WEBVTT - Markets React to Inflation Data 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:48.080 the Bloomberg Terminal, and the Bloomberg Business App. Kathy Greifeld 0:00:48.080 --> 0:00:50.720 in for Paul Sweene. We've got a qualified guest to 0:00:50.840 --> 0:00:51.760 drive forward this. 0:00:51.840 --> 0:00:52.560 Wall of data. 0:00:53.159 --> 0:00:55.240 Yeah, of course we're going to be speaking to now, 0:00:55.320 --> 0:00:58.560 Jeffrey Cleveland. He is cheap us, a condommist over at 0:00:58.560 --> 0:01:02.280 Peydon and Reigel. I let's talk about what we just learned. 0:01:02.280 --> 0:01:05.440 Of course, retail sales a little bit cooler than anticipated, 0:01:05.440 --> 0:01:09.560 but PPI coming in hot for February, increasing by point 0:01:09.680 --> 0:01:13.000 six percent. Of course, consensus had been looking for point 0:01:13.160 --> 0:01:16.400 three percent. Would love to hear your immediate reaction, because 0:01:16.440 --> 0:01:18.720 it looks like right now the market's reacting to that PPI. 0:01:19.959 --> 0:01:22.240 Well, I mean it's early here on the West coast, 0:01:22.240 --> 0:01:25.120 so maybe I should start with a little controversy. I 0:01:25.240 --> 0:01:29.120 don't see the case for rate cuts in this data. 0:01:29.200 --> 0:01:31.200 I mean, just in order of importance for. 0:01:31.160 --> 0:01:31.960 What I'm looking at. 0:01:32.120 --> 0:01:36.000 Looking at initial claims dropping back below two hundred and 0:01:36.000 --> 0:01:39.160 ten thousand in the latest week, I mean exceptionally low 0:01:39.480 --> 0:01:42.200 layoff activity. So that's the sign of, I think, a 0:01:42.240 --> 0:01:45.319 still solid labor market. And then if you go next 0:01:45.440 --> 0:01:49.080 to PPI, it definitely came in hotter than we expected. 0:01:49.800 --> 0:01:54.600 We already penciled in a point three four pc increase 0:01:54.720 --> 0:01:57.160 four February so for later this month, So we might 0:01:57.200 --> 0:01:59.960 have to take another look at this after this broadcast 0:02:00.080 --> 0:02:03.800 and and me bump that up a little. But nothing 0:02:03.880 --> 0:02:06.840 there that I think. If I'm a policy maker sitting 0:02:06.880 --> 0:02:10.400 around Washington next week, I'm going to be really confident 0:02:11.080 --> 0:02:13.799 that we've done enough. And then the retail sales, I mean, 0:02:13.840 --> 0:02:16.519 I think Tom is exactly right. Look at Core, look 0:02:16.560 --> 0:02:19.440 at the control group. The only thing that we always 0:02:19.480 --> 0:02:22.040 tell clients about retail sales is it's just capturing a 0:02:22.080 --> 0:02:26.440 subset of consumer spending mostly on goods. I like to 0:02:26.480 --> 0:02:28.840 look at, you know, consumer incomes still growing at a 0:02:28.840 --> 0:02:31.720 good pace through February, and I think that will go 0:02:31.760 --> 0:02:32.320 into spending. 0:02:32.440 --> 0:02:35.000 So yeah, that's my Takeing different. 0:02:35.000 --> 0:02:36.240 Cleveland with us a paid RAO. 0:02:36.320 --> 0:02:39.960 We welcome all of you across America and worldwide. Thrilled 0:02:40.000 --> 0:02:42.960 with the worldwide performance. Apple car Play is the way 0:02:42.960 --> 0:02:44.480 to get us. It's a new way to get us 0:02:44.520 --> 0:02:47.639 safer better. Good morning on Android and Google Play as 0:02:47.680 --> 0:02:52.880 well on YouTube. Go to Bloomberg Podcasts and it's just growing, growing, growing. 0:02:53.000 --> 0:02:57.520 Thank you for your interest in Bloomberg Podcasts and our 0:02:57.560 --> 0:02:58.720 live chat out there. 0:02:58.560 --> 0:03:01.880 Really in forum. Good morning of all places, Caracas, Venezuela. 0:03:02.000 --> 0:03:05.639 Thank you so much for coming to us from Caracas 0:03:06.080 --> 0:03:06.640 this morning. 