WEBVTT - Surveillance: U.S. Economy's Canary in Coal Mine with Rosenberg 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.120 Bloomberg dot Com, and of course, on the Bloomberg Let's 0:00:28.120 --> 0:00:31.920 bring getting Peter Shaffrey Shawe MBC Capital Markets, Global Markets 0:00:31.960 --> 0:00:34.839 Strategist ahead of US GDP, and it ran about nine 0:00:34.920 --> 0:00:36.839 minutes time pizza. What are you looking for from the 0:00:36.880 --> 0:00:39.600 US economy this morning? Good morning guys. Well, first of all, 0:00:39.600 --> 0:00:42.320 it's good to see that you're all having fun here. Um. Well, 0:00:42.360 --> 0:00:43.920 if I if we look at the number so that 0:00:44.040 --> 0:00:45.920 the number of all is obviously not going to be 0:00:46.000 --> 0:00:48.480 super strong. I mean we are like the head of consensus. 0:00:48.560 --> 0:00:51.479 Our number, our estimate is two point zero, whether the 0:00:51.479 --> 0:00:53.519 market is looking for one point eight. But I think 0:00:53.560 --> 0:00:55.560 that's not really the point. The point is if you 0:00:55.560 --> 0:00:58.760 look underneath the bunnet, Um, what what are we getting there? Um, 0:00:58.800 --> 0:01:01.360 and our guys over there in New York and you're 0:01:01.400 --> 0:01:03.320 part of the world, and when when they when they 0:01:03.320 --> 0:01:05.640 look under it, and what they say, well, what really 0:01:05.760 --> 0:01:07.760 coming out was likely going to come out, is that 0:01:07.760 --> 0:01:11.200 the consumer remains strong and it has been the bullwark 0:01:11.280 --> 0:01:15.760 of US growth. And if the rest, particularly if inventories 0:01:15.760 --> 0:01:19.360 are causing some of the weakness that you potentially see, 0:01:19.560 --> 0:01:21.440 that's not so bad. So as long as the consumers 0:01:21.440 --> 0:01:23.920 stay strong, that's really one of the key things, Peter. 0:01:24.040 --> 0:01:25.760 Does it change an I think for the Federal Reserve 0:01:25.840 --> 0:01:29.120 next week? Probably not. I mean, you know, it's it's 0:01:29.640 --> 0:01:32.240 it's not necessarily a question of whether or not the 0:01:32.240 --> 0:01:35.200 economic backdrop really requires in the here and now a 0:01:35.280 --> 0:01:38.639 rate cut. They have I wouldn't say nailed their colors 0:01:38.680 --> 0:01:41.920 to the mast, but it seems like a very very 0:01:42.000 --> 0:01:45.400 high probability that would get a twenty five basis points right. Well, 0:01:45.440 --> 0:01:48.120 it's sort of on the same theme. What would we 0:01:48.160 --> 0:01:51.280 have to see with respect to an upside surprise to 0:01:51.360 --> 0:01:54.200 make the Federal Reserve question at their current approach to 0:01:54.400 --> 0:01:58.640 cutting rates. Well, you know, I would say probably more 0:01:58.680 --> 0:02:01.160 of the same, and probably even stronger numbers than we 0:02:01.240 --> 0:02:04.160 currently had. But if you if you sort of really 0:02:04.200 --> 0:02:06.440 just look in the numbers that are coming out, and 0:02:06.760 --> 0:02:09.800 then I think the the here and now doesn't justify 0:02:09.800 --> 0:02:11.840 a rate cut in the first place, So what really 0:02:12.000 --> 0:02:15.240 is driving it? I we think is first of all, 0:02:15.320 --> 0:02:18.800 is the is the potential risk down the road. So 0:02:18.880 --> 0:02:22.079 if if the assessments of any kind of future developments 0:02:22.080 --> 0:02:24.519 are changing to the upside, if any of the sort 0:02:24.520 --> 0:02:27.720 of looming risk on the horizon go away, I think 0:02:27.760 --> 0:02:31.240 that's probably what the FED would be really looking for. 0:02:31.960 --> 0:02:35.040 So going forward, I'm trying to understand actually the state 0:02:35.120 --> 0:02:37.240 of the U s economy right now, given the fact 0:02:37.280 --> 0:02:39.400 that we have gotten some weaker than expected data, but 0:02:39.480 --> 0:02:41.880 on the whole you said, as you pointed out, the 0:02:41.919 --> 0:02:44.560 numbers have been pretty good. Where do you think we 0:02:44.600 --> 0:02:46.200 are I mean, do you think that there is a 