WEBVTT - Surveillance: AT&T & Discovery with MoffettNathanson 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.840 dot com, and of course, on the Bloomberg Terminal. Craig Moffatt, 0:00:31.240 --> 0:00:36.240 Michael Nathanson of Moffitt Knightsinson, the founders and senior research analyst. Craig, 0:00:36.240 --> 0:00:37.800 it was just on Friday, I said, you and I 0:00:37.800 --> 0:00:39.800 don't get to talk enough, and here we are talking 0:00:39.840 --> 0:00:43.640 about the potential for a deal. Your reaction to this one. Look, 0:00:44.240 --> 0:00:47.400 I think it's it's inevitable. Um, it is a clear 0:00:47.800 --> 0:00:50.360 concession of defeat for a T and T. It just 0:00:50.440 --> 0:00:54.160 didn't work. Um, they paid too much. And by the way, 0:00:54.160 --> 0:00:57.760 congratulations to Ed for some terrific reporting over the weekend. Um. 0:00:58.000 --> 0:01:00.760 But now I guess the question is, we know some 0:01:00.840 --> 0:01:02.480 cash has to come back to a T and T, 0:01:02.960 --> 0:01:05.160 but does enough cash come back to a T and 0:01:05.200 --> 0:01:09.080 T that it offsets the amount of debt that this 0:01:09.240 --> 0:01:12.000 company is supported for them so that they don't come 0:01:12.000 --> 0:01:14.680 out even more leveraged. Than they went in UM and 0:01:14.720 --> 0:01:17.000 I'm I'm not sure they can do that. You know, 0:01:17.040 --> 0:01:19.280 you have to lever a T T S levered at 0:01:19.280 --> 0:01:21.679 four times, so they're going to have to lever the 0:01:21.720 --> 0:01:24.000 new entity at more than four times E but DOT 0:01:24.160 --> 0:01:27.319 or else, even spinning it off makes the leverage problem 0:01:27.840 --> 0:01:30.840 at the stub left behind even worse instead of better. Craig, 0:01:30.880 --> 0:01:32.560 We've got to talk about what on Earth went wrong, 0:01:32.640 --> 0:01:35.040 Kit before we get into the details, the nitty gritty 0:01:35.040 --> 0:01:37.600 of the future. What on Earth went wrong? Kit? Three 0:01:37.640 --> 0:01:42.119 years ago? Any five billion for these assets? Well, so 0:01:42.520 --> 0:01:45.920 two things went wrong. First the strategy went wrong, and 0:01:46.000 --> 0:01:49.800 second the price went wrong. But on the strategy, this 0:01:49.880 --> 0:01:52.880 is a company that said they understood that the legacy 0:01:52.960 --> 0:01:55.480 media business was about to enter a period of secular 0:01:55.600 --> 0:01:59.040 secular decline. Well, why on earth do you buy assets 0:01:59.080 --> 0:02:01.480 that are about to end are a period of secular decline? 0:02:01.480 --> 0:02:04.280 That they said that about Direct TV, and then they 0:02:04.280 --> 0:02:08.400 said that about Warner Media. So strategically it never made 0:02:08.400 --> 0:02:11.280 any sense, and then they made it worse by overpaying. 0:02:11.320 --> 0:02:14.880 So they came out of this business woefully over levered. 0:02:15.040 --> 0:02:17.880 And this is a company that is in the telecom 0:02:17.919 --> 0:02:20.760 business where there's a tremendous need for capital investment, and 0:02:20.800 --> 0:02:23.200 if you can't make the capital investment, your core business 0:02:23.280 --> 0:02:25.680 falls behind. And I think they're at least coming to 0:02:25.840 --> 0:02:28.560 terms with now they have to clean up the mess. 0:02:28.600 --> 0:02:31.920 But it's it's incredible. They spent close to two hundred 0:02:31.960 --> 0:02:34.720 billion dollars on these two companies combined, a hundred seventy 0:02:34.960 --> 0:02:38.240 billion dollars on these two companies combined UM and and 0:02:38.280 --> 0:02:40.880 then now they're selling them. As I said, there won't 0:02:40.880 --> 0:02:44.400 be a real price on this exit UM but but 0:02:44.560 --> 0:02:48.200 it's clear that they've they've lost horrifically on both transactions. 