Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg John
Speaker 1: fer and I now to dive into a real discussion
Speaker 1: here on the American labor economy. You can do that
Speaker 1: with Ellen Sentner, and you can particularly do that John,
Speaker 1: because within our research notes there's always that one chart.
Speaker 1: I remember when Ellen years ago owned the tarot part
Speaker 1: of consumers spending. It was the same thing. You have
Speaker 1: a killer chart, Ellen, on the labor differential jobs out there,
Speaker 1: plentiful jobs, jobs are hard to get. This is the
Speaker 1: most perfect American labor enemy since time began, isn't it. Yeah,
Speaker 1: it's it's pretty strong. I mean, which it came with
Speaker 1: a stronger wage growth as well, but markets pretty strong.
Speaker 1: Why why can't we dovetail this and do I happy
Speaker 1: America with wage growth? Tom? Because I'm an economist, I'm
Speaker 1: supposed to be the disnal scientist, so I have to
Speaker 1: find something bad and everything. My husband will tell you
Speaker 1: I'm really good at that, but you know the look
Speaker 1: the consumer households obviously think the labor market was great
Speaker 1: in August based on the results from the Conference Boards survey.
Speaker 1: And you know, we trust households, um you know, if
Speaker 1: if layoffs were rising, uh, if they weren't able to
Speaker 1: find a job when they jump into the labor market,
Speaker 1: they usually let us know. And so I think that
Speaker 1: has helped lift effectations for today's number. And this goes
Speaker 1: to your hours work analysis and just what's in the
Speaker 1: paycheck after inflation. A lot of people are really focused
Speaker 1: on that number today, on and hours worked. If you're
Speaker 1: going to see science of weakness, you want to see
Speaker 1: it immediately in lay else you'll see it in ours work.
Speaker 1: Just how important is that data point for you today, Allen? Yeah,
Speaker 1: so I think it's extremely important actually, and and uh,
Speaker 1: you know, consensus is looking for it to tick back
Speaker 1: up after having ticked down last month, and and so
Speaker 1: there is going to be a lot of focus there
Speaker 1: because uh, it's it's uh, it leads other jobs data.
Speaker 1: It's coincidence with h GDP growth in the economy. Uh.
Speaker 1: And we can see hours worked are always sort of
Speaker 1: the pipeline is slowing that you look for in the
Speaker 1: labor market. You know, investment is down hours worked or
Speaker 1: down because companies will cut the hours of existing workforce.
Speaker 1: First we know that the pace of hiring has slowed, uh,
Speaker 1: and the final thing is laying off, and we just
Speaker 1: haven't seen that. So hours worked I look at it
Speaker 1: is just uh, you know, the precursor, one of the
Speaker 1: several precursors we see to finally getting to layoffs. And
Speaker 1: so everyone will be watching it. And then we were
Speaker 1: watching ice MS earlier this week manufacturing ice M sub
Speaker 1: fifty non manufacturing, I M pretty decent to America's ellen
Speaker 1: almost and two globe economies at the moment. One's manufacturing,
Speaker 1: the other is services, and one seemingly more important than
Speaker 1: the other at this point, try and reconcile the differences
Speaker 1: that we're seeing in the dates at the moment. Just
Speaker 1: how do you get a read on the U. S economy?
Speaker 1: So I think clearly the manufacturing survey being under more
Speaker 1: pressure is reflecting the fact that it's more beholden to
Speaker 1: what's going on with global growth. Uh, it's picking up
Speaker 1: the trade risks and how companies have had to change
Speaker 1: behavior around trade tensions and the uncertainty there. The fact
Speaker 1: that the service side of the economy is holding up
Speaker 1: much better is encouraging because it is the lion's share
Speaker 1: of the economy and the lions share of the labor market.
Speaker 1: So one can say, well, why do we care about
Speaker 1: manufacturing at all? Then we care because the leading parts
Speaker 1: of the economy sit in the manufacturing sector. Uh. And
Speaker 1: so it's only a matter of time, uh that manufacturing
Speaker 1: is weak before whatever is causing that weakness starts to
Speaker 1: bleed over into the rest of the economy. So really
Speaker 1: that service side, service sector jobs, consumers spend, you know,
Speaker 1: that's the shoe to drop, and for that you need
Speaker 1: layoffs and we just have not begun to see that yet.
Speaker 1: What are we doing for the overtime? I mean one
Speaker 1: of the backstories your folks, and it's almost anecdotal. And
Speaker 1: we talked about minimum wage increase. It means less overtime
Speaker 1: because people are paying for a new higher minimum wage.
Speaker 1: But what's the overtime or almost the worker exhaustion that
Speaker 1: we're seeing in America? Well, I think that uh, well,
Speaker 1: we had been having a big increase in overtime hours
Speaker 1: as we've seen hiring slow and so we're trying to
Speaker 1: get more existing the workforce. But but that is the
Speaker 1: worrisome trend that we've seen now start to reverse, right,
Speaker 1: is that we're actually cutting overtime hours, we're cutting temporary exactly.
Speaker 1: And so again talking about the precursors, you know, those
Speaker 1: are some of the precursors that we look for that
Speaker 1: tell us further weakness or or real weakness is coming.
Speaker 1: I mean, and Ellen, I don't want to get all
Speaker 1: David Blanche Flower and you we say good morning to
Speaker 1: Dr blanch for no doubt listening up in the handover bubble.
Speaker 1: But but Allen helped me with the under employed in America,
Speaker 1: and that starts with a dearth of full time jobs.
Speaker 1: What's the vector right now on full time jobs versus
Speaker 1: part time jobs? So I think, uh, you know, part
Speaker 1: time jobs. We we like to see, Uh, if people
Speaker 1: are going to work part time, we want them to
Speaker 1: work part time because they choose to work part time. Uh.
