WEBVTT - Trump Says the Jobless Rate is Phony. Try These Stats Instead 0:00:00.080 --> 0:00:02.920 We're going to attempt to answer the question just how 0:00:02.960 --> 0:00:06.320 will we know from an economic standpoint if Trump is 0:00:06.360 --> 0:00:20.480 actually making America great again. It's Bloomberg Benchmark, a podcast 0:00:20.520 --> 0:00:24.280 about the global economy. I'm Scott Landman, an economics editor 0:00:24.320 --> 0:00:27.280 with Bloomberg News in Washington, and I'm coming to you 0:00:27.320 --> 0:00:30.320 by myself again today because Dan and Kate were unable 0:00:30.360 --> 0:00:33.959 to join us, but fortunately I have two esteemed colleagues 0:00:33.960 --> 0:00:36.800 with me today. Here in d C. Is Vince Gully, 0:00:36.880 --> 0:00:40.040 a fellow editor who's been covering the U S economy 0:00:40.120 --> 0:00:42.920 for two decades, and up in New York we have 0:00:43.040 --> 0:00:48.239 Carl Ricka Donna, who's chief US economist for Bloomberg Intelligence. Gentlemen, 0:00:48.240 --> 0:00:50.920 thanks for joining us today. My pleasure, glad to be 0:00:50.960 --> 0:00:54.720 here now. Often on Benchmark we dig up unusual facts 0:00:54.800 --> 0:00:57.560 or indicators to make a broader point about trends in 0:00:57.600 --> 0:01:01.520 economies around the world. Today we're going back to basics. 0:01:01.840 --> 0:01:05.000 It's our first show since Donald Trump took office as 0:01:05.160 --> 0:01:09.280 forty president of the United States, and since Benchmark is 0:01:09.319 --> 0:01:12.200 all about the economy and Trump has pledged to make 0:01:12.240 --> 0:01:15.240 America great again, We're going to attempt to answer the 0:01:15.360 --> 0:01:19.000 question just how will we know from an economic standpoint 0:01:19.240 --> 0:01:23.360 if Trump is actually making America great again. Now, the 0:01:23.400 --> 0:01:26.920 President has dismissed some traditional measures of the U. S economy, 0:01:27.240 --> 0:01:30.240 such as the main unemployment rate. He called that measure 0:01:30.319 --> 0:01:34.679 phony or fictional because he thinks it overestimates strength in 0:01:34.720 --> 0:01:37.680 the labor market. So we're going to run down some 0:01:37.840 --> 0:01:41.560 other economic indicators today. These are a bit more out 0:01:41.560 --> 0:01:44.600 of the mainstream, maybe a bit down in the weeds, 0:01:44.640 --> 0:01:46.880 but we think they'll show a good sense of the 0:01:46.880 --> 0:01:50.360 degree of the success of the Trump administration during the 0:01:50.400 --> 0:01:53.640 next four years. Uh So, obviously we're not going to 0:01:53.680 --> 0:01:57.400 talk about unemployment or GDP, and instead we'll give you 0:01:57.680 --> 0:02:00.400 first two ways of looking at the labor mark market, 0:02:00.800 --> 0:02:03.760 then two ways of looking at the health of corporate 0:02:03.800 --> 0:02:07.880 America and small businesses, and also one gauge of whether 0:02:07.920 --> 0:02:11.840 if Trump is fulfilling his pledge to bring factory jobs 0:02:11.880 --> 0:02:15.399 back to the US. So are you ready, guys, ready, 0:02:15.520 --> 0:02:18.440 let's go all right, So, without further ado, here are 0:02:18.440 --> 0:02:22.239 the first two. The first is called prime age labor 0:02:22.400 --> 0:02:27.320 force participation. Now translate into English from Ecano speak, we 0:02:27.360 --> 0:02:30.000 can say that is people in the peak of their 0:02:30.080 --> 0:02:34.399 working years who have a job or are looking for one, 0:02:34.800 --> 0:02:37.440 and the second one would be full time workers as 0:02:37.480 --> 0:02:40.800 a percentage of the labor force. That refers to people 0:02:40.840 --> 0:02:43.480 who have a full time job as a share of 0:02:43.600 --> 0:02:47.480 everybody who has a job or is looking for work. Vince, 0:02:47.560 --> 0:02:50.360 let me go to you first. Why are these good 0:02:50.400 --> 0:02:54.560 gauges of both the economy and for Trump schools? Well, 0:02:54.600 --> 0:02:57.640 Scott Um. Probably in the simplest terms, I'd say that 0:02:57.720 --> 0:03:02.359 it boils down to potential. UM. People in this twenty 0:03:02.480 --> 0:03:06.000 five to fifty four age