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Speaker 2: Chinnings Now for an extended conversation synthesizing this economic moment
Speaker 2: with the Marcus. Michael Darta joins us this morning, thrill
Speaker 2: that he could be with us with Roth Capital. Michael,
Speaker 2: you go all hysterical on me here. You go back
Speaker 2: to President Hubert Heaver nineteen thirty nineteen thirty two, We
Speaker 2: had a tariff hike and they raise the marginal tax
Speaker 2: rate on the fancy people. Are we going to get
Speaker 2: a REDUCS on that? Or is that bluff and bluster
Speaker 2: from President Trump.
Speaker 3: Great to be on with you both, Tom. You know
Speaker 3: a bit of a cautionary tale here, I think for
Speaker 3: the Republican Party and the Trump administration because obviously, even
Speaker 3: with this simmering down of trade tensions, the average effective
Speaker 3: tariff rate is going up meaningfully, you know, the highest
Speaker 3: one hundred years. So you have to go back to
Speaker 3: Smoot Hawley Herbert Hoover. President Hoover signed that in June
Speaker 3: of nineteen thirty and then he also signed a gigantic
Speaker 3: tax increase, big rise in the top marginal tax rate
Speaker 3: through the Revenue Act of nineteen thirty two. The Republicans
Speaker 3: would not see the presidency for two decades, and obviously
Speaker 3: Smoot and Hally got run out of office in nineteen
Speaker 3: thirty three, never to be heard from again.
Speaker 2: I look at this, it's a great walk to a history, folks.
Speaker 2: And the backdrop of this, of course, is a small
Speaker 2: mayorship election in Omaha, Nebraska where the Democrats doun. Nobody
Speaker 2: saw that coming but Michael Darter within the stew that
Speaker 2: you're looking at at roth Capitol. Now, do you perceive
Speaker 2: that tariffs will be pulled back ever further from the
Speaker 2: ridiculous numbers down to thirteen or seventeen percent whatever earning,
Speaker 2: Tedesky says, and it will bring him down even more
Speaker 2: so in the coming weeks and months.
Speaker 3: Well, I think Tom, that you know the China deal
Speaker 3: announced over the previous weekend is important because those tariff
Speaker 3: rates were clearly in the prohibitive portion of the Laugher curve.
Speaker 3: You essentially had a trade embargo with those rates up
Speaker 3: at one hundred and forty five percent, so no trade,
Speaker 3: no revenues, right, I mean, this is a good lesson
Speaker 3: in supply side economics. So getting those down to around
Speaker 3: thirty I think is important. So it's still a big
Speaker 3: step up in tariff rates from where we were prior
Speaker 3: to the administration coming into office, But that backing down
Speaker 3: I think is important in the sense that if you're
Speaker 3: just doing a static forecast for how much this could
Speaker 3: disrupt growth this year, you know, more of a more
Speaker 3: of a slow down dislocation versus you know, potential contraction.
Speaker 2: Pauls when he wants to jump in here and Torston
Speaker 2: Slack publishing seconds ago, we bring that to you, and
Speaker 2: this goes right to the Dartak conversation. Paul, you look
Speaker 2: at imports coming in. You think all the money goes
Speaker 2: to China. That's what the president thinks. Wrong, Torston Slack
Speaker 2: saying fifty six percent of the money stays in the US,
Speaker 2: only forty four cents on the dollar goes to whomever
Speaker 2: in China.
Speaker 4: Just want to bring that up absolutely so, Michael, can
Speaker 4: we I mean just as recently as you know, two
Speaker 4: or three weeks ago, the recession discussion was certainly front
Speaker 4: and center for a lot of investors. Can we put
Speaker 4: we put that on the back burner a little bit
Speaker 4: here now that the President is walking back some of
Speaker 4: these tariff discussions.
Speaker 3: I think so, Paul. I mean, you know, we came
Speaker 3: into the year obviously with Marke it's very hopeful that
Speaker 3: most of what President Trump was talking about on trade
Speaker 3: trade was going to be bluster. And you know, obviously
Speaker 3: Liberation Day was a scorched earth set of proposals that
Speaker 3: markets did not expect, and then there was some feeling
Speaker 3: out for where the Trump put would be. So now
Speaker 3: I think we know, right, I mean, the administration is
Speaker 3: ultimately sensitive to what's happening in equity and credit markets.
Speaker 3: It may have been the bond market action in that
Speaker 3: first week of April that you know, finally finally got
Speaker 3: the President to start to back off a bit. So
Speaker 3: I do think we can breathe somewhat of a sigh
Speaker 3: of relief here. If you look at the high yield
Speaker 3: debt market, you know, those spreads shot up dramatically going
Speaker 3: into the first week of April, basically a fifty plus
Speaker 3: percent recession probability that's now receded down into the teens,
Speaker 3: if not lower. So that's quite helpful. Now, look, markets
Speaker 3: can be wrong, but I think in this case, the
Speaker 3: high yield market and jobless claims watch those two really
Speaker 3: closely because they've been on the front edge of this
Speaker 3: soft landing and resilient economy.
Speaker 4: So, Michael, in that context, here, how does a federal
Speaker 4: reserve kind of look at the world here? How do
Speaker 4: you think they're going to behave this year?
Speaker 3: Yeah, I think you know, related to your previous question,
Speaker 3: if you know, the tariffs alone really shouldn't put us
Speaker 3: into recession. I mean, where Tom and I started talking
Speaker 3: about this mood and Hawley and tariff or Hoover tax
Speaker 3: and tariff increases. Really, the Federal Reserve was responsible for
Speaker 3: torpedoing the business cycle in the nineteen thirties, allowing a
Speaker 3: money supply contraction of thirty percent and nominal GDP to
Speaker 3: fall fifty percent. Massive monetary contraction. So that's not going
Speaker 3: to happen this time. But there is some risk that
Speaker 3: the interaction between tariffs and monetary policy could create some problems.
