] I'm, maybe I'm, that's too tough a statement, but my gut tells me in my, and I stock every day, all day to distributors and we host this show is it's probably. Hundreds, not thousands. I'll say of distributors are really maximizing their use. But what it is, is it's great fodder for the media companies to have, you know, guests to talk about use cases and so forth, which is great.

[01:05:10] I mean, it's nice to, to, to let other distributors and so forth and manufacturers see what others are doing, but I'd suggest that across the media component of distribution and manufacturing, there's a lot more. I don't even, I don't want to say hype, but we're not, we're not, we're not. Exaggeration. Exaggeration. I just don't think the reality of the world that we really live in is anywhere close to where we could be or where the, where other people are purporting us to be.

[01:05:39] Okay. Well, and as the next article on our AI list, it's the AI savings misses should be making executives uncomfortable. That was an article from insurance journal, but based on a study from Bain. Yes. And, you know, guess what? What did they find out is they're not, the readiness is not there, right? Yep. They don't have data readiness.

[01:06:05] There's no platforms, so to speak, to facilitate the, the AI infrastructure on top of that. And, you know, of course, that's what we're seeing and that's what we're trying to fix in the, in the world that we're in. But yeah, it's not surprising. And they're buying, they're buying technology. They're, they're blowing through tokens or, or credits and they've got a lot of people to try and solve it in the first round. You know, they, they call it the prior wave under delivering in this particular article.

[01:06:34] There's a good chart that goes with that. I think Lily got for us. Tom, do you have that one handy? It just shows a range of savings realized versus anticipated savings. And right now we're, I think still living in a world where manual processes actually, you know, there are cases where it's beneficial, but in general, this one showed it's, we're not getting the returns. Taylor, are you seeing that in your travels? Yeah, absolutely. And, you know, I think the other element you have to add into this is everyone wants to

[01:07:04] be AI related because the stock market and the way that they're rewarding companies. So you want to have that element to share on your earnings call around how you're interacting with AI. Because at the end of the day, the stock market, even companies that are laying off big numbers of people and defending it with AI, they're getting rewarded by investors versus not. So I think that adds to the maybe exaggeration, but was the term you used, right? Yeah. That's going on out there. Yeah. There's a lot of talk.

[01:07:34] And to me that none of this changes, in my opinion, the potential and the associated with it. But I just, it's, if, if, if, and again, we are definitely seeing this because we're seeing this with the customers that we work with. There are definitely companies that are recognizing, hey, let's take a step back and take a more holistic approach to this. Right. Right. Right.

[01:08:03] And let's, you know, spend some time, understand what data really is necessary. What data needs to be cleaned or improved? It's not every piece of data, but there's some data that does. How do we potentially, look, we're going to have siloed systems, but how do we address the siloed situation that's, that's there? All of those types. Again, I think it's not, it's not, it's not a hard thing.

[01:08:30] Well, to, to really start looking at things from that more holistic standpoint and then start working in that direction. That's there. But if you're expecting an overnight, you know, oh my God, we've just, you know, five X and we've removed half of our employees because we, we use chat GPT. That's probably not realistic either. Yeah. Tom, let's, I think the next chart you have that is an image that our friend Mahesh Nagaswamy

[01:09:00] took a picture. I stole it from him. Um, that is from a conference he was at, but it's a chart about how CEOs are looking at what the impact, uh, of, uh, bringing AI into their workplace. And so we can talk about this briefly as well, but it's pretty astounding there that, you know, 80% of CEOs globally say their job is at risk if AI fails by the end of this year. That's pretty. What does that mean though?

[01:09:30] What does AI fails? What does that mean exactly? You tell me. Yeah, I don't know. Um, and fails is a pretty broad word. Well, let's, let's just, I think the magnitude of what this is saying is people are anxious regardless of, regardless of the definition or people are anxious, right? Um, so, I mean, 75% believe that a fellow CEO will be ousted due to failed AI strategy. Right.

[01:09:56] So I, I think what we're seeing in distribution and manufacturing from the people that we talk to you from the most part is, you know, and well, let me just give you a great example. Tom, we were on a call yesterday with one of our, uh, wonderful lead smart customers. It's, you know, a very significant player in the, the, uh, HVAC and plumbing market. Their head of IT and, uh, who is also a business person within the organization and some other business people who were on the call commented.