Speaker 1: And in this post financial crisis world, those being forced
Speaker 1: to work part time because full time is just not
Speaker 1: available had surge. Now since that time, their overall numbers
Speaker 1: are higher, but the the incidents of those working part
Speaker 1: time forced part time has come down, and it's actually
Speaker 1: back to more normal levels. I mean, this is really
Speaker 1: the point in the labor market where the unemployment rate
Speaker 1: has stopped coming down. UH. It's pretty much leveling off.
Speaker 1: And and ironically, what does that tell us? It tells
Speaker 1: us the labor market is probably about as tight as
Speaker 1: it was able to get UH in this expansion UH
Speaker 1: and can either hold in here or it can start
Speaker 1: to weaken from here. But that's what the various UH
Speaker 1: unemployment rate measures tell me. And when I look at
Speaker 1: metrics like you're talking about the part time for economic reasons,
Speaker 1: you know, it's telling me that there's not a whole
Speaker 1: lot more excess we can squeeze out of this labor market.
Speaker 1: And oftentimes that's when things turn, is when they can't
Speaker 1: get any better. The jobs are ports thirty six minutes away.
Speaker 1: Several hours after that twelve thirty Eastern time over in Zurich,
Speaker 1: the fete Cham and J. Powell having the final word
Speaker 1: ahead of the fetes, blank out, what do you think
Speaker 1: the objective is for Cham and Power today on I
Speaker 1: think his objective is going to be too It is
Speaker 1: a really good question, I think, just given the evidence
Speaker 1: from the data, the balance of risks that still remain.
Speaker 1: I think there's enough there for him to maintain the
Speaker 1: easing bias that he clearly Jackson hole. Well, Ellen, we're
Speaker 1: going friends. Nobody's listening, Ellen, they're all taking their childrenbody
Speaker 1: listens when I'm on your show. They excuse me when
Speaker 1: I'm comes on. But Tom, I'm trying to be realistic
Speaker 1: here right, there are those on the FED that are
Speaker 1: still pushing hard against the need to cut any further.
Speaker 1: This is a very divided FED, and the reason why
Speaker 1: it's divided. You should be happy that it's divided. When
Speaker 1: it's divided, they don't see a emergency to respond to,
Speaker 1: and so it's going to be easier probably to pull
Speaker 1: more on board with a cut. But we're not talking
Speaker 1: about fifty. Is he going to bring up Mr Dudley?
Speaker 1: Is he going to bring up No, I don't care
Speaker 1: about fifty. He's got to respond to the two essays
Speaker 1: and Bloomberg opinion by William Dudley. Doesn't he know why not?
Speaker 1: He's got to put a sentence sitting there. No, you
Speaker 1: don't go there. That's the FED has to fly above that, right,
Speaker 1: take the high road. Okay, No, he will absolutely not.
Speaker 1: That was going to be the name of our show.
Speaker 1: By the way, before surveillance of your show should be
Speaker 1: two men dangerously unsupervised. Oh I like that, and I
Speaker 1: should come and trying to fill the saint next time.
Speaker 1: I think so the next day I take off. I
Speaker 1: love that. Would you fill in for Tom next time? Seriously,
Speaker 1: that would be very cool. I come over to Bloomberg
Speaker 1: for the free food, great coffee, and I'll get you
Speaker 1: some free food. You know even you know, not the
Speaker 1: day old stuff. We have to We should do this,
Speaker 1: We should do this. I agree, we should do this.
Speaker 1: Next payrolls Friday, I get Ellen to come with you.
Speaker 1: She may have a day coundar. It's a little do
Speaker 1: the morning with us. Just ahead of the number. I'll
Speaker 1: call James Gorman and see what he says. Ellen Sner,
Speaker 1: thank you so much. With Morgan Stanley, what we love
Speaker 1: about our Bloomberg abilities is to find people that have
Speaker 1: cross national experience. That would be James Omeger. He is
Speaker 1: in Beijing, our deputy bureau chief there, but with really
Speaker 1: exquisite experience linking Japan to China is well. James, let
Speaker 1: me start with an outball question. How enthused is Japan
Speaker 1: this morning that China has moved to a more accommodative
Speaker 1: banking strategy. I think that the Japanese economy is pretty
Speaker 1: dependent on on China's economy. I mean a lot of
Speaker 1: their I think about a third of their exports go
Speaker 1: to China. So anything the Chinese government or the central
Speaker 1: banking too stimulate command in the economy is obviously gonna
Speaker 1: be good for Japanese companies. I mean, I think, you know,
Speaker 1: this is what what the PBUC has done today was
Speaker 1: pretty pretty expected. So Matthew in Fox are stimulus. But
Speaker 1: if this does provide support to Chinese companies, you know
Speaker 1: that's going to obviously see more demands for Japanese industrial products,
Speaker 1: Japanese exports, and and also you know, demand for things
Speaker 1: like Japanese cars sold in China as well. So it's
Speaker 1: good for what's good for China is probably going to
Speaker 1: be a pretty good It's going to be good for
Speaker 1: Japan down the line as well. James talked to us
Speaker 1: about the significance of the reserve of climate ratio versus say,
Speaker 1: the one year lending rate or the one year deposit rate.
Speaker 1: We haven't seen those main rates being cut. I don't
Speaker 1: think since can you walk US through while they're choosing
Speaker 1: to use the reserve requirement ratio over some of the
Speaker 1: other benchmark rates of the PBOC, I mean, the central
Speaker 1: banks and the government's here's main fear is is sort
Speaker 1: of stoking another housing bubble on a stock bubble. And
Speaker 1: so the thinking is that by cutting the amount of
Speaker 1: money that banks have to hold in reserve, they'll lend
Speaker 1: more money to companies to know, to provide to you know,
Speaker 1: stimulate company investment. Is there evidence of that? There is?