0:02:46.320 --> 0:02:49.480 material slow down in the US economy that the FED 0:02:49.720 --> 0:02:52.880 is rightly recognizing. Well, look, first of all, if I 0:02:53.280 --> 0:02:54.919 you know, I don't want to sort of just pull 0:02:54.960 --> 0:02:56.840 it away from only the US. I think it is 0:02:56.880 --> 0:02:59.400 the same pretty much everywhere. What you had is that 0:02:59.440 --> 0:03:02.639 the strength of most of the Western economies has been 0:03:02.680 --> 0:03:05.799 that virtus circle between hiring on the one hand, consumption 0:03:05.800 --> 0:03:07.880 on the other. Is who put people in people in employment, 0:03:08.040 --> 0:03:09.560 they have money in their pockets and they spend it. 0:03:09.800 --> 0:03:12.120 And it has particularly predominant in the US, and obviously 0:03:12.160 --> 0:03:15.120 you have a very strong labor market over there. On 0:03:15.160 --> 0:03:17.320 the other hand, however, what has been lacking his investment 0:03:17.360 --> 0:03:21.760 On the one hand, and certainly in parts of the economy, 0:03:21.840 --> 0:03:25.160 the trade picture is making it worse. That's particularly true 0:03:25.160 --> 0:03:26.880 over here in Europe on the manufacturing side, but you 0:03:26.880 --> 0:03:29.360 also see it in the forward looking indicators in the US, 0:03:29.400 --> 0:03:31.160 and I think that's sort of the fear that is 0:03:31.200 --> 0:03:33.520 not necessarily what has been making us strong over the 0:03:33.560 --> 0:03:35.760 last couple of years is the question of whether there 0:03:35.840 --> 0:03:37.839 is something on the horizon that might push us down 0:03:37.840 --> 0:03:40.280 into the future and eventually sort of eat away as 0:03:40.280 --> 0:03:42.280 sort of that that key pillar that I was just 0:03:42.360 --> 0:03:44.920 mentioning that has been driving our growth rates, you know, 0:03:44.960 --> 0:03:46.760 for the last couple of years. So we're waiting for 0:03:46.840 --> 0:03:50.240 Chairman Poal next week. President Dragic, seven years to the 0:03:50.320 --> 0:03:53.120 day since that bumble bee speech back in London and 0:03:53.160 --> 0:03:55.240 the pledge to do whatever it takes to preserve the 0:03:55.280 --> 0:03:59.000 euro Peter, your thoughts now that dust is settled after 0:03:59.120 --> 0:04:02.840 yesterday's news conference, right, if I may say, already after 0:04:02.920 --> 0:04:05.000 the central speech, and just because you made that reference 0:04:05.000 --> 0:04:06.960 to do whatever it takes, we send the research report 0:04:07.000 --> 0:04:09.880 out saying this was whatever it takes two point zero um, 0:04:09.920 --> 0:04:12.640 and I think yesterday, in my mind, market reaction was 0:04:13.040 --> 0:04:16.479 slightly disappointed, of course, but I think the market is 0:04:16.480 --> 0:04:18.839 missing missing a trick here when you look at what 0:04:18.880 --> 0:04:21.440 the e c B has now inserted into their key statement, 0:04:21.440 --> 0:04:24.799 which was a reference to inflation inflation expectation, essentially again 0:04:25.000 --> 0:04:28.160 to whatever to do, whatever it takes to get inflation back. 0:04:28.560 --> 0:04:31.520 And particularly they made this reference to the symmetry of 0:04:31.640 --> 0:04:34.960 their inflation target. So essentially, if inflation has been below 0:04:35.000 --> 0:04:36.960 the target for a while, it can well stay above 0:04:37.000 --> 0:04:39.120 the target for quite a while. Um. I think this 0:04:39.320 --> 0:04:42.680 is a substantial step for the ECB to tell markets guys, 0:04:43.200 --> 0:04:46.280 we will stay at extremely low levels or even lower 0:04:46.640 --> 0:04:50.560 as long as necessary for inflation to come up. So therefore, 0:04:50.600 --> 0:04:53.200 in my mind, the market should not be selling off here, 0:04:53.200 --> 0:04:55.760 and particularly not the forwards. The forward should be coming down, 0:04:55.760 --> 0:04:58.440 the curve should be better. Peter. This is important and 0:04:58.520 --> 0:05:01.599 it's a point of confusion for of people. The mandate 0:05:01.640 --> 0:05:04.600 for the e c B. The actual mandate