bracket working a full week 0:03:06.600 --> 0:03:10.959 have the best potential to gain work experience, UM, secure 0:03:11.000 --> 0:03:15.400 better benefit packages like healthcare and four win K plans 0:03:15.520 --> 0:03:20.800 that allow them to prepare for retirement. And perhaps most importantly, 0:03:20.880 --> 0:03:24.800 they have greater earnings potential and they have the ability 0:03:24.840 --> 0:03:28.639 to grow their earnings earn more, which contrasts with UH, 0:03:28.720 --> 0:03:31.880 say teenagers who are more likely to work for minimum wage. 0:03:32.639 --> 0:03:36.800 And the reason this is important is that, UM, these 0:03:36.840 --> 0:03:40.400 are the folks who are most likely to spend, and 0:03:40.480 --> 0:03:43.480 they'll probably spend big, whether it's buying a new car 0:03:43.840 --> 0:03:47.520 or house or what have you. UM the more potential 0:03:47.560 --> 0:03:50.120 to earn a good living will allow them to spend 0:03:50.480 --> 0:03:53.560 and that in turn boost the economy and encourages more 0:03:53.640 --> 0:03:56.840 hiring and more spending, and you get this sort of 0:03:57.360 --> 0:04:01.120 virtual circle for the economy. Corrow, what's been going on 0:04:01.200 --> 0:04:05.839 with primate labor force participation in recent years and why 0:04:05.920 --> 0:04:09.720 is it cutting criticism from Trump and his team. Well, 0:04:09.800 --> 0:04:16.520 the participation rate goes through longer term structural fluctuations. So 0:04:16.600 --> 0:04:21.320 it climbed from the ninth late nineteen fifties up until 0:04:21.320 --> 0:04:25.080 about two thousand UH. This was partly a phenomenon of 0:04:25.120 --> 0:04:29.039 the baby boomers coming through the system. Also, while women 0:04:29.279 --> 0:04:35.320 entering the workforce in increasingly large UH proportions. About the 0:04:35.480 --> 0:04:40.279 time of two thousand UH, the participation rate peaked and 0:04:40.400 --> 0:04:44.279 began to decline. At the time of the two thousand 0:04:44.320 --> 0:04:47.359 and seven to two thousand and nine recession, the Great Recession, 0:04:48.000 --> 0:04:52.440 it actually accelerated the pace of decline UH. And so 0:04:52.480 --> 0:04:56.560 the question is how much of this UH is really 0:04:56.680 --> 0:05:00.480 due to long term structural trends in the economy. If 0:05:00.480 --> 0:05:03.080 we think of the baby boomers going through the system 0:05:03.200 --> 0:05:08.599 like that python that swallowed an egg or some large objects, 0:05:08.600 --> 0:05:13.480 so part of that is just an inevitable trend. But 0:05:13.520 --> 0:05:17.839 the question is, UH, this acceleration since the end of 0:05:17.839 --> 0:05:20.400 the Great Recession, and a lot of economists are wringing 0:05:20.440 --> 0:05:24.440 their hands saying there's no way to forecast labor participation 0:05:25.000 --> 0:05:27.560 and whatnot. And I think that if we take a 0:05:27.600 --> 0:05:31.360 step back and take a very straightforward, common sense approach, 0:05:31.920 --> 0:05:35.240 there is a way uh to actually model that out, 0:05:35.360 --> 0:05:38.520 at least to some degree. And we can do that 0:05:38.560 --> 0:05:42.960 by looking at economic conditions or getting back to the 0:05:43.160 --> 0:05:49.600 uh UH prior comment the prospects of earning a good living. UH. 0:05:49.640 --> 0:05:53.400 The health of the economy and strength of the economy 0:05:53.440 --> 0:05:57.640 impacts how much workers are moving off of the sidelines 0:05:57.680 --> 0:06:00.960 and into the economy. So over the past UH seven 0:06:01.279 --> 0:06:06.080 uh ten years, economic conditions have not been great. Wage 0:06:06.120 --> 0:06:09.760 stagnation has been a big problem, and the job prospects 0:06:09.760 --> 0:06:14.320 have not been particularly strong. UH. And this means that 0:06:14.400 --> 0:06:17.960 a lot of would be workers have remained on the 0:06:18.000 --> 0:06:23.160 sidelines UH and that has taken a toll on participation. Now, 0:06:23.520 --> 0:06:26.520 what Janet Yelling, Chair of the Federal Reserve, and UH 0:06:26.600 --> 0:06:30.600 some other economists also on the Open Markets Committee UH 0:06:30.800 --> 0:06:36.240 