Speaker 1: We're going to attempt to answer the question just how
Speaker 1: will we know from an economic standpoint if Trump is
Speaker 1: actually making America great again. It's Bloomberg Benchmark, a podcast
Speaker 1: about the global economy. I'm Scott Landman, an economics editor
Speaker 1: with Bloomberg News in Washington, and I'm coming to you
Speaker 1: by myself again today because Dan and Kate were unable
Speaker 1: to join us, but fortunately I have two esteemed colleagues
Speaker 1: with me today. Here in d C. Is Vince Gully,
Speaker 1: a fellow editor who's been covering the U S economy
Speaker 1: for two decades, and up in New York we have
Speaker 1: Carl Ricka Donna, who's chief US economist for Bloomberg Intelligence. Gentlemen,
Speaker 1: thanks for joining us today. My pleasure, glad to be
Speaker 1: here now. Often on Benchmark we dig up unusual facts
Speaker 1: or indicators to make a broader point about trends in
Speaker 1: economies around the world. Today we're going back to basics.
Speaker 1: It's our first show since Donald Trump took office as
Speaker 1: forty president of the United States, and since Benchmark is
Speaker 1: all about the economy and Trump has pledged to make
Speaker 1: America great again, We're going to attempt to answer the
Speaker 1: question just how will we know from an economic standpoint
Speaker 1: if Trump is actually making America great again. Now, the
Speaker 1: President has dismissed some traditional measures of the U. S economy,
Speaker 1: such as the main unemployment rate. He called that measure
Speaker 1: phony or fictional because he thinks it overestimates strength in
Speaker 1: the labor market. So we're going to run down some
Speaker 1: other economic indicators today. These are a bit more out
Speaker 1: of the mainstream, maybe a bit down in the weeds,
Speaker 1: but we think they'll show a good sense of the
Speaker 1: degree of the success of the Trump administration during the
Speaker 1: next four years. Uh So, obviously we're not going to
Speaker 1: talk about unemployment or GDP, and instead we'll give you
Speaker 1: first two ways of looking at the labor mark market,
Speaker 1: then two ways of looking at the health of corporate
Speaker 1: America and small businesses, and also one gauge of whether
Speaker 1: if Trump is fulfilling his pledge to bring factory jobs
Speaker 1: back to the US. So are you ready, guys, ready,
Speaker 1: let's go all right, So, without further ado, here are
Speaker 1: the first two. The first is called prime age labor
Speaker 1: force participation. Now translate into English from Ecano speak, we
Speaker 1: can say that is people in the peak of their
Speaker 1: working years who have a job or are looking for one,
Speaker 1: and the second one would be full time workers as
Speaker 1: a percentage of the labor force. That refers to people
Speaker 1: who have a full time job as a share of
Speaker 1: everybody who has a job or is looking for work. Vince,
Speaker 1: let me go to you first. Why are these good
Speaker 1: gauges of both the economy and for Trump schools? Well,
Speaker 1: Scott Um. Probably in the simplest terms, I'd say that
Speaker 1: it boils down to potential. UM. People in this twenty
Speaker 1: five to fifty four age bracket working a full week
Speaker 1: have the best potential to gain work experience, UM, secure
Speaker 1: better benefit packages like healthcare and four win K plans
Speaker 1: that allow them to prepare for retirement. And perhaps most importantly,
Speaker 1: they have greater earnings potential and they have the ability
Speaker 1: to grow their earnings earn more, which contrasts with UH,
Speaker 1: say teenagers who are more likely to work for minimum wage.
