1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:37,000 --> 00:00:37,680 Speaker 3: So here's the latest. 11 00:00:37,680 --> 00:00:39,800 Speaker 2: This this morning, the Senate failing to reach a deal 12 00:00:39,840 --> 00:00:43,000 Speaker 2: to extend funding, plunging the US government into a shutdown, 13 00:00:43,040 --> 00:00:46,240 Speaker 2: putting a slew of economic data in jeopardy. John Lieber 14 00:00:46,320 --> 00:00:48,199 Speaker 2: of your Asia Group right in the following even a 15 00:00:48,280 --> 00:00:52,680 Speaker 2: macro economically significant shutdown could have knock on effects that 16 00:00:52,800 --> 00:00:55,680 Speaker 2: delayed data releases for the next several months. As federal 17 00:00:55,720 --> 00:00:58,640 Speaker 2: workers get up to speed, John joins us now for more. John, 18 00:00:58,640 --> 00:01:00,520 Speaker 2: Welcome to the program. I want to pick the language 19 00:01:00,520 --> 00:01:02,400 Speaker 2: of the president there that last line. We can get 20 00:01:02,480 --> 00:01:04,840 Speaker 2: rid of a lot of things we didn't want. Is 21 00:01:04,880 --> 00:01:06,520 Speaker 2: this going to be a different kind of shutdown. 22 00:01:07,760 --> 00:01:09,959 Speaker 4: Yeah, absolutely, I mean, I think the fact is that 23 00:01:10,000 --> 00:01:12,479 Speaker 4: Trump is playing a different game, by a different set 24 00:01:12,520 --> 00:01:14,880 Speaker 4: of rules than I think the Democrats on Capitol Hill 25 00:01:15,000 --> 00:01:17,479 Speaker 4: are playing right now. And he's been playing that all year, 26 00:01:17,520 --> 00:01:20,520 Speaker 4: and he's playing that for his entire political career. And 27 00:01:20,680 --> 00:01:23,520 Speaker 4: I think that there's a lot of unpredictable effects that 28 00:01:23,560 --> 00:01:25,080 Speaker 4: are going to come out of this shutdown that we 29 00:01:25,160 --> 00:01:28,280 Speaker 4: haven't seen before. If you look at the pattern this year, 30 00:01:28,640 --> 00:01:33,120 Speaker 4: it's that Congress's authority has been usurped or even eliminated 31 00:01:33,160 --> 00:01:35,840 Speaker 4: in many cases when it comes to decisions about what 32 00:01:35,880 --> 00:01:39,240 Speaker 4: the federal government's doing, who they're funding, whether or not 33 00:01:39,280 --> 00:01:43,480 Speaker 4: they're laying off workers, or even closing entire divisions, and 34 00:01:43,560 --> 00:01:45,720 Speaker 4: Congress has been helpless to stop it. So part of 35 00:01:45,720 --> 00:01:49,919 Speaker 4: the reason the Democrats are behind this shutdown, are rallying 36 00:01:49,920 --> 00:01:51,960 Speaker 4: behind the shutdown, is because they want to force the 37 00:01:52,000 --> 00:01:54,520 Speaker 4: power of the purse back over to Congress. I don't 38 00:01:54,560 --> 00:01:56,600 Speaker 4: think Trump cares. And again, he's playing a different game. 39 00:01:56,720 --> 00:01:59,840 Speaker 4: He now has the power to choose who's essential who 40 00:01:59,880 --> 00:02:02,160 Speaker 4: is and he's going to take that opportunity in a 41 00:02:02,160 --> 00:02:04,240 Speaker 4: way I don't think we've ever seen in the United 42 00:02:04,280 --> 00:02:08,880 Speaker 4: States before and deem the functions that he prioritizes as 43 00:02:09,000 --> 00:02:10,960 Speaker 4: essential and then cut off the ones that he doesn't. 44 00:02:11,040 --> 00:02:14,760 Speaker 4: So this is a very different type of shutdown than 45 00:02:14,800 --> 00:02:18,040 Speaker 4: we've seen before, even the one that Trump oversaw in 46 00:02:18,080 --> 00:02:21,560 Speaker 4: twenty eighteen and twenty nineteen. The government was partially funded then, 47 00:02:21,880 --> 00:02:24,880 Speaker 4: so you had the core defense functions and other security 48 00:02:24,880 --> 00:02:28,200 Speaker 4: functions had an authorization from Congress to keep spending money. 49 00:02:28,400 --> 00:02:30,960 Speaker 4: Right now, nobody does. So Trump's in charge, and he 50 00:02:31,040 --> 00:02:34,160 Speaker 4: will be in charge until the Congress agrees to reopen 51 00:02:34,160 --> 00:02:34,640 Speaker 4: the government. 52 00:02:34,800 --> 00:02:38,079 Speaker 1: Does this administration try to make furloughs actually permanent. 53 00:02:39,680 --> 00:02:41,160 Speaker 4: It could try, I mean, I think that's the decision 54 00:02:41,160 --> 00:02:42,640 Speaker 4: that's up to the courts. I mean, one of the 55 00:02:42,680 --> 00:02:45,840 Speaker 4: interesting phenomenon so far this year is that the courts 56 00:02:45,880 --> 00:02:49,520 Speaker 4: are offully slow, and the Trump administration could be pretty quick, 57 00:02:49,840 --> 00:02:52,880 Speaker 4: so they could use this as an excuse to try 58 00:02:52,880 --> 00:02:55,680 Speaker 4: to furlough more workers. You know, there's been some resistance 59 00:02:55,680 --> 00:02:59,080 Speaker 4: to those furloughs, even within the cabinet agencies that are 60 00:02:59,120 --> 00:03:01,440 Speaker 4: run by Trump appoint because they want the people to 61 00:03:01,480 --> 00:03:03,680 Speaker 4: do the work they're supposed to do. But now they 62 00:03:03,680 --> 00:03:08,800 Speaker 4: suddenly have an excuse and the Clearly the White House 63 00:03:09,040 --> 00:03:13,120 Speaker 4: sees a political advantage in forcing more of these layoffs 64 00:03:13,200 --> 00:03:15,240 Speaker 4: in order to bring Democrats back to the table, and 65 00:03:15,280 --> 00:03:15,840 Speaker 4: I expect that. 66 00:03:15,800 --> 00:03:18,400 Speaker 1: They're going to use it well, John, three Democrats already 67 00:03:18,400 --> 00:03:20,120 Speaker 1: back at the table last night in the sense that 68 00:03:20,160 --> 00:03:23,880 Speaker 1: they voted for the Republican clean cr They only need 69 00:03:23,919 --> 00:03:27,360 Speaker 1: to get five more Democrats to then reopen the government 70 00:03:27,440 --> 00:03:29,920 Speaker 1: and keep it funding to the end of November. Do 71 00:03:30,000 --> 00:03:33,239 Speaker 1: you think that Schumer is losing the moderate wing and 72 00:03:33,280 --> 00:03:34,920 Speaker 1: potentially this is going to be a short shutdown. 