is price stability, 0:05:04.720 --> 0:05:07.760 but the Government Council defines the mandate and they last 0:05:07.760 --> 0:05:11.040 define the mandate a long long time ago, so this 0:05:11.160 --> 0:05:13.719 is a almost a re clarification of a definition or 0:05:13.720 --> 0:05:17.280 in fact the fresh clarification of how they define price stability, Peter, 0:05:17.880 --> 0:05:20.040 what does it mean for policy? Then? What did they 0:05:20.080 --> 0:05:23.080 do now they've changed that, now they've clarified what they 0:05:23.360 --> 0:05:26.320 now think the definition of price stability is. Well, first 0:05:26.320 --> 0:05:29.159 of all, I want to stress that they haven't yet 0:05:29.640 --> 0:05:31.720 changed it um I mean the you know, or they 0:05:31.720 --> 0:05:34.440 haven't redefined it. And what they're saying is that they're 0:05:34.480 --> 0:05:37.800 really working on this and that the the and apparently 0:05:37.800 --> 0:05:39.960 there's some stories out there that they have been presented 0:05:40.000 --> 0:05:43.240 with different ways of of of looking at inflation and 0:05:43.520 --> 0:05:45.680 these type of things. But I expect that as time 0:05:45.720 --> 0:05:48.880 progressors will get a much much firmer definition of this. 0:05:48.960 --> 0:05:51.040 But what what seems to be very clear is that 0:05:51.080 --> 0:05:52.680 when you look at the past, and we've just put 0:05:52.680 --> 0:05:54.960 this in a research and order yesterday and post the ECB, 0:05:55.040 --> 0:05:56.960 when you look at the past let's say ten years, 0:05:57.120 --> 0:05:59.920 there's at least three occasions when inflation was above two percent, 0:06:00.000 --> 0:06:04.200 and although there were some trouble outside ahead the e 0:06:04.240 --> 0:06:06.200 c B hiked, that was before the crisis in two 0:06:06.200 --> 0:06:08.320 thousand eight, that was before the European crisis in two 0:06:08.320 --> 0:06:10.840 thousand eleven, and most recently when they adopted it in 0:06:10.839 --> 0:06:13.719 a hiking bias. I think the ECB wants to pull 0:06:13.720 --> 0:06:16.120 the rug out from under that and will tell markets, 0:06:16.320 --> 0:06:19.120 do not think that we will do this again. If 0:06:19.160 --> 0:06:22.720 we are not anywhere closed to a medium term two 0:06:22.720 --> 0:06:25.520 percent level, we will not hike. And I think there's 0:06:25.560 --> 0:06:27.760 a very very strong message if, if I may say, 0:06:27.800 --> 0:06:29.560 even a sort of a little bit tongue in cheek, 0:06:29.720 --> 0:06:32.200 the e c B was modeled after the Bundesbank. I 0:06:32.240 --> 0:06:34.240 think they really want to drive the Bundesbank out of 0:06:34.240 --> 0:06:37.360 the e c B. So um. There's a quote that's 0:06:37.400 --> 0:06:40.599 been misattributed to Albert Einstein many times. The definition of 0:06:40.600 --> 0:06:42.719 insanity is doing the same thing over and over again 0:06:42.760 --> 0:06:46.039 and expecting a different result. And that sticks out in 0:06:46.120 --> 0:06:48.160 my mind as we hear that the e c B 0:06:48.360 --> 0:06:51.240 is going to drop the deposit rate even lower and 0:06:51.360 --> 0:06:55.160 engage in further asset purchases and hope of igniting inflation. 0:06:55.920 --> 0:06:59.520 Is this a faulty premise to negative rates actually hinder 0:07:00.200 --> 0:07:03.400 the ability for inflation to take off? Well, I I, 0:07:03.600 --> 0:07:05.360 first of all, I don't think so that's a very 0:07:05.360 --> 0:07:07.599 short answer, and I'll give you more meat to the bone. 0:07:07.720 --> 0:07:10.200 But secondly, I think you're starting from a m if 0:07:10.200 --> 0:07:12.200 I may say so, no offense here. I think you're 0:07:12.240 --> 0:07:15.520 starting from a wrong point of view, because what you're 0:07:15.560 --> 0:07:18.200 saying is what the ECB has done has not delivered 0:07:18.240 --> 0:07:20.760 what they wanted to achieve, which is getting inflation and 0:07:20.960 --> 0:07:24.040 towards two percent again. But then you don't know what 0:07:24.120 --> 0:07:27.240 the counter factual is. Where would inflation be if they 