Speaker 3: And really it would be that the tariff disruption lowers
Speaker 3: the neutral rate, and if the Fed is tardy in
Speaker 3: lowering the policy rate, the business cycle software landing could
Speaker 3: slip away. Now that these tariffs have been scaled back
Speaker 3: and moderated, that risk has declined, and the risk of
Speaker 3: the FED potentially falling behind the curve is also declined.
Speaker 3: I'm pretty comfortable with where the FED is right now.
Speaker 3: If you look at bond market inflation expectations, they've been
Speaker 3: low and stable, consistent with price stability. Nominal wage growth,
Speaker 3: which is not going to be affected on a first
Speaker 3: order impact from the tariffs, perfect running right in line
Speaker 3: with price stability. So the Fed has the flexibility to
Speaker 3: move if need be. But with the tariff threat being
Speaker 3: scaled back, then there's going to be, you know, less
Speaker 3: need for the Fed to move. I still think they
Speaker 3: will ultimately lower rates, but they're going to want to
Speaker 3: see a few months of the hard data in my opinion,
Speaker 3: before they start to move, and that could put us
Speaker 3: into July perhaps, Michael.
Speaker 4: How about the consumer here? We're going to get some
Speaker 4: retail sales here later on this morning, still looking for
Speaker 4: some decent growth kind of mind month of the month here,
Speaker 4: How do you view the consumer these days?
Speaker 3: You know, Paul, it's just been amazing the consumers held
Speaker 3: in there this well. We know the low end is
Speaker 3: under pressure, but that's been the case for a while.
Speaker 3: The high end consumer, you know, drives a bulk of
Speaker 3: the spending, and you know, with the stock market wobbling,
Speaker 3: that was a threat in February, in March, but we've
Speaker 3: had this huge bounce back in risk markets, and at
Speaker 3: least so far so far, the labor market's been pretty steady.
Speaker 3: So I think that is going to be the key
Speaker 3: going forward. Watch those first time jobless claims numbers. If
Speaker 3: they start to break out, you know, that's going to
Speaker 3: be more of a potential issue. But you know we've
Speaker 3: held in there so far, so fingers crossed.
Speaker 2: We'll see that in claims today at any thirty. Also
Speaker 2: retail sales here. Thank you to Commonwealth for support of
Speaker 2: all we do in economics. Michael Darni, whether's or rot Capital,
Speaker 2: We welcome all of you on your commune across the nation.
Speaker 2: Goodbardy ninety nine one FM, Washington ninety two nine FM,
Speaker 2: up to Milanocket. We said the Celtics won last night.
Speaker 4: I did any one pretty decided? Coming back to the
Speaker 4: garden Bloomber.
Speaker 2: Eleventh, three zero of the game, coming up here of
Speaker 2: basketball in the coming days. Uh Michael darted Kenrougoff with
Speaker 2: US yesterday and he reframed he didn't get on the
Speaker 2: disinflationary vector. He got on the stable rate or higher
Speaker 2: rate vector. And I'm sorry, I'm seeing it ever so
Speaker 2: slightly on the tape. I got a four ninety five
Speaker 2: thirty year bond. Should we prepare for a higher nominal
Speaker 2: interest rate regime?
Speaker 3: Well, I think you know that is certainly a with
Speaker 3: fiscal policy makers not really taking the threats seriously. You know,
Speaker 3: we've seemed to have missed an opportunity here. I mean,
Speaker 3: Speaker Johnson has his hands full with just a two
Speaker 3: seat Republican majority, and he's essentially been held hostage by
Speaker 3: coastal Republicans that really want to boost that salt tax exemption. So,
Speaker 3: you know, Tom, it goes back to basic public finance
Speaker 3: theory that I agree brought to possible bait. Brought it
Speaker 3: brought us possible base with the lowest rates achievable, and
Speaker 3: if you move away from that, the code becomes less efficient.
Speaker 3: There's really been no stomach to do meaningful spending, complete
Speaker 3: entitlement reforms. So you know, the we're not on a
Speaker 3: sustainable fiscal path.
Speaker 2: Yeah, Michael, let me cut to the chase. Let's do
Speaker 2: some Wisconsin whitewater academics here. Rogue offs with us yesterday.
Speaker 2: Stiglitz is known for the little g The growth rate
Speaker 2: is really really important when looking at the debt and deficit.
Speaker 2: Are we finally at the place where in America, like
Speaker 2: maybe say in Italy, the growth rate doesn't keep up
Speaker 2: with our fiscal expansion.
Speaker 3: Yeah, I mean, look, we are on a completely unsustainable
Speaker 3: fiscal course. I don't even really think there's a debate
Speaker 3: about that, but it's politically inconvenient to deal with it
Speaker 3: unless markets are forcing your hand. Are we at that point?
Speaker 3: You know? I don't think we're at that point just yet,
Speaker 3: but nobody knows when that's going to come. And then
Speaker 3: if you're trying to straighten things out in a rush,
Speaker 3: in a haphazard way where you don't have time to
Speaker 3: think about what the proper policy adjustments are, that's not
Speaker 3: going to be an optimal outcome. I will say this
Speaker 3: on the ten year yield, you know, the yield has
Speaker 3: been picking up, and that is creating some hand ringing.
Speaker 3: For sure. That looks a little more orderly to me
Speaker 3: with risk assets rallying and the macro data being pretty
Speaker 3: stable on the hard data side in April so far,
Speaker 3: versus what we were seeing that first week of April,
Speaker 3: where the yields shot up fifty basis points over five
Speaker 3: sessions with risk assets cratering. I mean, that is not
Speaker 3: what you want to see. So I don't think that
Speaker 3: you know, we're in the list Liz trust moment just yet.