73 00:03:35,760 --> 00:03:38,400 Speaker 4: It could be. I mean, you know your base rate here. 74 00:03:38,520 --> 00:03:41,080 Speaker 4: Your expectation should be that this is a relatively short shutdown, 75 00:03:41,800 --> 00:03:43,960 Speaker 4: you know, because of these political pressures on members of 76 00:03:44,000 --> 00:03:46,880 Speaker 4: Congress who don't want to see this happen. And the 77 00:03:46,920 --> 00:03:48,800 Speaker 4: only thing you need is exactly what you said, You 78 00:03:48,880 --> 00:03:52,200 Speaker 4: need seven Democrats to say we've had enough. We already 79 00:03:52,240 --> 00:03:55,800 Speaker 4: know the universe. Of those seven Democrats, they're the ones 80 00:03:55,840 --> 00:03:58,480 Speaker 4: that voted to end to open keep the government open 81 00:03:59,360 --> 00:04:02,400 Speaker 4: this spring. And you mentioned Schumer. He's the one who's 82 00:04:02,480 --> 00:04:05,360 Speaker 4: under the most pressure because he took just withering criticism 83 00:04:05,640 --> 00:04:08,240 Speaker 4: for his decision to keep the government opened. But the 84 00:04:08,280 --> 00:04:10,040 Speaker 4: fact and He's under a lot of pressure from the 85 00:04:10,080 --> 00:04:13,920 Speaker 4: Democratic base to regain leverage over President Trump, leverage that 86 00:04:13,960 --> 00:04:16,640 Speaker 4: simply doesn't exist through Congress right now. And so I 87 00:04:16,680 --> 00:04:19,840 Speaker 4: think that he's in a really tough spot. Those other Democrats. 88 00:04:19,880 --> 00:04:22,400 Speaker 4: I think this is an easier calculation. People like John 89 00:04:22,440 --> 00:04:25,280 Speaker 4: Fetterman from Pennsylvania see that this is a tough thing 90 00:04:25,320 --> 00:04:27,760 Speaker 4: for the Democrats to win, and over the next week 91 00:04:27,920 --> 00:04:30,080 Speaker 4: or so, I expect those numbers are going to grow, 92 00:04:30,279 --> 00:04:32,800 Speaker 4: and you know that will help to end this shutdown, 93 00:04:32,920 --> 00:04:34,200 Speaker 4: probably sooner rather than later. 94 00:04:34,320 --> 00:04:36,280 Speaker 5: That actually is exactly where I wanted to go John, 95 00:04:36,279 --> 00:04:39,039 Speaker 5: this idea of in March what happened to Chuck Schumer 96 00:04:39,320 --> 00:04:42,560 Speaker 5: when he what a lot of people, Democrats in particular, said, 97 00:04:42,680 --> 00:04:45,880 Speaker 5: a cave to the Republican demands to keep the to 98 00:04:46,000 --> 00:04:49,800 Speaker 5: keep the government open. Is this just performative to avoid that, 99 00:04:49,920 --> 00:04:53,400 Speaker 5: to placate a certain side of the Democratic base. Is 100 00:04:53,400 --> 00:04:55,799 Speaker 5: that how it's being read, at least in polls. 101 00:04:56,520 --> 00:04:58,039 Speaker 4: Yeah, I mean, I think he's in a tough spot, 102 00:04:58,200 --> 00:04:59,760 Speaker 4: and you know, I feel bad for the guy. There's 103 00:04:59,800 --> 00:05:01,520 Speaker 4: no way to win this thing. Like he's got to 104 00:05:01,600 --> 00:05:03,920 Speaker 4: keep his eye on the Democratic members who elected him 105 00:05:03,920 --> 00:05:05,520 Speaker 4: to be leader. He's got to keep his eye on 106 00:05:05,520 --> 00:05:08,000 Speaker 4: the Democratic voters who elected him to his Senate seat, 107 00:05:08,279 --> 00:05:11,480 Speaker 4: and they problem, the fundamental problem for the Democrats right 108 00:05:11,520 --> 00:05:14,080 Speaker 4: now is they don't have a strategy to push back 109 00:05:14,120 --> 00:05:16,919 Speaker 4: on Trump. That they've been unable to land any punches, 110 00:05:17,040 --> 00:05:20,080 Speaker 4: and they've been unable to draw any blood. His popularity 111 00:05:20,440 --> 00:05:23,760 Speaker 4: is reasonably high for President Trump. He's hovering around the 112 00:05:23,800 --> 00:05:26,159 Speaker 4: mid to low forties, which is much better than he 113 00:05:26,240 --> 00:05:28,760 Speaker 4: was doing and is the entirety of his first term. 114 00:05:29,040 --> 00:05:32,039 Speaker 4: And he's doing all kinds of controversial stuff that the 115 00:05:32,040 --> 00:05:35,400 Speaker 4: Democrats hate, and they can't articulate the case against him. 116 00:05:35,520 --> 00:05:37,839 Speaker 4: And until they figure out how to do that, Schumer 117 00:05:37,880 --> 00:05:39,840 Speaker 4: and the other leadership are going to be looking for 118 00:05:40,040 --> 00:05:43,159 Speaker 4: things like this that allow them to kind of shore 119 00:05:43,240 --> 00:05:46,080 Speaker 4: up their base on the left and placate them a 120 00:05:46,080 --> 00:05:48,599 Speaker 4: little bit and try to land these punches that so 121 00:05:48,640 --> 00:05:50,400 Speaker 4: far they've been unable to do. I think this is 122 00:05:50,440 --> 00:05:51,480 Speaker 4: a prime example of that. 123 00:05:51,760 --> 00:05:54,400 Speaker 3: John. The markets flags they don't care, Do voters care. 124 00:05:54,600 --> 00:05:56,960 Speaker 5: Has there been anything in the voting or the polling 125 00:05:57,000 --> 00:05:59,919 Speaker 5: that shows that this is swaying the needle in any capacity? 126 00:06:00,640 --> 00:06:04,440 Speaker 4: I suspect at some point the chaos will be enough 127 00:06:04,560 --> 00:06:06,159 Speaker 4: and people will say, you know what, we don't like 128 00:06:06,200 --> 00:06:08,840 Speaker 4: either of these jerks that are causing all these big problems. 129 00:06:08,839 --> 00:06:10,240 Speaker 4: That's kind of where I think this ends up in 130 00:06:10,240 --> 00:06:12,440 Speaker 4: the polling. I don't think it necessarily falls in the 131 00:06:12,520 --> 00:06:15,200 Speaker 4: Republicans or Donald Trump. I don't think it necessarily falls 132 00:06:15,200 --> 00:06:18,559 Speaker 4: in the Democrats. Maybe the president takes more responsibility because 133 00:06:18,600 --> 00:06:22,440 Speaker 4: he's the executive executive. But you know, if you look 134 00:06:22,440 --> 00:06:24,760 Speaker 4: at the elections, there's no evidence of these shutdowns, as 135 00:06:24,760 --> 00:06:27,120 Speaker 4: we talked about last week, there's no evidence that these 136 00:06:27,160 --> 00:06:31,600 Speaker 4: shutdowns make any difference in the elections whatsoever. In twenty thirteen, 137 00:06:31,640 --> 00:06:35,000 Speaker 4: the Republicans were solely responsible for at the time a 138 00:06:35,080 --> 00:06:38,440 Speaker 4: very long shutdown over Obamacare, and in twenty fourteen they 139 00:06:38,560 --> 00:06:40,720 Speaker 4: won back a majority in the Senate. So there's just 140 00:06:40,720 --> 00:06:44,480 Speaker 4: no evidence that this has lasting political effects. I think 141 00:06:44,520 --> 00:06:47,280 Speaker 4: it could be a drag on the overall approval rating 142 00:06:47,400 --> 00:06:50,360 Speaker 4: of lawmakers Washington. But I don't think either side is 143 00:06:50,400 --> 00:06:52,680 Speaker 4: going to win or stands a lot to lose here, John, 144 00:06:52,720 --> 00:06:53,120 Speaker 4: do you think it. 145 00:06:53,120 --> 00:06:55,400 Speaker 2: Is time for new dataship in the Democratic body? 146 00:06:57,000 --> 00:06:58,599 Speaker 4: Probably? I mean, I don't think there's anything. You know, 147 00:06:58,720 --> 00:07:01,160 Speaker 4: I think that being a leader a tough tough job. 148 00:07:01,320 --> 00:07:03,359 Speaker 4: I think it's a hard thing to do. They have 149 00:07:03,400 --> 00:07:05,640 Speaker 4: a new leader in the House, and he's doing his best. 150 00:07:06,040 --> 00:07:08,720 Speaker 4: I think in the Senate. You know, I wouldn't cast 151 00:07:08,720 --> 00:07:10,280 Speaker 4: this persions