Speaker 1: There is, I mean previous cuts that happened in January
Speaker 1: and May did lead to more lending temporarily through through
Speaker 1: the company. So there was a big boom in lending
Speaker 1: in the first quarter after the cut that happened in January,
Speaker 1: but since then those effects are sort of taped it
Speaker 1: off and credit demand credit supply has been sort of
Speaker 1: tapering off. And one of the problems is obviously there's
Speaker 1: one of the problems is with less demand from the
Speaker 1: US because of the trade war, there's less demand for
Speaker 1: credit from Chinese companies. They're just not wanting to borrow
Speaker 1: as much. So one problem in the government and the
Speaker 1: central bank is having is even if you push down
Speaker 1: rates Further, if people don't want to borrow money, they're
Speaker 1: not going to borrow money, no matter how cheap it
Speaker 1: is in Europe. Put that in the United States too.
Speaker 1: So James talked to me about whether this is a
Speaker 1: change of approach or not. Because we've seen incrementally, this
Speaker 1: gradual approach towards stimulus from the Chinese and policymakers and
Speaker 1: officials over there for more than twelve months now, we're
Speaker 1: trying to get our hands around whether we're about to
Speaker 1: make a shift into another gear. James, what do you
Speaker 1: see happening. I don't think it's gonna be I don't
Speaker 1: think there's a huge step up in their stimulus. I
Speaker 1: mean it's going to have an effect. But one of
Speaker 1: the things I'm talking about their statement today was this
Speaker 1: is going to help us September's tax season when companies
Speaker 1: have to pay their quarterly taxes. So those are the
Speaker 1: kind of that's the level of that that the Central
Speaker 1: Bank is not thinking about. It's not a massive increase
Speaker 1: in the economy. It's like helping companies get through the
Speaker 1: next quarter, making sure they have enough money to pay
Speaker 1: their taxes. So it's not really, you know, a game changer.
Speaker 1: In what they're trying to do. How is the tradeward
Speaker 1: treated in the domestic newspapers of Beijing that you and
Speaker 1: your team look at every day, I mean feelingly in
Speaker 1: Hong Kong's been abulous about the pulse of Chinese writing
Speaker 1: in Hong Kong. How is the trade war written about domestically? Yeah,
Speaker 1: it's it's interesting to look at what gets reported and
Speaker 1: what doesn't get reported. Obviously, you know there is reporting
Speaker 1: about the trade war, is it's it's a premial topic
Speaker 1: of discussion in the media here. But you know when when,
Speaker 1: for example, when President Trump tweeted a couple of weeks ago,
Speaker 1: whether the biggest enemy of the US is your own
Speaker 1: power or hijim ping, that just wasn't reported at all
Speaker 1: in any media in China. So there was there was
Speaker 1: it was reported that, you know, he had said some
Speaker 1: stuff about China and reported that there had been comments,
Speaker 1: but there's no detail provided. And then when it is reporting,
Speaker 1: obviously it's gonna it holds to the Chinese line that
Speaker 1: China is making real efforts to try and come to
Speaker 1: an accommodation and the US is being unreasonable. So you
Speaker 1: know obviously that you can't ignore that subject. But I
Speaker 1: mean the reporting that does go out, at least in
Speaker 1: the domestic media is is often skewed or just certain
Speaker 1: things just don't don't appear at all, it seems. Thank
Speaker 1: you so much, thanks in your Friday and you really
Speaker 1: appreciate it. Mr Meger's and aging with Bloomberg News with
Speaker 1: us sound Jeffrey Rosenberg he is with black Rock with
Speaker 1: a synthesis here of the markets into our economy, Jeff,
Speaker 1: are we going to have an ugly ninety days days
Speaker 1: in our bond ownership? Is it going to be yield up,
Speaker 1: price down? You know, you know, Tom, it's hard to say.
Speaker 1: I mean, I agree. You look at this payroll report
Speaker 1: and you know it's it's a mixed report. As you
Speaker 1: guys were just saying, you got a little bit weaker
Speaker 1: in terms of market expectations, not not horribly disappointing, but
Speaker 1: you had stronger payrolls. You know, you're getting kind of
Speaker 1: a muted reaction in the market and that gets us,
Speaker 1: you know, more online with the FED cutting interest rates
Speaker 1: and the expectations for the Fed cutting interest rates, that
Speaker 1: doesn't really alter that environment. Hard to see how you
Speaker 1: have significant bond losses in an environment where the FED
Speaker 1: is basically saying they're leaning towards cutting interest rates rather
Speaker 1: than doing nothing, or a different kind of environment altogether
Speaker 1: where they're raising interest Right. I mean, we can look
Speaker 1: at this any number of ways. How short employment changes
Speaker 1: one survey, nonfarm employment, another survey, and I'm looking all
Speaker 1: in all, it's three solid months of job development. I mean,
Speaker 1: I get the idea we're all gaming out of vector
Speaker 1: that's going to go south. But doesn't the FED have
Speaker 1: to look at the three months moving average of whatever
Speaker 1: labor survey they want to look at. Yeah, well that
Speaker 1: the backstory here is that you have weakness in areas
Speaker 1: of the global economy that have been so far outside
Speaker 1: of the labor market. Right. So this morning's headline and
Speaker 1: the focus of the data is on the strongest part
Speaker 1: of the economy, and the concern is is the strongest
Speaker 1: part of the economy going to start to see some
Speaker 1: of the impact of the weaker parts. The weaker parts,
Speaker 1: of course, are global growth slowing and the trade uncertainties.
Speaker 1: And you know, while someone might say a one thirty
Speaker 1: headline that's showing some weakness, I think I think it's
Speaker 1: it's not as weak as feared. Where you might have
Speaker 1: had a downside surprise of a much much weaker report.
Speaker 1: That's really the story, and the story is maintained out
Speaker 1: of this payroll report where the consumer side, particularly with
Speaker 1: this wage growth number, the consumer side, the job market
Speaker 1: side that's still strong and holding up. And that's where
Speaker 1: you get this dissonance between depending on which Fed official
Speaker 1: you're you're reading a quote from, why are they cutting?