Speaker 1: And the reason this is important is that, UM, these
Speaker 1: are the folks who are most likely to spend, and
Speaker 1: they'll probably spend big, whether it's buying a new car
Speaker 1: or house or what have you. UM the more potential
Speaker 1: to earn a good living will allow them to spend
Speaker 1: and that in turn boost the economy and encourages more
Speaker 1: hiring and more spending, and you get this sort of
Speaker 1: virtual circle for the economy. Corrow, what's been going on
Speaker 1: with primate labor force participation in recent years and why
Speaker 1: is it cutting criticism from Trump and his team. Well,
Speaker 1: the participation rate goes through longer term structural fluctuations. So
Speaker 1: it climbed from the ninth late nineteen fifties up until
Speaker 1: about two thousand UH. This was partly a phenomenon of
Speaker 1: the baby boomers coming through the system. Also, while women
Speaker 1: entering the workforce in increasingly large UH proportions. About the
Speaker 1: time of two thousand UH, the participation rate peaked and
Speaker 1: began to decline. At the time of the two thousand
Speaker 1: and seven to two thousand and nine recession, the Great Recession,
Speaker 1: it actually accelerated the pace of decline UH. And so
Speaker 1: the question is how much of this UH is really
Speaker 1: due to long term structural trends in the economy. If
Speaker 1: we think of the baby boomers going through the system
Speaker 1: like that python that swallowed an egg or some large objects,
Speaker 1: so part of that is just an inevitable trend. But
Speaker 1: the question is, UH, this acceleration since the end of
Speaker 1: the Great Recession, and a lot of economists are wringing
Speaker 1: their hands saying there's no way to forecast labor participation
Speaker 1: and whatnot. And I think that if we take a
Speaker 1: step back and take a very straightforward, common sense approach,
Speaker 1: there is a way uh to actually model that out,
Speaker 1: at least to some degree. And we can do that
Speaker 1: by looking at economic conditions or getting back to the
Speaker 1: uh UH prior comment the prospects of earning a good living. UH.
Speaker 1: The health of the economy and strength of the economy
Speaker 1: impacts how much workers are moving off of the sidelines
Speaker 1: and into the economy. So over the past UH seven
Speaker 1: uh ten years, economic conditions have not been great. Wage
Speaker 1: stagnation has been a big problem, and the job prospects
Speaker 1: have not been particularly strong. UH. And this means that
Speaker 1: a lot of would be workers have remained on the
Speaker 1: sidelines UH and that has taken a toll on participation. Now,
Speaker 1: what Janet Yelling, Chair of the Federal Reserve, and UH
Speaker 1: some other economists also on the Open Markets Committee UH
Speaker 1: want to do is explore the potential of pursuing a
Speaker 1: high pressure economy, as she terms it, or as New
Speaker 1: York Fed President Bill Dudley mentions letting the economy run
Speaker 1: a bit hot. Uh, And what they mean by this
Speaker 1: is by letting the economy exceed its growth rate and
Speaker 1: being slow to push back with the monetary policy or
Speaker 1: interest rate policy. Uh, they can actually lead to a
Speaker 1: pickup in inflation and wage pressures, and that will coax
Speaker 1: folks off of the sidelines and possibly bend the trend
Speaker 1: uh in terms of declining labor force participation. Now, this
Speaker 1: is not something they completely can fix, but at the
Speaker 1: margin they can influence it. Now, how do you square
Speaker 1: the ability to get people off the sidelines, Say, if
Speaker 1: you know the Fed supports accommodative policy, or if trumpettacts
Speaker 1: fiscal stimulus with the idea that you know, I've read
Speaker 1: these articles about one. You know, some of the reasons
Speaker 1: why you have such a downturn and primate participation is
Speaker 1: because maybe the prevalence of drugs, people on pain medication. Uh,
Speaker 1: you know, men in their twenties and thirties playing too
Speaker 1: many video games. Is an improving economy enough to reverse
Speaker 1: trends that are maybe more baked into the economy at
Speaker 1: this point, I think an improving economy is a critical
Speaker 1: part of the picture Now, opioid addiction and a lot
Speaker 1: of other factors certainly do extend a toll. But if
Speaker 1: you're let's say, for example, you're sitting on your couch
Speaker 1: playing video games or watching movies UH and collecting maybe
Speaker 1: an unemployment check or maybe a welfare check or disability
Speaker 1: payment UH, and suddenly you see your your your neighbor
Speaker 1: across the street is buying a new car or renovating