0:03:06.919 --> 0:03:08.920 Jeff Jason Furman up. 0:03:08.800 --> 0:03:10.880 At Harvard had a really important and I don't want 0:03:10.880 --> 0:03:13.080 to sum up the economic data here, but he had 0:03:13.120 --> 0:03:15.840 a really important insight, which is three point nine percent 0:03:15.880 --> 0:03:20.959 unemployment is different than four point zero percent unemployment. When 0:03:20.960 --> 0:03:23.160 I see claims and what they did today two hundred 0:03:23.240 --> 0:03:26.960 nine thousand with a constructive fully employed revision from two 0:03:27.040 --> 0:03:30.839 seventeen to two ten, you don't get to a four 0:03:30.880 --> 0:03:33.560 percent unemployment, right, do you? 0:03:33.600 --> 0:03:33.680 No? 0:03:33.760 --> 0:03:36.320 And you also have continuing claims dipping back below that 0:03:36.360 --> 0:03:39.960 one point nine, So that looks good. I'm a little 0:03:40.280 --> 0:03:43.200 skeptical on the three point nine tom that we got 0:03:43.280 --> 0:03:45.880 last week. I mean, you look at that household survey. 0:03:46.280 --> 0:03:49.840 You know that is notoriously volatile survey. I think the 0:03:50.400 --> 0:03:53.680 confidence interval, the plus minus is six hundred thousand on 0:03:53.880 --> 0:03:57.440 the household employment survey. It was down a bit last month, 0:03:57.480 --> 0:03:59.720 but it's been volatile in the last year and a half, 0:03:59.760 --> 0:04:02.640 and it's possible we touch three point nine, but then 0:04:02.640 --> 0:04:05.800 we see dip back down in the unemployment rate in 0:04:05.840 --> 0:04:08.040 the months ahead, you know, back to three point seven 0:04:08.120 --> 0:04:10.160 or something. So I think we're we're gonna stick under 0:04:10.160 --> 0:04:12.720 four percent for the year. That's that's our forecast. 0:04:13.120 --> 0:04:15.720 So the labor market it is still hot. Of course, 0:04:16.000 --> 0:04:17.640 like you said at the top, you don't see any 0:04:17.720 --> 0:04:19.760 reason for the FED to cut rates. 0:04:19.800 --> 0:04:19.960 Here. 0:04:20.040 --> 0:04:22.839 Let's try to create a little bit more controversy. Do 0:04:22.880 --> 0:04:26.000 you put any water in the theory that maybe actually 0:04:26.000 --> 0:04:27.160 the next move will be a hike. 0:04:28.320 --> 0:04:30.760 I think you can't rule it out. Why do I 0:04:30.800 --> 0:04:35.400 say that it's possible to be controversial, that maybe we're 0:04:35.440 --> 0:04:38.400 just gonna settle in at a bit higher year on 0:04:38.480 --> 0:04:41.359 year rate of inflation, not you know, not five percent, 0:04:41.760 --> 0:04:44.200 not six percent like we saw in the middle of 0:04:44.240 --> 0:04:47.640 twenty two, but you know, three to four percent, something 0:04:47.680 --> 0:04:50.159 in that range, and then our policy maker is going 0:04:50.200 --> 0:04:52.760 to be okay with that. Maybe some are maybe some 0:04:52.839 --> 0:04:56.840 think that the inflation target should be higher, but I think, 0:04:57.000 --> 0:04:59.320 buy and large, most policy makers want a two handle 0:04:59.680 --> 0:05:02.320 on a inflation So three to four percent on core 0:05:02.360 --> 0:05:04.479 inflation is too high. And in that case, if we 0:05:04.560 --> 0:05:07.280 just sort of linger there, that might open the door 0:05:07.400 --> 0:05:10.120 to another hike. In our outlook, we put about a 0:05:10.120 --> 0:05:11.680 ten percent chance on that for. 0:05:11.600 --> 0:05:15.000 The year, So you know, it's a risk. It's not 0:05:15.040 --> 0:05:16.680 our base price, but it is definitely a risk. 0:05:16.800 --> 0:05:19.440 Katie Chi, your yield up one basis point ten, You're 0:05:19.480 --> 0:05:21.240 yield up three basis. 0:05:20.839 --> 0:05:21.719 Points this morning. 