WEBVTT - Bloomberg Surveillance TV: October 1st, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business app. 0:00:37.000 --> 0:00:37.680 So here's the latest. 0:00:37.680 --> 0:00:39.800 This this morning, the Senate failing to reach a deal 0:00:39.840 --> 0:00:43.000 to extend funding, plunging the US government into a shutdown, 0:00:43.040 --> 0:00:46.240 putting a slew of economic data in jeopardy. John Lieber 0:00:46.320 --> 0:00:48.199 of your Asia Group right in the following even a 0:00:48.280 --> 0:00:52.680 macro economically significant shutdown could have knock on effects that 0:00:52.800 --> 0:00:55.680 delayed data releases for the next several months. As federal 0:00:55.720 --> 0:00:58.640 workers get up to speed, John joins us now for more. John, 0:00:58.640 --> 0:01:00.520 Welcome to the program. I want to pick the language 0:01:00.520 --> 0:01:02.400 of the president there that last line. We can get 0:01:02.480 --> 0:01:04.840 rid of a lot of things we didn't want. Is 0:01:04.880 --> 0:01:06.520 this going to be a different kind of shutdown. 0:01:07.760 --> 0:01:09.959 Yeah, absolutely, I mean, I think the fact is that 0:01:10.000 --> 0:01:12.479 Trump is playing a different game, by a different set 0:01:12.520 --> 0:01:14.880 of rules than I think the Democrats on Capitol Hill 0:01:15.000 --> 0:01:17.479 are playing right now. And he's been playing that all year, 0:01:17.520 --> 0:01:20.520 and he's playing that for his entire political career. And 0:01:20.680 --> 0:01:23.520 I think that there's a lot of unpredictable effects that 0:01:23.560 --> 0:01:25.080 are going to come out of this shutdown that we 0:01:25.160 --> 0:01:28.280 haven't seen before. If you look at the pattern this year, 0:01:28.640 --> 0:01:33.120 it's that Congress's authority has been usurped or even eliminated 0:01:33.160 --> 0:01:35.840 in many cases when it comes to decisions about what 0:01:35.880 --> 0:01:39.240 the federal government's doing, who they're funding, whether or not 0:01:39.280 --> 0:01:43.480 they're laying off workers, or even closing entire divisions, and 0:01:43.560 --> 0:01:45.720 Congress has been helpless to stop it. So part of 0:01:45.720 --> 0:01:49.919 the reason the Democrats are behind this shutdown, are rallying 0:01:49.920 --> 0:01:51.960 behind the shutdown, is because they want to force the 0:01:52.000 --> 0:01:54.520 power of the purse back over to Congress. I don't 0:01:54.560 --> 0:01:56.600 think Trump cares. And again, he's playing a different game. 0:01:56.720 --> 0:01:59.840 He now has the power to choose who's essential who 0:01:59.880 --> 0:02:02.160 is and he's going to take that opportunity in a 0:02:02.160 --> 0:02:04.240 way I don't think we've ever seen in the United 0:02:04.280 --> 0:02:08.880 States before and deem the functions that he prioritizes as 0:02:09.000 --> 0:02:10.960 essential and then cut off the ones that he doesn't. 0:02:11.040 --> 0:02:14.760 So this is a very different type of shutdown than 0:02:14.800 --> 0:02:18.040 we've seen before, even the one that Trump oversaw in 0:02:18.080 --> 0:02:21.560 twenty eighteen and twenty nineteen. The government was partially funded then, 0:02:21.880 --> 0:02:24.880 so you had the core defense functions and other security 0:02:24.880 --> 0:02:28.200 functions had an authorization from Congress to keep spending money. 0:02:28.400 --> 0:02:30.960 Right now, nobody does. So Trump's in charge, and he 0:02:31.040 --> 0:02:34.160 will be in charge until the Congress agrees to reopen 0:02:34.160 --> 0:02:34.640 the government. 0:02:34.800 --> 0:02:38.079 Does this administration try to make furloughs actually permanent. 