want to do is explore the potential of pursuing a 0:06:36.320 --> 0:06:40.080 high pressure economy, as she terms it, or as New 0:06:40.120 --> 0:06:43.400 York Fed President Bill Dudley mentions letting the economy run 0:06:43.440 --> 0:06:46.240 a bit hot. Uh, And what they mean by this 0:06:46.400 --> 0:06:50.240 is by letting the economy exceed its growth rate and 0:06:50.279 --> 0:06:54.160 being slow to push back with the monetary policy or 0:06:54.200 --> 0:06:58.279 interest rate policy. Uh, they can actually lead to a 0:06:58.360 --> 0:07:02.359 pickup in inflation and wage pressures, and that will coax 0:07:02.720 --> 0:07:07.039 folks off of the sidelines and possibly bend the trend 0:07:07.440 --> 0:07:11.280 uh in terms of declining labor force participation. Now, this 0:07:11.360 --> 0:07:15.480 is not something they completely can fix, but at the 0:07:15.520 --> 0:07:18.760 margin they can influence it. Now, how do you square 0:07:19.200 --> 0:07:22.840 the ability to get people off the sidelines, Say, if 0:07:23.240 --> 0:07:27.000 you know the Fed supports accommodative policy, or if trumpettacts 0:07:27.080 --> 0:07:30.240 fiscal stimulus with the idea that you know, I've read 0:07:30.240 --> 0:07:32.679 these articles about one. You know, some of the reasons 0:07:32.680 --> 0:07:37.080 why you have such a downturn and primate participation is 0:07:37.160 --> 0:07:42.520 because maybe the prevalence of drugs, people on pain medication. Uh, 0:07:43.320 --> 0:07:46.000 you know, men in their twenties and thirties playing too 0:07:46.000 --> 0:07:50.560 many video games. Is an improving economy enough to reverse 0:07:50.760 --> 0:07:55.040 trends that are maybe more baked into the economy at 0:07:55.120 --> 0:07:58.520 this point, I think an improving economy is a critical 0:07:58.600 --> 0:08:02.600 part of the picture Now, opioid addiction and a lot 0:08:02.640 --> 0:08:06.680 of other factors certainly do extend a toll. But if 0:08:06.720 --> 0:08:09.440 you're let's say, for example, you're sitting on your couch 0:08:09.880 --> 0:08:14.880 playing video games or watching movies UH and collecting maybe 0:08:14.920 --> 0:08:18.160 an unemployment check or maybe a welfare check or disability 0:08:18.200 --> 0:08:22.120 payment UH, and suddenly you see your your your neighbor 0:08:22.160 --> 0:08:25.040 across the street is buying a new car or renovating 0:08:25.040 --> 0:08:28.960 their home or taking a nice vacation. UH. That type 0:08:29.000 --> 0:08:32.160 of UH, for lack of a better term, envy UH 0:08:32.200 --> 0:08:36.319 coaxes people to say, well, the welfare check is good enough, 0:08:36.800 --> 0:08:38.240 but I'd like to do a little bit better, and 0:08:38.280 --> 0:08:40.840 I'm willing to re enter the labor force. So you know, 0:08:40.920 --> 0:08:43.480 in some sense there are people that will not be 0:08:43.559 --> 0:08:46.199 able to re enter. But in a lot of instances, 0:08:46.480 --> 0:08:50.720 for example, in a dual income household, one parent maybe 0:08:50.800 --> 0:08:54.600 choosing to stay home UH to oversee childcare rather than 0:08:54.720 --> 0:08:58.520 take a job that barely pays for the cost of 0:08:58.880 --> 0:09:02.560 UH sending their children elsewhere full rock childcare. Now, let's 0:09:02.559 --> 0:09:05.760 talk about the other indicator. I was discussing the share 0:09:05.800 --> 0:09:08.920 of full time workers out of the labor force. You 0:09:08.920 --> 0:09:11.679 can talk all you want about improving economy, getting people 0:09:11.760 --> 0:09:14.800 off the sidelines and into the labor force. But if 0:09:14.840 --> 0:09:18.360 those jobs are not the kinds of full time, good 0:09:18.400 --> 0:09:21.640 paying jobs that Vince was talking about. Uh. You know, 0:09:21.679 --> 0:09:25.120 one criticism we've heard from Trump and and and also 0:09:25.440 --> 0:09:28.560 a lot of other economists about the economy in recent 0:09:28.640 --> 0:09:30.719 years is that a lot of jobs that have been 0:09:30.760 --> 0:09:36.600 created are actually either part time in services and low paid, 0:09:36.840 --> 0:09:39.839 or they're in the gig economy with the rise of 0:09:39.880 --> 0:09:43.960 