on these guys. I used to work for 152 00:07:10,600 --> 00:07:13,560 Speaker 4: the minority leader in the Senate and for the Republicans, 153 00:07:13,720 --> 00:07:15,520 Speaker 4: and it's a tough job. It's a tough job keeping 154 00:07:15,520 --> 00:07:18,360 Speaker 4: everybody happy. But you know, there again, the Democrats are 155 00:07:18,360 --> 00:07:21,040 Speaker 4: not articulating the case against Trump, and their leadership is 156 00:07:21,080 --> 00:07:23,520 Speaker 4: not helping them do that. So I think looking to 157 00:07:23,640 --> 00:07:26,720 Speaker 4: Congress for your leadership right now is a mistake. And 158 00:07:26,760 --> 00:07:29,440 Speaker 4: if I were the Democrats thinking about the next leader 159 00:07:29,480 --> 00:07:31,880 Speaker 4: of the party who's going to be running for president, 160 00:07:32,000 --> 00:07:34,040 Speaker 4: I'd be looking out to the states, to the governors, 161 00:07:34,240 --> 00:07:36,760 Speaker 4: to people that aren't currently playing on the national stage. 162 00:07:36,800 --> 00:07:38,800 Speaker 4: And the way Schumer is now, Schumer's got to do 163 00:07:39,160 --> 00:07:41,720 Speaker 4: his own tough job managing his own caucus and playing 164 00:07:41,800 --> 00:07:44,960 Speaker 4: the inside Washington game. And then these governors that are 165 00:07:44,960 --> 00:07:46,680 Speaker 4: out in the states are the ones who I think 166 00:07:46,680 --> 00:07:49,040 Speaker 4: will be the more effective messengers against Trump. 167 00:07:49,080 --> 00:07:53,280 Speaker 2: Eventually stay with US Multpleinberg surveillance coming up after this, 168 00:08:02,280 --> 00:08:04,000 Speaker 2: And if you were concerned about the step down in 169 00:08:04,040 --> 00:08:06,760 Speaker 2: payrolls growth. I think that's more feel for concern off 170 00:08:06,800 --> 00:08:07,640 Speaker 2: the back of that report. 171 00:08:07,760 --> 00:08:10,080 Speaker 5: Yeah, at this point, we're looking at a ninety five 172 00:08:10,120 --> 00:08:12,280 Speaker 5: percent chance that the FED is going to cut rates 173 00:08:12,480 --> 00:08:16,559 Speaker 5: at the October twenty ninth meeting in at Washington, DC 174 00:08:16,800 --> 00:08:19,520 Speaker 5: on the backs of this report. You also just saw 175 00:08:19,680 --> 00:08:22,720 Speaker 5: the lowest reading on this ADP print going back to 176 00:08:22,840 --> 00:08:26,880 Speaker 5: March of twenty twenty three, so definitely signaling some weakness. 177 00:08:27,000 --> 00:08:29,560 Speaker 5: And essentially this gives ammunition to those you are saying 178 00:08:30,280 --> 00:08:33,520 Speaker 5: the risk management tool here is catering to the labor market, 179 00:08:33,720 --> 00:08:36,080 Speaker 5: not necessarily trying to tackle inflation. 180 00:08:36,280 --> 00:08:38,600 Speaker 2: Greg Daka of VY is with a surround a table 181 00:08:38,640 --> 00:08:41,079 Speaker 2: corrected morning, Good morning, this is all we've got. How 182 00:08:41,160 --> 00:08:44,000 Speaker 2: useful is this number and what are the limitations around it? 183 00:08:44,120 --> 00:08:45,880 Speaker 6: Well, I think it's useful in the sense that we 184 00:08:45,880 --> 00:08:48,440 Speaker 6: don't have anything else. I would push back a little 185 00:08:48,480 --> 00:08:50,920 Speaker 6: bit on the notion that the ADP is necessarily the 186 00:08:50,920 --> 00:08:54,040 Speaker 6: best gauge of BLS reports when it comes to employment 187 00:08:54,080 --> 00:08:56,600 Speaker 6: because it's just focused on the private sector. 188 00:08:57,120 --> 00:08:58,080 Speaker 3: It also does not. 189 00:08:58,000 --> 00:09:00,160 Speaker 6: Include all the details that we get out of the 190 00:09:00,200 --> 00:09:03,040 Speaker 6: employment report, so it is a good reading in terms 191 00:09:03,040 --> 00:09:05,800 Speaker 6: of having a perspective on the labor market, but it 192 00:09:05,920 --> 00:09:09,000 Speaker 6: excludes some important parts of the labor market, including the 193 00:09:09,040 --> 00:09:12,640 Speaker 6: public sector, where we're anticipating some further losses both at 194 00:09:12,679 --> 00:09:15,040 Speaker 6: the federal level but also at the state and local 195 00:09:15,120 --> 00:09:17,720 Speaker 6: level as we start the new year with less funding 196 00:09:17,760 --> 00:09:20,040 Speaker 6: for many state and local governments. So I think the 197 00:09:20,120 --> 00:09:23,600 Speaker 6: weakness is apparent in terms of labor demand in the 198 00:09:23,679 --> 00:09:27,080 Speaker 6: labor market more broadly, whether you look at continuing claims 199 00:09:27,080 --> 00:09:30,760 Speaker 6: for unemployment, whether you look at yesterday's data on job flows, 200 00:09:30,800 --> 00:09:33,560 Speaker 6: the JOLT report showing the hiring rate and the quits 201 00:09:33,640 --> 00:09:35,960 Speaker 6: rate at a ten year low, not just a few 202 00:09:35,960 --> 00:09:38,320 Speaker 6: months low, but a ten year low, showing there's very 203 00:09:38,320 --> 00:09:41,720 Speaker 6: little flow in the labor market. There is underlying softness 204 00:09:41,760 --> 00:09:44,920 Speaker 6: in the labor demand components, and the labor supply, of 205 00:09:44,920 --> 00:09:48,080 Speaker 6: course has been tremendously affected by the reduction and immigration. 206 00:09:48,160 --> 00:09:48,880 Speaker 3: So it's a combo. 207 00:09:49,080 --> 00:09:52,560 Speaker 6: But I think labor demand is weaker than labor supply 208 00:09:52,559 --> 00:09:53,240 Speaker 6: at this juncture. 209 00:09:53,280 --> 00:09:55,240 Speaker 5: Are you saying that we've been sort of in this 210 00:09:55,360 --> 00:09:58,240 Speaker 5: stasis slow higher low fire range for a while and 211 00:09:58,280 --> 00:10:01,040 Speaker 5: now we're actually seeing the labor ma market break to 212 00:10:01,080 --> 00:10:01,880 Speaker 5: the downside. 213 00:10:02,160 --> 00:10:04,800 Speaker 6: I think there are certainly risks to that the low 214 00:10:04,880 --> 00:10:07,360 Speaker 6: higher low fire environment is not sustainable. 215 00:10:07,360 --> 00:10:08,760 Speaker 3: It's an uncomfortable balance. 216 00:10:08,800 --> 00:10:11,199 Speaker 6: You rarely stay in that balance for a prolonged period 217 00:10:11,200 --> 00:10:14,120 Speaker 6: of time because either one of two things happens. Either 218 00:10:14,280 --> 00:10:17,400 Speaker 6: you see employers starting to hire more that's the good story, 219 00:10:17,440 --> 00:10:21,080 Speaker 6: that's positive story, or you see more layoffs because essentially 220 00:10:21,160 --> 00:10:23,840 Speaker 6: there's a desire to manage costs. And let's not forget 221 00:10:23,880 --> 00:10:26,000 Speaker 6: we are still in the midst of an environment where 222 00:10:26,040 --> 00:10:29,360 Speaker 6: there are a number of supply shocks affecting the economy. 