Speaker 3: It certainly is a risk factor.
Speaker 4: Pub Hey, Michael, we're going to get some initial job
Speaker 4: as claims today. You know, a number kind of like
Speaker 4: two hundred and twenty eight thousand, a number we've been
Speaker 4: pretty accustomed to. How do you think about this US
Speaker 4: labor market? It seems pretty solid.
Speaker 3: Here, It really is. I mean, you know, we are
Speaker 3: in an unprecedented environment through the lens of financial history,
Speaker 3: and that is the unemployment rate moved up eight tenths
Speaker 3: of a percentage point from the lows of the cycle
Speaker 3: in the spring of twenty twenty three to its recent
Speaker 3: level in the summer of twenty twenty four. That kind
Speaker 3: of a movement has never occurred with the unemployment rate
Speaker 3: leveling off like it has over the last ten months,
Speaker 3: has never happened. So this is really the first time,
Speaker 3: maybe in history, that the FED has succeeded in creating
Speaker 3: a soft landing where all these recession rules of thumb
Speaker 3: have completely failed. I mean everyone going down the line.
Speaker 3: So maybe it's luck, maybe it's skill, maybe it's something else,
Speaker 3: but it's a unique business cycle and this labor market
Speaker 3: is held in there beautifully. Now. Hiring rates are weak.
Speaker 3: So if firing rates pick up, the unemployment rate will
Speaker 3: start rising again. And if that unfold, then I do
Speaker 3: think the FED will be ready to start easing in
Speaker 3: a significant way, but probably not until we have evidence
Speaker 3: of that, and so far we do not.
Speaker 2: Michael Darted with Roth Capital greatly appreciate it.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: Joining us Tanned and rest at Jed Soroka. He's executive
Speaker 2: director of everything we do in the LA. The Port
Speaker 2: of Los Angeles is the muster.
Speaker 4: I mean, it's acre anchors.
Speaker 2: How many total.
Speaker 5: Employees at the Port of Los Angeles A little more
Speaker 5: than nine hundred every day on those docks, more than
Speaker 5: one hundred thousand people go to work.
Speaker 2: Hundred thousand. Yeah, it's just like genormous. Forget about that.
Speaker 2: A few years ago Roosevelt opened the Panama Canal. You
Speaker 2: were with American President Lines in the deep port of
Speaker 2: Cincinnati on the Ohio River. What was your first day
Speaker 2: like in shipping on the Ohio River?
Speaker 5: Tom, I came out of graduate school in New Orleans.
Speaker 5: The price of oil was nine dollars a barrel. Unemployment
Speaker 5: was going up. We just had a stock market crash
Speaker 5: in eighty seven. I recall that unfortunately, and I got
Speaker 5: offered an interview because my dad worked for American Airlines
Speaker 5: and I could fly up to Cincinnati for free. There
Speaker 5: you get my first day on the job. I was
Speaker 5: getting coffee and dry cleaning for the sales reps. Took
Speaker 5: a car to get it washed. That was my introduction
Speaker 5: to the shipping industry.
Speaker 2: This is so important right now. Every kid out there
Speaker 2: is trying to get a job, and what you used
Speaker 2: to serve there is when they want coffee jet, it's
Speaker 2: others to it. What's changed now in the real world
Speaker 2: of the Port of Los Angeles. I mean sheriffs have
Speaker 2: been blown up. Is every ship in the nation to
Speaker 2: want to crowd into your port?
Speaker 5: I don't think so. But there's a lot of product
Speaker 5: on the ground in China that was manufactured before the
Speaker 5: one hundred and forty five percent tariff was introduced. Every
Speaker 5: conversation I have in business is about what's next. Business
Speaker 5: community wants certainty. Ninety days of this reprieve tom is
Speaker 5: not a long runway in our business.
Speaker 4: So what are you seeing when you I just envisioned
Speaker 4: you in your office in the port of Los Angeles
Speaker 4: and you have this view of the Los Angeles Harbor
Speaker 4: and the Pacific Ocean, You see all these ships coming
Speaker 4: over the horizon from China. Are the ships coming?
Speaker 5: Not yet?
Speaker 4: Not yet?
Speaker 5: And I was on the phone last night with some
Speaker 5: friends in Singapore and Hong Kong and bookings are picking up,
Speaker 5: reservations for containers picking up. But here again, it's really
Speaker 5: quiet in Los Angeles today. By the end of this month,
Speaker 5: seventeen of eighty scheduled ship arrivals will have been canceled.
Speaker 5: Our volume down twenty five percent. But even as this
Speaker 5: booking or reservation system has an uptick, it's going to
Speaker 5: take about two weeks for the liner shipping companies to
Speaker 5: reposition their vessels, and then once they load up the
Speaker 5: cargo that's on the ground, another two weeks to come
Speaker 5: to LA. Then we have to distribute throughout the country.
Speaker 4: We still have even though the I'm not even sure
Speaker 4: where we are right now, but I just I believe
Speaker 4: the tariffs have come down from their high levels Visa
Speaker 4: EA China, there's still way higher than they were five
Speaker 4: months ago. So that has to impact just what Walmart's buying,
Speaker 4: what every retailer is across the US are buying, and
Speaker 4: what you're seeing at your port right right.
Speaker 5: The headlines from just a couple of minutes ago. Walmart's
Speaker 5: CFO says prices will likely rise towards the end of
Speaker 5: this month. Now, we have one hundred and twenty five
Speaker 5: thousand companies that import through the Port of Los Angeles.