0:05:21.839 --> 0:05:23.640 Yeah, we are seeing a little bit of a cooling 0:05:23.720 --> 0:05:25.600 of that knee jerk reaction. You take a look at 0:05:25.640 --> 0:05:28.000 S and P five hundred futures, they're still higher to 0:05:28.080 --> 0:05:30.560 the tune of two tenths of a percent. They had 0:05:30.600 --> 0:05:33.000 been looking at a little pre market gain of three 0:05:33.120 --> 0:05:36.279 tenths of a percent, So not too much action. But 0:05:36.680 --> 0:05:40.960 let's keep this conversation going on inflation. That's sticky inflation. 0:05:41.160 --> 0:05:44.640 What keeps inflation elevated maybe to the tune of three 0:05:44.640 --> 0:05:48.479 to four percent when you really break apart the components, Well, you. 0:05:48.480 --> 0:05:49.880 Break apart the components we had. 0:05:50.120 --> 0:05:53.600 We benefited last year from goods prices discillerating quite a bit. 0:05:53.560 --> 0:05:54.520 Falling year on year. 0:05:55.279 --> 0:05:57.960 It's possible in our view that that's behind us, and 0:05:58.160 --> 0:06:00.520 goods prices will be sort of flat. There could be 0:06:00.520 --> 0:06:04.080 even some upside pressure there. So I wouldn't bake in 0:06:04.120 --> 0:06:06.560 any further disinflation based on that one. 0:06:06.720 --> 0:06:08.560 Another area where I have. 0:06:08.480 --> 0:06:11.400 The keenest interest in People say to me, look, Jeffrey, 0:06:11.440 --> 0:06:14.039 look at the private sector rent metrics. 0:06:14.040 --> 0:06:15.560 They're showing disinflation. 0:06:16.120 --> 0:06:18.040 And I say, yeah, a lot of those private sector 0:06:18.080 --> 0:06:21.440 rent metrics are looking at new leases, so that's only 0:06:21.480 --> 0:06:23.600 capturing a subset of the market. 0:06:23.880 --> 0:06:25.560 The BLS metric that's looking at. 0:06:25.440 --> 0:06:28.200 The average rental rate, you know, including people who have 0:06:28.240 --> 0:06:31.919 renewed leases. That might be a better reflection and five 0:06:31.960 --> 0:06:35.039 percent rental increase that might be a more a better 0:06:35.080 --> 0:06:37.480 reflection of reality. That's higher than we saw pre COVID, 0:06:37.800 --> 0:06:39.560 So that that argues for higher inflation. 0:06:40.000 --> 0:06:41.320 Core inflation going forward. 0:06:41.480 --> 0:06:45.599 Paid and Riegel are living in the new productivity of America. 0:06:45.680 --> 0:06:48.599 You're away from three zip codes in Manhattan with a 0:06:48.680 --> 0:06:50.720 view of a New York City and maybe you can 0:06:50.760 --> 0:06:56.760 call it the trajectory from Washington up to Boston. Tell 0:06:56.839 --> 0:07:01.920 us the new productivity you observe in Austin, in Atlanta, 0:07:01.920 --> 0:07:04.600 I've read about the Georgia boom here a couple of 0:07:04.680 --> 0:07:07.560 articles the last couple of days. And then out to California. 0:07:07.640 --> 0:07:10.560 Jeffrey Cleveland the new productivity in America? 0:07:10.760 --> 0:07:11.720 Do you observe it? 0:07:13.000 --> 0:07:15.840 Well, yeah, I do, and we definitely are seeing more 0:07:15.880 --> 0:07:21.600 productivity internally. You know, we've got offices in Los Angeles, Boston, London, 0:07:21.600 --> 0:07:24.480 and Milan. So I know our London trading floor tunes 0:07:24.480 --> 0:07:25.760 into this program, tom. 0:07:25.600 --> 0:07:29.240 So hello to those folks. And I think the productivity 0:07:29.280 --> 0:07:30.880 is maybe it's the key here. 0:07:31.360 --> 0:07:35.160 You can have higher wage growth four to five percent 0:07:35.200 --> 0:07:37.720 nominal wage growth, and it not means that you have 0:07:37.800 --> 0:07:40.840 higher inflation if you get productivity to pick up on 0:07:40.880 --> 0:07:43.840 a sustainable basis. The last twelve months, I think we've 0:07:43.840 --> 0:07:46.280 seen that productivity picked up. It's about two percent year 0:07:46.280 --> 0:07:50.200 on year. So do we get more gains there do 0:07:50.320 --> 0:07:54.800 we get you know, sustainable two percent type of productivity growth. 