223 00:10:29,640 --> 00:10:29,760 Speaker 3: Too. 224 00:10:29,840 --> 00:10:32,480 Speaker 6: Many people are still reading the economy as if if 225 00:10:32,480 --> 00:10:35,320 Speaker 6: we're guided by demand shocks. This is not the case. 226 00:10:35,600 --> 00:10:40,080 Speaker 6: Supply shocks are increasingly important. Whether it's tariffs and trade disruptions, 227 00:10:40,320 --> 00:10:45,240 Speaker 6: immigration disruptions, energy disruptions, capital disruptions, all of those factors 228 00:10:45,280 --> 00:10:48,560 Speaker 6: are affecting economic trends in a way that we haven't 229 00:10:48,600 --> 00:10:52,360 Speaker 6: seen before. Think of technological shifts as well, ai a big, 230 00:10:52,400 --> 00:10:55,720 Speaker 6: big shock to the economy. We're not reading the economy 231 00:10:55,760 --> 00:10:58,560 Speaker 6: in the proper way, and that's why many people are 232 00:10:58,720 --> 00:11:01,960 Speaker 6: confused about the economic signals. The mixed signals are the 233 00:11:02,040 --> 00:11:05,920 Speaker 6: reflection of an economy that is impacted by a significant 234 00:11:05,960 --> 00:11:06,920 Speaker 6: number of supply shocks. 235 00:11:06,960 --> 00:11:09,960 Speaker 5: Yeah, and essentially this is an economy and dramatic transformation. 236 00:11:10,280 --> 00:11:12,520 Speaker 5: I just wonder how you square the idea of profits 237 00:11:12,559 --> 00:11:16,360 Speaker 5: growing across Wall Street, across a lot of corporate America 238 00:11:16,400 --> 00:11:18,160 Speaker 5: at the same time that we see this low higher 239 00:11:18,200 --> 00:11:20,800 Speaker 5: low fire dynamic potentially breaking to the downside. 240 00:11:20,840 --> 00:11:24,680 Speaker 6: Because everybody's taking about the consumer, about the market, about 241 00:11:24,760 --> 00:11:27,360 Speaker 6: the business environment. It's not like that there is a 242 00:11:27,400 --> 00:11:31,880 Speaker 6: tremendous degree of polarization across businesses, across consumers, across the 243 00:11:31,960 --> 00:11:34,720 Speaker 6: economy when it comes to how these shocks are affecting 244 00:11:35,000 --> 00:11:38,040 Speaker 6: different actors in the economy. Take tariffs. Tariffs are not 245 00:11:38,080 --> 00:11:40,679 Speaker 6: affecting everyone in the same way. Those that are very 246 00:11:40,720 --> 00:11:44,200 Speaker 6: price sensitive are seeing the prices a grocery stores rising, 247 00:11:44,520 --> 00:11:48,400 Speaker 6: and they're pulling back on demand. They're seeing retail costs 248 00:11:48,440 --> 00:11:50,959 Speaker 6: also rising. They're pulling back. Those that are at the 249 00:11:51,040 --> 00:11:53,720 Speaker 6: higher end of the income spectrum, they're less concerned about 250 00:11:53,720 --> 00:11:56,280 Speaker 6: an increase for a price ticket to go somewhere, to 251 00:11:56,320 --> 00:11:59,800 Speaker 6: fly somewhere on vacation, but they're also gradually being more 252 00:12:00,520 --> 00:12:03,120 Speaker 6: And the same applies to businesses, not all businesses, not 253 00:12:03,200 --> 00:12:04,680 Speaker 6: all sectors are created. 254 00:12:04,360 --> 00:12:06,240 Speaker 3: Equal in the face of this supply shock. 255 00:12:06,480 --> 00:12:09,679 Speaker 6: If you're more heavily leaning towards the tech sector, then 256 00:12:09,720 --> 00:12:12,360 Speaker 6: you're going to be benefiting from this AI boost. If 257 00:12:12,360 --> 00:12:15,720 Speaker 6: you're a big corporation that is investing in AI, you're 258 00:12:15,760 --> 00:12:18,040 Speaker 6: also going to be investing more in capex. We're seeing 259 00:12:18,080 --> 00:12:20,440 Speaker 6: that in the GDP data. So it really depends on 260 00:12:20,480 --> 00:12:22,760 Speaker 6: where you law on the spectrum of the economy and 261 00:12:22,840 --> 00:12:24,480 Speaker 6: how exposed you are to these shocks. 262 00:12:24,640 --> 00:12:26,920 Speaker 1: Rag what if we get a prolonged government shutdown and 263 00:12:26,960 --> 00:12:28,560 Speaker 1: this is all the FED has to go off of. 264 00:12:29,200 --> 00:12:31,280 Speaker 6: Unfortunately, this is not the best time to have a 265 00:12:31,280 --> 00:12:34,320 Speaker 6: government shutdown. Of course, there is the immediate effect of 266 00:12:34,440 --> 00:12:37,640 Speaker 6: essentially eight hundred thousand federal workers not being paid and 267 00:12:37,679 --> 00:12:41,000 Speaker 6: being put on furlough that can have a notable impact 268 00:12:41,040 --> 00:12:43,520 Speaker 6: on the economy. We estimate a drag of about a 269 00:12:43,600 --> 00:12:46,680 Speaker 6: tenth of GDP growth for every week of government shutdown. 270 00:12:47,080 --> 00:12:51,120 Speaker 6: But importantly, for business leaders, policy makers, and economists, this 271 00:12:51,240 --> 00:12:55,200 Speaker 6: means we're flying blind in a highly foggy environment, and 272 00:12:55,280 --> 00:12:56,160 Speaker 6: this is very risky. 273 00:12:56,280 --> 00:13:00,319 Speaker 1: Can we get a shutdown induced recession in some pockets 274 00:13:00,400 --> 00:13:01,440 Speaker 1: of the US economy? 275 00:13:02,040 --> 00:13:05,079 Speaker 6: Perhaps in some pockets of the economy, but not necessarily. 276 00:13:05,120 --> 00:13:08,560 Speaker 6: Broadly speaking, this is not significant enough to really bring 277 00:13:08,640 --> 00:13:10,960 Speaker 6: the economy to its nees when it comes to a 278 00:13:11,000 --> 00:13:13,880 Speaker 6: potential recession. But we are seeing some sectors that are 279 00:13:13,920 --> 00:13:17,800 Speaker 6: seeing outsized declines in terms of economic activity. You look 280 00:13:17,840 --> 00:13:20,200 Speaker 6: at the housing sector, for instance, a sector that is 281 00:13:20,320 --> 00:13:25,120 Speaker 6: also hit by insufficient supply, but increasingly by the drag 282 00:13:25,200 --> 00:13:28,400 Speaker 6: of demand from a low affordability environment. If you start 283 00:13:28,440 --> 00:13:31,839 Speaker 6: to see more segments of the economy affected negatively by 284 00:13:31,880 --> 00:13:35,040 Speaker 6: government shutdown, think about the area around DC, think about 285 00:13:35,080 --> 00:13:38,360 Speaker 6: contractors that depend on federal funding. Then that could put 286 00:13:38,360 --> 00:13:41,680 Speaker 6: further downward pressure on a housing market that is already struggling. 287 00:13:41,720 --> 00:13:45,360 Speaker 6: So regionally and sectorally you could have these pressures that 288 00:13:45,400 --> 00:13:48,680 Speaker 6: are outsized and that way on economic activity, not a 289 00:13:48,679 --> 00:13:51,960 Speaker 6: broad based recession, but a more pronounced slowdown and potentially 290 00:13:51,960 --> 00:13:54,440 Speaker 6: a contraction in some sectors some regions of the country. 291 00:13:54,520 --> 00:13:56,360 Speaker 2: If you actually John, I guess, welcome to the program. 