Speaker 5: They're not all the big guys. I'm most concerned about
Speaker 5: the small to medium sized retailer. Your corner hardware store
Speaker 5: has to buy now at thirty fifty percent, and if
Speaker 5: they try to raise the price on the hammer or
Speaker 5: the toolkit that they're selling, they can't because they're competing.
Speaker 2: With the big guys.
Speaker 5: This is a really tough position.
Speaker 4: Can you explain how the tariffs work? So, when a
Speaker 4: good comes off a ship in your port, how does
Speaker 4: a tariff get done?
Speaker 5: Yeah, depending on the terms of sale and the nuances,
Speaker 5: et cetera. When an importing company wants to accept the
Speaker 5: goods take them off the port property, they're given an
Speaker 5: invoice by customs and Border Protection based on a harmonized
Speaker 5: code and what products are in that container. Before they
Speaker 5: can take possession of that box, they will have had
Speaker 5: to pay that tariff.
Speaker 4: Okay, all right, so the importer pays the tear. I
Speaker 4: guess that just happens, right, I mean, because it seems
Speaker 4: like it's so fluid. I'm not sure what the tariffs
Speaker 4: are if I'm an importer, right.
Speaker 5: And think about the customs agent who's got to assess
Speaker 5: what's in that container, the price of those goods, et cetera.
Speaker 5: And just to keep up with this is I'm in
Speaker 5: this business and it's hard to keep up your.
Speaker 2: Point of Cincinnati, What was your first day in Shangh?
Speaker 2: I like they send you abroad. You're the ugly American Shanghai.
Speaker 2: You're looking for a cheap suit. What was it like
Speaker 2: your first day in Shanghai.
Speaker 5: Tom, I was thirty four years old and you're on
Speaker 5: the bund. The bund in Shanghai. Beautiful, the lights up,
Speaker 5: the architecture, unbelievable. I had people like Frank Chen, William Chen,
Speaker 5: Philip Shu just holding my hand guiding me through this.
Speaker 5: But what they said was our hope is that you
Speaker 5: can learn a lot about what we do here and
Speaker 5: take that back to America. And for the guys and
Speaker 5: ladies on the ground here in the US, it was
Speaker 5: like we have a contact over in Shanghai. I learned
Speaker 5: a little bit about how to move all this cargo,
Speaker 5: Who's who, what we can do?
Speaker 2: What an opportunity. Ring it forward now from the bund
Speaker 2: down to Ho Chi Minh City down to the booming Vietnam.
Speaker 2: That Kiming experiment right now identify for all of our
Speaker 2: listeners across this nation, the China to Vietnam to US
Speaker 2: trade moment.
Speaker 5: Yeah, this is interesting too, because I think many of
Speaker 5: us were surprised once that one hundred and forty five
Speaker 5: percent tariff was put in. The American importer slammed on
Speaker 5: the brakes and said, I'm not buying because I don't
Speaker 5: know if the information is going to change in two hours,
Speaker 5: two days, or two months. So what the liner shipping
Speaker 5: companies did was say, look, I've got to profile these vessels.
Speaker 5: I normally make a call in Shahai or jah Men
Speaker 5: and then come to La. I'm going to make another
Speaker 5: call in Haifunk or Ho Chi Minh City. I'm going
Speaker 5: to try to get cargo from Lomshabog and Sodakeep in Thailand.
Speaker 5: Because if I don't profile this vessel, it's a cash loser. Right,
Speaker 5: I've got to get ninety five percent utilization on the
Speaker 5: ship or else that voyage is cash flow negative. So
Speaker 5: you saw people just scramble it.
Speaker 2: So right there, folks as the window, it's no different
Speaker 2: than the true from Dallas to Amarillo. You've got to
Speaker 2: have a full truck or it doesn't work. Paul, get
Speaker 2: one more, one more jeens.
Speaker 4: So are what are you seeing today? How do you
Speaker 4: kind of envision the next one month, two months, three
Speaker 4: months in terms of your port of Los Angeles.
Speaker 5: I think you'll see a little bit of an upticking
Speaker 5: cargo Again. May is down precipitously with respect to volume.
Speaker 5: Folks are going to have to bring product in because
Speaker 5: we're at a critical point summer fashion, back to school, year,
Speaker 5: end holidays. We're going to have to have product on
Speaker 5: the shelf and online to buy. The question is going
Speaker 5: to be what will be the consumer's willingness to pay.
Speaker 5: So the retailers are trying to do all this calculation
Speaker 5: right now, and I don't think anyone has the answer.
Speaker 4: Is theres going to be any empty shelves in the
Speaker 4: next several weeks months.
Speaker 5: I think you'll probably see lower levels of inventory and
Speaker 5: less selection. Okay, with prices ticking up just a little bit.
Speaker 2: We don't care. All we want to know is can
Speaker 2: the Padres stay with the Dodgers?
Speaker 1: Oh?
Speaker 5: That National League West is something else? These guys, Manny Machado,
Speaker 5: these Padres, I tell you want to live there.
Speaker 2: The bottom line is all the superstars want to.
Speaker 5: Live and that rivalry is something else. Locally, this is
Speaker 5: the team to watch.
Speaker 2: Porter Los Angeles tickets. I mean they're right by the
Speaker 2: Tom LOWSDA box. Yep, yep, thank you. When are you
Speaker 2: coming back?
Speaker 5: We're going to keep up. This information is so fluid,
Speaker 5: but I really want to thank you guys and Lisa,
Speaker 5: You're amplifying what the ground truth is in the supply chain,
Speaker 5: and it really is resonating with the people we do
Speaker 5: business with.