0:07:54.800 --> 0:07:57.200 That's a that's a big open question. We need it 0:07:57.280 --> 0:08:01.160 because that can keep inflation and check wise we might 0:08:01.720 --> 0:08:02.720 we might end up at. 0:08:02.680 --> 0:08:04.640 Higher levels of inflation or higher rates inflation. 0:08:04.720 --> 0:08:07.000 As I mean, jeff I got thirty seconds left. Did 0:08:07.040 --> 0:08:09.400 you really swim across the English Channel? 0:08:09.720 --> 0:08:12.960 Yes, their two thousand and eight, September thirteen, two thousand 0:08:12.960 --> 0:08:15.880 and eight. It was a Saturday. I believe Lehman was 0:08:15.920 --> 0:08:19.000 preparing to file bankerscy on that Monday morning. So in 0:08:19.040 --> 0:08:21.600 the midst of the financial crisis, I just decided to 0:08:21.640 --> 0:08:26.040 swim the twenty six miles from Dover in the UK 0:08:26.280 --> 0:08:29.000 to France ten hours and change. 0:08:29.240 --> 0:08:30.400 That's phenomenal. 0:08:30.440 --> 0:08:33.880 What was your one observation that you did not expect 0:08:33.920 --> 0:08:36.600 when you did this amazing feat. 0:08:36.679 --> 0:08:37.880 What was the thing we learned? 0:08:38.440 --> 0:08:41.000 It's the cold, Tom, It's not the distance. You can train, 0:08:41.080 --> 0:08:44.400 you can prepare for the distance, it's difficult to prepare 0:08:44.400 --> 0:08:47.360 for the cold. It was fifty eight degrees fahrenheit in 0:08:47.400 --> 0:08:50.120 the water that day, so that that was the big challenge. 0:08:50.400 --> 0:08:51.880 Jeffrey, thank you so much. 0:08:51.880 --> 0:08:53.720 Don't be a stranger way out on the West coast 0:08:53.720 --> 0:08:56.680 out of Claremont and all his work with Peyton and Rigel. 0:08:56.720 --> 0:09:10.760 Jeffrey Cleveland with us this spring, Cather greifeld in for 0:09:10.800 --> 0:09:12.880 Paul Swinging. You've got a qualified. 0:09:12.400 --> 0:09:15.000 Guest to drive forward this wall of data. 0:09:15.600 --> 0:09:17.719 Yeah, of course we're going to be speaking to now, 0:09:17.760 --> 0:09:21.000 Jeffrey Cleveland. He is cheap us a condomist over at 0:09:21.040 --> 0:09:24.720 Peydon and Reigel. Let's talk about what we just learned. 0:09:24.760 --> 0:09:27.880 Of course, retail sales a little bit cooler than anticipated, 0:09:27.880 --> 0:09:32.079 but PPI coming in hot for February, increasing by point 0:09:32.160 --> 0:09:35.439 six percent. Of course consensus had been looking for point 0:09:35.640 --> 0:09:38.840 three percent. Would love to hear your immediate reaction, because 0:09:38.880 --> 0:09:41.160 it looks like right now the market's reacting to that PPI. 0:09:42.400 --> 0:09:44.640 Well, I mean it's early here on the West coast, 0:09:44.679 --> 0:09:47.560 so maybe I should start with a little controversy. I 0:09:47.679 --> 0:09:51.920 don't see the case for raycuts in this data. I mean, 0:09:52.280 --> 0:09:54.440 just in order of importance for what I'm looking at. 0:09:54.559 --> 0:09:58.440 Looking at initial claims dropping back below two hundred and 0:09:58.480 --> 0:10:01.559 ten thousand in the latest week, I mean exceptionally low 0:10:01.960 --> 0:10:04.680 layoff activity. So that's the sign of I think a 0:10:04.720 --> 0:10:07.760 still solid labor market. And then if you go next 0:10:07.880 --> 0:10:11.520 to PPI. It definitely came in hotter than we expected. 