Speaker 1: their home or taking a nice vacation. UH. That type
Speaker 1: of UH, for lack of a better term, envy UH
Speaker 1: coaxes people to say, well, the welfare check is good enough,
Speaker 1: but I'd like to do a little bit better, and
Speaker 1: I'm willing to re enter the labor force. So you know,
Speaker 1: in some sense there are people that will not be
Speaker 1: able to re enter. But in a lot of instances,
Speaker 1: for example, in a dual income household, one parent maybe
Speaker 1: choosing to stay home UH to oversee childcare rather than
Speaker 1: take a job that barely pays for the cost of
Speaker 1: UH sending their children elsewhere full rock childcare. Now, let's
Speaker 1: talk about the other indicator. I was discussing the share
Speaker 1: of full time workers out of the labor force. You
Speaker 1: can talk all you want about improving economy, getting people
Speaker 1: off the sidelines and into the labor force. But if
Speaker 1: those jobs are not the kinds of full time, good
Speaker 1: paying jobs that Vince was talking about. Uh. You know,
Speaker 1: one criticism we've heard from Trump and and and also
Speaker 1: a lot of other economists about the economy in recent
Speaker 1: years is that a lot of jobs that have been
Speaker 1: created are actually either part time in services and low paid,
Speaker 1: or they're in the gig economy with the rise of
Speaker 1: such services as as uber. As we're all well aware
Speaker 1: what's going on with the state of full time and
Speaker 1: part time work, are there a lot of people Vince
Speaker 1: who who are working part time who would rather have
Speaker 1: full time jobs? Um? Well, we have seen um some
Speaker 1: of that uh people that are working part time uh
Speaker 1: that won a full time job. We have that, uh
Speaker 1: seen that start to reverse here um lately, So I
Speaker 1: think there is some improvement there. UM And a lot
Speaker 1: of the um, A lot of this too, UM you
Speaker 1: could probably attribute to a service economy. And um, some
Speaker 1: people just want to work part time and not worry
Speaker 1: about having work full time position. I know UM that
Speaker 1: President Trump has mentioned the cost of childcare needing to
Speaker 1: come down, and UM, a lot of you know, a
Speaker 1: lot of housewives, if you will, are choosing to stay
Speaker 1: home rather than uh, than than go seek a full
Speaker 1: time employment. Carl, how do you see this playing out?
Speaker 1: Are are we going to see more UH people getting
Speaker 1: full time jobs or or is the trend toward more
Speaker 1: part time work? Uh? You know something that that's just
Speaker 1: effective life now, Well, I think we have two trends
Speaker 1: moving in opposite directions. With the advent of the gig
Speaker 1: economy and task grabbit and Uber and all these sorts
Speaker 1: of things, UH, the availability of part time work becomes
Speaker 1: UH significantly elevated, so that that will be a longer
Speaker 1: term trend. But what we watch more closely as economists
Speaker 1: is part time work for economic reasons. So this is
Speaker 1: not someone who's driving Uber on the weekend for a
Speaker 1: little extra cash. But these are workers who can only
Speaker 1: find part time employment, although they would prefer full time employment.
Speaker 1: And if we watch that trend, and this is something
Speaker 1: again that that Cher Yelling has referenced at the FED. UH,
Speaker 1: this is UH moving in the right direction but not
Speaker 1: fully normalized. So UH, in a in a very odd sense,
Speaker 1: cheer Yelling and President Trump are on the same page
Speaker 1: in questioning the signal from the national unemployment rate. Cherryoh,
Speaker 1: and long before President Trump was criticizing the unemployment rate,
Speaker 1: that was making the same point, saying that that is
Speaker 1: an incomplete measure of conditions in the labor market, and
Speaker 1: so instead she looked at these other broader measures, one
Speaker 1: of which was part time workers for economic reasons. Yeah,
Speaker 1: Jannah and Donald are probably gonna find some common ground
Speaker 1: the next time, you know, when they actually have their
Speaker 1: first meeting together, despite uh Mr Trump's criticism of her
Speaker 1: during the campaign. Let's move on to another indicator. This
Speaker 1: one doesn't need much of much deciphering. It's the number
Speaker 1: of manufacturing workers on payrolls in the economy. A lot
Speaker 1: of Trump's campaign was about how NAFTA and China have
Speaker 1: killed all these jobs over the last twenty years and
Speaker 1: how he would restore them. Carl, what are the chances
Speaker 1: that this is going to happen? Well, some of the
Speaker 1: jobs are are gone and certainly are not coming back.