Speaker 2: Well, we're trying to thank you. On Coast to Coast
Speaker 2: Good Morning is on gin Soroka with us her executive director,
Speaker 2: Porter Los Angeles. Lets not forget Long Beach.
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Speaker 2: Schoe Meyer was definitive at the Bank of America and
Speaker 2: in analyzing the consumers. So much of the Bank of
Speaker 2: America credit card analysis she invented with her team. She
Speaker 2: was stolen. It's like, you know, a trade with the
Speaker 2: Yankees in a red sox. Mishall Meyer at master Card
Speaker 2: Economics Institute is their chief economists as well. That's the
Speaker 2: curiosity is what does master Card see? What do you
Speaker 2: actually see in the behavior of American consumers?
Speaker 6: So when you look at the trend in spending, consumers
Speaker 6: are still spending. And I think that the retail sales
Speaker 6: numbers show that pretty clearly as well. When you look
Speaker 6: through March and April, March was revised even higher, so
Speaker 6: pretty exceptional spending, and the fact that April was essentially
Speaker 6: flat shows that you didn't even see a payback after that,
Speaker 6: Like typically when you have outsized month of a month
Speaker 6: games you see a payback thereafter. So looking through the
Speaker 6: last few month on, certainly consumers are still out there spending,
Speaker 6: and I think they have the purchasing power to do it.
Speaker 6: And that's what we're seeing in our data as well.
Speaker 6: When we look at that pulse of the consumer in
Speaker 6: terms of expenditures, we see engagement consumer spending.
Speaker 4: Is that when we think about retail sales consumer spending
Speaker 4: the folks that you know were you are master Card?
Speaker 4: Is it really just about the job market? If I
Speaker 4: have a job, my spending ham much are pretty consistent.
Speaker 4: Is that how it works?
Speaker 7: Or I think that is the primary factor.
Speaker 6: It's do I have a job today, do I expect
Speaker 6: to have a job tomorrow? And what am I seeing
Speaker 6: in terms of my income flow to therefore accommodat.
Speaker 7: Or support my spending needs.
Speaker 6: Now, of course they're going to be influenced by expectations
Speaker 6: so how you feel about the future. Are you worried
Speaker 6: about the stability of your income?
Speaker 7: Are you worried.
Speaker 6: About higher prices? Which is obviously something consumers are worried
Speaker 6: about now. The wealth effect matters, particularly for higher income consumers,
Speaker 6: and the overall balance sheet matters too in terms of
Speaker 6: debt levels.
Speaker 7: But yes, I think you hit it.
Speaker 6: Exactly right, which is that it's a function of purchasing power,
Speaker 6: which is driven by the labor market.
Speaker 4: You know, you see a lot of the survey data,
Speaker 4: whether it's University of Michigan or others, and it indicates
Speaker 4: that the consumers is a little uncertain as turfs and
Speaker 4: so on, and you know, all that kind of stuff.
Speaker 4: How does that do we see that in retail sales?
Speaker 4: I'm not sure we saw it necessarily today.
Speaker 6: Well, look, I mean, consumers have a lot of reasons
Speaker 6: to be uncerted in The headlines have been scary and
Speaker 6: they've been changing rapidly. So if you're trying to plan
Speaker 6: for the future, I do think there's some.
Speaker 7: Concern right now.
Speaker 6: But you need what you need when you need it,
Speaker 6: and if you have the purchasing power to purchase it.
Speaker 1: You do.
Speaker 7: And that's what the data shows.
Speaker 2: I get hate mail, Lisa gets the love notes, Paul
Speaker 2: gets the love notes. I get down.
Speaker 7: I can't imagine.
Speaker 2: And the hate mail is Tom, we're flat on our back.
Speaker 2: And this is what you're expert at. You invent this
Speaker 2: a few years ago. How concentrated is our buoyant consumer?
Speaker 2: Are we down to ten percent of the country's driving consumption?
Speaker 2: Is it twenty? Is it? What's that number in your head?
Speaker 7: Yeah? So yes.
Speaker 6: The upper income cohort drive spending disproportionally, of course, because
Speaker 6: they have the most amount of income, and they have
Speaker 6: that wealth and they.
Speaker 2: Have the confidence people are I look at the delinquency
Speaker 2: rates and all that. I know you don't want to
Speaker 2: talk about it. What percentage of America is doing our consumption?
Speaker 2: It's teen sweens, right, Lisa, that's a technical.
Speaker 7: Phrase, teen sweens?
Speaker 2: How much is it?
Speaker 3: So?
Speaker 7: Yeah?
Speaker 6: I mean if you look at the consumer expenditure survey
Speaker 6: from the Federal Reserve, it will give you a good
Speaker 6: indication something along the lines of forty percent of spending
Speaker 6: is driven by the top twenty percent of the income distribution.
Speaker 6: That and they also have more consistent spending because they
Speaker 6: can smooth through shocks. Right, You talked about the confidence
Speaker 6: that is part of it. They they have the ability
Speaker 6: to navigate economic cycles a lot easier because they.
Speaker 7: Have a cushion.
Speaker 6: But the incremental movement in spending is very much driven
Speaker 6: by not the upper income but the lower income consumers,
Speaker 6: and we saw a lot of that during the post
Speaker 6: pandemic period. We're spending largely exceeded expectations because you had
Speaker 6: very healthy labor market conditions, stimulus had flowed through, they
Speaker 6: had a low level of interest rates, deleveraging on household
Speaker 6: balance sheets, and lower income consumers were much much more active.
Speaker 4: What are the leading indicators that you look at for
Speaker 4: the consumer here?
Speaker 6: So I would say, I love the fact that the
Speaker 6: data is hitting right now because you have a combination
Speaker 6: of amazing data sets, but initial jobless claims, so just
Speaker 6: out I think are extremely important right every Thursday morning,
Speaker 6: eight thirt Eastern, paying attention to see if jobless claims
Speaker 6: are moving from the trend.