0:07:27.280 --> 0:07:30.160 hadn't moved interest rates to these levels, and I would 0:07:30.160 --> 0:07:32.880 claim it would probably be even lower than where it 0:07:32.960 --> 0:07:35.200 is currently. So and that's the point that drug was 0:07:35.240 --> 0:07:37.600 making yesterday to more or less the same question as well. 0:07:37.960 --> 0:07:40.560 Um so I think and he thinks, and the ECB 0:07:40.800 --> 0:07:43.640 things that they have been fairly successful, they just have 0:07:43.720 --> 0:07:46.320 not been successful enough. And in fact, when you're then 0:07:46.440 --> 0:07:48.240 going back to your original question, when you look at 0:07:48.240 --> 0:07:51.120 some of the research that the ECB has put out, 0:07:51.520 --> 0:07:53.920 and they have the best data on this, they're very 0:07:53.920 --> 0:07:56.840 clearly demonstrate that in an environment of very low inflation, 0:07:57.000 --> 0:08:00.320 particularly coupled with relatively large sums of reserves out there 0:08:00.320 --> 0:08:05.000 sort of que that's been printed, that lending of banks 0:08:05.120 --> 0:08:08.640 two corporates increases, and that's exactly what they want. A 0:08:08.760 --> 0:08:10.400 Peter greater cash how with you to get your thoughts, 0:08:10.400 --> 0:08:13.239 Peter Shaffrick, there of our we see capital markets global 0:08:13.400 --> 0:08:15.520 market strategist. Least at the end of the day, in 0:08:15.560 --> 0:08:17.640 the short term at least, it doesn't matter whether you 0:08:17.680 --> 0:08:19.720 and I or Peter thinks this will work. What matters 0:08:19.760 --> 0:08:22.520 is whether the ECB thinks it will work, because if 0:08:22.520 --> 0:08:25.400 they believe their tools are effective, they'll deploy them. And 0:08:25.480 --> 0:08:27.960 ultimately that's what's going to happen in September. Now the 0:08:28.040 --> 0:08:31.000 dust settled after yesterday, I think we can focus on 0:08:31.040 --> 0:08:34.079 September and try and work out what's about to come 0:08:34.120 --> 0:08:36.640 down from the e c B, the size and scope 0:08:36.679 --> 0:08:39.199 of QUI if they deliver, and whether we finally get 0:08:39.240 --> 0:08:41.040 some tearing to go along with that lower right, And 0:08:41.120 --> 0:08:42.760 I think that that's the key thing is what it 0:08:42.840 --> 0:08:45.640 is going to be sort of the amelioration for the 0:08:45.720 --> 0:08:48.800 banks to the charge that they're paying on their deposits. 0:08:48.840 --> 0:08:51.920 And I think that may be a really key factor here. 0:08:54.800 --> 0:08:58.360 I'm overwhelmed by the guest appearances on this program this morning. Firstly, 0:08:58.400 --> 0:09:01.520 so Brandt's now pull Swayney joining us early. How many 0:09:01.520 --> 0:09:03.840 early white cup cools is this in the last week exactly? 0:09:03.880 --> 0:09:05.240 This is not in my contract. I'm gonna have to 0:09:05.280 --> 0:09:07.800 talk to somebody. This must be his tech earnings week. 0:09:08.200 --> 0:09:11.000 And Amazon came out after the close the stock down 0:09:11.040 --> 0:09:13.559 by a little more than one percent. Have they flicked 0:09:13.559 --> 0:09:16.559 the switch the other way again? Pulled? You know, it's 0:09:16.559 --> 0:09:17.720 a little bit. I think it's just gonna be a 0:09:17.720 --> 0:09:20.559 short term thing. They're ramping up their expenses to you know, 0:09:20.640 --> 0:09:23.000 kind of get to this one day delivery. It's getting, 0:09:23.040 --> 0:09:25.720 you know, so competitive in terms of uh, this e 0:09:25.800 --> 0:09:28.520 commerce business, so that you know, they started this whole 0:09:28.520 --> 0:09:30.440 thing kind of with this you know, I'll get you 0:09:30.520 --> 0:09:33.000 the package in two or three days. Now it's one day. 0:09:33.760 --> 0:09:35.520 But no matter what it is, it costs a lot 0:09:35.559 --> 0:09:37.520 of money. So they were ramping up about eight hundred 0:09:37.559 --> 0:09:40.959 million expenses just to get that one day uh delivery 0:09:41.080 --> 0:09:43.000 for a lot of markets and a lot of products. 0:09:43.040 --> 0:09:46.320 And that's that impact that their EPs and they're operating profit. 