0:10:12.240 --> 0:10:17.120 We already penciled in a point three poor PCE increase 0:10:17.160 --> 0:10:19.600 four February, so for later this month. So we might 0:10:19.640 --> 0:10:22.440 have to take another look at this after this broadcast 0:10:22.480 --> 0:10:26.560 and maybe bumped that up a little. But nothing there 0:10:26.640 --> 0:10:29.680 that I think. If I'm a policy maker sitting around 0:10:29.760 --> 0:10:34.160 Washington next week, I'm gonna be really confident that we've 0:10:34.160 --> 0:10:36.360 done enough. And then the retail sales, I mean, I 0:10:36.360 --> 0:10:39.160 think Tom is exactly right. Look at Core, look at 0:10:39.160 --> 0:10:42.120 the control group. The only thing that we always tell 0:10:42.160 --> 0:10:45.040 clients about retail sales is it's just capturing a subset 0:10:45.600 --> 0:10:49.079 of consumer spending mostly on goods. I like to look 0:10:49.120 --> 0:10:51.480 at you know, consumer incomes still growing at a good 0:10:51.480 --> 0:10:54.200 pace through through February, and I think that will go 0:10:54.200 --> 0:10:54.760 into spending. 0:10:54.920 --> 0:10:56.560 So yeah, that's my take. 0:10:56.800 --> 0:10:59.720 Different Cleveland with us a paidrago, we welcome all of 0:10:59.760 --> 0:11:03.760 you across America and worldwide. Thrilled with the worldwide performance. 0:11:04.120 --> 0:11:06.040 Apple car Play is the way to get us. It's 0:11:06.040 --> 0:11:08.199 a new way to get us safer better. Good Morning 0:11:08.200 --> 0:11:11.960 on Android and Google Play as well on YouTube. Go 0:11:11.960 --> 0:11:15.680 to Bloomberg Podcasts and it's just growing, growing, growing. Thank 0:11:15.760 --> 0:11:20.240 you for your interest in Bloomberg Podcasts and our live 0:11:20.320 --> 0:11:24.360 chat out there really in form Good morning of all places, Caracas, Venezuela. 0:11:24.440 --> 0:11:28.120 Thank you so much for coming to us from Caracas 0:11:28.520 --> 0:11:32.199 this morning. Jeff Jason Furman up at Harvard had a 0:11:32.240 --> 0:11:34.240 really important and I don't want to sum up the economic 0:11:34.320 --> 0:11:37.120 data here, but he had a really important insight, which 0:11:37.160 --> 0:11:40.480 is three point nine percent unemployment is different than four 0:11:40.520 --> 0:11:44.520 point zero percent unemployment. When I see claims and what 0:11:44.600 --> 0:11:46.880 they did today two hundred and nine thousand with a 0:11:46.960 --> 0:11:51.360 constructive fully employed revision from two seventeen to two ten, 0:11:52.080 --> 0:11:54.720 you don't get to a four percent unemployment, right, do 0:11:54.800 --> 0:11:56.120 you no? 0:11:56.240 --> 0:11:58.760 And you also have continuing claims dipping back below that 0:11:58.840 --> 0:12:02.400 one point nine, So that looks good. I'm a little 0:12:02.760 --> 0:12:05.640 skeptical on the three point nine tom that we got 0:12:05.760 --> 0:12:08.319 last week. I mean, you look at that household survey. 0:12:08.760 --> 0:12:12.319 You know that is notoriously volatile survey. I think the 0:12:12.840 --> 0:12:16.160 confidence interval, the plus minus is six hundred thousand on 0:12:16.320 --> 0:12:19.880 the household employment survey. It was down a bit last month, 0:12:19.920 --> 0:12:22.240 but it's been volatile in the last year and a half, 0:12:22.280 --> 0:12:25.080 and it's possible. We touched three point nine, but then 0:12:25.120 --> 0:12:28.080 we see a dip back down in the unemployment rate 0:12:28.160 --> 0:12:30.240 in the months ahead, you know, back to three point 0:12:30.280 --> 0:12:32.280 seven or something. So I think we're going to stick 0:12:32.400 --> 0:12:33.559 under four percent for the year. 0:12:34.280 --> 0:12:35.160 That's our forecast. 