0:02:39.680 --> 0:02:41.160 It could try, I mean, I think that's the decision 0:02:41.160 --> 0:02:42.640 that's up to the courts. I mean, one of the 0:02:42.680 --> 0:02:45.840 interesting phenomenon so far this year is that the courts 0:02:45.880 --> 0:02:49.520 are offully slow, and the Trump administration could be pretty quick, 0:02:49.840 --> 0:02:52.880 so they could use this as an excuse to try 0:02:52.880 --> 0:02:55.680 to furlough more workers. You know, there's been some resistance 0:02:55.680 --> 0:02:59.080 to those furloughs, even within the cabinet agencies that are 0:02:59.120 --> 0:03:01.440 run by Trump appoint because they want the people to 0:03:01.480 --> 0:03:03.680 do the work they're supposed to do. But now they 0:03:03.680 --> 0:03:08.800 suddenly have an excuse and the Clearly the White House 0:03:09.040 --> 0:03:13.120 sees a political advantage in forcing more of these layoffs 0:03:13.200 --> 0:03:15.240 in order to bring Democrats back to the table, and 0:03:15.280 --> 0:03:15.840 I expect that. 0:03:15.800 --> 0:03:18.400 They're going to use it well, John, three Democrats already 0:03:18.400 --> 0:03:20.120 back at the table last night in the sense that 0:03:20.160 --> 0:03:23.880 they voted for the Republican clean cr They only need 0:03:23.919 --> 0:03:27.360 to get five more Democrats to then reopen the government 0:03:27.440 --> 0:03:29.920 and keep it funding to the end of November. Do 0:03:30.000 --> 0:03:33.239 you think that Schumer is losing the moderate wing and 0:03:33.280 --> 0:03:34.920 potentially this is going to be a short shutdown. 0:03:35.760 --> 0:03:38.400 It could be. I mean, you know your base rate here. 0:03:38.520 --> 0:03:41.080 Your expectation should be that this is a relatively short shutdown, 0:03:41.800 --> 0:03:43.960 you know, because of these political pressures on members of 0:03:44.000 --> 0:03:46.880 Congress who don't want to see this happen. And the 0:03:46.920 --> 0:03:48.800 only thing you need is exactly what you said, You 0:03:48.880 --> 0:03:52.200 need seven Democrats to say we've had enough. We already 0:03:52.240 --> 0:03:55.800 know the universe. Of those seven Democrats, they're the ones 0:03:55.840 --> 0:03:58.480 that voted to end to open keep the government open 0:03:59.360 --> 0:04:02.400 this spring. And you mentioned Schumer. He's the one who's 0:04:02.480 --> 0:04:05.360 under the most pressure because he took just withering criticism 0:04:05.640 --> 0:04:08.240 for his decision to keep the government opened. But the 0:04:08.280 --> 0:04:10.040 fact and He's under a lot of pressure from the 0:04:10.080 --> 0:04:13.920 Democratic base to regain leverage over President Trump, leverage that 0:04:13.960 --> 0:04:16.640 simply doesn't exist through Congress right now. And so I 0:04:16.680 --> 0:04:19.840 think that he's in a really tough spot. Those other Democrats. 0:04:19.880 --> 0:04:22.400 I think this is an easier calculation. People like John 0:04:22.440 --> 0:04:25.280 Fetterman from Pennsylvania see that this is a tough thing 0:04:25.320 --> 0:04:27.760 for the Democrats to win, and over the next week 0:04:27.920 --> 0:04:30.080 or so, I expect those numbers are going to grow, 0:04:30.279 --> 0:04:32.800 and you know that will help to end this shutdown, 0:04:32.920 --> 0:04:34.200 probably sooner rather than later. 0:04:34.320 --> 0:04:36.280 That actually is exactly where I wanted to go John, 0:04:36.279 --> 0:04:39.039 this idea of in March what happened to Chuck Schumer 0:04:39.320 --> 0:04:42.560 when he what a lot of people, Democrats in particular, said, 0:04:42.680 --> 0:04:45.880 a cave to the Republican demands to keep the to 0:04:46.000 --> 0:04:49.800 keep the government open. Is this just performative to avoid that, 0:04:49.920 --> 0:04:53.400 to placate a certain side of the Democratic base. Is 0:04:53.400 --> 0:04:55.799 that how it's being read, at least in polls. 