0:02:48.240 --> 0:02:50.040 Michael Nathanson, is this the right way to clean up 0:02:50.080 --> 0:02:54.040 the mess? I think it's good morning. By the way, 0:02:54.639 --> 0:02:56.600 I think it's the only way to clean up this mess, 0:02:56.639 --> 0:03:01.440 because you know, going through the potential other partners usually 0:03:01.440 --> 0:03:04.720 no one else. There's no one else. I'm surprised by 0:03:04.760 --> 0:03:07.720 its timing because you know, I think HBO Max has 0:03:07.800 --> 0:03:12.639 potential to create more value, but h T T couldn't wait. 0:03:12.880 --> 0:03:14.760 So I think this this is a really good outcome 0:03:14.840 --> 0:03:17.680 for Discovery. That's my take on it. Well, but do 0:03:17.680 --> 0:03:20.760 you think that Discovery will be able Michael to charge 0:03:20.840 --> 0:03:23.320 the amount that would be necessary for subscription fees for 0:03:23.400 --> 0:03:27.480 streaming to compete with the likes of Netflix with this acquisition, 0:03:27.680 --> 0:03:29.760 or do you think that this also could be conviewed 0:03:29.800 --> 0:03:32.720 as just an ongoing mistake adding to the mess that 0:03:32.800 --> 0:03:36.160 was already created. Well least, you know, I was just 0:03:36.200 --> 0:03:39.400 looking at the market cap for Netflix and Disney and 0:03:39.840 --> 0:03:42.800 h HBO Max. I'd say it in the same league 0:03:42.880 --> 0:03:45.360 long term as those asthlets like it haven't gotten there 0:03:45.440 --> 0:03:48.560 yet because they're not global. I think you have a 0:03:48.560 --> 0:03:51.120 call option. If you're John Malone, David's havevall you're looking 0:03:51.120 --> 0:03:53.280 at that says, look, we have a hundred whatever the 0:03:53.320 --> 0:03:56.520 valuation is, it's a call option getting HBO Max to 0:03:56.640 --> 0:04:00.160 that upper league. And they have Discovery Plus, which is 0:04:00.200 --> 0:04:02.280 a you know, it's a lower tier product that would 0:04:02.280 --> 0:04:06.120 be helped by CNN. So for them, like, why why not? 0:04:06.480 --> 0:04:10.200 You know, this isn't expensive, I know they manage it well. 0:04:10.560 --> 0:04:13.800 Money is cheap, So you know, given where Disney has 0:04:13.920 --> 0:04:18.560 moved to on streaming hopes, why wouldn't you try this? Michael, 0:04:18.560 --> 0:04:19.880 I'll come back to in a second and ask you 0:04:19.920 --> 0:04:22.640 about the competition that would come from this particular tie 0:04:22.720 --> 0:04:24.960 up for Netflix, for the Walt Disney Company, for Amazon 0:04:25.040 --> 0:04:27.240 Prime too. But Craig t and say, what does the 0:04:27.279 --> 0:04:30.840 future look like now for you for this company? So so, 0:04:30.920 --> 0:04:33.919 they are a business that is now back to being 0:04:33.920 --> 0:04:37.960 a telecom business. They have a wireless business. And by 0:04:37.960 --> 0:04:39.640 the way, in that they look a lot like Verizon. 0:04:39.680 --> 0:04:44.400 They're about uh, not quite as skewed wireless as eighteen 0:04:44.680 --> 0:04:49.000 as Verizon, because they still have a meaningful wire line business. Um. 0:04:49.120 --> 0:04:53.159 But their their service revenue growth excluding the pass through 0:04:53.320 --> 0:04:57.520 selling of equipment is negative one per cent and there 0:04:58.080 --> 0:05:00.040 and their EPA dog growth rate in the last s 0:05:00.080 --> 0:05:04.159 quarter was negative five point seven um and uh, and 0:05:04.200 --> 0:05:06.960 they're levered at four times ibadah and the rating agencies 0:05:07.000 --> 0:05:10.480 have said that the downgrade threshold is three point seven times. 0:05:10.600 --> 0:05:15.480 So um. So they are still facing an enormously steep 0:05:15.600 --> 0:05:19.120 uphill challenge, a massive challenge in the years ahead, and 0:05:19.160 --> 0:05:21.440 a massive challenge for the spinoff as well, Mike Gold 0:05:21.520 --> 0:05:24.960 compete with what already exists. Only last week we were 0:05:25.000 --> 0:05:28.320 talking about the pull forward, the challenges for the World Disneys, 0:05:28.320 --> 0:05:30.480 for the Netflix of this world, and now we're talking 0:05:30.480 --> 0:05:33.440 about a new entrant into the sphere at tie up 0:05:33.480 --> 0:05:36.120 at least if something that already exists. Michael, just walk 0:05:36.200 --> 0:05:38.359 me through how you think this looks in a