Speaker 1: What is the recession risk? Because you have cross currents
Speaker 1: in the economy. Some parts which are basically global trade
Speaker 1: manufacturing parts of the economy are showing clear slow down,
Speaker 1: clear weakness, clear follow through from the trade uncertainty, the consumer,
Speaker 1: the household, the jobs market that remains okay. So this
Speaker 1: is a FED that is has its divisions. Does any
Speaker 1: central bank the chairman will speak today and is he
Speaker 1: just simply going to say we need more data to
Speaker 1: get the September eighteen Well, I think that what he
Speaker 1: has been doing is is clearly leaving the window, leaving
Speaker 1: the degree to to not pushing back on market expectations.
Speaker 1: Market expectations are pricing for in September. The Powell had
Speaker 1: they had the payroll report ahead of putting together his speech.
Speaker 1: Uh he's not going to do anything to change those
Speaker 1: market expectations. He's going to try to reinforce those market expectations.
Speaker 1: The Fed doesn't want to surprise the market. If that
Speaker 1: doesn't want a guy the market differently than I think
Speaker 1: they're happy to deliver. There's a big debate back do
Speaker 1: they do fifty? Do they do? They? So they're going
Speaker 1: to do another twenty five in September. That's what the
Speaker 1: market expects and Powell to want to say anything one
Speaker 1: way to disrupt that. Fishres up eleven, death features up
Speaker 1: UNTI right now, I'm gonna call it a buoyant day.
Speaker 1: And then we pulled back before the report churned a
Speaker 1: little bit negative tone off the report, but we're bringing
Speaker 1: that back right now with the futures up eleven, Town
Speaker 1: futures up ninety seven, a lift to the market, the
Speaker 1: VIX fifteen point seven three. We're advantaged by Jeffrey Rosenberg
Speaker 1: of black Rock. Jeffrey, I want to come back, but
Speaker 1: just one time for one more uh question, if if,
Speaker 1: if we can, how do you link all this into
Speaker 1: the equity markets on a cross asset basis? Just Powell,
Speaker 1: the Powell put in place to support equities you know,
Speaker 1: it's a it's a really interesting development what's going on.
Speaker 1: Most of the time we're focused on the overall level
Speaker 1: of the equity market, but you get the bigger change.
Speaker 1: You know, equities had almost a five percentage reversal yesterday. Now,
Speaker 1: what am I talking about talking about the sectoral contributions
Speaker 1: of what has been driving this market, and what has
Speaker 1: been driving this market has been a defensive equity market rotation.
Speaker 1: Equity managers have been moving into the most defensive areas
Speaker 1: of the stock market, and a lot of that is
Speaker 1: related to trade uncertainty. So when you had the rally
Speaker 1: and the overall index up, you know, one little over
Speaker 1: one percent on the easing of the trade concerns, which
Speaker 1: you really see is a much much bigger, not a
Speaker 1: one percent, but a five percent move in relative valuations
Speaker 1: between what had been the defensive part where people have
Speaker 1: been hanging out UH and the less defensive, more trade
Speaker 1: exposed sectors, and you saw a much bigger rotation away
Speaker 1: from that. So it's really these intrasector performance that is
Speaker 1: really driving the equity market much more than the overall level. Obviously,
Speaker 1: overall level matters, UH, and that's where people focus. But
Speaker 1: a lot of performance is going in in this Jeffrey
Speaker 1: Rosenberg with a black rock. Tiffany wild Enjoys down from
Speaker 1: Pimco looking at the economy and advising fixed income on
Speaker 1: the American economy with green on the screen to deal
Speaker 1: up forty four points. Tiffany, what do you say to
Speaker 1: fixed income animals after the mixed report we just saw. Yeah,
Speaker 1: I think there was a little bit of something for
Speaker 1: everyone in this report. Um, you know. And I guess
Speaker 1: what I would say is is that every report, you know,
Speaker 1: can be a bit noisy, you know, So we try
Speaker 1: to look at kind of the broader trends and not
Speaker 1: anyone anyone given report. And I think those broader trends
Speaker 1: were confirmed in this report, and that is that labor
Speaker 1: markets are slowing, um, you know, again trying to kind
Speaker 1: of smooth through some of the noise. Um. The the
Speaker 1: average kind of moving average of payroll growth has declined
Speaker 1: down to a hundred forty k UM for private payrolls,
Speaker 1: for example, versus over two hundred last year. Yeah. And
Speaker 1: I think one important thing to remember there is too,
Speaker 1: is that you know, this data does get revised. Um.
Speaker 1: The Bureau of Labor Statistics actually just recently released its
Speaker 1: preliminary what it calls benchmark revisions, and those benchmark revisions
Speaker 1: actually suggested that total payrolls in the economy are actually
Speaker 1: five hundred less uh than they were previously believing. So
Speaker 1: that data doesn't get incorporated and until early next year,
Speaker 1: but that would suggest that the you know, that six
Speaker 1: month moving average of forty that I just suggested is
Speaker 1: maybe you know, even less than that, closer to one twenty.
Speaker 1: So I mean, we are decelerating here. So Tiffany, how
Speaker 1: do you think this Job's report and just the trend
Speaker 1: that you've been just discussing will play within the federal reserve? Um? Yeah,
Speaker 1: I mean I certainly think that, you know, it confirms
Speaker 1: I think that you do need more accommodative monetary policy,
Speaker 1: and there is downside risk to the forecast, you know.
Speaker 1: So something that we've been very focused on is is
Speaker 1: the manufacturing sector which is in uh in recession in
Speaker 1: the US, um in a mini recession. You know, I
Speaker 1: think the key question is the extent to that to
Speaker 1: which that spills over into the broader economy. You know,
Speaker 1: I think we are seeing early indications of that. Uh.