0:12:35.559 --> 0:12:38.160 So the labor market it is still hot. Of course, 0:12:38.480 --> 0:12:40.120 like you said at the top, you don't see any 0:12:40.160 --> 0:12:42.880 reason for the FED to cut rates here. Let's try 0:12:42.920 --> 0:12:45.840 to create a little bit more controversy. Do you put 0:12:45.880 --> 0:12:48.800 any water in the theory that maybe actually the next 0:12:48.800 --> 0:12:49.600 move will be a hike? 0:12:50.800 --> 0:12:53.200 I think you can't rule it out. Why do I 0:12:53.240 --> 0:12:57.839 say that it's possible to be controversial that maybe we're 0:12:57.880 --> 0:13:00.719 just going to settle in at a bit higher year 0:13:00.760 --> 0:13:03.840 on year rate of inflation, not you know, not five percent, 0:13:04.240 --> 0:13:06.680 not six percent like we saw in the middle of 0:13:06.720 --> 0:13:10.080 twenty two, but you know, three to four percent something 0:13:10.120 --> 0:13:12.600 in that range, and then our policy maker is going 0:13:12.679 --> 0:13:15.199 to be okay with that. Maybe some are maybe some 0:13:15.280 --> 0:13:19.360 think that the inflation target should be higher, but I think, 0:13:19.440 --> 0:13:21.760 buy and large most policy makers want a two handle 0:13:22.160 --> 0:13:25.199 on inflation. So three to four percent on core inflation 0:13:25.280 --> 0:13:27.080 is too high. And in that case, if we just 0:13:27.120 --> 0:13:29.960 start of linger there that might open the door to 0:13:30.120 --> 0:13:32.720 another hike. In our outlook, we put about a ten 0:13:32.760 --> 0:13:35.640 percent chance on that for the year, so you know 0:13:35.679 --> 0:13:38.200 it's it's a risk. It's not our base pes, but 0:13:38.240 --> 0:13:39.160 it is definitely a risk. 0:13:39.280 --> 0:13:42.200 Katie Chire, yield up one basis point ten, You're yield 0:13:42.280 --> 0:13:44.160 up three basis points this morning. 0:13:44.280 --> 0:13:46.079 Yeah, we are seeing a little bit of a cooling 0:13:46.160 --> 0:13:48.040 of that knee jerk reaction. You take a look at 0:13:48.080 --> 0:13:50.480 S and P five hundred futures, they're still higher to 0:13:50.520 --> 0:13:53.040 the tune of two tenths of a percent. They had 0:13:53.080 --> 0:13:55.520 been looking at a little pre market gain of three 0:13:55.559 --> 0:13:58.760 tenths of a percent, So not too much action. But 0:13:59.120 --> 0:14:03.400 let's keep this converse going on inflation. That's sticky inflation. 0:14:03.600 --> 0:14:07.080 What keeps inflation elevated maybe to the tune of three 0:14:07.120 --> 0:14:10.960 to four percent when you really break apart the components, Well. 0:14:10.840 --> 0:14:13.360 You break apart the components we had we benefited last 0:14:13.440 --> 0:14:16.040 year from goods prices discillerating quite a bit. 0:14:16.040 --> 0:14:16.960 Falling year on year. 0:14:17.720 --> 0:14:20.120 It's possible in our view that that that's behind us 0:14:20.200 --> 0:14:22.960 and goods prices be sort of flat. There could be 0:14:23.000 --> 0:14:25.960 even some upside pressure there. So I wouldn't I wouldn't 0:14:26.200 --> 0:14:28.160 bake in any further disinflation based. 0:14:27.880 --> 0:14:29.000 On that one. 0:14:29.200 --> 0:14:31.960 Another area where you know, I have a keenest interest 0:14:32.000 --> 0:14:34.320 in People say to me, look, Jeffrey, look at the 0:14:34.360 --> 0:14:36.480 private sector rent metrics. 0:14:36.480 --> 0:14:38.000 They're showing disinflation. 0:14:38.560 --> 0:14:40.520 And I say, yeah, a lot of those private sector 0:14:40.520 --> 0:14:43.920 rent metrics are looking at new leases, so that's only 0:14:43.920 --> 0:14:47.520 capturing a subset of the market. The BLS metric that's 0:14:47.520 --> 0:14:50.400 looking at the average rental rate, you know, including people 0:14:50.400 --> 0:14:53.600 who have renewed leases. That might be a better reflection 0:14:53.840 --> 0:14:56.920 and five percent rental increase that might be a more 0:14:57.200 --> 0:14:59.280 a better reflection of reality that's higher than we saw 0:14:59.320 --> 0:15:03.080 pre COVID, So that argues for higher inflation core inflation 0:15:03.200 --> 0:15:03.800 going forward. 