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Speaker 1: One year ago on Benchmark, there weren't many people predicting

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Speaker 1: that Donald Trump would win the presidential election, but we

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Speaker 1: took a time machine twelve months into the future and

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Speaker 1: found out not only that Trump had won, but there

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Speaker 1: had been some interesting developments in the U. S economy.

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Speaker 1: Of course, this was all in good fun, and we

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Speaker 1: were right on some predictions and wrong on others, but

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Speaker 1: the overall thrust of our show that the economy would

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Speaker 1: be in decent shape turned out to be not so

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Speaker 1: far off. Now that Trump has been president for half

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Speaker 1: a year, we'll look back on how things have actually

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Speaker 1: gone for the economy and make some new predictions for

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Speaker 1: the next twelve months. I'm Scott Landman, an economics editor

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Speaker 1: with Bloomberg in Washington. Joining me as a guest co

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Speaker 1: host is Gina Smile like a Bloomberg reporter covering the

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Speaker 1: Federal Reserve and US economy. She's in our New York studio. Hey, Gina,

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Speaker 1: is it going good? How are you? How's DC doing

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Speaker 1: great today? It's a hot day down here. Just thinking

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Speaker 1: about a year ago, we did a Benchmark episode where

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Speaker 1: we went into the future and we talked about what

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Speaker 1: it would be like six months under Trump, Gina, is

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Speaker 1: there anything that you can think of that's been really

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Speaker 1: surprising to you over the last six months. I cover

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Speaker 1: the Federal Reserve, So the most interesting thing has been

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Speaker 1: that he's been relatively quiet about that because it didn't

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Speaker 1: look like it at this time last year. It didn't

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Speaker 1: look like that's what would happen, um. But no, I

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Speaker 1: think aside from that, you know, it's been pretty much,

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Speaker 1: you know, smooth sale and economy is looking good. At

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Speaker 1: least for the economy, it's been smooth sailing. We have

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Speaker 1: We've had news on other fronts that maybe looks like

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Speaker 1: it's not going to be as smooth, like for the

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Speaker 1: healthcare legislation for example. But yeah, I mean, I agree

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Speaker 1: with you. There haven't been any huge surprises on the economy.

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Speaker 1: It's been kind of plugging along. We haven't really seen

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Speaker 1: the fiscal boost that we were thinking about six months ago,

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Speaker 1: that that there could be something from infrastructure or tax cuts.

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Speaker 1: But you know, it has been fairly steady, and Trump has,

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Speaker 1: of course tried to claim credit for some of that. Anyway,

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Speaker 1: on the phone with us now is the same economist

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Speaker 1: who played along with our conceit last year. It's Neil Data,

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Speaker 1: head of US economics at Renaissance Macro Research in New York. So, Neil,

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Speaker 1: Gene and I were just talking about how, you know,

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Speaker 1: even though the economy has been performing fairly decently lately,

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Speaker 1: we seem to have all this chaos going on in Washington.

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Speaker 1: We just had the healthcare bill kind of blow up.

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Speaker 1: It's not clear what's going to happen on the tax plan,

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Speaker 1: and yet you know, the economy seems to be chugging along.

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Speaker 1: Is this something that you could have seen happening, or

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Speaker 1: you know, has the does the economy has been functioning

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Speaker 1: really independent of what's been happening in Washington. It's a

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Speaker 1: great question. Thanks for having me back. Um, you know,

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Speaker 1: the first thing I would say is that policy uncertainty

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Speaker 1: being high is um a fairly and frankly normal feature

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Speaker 1: of this recovery. I mean, really since since two thousand

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Speaker 1: and nine, whether it was you know, the dead ceiling

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Speaker 1: um drama of eleven or the fiscal cliff debate. After

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Speaker 1: the twelve presidential election we had a government shutdown, I

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Speaker 1: believe in so it's not an unusual, you know, feature

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Speaker 1: of what we've seen over the last seven or eight years,

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Speaker 1: and so, um, you know, policy uncertainty has been quite

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Speaker 1: high for quite some time, and you know, what we've

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Speaker 1: seen over the first you know, six months of this

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Speaker 1: year is really no different. I guess you could argue

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Speaker 1: that it's surprising given the fact that we have unified

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Speaker 1: government in Washington, but you know, I mean, everyone knew

