WEBVTT - Apollo Management Chief Economist Torsten Slok Talks Labor Market

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's get back to Friday's blow out payrolls report, reshaping

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<v Speaker 2>FED expectations for the rest of the year. Torston Slock

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<v Speaker 2>of Apollo saying there's no need for cuts. Quote the

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<v Speaker 2>feedtest cutting rates, which is boosting growth and inflation. Further,

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<v Speaker 2>combined with very easy financial fiscal conditions, the bottom line

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<v Speaker 2>remains that rates will stay higher for longer. Torston Slock

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<v Speaker 2>joined just now for more. Torston, good Mornic morning. You

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<v Speaker 2>quick your breath after the victory lamp around a studio tape.

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<v Speaker 2>It's good to see, sir. How did you feel on

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<v Speaker 2>Friday when that number drops?

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<v Speaker 1>Well, I think it makes sense what's going on. I mean,

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<v Speaker 1>as you just talked about, it's not clear that the

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<v Speaker 1>data has been slowing down. GDP last quarter was around

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<v Speaker 1>three the land of FED GDPN now for this quarter

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<v Speaker 1>is around three. And if you take this combined with

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<v Speaker 1>broadly speaking, strong data on consumer and durable goods, it

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<v Speaker 1>makes sense that the label market is also still hot.

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<v Speaker 1>It never made sense to say, oh, the economy is good,

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<v Speaker 1>but the labor market is bad. You can't have it

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<v Speaker 1>both ways either. It's good in the economy and good

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<v Speaker 1>in the label market. You can't have that economy is

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<v Speaker 1>good and the label market is bad. That just never

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<v Speaker 1>made sense. So that's why, given the economic data coming

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<v Speaker 1>in the totality of the data, as jfl would say,

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<v Speaker 1>I still think that it's very obvious that things are

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<v Speaker 1>still chogging along.

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<v Speaker 2>Well, let's say on the totality of the data. So

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<v Speaker 2>these survey data last week, the MS employment components are

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<v Speaker 2>not fantastic.

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<v Speaker 1>Well, the service headline was still good.

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<v Speaker 2>Well, we can get into that in a moment. The

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<v Speaker 2>Jolts as well. Look at the Jolts job openings were wrap,

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<v Speaker 2>the hiring was down, the quits rate was down. If

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<v Speaker 2>things were great, you'd expect the quits rate to still

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<v Speaker 2>be elevated, if you'd expect hiring to be elevated too.

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<v Speaker 2>Some people have pointed out that maybe this is inconsistent

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<v Speaker 2>with the broader data. What do you think back to them.

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<v Speaker 1>Well, I think that was going on in the job

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<v Speaker 1>survey is really a normalization because if the job survey,

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<v Speaker 1>we also have that the layoff rate is still one,

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<v Speaker 1>the layoff rate has not gone up, meaning it's not

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<v Speaker 1>the case that companies are firing workers. You know, on

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<v Speaker 1>the other hand, just seeing a little bit less hiring,

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<v Speaker 1>so that's just a normalization and coming combined. Of course,

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<v Speaker 1>we're still steady immigration and at the same time tail

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<v Speaker 1>wins from defense spending, from AI, from energy transition, and

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<v Speaker 1>consumers that are not very sensitive to interest rates going

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<v Speaker 1>up because of locked in low interest rates. We still

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<v Speaker 1>have some fairly strong tailwinds to the outlook and less

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<v Speaker 1>sensitivity to what rates are doing. So therefore it still

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<v Speaker 1>makes sense to believe that over the next several quarters

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<v Speaker 1>the economy will do just fine. Well.

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<v Speaker 3>It's that sort of thing that's allowed a lot of

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<v Speaker 3>critics to look at this decision in light of the

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<v Speaker 3>jobs ada and say it was a mistake to go fifty.

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<v Speaker 3>But Torsten is their world where this job support wouldn't

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<v Speaker 3>have looked as strong if they didn't go fifty. That

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<v Speaker 3>it helped maintain strength in the labor market and reinvigorate confidence.

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<v Speaker 1>Well, the key issue, of course, as usual, is what

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<v Speaker 1>are the long and variable acts. The FED textbook would

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<v Speaker 1>say that's twelve to eighteen months before anything starts to

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<v Speaker 1>show up. But as we know very well, this stock

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<v Speaker 1>market is now becoming a very important indicator for companies

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<v Speaker 1>in terms of are we doing well, We're not doing well.