couple 0:05:38.360 --> 0:05:40.560 of years time, and whether we've got to that point 0:05:40.560 --> 0:05:43.840 where consumers are already looking around and saying I don't 0:05:43.839 --> 0:05:47.960 need more than two Yeah. Well, Johnny, the bundle is 0:05:48.000 --> 0:05:50.920 going to keep loosing subscribers, right, so you have lest 0:05:50.960 --> 0:05:54.160 people scribing to the bundle, and you know, I think 0:05:54.160 --> 0:05:55.760 what the Story plus you're gonna have to do is 0:05:55.839 --> 0:05:59.360 take News CNN News and the turn of sports assets, 0:05:59.360 --> 0:06:01.640 put him into this very plus right and make it 0:06:02.200 --> 0:06:06.880 a low enough price subscription product with advertising that keeps 0:06:06.920 --> 0:06:10.200 it within a range of consideration. Right, that's what's going 0:06:10.240 --> 0:06:12.359 to have to happen, like a tender fricteen dollar product 0:06:12.839 --> 0:06:16.960 supportable advertising as well. So you know, to us, which 0:06:17.279 --> 0:06:19.200 you know, in the near term, no doubt what we 0:06:19.240 --> 0:06:23.360 said last week still holds true. Pulled forward reopening, you 0:06:23.440 --> 0:06:26.040 can see the stowing subscriptions. You're seeing that right now. 0:06:26.640 --> 0:06:29.839 Longer term, as more people cut the cord, this is 0:06:29.880 --> 0:06:32.160 the only way after both of these companies, right, they 0:06:32.200 --> 0:06:35.320 have to do this, Greig. That is the long term 0:06:35.400 --> 0:06:39.799 perhaps a view for the streaming industry. For the telecom industry, 0:06:39.839 --> 0:06:42.080 what is the long term view? We are moving away 0:06:42.120 --> 0:06:45.960 from a sort of media mixed model that we saw 0:06:46.000 --> 0:06:49.200 that both all of the major telecoms try. We're moving 0:06:49.200 --> 0:06:52.120 towards five G. We're moving towards the potential for infrastructure 0:06:52.160 --> 0:06:54.440 spending by the federal government. What's going to be the 0:06:54.520 --> 0:06:56.800 narrative that's driving the next ten years of telecom in 0:06:56.800 --> 0:07:00.320 the US? YEA, at least you're you're right. I guess 0:07:00.320 --> 0:07:04.560 the narrative right now will is whether five G will 0:07:04.600 --> 0:07:09.680 actually prove to UM to offer the opportunity for new revenues, 0:07:09.840 --> 0:07:11.960 or whether it's just more of the same. You know, 0:07:12.360 --> 0:07:15.080 having done this for for longer than I'd care to admit, 0:07:15.720 --> 0:07:17.960 every time you go through one of these cycles, there 0:07:18.080 --> 0:07:22.000 is the hope and the dream that this particular cycle, 0:07:22.040 --> 0:07:24.480 whether it's two G, three G, four G, now five G, 0:07:25.240 --> 0:07:28.400 will have all these new revenues associated with it that 0:07:28.640 --> 0:07:31.320 the old cycles didn't have UM and therefore it will 0:07:31.320 --> 0:07:34.240 get to be a fundamentally better business UM. And I 0:07:34.240 --> 0:07:36.640 think that's the hope this time around, that that with 0:07:36.720 --> 0:07:39.680 five G, whether it's that some of the buzzwords now 0:07:39.680 --> 0:07:42.120 of mobile edge, compute and all those kinds of things. 0:07:42.120 --> 0:07:45.360 Will those be new sources of revenue. M Let's hope so, 0:07:45.480 --> 0:07:48.600 because otherwise you're still in the business of just selling 0:07:48.640 --> 0:07:53.520 connectivity for a price. And unfortunately, the capital investment requirement 0:07:53.560 --> 0:07:56.440 goes higher and higher and higher each generation, and the 0:07:56.520 --> 0:08:00.200 revenue historically has not. Michael, just before we got what 0:08:00.240 --> 0:08:02.520 do you think Bob J. Pecks thinking waking up this morning? 0:08:04.520 --> 0:08:06.640 Bob Shaves tingling up this morning? We probably need some 0:08:06.680 --> 0:08:09.360 more some more content, right, we probably need some more 0:08:09.440 --> 0:08:12.360 contents and even broadened out. Give me plus a bit. 0:08:12.400 --> 0:08:15.920 Do you think it? Take a look at No, No, no, this, 0:08:16.080 --> 0:08:18.600 I think Craig and I'm I'm gone for Craig for second. 