[01:10:24] He said, you know, every week to two weeks, he sees their owner and CEO and the, some of the tools that you and your team are working on, Tom, some more advanced AI tools that we're adding in that they're aware of, cause they're going to beta some of them with us. Their CEO is asking, when is that ready? Right. Now we've got one of the many, many software companies that they work with, but there, I happen to have had an opportunity to have spent some time last month in Indianapolis

[01:10:52] with their CEO talking about some of this, but you've got their, the guy, the VP of IT that is saying every time he sees the CEO, CEO, the CEO is asking, when's that next AI feature launching? Right. So there are people that are looking at that. And now I think the other side of it is we've talked a lot about on this show too, is that you've got boards that are saying, what is your AI strategy? And, and I would, my suggestion would be the wise board would be, what is your strategy?

[01:11:21] What does the roadmap look like and how are we moving along the roadmap versus what efficiencies are you driving to the bottom line in 2026? Cause we're so early. If features are the measuring post, right. Then yeah, you know, I have a bunch of AI. Does that mean if I have everybody using chat GPT to write emails that we're using AI? Is that success? I don't know. Right. So I think that is the problem is the definition of success is not clear.

[01:11:50] Um, and certainly at a board level, I don't know that they know what a definition of success would be at that, at that level. So using features isn't necessarily a success. Um, I do agree that I think the definition of success should be, as you know, where you're trying to go and how you might have an opportunity to get there and then are taking steps in that direction.

[01:12:16] I think, you know, if I was a CEO presenting to a board as a, as a distributor, that's what I would want to be showing them. And then showing gains along the way, right? Sure. Always going to be small wins along the way, some larger, some smaller, but show the wins along the way. Hmm. So, well, we have, uh, another article that ties into that same thing from, uh, CFO dive

[01:12:41] that talks about poor leadership process and process failures are sinking AI projects. And I think, you know, when we look at this is the, that goes back to the comment that we just had about having a plan, having some guardrails in place. We have a whole section that, uh, next section of the newsletter that talks about cybersecurity as well. And I think that's where, if we think back to that slide we had up a few minutes ago with some of those risks is if I'm a CEO and I just say I'm running a, you know, $300,000

[01:13:10] a year wholesale distributor with 30 locations and 15, sorry, $300,000 distributor. I'm sorry, $300 million. And, um, and I've got, you know, X number of locations and Y number of trucks and all these salespeople and I'm thinking, okay, I want to drive efficiency. I want to drive profitability. I want to get rid of my silo data and my business and fragmented, uh, uh, data that I have and

[01:13:40] take full, uh, full, uh, opportunities that these things avail to me. Let's get started. And I get really excited and anxious and get rolling, but I don't put a cybersecurity plan in place or a guardrails on data. Tom always uses regularly the, you know, the idea that without some good guardrails and understanding of access levels and so forth, you know, you could put plug in a chat bot.

[01:14:07] And next thing you know, is that the, um, you know, the warehouse manager knows the salary of the owner of the company and, uh, pending litigation about X, Y, Z. Right. And so you think about that slide we had looked at before that, uh, Mahesh had shared was that, uh, that anxiousness or, or getting fired could be tied to, you know, what, what is that?

[01:14:32] Uh, you know, the, the, uh, the FOMU fear of messing up, right. Is there's a lot of risks that goes with that as well. So Taylor, do you see, um, and budgets and when people are allocating budgets, when you're, are they putting money or earmarking significant amounts of money for AI or are they earmarking money for it and technology of which AI is part of that or none of the above?

[01:15:03] You know, it's, it, it depends on industry and, uh, the answer, the way I'd segment, is the more skilled professions manufacturers distribution that I work for are more on the, this is the money towards IT and infrastructure and AI. It's all kind of bundled in one. But when I work with some of the financial services companies, the banking, they actually have more specific line items of this is how much we're spending on AI.

[01:15:31] So it does seem to be split among the sort of service industries versus the manufacturer, more skilled worker based companies. Interesting. Yep. Yeah. Well, let's, uh, gents, we've kind of hitting on our timing on things for today. Why don't we kind of look a little wrap up Taylor? We're so appreciative of having you here today with us. And we're looking across the idea of just talking a lot about AI and its impact in the industry.

[01:16:00] We're looking at the, uh, impact of, you know, potential interest rate changes and the things that go with that along the way. Um, we've got the tariff components. Maybe if we looked at those components, the economic factors, the technology factors that are facing wholesale distributors and manufacturers right now, Taylor, in your mind, what, what are the maybe top two or three things that you would share from your travels, your experience, the research your organization is doing that a wholesale distributor or manufacturer should

[01:16:29] be thinking about as we get to the second half of this year and start thinking about next year? You know, I want to reiterate to everyone. We are very optimistic on what the demand environment still looks like for the second half of this year. I know we're talking through a lot of the challenges that are coming along with growth today, but we have growth in our forecast in 26 and into 27. Now you have to deal with this idea of profitless prosperity. And I think that wraps up our conversation today really well.