292 00:13:56,400 --> 00:13:58,520 Speaker 2: Just mymusica of the ADEPA report, of course, tanking on 293 00:13:58,559 --> 00:14:00,640 Speaker 2: additional importance this way, because we might not get The 294 00:14:00,640 --> 00:14:04,200 Speaker 2: payrolls report this Friday came in at negative thirty two K. 295 00:14:04,640 --> 00:14:07,160 Speaker 2: Negative thirty two k We were looking for fifty one 296 00:14:07,240 --> 00:14:08,640 Speaker 2: thousand in our survey. 297 00:14:08,720 --> 00:14:09,840 Speaker 3: That was the media estimate. 298 00:14:10,080 --> 00:14:12,840 Speaker 2: A revision to the previous month as well, that was 299 00:14:12,920 --> 00:14:16,199 Speaker 2: fifty four. It's now negative three. Greg just got this 300 00:14:16,280 --> 00:14:19,200 Speaker 2: question from a Bloomberg subscriber. They said, the cyclists always 301 00:14:19,240 --> 00:14:23,480 Speaker 2: stop spending, stop hiring, then stop firing. And the question 302 00:14:23,560 --> 00:14:26,480 Speaker 2: they've got is the natural progression always the same in 303 00:14:26,520 --> 00:14:27,200 Speaker 2: a slowdown. 304 00:14:27,320 --> 00:14:28,840 Speaker 3: Is it any different this time? 305 00:14:29,000 --> 00:14:31,000 Speaker 6: I think it's very different this time around because we're 306 00:14:31,000 --> 00:14:34,720 Speaker 6: affected by supply sharks. Supply side dynamics are very different 307 00:14:34,760 --> 00:14:37,040 Speaker 6: this time around than they've been any time over the 308 00:14:37,120 --> 00:14:39,720 Speaker 6: past few decades, and I think that's why you're seeing 309 00:14:39,800 --> 00:14:43,480 Speaker 6: these unusual evolutions when it comes to the different sectors 310 00:14:43,480 --> 00:14:46,880 Speaker 6: of the economy. We have rarely seen a loaf higher, 311 00:14:46,960 --> 00:14:50,600 Speaker 6: low fire, or even no higher no fire type of environment. 312 00:14:51,080 --> 00:14:52,760 Speaker 3: That is not a comfortable balance. 313 00:14:52,840 --> 00:14:55,880 Speaker 6: Again, I think we are likely to see further weakness 314 00:14:55,920 --> 00:14:57,880 Speaker 6: on the labor demand side that's going to weigh on 315 00:14:57,960 --> 00:14:59,040 Speaker 6: economic momentum. 316 00:14:59,200 --> 00:15:00,880 Speaker 3: One key in the that I watch. 317 00:15:01,240 --> 00:15:04,080 Speaker 6: I know it's a lagging indicator, but it's income growth. 318 00:15:04,200 --> 00:15:06,440 Speaker 6: If you look at real disposable income growth, it's only 319 00:15:06,520 --> 00:15:09,040 Speaker 6: been growing at a two percent pace, consumer spending is 320 00:15:09,080 --> 00:15:12,480 Speaker 6: still growing close to three percent at one point. The 321 00:15:12,600 --> 00:15:15,560 Speaker 6: dip into savings is not going to be sufficient to 322 00:15:15,640 --> 00:15:20,840 Speaker 6: sustain spending, and the majority or sorry, the minority of 323 00:15:20,920 --> 00:15:23,640 Speaker 6: people that are still doing most of the spending cannot 324 00:15:23,680 --> 00:15:27,640 Speaker 6: do so forever. The higher income individuals are also gradually 325 00:15:27,680 --> 00:15:31,680 Speaker 6: being impacted by higher prices and importantly by higher interest rates. 326 00:15:31,760 --> 00:15:34,240 Speaker 6: If there starts to be some volatility in the equity 327 00:15:34,240 --> 00:15:38,080 Speaker 6: market because of a government shutdown or because of other developments, 328 00:15:38,200 --> 00:15:41,680 Speaker 6: then that could weigh on these individuals' desires and potentially 329 00:15:41,760 --> 00:15:42,520 Speaker 6: means to spend. 330 00:15:43,480 --> 00:15:57,080 Speaker 2: Stay with us, mulplinbeg, Savanna's coming up off to this, Tiffany, 331 00:15:57,120 --> 00:15:59,720 Speaker 2: want to get PIMCO join NAPA. Mall, Tiffany, welcome to 332 00:15:59,720 --> 00:16:01,800 Speaker 2: the prim Let's say this is all we've got, and 333 00:16:01,840 --> 00:16:03,720 Speaker 2: there's a lot still to play for in October. It's 334 00:16:03,720 --> 00:16:05,480 Speaker 2: only just started. I've got no idea how long the 335 00:16:05,480 --> 00:16:07,360 Speaker 2: shutdown goes on for. But let's say this is all 336 00:16:07,360 --> 00:16:09,960 Speaker 2: we've got. Is there anything that would stop this fet 337 00:16:09,960 --> 00:16:12,360 Speaker 2: A reserve from just kind of interest rights again at 338 00:16:12,400 --> 00:16:13,120 Speaker 2: the end of the month. 339 00:16:15,520 --> 00:16:18,280 Speaker 7: No, I mean so, I think clearly this ADP report 340 00:16:18,400 --> 00:16:21,320 Speaker 7: was weak and I think digging through the details of it, 341 00:16:21,400 --> 00:16:24,960 Speaker 7: you know, I think there's an interesting bifurcation in large 342 00:16:25,080 --> 00:16:28,560 Speaker 7: versus small and medium business sizes. This has been something 343 00:16:28,600 --> 00:16:32,000 Speaker 7: we've been very focused on because we think that this 344 00:16:32,080 --> 00:16:34,440 Speaker 7: economy is basically creating winners and losers. 345 00:16:35,160 --> 00:16:36,080 Speaker 3: The tariffs, the. 346 00:16:36,080 --> 00:16:41,160 Speaker 7: Technology improvements that we're seeing, the various tax cuts, all 347 00:16:41,200 --> 00:16:44,880 Speaker 7: of that we think is benefiting somewhat more larger companies 348 00:16:45,200 --> 00:16:48,200 Speaker 7: and it's a really really challenging environment for those small 349 00:16:48,200 --> 00:16:51,680 Speaker 7: and midsized businesses. And that's where you saw the you know, 350 00:16:51,760 --> 00:16:54,480 Speaker 7: some more of the weakness. I think that in terms 351 00:16:54,480 --> 00:16:56,320 Speaker 7: of the ADP report, can you know the fact that 352 00:16:56,360 --> 00:17:00,760 Speaker 7: it contracted If you adjust the payroll survey, the government 353 00:17:00,880 --> 00:17:05,080 Speaker 7: survey for the overestimation and that survey over recent years, 354 00:17:05,680 --> 00:17:07,720 Speaker 7: you know, you can get to numbers that look like 355 00:17:07,760 --> 00:17:09,960 Speaker 7: they were contractionary of the last three months as well. 356 00:17:10,000 --> 00:17:12,920 Speaker 7: So I think these surveys are given a consistent signal 357 00:17:13,200 --> 00:17:15,960 Speaker 7: that we are seeing some some more concerning weakness in 358 00:17:15,960 --> 00:17:16,679 Speaker 7: the labor market. 