Speaker 1: We are moving, uh, you know, in an increasingly automated
Speaker 1: assembly lines. I've been reading recently about some assembly lines
Speaker 1: where they don't even turn the overhead lights on until
Speaker 1: something needs to repair because there are are basically only
Speaker 1: robots who are happy to work in the uh, in
Speaker 1: the dark, on those assembly lines. So uh, to some degree,
Speaker 1: a lot of the manufacturing jobs that you imagine uh,
Speaker 1: your your, your father, grandfather working at are probably not
Speaker 1: coming back. However, if we are sourcing more production in
Speaker 1: US factories, there will be an impact on manufacturing jobs.
Speaker 1: So some jobs will come back. Uh. And the general
Speaker 1: rule of thumb is that for every one manufacturing job,
Speaker 1: there's about three service sector jobs that support it, whether
Speaker 1: it's engineering, design, transportation, finance, etcetera. Uh. Uh So even
Speaker 1: if we bring back some manufacturing jobs, that will have
Speaker 1: a very powerful impact. Now I hear time and time again,
Speaker 1: well the jobs aren't coming back, so what's the what's
Speaker 1: the point in pursuing it? There are tremendous economic benefits
Speaker 1: uh to manufacturing activity happening on US soil. So yes,
Speaker 1: there's a question mark over how many jobs will actually
Speaker 1: come back. But innovation happens on the shop room floor. Uh.
Speaker 1: And so if the vehicles uh and widgets are being
Speaker 1: assembled on US soil, UH, then the engineers and the
Speaker 1: design folks and all of that other higher level sophisticated
Speaker 1: doubt work tends to happen in close proximity to the factory.
Speaker 1: So when the factory moves overseas, it's not long until
Speaker 1: the engineering, design, and management jobs tend to follow. UH.
Speaker 1: And so there's an intend will benefit uh much much
Speaker 1: more comprehensive than just the actual job count from sourcing
Speaker 1: production back on US soil. So we're at just over
Speaker 1: twelve million manufacturing jobs right now. You don't really see
Speaker 1: that moving a whole lot, but it could it could
Speaker 1: go up. What are you thinking. I think it could
Speaker 1: trend higher depending how aggressively President Trump pursues the initiative
Speaker 1: of sourcing production. And uh, you know, we're only a
Speaker 1: few days into the new administration, but based on the
Speaker 1: tone of the inaugural address and some of the measures
Speaker 1: he has emphasized early on whether it's uh, you know,
Speaker 1: restrictions on manufacturers from reimporting partially manufactured goods to uh
Speaker 1: trying to pressure pipeline construction to use US UH manufactured
Speaker 1: materials where possible. Uh, it seems like it's going to
Speaker 1: be a very high priority item for the for the
Speaker 1: new administration. And mind you uh, you know, what we've
Speaker 1: seen just in these first couple of days are already
Speaker 1: likely the beginnings of the re election campaign for twenty twenty.
Speaker 1: President Trump's path to the White House largely went through
Speaker 1: the rust belt Pennsylvania, Ohio, Michigan, Wisconsin. And if he
Speaker 1: wants to return to the White House in uh, he's
Speaker 1: going to have to perform well in those states and
Speaker 1: those uh disenfranchised workers who feel like they've been roadkill
Speaker 1: on the path to globalization, that have to feel that
Speaker 1: they have gotten some kind of benefit out of this administration.
Speaker 1: All right, well, let's move on to a broader indicator
Speaker 1: of corporate America and American business. That would be capital spending. Vince.
Speaker 1: When we talk about capital spending, what does that refer
Speaker 1: to and what's been happening with that in the last
Speaker 1: few years. UM. It's basically spending by companies on like
Speaker 1: plants and buildings and UM equipment, machinery. And from the
Speaker 1: last part of fourteen through uh this last year's third quarter,
Speaker 1: it's been averaging a basically a paltry uh, you know,
Speaker 1: zero point two percent UM on average UM. Now, part
Speaker 1: of this is owed to the slowdown in the oil patch,
Speaker 1: but not all of it. And on the flip side,
Speaker 1: when when the energy industry was spending hand over fist
Speaker 1: at the start of the recovery, investment was spending pretty
Speaker 1: nicely now UM As for small businesses UM, it's a
Speaker 1: little difficult to measure, but the National Federation of Independent
Speaker 1: Business Data UM show that until recently optimism has been
Speaker 1: fairly tepid, certainly well below the levels leading up to
Speaker 1: the last recession. And part of that is due to
Speaker 1: this dud to economic recovery, and UM, you know, a
Speaker 1: good devil. A good deal of it can probably be
Speaker 1: attributed to government policies, you know, from you know, Obamacare
Speaker 1: to government regulation. They've they've actually mentioned that UM in
Speaker 1: in the surveys that the n f i B does UM.