such services as as uber. As we're all well aware 0:09:45.280 --> 0:09:47.760 what's going on with the state of full time and 0:09:47.880 --> 0:09:51.120 part time work, are there a lot of people Vince 0:09:51.160 --> 0:09:54.560 who who are working part time who would rather have 0:09:54.720 --> 0:09:58.880 full time jobs? Um? Well, we have seen um some 0:09:59.080 --> 0:10:03.920 of that uh people that are working part time uh 0:10:03.960 --> 0:10:06.839 that won a full time job. We have that, uh 0:10:07.360 --> 0:10:11.559 seen that start to reverse here um lately, So I 0:10:11.600 --> 0:10:15.840 think there is some improvement there. UM And a lot 0:10:15.920 --> 0:10:19.240 of the um, A lot of this too, UM you 0:10:19.280 --> 0:10:25.160 could probably attribute to a service economy. And um, some 0:10:25.240 --> 0:10:29.720 people just want to work part time and not worry 0:10:29.760 --> 0:10:33.800 about having work full time position. I know UM that 0:10:34.160 --> 0:10:38.680 President Trump has mentioned the cost of childcare needing to 0:10:38.720 --> 0:10:43.280 come down, and UM, a lot of you know, a 0:10:43.280 --> 0:10:46.959 lot of housewives, if you will, are choosing to stay 0:10:47.000 --> 0:10:50.640 home rather than uh, than than go seek a full 0:10:50.640 --> 0:10:53.040 time employment. Carl, how do you see this playing out? 0:10:53.080 --> 0:10:56.240 Are are we going to see more UH people getting 0:10:56.280 --> 0:10:59.160 full time jobs or or is the trend toward more 0:10:59.200 --> 0:11:02.000 part time work? Uh? You know something that that's just 0:11:02.400 --> 0:11:05.840 effective life now, Well, I think we have two trends 0:11:05.840 --> 0:11:09.640 moving in opposite directions. With the advent of the gig 0:11:09.679 --> 0:11:12.880 economy and task grabbit and Uber and all these sorts 0:11:12.880 --> 0:11:17.360 of things, UH, the availability of part time work becomes 0:11:17.520 --> 0:11:21.920 UH significantly elevated, so that that will be a longer 0:11:22.040 --> 0:11:26.679 term trend. But what we watch more closely as economists 0:11:27.400 --> 0:11:31.040 is part time work for economic reasons. So this is 0:11:31.080 --> 0:11:33.360 not someone who's driving Uber on the weekend for a 0:11:33.400 --> 0:11:37.600 little extra cash. But these are workers who can only 0:11:37.720 --> 0:11:41.760 find part time employment, although they would prefer full time employment. 0:11:42.200 --> 0:11:44.560 And if we watch that trend, and this is something 0:11:44.880 --> 0:11:49.480 again that that Cher Yelling has referenced at the FED. UH, 0:11:49.520 --> 0:11:52.240 this is UH moving in the right direction but not 0:11:52.520 --> 0:11:56.679 fully normalized. So UH, in a in a very odd sense, 0:11:57.200 --> 0:12:00.920 cheer Yelling and President Trump are on the same page 0:12:00.960 --> 0:12:06.120 in questioning the signal from the national unemployment rate. Cherryoh, 0:12:06.160 --> 0:12:10.040 and long before President Trump was criticizing the unemployment rate, 0:12:10.080 --> 0:12:12.920 that was making the same point, saying that that is 0:12:12.960 --> 0:12:18.000 an incomplete measure of conditions in the labor market, and 0:12:18.280 --> 0:12:21.720 so instead she looked at these other broader measures, one 0:12:21.760 --> 0:12:25.400 of which was part time workers for economic reasons. Yeah, 0:12:25.679 --> 0:12:29.480 Jannah and Donald are probably gonna find some common ground 0:12:29.480 --> 0:12:31.520 the next time, you know, when they actually have their 0:12:31.559 --> 0:12:35.320 first meeting together, despite uh Mr Trump's criticism of her 0:12:35.400 --> 0:12:39.240 during the campaign. Let's move on to another indicator. This 0:12:39.280 --> 0:12:43.000 one doesn't need much of much deciphering. It's the number 0:12:43.080 --> 0:12:47.360 of manufacturing workers on payrolls in the economy. A lot 0:12:47.360 --> 0:12:50.880 of Trump's campaign was about how NAFTA and China have 0:12:51.000 --> 0:12:53.920 killed all these jobs over the last twenty years and 0:12:54.000 --> 0:12:56.840 how he would restore them. Carl, what are the chances 0:12:56.880 --> 0:13:00.240 that this is going