Speaker 2: They're not commercial free for this half hour with two
Speaker 2: important conversations. Michelle Meyer with US with master Card Economics Institute,
Speaker 2: scheduled to be with US Elizabeth Economy from Stanford in
Speaker 2: the Hoover Institution in the Pacific rim as well. Okay,
Speaker 2: I have to ask because they ruined your weekend. I
Speaker 2: Michelle was like, you know, working from home three days
Speaker 2: a week, the whole thing, and they MasterCard ruined your
Speaker 2: weekend the tariff impact that MasterCard sees, what's it going
Speaker 2: to be.
Speaker 7: My weekend was not ruined.
Speaker 6: I had a lovely weekend on baseball fields for my children.
Speaker 6: But no, I think the headlines are obviously essential to follow,
Speaker 6: and we're doing a very close job doing that in
Speaker 6: the Economics Institute. But we're also really trying to be
Speaker 6: careful about swinging around our views and our forecast at
Speaker 6: the Institute too rapidly, given how quickly the situation is evolving.
Speaker 6: So we're living in a world of scenarios like I
Speaker 6: think many others are, and we're responding as we see
Speaker 6: the data change if it changes. And frankly the moment,
Speaker 6: when you look again at consumer spending, you're not significant ships.
Speaker 4: What's the key thing here for you know, mastercro when
Speaker 4: you think about the economic outlook here is the recession.
Speaker 4: Is the risk of a recession less today than maybe
Speaker 4: it was three four weeks ago? Has it changed that much?
Speaker 4: Or again? Are we kind of trying to look through
Speaker 4: all that stuff.
Speaker 6: So I think one of the differences in my seat
Speaker 6: now at the Economics Institute is that relative to my
Speaker 6: prior life on Wall Street and most recently a Bank
Speaker 6: of America, is I think we has a lot more
Speaker 6: flexibility in terms of the forecasting process, right in the
Speaker 6: sense that we have the ability now to look longer term.
Speaker 6: We're trying to guide our clients and our partners around
Speaker 6: the business cycle. Right, where are we going generally in
Speaker 6: the business, likele what are the big themes, what are
Speaker 6: the big trends Versus When I was in my prior role,
Speaker 6: it was it was more markets driven, So you had
Speaker 6: to have a view at that moment is there going
Speaker 6: to be a recession or not?
Speaker 7: And when is that going to be?
Speaker 6: And that's a difficult place to live in an environment
Speaker 6: that we that we that were coming out of.
Speaker 7: So we've been very consistent and I think pretty.
Speaker 6: Relative to other economists in saying we're going to monitor
Speaker 6: the risks, we're going to adapt, we're going to adjust
Speaker 6: our forecast in our views, and we'll talk about scenarios.
Speaker 6: But the modal forecast, frankly, it hasn't moved all that much.
Speaker 2: Mischell Meyer, Thank you so much, Great Brie, Chief Economists
Speaker 2: MasterCard Economics at Institute. Can't say enough about her visceral
Speaker 2: feel for the American consumer.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 2: She's absolutely definitive, and not only China, but this odd
Speaker 2: relationship of Beijing with Washington. Elizabeth Economy Hargrove, Senior Fellow,
Speaker 2: co director of the US China and World Program at
Speaker 2: the Hoover Instatution at Stanford University, and any series of books,
Speaker 2: including Books of the Summer for Me and Books of
Speaker 2: the Year, were thrilled that doctor Economy could join us
Speaker 2: this morning. Liz, I'm not trying to be snarky, but
Speaker 2: what's next for China? I think they got a victory.
Speaker 2: We lowered terriffs, we lowered the import text into America.
Speaker 2: What is next for Beijing?
Speaker 8: I mean, so, let me say, I know that the
Speaker 8: narrative has been that China won.
Speaker 3: I'm not sure there was any real winner in this.
Speaker 8: I think China demonstrated that yes, it could go toe
Speaker 8: to toe with the United States, but both sides, you know,
Speaker 8: reduce the tariffs. You know, China had called for the
Speaker 8: United States to completely erase the tariffs before it even
Speaker 8: sat down at the table. I think people have forgotten
Speaker 8: that an administration didn't do that. They did come to
Speaker 8: the table with, you know, a pretty concrete proposal on
Speaker 8: how to you control the feedenol precursor exports that has
Speaker 8: been so central to the Trump administration, and they took
Speaker 8: off all of the non tariff sort of punishments that
Speaker 8: they had put on the administration, things like the export
Speaker 8: controls on critical minerals and rare earths. So I just
Speaker 8: want to I want to level set a little bit
Speaker 8: just because I think, you know, let's understand the full
Speaker 8: sort of scope of this negotiation in terms of where
Speaker 8: China goes next. I think what we've seen already is
Speaker 8: that China is going to move very aggressively to diversify
Speaker 8: their exports away from the United States. You know, in
Speaker 8: part there was a twenty percent drop in Chinese exports
Speaker 8: to the US. There was a twenty percent increase in
Speaker 8: Chinese exports to Southeast Asia over the past month or so,
Speaker 8: and even I think in the sort of low margin
Speaker 8: you know, factories, apparel, boys, et cetera. They're all talking
Speaker 8: about how to move how to reduce their dependence on
Speaker 8: the US market.
Speaker 3: So I think we've really.
Speaker 8: Introduced a pretty significant new factor into the Chinese thinking
Speaker 8: about the dependence of the United I mean, about the
Speaker 8: liability of the United States. I think that's the big
Speaker 8: next thing for China.