Speaker 1: More recently, however, the UH the gauge, the NFIBS gauge
Speaker 1: of optimism has shot up in this last report, but
Speaker 1: actually by the most since nineteen eighty. Now small businesses
Speaker 1: are liking what they hear from the Trump administration. They
Speaker 1: just want less government intrusion and a clear path through
Speaker 1: doing business. So obviously it hasn't it's been kind of
Speaker 1: UH seen kind of poultry gains in recent years, but
Speaker 1: optimism is picking up. Carl, is that going to be
Speaker 1: enough to translate into higher spending that actually boost GDP. Well,
Speaker 1: the jury is still out on that question. So absolutely,
Speaker 1: animal spirits are a critical element of capitalist system. So
Speaker 1: if everyone's feeling depressed, uh in assaulting away their paychecks
Speaker 1: into savings, that can have dire economic consequences. Uh. Since
Speaker 1: election Day, we've seen a significant rise in household sentiment,
Speaker 1: home builder sentiments, small business sentiment, even other broader measures
Speaker 1: of economic sentiment like the stock market for example. However,
Speaker 1: we haven't seen much hard data yet to support that,
Speaker 1: and that's because economic data is released with a lag.
Speaker 1: That being said, uh, you know, vehicle sales were strong
Speaker 1: at the end of December, retail activity seem to end
Speaker 1: the year on relatively solid footing. So there seems to
Speaker 1: be some evidence uh that positive sentiment is actually impacting
Speaker 1: the economy, but again it's still very much in the
Speaker 1: early stages. Let me give you a term net business births.
Speaker 1: It sounds kind of odd, but it's just another way
Speaker 1: of saying the number of businesses that are created in
Speaker 1: a period, uh, minus the number that closed. It's another
Speaker 1: indicator about of the health of the economy. Uh. You know,
Speaker 1: as we can look at it under President Trump. Vince,
Speaker 1: why did we pick this one and what's been happening
Speaker 1: with that lately? Simply because you know, new businesses are
Speaker 1: basically the lifeblood of the economy. I mean, you have
Speaker 1: a new business created, they're successful, they hire, they get
Speaker 1: even more successful. The more hiring will do UM. After
Speaker 1: the recession ended in two thousand nine, UM, it wasn't
Speaker 1: until a year later that business birth actually exceeded the
Speaker 1: number of you know, firms that went out of business.
Speaker 1: UM currently net burs or about where they were during
Speaker 1: the last expansion, but they're well below the peak that
Speaker 1: we had in two thous and five. So I think
Speaker 1: that a pick up in UM, you know, company formation
Speaker 1: will likely depend on how successful you know, Trump and
Speaker 1: Condress are in making it easier for entrepreneurs to do business.
Speaker 1: And Carl, how important would this be to to drive
Speaker 1: the economy? Oh, it's absolutely critical. So business births tend
Speaker 1: to be among small and medium sized businesses, which account
Speaker 1: for the vast majority of jobs in the in the
Speaker 1: private sector, I think roughly eighty five percent are attributed
Speaker 1: to firms of five employees are less. Uh. Now, you
Speaker 1: know business births and UH also business investments so two
Speaker 1: themes that de Vince was hitting on both tend to
Speaker 1: be late cycle components of the economy. So early on
Speaker 1: in cycles, we tend to see UH growth driven by
Speaker 1: things like a consumer spending and housing. And then later
Speaker 1: on in the cycle, with the economy continuing to row,
Speaker 1: businesses start to face capacity constraints and so they invest
Speaker 1: in the equipment and software and structures that Vince was highlighting.