to happen? Well, some of the 0:13:00.320 --> 0:13:03.920 jobs are are gone and certainly are not coming back. 0:13:04.320 --> 0:13:09.040 We are moving, uh, you know, in an increasingly automated 0:13:09.320 --> 0:13:12.960 assembly lines. I've been reading recently about some assembly lines 0:13:13.000 --> 0:13:16.200 where they don't even turn the overhead lights on until 0:13:16.720 --> 0:13:20.200 something needs to repair because there are are basically only 0:13:20.320 --> 0:13:24.400 robots who are happy to work in the uh, in 0:13:24.440 --> 0:13:27.600 the dark, on those assembly lines. So uh, to some degree, 0:13:28.160 --> 0:13:31.080 a lot of the manufacturing jobs that you imagine uh, 0:13:31.320 --> 0:13:35.640 your your, your father, grandfather working at are probably not 0:13:35.760 --> 0:13:41.240 coming back. However, if we are sourcing more production in 0:13:41.440 --> 0:13:44.800 US factories, there will be an impact on manufacturing jobs. 0:13:44.840 --> 0:13:48.200 So some jobs will come back. Uh. And the general 0:13:48.280 --> 0:13:52.200 rule of thumb is that for every one manufacturing job, 0:13:52.200 --> 0:13:56.280 there's about three service sector jobs that support it, whether 0:13:56.320 --> 0:14:01.200 it's engineering, design, transportation, finance, etcetera. Uh. Uh So even 0:14:01.200 --> 0:14:04.800 if we bring back some manufacturing jobs, that will have 0:14:04.920 --> 0:14:09.520 a very powerful impact. Now I hear time and time again, 0:14:09.760 --> 0:14:12.240 well the jobs aren't coming back, so what's the what's 0:14:12.240 --> 0:14:17.760 the point in pursuing it? There are tremendous economic benefits 0:14:18.120 --> 0:14:23.440 uh to manufacturing activity happening on US soil. So yes, 0:14:23.480 --> 0:14:26.120 there's a question mark over how many jobs will actually 0:14:26.160 --> 0:14:32.000 come back. But innovation happens on the shop room floor. Uh. 0:14:32.040 --> 0:14:35.680 And so if the vehicles uh and widgets are being 0:14:35.720 --> 0:14:39.160 assembled on US soil, UH, then the engineers and the 0:14:39.240 --> 0:14:45.760 design folks and all of that other higher level sophisticated 0:14:45.840 --> 0:14:49.840 doubt work tends to happen in close proximity to the factory. 0:14:49.920 --> 0:14:53.400 So when the factory moves overseas, it's not long until 0:14:53.480 --> 0:14:57.960 the engineering, design, and management jobs tend to follow. UH. 0:14:58.000 --> 0:15:02.480 And so there's an intend will benefit uh much much 0:15:02.520 --> 0:15:06.200 more comprehensive than just the actual job count from sourcing 0:15:06.240 --> 0:15:09.200 production back on US soil. So we're at just over 0:15:09.320 --> 0:15:12.760 twelve million manufacturing jobs right now. You don't really see 0:15:12.760 --> 0:15:15.360 that moving a whole lot, but it could it could 0:15:15.400 --> 0:15:17.200 go up. What are you thinking. I think it could 0:15:17.240 --> 0:15:23.160 trend higher depending how aggressively President Trump pursues the initiative 0:15:23.200 --> 0:15:25.920 of sourcing production. And uh, you know, we're only a 0:15:26.040 --> 0:15:29.200 few days into the new administration, but based on the 0:15:29.240 --> 0:15:32.840 tone of the inaugural address and some of the measures 0:15:33.280 --> 0:15:37.680 he has emphasized early on whether it's uh, you know, 0:15:38.080 --> 0:15:45.440 restrictions on manufacturers from reimporting partially manufactured goods to uh 0:15:45.480 --> 0:15:50.960 trying to pressure pipeline construction to use US UH manufactured 0:15:51.360 --> 0:15:54.440 materials where possible. Uh, it seems like it's going to 0:15:54.480 --> 0:15:58.080 be a very high priority item for the for the 0:15:58.120 --> 0:16:01.520 new administration. And mind you uh, you know, what we've 0:16:01.560 --> 0:16:05.800 seen just in these first couple of days are already 0:16:05.880 --> 0:16:09.920 likely the beginnings of the re election campaign for twenty twenty. 