0:15:03.960 --> 0:15:08.080 Peyton Riegel are living in the new productivity of America. 0:15:08.120 --> 0:15:09.840 You're away from three zip codes. 0:15:09.560 --> 0:15:12.440 In Manhattan with a view of a New York City 0:15:12.480 --> 0:15:17.360 and maybe you can call it the trajectory from Washington 0:15:17.520 --> 0:15:21.680 up to Boston. Tell us the new productivity you observe 0:15:22.640 --> 0:15:25.800 in Austin. In Atlanta, I read about the Georgia boom 0:15:25.840 --> 0:15:28.800 here a couple articles the last couple of days, and 0:15:28.840 --> 0:15:33.000 then out to California. Jeffrey Cleveland, the new productivity in America. 0:15:33.200 --> 0:15:34.160 Do you observe it? 0:15:35.440 --> 0:15:38.280 Well, yeah, I do, and we definitely are seeing more 0:15:38.320 --> 0:15:44.040 productivity internally. You know, we've got offices in Los Angeles, Boston, London, 0:15:44.080 --> 0:15:46.920 and Milan, so I know our London trading floor tunes 0:15:46.960 --> 0:15:48.240 into this program, Tom. 0:15:48.080 --> 0:15:51.680 So hello to those folks. And I think the productivity 0:15:51.720 --> 0:15:53.360 is maybe it's the key here. 0:15:53.800 --> 0:15:57.600 You can have higher wage growth four to five percent 0:15:57.640 --> 0:16:00.200 nominal wage growth, and it not mean that you have 0:16:00.280 --> 0:16:03.240 higher inflation if you get productivity to pick up on 0:16:03.320 --> 0:16:06.280 a sustainable basis. The last twelve months, I think we've 0:16:06.280 --> 0:16:07.720 seen that productivity picked up. 0:16:07.720 --> 0:16:10.440 It's about two percent year on year. So do we 0:16:10.480 --> 0:16:11.640 get more gains there? 0:16:12.560 --> 0:16:16.400 Do we get you know, sustainable two percent type of 0:16:16.480 --> 0:16:19.280 productivity growth, that's a that's a big open question. We 0:16:19.320 --> 0:16:22.840 need it because that can keep inflation and check. Otherwise 0:16:22.920 --> 0:16:25.760 we might we might end up at higher levels of 0:16:25.760 --> 0:16:27.120 inflation or higher rates of inflation. 0:16:27.160 --> 0:16:29.480 As I mean, Jeff, I got thirty seconds left. Did 0:16:29.480 --> 0:16:31.880 you really swim across the English channel? 0:16:32.160 --> 0:16:32.360 Yes? 0:16:32.400 --> 0:16:35.640 There, two thousand and eight, September thirteen, two thousand and eight. 0:16:35.640 --> 0:16:36.480 It was a Saturday. 0:16:36.760 --> 0:16:40.600 I believe Lehman was preparing to file bankerscy on that 0:16:40.640 --> 0:16:43.000 Monday morning. So in the midst of the financial crisis, 0:16:43.000 --> 0:16:46.280 I just decided to swim the twenty six miles from 0:16:46.760 --> 0:16:51.400 Dover in the UK to France ten hours and change. 0:16:51.680 --> 0:16:52.840 That's phenomenal. 0:16:52.880 --> 0:16:56.320 What was your one observation that you did not expect 0:16:56.400 --> 0:16:59.040 when you did this amazing feet? 0:16:59.120 --> 0:17:00.320 What was the thing with learned? 0:17:00.360 --> 0:17:03.440 It's the cold, Tom, It's not the distance. You can train, 0:17:03.520 --> 0:17:06.840 you can prepare for the distance. It's difficult to prepare 0:17:06.840 --> 0:17:09.800 for the cold. It was fifty eight degrees fahrenheit in 0:17:09.840 --> 0:17:11.800 the water that day, so that was that was the 0:17:11.840 --> 0:17:12.600 big challenge. 0:17:12.880 --> 0:17:14.320 Jeffrey, thank you so much. 0:17:14.359 --> 0:17:16.120 Don't be a stranger way out on the west coast 0:17:16.160 --> 0:17:19.119 out of Claremont and all his work with Peyton and Rigel. 