0:08:18.640 --> 0:08:19.920 I know you hate that when I do that, John, 0:08:19.960 --> 0:08:23.320 But I think if I'm you know, if I'm Comcast 0:08:23.480 --> 0:08:26.960 upon Brian Roberts, I wake up, is not concerned, like 0:08:27.040 --> 0:08:30.800 it's not his problem. Yeah, Brian Roberts, Right, Craig is 0:08:30.840 --> 0:08:32.280 going to have to think about what if you do 0:08:32.360 --> 0:08:35.199 now it's a It's a real problem for Comcast because 0:08:35.320 --> 0:08:38.320 they find themselves in the same position that Discovery was 0:08:38.400 --> 0:08:40.160 in before this steal, and that A. T and T 0:08:40.360 --> 0:08:43.400 was in before the Steel which is the streaming future 0:08:43.640 --> 0:08:47.720 for them. It's Peacock is subscale to to really compete, 0:08:47.760 --> 0:08:50.080 and this is potentially the last bite at the apple 0:08:50.480 --> 0:08:52.520 to get the scale that you need to be a 0:08:52.559 --> 0:08:55.079 serious player. So now what do you do if these 0:08:55.120 --> 0:08:57.280 two walk down the aisle and sign THENK Craig, do 0:08:57.360 --> 0:09:01.000 we get coverage A muffin Nights and sent absolutely and 0:09:01.080 --> 0:09:03.080 it will be Michael's coverage and then you won't have 0:09:03.080 --> 0:09:07.319 to wonder which the two well guys, guys, I finally 0:09:07.360 --> 0:09:10.520 get some more marketing camp the past three years given 0:09:10.520 --> 0:09:17.880 a Craig and viacom discover want to call Dr Phil seriously, 0:09:17.960 --> 0:09:20.040 Tom goes on leave and then here we have this 0:09:20.160 --> 0:09:23.480 dueling app We're gonna work it out exactly, Michael Craig, 0:09:23.520 --> 0:09:26.440 It's gonna catch you out, Craig Moffett, Michael Nyson of Moffett, 0:09:26.559 --> 0:09:34.600 nice and sin. This is a joy, and this truly 0:09:34.640 --> 0:09:37.280 is a joy. Heather Boucher, a member of President Biden's 0:09:37.280 --> 0:09:40.120 Council of Economic Advisors, joining US now after the President 0:09:40.600 --> 0:09:44.439 did release an announcement talking about a child tax credit 0:09:44.480 --> 0:09:46.840 as part of the American Rescue Plan that would start 0:09:46.880 --> 0:09:51.920 going out very soon to families that qualify eight percent 0:09:52.040 --> 0:09:55.640 of children in the United States automatically do fall under 0:09:55.640 --> 0:09:58.080 this provision. Heather, can you give us a sense of 0:09:58.120 --> 0:10:01.560 what this child attacks credit actually is and why you 0:10:01.559 --> 0:10:05.000 think it's important. Well, thank you, Lisa. You know, it's 0:10:05.040 --> 0:10:08.400 really exciting today that the President has announced that this 0:10:08.480 --> 0:10:12.840 new child tax credit will be directly deposited in most 0:10:13.320 --> 0:10:16.840 accounts for families with children starting July fift That will 0:10:16.880 --> 0:10:19.040 be about three dollars for children under the age of 0:10:19.080 --> 0:10:23.240 six and two fifty for families with children over the 0:10:23.240 --> 0:10:26.320 age of six. That's up to those amounts. And so 0:10:26.400 --> 0:10:29.240 this has been an important part of the American Rescue 0:10:29.240 --> 0:10:32.680 Plan to help families, especially help families with children, which 0:10:32.679 --> 0:10:35.400 we know have these higher expenses than other families, but 0:10:35.480 --> 0:10:38.400 help them make ends meet. And um, it's very exciting 0:10:38.400 --> 0:10:41.000 that these payments instead of coming once a year with 0:10:41.080 --> 0:10:44.319 your tax refund, they'll actually be directly deposited or sent 0:10:44.400 --> 0:10:48.199 out every month from starting in July. So this is 0:10:48.240 --> 0:10:51.640 part of the three eighty eight billion dollar American Rescue Plan, 0:10:51.800 --> 0:10:55.240 which is only funded for so long. Basically these will 0:10:55.320 --> 0:10:57.640 run out and it really raises a question how much 0:10:57.720 --> 0:10:59.960 is this a template for what the Biden and Mr 0:11:00.040 --> 0:11:02.480 Ration is trying to accomplish later in the year as 0:11:02.520 --> 0:11:06.280 it moves towards some of its Child and Families agenda. 