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Speaker 1: from the beginning that, uh, that changing healthcare was going

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Speaker 1: to be a tall order. Um despite that, So, you know,

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Speaker 1: and in terms of, you know, why the economy hasn't

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Speaker 1: really done much in the face of that policy uncertainty,

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Speaker 1: I think number one, it's because you know, I think

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Speaker 1: consumers and businesses are used to, um, you know, sort

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Speaker 1: of chaos in Washington. I mean it's it's sort of

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Speaker 1: we've become numb to it in some respects. And I

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Speaker 1: also think that the economy never really needed that much

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Speaker 1: stimulus in the first place. I mean, we're we're closing

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Speaker 1: in on full employment with respect to the labor markets.

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Speaker 1: I think what's important is that the global economy this

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Speaker 1: year has shown a significant upward momentum, and that had

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Speaker 1: been a significant drag on the economy really since the

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Speaker 1: middle of um, you know, through the middle of that

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Speaker 1: drag is now fading, and you know, we've seen sort

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Speaker 1: of almost a synchronized recovery and global manufacturing activity and

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Speaker 1: UH and and trade. So you're surprised at the resiliency

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Speaker 1: of the economy given all this uncertainty that's been happening,

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Speaker 1: and that the lack of any kind of fiscal boost.

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Speaker 1: I don't think it's that shocking. I mean, the economy

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Speaker 1: was fine, you know. I think what we're learning is

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Speaker 1: that Trump basically came in at the front end of

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Speaker 1: the front edge of a cyclical recovery in the global economy. Um.

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Speaker 1: I think that's what we're learning. I mean, if you

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Speaker 1: look at you know, what's been driving the stock market

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Speaker 1: over the first six months of the year, it's primarily

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Speaker 1: stronger corporate earnings growth. I mean, you know, yields have

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Speaker 1: come in a little bit. Can you can you give

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Speaker 1: Trump any of the credit for some of that or

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Speaker 1: is it this is also just part of the economic momentum. No,

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Speaker 1: I mean, I think it's it's the it's the I

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Speaker 1: think it's the economic momentum. I mean, I think the

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Speaker 1: global economy was strengthening, and you know, really, I mean

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Speaker 1: people talk about the reflation trade, I think the reflation

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Speaker 1: trade really started in the middle of last year, and

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Speaker 1: now it's kind of morphed into a growth trade. I

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Speaker 1: don't think that Trump has had much of an effect

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Speaker 1: on the economic fundamentals one way or the other. I

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Speaker 1: think it's largely I mean, in terms of macro policy,

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Speaker 1: it's it's largely a function of of the FED, the

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Speaker 1: global economy, and I think global central banks and policy makers.

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Speaker 1: We did see quite a Trump bump. And when it

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Speaker 1: came to consumer confidence, you know, has that been at

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Speaker 1: all important economically? Did it surprise you at all? You know,

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Speaker 1: how do you view that one? There was a big

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Speaker 1: debate I mean a few months ago about the hard

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Speaker 1: data and the soft data, right, so you know, this

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Speaker 1: is the idea that you know, actual activity measures, things

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Speaker 1: like you know, core retail sales and core durable goods

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Speaker 1: and you know, even to some extent employment were sluggish

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Speaker 1: while these confidence measures were were quite strong. And and again,

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Speaker 1: I mean, I think it's hard to know whether it

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Speaker 1: was Trump or whether it was simply the uncertainty around

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Speaker 1: the election going away and the underline fundamentals kind of

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Speaker 1: getting a chance to show their to show their face. Um,

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Speaker 1: you know, I think clearly the consumer sentiment and small

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Speaker 1: business confidence. You can make this kind of political argument

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Speaker 1: about confidence surging after the election because of the unexpected outcome,

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Speaker 1: um you know, in terms of one and you had

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Speaker 1: unified Republican government, right, So I do think that there's

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Speaker 1: some support for that, you know, But I think in

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Speaker 1: other areas, UM it's, it's, it's it's a bit more ambiguous,

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Speaker 1: um as I say, I think, you know, this sort

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Speaker 1: of disconnect between soft data and hard data really only

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Speaker 1: applies to consumer spending. If you look at other areas

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Speaker 1: of the economy, you know, things I mean, for example,

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Speaker 1: the ice and manufacturing index searched as well, and you know,