[01:16:57] The idea behind this is there's it's growth, but it's all growth at a higher cost. And so it's not a question of will your sales and revenue grow? It's a question of, can you maintain a margin or expand the margin during this period of growth? You need to be able to leverage these technologies, find efficiencies, protect your margins through price. If you really want to benefit from the growth that's out there in 26 and 27, find those economic data points, those industries that are on the upper end of the K.

[01:17:25] It is a K-shaped recovery in the economy right now. There are some industries that are soaring, others that are just sort of struggling along here. But my message to everyone, every keynote that I've left over the course of the first half of the year is it's growth. It's growth at a higher cost. Manage that cost component with efficiencies and technologies and AI. And it's going to be a great second half of the decade for you. Where are those costs coming from that are eating into the profitability? Is it tariffs?

[01:17:54] Tariffs or other just costs? Yeah. So when I present an inflation section, there's four primary areas I present. It is labor costs. AI is helping with the white collar people. It is not helping much with the blue collar people. And those wage numbers are high right now. So it's labor costs. It's electricity and power costs as a result of all the data centers in our grid. It is tariffs with the nationalism and even reshoring, which is a positive thing. Still inflationary.

[01:18:24] And then the last piece is fiscal policies. Our government spending and our money printing and our money supply all drives inflation. So those are the four key components I feel business is in on as far as the higher cost. But I think what I hear you saying is through organic growth and other sort of strategic growth strategies, you can outrun that and still grow and maintain higher margins, maintain or increase margins that are this.

[01:18:54] It just cannot be a single approach. You can't rely solely on price increases. You can't rely solely on efficiencies. You have to be doing all these things in tandem. Yep. That's great. That's very good. Good. You're good. Tom, any closing thoughts on the day? Oh, it's been great. Thank you, Taylor. Yeah, thank you. Some good stuff here. This is one I like to listen to again. Yeah, I really, really appreciate your insights. We thank you for coming and hope you'll come back again sometime.

[01:19:24] Absolutely. I really appreciate it. Thank you, Bill. If you find yourself in Southern California for something, let us know. We'll buy the, I don't want to say I'll buy the first round of beers. I'll buy them all. How's that? Hey, that sounds perfect. Yep. All right. Well, wish you a great weekend. We thank everybody for joining us here. We get together, as we said, every week. We have insightful guests like Taylor and others that join us where we can talk about what's happening in the world and the economy and supply chain and M&A and all of the things that are going with that.

[01:19:53] In fact, it just triggers for me. I probably have about five questions I would love to ask you, Taylor, about even the M&A environment. But no time for that today. But we appreciate everybody that's joined us, that listened in, whether you're listening live or on the podcast that's recorded later in the day. We thank you for coming each week. We just ask you that one favor that if you would do, if you enjoy what you're hearing, subscribe. If you're on Apple or Spotify, click that subscribe button and even better, leave a review of the show.

[01:20:20] LinkedIn, just do the follow on the show and the Lead Smart Technologies page. That's a big help. If you're on YouTube, which that audience is growing, growing, growing all the time, please just hit that subscribe and alert button even, and that'll be beneficial to all of us to continue to do this. Finally, we couldn't do this again without the support of the company that Tom and I work for that pays the bills for the show, which is Lead Smart Technologies.

[01:20:41] And we, again, have developed an enterprise growth platform, is what we described that at, that has sales enablement tools, it has CRM tools, has many different tools built into it and solutions that help you bring that silo data from across your business into a single platform to use AI and other tools against that data to really help accelerate growth in your business and to understand your customers, your teams, and your overall business.

[01:21:07] And certainly identify not only growth opportunities, but potential risks in your business as well. So we would love to chat with you about your digital journey. If you're a wholesale distributor or manufacturer, because that's all we work with, with our systems, we would love to do that. So, gentlemen, I wish you a fantastic weekend. And we'll ask everybody that's listening in to do the same. We'll ask you to also be kind, be safe, and do good things. Thanks, everyone. Thank you.

[01:21:36] We hope you enjoyed today's episode and our guests. Each week, we try our best to dig into the topics that are impacting your business. So please reach out to us and let us know how you think we can make the show better or topics you'd like for us to tackle or talk about more often and even guests you'd like to see join us. We're looking forward to bringing you next week's session and hope that until then, you stay safe, stay focused, and do great things.

[01:22:02] If you haven't already, please subscribe to the podcast and leave a review to help others in wholesale distribution get access to the conversation. And finally, please check out our sponsor, Lead Smart Technologies, and their manufacturing and wholesale distribution industry CRM, customer intelligence, and channel collaboration platform. That's Lead Smart Technologies at leadsmarttech.com.