359 00:17:16,840 --> 00:17:18,960 Speaker 5: And so right now you're seeing priced into the market 360 00:17:19,440 --> 00:17:22,160 Speaker 5: one hundred and one percent chance of a twenty five 361 00:17:22,160 --> 00:17:25,439 Speaker 5: basis point rate cut at the October twenty ninth press 362 00:17:25,440 --> 00:17:28,760 Speaker 5: conference and meeting, and then in December again almost one 363 00:17:28,880 --> 00:17:31,920 Speaker 5: hundred percent chance eighty eight percent chance of another cut. 364 00:17:32,000 --> 00:17:34,800 Speaker 5: I just wonder, Tiffany, is that the solution to what 365 00:17:34,960 --> 00:17:37,760 Speaker 5: essentially is the K shaped economy that's getting to be 366 00:17:37,960 --> 00:17:38,879 Speaker 5: an even bigger K. 367 00:17:41,560 --> 00:17:44,359 Speaker 7: Yeah, I mean so I think that's right there, there is. 368 00:17:44,920 --> 00:17:47,800 Speaker 7: You know, I think interest rate cuts as a result 369 00:17:47,800 --> 00:17:50,120 Speaker 7: of the fact that the shock that we're going through 370 00:17:50,200 --> 00:17:52,879 Speaker 7: right now is both a demand and supply side shock. 371 00:17:52,960 --> 00:17:56,520 Speaker 7: Tariffs and both immigration will have supply side effects as well. 372 00:17:57,040 --> 00:17:59,720 Speaker 7: You know, of course central bank policy is not well 373 00:17:59,800 --> 00:18:02,960 Speaker 7: suit did to deal with supply shocks, but nevertheless, policy 374 00:18:03,000 --> 00:18:06,160 Speaker 7: is in restrictive territory, and you know, I think when 375 00:18:06,200 --> 00:18:08,840 Speaker 7: you're in an economy that is going through this type 376 00:18:08,840 --> 00:18:13,080 Speaker 7: of transition, given the policy U turns, arguing that it's 377 00:18:13,119 --> 00:18:16,240 Speaker 7: closer to neutral is certainly very reasonable. And I think 378 00:18:16,240 --> 00:18:18,399 Speaker 7: the interesting thing that we're seeing, you know, since the 379 00:18:18,400 --> 00:18:22,000 Speaker 7: implementation of tariffs, is that the adjustment that the economy 380 00:18:22,040 --> 00:18:26,320 Speaker 7: is making to tariffs is not primarily through price adjustments, 381 00:18:26,720 --> 00:18:29,200 Speaker 7: but it actually looks like it's happening through the labor 382 00:18:29,240 --> 00:18:32,520 Speaker 7: market as well as companies are trying to cut labor 383 00:18:32,560 --> 00:18:34,879 Speaker 7: and other costs. So that just means, you know, we 384 00:18:34,920 --> 00:18:37,560 Speaker 7: think that means the funeral reserve has room to cut 385 00:18:37,600 --> 00:18:40,199 Speaker 7: interest rates. Here are they still have rates that are 386 00:18:40,240 --> 00:18:43,760 Speaker 7: above neutral getting back to that is very reasonable in 387 00:18:43,800 --> 00:18:46,200 Speaker 7: our minds, given the weakness of the labor market we're seeing. 388 00:18:46,400 --> 00:18:49,200 Speaker 5: This is really a strange moment where you're seeing companies 389 00:18:49,320 --> 00:18:52,240 Speaker 5: adapt and adjust to the teriffs by potentially cutting workers. 390 00:18:52,240 --> 00:18:55,280 Speaker 5: That's what you're saying, not just raising prices and yet 391 00:18:55,359 --> 00:18:59,960 Speaker 5: continuing to report really good earnings, continuing to really deliver 392 00:19:00,320 --> 00:19:03,480 Speaker 5: and highlight the strength of the consumer. Can you square 393 00:19:03,520 --> 00:19:05,480 Speaker 5: that circle? I mean, how does that make sense? The 394 00:19:05,520 --> 00:19:08,280 Speaker 5: fact that the consumer are strong, layoffs are happening because 395 00:19:08,320 --> 00:19:10,800 Speaker 5: that's the way the companies are dealing with this. Uh, 396 00:19:10,880 --> 00:19:12,959 Speaker 5: and so that companies are profiting. At some point, does 397 00:19:13,000 --> 00:19:14,600 Speaker 5: that flywheel stop going? 398 00:19:16,480 --> 00:19:16,720 Speaker 3: Yeah? 399 00:19:16,760 --> 00:19:18,119 Speaker 7: Well, I mean, I think it gets back to your 400 00:19:18,160 --> 00:19:20,159 Speaker 7: point on the K shaped economy. So we see it 401 00:19:20,200 --> 00:19:22,520 Speaker 7: on the business side as well. I think the largest 402 00:19:22,560 --> 00:19:25,840 Speaker 7: businesses you know that you know that primarily make up 403 00:19:25,840 --> 00:19:28,199 Speaker 7: the S and P index for example. You know, I 404 00:19:28,200 --> 00:19:32,679 Speaker 7: think they're the relative beneficiaries of these various policies. So 405 00:19:32,720 --> 00:19:35,400 Speaker 7: you have pretty large tax cuts that was that were 406 00:19:35,440 --> 00:19:38,960 Speaker 7: also passed, and the one big beautiful bill that you 407 00:19:38,960 --> 00:19:42,640 Speaker 7: know that will benefit companies that are relatively capital intensive. 408 00:19:42,640 --> 00:19:45,040 Speaker 7: They do a lot of cabecs. They'll get upfront expensing 409 00:19:45,080 --> 00:19:47,520 Speaker 7: for all of that, you know. And if those companies, 410 00:19:47,800 --> 00:19:51,440 Speaker 7: you know, can offset those tax cuts, offset the tariff 411 00:19:51,760 --> 00:19:53,480 Speaker 7: tariffs that they now have to pay, they're in a 412 00:19:53,520 --> 00:19:54,360 Speaker 7: pretty good position. 413 00:19:54,640 --> 00:19:54,760 Speaker 3: You know. 414 00:19:54,800 --> 00:19:57,000 Speaker 7: The smaller and mid sized companies that maybe have less 415 00:19:57,359 --> 00:20:01,119 Speaker 7: capex will be in a worse off position. So, you know, 416 00:20:01,160 --> 00:20:03,040 Speaker 7: I think those are the companies right now that are 417 00:20:03,280 --> 00:20:07,320 Speaker 7: facing the most pressure. You know, the broader indices of 418 00:20:07,359 --> 00:20:10,200 Speaker 7: smaller companies like the Russell for example, it's not done 419 00:20:10,240 --> 00:20:12,920 Speaker 7: as well. Those equities have not done as well this year. 420 00:20:13,240 --> 00:20:15,879 Speaker 7: I think very reflective of that theme, you know, and 421 00:20:15,920 --> 00:20:18,600 Speaker 7: I think the real question for the broader economy is, 422 00:20:19,119 --> 00:20:21,280 Speaker 7: you know, is how you know, I would actually argue 423 00:20:21,280 --> 00:20:25,000 Speaker 7: we're not seeing a huge amount of layoffs yet. What 424 00:20:25,000 --> 00:20:28,560 Speaker 7: we've seen instead is that the gross hiring rates have declined, 425 00:20:29,200 --> 00:20:32,679 Speaker 7: you know, very tremendously. So the question in our minds is, 426 00:20:32,720 --> 00:20:35,760 Speaker 7: you know, how how how are these struggling businesses, how 427 00:20:35,800 --> 00:20:39,040 Speaker 7: how much will they lay off labor over the coming months, 428 00:20:39,480 --> 00:20:41,760 Speaker 7: you know, and will that cool off the broader economy. 429 00:20:42,000 --> 00:20:45,040 Speaker 1: So today, can you see Fed officials arguing that instead 430 00:20:45,040 --> 00:20:49,760 Speaker 1: of tariff induced inflation, we can have labor market weakness 431 00:20:49,960 --> 00:20:53,240 Speaker 1: that's tiff induced. And shouldn't those that are concerned about 432 00:20:53,280 --> 00:20:55,879 Speaker 1: the tariffs actually be on board with now wanting to 433 00:20:55,880 --> 00:20:56,439 Speaker 1: cut rates. 