Speaker 1: There have been other service sectors, for example, that are
Speaker 1: tied to global trade, which has also been very weak
Speaker 1: and decelerating. Those service sectors are are starting to are
Speaker 1: starting to contract as well, you know. And then and
Speaker 1: then you have some idiosyncratic issues, you know, like retail,
Speaker 1: the retail trade industry which continues to you know, shed
Speaker 1: jobs at brick and mortar. There's issues with with malls
Speaker 1: and things like that that it's impacting structures, you know,
Speaker 1: So that that's gonna be the thing that we watch,
Speaker 1: you know. I guess the other important thing to note
Speaker 1: here is just you know, as the economy decelerates, you're
Speaker 1: gonna get slower corporate revenues, You're gonna get slower profits.
Speaker 1: So really, again, the question is what do corporations do
Speaker 1: in order to kind of readjust their inputs, you know,
Speaker 1: do they focus on cutting back labor or investment or both?
Speaker 1: And how much? So, Tiffany, it's just a sense of
Speaker 1: you know what I think the market obviously is discounting
Speaker 1: multiple uh FED cuts. Is that something that you think
Speaker 1: is a fair discount by the market? Um? Yeah, I do. Um.
Speaker 1: And the reason is is if you just sort of
Speaker 1: maybe benchmark the recent slowing to kind of what we
Speaker 1: saw in sixteen, just kind of as a broad benchmark,
Speaker 1: US GDP growth slowed to one percent UM on a
Speaker 1: trailing year over your basis at that time. You know,
Speaker 1: if you look at that kind of growth shock to
Speaker 1: the U S economy using the Fed's own model, they
Speaker 1: provide market participants with their own model, fancy name called
Speaker 1: farb us. If you use that model to to kind
Speaker 1: of look at what that means for the FED funds rate,
Speaker 1: and you know, it actually suggests that the FED funds
Speaker 1: rate should be seventy five basis points or maybe even
Speaker 1: a little bit more lower to kind of offset that shock.
Speaker 1: You know. So I think the markets are are certainly
Speaker 1: pricing in um, you know, some some more of a
Speaker 1: dubbish turn from the FED and more easing, and I
Speaker 1: think that's certainly appropriate. It's appropriate. But it comes down
Speaker 1: to business investment as well. I mean I looked through
Speaker 1: the job survey and I can see a little bit
Speaker 1: of trade analysis there. What is your synthesis of what
Speaker 1: business investment is actually doing in America? Well, yeah, I
Speaker 1: mean I think I think business investment could I mean,
Speaker 1: it's been it's certainly been slowing since last year, UM,
Speaker 1: and it's been actually pretty weak but still positive the
Speaker 1: first couple of quarters this year. We actually think that
Speaker 1: it will contract, you know, outright in the third quarter
Speaker 1: and will continue to be weak in the in the
Speaker 1: back half of the year. And so you know, what
Speaker 1: we've seen is that businesses are are slowing their investment
Speaker 1: and things like heavy equipment. Now this is this can
Speaker 1: be tied to the you know, the industrial manufacturing sector,
Speaker 1: so heavy equipment and machines and things like that. The ones.
Speaker 1: The one bright spot I think on the investment side
Speaker 1: has been intellectual property investment, technology type of investments. We
Speaker 1: saw that a lot last year. We're seeing that kind
Speaker 1: of slow as well, but I think that's one bright spot.
Speaker 1: Oh and the president tweeting a Larry Cudlow and Varney
Speaker 1: and Company now for further questions. John Farrell will be
Speaker 1: with Mr Cudlow here in a bed in a bit
Speaker 1: as well. The present is very active today. I don't
Speaker 1: think a schedule schedules open. Yeah, it's executive time. Executive time.
Speaker 1: There's a lot of executive time. I'm counting the tweets
Speaker 1: and uh one, two, three, four, five, six, seven, eight, nine,
Speaker 1: I think nine, but maybe ten. The days are early days.
Speaker 1: The day is young. So Tiffany, you know, one of
Speaker 1: the concerns out there, and you know, I kind of
Speaker 1: ebbs and flows is the kind of the R word. Um,
Speaker 1: where does the recession UH fit into your outlook if
Speaker 1: at all? Yeah, Yeah, I mean I think I think
Speaker 1: it's reasonable. I mean, so we would say the recession risks,
Speaker 1: you know, are elevated now if you just look historically,
Speaker 1: you know, any given year kind of has a probability
Speaker 1: of recession of around fifteen percent just if you look
Speaker 1: at the historical instances of a recession. So we would
Speaker 1: say that it's elevated relative to that historical average now
Speaker 1: and and and the reasons are is because you know,
Speaker 1: like I said before, the U. S economy, it is decelerating,
Speaker 1: and we have you know, weakness and global growth that
Speaker 1: is spilling over. They're starting to be questions around if
Speaker 1: that will spill over into into consumption. You know, So
Speaker 1: that just sets up for you know, a very weakend
Speaker 1: kind of fragile state. And and that means that any
Speaker 1: sort of other you know, negative shock, you know, it
Speaker 1: can can push the economy over UH into recession potentially.
Speaker 1: So you know, that's why we would think it's elevated,
Speaker 1: you know, and I guess again that's why it calls
Speaker 1: for more more phanezing. I think to buffer them. Tiffany,
Speaker 1: Thank you so much, Tiffanty welding with us with PIMCO
Speaker 1: on the labor economy, and it's folding in to what
Speaker 1: we see. For here is John Ferrell with Lawrence Cudlow
Speaker 1: Rump Administration's views on the job for report. I'm pleased
Speaker 1: to say, well now joined on Bloomberg Television and on
Speaker 1: Bloomberg Radio by Larry Cudlow, National Economic Council Director. Larry.