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<v Speaker 1>She were hired, she were not hire. And given the

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<v Speaker 1>significant tail into risky assets, credit spreads are very tight,

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<v Speaker 1>both on it high yielded loans and also when it

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<v Speaker 1>comes to the equities going up. All that made actually

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<v Speaker 1>exactly imply that we have had faster transmission of Marnin

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<v Speaker 1>Sarry policy because the signaling, the forward guidance has been

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<v Speaker 1>coming through much quicker than what the textbook would have predicted.

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<v Speaker 3>Does that suggest then fifty was a mistake.

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<v Speaker 1>Well, Jay Powell said at the press conference ten times

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<v Speaker 1>that they did this to recalibrate monetary policy, So there

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<v Speaker 1>was a lot of this time. Of course, the discussion

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<v Speaker 1>as of course also you guys had a lot of

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<v Speaker 1>hear about why did they do this? What's recalibration as

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<v Speaker 1>an excuse, And of course the excuse was inflation has

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<v Speaker 1>now come down, but given that the economic data is

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<v Speaker 1>still strong, it really is goldilocks with inflation back close

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<v Speaker 1>to two percent and the economic data just continues to

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<v Speaker 1>power along. So that's why the Fed is now stuck

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<v Speaker 1>at a situation where they need to say, well, should

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<v Speaker 1>we look at the economic data as you just said before, Danny,

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<v Speaker 1>or should we turn to inflation and say maybe inflation

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<v Speaker 1>is a risk of moving up again. Well, look at the.

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<v Speaker 4>Totality of data, and Jonathan pointed out that some of

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<v Speaker 4>these actually are going in the wrong direction. Besides this

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<v Speaker 4>one unemployment point that was a blowout. Do you think

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<v Speaker 4>the Fed will air on the side of cutting too

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<v Speaker 4>much rather than cutting too little?

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<v Speaker 1>Well, the Fed has definitely had a tendency that the

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<v Speaker 1>risk to the unemployment rate for the last five years

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<v Speaker 1>has always been in their view that it would go higher.

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<v Speaker 1>So that's why very important discussion on that is, of

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<v Speaker 1>course the world where do they put the emphasis do

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<v Speaker 1>they put the emphasis now on? That is not really

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<v Speaker 1>only the Joel's data that's weakened. It's also a number

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<v Speaker 1>of other indicators that have shown slight weakness when it

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<v Speaker 1>comes to some specific small areas. But the vast majority

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<v Speaker 1>of the data that comes in consumers. In the daily data,

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<v Speaker 1>you're still seeing restaurant data very good, TSA data for

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<v Speaker 1>travel still very good. You also have the depit cand

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<v Speaker 1>data from my Bloomberg screen and spending on the daily

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<v Speaker 1>data is also very good. So you have across the

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<v Speaker 1>board a lot of indicators and still continue to be

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<v Speaker 1>really moving along quite nicely. There is just no slowdown.

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<v Speaker 1>It's very clear that the Joe's data stands out on

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<v Speaker 1>its own as a very special story.

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<v Speaker 4>So November seven, what do you think the FEDS should

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<v Speaker 4>do and what do you think they will do?

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<v Speaker 1>Well? The problem for them now is that they have

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<v Speaker 1>pre committed themselves too much to our star and to

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<v Speaker 1>rates going lower. So that's why I do think that

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<v Speaker 1>they will cut twenty five basis points. But the key

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<v Speaker 1>issue here is that all the incoming data being so strong,

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<v Speaker 1>is telling us that maybe US star. Why it's not

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<v Speaker 1>three percent, which is where the FED is saying it

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<v Speaker 1>is at the moment, maybe this is more like four

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<v Speaker 1>and a half percent, which we do in our own

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<v Speaker 1>command fielders are estimating where it should be. So that's

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<v Speaker 1>why we think that we are not too far away

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<v Speaker 1>from the monetary policy stands currently being.

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<v Speaker 3>Close to neutral.

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<v Speaker 1>So if that's the case, we don't need a dramatic

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<v Speaker 1>amount of fat cuts, which has been even also put

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<v Speaker 1>into the dot plot by their INFORMC members themselves.

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<v Speaker 2>Do you sound vindicated? Do you think Government Bowman is

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<v Speaker 2>as well? On the FMCRE she got any company.