0:11:07.520 --> 0:11:09.280 I think that that is a great way of thinking 0:11:09.320 --> 0:11:11.320 about it. You know, we thought it was really important 0:11:11.360 --> 0:11:14.120 to do this this year, um, coming out of this crisis, 0:11:14.120 --> 0:11:16.520 when so many families have been struggling so much. But 0:11:16.600 --> 0:11:19.480 this is a really good policy in general. You know, 0:11:19.480 --> 0:11:22.240 a lot of other countries provide child allowances, and the 0:11:22.320 --> 0:11:24.720 Child tax Credit is a version of that. They can 0:11:24.720 --> 0:11:27.400 help families when they need that extra help the most, 0:11:27.480 --> 0:11:30.040 and it helps all kinds of families. UM. So any 0:11:30.200 --> 0:11:33.559 any child can can get this tax credit, so it 0:11:33.559 --> 0:11:36.800 will be an important support for family budgets. Now, of course, 0:11:36.800 --> 0:11:39.199 as you mentioned, Li said, this needs to be extended, 0:11:39.400 --> 0:11:41.880 and it's included in the American Families Plan that the 0:11:41.880 --> 0:11:45.480 President launched just a couple of weeks ago. So if 0:11:45.520 --> 0:11:47.520 this is used as a template, and just John Farrel 0:11:47.600 --> 0:11:49.800 has been talking about this a lot as far as 0:11:49.800 --> 0:11:52.440 what the cutoffs are, how categories are going to be 0:11:52.480 --> 0:11:55.960 defined by income in order to receive supplemental aid or 0:11:55.960 --> 0:11:59.200 perhaps higher taxes on the other side, and for the 0:11:59.240 --> 0:12:01.760 American rest you plan, it was a hundred and sixty 0:12:01.960 --> 0:12:05.160 thousand dollars for couples filing jointly in eighty thousands for 0:12:05.240 --> 0:12:08.520 individual Is that the annual salary that you expect to 0:12:08.559 --> 0:12:11.520 be the basis of additional plans later this year from 0:12:11.520 --> 0:12:14.800 the Biden administration. Well, all of this is still work 0:12:14.840 --> 0:12:17.640 in progress. Um, we're just getting the program up and running, 0:12:17.960 --> 0:12:20.480 but certainly that is a starting place because that's what 0:12:20.480 --> 0:12:24.440 we're already doing. Um, these decisions will be negotiated in 0:12:24.480 --> 0:12:26.680 the months to come. But I think it's really important 0:12:26.720 --> 0:12:29.280 to keep in mind that all kinds of families need 0:12:29.280 --> 0:12:31.280 help when they have little kids, and we know that 0:12:31.360 --> 0:12:35.120 families experience this extra burden, and so this is support 0:12:35.200 --> 0:12:37.120 that will help them. You know. One of the things 0:12:37.120 --> 0:12:40.480 that's actually most exciting about this particular proposal is that 0:12:41.160 --> 0:12:44.120 scholars estimate that it will have a significant reduction in 0:12:44.200 --> 0:12:48.000 child poverty, and particularly child poverty for black and Latino children. 0:12:48.320 --> 0:12:51.000 And so I'm eager to see how that works in 0:12:51.040 --> 0:12:52.880 the months to come, to see the data come in. 0:12:52.960 --> 0:12:55.640 But I think it's a it's a really important policy 0:12:55.679 --> 0:12:57.480 that we can get out there for all of those 0:12:57.520 --> 0:13:00.320 families who need it. As somebody who has raised to boys, 0:13:00.400 --> 0:13:03.400 I understand, and with childcare, you know what a juggle 0:13:03.440 --> 0:13:06.040 that is and how challenging, frankly, how expensive it is. 0:13:06.320 --> 0:13:08.400 There is a question when you say the data rolling in, 0:13:08.679 --> 0:13:10.960 what data are you going to be looking for to 0:13:11.080 --> 0:13:13.960 view this as a success to help push whatever additional 0:13:14.000 --> 0:13:18.400 programs Biden plans to outline in future plans. Well, in 0:13:18.440 --> 0:13:20.280 the years to come, we'll be able to see this 0:13:20.320 --> 0:13:24.360 show up in the income statistics that the Census Bureau collects. Now, 0:13:24.360 --> 