0:09:46.400 --> 0:09:49.760 But the revenue came in really strong once again. You 0:09:49.800 --> 0:09:53.040 know it's interesting. Shares down a little bit more than 0:09:53.080 --> 0:09:55.080 a percent ahead of the U S open. So not 0:09:55.360 --> 0:09:59.120 huge move that we're seeing, but as Amazon still going 0:09:59.160 --> 0:10:01.760 to be an eCOM worse company in five years or 0:10:01.800 --> 0:10:04.640 is it going to be a cloud, computing, logistics and 0:10:04.760 --> 0:10:06.880 advertising company. I think it's going to be all of 0:10:06.920 --> 0:10:09.480 the above. You know that, You're right, they're really investing 0:10:09.520 --> 0:10:11.920 in some of these you know, non retail businesses. And 0:10:11.920 --> 0:10:14.360 of course, the big profit driver for this company is 0:10:14.400 --> 0:10:17.120 Amazon Web Services that has a you know, double digit 0:10:17.160 --> 0:10:20.360 operating profit margin versus the core retail business which is 0:10:20.400 --> 0:10:24.480 barely profitable, um which we know. So the web is 0:10:24.880 --> 0:10:26.960 you know, a big, big driver for them. Their number 0:10:27.000 --> 0:10:28.679 one in the market, but it's very competitive about their 0:10:28.720 --> 0:10:31.160 Microsoft is out there, Google is out there, and some 0:10:31.200 --> 0:10:35.240 other tech companies. But the advertising business is just starting 0:10:35.280 --> 0:10:36.760 to ramp up for them, and it's a question of 0:10:36.760 --> 0:10:39.240 whether how big they want that business to get. But 0:10:39.280 --> 0:10:41.600 I'll tell you advertisers would love to have a third 0:10:41.840 --> 0:10:46.080 digital marketplace in the market, UM, aside from Facebook and Google. 0:10:46.120 --> 0:10:50.120 So the advertising business, the web business, very profitable businesses, 0:10:50.200 --> 0:10:53.200 fast growing businesses for them, and that drives profits. And 0:10:53.240 --> 0:10:55.880 this this is a company that hasn't had much profits 0:10:55.920 --> 0:10:57.560 to show for over the last decade or so, so 0:10:57.640 --> 0:11:01.000 investors like the profit story. So once they turned the tables, 0:11:01.000 --> 0:11:03.120 as you mentioned, Jonathan, a little bit on the expenses 0:11:03.679 --> 0:11:05.959 just kind of reminds people, oh, this is a company 0:11:06.000 --> 0:11:07.880 that can spend money to and that's where the focus 0:11:07.880 --> 0:11:11.400 has been ever since the numbers dropped after the close yesterday, 0:11:11.600 --> 0:11:13.599 just a WS just the word on a w S 0:11:13.679 --> 0:11:16.720 if you can. Since they first started breaking out these numbers, 0:11:16.920 --> 0:11:19.760 we've had revenue growth of north of forty north of 0:11:20.559 --> 0:11:24.640 north and yesterday I dropped below that number. Should we 0:11:24.679 --> 0:11:26.120 be looking at that a little bit more carefully, a 0:11:26.160 --> 0:11:28.240 little bit more closely? I think so well. I mean, 0:11:28.320 --> 0:11:32.440 I think the long term trend for cloud revenue growth 0:11:32.520 --> 0:11:34.959 remains very strong. We saw good numbers out of Microsoft 0:11:35.440 --> 0:11:38.240 UM and you know, we saw some good numbers although 0:11:38.280 --> 0:11:40.560 Google doesn't really break it out that clearly out of Google, 0:11:40.720 --> 0:11:44.800 so we know cloud average cloud revenue is growing pretty substantially. 0:11:44.880 --> 0:11:47.560 That's a big part of the tech stack right now. 0:11:47.679 --> 0:11:50.040 So and and of course Amazon has the leading play 0:11:50.080 --> 0:11:52.319 there so UM but the revenue did miss and that 0:11:52.480 --> 0:11:55.600 and that definitely spooked investors because again that's the big 0:11:55.640 --> 0:11:57.920 profit driver for this company. But I think they're going 0:11:57.960 --> 0:12:01.000 to continue to invest in the cloud business because that's 0:12:01.000 --> 0:12:02.800 where they're spending a lot of money on servers and 0:12:02.840 --> 0:12:04.880 all that type type of stuff. I have to wonder 0:12:04.880 --> 0:12:08.400 about regulatory