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Speaker 1: not in surprising that you're seeing stronger equipment spending. Alongside that,

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Speaker 1: you seem stronger actual industrial production too. Let let me

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Speaker 1: interrupt you again. What what about the some of the

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Speaker 1: some of the um negative things that we actually talked

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Speaker 1: about a year ago came true, such as the Trans

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Speaker 1: Pacific Partnership, That trade deal died. They've started renegotiating the

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Speaker 1: North America can Free Trade agreement. There's been reports that

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Speaker 1: you know, undocumented immigrants are being deported and that's potentially

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Speaker 1: hurting the economy. Are you concerned about any of these

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Speaker 1: factors being constraints on the economy in any way. You know,

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Speaker 1: I think it's too early to tell. I mean, um,

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Speaker 1: I mean, I think there's always a lot of sensitivity

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Speaker 1: when you're talking about these subjects. Um. You know, look

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Speaker 1: look at look at the currencies and how they've performed

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Speaker 1: so far this year. I mean, the Mexican peso is

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Speaker 1: one of the best performing currencies this year, and nobody

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Speaker 1: thought that. Nobody thought that was going to happen, exactly right.

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Speaker 1: I mean that that would lend support to the idea

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Speaker 1: that the protectionist rhetoric that came out of the Trump

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Speaker 1: campaign hasn't really manifested itself in any meaningful sense. And

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Speaker 1: with respect to policy. Now, I think that you know,

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Speaker 1: you still might get the steel tariffs stuff. You might

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Speaker 1: get steel tariffs, you may get I mean, you have

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Speaker 1: some enforcement mechanisms going on with with softwood lumber. But

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Speaker 1: I mean there are other stories that are not as

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Speaker 1: widely reported. I mean, there was a you know, and

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Speaker 1: I haven't run some kind of sensitivity analysis, so I

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Speaker 1: don't know. But I mean, for example, I mean the

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Speaker 1: you know, US farmers selling beef to China. I mean,

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Speaker 1: that's a pretty significant event. I mean, we haven't been

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Speaker 1: doing that for years, and it wasn't it wasn't that

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Speaker 1: something that the Obama administration supposedly set up for Trump

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Speaker 1: to East you know, in China's ease. That may well be,

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Speaker 1: but I mean it's um, you know, let's just look

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Speaker 1: at how the currencies have responded. I mean that the

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Speaker 1: loony and the Mexican Paso have strengthened over the last

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Speaker 1: six months. Right, So if it were true that you know,

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Speaker 1: NAFTA was being renegotiated in a way that was you know,

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Speaker 1: very detrimental to our major trading partners, that partners, that's

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Speaker 1: not the kind of currency action that you'd expect to see.

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Speaker 1: So um, you know, and you know, I think I

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Speaker 1: was reading an article recently talking about how, you know,

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Speaker 1: Trump has maybe cave somewhat to you know, with respect

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Speaker 1: to the summer visas and things like that. So I

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Speaker 1: think you can make a reasonably strong case that the

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Speaker 1: worst case outcomes out the market was pricing with respect

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Speaker 1: to trade, you know, protectionism, that's probably a bit have

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Speaker 1: been avoided. That doesn't mean the policy that we've seen

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Speaker 1: is actually good and that kind of begs the question, though,

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Speaker 1: like you're saying, you know, the worst certainly didn't come true.

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Speaker 1: Things are looking pretty good. What are the risks going

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Speaker 1: forward coming out of the White House? You know, do

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Speaker 1: you see anything that could potentially derail this solid growth

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Speaker 1: that we're seeing right now, or do you think that

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Speaker 1: things are going to pretty much continue along? Guys? They are.

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Speaker 1: You know, I I sort of sympathize with it, with

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Speaker 1: the idea that that the White House at this point

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Speaker 1: can only screw things up as opposed to getting them better.