Speaker 1: Always great to have you with us. Let's just put
Speaker 1: the labor market together with that trade dispute. How do
Speaker 1: you frame the transmission mechanism for the trade friction right
Speaker 1: now into the labor market into the U. S. Economy. Well, look,
Speaker 1: today's labor market story was very strong. Um, the payroll
Speaker 1: job is a hundred thirty thousand, but you know, August
Speaker 1: is a quirky month. Usually the number comes in low
Speaker 1: and then it's revised upwards. But Jonathan, I want to
Speaker 1: raise a point that I don't think anyone's really discussed.
Speaker 1: Yeah on the air. Actually, the big story here is
Speaker 1: the blowout number in the household employment survey, from which
Speaker 1: unemployment derives, that was up five hundred and ninety thousand,
Speaker 1: five hundred and ninety thousand, and that's the third straight
Speaker 1: months of outsized numbers. The average is three hundred and
Speaker 1: seventy three thousands. So hundred thirty thousand non farm payrolls
Speaker 1: is fine, it's fine, probably be revised up. But the
Speaker 1: household survey at five ninety Now you know why is
Speaker 1: that important? Well, first of all, that's where the unemployment
Speaker 1: rate comes from. The unemployment rate remains low, and UH
Speaker 1: in some of these subcategories African Americans, African American women, UH,
Speaker 1: their rock bottom historical lows. I want to make one
Speaker 1: other point, Jonathan, in this number that I haven't seen discussed,
Speaker 1: the civilian labor force increase. I gotta look at my
Speaker 1: sheet to get this number right. By five hundred and
Speaker 1: seventy one thousand. Now, that's like think of it, people
Speaker 1: coming out of the woodwork and rejoined the labor force. UH.
Speaker 1: That number has been rising steadily for the last three months.
Speaker 1: The average is four hundred twenty five thousand. And finally, UH,
Speaker 1: labor force wages average hourly earnings three two percent for
Speaker 1: the twelve months, Jonathan, but um for the last three months,
Speaker 1: the wage rate is above four. So let me just
Speaker 1: recalibrate this. We are seeing blowout numbers and household survey
Speaker 1: that's your small business a leading indicator by the way
Speaker 1: of payrolls point number one. We are seeing blowout numbers
Speaker 1: of people returning to work and they are getting paid well, Jonathan.
Speaker 1: If I may, America is working and America is get
Speaker 1: being paid and the economy is very strong, probably much
Speaker 1: stronger than all this rumor mill media narrative would suggest.
Speaker 1: These are very very strong numbers today. So, Larry, I
Speaker 1: know you watched this program religiously, but you were probably
Speaker 1: busy about an hour ago and Muhammadalarian came up on
Speaker 1: this program and he said that actually, the participation rate
Speaker 1: looks pretty good, average as worked looks pretty good, wages
Speaker 1: looks pretty solid. We just can't get away from this
Speaker 1: anxiety around the trade story, Larry, and I think people
Speaker 1: found it encouraging this week that talks are going to happen.
Speaker 1: Can you just walk me through the timeline for these talks.
Speaker 1: And I'm trying to understand whether these talks are contingent
Speaker 1: on tariffs not going up again in October. Have the
Speaker 1: Chinese asked for that? Uh No, not at the moment. Look,
Speaker 1: all's that's happened, and and it's very positive developments. Um.
Speaker 1: Sar Jerry Manusia and Bassador Lightheizer on the phone with
Speaker 1: Vice premierly or Hey. They decided that they Chinese team
Speaker 1: would in fact come to the US. That will be
Speaker 1: preceded Jonathan A Deputy's meeting. Chinese deputies team will come
Speaker 1: to the US. I guess in a week or two
Speaker 1: in September to meet with our deputies. They will hammer
Speaker 1: out an agenda with key discussion points, and then I
Speaker 1: guess in early October. The precise date has yet to
Speaker 1: be said. Our principal negotiators against sectary munition, Bestler Lightheiser
Speaker 1: will sit down with Vice Premier leu Hey and his
Speaker 1: others h At to talk about the deal. Look, Um,
Speaker 1: I have maintained, or I have tried to maintain through
Speaker 1: a kind of long summer here that while President Trump
Speaker 1: continues his defense of the American worker in the American economy,
Speaker 1: President Trump is a very tough negotiator. I hope people
Speaker 1: appreciate that. Now the other part of the story is
Speaker 1: that we're talking, and Cudlow axiom it's always better to
Speaker 1: talk than not to talk. President Trump is indicated he
Speaker 1: would he would take a deal as long as it's
Speaker 1: a good deal for this country. President also believes that
Speaker 1: China wants a deal. You know, coming back to the
Speaker 1: job numbers, you you made that linkage, and it's an
Speaker 1: important linkage. Our economy is humming, the Chinese economy is not,
Speaker 1: and we believe that they want to make a deal.
Speaker 1: And so let us see how these negotiations turn out.
Speaker 1: I don't want to forecast, I don't want to predict.
Speaker 1: All I can say is sitting down and talking is
Speaker 1: always a good thing. And the phone calls were very constructive.
Speaker 1: So so let's see, let's keep an open mind, let's
Speaker 1: even try to be optimistic. So, Larry, I just want
Speaker 1: to get a bit more clarity on the process the
Speaker 1: ministerial level talks that will happen in the coming weeks
Speaker 1: here in the United States. Do you need to see
Speaker 1: anything come from them to get to the next level
Speaker 1: to get to the talks in October? Or do the
Speaker 1: talks in October happened regardless of what happens at the
Speaker 1: ministerial level in the coming weeks. Well, no, there are
Speaker 1: no conditions. There are no conditions. We're they're coming to
Speaker 1: talk and we welcome them with open arms to talk.
Speaker 1: Look a bit of context here, Jonathan. We I thought
Speaker 1: we were close last May. You may recall you and
Speaker 1: I have talked about this in the interim. We thought
Speaker 1: we were close. Maybe there. Uh. The key issues remain
Speaker 1: on the table right the so called structural issues I
Speaker 1: P theft, force, transfer of technology, cloud technology, cyber interference,
Speaker 1: and of course the trade, the tariff and non tariff
Speaker 1: barriers regarding commodities, UH, energy, agriculture, UH and so forth.