pressures, and I have to wonder what they're doing, 0:12:08.440 --> 0:12:11.840 how they're positioning themselves ahead of what will be an 0:12:11.880 --> 0:12:16.400 increasingly contentious period of time for big tech as elections 0:12:16.440 --> 0:12:20.200 heat up. Yeah, exactly. And that's something that Google, Facebook, Apple, 0:12:20.280 --> 0:12:22.760 all these big tech companies have to deal with, um 0:12:22.800 --> 0:12:25.040 because as we know, the US has generally taking a 0:12:25.120 --> 0:12:28.520 very light touch to big technology Silicon Valley over the 0:12:28.600 --> 0:12:31.679 last twenty thirty years. But that seems to be changing. Uh. 0:12:31.720 --> 0:12:34.400 And it's and the companies know it, because they're stepping 0:12:34.480 --> 0:12:37.720 up their lobbying and about it. They're saying, they're saying 0:12:37.760 --> 0:12:40.400 that they're working with regulators, they you know, um, you know, 0:12:40.480 --> 0:12:44.040 they're looking for smart regulation of this industry. I think 0:12:44.400 --> 0:12:47.439 Mark Zuckerberg at Facebook is probably the most out in 0:12:47.520 --> 0:12:50.480 front because quite frankly, Facebook is probably the most at 0:12:50.600 --> 0:12:54.360 risk here because it's personal. It's it's people's personal data 0:12:54.640 --> 0:12:56.760 and privacy, and I think they are kind of the 0:12:56.800 --> 0:12:59.280 poster child for what's going to happen going forward in 0:12:59.400 --> 0:13:02.679 terms of tech regulation. Amazon probably probably to a much 0:13:02.840 --> 0:13:04.960 lesser extent. I think the headline of the week though, 0:13:05.200 --> 0:13:10.239 goes to perhaps Treasury Secretary Stephen Manuchin. Amazon has destroyed 0:13:10.679 --> 0:13:13.439 US retail using the word destroyed. I mean, this was 0:13:13.559 --> 0:13:15.599 really powerful stuff. And then you sort of put the 0:13:15.679 --> 0:13:17.560 headline to one side and try and work out, well, 0:13:17.600 --> 0:13:20.360 what does this really mean for this company? What does 0:13:20.440 --> 0:13:22.199 it mean? You know, I don't know. I think that 0:13:22.640 --> 0:13:24.640 you know, I think most investors that didn't really impact 0:13:24.679 --> 0:13:27.559 the stock people kind of thought it was just political rhetoric. Um. 0:13:28.000 --> 0:13:32.760 But the fact is e commerce is destroying main street retail, 0:13:32.800 --> 0:13:35.920 and it's just consumer behavior. What consumers want. They you know, 0:13:36.040 --> 0:13:39.599 now with the Internet, you can actually order stuff online 0:13:39.720 --> 0:13:42.679 and have it delivered and you don't necessarily need to 0:13:42.720 --> 0:13:44.520 go to the mall or to the local main street 0:13:44.520 --> 0:13:46.559 to get to the store. And that's just the way that, 0:13:46.880 --> 0:13:49.040 you know, the business has evolved. And of course Amazon 0:13:49.200 --> 0:13:51.360 is the eight pound guerrilla, so they're going to bear 0:13:51.440 --> 0:13:53.480 bear the brunt. Here, Paul Sweeney, we can hash this 0:13:53.600 --> 0:13:56.080 out pretty soon. In two hours, you and I can 0:13:56.120 --> 0:13:58.480 debate this. But I've got to say, Paul Sweeney, Bloomberg 0:13:59.080 --> 0:14:02.000 Radio anchor joining us here, I've got to say this 0:14:02.160 --> 0:14:06.439 is very controversial, John, because people say Amazon killed Mom 0:14:06.520 --> 0:14:09.320 and Poper retail. But there are a lot of questions 0:14:09.440 --> 0:14:13.199 about the ability to adjust to an Internet age, the 0:14:13.400 --> 0:14:18.800 interference with some of these firms that had these companies 0:14:18.840 --> 0:14:22.200 incur a lot of leverage, and their ability to spend 0:14:22.360 --> 0:14:24.960 and adapt to the new environment. I'm just saying it's 0:14:24.960 --> 0:14:28.320 not so simple. Well, in reality, Walmart killed Main Street. 