0:04:56.520 --> 0:04:58.039 Yeah, I mean, I think he's in a tough spot, 0:04:58.200 --> 0:04:59.760 and you know, I feel bad for the guy. There's 0:04:59.800 --> 0:05:01.520 no way to win this thing. Like he's got to 0:05:01.600 --> 0:05:03.920 keep his eye on the Democratic members who elected him 0:05:03.920 --> 0:05:05.520 to be leader. He's got to keep his eye on 0:05:05.520 --> 0:05:08.000 the Democratic voters who elected him to his Senate seat, 0:05:08.279 --> 0:05:11.480 and they problem, the fundamental problem for the Democrats right 0:05:11.520 --> 0:05:14.080 now is they don't have a strategy to push back 0:05:14.120 --> 0:05:16.919 on Trump. That they've been unable to land any punches, 0:05:17.040 --> 0:05:20.080 and they've been unable to draw any blood. His popularity 0:05:20.440 --> 0:05:23.760 is reasonably high for President Trump. He's hovering around the 0:05:23.800 --> 0:05:26.159 mid to low forties, which is much better than he 0:05:26.240 --> 0:05:28.760 was doing and is the entirety of his first term. 0:05:29.040 --> 0:05:32.039 And he's doing all kinds of controversial stuff that the 0:05:32.040 --> 0:05:35.400 Democrats hate, and they can't articulate the case against him. 0:05:35.520 --> 0:05:37.839 And until they figure out how to do that, Schumer 0:05:37.880 --> 0:05:39.840 and the other leadership are going to be looking for 0:05:40.040 --> 0:05:43.159 things like this that allow them to kind of shore 0:05:43.240 --> 0:05:46.080 up their base on the left and placate them a 0:05:46.080 --> 0:05:48.599 little bit and try to land these punches that so 0:05:48.640 --> 0:05:50.400 far they've been unable to do. I think this is 0:05:50.440 --> 0:05:51.480 a prime example of that. 0:05:51.760 --> 0:05:54.400 John. The markets flags they don't care, Do voters care. 0:05:54.600 --> 0:05:56.960 Has there been anything in the voting or the polling 0:05:57.000 --> 0:05:59.919 that shows that this is swaying the needle in any capacity? 0:06:00.640 --> 0:06:04.440 I suspect at some point the chaos will be enough 0:06:04.560 --> 0:06:06.159 and people will say, you know what, we don't like 0:06:06.200 --> 0:06:08.840 either of these jerks that are causing all these big problems. 0:06:08.839 --> 0:06:10.240 That's kind of where I think this ends up in 0:06:10.240 --> 0:06:12.440 the polling. I don't think it necessarily falls in the 0:06:12.520 --> 0:06:15.200 Republicans or Donald Trump. I don't think it necessarily falls 0:06:15.200 --> 0:06:18.559 in the Democrats. Maybe the president takes more responsibility because 0:06:18.600 --> 0:06:22.440 he's the executive executive. But you know, if you look 0:06:22.440 --> 0:06:24.760 at the elections, there's no evidence of these shutdowns, as 0:06:24.760 --> 0:06:27.120 we talked about last week, there's no evidence that these 0:06:27.160 --> 0:06:31.600 shutdowns make any difference in the elections whatsoever. In twenty thirteen, 0:06:31.640 --> 0:06:35.000 the Republicans were solely responsible for at the time a 0:06:35.080 --> 0:06:38.440 very long shutdown over Obamacare, and in twenty fourteen they 0:06:38.560 --> 0:06:40.720 won back a majority in the Senate. So there's just 0:06:40.720 --> 0:06:44.480 no evidence that this has lasting political effects. I think 0:06:44.520 --> 0:06:47.280 it could be a drag on the overall approval rating 0:06:47.400 --> 0:06:50.360 of lawmakers Washington. But I don't think either side is 0:06:50.400 --> 0:06:52.680 going to win or stands a lot to lose here, John, 0:06:52.720 --> 0:06:53.120 do you think it. 0:06:53.120 --> 0:06:55.400 Is time for new dataship in the Democratic body? 0:06:57.000 --> 0:06:58.599 Probably? I mean, I don't think there's anything. You know, 0:06:58.720 --> 0:07:01.160 I think that being a leader a tough tough job. 0:07:01.320 --> 0:07:03.359 I think it's a hard thing to do. They have 0:07:03.400 --> 0:07:05.640 a new leader in the House, and he's doing his best. 0:07:06.040 --> 0:07:08.720 I think in the Senate. You know, I wouldn't cast 0:07:08.720 --> 0:07:10.280 this persions on these guys. I used to work for 0:07:10.600 --> 0:07:13.560 the minority leader in the Senate and for the Republicans, 0:07:13.720 --> 0:07:15.520 and it's a tough job. It's a tough job keeping 0:07:15.520 --> 0:07:18.360 everybody happy. But you know, there again, the Democrats are 0:07:18.360 --> 0:07:21.040 not articulating the case against Trump, and their leadership is 0:07:21.080 --> 0:07:23.520 not helping them do that. So I think looking to 0:07:23.640 --> 0:07:26.720 Congress for your leadership right now is a mistake. And 0:07:26.760 --> 0:07:29.440 if I were the Democrats thinking about the next leader 0:07:29.480 --> 0:07:31.880 of the party who's going to be running for president, 0:07:32.000 --> 0:07:34.040 I'd be looking out to the states, to the governors, 0:07:34.240 --> 0:07:36.760 to people that aren't currently playing on the national stage. 