434 00:20:58,280 --> 00:21:00,840 Speaker 7: Yeah, I mean, I certainly think that is that's the 435 00:21:00,920 --> 00:21:03,679 Speaker 7: argument that we're making, and I think that as you 436 00:21:03,720 --> 00:21:06,720 Speaker 7: get more data that you will see more and more 437 00:21:06,760 --> 00:21:09,520 Speaker 7: Federal Reserve officials coming around to that argument as well. 438 00:21:10,040 --> 00:21:12,800 Speaker 7: I think Mary Daily in recent public comments, has made 439 00:21:12,840 --> 00:21:16,200 Speaker 7: that data. Of course, Christopher Waller, Governor Waller has also 440 00:21:16,320 --> 00:21:19,320 Speaker 7: come out with some pretty big concerns about the labor market. 441 00:21:19,760 --> 00:21:22,640 Speaker 7: So I think that, Yeah, certainly, as we get more 442 00:21:22,680 --> 00:21:26,720 Speaker 7: information and you have more certainty within the FOMC, you know, 443 00:21:26,760 --> 00:21:29,359 Speaker 7: we think they cut interest rates, you know, a couple 444 00:21:29,359 --> 00:21:32,119 Speaker 7: of more times this year as a result of that. Now, 445 00:21:32,119 --> 00:21:34,439 Speaker 7: of course, the government shutdown, the fact that we aren't 446 00:21:34,480 --> 00:21:37,240 Speaker 7: going to get potentially aren't going to get data releases 447 00:21:37,359 --> 00:21:39,920 Speaker 7: or the data quality could be poorer over the next 448 00:21:40,000 --> 00:21:43,119 Speaker 7: couple of months before we go into the November meeting 449 00:21:43,160 --> 00:21:45,919 Speaker 7: could be problematic, you know, but again, of course the 450 00:21:46,080 --> 00:21:48,640 Speaker 7: ADP data that we've gotten, some of the other private 451 00:21:48,680 --> 00:21:51,399 Speaker 7: sources of data will be more important, and that's what 452 00:21:51,400 --> 00:21:52,480 Speaker 7: they'll be using. 453 00:21:52,600 --> 00:21:55,280 Speaker 1: Besides the fact that we're not going to get economic releases. 454 00:21:55,520 --> 00:21:57,560 Speaker 1: How concerned are you about the government shutdown? 455 00:21:59,520 --> 00:22:02,800 Speaker 7: Well, I mean, traditionally government shutdowns have just a temporary 456 00:22:02,840 --> 00:22:07,800 Speaker 7: effect on the economy. The you know, the workers that 457 00:22:08,200 --> 00:22:12,280 Speaker 7: are furloughed or that aren't paid Ultimately when the government 458 00:22:12,359 --> 00:22:15,720 Speaker 7: opens will get back pay. So this is usually just 459 00:22:15,800 --> 00:22:19,560 Speaker 7: a temporary effect, you know. Now it's possible that we 460 00:22:19,560 --> 00:22:22,320 Speaker 7: could have a longer shutdown. We would argue that the 461 00:22:22,320 --> 00:22:26,080 Speaker 7: effects start to get nonlinear after you get workers, contract 462 00:22:26,080 --> 00:22:28,760 Speaker 7: workers and government workers that start to miss a couple 463 00:22:28,800 --> 00:22:32,720 Speaker 7: of paychecks. I think one paycheck probably okay, but as 464 00:22:32,760 --> 00:22:34,439 Speaker 7: you get more that are missed than that's when you 465 00:22:34,480 --> 00:22:37,520 Speaker 7: start to see a bigger impact on consumption. The other 466 00:22:37,600 --> 00:22:39,840 Speaker 7: thing is is that there could be permitting delays. You know, 467 00:22:39,880 --> 00:22:43,480 Speaker 7: the government you know, does you know, does does give 468 00:22:43,520 --> 00:22:47,000 Speaker 7: out permits for investment, and the longer that those kinds 469 00:22:47,040 --> 00:22:49,120 Speaker 7: of services are shut down, you know, you could see 470 00:22:49,119 --> 00:22:51,920 Speaker 7: some delays in investment as well, so you know, ultimately 471 00:22:52,000 --> 00:22:54,760 Speaker 7: this this can get larger as time goes on. I 472 00:22:54,800 --> 00:22:57,840 Speaker 7: think the largest government shut down historically has been, you know. 473 00:22:57,760 --> 00:22:58,840 Speaker 3: Maybe a couple of weeks. 474 00:22:59,480 --> 00:23:02,120 Speaker 7: We hope that the case again, but as of now, 475 00:23:02,119 --> 00:23:04,600 Speaker 7: we think this is a temporary issue, but certainly we're 476 00:23:04,640 --> 00:23:05,960 Speaker 7: monitoring the situation. 477 00:23:07,280 --> 00:23:07,920 Speaker 3: Stay with us. 478 00:23:08,240 --> 00:23:20,280 Speaker 2: More Bloomberg surveillance coming up after this. Let's stay on 479 00:23:20,280 --> 00:23:23,760 Speaker 2: the trade story. The President Steve Tarris on pharmaceuticals, heavy trucks, 480 00:23:23,800 --> 00:23:26,280 Speaker 2: and furniture going into effect today. Joining us now the 481 00:23:26,400 --> 00:23:29,000 Speaker 2: former White House trade official ca Calukuwitz Kate, welcome back 482 00:23:29,040 --> 00:23:31,960 Speaker 2: to the program. Let's think about this meeting, series of 483 00:23:31,960 --> 00:23:34,400 Speaker 2: meetings that take place in Asia over the next month 484 00:23:34,560 --> 00:23:36,600 Speaker 2: or so. How are you thinking about what can be 485 00:23:36,640 --> 00:23:37,959 Speaker 2: achieved on that trip. 486 00:23:38,920 --> 00:23:41,440 Speaker 8: Well, when I listen to the predictions of Ambassador Greer, 487 00:23:41,520 --> 00:23:44,280 Speaker 8: the US trade representative, I think I have to go 488 00:23:44,320 --> 00:23:47,919 Speaker 8: on the side of these are deals with other Asian economies, 489 00:23:48,240 --> 00:23:51,320 Speaker 8: probably not China, and I think if you remember back 490 00:23:51,320 --> 00:23:54,600 Speaker 8: to Liberation Day, some of the highest heriffs were handed 491 00:23:54,640 --> 00:23:57,760 Speaker 8: out to economies in Asia, and I think those countries, 492 00:23:58,320 --> 00:24:01,640 Speaker 8: particularly the ones that have not gotten framework agreements yet, 493 00:24:01,680 --> 00:24:04,800 Speaker 8: are still very anxious to hammer out some sort of deal. 494 00:24:05,119 --> 00:24:07,399 Speaker 5: Kate, does the US need to present some sort of 495 00:24:07,680 --> 00:24:11,240 Speaker 5: larger framework for its relationship with China as part of 496 00:24:11,359 --> 00:24:14,359 Speaker 5: these trade deals with in particular Southeast Asia. 497 00:24:15,320 --> 00:24:16,800 Speaker 3: Well, it's an interesting question. 498 00:24:16,840 --> 00:24:19,199 Speaker 8: I mean, I think what we've seen, of course, is 499 00:24:19,800 --> 00:24:22,960 Speaker 8: the agreements that Trump administration has struck so far have 500 00:24:23,080 --> 00:24:27,680 Speaker 8: included provisions directed at China. So some sort of framework, 501 00:24:27,720 --> 00:24:32,439 Speaker 8: a global framework, if you will, around shared objectives toward China, 502 00:24:32,520 --> 00:24:36,120 Speaker 8: higher tariffs, provisions that try to cut down on transhipment, 503 00:24:36,640 --> 00:24:40,800 Speaker 8: economic security. This is the language they use when encouraging 504 00:24:40,920 --> 00:24:44,720 Speaker 8: trading partners to adopt similar measures to China. Now, what 505 00:24:44,760 --> 00:24:49,120 Speaker 8: that means for the bilateral with China remains a bit unseen. 