Speaker 1: We we we thought we were close. Then the talks
Speaker 1: broke off. China pulled back for whatever reason. I'm not
Speaker 1: here to second guess it. I don't even want to
Speaker 1: go into motives. We would like. I can say this,
Speaker 1: our team would like to go back and pick up
Speaker 1: where we left off in the May UH talks. Whether
Speaker 1: that will be possible remains to be seen. I don't
Speaker 1: want to predict it. All I know is we've got
Speaker 1: a new round of talks, and I think that's a
Speaker 1: very hopeful developed. Let me just to jump in because
Speaker 1: I know we're pushed for time. Do you think there's
Speaker 1: any chance of the October tariff increase could be delayed,
Speaker 1: could be pushed back. I don't want to speculate at
Speaker 1: all on that. That, of course, is the President's decision.
Speaker 1: Is that part of the conversation. It may be part
Speaker 1: of the conversation. There'll be a lot of things as
Speaker 1: part of that conversation. I'm sure Taras will enter into it,
Speaker 1: along with the other issues that I just mentioned a
Speaker 1: few moments ago. The reason arsillary is because there would
Speaker 1: be ministerial talks before the high level talks happen in October,
Speaker 1: and of course we would have to make that decision
Speaker 1: in the next couple of weeks. Is that on the
Speaker 1: table for the ministerial level talks in the coming weeks.
Speaker 1: I will simply respond by saying President Trump is, as
Speaker 1: I think we know now, a very tough and crafty negotiator.
Speaker 1: He has shown his willingness to use tariffs as part
Speaker 1: of this whole negotiating process. The best I can do
Speaker 1: is to paraphrase what he has been saying. We want
Speaker 1: to see results. We would like to see results in
Speaker 1: the near term. When we don't see results, we take
Speaker 1: additional actions. On the other hand, if we do see
Speaker 1: results from these upcoming meetings, then progress will be made,
Speaker 1: as best I can tell you. And look, I said
Speaker 1: a few moments ago, from these jobs numbers. Today, America
Speaker 1: is working, America is producing, Our economy is quite strong.
Speaker 1: Things like productivity is rising as well as wages and
Speaker 1: so forth. We need to protect that. We are the
Speaker 1: world's leader in technology, invention, innovation, application, and new business starts.
Speaker 1: We're the world's leader. And Larry, already important topics and
Speaker 1: I know you're going to address them in the talk.
Speaker 1: Technology is our family jewels and we must protect America
Speaker 1: on that. This is a president's point of view. This
Speaker 1: is a take from China, Larry, that I want you
Speaker 1: to weigh in on. The editor of China's Global Times,
Speaker 1: viewed by many as being a mouthpiece for the Communist Party,
Speaker 1: tweeted this earlier this week, and I'd love your input
Speaker 1: on it. Personally, I think the US is worn out
Speaker 1: by the trade war. It may no longer hope for
Speaker 1: crushing trushing China's will. There's more possibility of a breakthrough
Speaker 1: between the two sides. Just how wrong is that statement, Larry? Yeah, Well,
Speaker 1: my response to that is never underestimated, Never underestimate the
Speaker 1: strength of this country or the strength of this president.
Speaker 1: President Trump is doing what presidents have not done in
Speaker 1: the last five years. He sees the unfair trading practices.
Speaker 1: He wants to protect our country, our workforce, our technology,
Speaker 1: are farmers whatever. He is not going to relent. And
Speaker 1: by the way, in sheer political terms, I think the
Speaker 1: President has enormous support with respect to a rebalance and
Speaker 1: a big change in our relationship with China. Jonathan, this
Speaker 1: is an economic issue, This is a technology issue, This
Speaker 1: is a fair trade issue, This is a national security issue.
Speaker 1: This is also a human rights issue. So those people
Speaker 1: in China or any place else who underestimate the strength
Speaker 1: and determination of the United States, they are making a
Speaker 1: very very big mistake. Couple, ID love a final word
Speaker 1: from you on the Federal Reserve, if you may. The
Speaker 1: former New York Fed President Built Dudley White in an
Speaker 1: opinion in the last couple of weeks and was quite
Speaker 1: controversial about the fetes role enabling the President to go
Speaker 1: harder on trade. Larry, I've been wanted to defend the
Speaker 1: federal reserves independence. I came down quite hard on that
Speaker 1: piece and was very critical of it. The President then
Speaker 1: again tweeted once more about where did I find this
Speaker 1: Jerome guy? Just to be balanced here, Larry, I have
Speaker 1: to say, it's incredibly unhelpful to go after the Fed
Speaker 1: in this way. Larry, Just how complex is it right now?
Speaker 1: And the conversations you're having personally? Is this something you're
Speaker 1: pushing back on in the White House? No, Look, the
Speaker 1: President has made his views clear. He's very outspoken, he's
Speaker 1: very well informed. Our view has always been that the
Speaker 1: monetary policy seven rate hikes in the last two years,
Speaker 1: nine rate hikes, way too tight. We've had severe monetary headwinds.
Speaker 1: You know, it's a wonder we're growing at two and
Speaker 1: a half to three percent with these monetary headwinds. Okay,
Speaker 1: that's one key point with respect to Bill Dudley, whom
Speaker 1: I have known for many years. Bill Dudley went over
Speaker 1: the cliff. What Bill dudley statements suggested is that the
Speaker 1: Federal Reserve should adopt a monetary policy geared towards defeating
Speaker 1: President Trump in now. That is the most politicized statement
Speaker 1: I have ever heard, and the current Federal Reserve Board
Speaker 1: disavowted walked away from it, which is a good thing.