Speaker 1: That also tends to be the stage where we see
Speaker 1: more formation of businesses as folks are more confident uh
Speaker 1: in the overall economic outlook. So the fact that we're
Speaker 1: seeing both of those measures kind of only normalizing UH,
Speaker 1: now we're starting to pick up maybe some clues that
Speaker 1: this cycle is going to be unique and that it
Speaker 1: is going to be much longer uh than the typical
Speaker 1: UH post World War two or even in the modern
Speaker 1: era business cycle in let's say UH present if we
Speaker 1: can call that the modern era so UH in FED terms,
Speaker 1: that's vocal green Span, Bernankey and yelling business cycles have
Speaker 1: averaged about UH thirty two quarters were in the thirty
Speaker 1: first quarter of the current cycle. So by that measure,
Speaker 1: you would say a wow, UH. The next ro session
Speaker 1: can't be too far off. But when we start to
Speaker 1: look at underlying fundamentals, like what's driving the economy or
Speaker 1: where are the late cycle indicators? Have they engaged yet? Uh,
Speaker 1: They're not really there, and so this economy is not
Speaker 1: as long in the tooth as a pure calendar based
Speaker 1: measurement would otherwise suggest. So Carl, taking a big step
Speaker 1: back and thinking about what you just said there and
Speaker 1: what we've been talking about, what are the chances that
Speaker 1: President Trump can fulfill his promises to make America great
Speaker 1: again in the next four years? Well? Uh, you know
Speaker 1: this is gonna be a an economist answer, but it
Speaker 1: really depends on how you want to measure that. So
Speaker 1: will GDP growth be stronger? I know you said we
Speaker 1: can't talk about GDP at the start, but if we are,
Speaker 1: you know, financing significant tax cuts and infrastructure spending by
Speaker 1: borrowing more than that is a cheap sugar high. Uh,
Speaker 1: that can elevate economic growth until it comes around to
Speaker 1: actually paying the bill. So you know, there could be
Speaker 1: a short to medium term acceleration in the pace of
Speaker 1: growth purely for that reason. The unemployment rate. I'm gonna
Speaker 1: break all the rules you said we can't talk about unemployment.
Speaker 1: The unemployment rate is uh, you know, running below it's
Speaker 1: a natural level. UH. And so you know, we're starting
Speaker 1: to see increasing evidence of shortages of workers, which will
Speaker 1: mean workers have greater bargaining power uh, and more wage
Speaker 1: pressure and and wage creation as a result. So from
Speaker 1: that perspective, it's also going to look better. So you know,
Speaker 1: part of the economy or the country feeling greater, uh
Speaker 1: is just the you know, the the inevitable result of
Speaker 1: stretching on and prolonging the recovery from a very severe
Speaker 1: economic downturn. On top of that, then the icing on
Speaker 1: the cake will be things like trade uh policy which
Speaker 1: could favor the rest belt states, and tax cuts which
Speaker 1: could to help certain sectors of the economy. So in
Speaker 1: some context, yes, I don't see a recession coming for
Speaker 1: quite some time. So uh. The uh, the tone and
Speaker 1: temperament of the economy will feel significantly better in the
Speaker 1: next several years, in some part due to the new
Speaker 1: administration and some part just due to where we stand
Speaker 1: in the cycle. All right, Carl, we'll have to leave
Speaker 1: it there. Thanks so much for joining us, my pleasure,
Speaker 1: and Vince, thanks thank you for joining us too. For
Speaker 1: more on this you can actually call up a graphic
Speaker 1: we put together that you can find on Bloomberg dot
Speaker 1: Com called how We'll know if Trump is making America
Speaker 1: great again? And Benchmark will be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal and Bloomberg
Speaker 1: dot Com are newly revamped Bloomberg app, as well as
Speaker 1: on iTunes, pocket casts, and Stitcher. While you're there, please
Speaker 1: rate and review the show so more listeners can find
Speaker 1: us and let us know what you thought of the show.
Speaker 1: You can follow me on Twitter at at scott Landman.
Speaker 1: Carl you are at reckon Omics R I C C
Speaker 1: A N O M I X, and Vince you are
Speaker 1: at double spelled out T Goalie in support of my
Speaker 1: alma mater, Texas Tech University. All Right. Benchmark is produced
Speaker 1: by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe.
Speaker 1: Thanks for listening and we'll see you next time.