0:07:36.800 --> 0:07:38.800 And the way Schumer is now, Schumer's got to do 0:07:39.160 --> 0:07:41.720 his own tough job managing his own caucus and playing 0:07:41.800 --> 0:07:44.960 the inside Washington game. And then these governors that are 0:07:44.960 --> 0:07:46.680 out in the states are the ones who I think 0:07:46.680 --> 0:07:49.040 will be the more effective messengers against Trump. 0:07:49.080 --> 0:07:53.280 Eventually stay with US Multpleinberg surveillance coming up after this, 0:08:02.280 --> 0:08:04.000 And if you were concerned about the step down in 0:08:04.040 --> 0:08:06.760 payrolls growth. I think that's more feel for concern off 0:08:06.800 --> 0:08:07.640 the back of that report. 0:08:07.760 --> 0:08:10.080 Yeah, at this point, we're looking at a ninety five 0:08:10.120 --> 0:08:12.280 percent chance that the FED is going to cut rates 0:08:12.480 --> 0:08:16.559 at the October twenty ninth meeting in at Washington, DC 0:08:16.800 --> 0:08:19.520 on the backs of this report. You also just saw 0:08:19.680 --> 0:08:22.720 the lowest reading on this ADP print going back to 0:08:22.840 --> 0:08:26.880 March of twenty twenty three, so definitely signaling some weakness. 0:08:27.000 --> 0:08:29.560 And essentially this gives ammunition to those you are saying 0:08:30.280 --> 0:08:33.520 the risk management tool here is catering to the labor market, 0:08:33.720 --> 0:08:36.080 not necessarily trying to tackle inflation. 0:08:36.280 --> 0:08:38.600 Greg Daka of VY is with a surround a table 0:08:38.640 --> 0:08:41.079 corrected morning, Good morning, this is all we've got. How 0:08:41.160 --> 0:08:44.000 useful is this number and what are the limitations around it? 0:08:44.120 --> 0:08:45.880 Well, I think it's useful in the sense that we 0:08:45.880 --> 0:08:48.440 don't have anything else. I would push back a little 0:08:48.480 --> 0:08:50.920 bit on the notion that the ADP is necessarily the 0:08:50.920 --> 0:08:54.040 best gauge of BLS reports when it comes to employment 0:08:54.080 --> 0:08:56.600 because it's just focused on the private sector. 0:08:57.120 --> 0:08:58.080 It also does not. 0:08:58.000 --> 0:09:00.160 Include all the details that we get out of the 0:09:00.200 --> 0:09:03.040 employment report, so it is a good reading in terms 0:09:03.040 --> 0:09:05.800 of having a perspective on the labor market, but it 0:09:05.920 --> 0:09:09.000 excludes some important parts of the labor market, including the 0:09:09.040 --> 0:09:12.640 public sector, where we're anticipating some further losses both at 0:09:12.679 --> 0:09:15.040 the federal level but also at the state and local 0:09:15.120 --> 0:09:17.720 level as we start the new year with less funding 0:09:17.760 --> 0:09:20.040 for many state and local governments. So I think the 0:09:20.120 --> 0:09:23.600 weakness is apparent in terms of labor demand in the 0:09:23.679 --> 0:09:27.080 labor market more broadly, whether you look at continuing claims 0:09:27.080 --> 0:09:30.760 for unemployment, whether you look at yesterday's data on job flows, 0:09:30.800 --> 0:09:33.560 the JOLT report showing the hiring rate and the quits 0:09:33.640 --> 0:09:35.960 rate at a ten year low, not just a few 0:09:35.960 --> 0:09:38.320 months low, but a ten year low, showing there's very 0:09:38.320 --> 0:09:41.720 little flow in the labor market. There is underlying softness 0:09:41.760 --> 0:09:44.920 in the labor demand components, and the labor supply, of 0:09:44.920 --> 0:09:48.080 course has been tremendously affected by the reduction and immigration. 