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Speaker 1: And but you know, as I say, I mean, one

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Speaker 1: of the things that I remember talking about with you

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Speaker 1: guys last time is this idea that you know, the

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Speaker 1: big risk to the economy would have been if they

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Speaker 1: actually got a significant stimulus through, right because if we were,

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Speaker 1: if we're operating close a full employment, then and you

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Speaker 1: and you and you sort of embark on a you know,

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Speaker 1: a package of tax cuts in large infrastructure spending and

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Speaker 1: run a wider budget deficit. We thought that was going

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Speaker 1: to cause inflation and cause bond yields to rise and

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Speaker 1: everything like that. Well, it would cause inflation, bond yields

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Speaker 1: to rise, a more aggressive fed but importantly would begin

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Speaker 1: to essentially crowd out activity in the construction industry at

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Speaker 1: a time when you know, the housing industry I think

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Speaker 1: needs those workers, right, So, I mean, you know that

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Speaker 1: that's that's basically been the problem this year in the

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Speaker 1: housing market is that you've seen you know, decent growth

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Speaker 1: and things like new new home sales and you know,

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Speaker 1: sort of signed contracts but purchase applications, but you know,

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Speaker 1: fairly sluggish growth and single family residential construction. So you know,

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Speaker 1: to me, the fact that you know, I mean, we

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Speaker 1: can call it chaotic. You know, I think that the

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Speaker 1: fact that the legislative agenda isn't getting rammed through, you know,

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Speaker 1: in summer specs is a good thing to me that

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Speaker 1: mitigate that mitigates a downside risk because you know, I

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Speaker 1: would just say that we don't number one, we don't

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Speaker 1: really need the stimulus right now. I think the FED

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Speaker 1: can essentially take care of it. And you know, if

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Speaker 1: if if you were to actually get that large stimulus,

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Speaker 1: it would it would it would draw resources, labor resources

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Speaker 1: away from industries that that that need them quite frankly,

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Speaker 1: and that's an important point is that the economy that

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Speaker 1: was inherited by the new administration was not an economy

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Speaker 1: that was in crisis. This is not two thousand and nine,

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Speaker 1: so you know, I mean as corporate tax reform nice, Yeah, absolutely,

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Speaker 1: it would be nice to have, but it's not a

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Speaker 1: need to have. I mean, the economy isn't begging for

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Speaker 1: it at the moment. We'll just well, just building on

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Speaker 1: that question the issue that Gina raised, we have one

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Speaker 1: more thing coming this year, and that's the UH debt

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Speaker 1: ceiling that has to get increased or else we could

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Speaker 1: see some consequences in the markets. You could see a

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Speaker 1: government shutdown. How much of that is a is a

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Speaker 1: risk now you know that could really have some tangible

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Speaker 1: impact or do you feel confident that that's probably gonna

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Speaker 1: get resolved either way. I think it's a risk, but

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Speaker 1: it's a very small risk. I mean, I think it's

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Speaker 1: very unlikely that you're going to get this kind of

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Speaker 1: brinksmanship in a unified government. I mean, you know, the

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Speaker 1: debt limit isn't the same thing as getting healthcare reformed

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Speaker 1: ut um. So I think that it's it's it's it's

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Speaker 1: highly likely that this turns out to be um, you know,

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Speaker 1: sort of an event that kind of comes and goes

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Speaker 1: and using this to kind of extract kind of some

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Speaker 1: kind of a concession I think is unlikely. Um, So

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Speaker 1: you know, I'm not worried about about government shutdowns or

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Speaker 1: you know, sort of debt limit drama in any meaningful

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Speaker 1: sense that's gonna kind of, um get the markets spooked

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Speaker 1: in the fall. So ignore the drama that seems to

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Speaker 1: be the main message that I'm hearing from you. Well,

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Speaker 1: Neil Dudda will have to leave it there. Thanks so

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Speaker 1: much for joining us today. Benchmark will be back next

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Speaker 1: week and until then, you can find us on the

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Speaker 1: Bloomberg terminal, Bloomberg dot com, our Bloomberg app, as well

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Speaker 1: as on Apple Podcasts, pocket Casts, and Stitcher. While you're there,

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Speaker 1: take a minute to rate and review the show so

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Speaker 1: more listeners can find us and let us know what

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Speaker 1: you thought of the show. You can follow me on

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Speaker 1: Twitter at at Scott Lanman, Gina you are at you

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Speaker 1: can find me at Gina Smile, and you can find

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Speaker 1: analysis from Neil and his colleagues at at Wren mac

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Speaker 1: l l C. Benchmark is produced by Sarah Patterson. The

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Speaker 1: head of Bloomberg Podcast is Alec McCabe. Thanks for listening,

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Speaker 1: See you next. Time