Speaker 1: Mr Dudley stepped over the cliff. He's been criticized heavily
Speaker 1: by Democrats, like my friend Larry Summers, for example. I
Speaker 1: will weigh in on that criticism. The idea that you
Speaker 1: conduct monetary policy towards somehow influencing an election outcome is
Speaker 1: just utter nonsense. The FED is an independent agency. We've
Speaker 1: always said that, but then again, we have our opinions
Speaker 1: about the state of monetary policy. Market is telling us
Speaker 1: the Fed is going to lower rate in September and October.
Speaker 1: I think that's a good thing. We shouldn't have an
Speaker 1: inverted yield curve. We should normalize that, and I think
Speaker 1: if we get to a normal position, it will actually
Speaker 1: help the economy get back above three. Dudley, who then
Speaker 1: wrote a second article on Bloomberg, which did not recant
Speaker 1: the first article, is trying to politicize this election and
Speaker 1: lead some sort of anti Trump, you know, the revolution
Speaker 1: or whatever the heck is called. That is nonsense. He
Speaker 1: is so far off the charts, he is over the cliff.
Speaker 1: He has no support, I hope. But in any event,
Speaker 1: in any event, the fattest professional they are independent, they're
Speaker 1: gonna do what I think they need to do, and
Speaker 1: that's going to help the economy. And again I go
Speaker 1: back to today's job numbers. America is working in America
Speaker 1: and workers are coming back into the labor force. They're
Speaker 1: getting paid, they're spending, they're saving, they're producing. We're in
Speaker 1: pretty darn good shape if you ask me. Larry, final
Speaker 1: question for you, because Bill Dudley did clarify that piece,
Speaker 1: as you mentioned, he trying to walk it back somewhat.
Speaker 1: That criticism remains, But I'm trying to understand the difference
Speaker 1: between what Larry Cudlo is pushing back on and what
Speaker 1: Larry Cutler in the White House is doing right now
Speaker 1: with regards to respecting the political independence from the Federal Reserve.
Speaker 1: There's not a big gap between that piece and what
Speaker 1: you guys are pushing for. Oh I, I just couldn't
Speaker 1: disagree more with respect, Jonathan. I'm sorry, there's no moral
Speaker 1: equivalence between the two. We have never suggested that FED
Speaker 1: policy should be geared towards elections. What we have suggested
Speaker 1: is that FED policy should be geared towards maximum economic prosperity.
Speaker 1: And we have noted many times there is no inflation.
Speaker 1: I mean the inflation break even as you yourself, no,
Speaker 1: as well as anybody is down around one one a
Speaker 1: quarter percent, which is what Rich Clarena Vice chairs said
Speaker 1: and what the chairman has said. That's a different issue.
Speaker 1: We want maximum prosperity, job creation and stay with the law. Inflation.
Speaker 1: We're not out there talking about a campaign, No, Larry,
Speaker 1: I agree with that. You're not talking about specifically Dudley
Speaker 1: LinkedIn specifically to the election. That is a new law.
Speaker 1: I agree, And he's a former senior FED official. And look,
Speaker 1: the Federal Reserve Board disvowed properly so and I can
Speaker 1: tell you internally from my conversations they were horrified. Larry,
Speaker 1: you get zero pushback from me on that point. But
Speaker 1: where I do see a link because the President himself
Speaker 1: as a linked to Federal Reserve policy to the Democratic
Speaker 1: Party that came before him and suggested that the Fed
Speaker 1: kept policy easy for the Democrats. That's making the political link,
Speaker 1: is it not? No, Look, the President has been very
Speaker 1: consistent and I with my whole hearted support. I mean
Speaker 1: I talked to him almost every day on this and
Speaker 1: other matters. Um, we want to remove obstacles to economic growth.
Speaker 1: We want to remove obstacles to economic growth. An inverted
Speaker 1: Deo curve and a premature hiking of interest rates last
Speaker 1: year and maybe the year before generated an obstacle to
Speaker 1: economic growth. Let's remove that obstacle and you'll see this
Speaker 1: economy with low taxes, low regulations, free trade reforms. Look U,
Speaker 1: S M c A, Japan, Europe. We're making tremendous gains
Speaker 1: on trade while we protect America with respect to China.
Speaker 1: Those are the factors that will lead to three to
Speaker 1: four percent economic growth and keep this job story as
Speaker 1: strong as possible. Those are the issues. This is year
Speaker 1: to help this country. Is not just about an election.
Speaker 1: It never is about election. There's a vision here, Jonathan,
Speaker 1: There's a vision here. The President's vision has always been,
Speaker 1: liberate the economy from unnecessary regulations and taxes. Give us
Speaker 1: a level plan field, give us cheap and plentiful energy,
Speaker 1: let us use our economic resources, let us use our
Speaker 1: God given talents. Let us reward success, not punish it.
Speaker 1: That is an a vision just for a year or two.
Speaker 1: That's a vision that would keep this country on a
Speaker 1: high trajectory for the next twenty years, the next forty years,
Speaker 1: the next several generations. This is a transformational president, and
Speaker 1: I think the early returns are pretty darn good. Not
Speaker 1: everyone agrees with me. I respect that, but that's his reality.
Speaker 1: This other chapter, Dudley, he's playing like a party hack
Speaker 1: on precincts politics for the next election. That is nonsense.
Speaker 1: That is utter nonsense. Never look, my first job at
Speaker 1: the New York Fed in open market operations with nineteen
Speaker 1: seventy three. So I've been watching this story for I
Speaker 1: know whoever, it is almost fifty years. I've never seen
Speaker 1: anything like the Dudley statement. There is no excuse or
Speaker 1: defense for it. Hi, Larry, We've got to leave it there. Apparently,
Speaker 1: I've had two calls from d C, and I've got
Speaker 1: to let you go. Larry Cudlo. Always appreciate and respect
Speaker 1: your efforts to articulate the views from the White House
Speaker 1: every first Friday of the month following the payrolls report.
Speaker 1: Larry Cudlo there the National Economic Council Director, joining us
Speaker 1: from Washington, d C. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.