0:09:48.160 --> 0:09:48.880 So it's a combo. 0:09:49.080 --> 0:09:52.560 But I think labor demand is weaker than labor supply 0:09:52.559 --> 0:09:53.240 at this juncture. 0:09:53.280 --> 0:09:55.240 Are you saying that we've been sort of in this 0:09:55.360 --> 0:09:58.240 stasis slow higher low fire range for a while and 0:09:58.280 --> 0:10:01.040 now we're actually seeing the labor ma market break to 0:10:01.080 --> 0:10:01.880 the downside. 0:10:02.160 --> 0:10:04.800 I think there are certainly risks to that the low 0:10:04.880 --> 0:10:07.360 higher low fire environment is not sustainable. 0:10:07.360 --> 0:10:08.760 It's an uncomfortable balance. 0:10:08.800 --> 0:10:11.199 You rarely stay in that balance for a prolonged period 0:10:11.200 --> 0:10:14.120 of time because either one of two things happens. Either 0:10:14.280 --> 0:10:17.400 you see employers starting to hire more that's the good story, 0:10:17.440 --> 0:10:21.080 that's positive story, or you see more layoffs because essentially 0:10:21.160 --> 0:10:23.840 there's a desire to manage costs. And let's not forget 0:10:23.880 --> 0:10:26.000 we are still in the midst of an environment where 0:10:26.040 --> 0:10:29.360 there are a number of supply shocks affecting the economy. 0:10:29.640 --> 0:10:29.760 Too. 0:10:29.840 --> 0:10:32.480 Many people are still reading the economy as if if 0:10:32.480 --> 0:10:35.320 we're guided by demand shocks. This is not the case. 0:10:35.600 --> 0:10:40.080 Supply shocks are increasingly important. Whether it's tariffs and trade disruptions, 0:10:40.320 --> 0:10:45.240 immigration disruptions, energy disruptions, capital disruptions, all of those factors 0:10:45.280 --> 0:10:48.560 are affecting economic trends in a way that we haven't 0:10:48.600 --> 0:10:52.360 seen before. Think of technological shifts as well, ai a big, 0:10:52.400 --> 0:10:55.720 big shock to the economy. We're not reading the economy 0:10:55.760 --> 0:10:58.560 in the proper way, and that's why many people are 0:10:58.720 --> 0:11:01.960 confused about the economic signals. The mixed signals are the 0:11:02.040 --> 0:11:05.920 reflection of an economy that is impacted by a significant 0:11:05.960 --> 0:11:06.920 number of supply shocks. 0:11:06.960 --> 0:11:09.960 Yeah, and essentially this is an economy and dramatic transformation. 0:11:10.280 --> 0:11:12.520 I just wonder how you square the idea of profits 0:11:12.559 --> 0:11:16.360 growing across Wall Street, across a lot of corporate America 0:11:16.400 --> 0:11:18.160 at the same time that we see this low higher 0:11:18.200 --> 0:11:20.800 low fire dynamic potentially breaking to the downside. 0:11:20.840 --> 0:11:24.680 Because everybody's taking about the consumer, about the market, about 0:11:24.760 --> 0:11:27.360 the business environment. It's not like that there is a 0:11:27.400 --> 0:11:31.880 tremendous degree of polarization across businesses, across consumers, across the 0:11:31.960 --> 0:11:34.720 economy when it comes to how these shocks are affecting 0:11:35.000 --> 0:11:38.040 different actors in the economy. Take tariffs. Tariffs are not 0:11:38.080 --> 0:11:40.679 affecting everyone in the same way. Those that are very 0:11:40.720 --> 0:11:44.200 price sensitive are seeing the prices a grocery stores rising, 0:11:44.520 --> 0:11:48.400 and they're pulling back on demand. They're seeing retail costs 0:11:48.440 --> 0:11:50.959 also rising. They're pulling back. Those that are at the 0:11:51.040 --> 0:11:53.720 higher end of the income spectrum, they're less concerned about 0:11:53.720 --> 0:11:56.280 an increase for a price ticket to go somewhere, to 0:11:56.320 --> 0:11:59.800 fly somewhere on vacation, but they're also gradually being more 0:12:00.520 --> 0:12:03.120 And the same applies to businesses, not all businesses, not 0:12:03.200 --> 0:12:04.680 all sectors are created. 