0:13:27.600 we won't get those numbers um for uh, you know, 0:13:27.920 --> 0:13:31.960 until far into two but so hopefully we will have 0:13:32.000 --> 0:13:35.560 passed the American Families Plan before then, but certainly we'll 0:13:35.559 --> 0:13:38.080 be watching that data as it comes in to see 0:13:38.120 --> 0:13:40.840 what happens to child poverty in the United States. You know, 0:13:41.000 --> 0:13:43.920 the United States has tired child poverty than most other 0:13:44.000 --> 0:13:47.160 countries of our economic level, and this is an important 0:13:47.160 --> 0:13:50.160 step forward to really helping those families with children make 0:13:50.240 --> 0:13:52.360 ends meet. It's a noble goal and just sort of 0:13:52.360 --> 0:13:55.440 broadening out to the American Rescue Plan. There is a 0:13:55.559 --> 0:13:58.360 question of how well it's working at frankly, how much 0:13:58.400 --> 0:14:01.560 it might be hindering into actually some of the recovery. 0:14:01.600 --> 0:14:04.200 And I'm thinking in particular about the unemployment benefits, the 0:14:04.240 --> 0:14:08.240 idea that the enhanced jobless benefits have some people argue 0:14:08.559 --> 0:14:11.480 kept people away from the workforce because they earned more 0:14:11.520 --> 0:14:14.120 staying at home than going back to work. How much 0:14:14.160 --> 0:14:17.480 you considering ramifications like that, how much do you buy 0:14:17.600 --> 0:14:21.240 that argument? Well, the rescue plan that was put in 0:14:21.240 --> 0:14:23.200 place at the beginning of the year was designed to 0:14:23.240 --> 0:14:25.640 help us get through the pandemic, and we're not out 0:14:25.680 --> 0:14:28.720 of the woods yet. Almost six and ten adults have 0:14:28.800 --> 0:14:31.760 received at least one vaccine shot, and we know that 0:14:31.920 --> 0:14:35.160 only about a quarter of people in their twenties and 0:14:35.200 --> 0:14:37.760 about a third of folks in their thirties have received 0:14:37.760 --> 0:14:41.560 their vaccines. So as we're getting everybody the shots, getting 0:14:41.640 --> 0:14:45.080 folks back into the labor force, those unemployment benefits are 0:14:45.120 --> 0:14:48.280 an important lifeline for those folks who are not yet 0:14:48.320 --> 0:14:50.520 back at work. So we need to make sure that 0:14:51.440 --> 0:14:53.600 that we provide people what they need while they're out 0:14:53.640 --> 0:14:55.680 of work, while they're searching for a job. Of course, 0:14:55.720 --> 0:14:58.880 we're still more than eight million jobs below where we 0:14:58.880 --> 0:15:01.480 were pre pandemic. Jobs are starting to come back, and 0:15:01.520 --> 0:15:03.160 we've had a lot of progress there, but we still 0:15:03.200 --> 0:15:05.479 have a long ways to go, and that's what unemployment 0:15:05.480 --> 0:15:08.320 benefits are for, to help people um while they're searching 0:15:08.320 --> 0:15:11.520 for work and to help folks during this pandemic Heather. 0:15:12.000 --> 0:15:14.080 Just to sort of wrap up here, though, we got 0:15:14.080 --> 0:15:17.240 that retail sales report on Friday that was highly disappointing, 0:15:17.600 --> 0:15:19.880 and some people pointed to the fact that some of 0:15:19.920 --> 0:15:22.680 these jobs cannot be filled. They cannot find the workers 0:15:22.720 --> 0:15:25.120 to come back to fill those rules, and that is 0:15:25.120 --> 0:15:28.000 what is what's hampering some of the sales. Otherwise will 0:15:28.040 --> 0:15:31.760 be taking place to encourage commerce. I mean, how much 0:15:32.080 --> 0:15:35.200 do you weigh these factors as you do the way 0:15:35.280 --> 0:15:40.200 the health considerations but also the economic ramifications. Well, here's 0:15:40.240 --> 0:15:42.040 the thing, we don't want to make too much about 0:15:42.080 --> 0:15:44.400 any one month's data point on the plus or the 0:15:44.440 --> 0:15:47.360 negative side. We know that this recovery is going to 0:15:47.440 --> 0:15:49.800 be a little bit bumpy. We turned off the economy 0:15:49.840 --> 0:15:53.040 really quickly in the spring of and we're turning it 