0:17:19.200 --> 0:17:27.840 Jeffrey Cleveland with us this morning. Commercial real estate isn't 0:17:27.880 --> 0:17:31.000 part of the buoyancy right now. And instead of talking, 0:17:31.080 --> 0:17:32.960 you know, we could talk sell side by this stock 0:17:33.040 --> 0:17:36.200 sell that. How about talking to somebody with a heritage 0:17:36.200 --> 0:17:38.919 Back to Grubb and Ellis and he's with Marcus and 0:17:38.920 --> 0:17:41.440 Miltchep in the trenches of this is somethime. Geez joins 0:17:41.520 --> 0:17:44.840 us right now with twenty six years of like in 0:17:44.880 --> 0:17:47.960 the trenches work. I love that on Twitter. Whether it's 0:17:47.960 --> 0:17:49.919 an ex JP Morgan guy, I don't have them in 0:17:49.920 --> 0:17:54.080 front of me. And it'll take a certain property. It's suburban, 0:17:54.440 --> 0:17:58.000 it's nineteen eighties. Either they're given the keys back to 0:17:58.080 --> 0:18:01.320 the bank or the selling it for an eighty six 0:18:01.400 --> 0:18:06.520 percent discount. How bad is it out there in nineteen eighties? 0:18:06.800 --> 0:18:10.560 Ugly suburban office buildings that we work used to be in, 0:18:10.640 --> 0:18:11.120 but they're. 0:18:10.960 --> 0:18:11.880 Not in them anymore. 0:18:12.440 --> 0:18:14.600 Good morning, Great to be with you on the program. 0:18:14.720 --> 0:18:18.760 There are instances of those pretty terrible occurrences that we're 0:18:19.000 --> 0:18:22.919 tracking and witnessing all over the country, mostly in urban areas, 0:18:23.160 --> 0:18:26.880 less so in suburban areas, and very limited to exactly 0:18:26.880 --> 0:18:30.719 what you said. Older product that's obsolete, that hasn't been 0:18:30.800 --> 0:18:34.639 kept up, didn't have capital improvements, especially in suburban markets 0:18:34.680 --> 0:18:39.120 where migration has benefited office usage. Look at Florida, for example, 0:18:39.800 --> 0:18:42.080 the office market there is doing far better than many 0:18:42.080 --> 0:18:42.679 other markets. 0:18:42.720 --> 0:18:44.120 What happens to that building? 0:18:44.640 --> 0:18:47.200 If this was in Quincy, Mass outside one twenty eight 0:18:47.640 --> 0:18:49.640 too far from Famway Park for me to live there, 0:18:49.680 --> 0:18:54.560 But there's Quincy Mass typical building belly up the person 0:18:54.600 --> 0:18:57.120 that bought that for twenty dollars per square foot or whatever, 0:18:57.840 --> 0:18:59.440 what are they going to do with that property? 0:18:59.560 --> 0:19:00.760 Mostly reuse. 0:19:00.840 --> 0:19:04.360 Office is very difficult to reimagine and reuse. We saw 0:19:04.480 --> 0:19:08.240 retail go through a significant degree of reuse and reimagination 0:19:08.320 --> 0:19:11.320 of obsolete shopping centers over the last fifteen twenty years. 0:19:11.560 --> 0:19:13.760 Much easier to do than office buildings, which has a 0:19:13.840 --> 0:19:16.800 cost of conversion to other uses and cost of modifications 0:19:16.880 --> 0:19:19.800 is a lot higher. But there are entrepreneurial and private 0:19:19.800 --> 0:19:22.480 investors out there with a lot of capital on the side, yes, 0:19:22.720 --> 0:19:28.280 that are converting these distressed situations to really interesting investment 0:19:28.320 --> 0:19:32.320 opportunities over the long haul. One really important factor commercial 0:19:32.359 --> 0:19:35.239 real estate is being judged as a book by the 0:19:35.280 --> 0:19:38.639 cover of that example that you just talked about, And 0:19:38.720 --> 0:19:43.320 the generalization is really harmful because apartment fundamentals are fine. 0:19:43.400 --> 0:19:46.399 They're soft, but they're fine. Retail is coming back strong. 0:19:47.000 --> 0:19:51.200 Niches like self storage, hospitality, they're all doing very very well. 0:19:51.280 --> 0:19:53.600 Industrial warehouses still doing very well. 0:19:53.680 --> 0:19:56.520 Little bit of how he did that. He said, basically, Tom, 0:19:56.560 --> 0:19:57.040