0:12:04.360 --> 0:12:06.240 Equal in the face of this supply shock. 0:12:06.480 --> 0:12:09.679 If you're more heavily leaning towards the tech sector, then 0:12:09.720 --> 0:12:12.360 you're going to be benefiting from this AI boost. If 0:12:12.360 --> 0:12:15.720 you're a big corporation that is investing in AI, you're 0:12:15.760 --> 0:12:18.040 also going to be investing more in capex. We're seeing 0:12:18.080 --> 0:12:20.440 that in the GDP data. So it really depends on 0:12:20.480 --> 0:12:22.760 where you law on the spectrum of the economy and 0:12:22.840 --> 0:12:24.480 how exposed you are to these shocks. 0:12:24.640 --> 0:12:26.920 Rag what if we get a prolonged government shutdown and 0:12:26.960 --> 0:12:28.560 this is all the FED has to go off of. 0:12:29.200 --> 0:12:31.280 Unfortunately, this is not the best time to have a 0:12:31.280 --> 0:12:34.320 government shutdown. Of course, there is the immediate effect of 0:12:34.440 --> 0:12:37.640 essentially eight hundred thousand federal workers not being paid and 0:12:37.679 --> 0:12:41.000 being put on furlough that can have a notable impact 0:12:41.040 --> 0:12:43.520 on the economy. We estimate a drag of about a 0:12:43.600 --> 0:12:46.680 tenth of GDP growth for every week of government shutdown. 0:12:47.080 --> 0:12:51.120 But importantly, for business leaders, policy makers, and economists, this 0:12:51.240 --> 0:12:55.200 means we're flying blind in a highly foggy environment, and 0:12:55.280 --> 0:12:56.160 this is very risky. 0:12:56.280 --> 0:13:00.319 Can we get a shutdown induced recession in some pockets 0:13:00.400 --> 0:13:01.440 of the US economy? 0:13:02.040 --> 0:13:05.079 Perhaps in some pockets of the economy, but not necessarily. 0:13:05.120 --> 0:13:08.560 Broadly speaking, this is not significant enough to really bring 0:13:08.640 --> 0:13:10.960 the economy to its nees when it comes to a 0:13:11.000 --> 0:13:13.880 potential recession. But we are seeing some sectors that are 0:13:13.920 --> 0:13:17.800 seeing outsized declines in terms of economic activity. You look 0:13:17.840 --> 0:13:20.200 at the housing sector, for instance, a sector that is 0:13:20.320 --> 0:13:25.120 also hit by insufficient supply, but increasingly by the drag 0:13:25.200 --> 0:13:28.400 of demand from a low affordability environment. If you start 0:13:28.440 --> 0:13:31.839 to see more segments of the economy affected negatively by 0:13:31.880 --> 0:13:35.040 government shutdown, think about the area around DC, think about 0:13:35.080 --> 0:13:38.360 contractors that depend on federal funding. Then that could put 0:13:38.360 --> 0:13:41.680 further downward pressure on a housing market that is already struggling. 0:13:41.720 --> 0:13:45.360 So regionally and sectorally you could have these pressures that 0:13:45.400 --> 0:13:48.680 are outsized and that way on economic activity, not a 0:13:48.679 --> 0:13:51.960 broad based recession, but a more pronounced slowdown and potentially 0:13:51.960 --> 0:13:54.440 a contraction in some sectors some regions of the country. 0:13:54.520 --> 0:13:56.360 If you actually John, I guess, welcome to the program. 0:13:56.400 --> 0:13:58.520 Just mymusica of the ADEPA report, of course, tanking on 0:13:58.559 --> 0:14:00.640 additional importance this way, because we might not get The 0:14:00.640 --> 0:14:04.200 payrolls report this Friday came in at negative thirty two K. 0:14:04.640 --> 0:14:07.160 Negative thirty two k We were looking for fifty one 0:14:07.240 --> 0:14:08.640 thousand in our survey. 0:14:08.720 --> 0:14:09.840 That was the media estimate. 0:14:10.080 --> 0:14:12.840 A revision to the previous month as well, that was 0:14:12.920 --> 0:14:16.199 fifty four. It's now negative three. Greg just got this 0:14:16.280 --> 0:14:19.200 question from a Bloomberg subscriber. They said, the cyclists always 0:14:19.240 --> 0:14:23.480 stop spending, stop hiring, then stop firing. And the question 0:14:23.560 --> 0:14:26.480 they've got is the natural progression always the same in 0:14:26.520 --> 0:14:27.200 a slowdown. 