Speaker 4: So, Elizabeth, if you're China, are they looking to really
Speaker 4: kind of go it alone visa VI the West or
Speaker 4: do they feel like it's in the best long term
Speaker 4: interest to have a stronger relationship with the West strong
Speaker 4: broadly defined.
Speaker 2: No.
Speaker 8: I think they're definitely not looking to go it alone
Speaker 8: and move away from the West.
Speaker 3: I mean they've made a big play.
Speaker 8: Over the past couple of months, you know, because of
Speaker 8: the sort of overall chaos that the Trump administration has
Speaker 8: induced globally with these global tariffs, They've made a big
Speaker 8: play to try to assert themselves as the global stabilizing force.
Speaker 8: You know, They've gone to Australia and said please join hands.
Speaker 8: They've gone to Europe. I think they would love to
Speaker 8: revive the Comprehensive Agreement on investment that you know sunk
Speaker 8: about eight years ago. Now they love to bring that back.
Speaker 8: I don't think the Europeans are interested, but the Chinese
Speaker 8: would like to do that. So I think, you know,
Speaker 8: their strategy is to try to present themselves as a
Speaker 8: responsible and reliable trade and investment partner where the.
Speaker 3: US is not.
Speaker 8: And they'll do that, you know, with the dance market
Speaker 8: economies and with the global South.
Speaker 2: Well, as we were talking and this goes back, I can't.
Speaker 2: This is like when she was at Michigan as a freshman.
Speaker 2: This is ten years ago. Elizabeth Economy here on China's
Speaker 2: rise in Southeast Asia. One of the teams we're addressing
Speaker 2: Elizabeth Economy is that China has other outros. It's not
Speaker 2: a bilateral outcome or dare I say unilateral for mister Trump.
Speaker 2: And that you can funnel China trade through Vietnam, through Malaysia,
Speaker 2: through other nations as well. Is that just a given
Speaker 2: for you?
Speaker 8: I mean, I think certainly we know that we've seen that,
Speaker 8: and frankly, in the Biden administration, we became aware of
Speaker 8: that when I served with Secretary Mundo in the Commerce
Speaker 8: Department in sort of some of the critical technologies, like
Speaker 8: advanced chips. That became a real problem because this was
Speaker 8: a good way for the you know, to avoid the
Speaker 8: export controls. Actually was US chips going through Southeast Asia
Speaker 8: and to China. So that corridor, which you know works
Speaker 8: both ways, can be problematic, and I do think that's
Speaker 8: something that the Trump administration negotiations with countries in Southeast Asia,
Speaker 8: with Mexico, with others, They're trying to plug that hole
Speaker 8: to prevent China from doing that sort of third party
Speaker 8: shipping through to the US to avoid any kind of
Speaker 8: restrictions or tariffs or other controls that the US might
Speaker 8: be placing on Chinese products. So to their credit, I
Speaker 8: think the Trump administration is trying to manage that process.
Speaker 4: Elizabeth, in the world of global technology, that appears to be,
Speaker 4: you know, a cold war that has developed is developing
Speaker 4: between China and the West. A. Do you agree with
Speaker 4: that and be how do you think that might play
Speaker 4: out going forward?
Speaker 3: Yeah, I mean, I think.
Speaker 8: It's important to recognize that China began the process of
Speaker 8: sort of technological decoupling around Made in China twenty twenty five.
Speaker 8: Back in twenty fifteen, and we've talked about that before
Speaker 8: on this show. Basically China's effort to ensure that its
Speaker 8: companies dominated in the manufacturing of components and ten critical
Speaker 8: cutting edge areas of technology like new materials and AI
Speaker 8: and evs, and that then they become became these Louisville champions.
Speaker 8: So they started, you know, by trying to close off
Speaker 8: their market in many areas so that Chinese companies would dominate.
Speaker 8: I think the US has been more concerned about the
Speaker 8: strategic and security ramifications of some of these technologies, and
Speaker 8: so we saw, you know, beginning with the first Trump administration,
Speaker 8: through Biden and now Trump again, you know, a dramatic
Speaker 8: increase in the use of our economic tools like export
Speaker 8: controls in an outbound investment screening, trying to move supply chains,
Speaker 8: you know, out of any sort of soul source dependency,
Speaker 8: but particularly in a country like China where we feel
Speaker 8: that they're not a reliable partner, where they do use
Speaker 8: their economic leverage in coercive ways. So there's been I
Speaker 8: think this this pull in this you know, a way
Speaker 8: between China and the advanced market democracies. Whether that continues,
Speaker 8: I think is going to remains to be seen. I
Speaker 8: mean President Trump, you know, has sort of thrown a
Speaker 8: rentional plan. He talked about this massive reset in the
Speaker 8: US China relationship as a result of these talks, you know,
Speaker 8: in Geneva's not clear what that means, but he did
Speaker 8: say we are going to open our market to them.
Speaker 8: They're going to open their market to US. I don't
Speaker 8: know what he means by that, but one possibility would
Speaker 8: be to permit some of those companies, Chinese companies like
Speaker 8: c at L, which produce batteries, to actually manufacture.
Speaker 2: In the US.
Speaker 8: So we may see some rethinking about that technology balance.
Speaker 2: Liz thirty seconds. Should we let China evs into America?
Speaker 8: I have to say this is an area where I
Speaker 8: think we need to protect our market and or we
Speaker 8: need to find a way to, I think, thoughtfully address
Speaker 8: the subsidies that China puts in not only EVS, all
Speaker 8: of those made in China twenty twenty five products. I
Speaker 8: think until we do that, the tariffs are probably a
Speaker 8: good move.