0:16:10.480 --> 0:16:15.160 President Trump's path to the White House largely went through 0:16:15.200 --> 0:16:19.720 the rust belt Pennsylvania, Ohio, Michigan, Wisconsin. And if he 0:16:19.760 --> 0:16:22.920 wants to return to the White House in uh, he's 0:16:22.960 --> 0:16:26.400 going to have to perform well in those states and 0:16:26.760 --> 0:16:32.920 those uh disenfranchised workers who feel like they've been roadkill 0:16:33.000 --> 0:16:36.360 on the path to globalization, that have to feel that 0:16:36.400 --> 0:16:40.040 they have gotten some kind of benefit out of this administration. 0:16:40.480 --> 0:16:43.320 All right, well, let's move on to a broader indicator 0:16:43.480 --> 0:16:50.200 of corporate America and American business. That would be capital spending. Vince. 0:16:50.280 --> 0:16:53.520 When we talk about capital spending, what does that refer 0:16:53.640 --> 0:16:56.200 to and what's been happening with that in the last 0:16:56.200 --> 0:17:01.440 few years. UM. It's basically spending by companies on like 0:17:01.640 --> 0:17:09.840 plants and buildings and UM equipment, machinery. And from the 0:17:09.920 --> 0:17:15.480 last part of fourteen through uh this last year's third quarter, 0:17:16.240 --> 0:17:19.359 it's been averaging a basically a paltry uh, you know, 0:17:19.520 --> 0:17:23.520 zero point two percent UM on average UM. Now, part 0:17:23.520 --> 0:17:26.399 of this is owed to the slowdown in the oil patch, 0:17:26.520 --> 0:17:29.200 but not all of it. And on the flip side, 0:17:29.280 --> 0:17:33.480 when when the energy industry was spending hand over fist 0:17:33.520 --> 0:17:37.359 at the start of the recovery, investment was spending pretty 0:17:37.440 --> 0:17:42.760 nicely now UM As for small businesses UM, it's a 0:17:42.920 --> 0:17:47.080 little difficult to measure, but the National Federation of Independent 0:17:47.119 --> 0:17:52.080 Business Data UM show that until recently optimism has been 0:17:52.480 --> 0:17:56.399 fairly tepid, certainly well below the levels leading up to 0:17:56.400 --> 0:17:59.760 the last recession. And part of that is due to 0:17:59.800 --> 0:18:03.760 this dud to economic recovery, and UM, you know, a 0:18:03.840 --> 0:18:07.000 good devil. A good deal of it can probably be 0:18:07.160 --> 0:18:11.600 attributed to government policies, you know, from you know, Obamacare 0:18:11.680 --> 0:18:16.479 to government regulation. They've they've actually mentioned that UM in 0:18:16.480 --> 0:18:19.720 in the surveys that the n f i B does UM. 0:18:19.720 --> 0:18:24.359 More recently, however, the UH the gauge, the NFIBS gauge 0:18:24.720 --> 0:18:28.879 of optimism has shot up in this last report, but 0:18:29.000 --> 0:18:32.960 actually by the most since nineteen eighty. Now small businesses 0:18:33.359 --> 0:18:37.040 are liking what they hear from the Trump administration. They 0:18:37.160 --> 0:18:41.120 just want less government intrusion and a clear path through 0:18:41.440 --> 0:18:45.680 doing business. So obviously it hasn't it's been kind of 0:18:45.880 --> 0:18:49.879 UH seen kind of poultry gains in recent years, but 0:18:50.040 --> 0:18:53.119 optimism is picking up. Carl, is that going to be 0:18:53.320 --> 0:18:59.480 enough to translate into higher spending that actually boost GDP. Well, 0:18:59.560 --> 0:19:03.840 the jury is still out on that question. So absolutely, 0:19:04.240 --> 0:19:09.200 animal spirits are a critical element of capitalist system. So 0:19:09.640 --> 0:19:14.119 if everyone's feeling depressed, uh in assaulting away their paychecks 0:19:14.160 --> 0:19:19.080 into savings, that can have dire economic consequences. Uh. Since 0:19:19.119 --> 0:19:23.400 election Day, we've seen a significant rise in household sentiment, 0:19:23.600 --> 0:19:27.879 home builder sentiments, small business sentiment, even other broader measures 0:19:27.920 --> 0:19:32.040 of economic sentiment like the stock market for example. However, 0:19:32.440 --> 0:19:36.159 we haven't seen much hard data yet to support that, 0:19:36.400 --> 0:19:39.600 and that's because economic data is released with a lag. 0:19:40.440 --> 0:19:43.240 That being said, uh, you know, vehicle sales were strong 0:19:43.400 --> 0:19:47.080 at the end of December, retail activity seem to end 0:19:47.160 --> 0:19:50.280 the year on relatively solid footing. So there seems to 0:19:50.359 --> 0:19:55.840 be some evidence uh that positive sentiment is actually impacting 0:19:55.880 --> 0:19:59.159 the economy, but again it's still very much in the 0:19:59.240 --> 0:20:03.879 early stages. Let me give you a term net business births. 