506 00:24:49,240 --> 00:24:51,480 Speaker 5: At this point, though, Kate, do you get some sort 507 00:24:51,520 --> 00:24:55,240 Speaker 5: of cohesive sense of the relationship that the US wants 508 00:24:55,359 --> 00:24:58,680 Speaker 5: both with China as well as with Southeast Asia, which 509 00:24:58,720 --> 00:25:00,720 Speaker 5: makes a lot of goods for the United States and 510 00:25:00,840 --> 00:25:03,679 Speaker 5: is frankly the basis of a lot of the fast 511 00:25:03,720 --> 00:25:06,000 Speaker 5: fashion and other retail brands in particular. 512 00:25:07,240 --> 00:25:10,560 Speaker 8: Well, the reality for most of those economies, of course, 513 00:25:10,640 --> 00:25:13,439 Speaker 8: is that the United States wants us to buy less 514 00:25:13,640 --> 00:25:18,399 Speaker 8: from those economies, so Fast fashion, you know, furniture. We 515 00:25:18,440 --> 00:25:20,919 Speaker 8: saw some moves this week on furniture. This is very 516 00:25:20,960 --> 00:25:24,280 Speaker 8: impactful for that region. The President has been very clear 517 00:25:24,600 --> 00:25:27,080 Speaker 8: about what he wants, and that is more production in 518 00:25:27,119 --> 00:25:30,840 Speaker 8: the United States. So I think these agreements around the 519 00:25:30,960 --> 00:25:33,800 Speaker 8: edges will be on items we can't make here. Critical 520 00:25:33,840 --> 00:25:37,080 Speaker 8: minerals will be a focus, of course, with Taiwan trying 521 00:25:37,119 --> 00:25:42,240 Speaker 8: to incentivize more moves on semiconductors. The question about what 522 00:25:42,280 --> 00:25:45,359 Speaker 8: he wants with China, I think remains really questionable. We 523 00:25:45,440 --> 00:25:48,560 Speaker 8: don't know he wants a deal with China, of course, 524 00:25:48,880 --> 00:25:52,280 Speaker 8: but another comment that Ambassador Career made yesterday seemed to 525 00:25:52,359 --> 00:25:55,520 Speaker 8: signal a bit of a heightened posture, a threat that 526 00:25:55,560 --> 00:25:58,679 Speaker 8: tariffs could go back up after November tenth if we 527 00:25:58,720 --> 00:26:01,600 Speaker 8: don't continue to make progress. So I don't know that 528 00:26:01,640 --> 00:26:04,200 Speaker 8: we're getting closer to a bilateral deal with China. 529 00:26:04,320 --> 00:26:06,040 Speaker 1: So what's going to come out of this meeting between 530 00:26:06,080 --> 00:26:10,960 Speaker 1: President Trump and Shijipeg Because Trump says their meeting, yeah. 531 00:26:10,520 --> 00:26:13,000 Speaker 8: Well, look a meeting is not They're not going to 532 00:26:13,080 --> 00:26:16,680 Speaker 8: want to have that meeting result in heightened postures that 533 00:26:17,240 --> 00:26:20,719 Speaker 8: take us away from a deal in the future. President 534 00:26:20,720 --> 00:26:23,000 Speaker 8: Trump has been very clear he wants a deal with China, 535 00:26:23,119 --> 00:26:26,040 Speaker 8: so I think that both sides will find a way 536 00:26:26,440 --> 00:26:30,800 Speaker 8: to maintain the status quo. Both sides, though frankly, have 537 00:26:30,920 --> 00:26:34,800 Speaker 8: been increasing pressure. The Chinese themselves this week added new 538 00:26:34,840 --> 00:26:39,600 Speaker 8: provisions that will impact goods going to America. The United 539 00:26:39,640 --> 00:26:43,840 Speaker 8: States added lists that impact the way we sanction and 540 00:26:44,000 --> 00:26:47,400 Speaker 8: address foreign companies buying from China. So they're adding this 541 00:26:47,440 --> 00:26:50,159 Speaker 8: is what we've seen. I think they add leverage and 542 00:26:50,200 --> 00:26:54,280 Speaker 8: then they potentially negotiate that leverage away to keep the 543 00:26:54,320 --> 00:26:54,960 Speaker 8: status quo. 544 00:26:55,200 --> 00:26:57,440 Speaker 1: It's a great point. With all the tariffs coming out, 545 00:26:57,840 --> 00:27:00,480 Speaker 1: a lot was missed in terms of the US expanding 546 00:27:00,600 --> 00:27:03,680 Speaker 1: the export blacklist the entity list when it comes to China. 547 00:27:03,760 --> 00:27:07,640 Speaker 1: So do you expect more moves things like that before 548 00:27:07,720 --> 00:27:09,000 Speaker 1: Trump sits down with. 549 00:27:09,080 --> 00:27:13,480 Speaker 8: Shi Well, I think this is this repeat that we 550 00:27:13,840 --> 00:27:17,480 Speaker 8: have found ourselves in in this relationship. Until and unless 551 00:27:17,520 --> 00:27:21,080 Speaker 8: we can articulate a grand vision for the trade relationship 552 00:27:21,119 --> 00:27:23,879 Speaker 8: between the United States and China, I think we are 553 00:27:23,880 --> 00:27:27,000 Speaker 8: going to create these false pieces of leverage that can 554 00:27:27,040 --> 00:27:30,600 Speaker 8: then be negotiated back. So these are important moves that 555 00:27:30,640 --> 00:27:32,800 Speaker 8: are being made. The United States as well, in a 556 00:27:32,800 --> 00:27:37,480 Speaker 8: few weeks, will implement new tariffees on ships from China. 557 00:27:37,560 --> 00:27:38,879 Speaker 8: This will be very dramatic. 558 00:27:39,640 --> 00:27:40,880 Speaker 3: So these are all new. 559 00:27:40,720 --> 00:27:43,840 Speaker 8: Things that can be negotiated in advance of a November 560 00:27:43,880 --> 00:27:46,800 Speaker 8: tenth deal, while we retain everything else that's on the table. 561 00:27:47,119 --> 00:27:49,199 Speaker 1: Kate, just to give us more context, is that what 562 00:27:49,240 --> 00:27:52,159 Speaker 1: you think the H twenty chip reversal was about getting 563 00:27:52,240 --> 00:27:53,840 Speaker 1: leveraged to then just unwind it. 564 00:27:54,560 --> 00:27:56,760 Speaker 8: Well, I have to imagine that was part of it, 565 00:27:56,840 --> 00:28:00,280 Speaker 8: because the Chinese made, you know, a seemingly big deal 566 00:28:00,320 --> 00:28:03,119 Speaker 8: about getting access to that chip. The got access to 567 00:28:03,160 --> 00:28:05,080 Speaker 8: the chip, and then they turned around and said we 568 00:28:05,160 --> 00:28:07,000 Speaker 8: don't want it, and by the way, we're going to 569 00:28:07,000 --> 00:28:11,040 Speaker 8: take action against Ynvidia. It all seemed sort of a 570 00:28:11,080 --> 00:28:15,479 Speaker 8: false construct to me, so perhaps that was their intentional along. 571 00:28:16,960 --> 00:28:20,520 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 572 00:28:20,520 --> 00:28:24,080 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 573 00:28:24,200 --> 00:28:27,200 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 574 00:28:27,240 --> 00:28:30,960 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 575 00:28:31,000 --> 00:28:33,600 Speaker 2: anywhere else you listen, and as always on the Bloomberg 576 00:28:33,680 --> 00:28:35,560 Speaker 2: Terminal and the Bloomberg Business app.