Speaker 2: See how she goes British. There she goes right back
Speaker 2: to infant industry theory. Elizabeth economy, thank you, thank you
Speaker 2: so much. Out of Michigan and how it stands for
Speaker 2: the Hoover Institution. And I can't say enough about her books.
Speaker 2: I'll do something out on Twitter and LinkedIn and today
Speaker 2: with some of her brilliant books on Beijing and their politics.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa, play Bloomberg eleven thirty.
Speaker 2: Sign for the newspaper. It's going to get right to it.
Speaker 2: She had a choice of like fourteen really crazy stories
Speaker 2: today she would have down to eight. What do you got, Lisa?
Speaker 2: What do you have this?
Speaker 4: Okay?
Speaker 9: I want to start with some tech news. This was
Speaker 9: a good one from Mark German. He says Apple plants
Speaker 9: to add this eye scrolling feature to that nearly thirty
Speaker 9: five hundred dollars vision pro headset. Okay, So side I scroll, Okay,
Speaker 9: not ie roll that your teenagers give you my scroll? Okay,
Speaker 9: Like if you're looking on YouTube, it's when your eyes
Speaker 9: kind of up and down and you can change the apps. Okay,
Speaker 9: So how it works? Yes, you scroll through the software
Speaker 9: with your eyes on the vision Pro headset. Okay, works
Speaker 9: across all their apps. What users are doing now is
Speaker 9: that they're scrolling with their eyes, but then they select
Speaker 9: by pinching their fingers, So now you don't need the
Speaker 9: fingers apparently you'll just do the eyes.
Speaker 5: But it works.
Speaker 2: Is all this stuff remotely successful? Not only Apple, but
Speaker 2: Facebook and the others. I just I get the whole
Speaker 2: dream of it. I don't want to be an old
Speaker 2: you know, fogy boring born. But the future are your
Speaker 2: kids using it? My kids have no.
Speaker 9: Interest in My kids have no interest in it, but
Speaker 9: they they've tried the eck. They've tried the eye tracking
Speaker 9: feature before with the iPhone. I mean it was for
Speaker 9: like people with disabilities and things like that, and other
Speaker 9: people have tried it. But they're just trying anything to
Speaker 9: get this Vision Pro like you know, the.
Speaker 3: Pro starts at.
Speaker 2: Yeah, there you go, there you go?
Speaker 9: Enough said next, they're trying to get some spark behind it. Okay,
Speaker 9: So what does it mean to be a reader? We're
Speaker 9: talking about eyes right reading a book. So the Financial
Speaker 9: Time says that gen z could be changing the definition
Speaker 9: of what it means to be a reader because a
Speaker 9: lot of these are early teens to late twenties. Just
Speaker 9: to give you an idea, A lot of reports show
Speaker 9: that they're not reading for pleasure, They're not doing this,
Speaker 9: but what Financial Times it says they are. Readers are
Speaker 9: just shifting in how they read. So for example, they
Speaker 9: like audio books, they like online reading communities, they like
Speaker 9: heading to YouTube, social media, following book influencers. So it's
Speaker 9: changing how reading is by books less.
Speaker 4: And I'm really just said about that. I used to
Speaker 4: be a very good reader, not a very good okay,
Speaker 4: but I I'm not. And I say this summer, I'm
Speaker 4: going to be reading on the beach. That's but I
Speaker 4: said that last summer.
Speaker 9: Is it because you're on your phone?
Speaker 4: Yes, yes, okay, yeah it's Joe wasn't.
Speaker 2: All about this. And we're both actively reading at home
Speaker 2: just as almost as a symbol. Again it's a protest.
Speaker 2: I would say, yeah, and I'm going I'm failing at
Speaker 2: home every day with the kids. It's like we could
Speaker 2: see why look at that.
Speaker 4: You know, university campuses at one of the market centerpieces
Speaker 4: of Loemost, every campus is the library. My question is
Speaker 4: what function does A lot I very served today, I don't.
Speaker 2: Know, you know, to me.
Speaker 9: Next that was terriblest Sorry, I knew you would get
Speaker 9: under your skin.
Speaker 2: That's why I picked these.
Speaker 1: Come on.
Speaker 9: Okay, So if you haven't decided on your summer vacation yet,
Speaker 9: trip Advisor has their annual summer Summer Travel Index, so
Speaker 9: here you go.
Speaker 7: When it comes to.
Speaker 9: Top global sum summer travel destinations for Americans, number one
Speaker 9: is actually Cancun, Mexico. If you want to be on
Speaker 9: the beach, you can't coun Mexico. Apparently that's the number
Speaker 9: one on spot Paris, France. Second, there you go, Tom Third, London.
Speaker 3: So that's the order.
Speaker 9: Now when you talk domestic like here in the US,
Speaker 9: lots of vacant yes, yes, yes, Number two, Hey, we
Speaker 9: don't have to go far. It's New York City, So
Speaker 9: there you go. And then number three is Myrtle Beach.
Speaker 9: But they say they also want yes, I do do,
Speaker 9: and we'll do, we'll get the drive.
Speaker 4: You can do everything there, Yes.
Speaker 9: And you can, and it's beautiful. But would be they're
Speaker 9: saying too, is they want more experiences. So I don't
Speaker 9: know if when you go on vacation, if you do
Speaker 9: the whole excursion thing, and like they're saying more people
Speaker 9: want that rather than just sit on the beach.
Speaker 2: That's the whole travel thing is turned upside down. And
Speaker 2: I noticed in the inflation report yesterday airlines actually at
Speaker 2: a negative statistic. Yeah, it was down.
Speaker 4: All the airlines kind of hould their guidance, lower their guidance.
Speaker 2: Yeah, yeah, newspapers. Lisa Mateo, thank you so much, greatly
Speaker 2: appreciate that.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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