0:20:04.680 --> 0:20:06.920 It sounds kind of odd, but it's just another way 0:20:07.040 --> 0:20:10.720 of saying the number of businesses that are created in 0:20:10.800 --> 0:20:14.840 a period, uh, minus the number that closed. It's another 0:20:15.000 --> 0:20:19.600 indicator about of the health of the economy. Uh. You know, 0:20:19.720 --> 0:20:22.879 as we can look at it under President Trump. Vince, 0:20:23.200 --> 0:20:25.720 why did we pick this one and what's been happening 0:20:25.760 --> 0:20:29.000 with that lately? Simply because you know, new businesses are 0:20:29.160 --> 0:20:32.240 basically the lifeblood of the economy. I mean, you have 0:20:32.320 --> 0:20:36.600 a new business created, they're successful, they hire, they get 0:20:36.680 --> 0:20:40.640 even more successful. The more hiring will do UM. After 0:20:40.760 --> 0:20:43.880 the recession ended in two thousand nine, UM, it wasn't 0:20:43.960 --> 0:20:48.399 until a year later that business birth actually exceeded the 0:20:48.480 --> 0:20:51.360 number of you know, firms that went out of business. 0:20:51.600 --> 0:20:55.960 UM currently net burs or about where they were during 0:20:56.000 --> 0:20:58.960 the last expansion, but they're well below the peak that 0:20:59.040 --> 0:21:01.440 we had in two thous and five. So I think 0:21:01.480 --> 0:21:04.320 that a pick up in UM, you know, company formation 0:21:04.840 --> 0:21:08.520 will likely depend on how successful you know, Trump and 0:21:08.760 --> 0:21:13.520 Condress are in making it easier for entrepreneurs to do business. 0:21:13.640 --> 0:21:15.880 And Carl, how important would this be to to drive 0:21:15.920 --> 0:21:20.120 the economy? Oh, it's absolutely critical. So business births tend 0:21:20.200 --> 0:21:24.479 to be among small and medium sized businesses, which account 0:21:24.560 --> 0:21:28.760 for the vast majority of jobs in the in the 0:21:28.840 --> 0:21:33.359 private sector, I think roughly eighty five percent are attributed 0:21:33.440 --> 0:21:37.440 to firms of five employees are less. Uh. Now, you 0:21:37.520 --> 0:21:41.640 know business births and UH also business investments so two 0:21:41.760 --> 0:21:45.600 themes that de Vince was hitting on both tend to 0:21:45.760 --> 0:21:50.359 be late cycle components of the economy. So early on 0:21:50.560 --> 0:21:53.520 in cycles, we tend to see UH growth driven by 0:21:53.640 --> 0:21:57.680 things like a consumer spending and housing. And then later 0:21:57.800 --> 0:22:00.239 on in the cycle, with the economy continuing to row, 0:22:00.920 --> 0:22:04.439 businesses start to face capacity constraints and so they invest 0:22:04.560 --> 0:22:08.440 in the equipment and software and structures that Vince was highlighting. 0:22:08.800 --> 0:22:10.800 That also tends to be the stage where we see 0:22:10.920 --> 0:22:15.439 more formation of businesses as folks are more confident uh 0:22:15.560 --> 0:22:18.960 in the overall economic outlook. So the fact that we're 0:22:19.000 --> 0:22:23.520 seeing both of those measures kind of only normalizing UH, 0:22:23.720 --> 0:22:27.359 now we're starting to pick up maybe some clues that 0:22:27.880 --> 0:22:30.800 this cycle is going to be unique and that it 0:22:31.000 --> 0:22:34.880 is going to be much longer uh than the typical 0:22:35.359 --> 0:22:37.680 UH post World War two or even in the modern 0:22:37.760 --> 0:22:43.040 era business cycle in let's say UH present if we 0:22:43.080 --> 0:22:46.240 can call that the modern era so UH in FED terms, 0:22:46.320 --> 0:22:50.960 that's vocal green Span, Bernankey and yelling business cycles have 0:22:51.119 --> 0:22:55.560 averaged about UH thirty two quarters were in the thirty 0:22:55.680 --> 0:22:59.480 first quarter of the current cycle. So by that measure, 0:22:59.520 --> 0:23:01.760 you would say a wow, UH. The next ro session 0:23:01.840 --> 0:23:04.440 can't be too far