0:14:29.680 --> 0:14:32.360 That's what happened, and that was thirty forty years Mike 0:14:32.480 --> 0:14:37.920 drop post, Wayne right to catch up with you, as always, Well, 0:14:38.000 --> 0:14:40.520 let's bring in David Rosenberg shown we gliskin chef chief 0:14:40.720 --> 0:14:43.000 economist David always great to get your insight, your first 0:14:43.040 --> 0:14:46.040 take on the GDP per and please, well, it's a 0:14:46.360 --> 0:14:50.480 obviously um above expected and uh, you know, I think 0:14:50.520 --> 0:14:52.760 has the FED leaning towards twenty five as opposed to 0:14:53.160 --> 0:14:56.000 fifty basis points. I think we look at the components. 0:14:56.200 --> 0:14:59.040 I mean, as stated that it was led by the 0:14:59.120 --> 0:15:01.520 big bounce and hum, we're spending at four point three, 0:15:01.640 --> 0:15:05.080 but remember the previous two quarters consumer spending growth had 0:15:05.120 --> 0:15:07.440 a one handle. So this is I think a temporary 0:15:07.480 --> 0:15:10.840 spirit of growth and consumer spending after really two quarters 0:15:11.000 --> 0:15:15.080 of of almost stagnation. What really catches my eye though 0:15:15.240 --> 0:15:18.440 that people should recognize uh and why I might be 0:15:18.600 --> 0:15:21.400 my treasury is here on the sell off? Is business 0:15:21.440 --> 0:15:24.840 spending UM contracted at a five and a half percent 0:15:24.880 --> 0:15:30.800 annual rate, Housing negative one point five, exports negative five 0:15:30.880 --> 0:15:33.320 point two. So when you almost look at this on 0:15:33.400 --> 0:15:36.640 a diffusion basis beyond the consumer, a lot of the 0:15:36.680 --> 0:15:39.840 components are pretty soft. Although if you think about business spending, 0:15:39.920 --> 0:15:43.200 how much is that going to lag behind consumer spending 0:15:43.240 --> 0:15:47.640 and will eventually pick up as a consumer remains strong? Well, Uh, 0:15:47.920 --> 0:15:51.000 I guess that you're asking me, um, you know who's 0:15:51.000 --> 0:15:54.240 swagging the tail? And so is it a case where 0:15:54.320 --> 0:15:56.440 businesses are going to start to invest more because we 0:15:56.520 --> 0:15:59.760 had um a spurt of consumer spending growth after two 0:16:00.000 --> 0:16:06.560 off quarters? Or is business sector going to be curtailing 0:16:06.720 --> 0:16:11.360 their hirings because if they're cutting back on capex, employment 0:16:11.440 --> 0:16:14.320 is not far behind. And if employment ends up following 0:16:14.360 --> 0:16:17.400 what capital spending is doing, uh, you're not seeing a 0:16:17.520 --> 0:16:21.880 forehandle on consumption growth again anytime soon. David. These are 0:16:21.880 --> 0:16:24.720 really important points, and I think, just more broadly globally 0:16:24.840 --> 0:16:27.480 right now, something people are grappling with is the manufacturing 0:16:27.520 --> 0:16:30.480 recession and whether it begins or has already started to 0:16:30.600 --> 0:16:34.160 bleed into services David, are you identifying any spots where 0:16:34.160 --> 0:16:37.520 you see that happening already? Well, a couple of things 0:16:37.600 --> 0:16:40.480 I think that you know you are seeing out of 0:16:40.600 --> 0:16:44.920 the anecdotal or the diffusion industries. There's no question that 0:16:45.120 --> 0:16:49.360 service sector activity globally and even in the US is 0:16:49.360 --> 0:16:52.760 slowing down. It's not contracting. But remember that the service sector, 0:16:52.800 --> 0:16:54.600 I mean a lot of the service sector is education 0:16:54.680 --> 0:16:57.520 and health services and not really that typical. Uh. The 0:16:57.560 --> 0:17:02.120 goods producing sector manufacturing is typical simately, Uh, cyclical services 0:17:02.200 --> 0:17:05.680 do service? Um? You know the goods producers. Uh, that 0:17:06.080 --> 0:17:09.080 they're the leading indicator. Um. But people always talk about, well, 0:17:09.119 --> 0:17:11.760 don't worry so much about the service sector, it's not contracting. Well, 0:17:11.920 --> 0:17:14.399 it's very difficult to get services contracting because so much 0:17:14.440 --> 0:17:19.399 of it has very little correlation with the overall business cycle. Uh. 0:17:19.440 --> 0:17:21.480 The one thing that has that had did catch fron eye, 0:17:21.560 --> 0:17:23.520 by the way. Uh. And I know that we're