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<v Speaker 1>Well she was the lone descent, of course, saying well,

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<v Speaker 1>we should not have cut fifty. I do think that

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<v Speaker 1>we've got a lot of FED speeches today, including Alberto,

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<v Speaker 1>a Muslim here at the New York speaking of course.

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<v Speaker 1>But all that ends up, in my view, being very

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<v Speaker 1>very important for us to see are they backpedaling now?

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<v Speaker 1>Are they backtracking from this or we need a lot

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<v Speaker 1>of cuts. Well, maybe we don't need a lot of

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<v Speaker 1>cuts because the incoming data continues to just be strong.

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<v Speaker 2>They say they're not in a rush. Do you believe them?

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<v Speaker 1>I do believe them, because think about what creates recessions.

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<v Speaker 1>In twenty twenty, the recession was caused by COVID. Of course,

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<v Speaker 1>that generated recession Lehman Brothers. Of course that general recession,

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<v Speaker 1>recession s and P five hundred went down fifty percent.

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<v Speaker 1>That generated as shallow recession. And prior to that we

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<v Speaker 1>had the commercial re state crisis and the savings alone

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<v Speaker 1>crisis in nineteen nineties. Of course, that generative recession. But

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<v Speaker 1>where is the shock today? Where is the shock that

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<v Speaker 1>should generate a recession? The only shock is we've had

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<v Speaker 1>the FED raising rates, but that been countered by now

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<v Speaker 1>Ai spending, defense spending, fiscal spending. So that's why mars

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<v Speaker 1>Her Pauls has not been as restrictive as our textbook

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<v Speaker 1>would have been saying. So that's why our textbook we

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<v Speaker 1>should probably put that more aside, and that's probably still

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<v Speaker 1>a good recommendation for the FIT. Let's put this textbook

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<v Speaker 1>aside and look at the incoming data. And incoming data

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<v Speaker 1>continue to actually be strong.

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<v Speaker 3>So if the neutral rate isn't as low, if monetary

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<v Speaker 3>policy transmission when they're cutting is happening at a quicker speed,

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<v Speaker 3>what will be the implication of them continuing to cut

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<v Speaker 3>into strength.

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<v Speaker 1>Well, the challenge is that we still have the tail

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<v Speaker 1>we's from very strong spending from the Chips Act, the

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<v Speaker 1>Inflation Reduction Act, the Infrastructure Act. We also have very

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<v Speaker 1>strong tales from AI spending. I mean, no one you

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<v Speaker 1>meet says, oh, I'm not going to invest in AI

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<v Speaker 1>because the FIT has just raised interest rates twenty five

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<v Speaker 1>bases points. Everyone still wants to invest in I and

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<v Speaker 1>in this transition, we also had that as a strong tailwind.

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<v Speaker 1>And finally, also de globalization, the industrial renaissance, the construction

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<v Speaker 1>of manufacturing plants in the US is also a strong tailwind.

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<v Speaker 1>Those are things that the FED can't really control because

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<v Speaker 1>are the stories that we talk about in markets at

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<v Speaker 1>the moment. So in that sense, Marcarry Paul's is just

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<v Speaker 1>unusually weak in terms of having a negative impact when

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<v Speaker 1>rates went up on the economy coertion.

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<v Speaker 4>Does the market still also have the tailwind of the

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<v Speaker 4>fed's first pivot of December twenty twenty.

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<v Speaker 1>Three, Absolutely, because in December, as we all remember, they

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<v Speaker 1>clearly said now rates are going down, and before that

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<v Speaker 1>there was very little activity in IPO, in IT issuance,

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<v Speaker 1>high issuance, loan markets, everything was relatively weak and portly speaking,

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<v Speaker 1>at a state. Still after the December pivot, they really

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<v Speaker 1>have seen a significant opening of financing markets in all directions.

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<v Speaker 1>And that's also exactly as you're saying, and Marie provided

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<v Speaker 1>a very strong tailwind in easy financial conditions. And therefore,

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<v Speaker 1>now if you are a company that want to do

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<v Speaker 1>something in private credit in private equity, a lot of

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<v Speaker 1>more things aren't just passis of all relative to what

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<v Speaker 1>we had earlier.

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<v Speaker 2>Toston, it's going to see a wonderful to catch up. Congratulations,

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<v Speaker 2>so far, so good. After Friday, Torston Slock of Apollo