off. But when we start to 0:23:04.520 --> 0:23:08.200 look at underlying fundamentals, like what's driving the economy or 0:23:08.800 --> 0:23:12.239 where are the late cycle indicators? Have they engaged yet? Uh, 0:23:12.320 --> 0:23:15.080 They're not really there, and so this economy is not 0:23:15.359 --> 0:23:19.560 as long in the tooth as a pure calendar based 0:23:19.640 --> 0:23:23.240 measurement would otherwise suggest. So Carl, taking a big step 0:23:23.320 --> 0:23:25.359 back and thinking about what you just said there and 0:23:25.440 --> 0:23:28.680 what we've been talking about, what are the chances that 0:23:29.000 --> 0:23:33.160 President Trump can fulfill his promises to make America great 0:23:33.240 --> 0:23:36.399 again in the next four years? Well? Uh, you know 0:23:36.560 --> 0:23:39.879 this is gonna be a an economist answer, but it 0:23:40.400 --> 0:23:43.680 really depends on how you want to measure that. So 0:23:44.240 --> 0:23:46.720 will GDP growth be stronger? I know you said we 0:23:46.760 --> 0:23:50.400 can't talk about GDP at the start, but if we are, 0:23:51.040 --> 0:23:56.040 you know, financing significant tax cuts and infrastructure spending by 0:23:56.160 --> 0:24:00.359 borrowing more than that is a cheap sugar high. Uh, 0:24:00.480 --> 0:24:04.639 that can elevate economic growth until it comes around to 0:24:05.200 --> 0:24:07.960 actually paying the bill. So you know, there could be 0:24:08.000 --> 0:24:10.800 a short to medium term acceleration in the pace of 0:24:10.880 --> 0:24:14.160 growth purely for that reason. The unemployment rate. I'm gonna 0:24:14.160 --> 0:24:16.359 break all the rules you said we can't talk about unemployment. 0:24:16.800 --> 0:24:20.440 The unemployment rate is uh, you know, running below it's 0:24:20.560 --> 0:24:24.040 a natural level. UH. And so you know, we're starting 0:24:24.080 --> 0:24:28.640 to see increasing evidence of shortages of workers, which will 0:24:28.680 --> 0:24:32.439 mean workers have greater bargaining power uh, and more wage 0:24:32.480 --> 0:24:35.880 pressure and and wage creation as a result. So from 0:24:35.920 --> 0:24:39.560 that perspective, it's also going to look better. So you know, 0:24:39.800 --> 0:24:44.399 part of the economy or the country feeling greater, uh 0:24:44.640 --> 0:24:48.600 is just the you know, the the inevitable result of 0:24:49.080 --> 0:24:53.320 stretching on and prolonging the recovery from a very severe 0:24:53.640 --> 0:24:57.200 economic downturn. On top of that, then the icing on 0:24:57.240 --> 0:25:01.320 the cake will be things like trade uh policy which 0:25:01.400 --> 0:25:04.720 could favor the rest belt states, and tax cuts which 0:25:04.800 --> 0:25:09.240 could to help certain sectors of the economy. So in 0:25:09.359 --> 0:25:12.240 some context, yes, I don't see a recession coming for 0:25:12.560 --> 0:25:16.119 quite some time. So uh. The uh, the tone and 0:25:16.280 --> 0:25:20.320 temperament of the economy will feel significantly better in the 0:25:20.440 --> 0:25:23.520 next several years, in some part due to the new 0:25:23.560 --> 0:25:26.320 administration and some part just due to where we stand 0:25:26.359 --> 0:25:28.359 in the cycle. All right, Carl, we'll have to leave 0:25:28.400 --> 0:25:30.479 it there. Thanks so much for joining us, my pleasure, 0:25:30.680 --> 0:25:33.159 and Vince, thanks thank you for joining us too. For 0:25:33.320 --> 0:25:35.359 more on this you can actually call up a graphic 0:25:35.440 --> 0:25:37.880 we put together that you can find on Bloomberg dot 0:25:37.960 --> 0:25:41.320 Com called how We'll know if Trump is making America 0:25:41.480 --> 0:25:45.000 great again? And Benchmark will be back next week. Until then, 0:25:45.080 --> 0:25:47.400 you can find us on the Bloomberg Terminal and Bloomberg 0:25:47.480 --> 0:25:50.719 dot Com are newly revamped Bloomberg app, as well as 0:25:50.800 --> 0:25:54.280 on iTunes, pocket casts, and Stitcher. While you're there, please 0:25:54.359 --> 0:25:56.720 rate and review the show so more listeners can find 0:25:56.800 --> 0:25:58.880 us and let us know what you thought of the show. 0:25:59.240 --> 0:26:02.280