0:15:53.120 --> 0:15:56.720 back on now and so giving ourselves the time for 0:15:56.800 --> 0:15:58.720 everyone to get their shots, to get back into the 0:15:58.800 --> 0:16:02.800 labor force, to to address the supply chain constraints that 0:16:02.840 --> 0:16:05.640 we know are happening across the economy. This is what's 0:16:05.680 --> 0:16:08.720 happening right now. But um, you know, when we look 0:16:08.760 --> 0:16:11.560 at the at the trends and the you know, the 0:16:11.680 --> 0:16:13.680 larger you know, when you put all the data together, 0:16:13.800 --> 0:16:15.560 what you see is an economy that's moving in the 0:16:15.640 --> 0:16:18.840 right direction. Created over five thousand jobs per month over 0:16:18.880 --> 0:16:21.680 the past three months. That's more than the sixty per 0:16:21.760 --> 0:16:24.840 months in the three months prior. And um, you know, 0:16:24.880 --> 0:16:26.720 we're moving in the right direction. So I think that 0:16:27.200 --> 0:16:29.840 it seems like the policies are working. It's helping families 0:16:29.880 --> 0:16:32.400 and businesses get up and running, and that was the goal. 0:16:32.840 --> 0:16:35.320 And now we just need to get those vaccines out 0:16:35.360 --> 0:16:37.600 and then make sure that we're connecting those workers back 0:16:37.640 --> 0:16:40.360 to employers. Heather Bouche, thank you so much for being 0:16:40.400 --> 0:16:42.720 with us and taking the time. Heather Bouchet, Council of 0:16:42.720 --> 0:16:52.160 Economic Advisors, a member for President Biden, joining us now 0:16:52.280 --> 0:16:56.320 place to say. It's vince Reinhart Melon Chief Economists. Vince 0:16:56.360 --> 0:16:58.800 it is tough for economists right now to get a 0:16:58.800 --> 0:17:00.600 decent rate on this ECCO to me and come up 0:17:00.600 --> 0:17:03.440 with an estimate for what happens next. Let's just start there. 0:17:03.480 --> 0:17:06.399 How difficult it is to forecast this economy at the moment, Vince, 0:17:06.960 --> 0:17:10.920 our inflection points are terrible. Remember g forces come into 0:17:10.960 --> 0:17:14.000 play when you're making a sharp turn, and we are 0:17:14.080 --> 0:17:17.840 definitely on the upside of the of the v for 0:17:18.000 --> 0:17:21.600 activity to the point that we have to worry about, 0:17:21.960 --> 0:17:26.919 you know, technical matters and things that macroeconomists just usually 0:17:26.960 --> 0:17:31.320 wave their hands over, importantly, bottlenecks. You opened it, well, 0:17:32.480 --> 0:17:35.760 just go back to Friday's data for the US industrial 0:17:35.800 --> 0:17:39.879 production good but a little disappointing because of bottlenecks in 0:17:39.920 --> 0:17:43.680 the auto industry. Then we get the Michigan Inflation Expectations 0:17:43.760 --> 0:17:47.360 Survey with the eye popping increase in the one year 0:17:47.640 --> 0:17:51.960 ahead inflation expectations and five year ahead three point one percent. 0:17:52.320 --> 0:17:54.800 That sounds to me like above the setter reserves goal. 0:17:55.240 --> 0:17:58.359 We have higher prices, Vince. The question some people are asking, 0:17:58.400 --> 0:17:59.840 I'll ask it a few. Do you have any sympathy 0:17:59.840 --> 0:18:02.760 for the argument the higher prices now, whether they are 0:18:02.840 --> 0:18:06.679 driven by bottle bottlenecks, supply issues, et cetera, lay the 0:18:06.720 --> 0:18:10.639 foundations for higher prices in the future. I think if 0:18:10.680 --> 0:18:14.240 that's the risk the FEDS bad, is that the effects 0:18:14.280 --> 0:18:18.760 of you know, the effects of base effects and bottlenecks 0:18:18.800 --> 0:18:23.399 will be a temporary uh increase in prices, but it 0:18:23.440 --> 0:18:26.359 doesn't change the trend. The thing you should worry about 0:18:26.520 --> 0:18:30.040 is there increases in prices of goods and services that 0:18:30.080 --> 0:18:33.760 are very salient to households. Just ask somebody about how 0:18:33.840 --> 0:18:36.520 much it cost to fill fill up the tank of gas, 0:18:36.640 --> 0:18:39.600 or how they're doing and get im plywood or is 0:18:39.680 --> 0:18:43.640 their new car coming in? UH. Those pricing increases may 0:18:43.760 --> 0:18:48.800 lead them to increase inflation expectations and increases inflation expectations 0:18:49.080 --> 0:18:54.159 to use the feds favorite phrase is what anchors inflation? 