talking 0:17:23.560 --> 0:17:27.080 about really a coincidence lagging indicator called last quarters GDP. 0:17:27.640 --> 0:17:29.520 But I did notice that when you're taking a look 0:17:29.640 --> 0:17:33.480 at small business employment out of the ADP data, it's 0:17:33.560 --> 0:17:35.879 been negative two months in a row. And so if 0:17:35.920 --> 0:17:39.119 you want to drive looking through the front window instead 0:17:39.119 --> 0:17:41.280 of the rear view mirror, which everybody will talk about 0:17:41.280 --> 0:17:43.479 the rear view mirror today, which is last quarters GDP. 0:17:44.000 --> 0:17:46.800 One of the best leading indicators for the economy is 0:17:46.840 --> 0:17:50.560 small business employment. Small business is how the flexibility, flexibility 0:17:50.600 --> 0:17:53.159 to lay off people much quicker than big companies do. 0:17:53.800 --> 0:17:55.720 And that's why a d P I think is slowing 0:17:55.760 --> 0:17:57.840 down much faster than non farm payrolls. But to me, 0:17:57.880 --> 0:18:00.040 if you're asking me, what is the canari in a 0:18:00.080 --> 0:18:03.160 coal mine? Right now, small business employment, by the way, 0:18:03.240 --> 0:18:06.439 including the service sector, is flowing down precipitously, and that's 0:18:06.480 --> 0:18:08.600 a leading indicator. So this is really important. So I 0:18:08.640 --> 0:18:10.879 believe in the IDP report this is business is smaller 0:18:10.920 --> 0:18:13.320 than forty nine employees. Is that right? Do you see 0:18:13.359 --> 0:18:16.120 that bleeding up into bigger companies. Then it's a great 0:18:16.200 --> 0:18:18.240 leading indicators. So the answer is yes. You know, the 0:18:18.320 --> 0:18:23.040 big the big megacap companies, it's hard for them to 0:18:23.480 --> 0:18:25.679 let people go. I mean they'll package them out, they 0:18:25.800 --> 0:18:28.200 let them go. But the big companies operate with the lag. 0:18:28.320 --> 0:18:31.320 The small companies can let you go tomorrow, um, So 0:18:31.359 --> 0:18:34.280 they're much more flexible. And take a look historically greatly 0:18:34.359 --> 0:18:37.480 the indicator small business employment. I actually think that it's 0:18:37.680 --> 0:18:41.280 the cap X recession that is going to lead the 0:18:42.040 --> 0:18:44.560 softening in consumer spending. I'm not going to stay consumer 0:18:44.600 --> 0:18:47.720 spending goes negative, but I would not be superposing the 0:18:47.800 --> 0:18:50.679 four percent growth and consumer spending this quarter into the future. 0:18:51.080 --> 0:18:54.120 Captains will lead the consumer, not the other way around. David. 0:18:54.119 --> 0:18:55.600 We've really got to spend a little bit more time 0:18:55.640 --> 0:18:56.840 on this and look forward to having you in the 0:18:56.920 --> 0:18:59.640 studio quite soon. David Rosenberg. Then let's can Chief Chief 0:18:59.640 --> 0:19:01.560 Economy you wanting us to react to a g D 0:19:01.640 --> 0:19:04.200 preprint hit in the honest stice that if I continues 0:19:04.200 --> 0:19:09.600 ahead of a Federal Reserve decision next week, mobile Sprint 0:19:09.760 --> 0:19:13.560 deal the least surprising deal to ever possibly get approved 0:19:13.680 --> 0:19:15.600 by the d o J, which could come as soon 0:19:15.720 --> 0:19:18.760 as today. Yesterday, we were thinking it would come after 0:19:19.080 --> 0:19:21.919 close perhaps or later in the afternoon. Uh. Now it's 0:19:21.960 --> 0:19:24.359 gotten pushed back joining us. We are so lucky to 0:19:24.400 --> 0:19:27.399 have Tera La Chapale. She is a Bloomberg opinion columnist. Uh, 0:19:27.520 --> 0:19:30.520 and she has incredible insights, particularly in this space. And 0:19:30.600 --> 0:19:33.240 I'm just wondering, first of all, what we're expecting the 0:19:33.400 --> 0:19:35.520 d o j the Department of Justice deal to look 0:19:35.640 --> 0:19:38.920 like to enable T Mobile and Sprint to finally complete 0:19:39.400 --> 0:19:42.720 the very long awaited marriage. Finally, it's been years of 0:19:42.840 --> 0:19:45.600 covering this deal, so we'll be very nice to finally 0:19:45.640 --> 0:19:48.520