0:14:27.320 --> 0:14:28.840 Is it any different this time? 0:14:29.000 --> 0:14:31.000 I think it's very different this time around because we're 0:14:31.000 --> 0:14:34.720 affected by supply sharks. Supply side dynamics are very different 0:14:34.760 --> 0:14:37.040 this time around than they've been any time over the 0:14:37.120 --> 0:14:39.720 past few decades, and I think that's why you're seeing 0:14:39.800 --> 0:14:43.480 these unusual evolutions when it comes to the different sectors 0:14:43.480 --> 0:14:46.880 of the economy. We have rarely seen a loaf higher, 0:14:46.960 --> 0:14:50.600 low fire, or even no higher no fire type of environment. 0:14:51.080 --> 0:14:52.760 That is not a comfortable balance. 0:14:52.840 --> 0:14:55.880 Again, I think we are likely to see further weakness 0:14:55.920 --> 0:14:57.880 on the labor demand side that's going to weigh on 0:14:57.960 --> 0:14:59.040 economic momentum. 0:14:59.200 --> 0:15:00.880 One key in the that I watch. 0:15:01.240 --> 0:15:04.080 I know it's a lagging indicator, but it's income growth. 0:15:04.200 --> 0:15:06.440 If you look at real disposable income growth, it's only 0:15:06.520 --> 0:15:09.040 been growing at a two percent pace, consumer spending is 0:15:09.080 --> 0:15:12.480 still growing close to three percent at one point. The 0:15:12.600 --> 0:15:15.560 dip into savings is not going to be sufficient to 0:15:15.640 --> 0:15:20.840 sustain spending, and the majority or sorry, the minority of 0:15:20.920 --> 0:15:23.640 people that are still doing most of the spending cannot 0:15:23.680 --> 0:15:27.640 do so forever. The higher income individuals are also gradually 0:15:27.680 --> 0:15:31.680 being impacted by higher prices and importantly by higher interest rates. 0:15:31.760 --> 0:15:34.240 If there starts to be some volatility in the equity 0:15:34.240 --> 0:15:38.080 market because of a government shutdown or because of other developments, 0:15:38.200 --> 0:15:41.680 then that could weigh on these individuals' desires and potentially 0:15:41.760 --> 0:15:42.520 means to spend. 0:15:43.480 --> 0:15:57.080 Stay with us, mulplinbeg, Savanna's coming up off to this, Tiffany, 0:15:57.120 --> 0:15:59.720 want to get PIMCO join NAPA. Mall, Tiffany, welcome to 0:15:59.720 --> 0:16:01.800 the prim Let's say this is all we've got, and 0:16:01.840 --> 0:16:03.720 there's a lot still to play for in October. It's 0:16:03.720 --> 0:16:05.480 only just started. I've got no idea how long the 0:16:05.480 --> 0:16:07.360 shutdown goes on for. But let's say this is all 0:16:07.360 --> 0:16:09.960 we've got. Is there anything that would stop this fet 0:16:09.960 --> 0:16:12.360 A reserve from just kind of interest rights again at 0:16:12.400 --> 0:16:13.120 the end of the month. 0:16:15.520 --> 0:16:18.280 No, I mean so, I think clearly this ADP report 0:16:18.400 --> 0:16:21.320 was weak and I think digging through the details of it, 0:16:21.400 --> 0:16:24.960 you know, I think there's an interesting bifurcation in large 0:16:25.080 --> 0:16:28.560 versus small and medium business sizes. This has been something 0:16:28.600 --> 0:16:32.000 we've been very focused on because we think that this 0:16:32.080 --> 0:16:34.440 economy is basically creating winners and losers. 0:16:35.160 --> 0:16:36.080 The tariffs, the. 0:16:36.080 --> 0:16:41.160 Technology improvements that we're seeing, the various tax cuts, all 0:16:41.200 --> 0:16:44.880 of that we think is benefiting somewhat more larger companies 0:16:45.200 --> 0:16:48.200 and it's a really really challenging environment for those small 0:16:48.200 --> 0:16:51.680 and midsized businesses. And that's where you saw the you know, 0:16:51.760 --> 0:16:54.480 some more of the weakness. I think that in terms 0:16:54.480 --> 0:16:56.320 of the ADP report, can you know the fact that 0:16:56.360 --> 0:17:00.760 it contracted If you adjust the payroll survey, the government 0:17:00.880 --> 0:17:05.080 survey for the overestimation and that survey over recent years, 0:17:05.680 --> 0:17:07.720 you know, you can get to numbers that look like 0:17:07.760 --> 0:17:09.960 they were contractionary of the last three months as well. 0:17:10.000 --> 0:17:12.920 So I think these surveys are given a consistent signal 0:17:13.200 --> 0:17:15.960 that we are seeing some some more concerning weakness in 0:17:15.960 --> 0:17:16.679 the labor market. 