0:18:54.240 --> 0:18:57.400 So if expectations go up, we'll get a re anchoring 0:18:57.440 --> 0:18:59.879 to something above the Fed's goal. Evince and just to 0:19:00.000 --> 0:19:02.000 see how this could play out. It leads to people 0:19:02.119 --> 0:19:05.600 demanding more in wages or holding out for a higher 0:19:05.640 --> 0:19:08.879 salary because otherwise they cannot afford the basic staples that 0:19:08.880 --> 0:19:11.400 they go out and they buy every day. How much 0:19:11.560 --> 0:19:13.879 is that's? What? That what's happening? I mean people often 0:19:13.920 --> 0:19:16.560 say that it's people on the lowest tier of income 0:19:16.960 --> 0:19:18.879 UH that get hit the hardest when you get this 0:19:18.960 --> 0:19:21.679 kind of inflation. Is that still true this time around? 0:19:21.720 --> 0:19:24.040 Given some of the price increases the wage increases that 0:19:24.080 --> 0:19:28.120 we've seen, particularly on the lower end of the scale. Okay, so, 0:19:28.119 --> 0:19:33.080 so generally inflation is thought to be very regressive. That 0:19:33.160 --> 0:19:36.359 was the lesson in the nineteen seventies because people with 0:19:36.520 --> 0:19:40.080 more income and more wealth can figure out ways to 0:19:40.320 --> 0:19:45.040 shield their assets from inflation of facts, and they probably 0:19:45.040 --> 0:19:49.720 have more pricing power to reset their own wages and salaries. 0:19:50.040 --> 0:19:54.280 Not so at the lower end, uh of the income spectrum, 0:19:54.480 --> 0:19:57.120 because low income people also just don't have a whole 0:19:57.160 --> 0:20:01.240 lot of wealth. Uh So, inflation is is pretty prenacious 0:20:01.280 --> 0:20:04.439 in that regard and has a change No, not really 0:20:04.560 --> 0:20:08.280 incoming inequalities only gotten worse. So one would think that 0:20:08.320 --> 0:20:12.400 meant that the rising part has even more means to 0:20:12.400 --> 0:20:18.760 shield themselves from from inflation. Uh So, in fact, the 0:20:18.800 --> 0:20:21.760 inflation is going to be eating into the real wages 0:20:21.800 --> 0:20:25.639 of low income households. Is inflation going to lead to 0:20:25.760 --> 0:20:28.600 this sort of virtuous cycle where people actually spend more 0:20:28.640 --> 0:20:30.760 of their money since it's probably going to be worth 0:20:30.880 --> 0:20:33.800 more now in goods and services than later, or is 0:20:33.840 --> 0:20:36.680 it going to lead to a dampening effect on the economy, 0:20:36.720 --> 0:20:38.679 like what we're seeing in the housing market, where you're 0:20:38.680 --> 0:20:41.840 seeing the actual sales slow due to the high prices. 0:20:42.840 --> 0:20:47.199 So those high prices probably reflect the inability to actually 0:20:47.280 --> 0:20:51.040 get all the all those goods. Think about the empty 0:20:51.080 --> 0:20:55.959 auto lots that that are both slowing car production outright 0:20:56.000 --> 0:20:59.479 decline last month because they can't get the chips and 0:21:00.359 --> 0:21:04.119 auto sales but also reading to price increases for for 0:21:04.280 --> 0:21:08.480 use cars. Uh, that that's the bottleneck effect. There are 0:21:08.480 --> 0:21:11.960 two other effects when is timing. As you say, if 0:21:12.000 --> 0:21:14.399 you think prices are going to be higher next month, 0:21:14.480 --> 0:21:19.119 don't you want to buy the good or service this month? Um, 0:21:19.320 --> 0:21:21.320 households have a lot of wear with all to spend. 0:21:21.440 --> 0:21:25.360 So you that what that may mean is the boom 0:21:25.359 --> 0:21:28.760 part of our rebound is even more vigorous. Then the 0:21:28.880 --> 0:21:33.280 last effect is the more permanent one, which is people 0:21:33.359 --> 0:21:37.240 just spend resources trying to avoid the effects of inflation. 0:21:37.520 --> 0:21:40.320