0:17:16.840 --> 0:17:18.960 And so right now you're seeing priced into the market 0:17:19.440 --> 0:17:22.160 one hundred and one percent chance of a twenty five 0:17:22.160 --> 0:17:25.439 basis point rate cut at the October twenty ninth press 0:17:25.440 --> 0:17:28.760 conference and meeting, and then in December again almost one 0:17:28.880 --> 0:17:31.920 hundred percent chance eighty eight percent chance of another cut. 0:17:32.000 --> 0:17:34.800 I just wonder, Tiffany, is that the solution to what 0:17:34.960 --> 0:17:37.760 essentially is the K shaped economy that's getting to be 0:17:37.960 --> 0:17:38.879 an even bigger K. 0:17:41.560 --> 0:17:44.359 Yeah, I mean so I think that's right there, there is. 0:17:44.920 --> 0:17:47.800 You know, I think interest rate cuts as a result 0:17:47.800 --> 0:17:50.120 of the fact that the shock that we're going through 0:17:50.200 --> 0:17:52.879 right now is both a demand and supply side shock. 0:17:52.960 --> 0:17:56.520 Tariffs and both immigration will have supply side effects as well. 0:17:57.040 --> 0:17:59.720 You know, of course central bank policy is not well 0:17:59.800 --> 0:18:02.960 suit did to deal with supply shocks, but nevertheless, policy 0:18:03.000 --> 0:18:06.160 is in restrictive territory, and you know, I think when 0:18:06.200 --> 0:18:08.840 you're in an economy that is going through this type 0:18:08.840 --> 0:18:13.080 of transition, given the policy U turns, arguing that it's 0:18:13.119 --> 0:18:16.240 closer to neutral is certainly very reasonable. And I think 0:18:16.240 --> 0:18:18.399 the interesting thing that we're seeing, you know, since the 0:18:18.400 --> 0:18:22.000 implementation of tariffs, is that the adjustment that the economy 0:18:22.040 --> 0:18:26.320 is making to tariffs is not primarily through price adjustments, 0:18:26.720 --> 0:18:29.200 but it actually looks like it's happening through the labor 0:18:29.240 --> 0:18:32.520 market as well as companies are trying to cut labor 0:18:32.560 --> 0:18:34.879 and other costs. So that just means, you know, we 0:18:34.920 --> 0:18:37.560 think that means the funeral reserve has room to cut 0:18:37.600 --> 0:18:40.199 interest rates. Here are they still have rates that are 0:18:40.240 --> 0:18:43.760 above neutral getting back to that is very reasonable in 0:18:43.800 --> 0:18:46.200 our minds, given the weakness of the labor market we're seeing. 0:18:46.400 --> 0:18:49.200 This is really a strange moment where you're seeing companies 0:18:49.320 --> 0:18:52.240 adapt and adjust to the teriffs by potentially cutting workers. 0:18:52.240 --> 0:18:55.280 That's what you're saying, not just raising prices and yet 0:18:55.359 --> 0:18:59.960 continuing to report really good earnings, continuing to really deliver 0:19:00.320 --> 0:19:03.480 and highlight the strength of the consumer. Can you square 0:19:03.520 --> 0:19:05.480 that circle? I mean, how does that make sense? The 0:19:05.520 --> 0:19:08.280 fact that the consumer are strong, layoffs are happening because 0:19:08.320 --> 0:19:10.800 that's the way the companies are dealing with this. Uh, 0:19:10.880 --> 0:19:12.959 and so that companies are profiting. At some point, does 0:19:13.000 --> 0:19:14.600 that flywheel stop going? 0:19:16.480 --> 0:19:16.720 Yeah? 0:19:16.760 --> 0:19:18.119 Well, I mean, I think it gets back to your 0:19:18.160 --> 0:19:20.159 point on the K shaped economy. So we see it 0:19:20.200 --> 0:19:22.520