WEBVTT - What Our Trump Time Machine Got Right -- and Wrong -- About the Economy

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<v Speaker 1>One year ago on Benchmark, there weren't many people predicting

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<v Speaker 1>that Donald Trump would win the presidential election, but we

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<v Speaker 1>took a time machine twelve months into the future and

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<v Speaker 1>found out not only that Trump had won, but there

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<v Speaker 1>had been some interesting developments in the U. S economy.

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<v Speaker 1>Of course, this was all in good fun, and we

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<v Speaker 1>were right on some predictions and wrong on others, but

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<v Speaker 1>the overall thrust of our show that the economy would

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<v Speaker 1>be in decent shape turned out to be not so

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<v Speaker 1>far off. Now that Trump has been president for half

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<v Speaker 1>a year, we'll look back on how things have actually

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<v Speaker 1>gone for the economy and make some new predictions for

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

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<v Speaker 1>with Bloomberg in Washington. Joining me as a guest co

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<v Speaker 1>host is Gina Smile like a Bloomberg reporter covering the

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

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<v Speaker 1>is it going good? How are you? How's DC doing

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

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<v Speaker 1>about a year ago, we did a Benchmark episode where

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<v Speaker 1>we went into the future and we talked about what

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<v Speaker 1>it would be like six months under Trump, Gina, is

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<v Speaker 1>there anything that you can think of that's been really

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<v Speaker 1>surprising to you over the last six months. I cover

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<v Speaker 1>the Federal Reserve, So the most interesting thing has been

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<v Speaker 1>that he's been relatively quiet about that because it didn't

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<v Speaker 1>look like it at this time last year. It didn't

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

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<v Speaker 1>think aside from that, you know, it's been pretty much,

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<v Speaker 1>you know, smooth sale and economy is looking good. At

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

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<v Speaker 1>We've had news on other fronts that maybe looks like

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<v Speaker 1>it's not going to be as smooth, like for the

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<v Speaker 1>healthcare legislation for example. But yeah, I mean, I agree

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

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

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<v Speaker 1>the fiscal boost that we were thinking about six months ago,

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<v Speaker 1>that that there could be something from infrastructure or tax cuts.

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<v Speaker 1>But you know, it has been fairly steady, and Trump has,

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<v Speaker 1>of course tried to claim credit for some of that. Anyway,

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<v Speaker 1>on the phone with us now is the same economist

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

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

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<v Speaker 1>Gene and I were just talking about how, you know,

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<v Speaker 1>even though the economy has been performing fairly decently lately,

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<v Speaker 1>we seem to have all this chaos going on in Washington.

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<v Speaker 1>We just had the healthcare bill kind of blow up.

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

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<v Speaker 1>and yet you know, the economy seems to be chugging along.

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<v Speaker 1>Is this something that you could have seen happening, or

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<v Speaker 1>you know, has the does the economy has been functioning

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<v Speaker 1>really independent of what's been happening in Washington. It's a

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<v Speaker 1>great question. Thanks for having me back. Um, you know,

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<v Speaker 1>the first thing I would say is that policy uncertainty

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<v Speaker 1>being high is um a fairly and frankly normal feature

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<v Speaker 1>of this recovery. I mean, really since since two thousand

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<v Speaker 1>and nine, whether it was you know, the dead ceiling

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<v Speaker 1>um drama of eleven or the fiscal cliff debate. After

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<v Speaker 1>the twelve presidential election we had a government shutdown, I

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<v Speaker 1>believe in so it's not an unusual, you know, feature

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

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<v Speaker 1>and so, um, you know, policy uncertainty has been quite

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<v Speaker 1>high for quite some time, and you know, what we've

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<v Speaker 1>seen over the first you know, six months of this

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<v Speaker 1>year is really no different. I guess you could argue

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<v Speaker 1>that it's surprising given the fact that we have unified

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<v Speaker 1>government in Washington, but you know, I mean, everyone knew

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<v Speaker 1>from the beginning that, uh, that changing healthcare was going

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<v Speaker 1>to be a tall order. Um despite that, So, you know,

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<v Speaker 1>and in terms of, you know, why the economy hasn't

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<v Speaker 1>really done much in the face of that policy uncertainty,

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<v Speaker 1>I think number one, it's because you know, I think

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<v Speaker 1>consumers and businesses are used to, um, you know, sort

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<v Speaker 1>of chaos in Washington. I mean it's it's sort of

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<v Speaker 1>we've become numb to it in some respects. And I

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<v Speaker 1>also think that the economy never really needed that much

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<v Speaker 1>stimulus in the first place. I mean, we're we're closing

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<v Speaker 1>in on full employment with respect to the labor markets.

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<v Speaker 1>I think what's important is that the global economy this

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<v Speaker 1>year has shown a significant upward momentum, and that had

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<v Speaker 1>been a significant drag on the economy really since the

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<v Speaker 1>middle of um, you know, through the middle of that

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<v Speaker 1>drag is now fading, and you know, we've seen sort

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<v Speaker 1>of almost a synchronized recovery and global manufacturing activity and

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<v Speaker 1>UH and and trade. So you're surprised at the resiliency

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<v Speaker 1>of the economy given all this uncertainty that's been happening,

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<v Speaker 1>and that the lack of any kind of fiscal boost.

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

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

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<v Speaker 1>that Trump basically came in at the front end of

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<v Speaker 1>the front edge of a cyclical recovery in the global economy. Um.

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

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<v Speaker 1>look at you know, what's been driving the stock market

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<v Speaker 1>over the first six months of the year, it's primarily

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<v Speaker 1>stronger corporate earnings growth. I mean, you know, yields have

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<v Speaker 1>come in a little bit. Can you can you give

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<v Speaker 1>Trump any of the credit for some of that or

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<v Speaker 1>is it this is also just part of the economic momentum. No,

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<v Speaker 1>I mean, I think it's it's the it's the I

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<v Speaker 1>think it's the economic momentum. I mean, I think the

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<v Speaker 1>global economy was strengthening, and you know, really, I mean

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<v Speaker 1>people talk about the reflation trade, I think the reflation

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<v Speaker 1>trade really started in the middle of last year, and

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<v Speaker 1>now it's kind of morphed into a growth trade. I

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<v Speaker 1>don't think that Trump has had much of an effect

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<v Speaker 1>on the economic fundamentals one way or the other. I

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<v Speaker 1>think it's largely I mean, in terms of macro policy,

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<v Speaker 1>it's it's largely a function of of the FED, the

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<v Speaker 1>global economy, and I think global central banks and policy makers.

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<v Speaker 1>We did see quite a Trump bump. And when it

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<v Speaker 1>came to consumer confidence, you know, has that been at

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<v Speaker 1>all important economically? Did it surprise you at all? You know,

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<v Speaker 1>how do you view that one? There was a big

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<v Speaker 1>debate I mean a few months ago about the hard

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<v Speaker 1>data and the soft data, right, so you know, this

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<v Speaker 1>is the idea that you know, actual activity measures, things

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<v Speaker 1>like you know, core retail sales and core durable goods

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<v Speaker 1>and you know, even to some extent employment were sluggish

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<v Speaker 1>while these confidence measures were were quite strong. And and again,

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<v Speaker 1>I mean, I think it's hard to know whether it

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<v Speaker 1>was Trump or whether it was simply the uncertainty around

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<v Speaker 1>the election going away and the underline fundamentals kind of

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<v Speaker 1>getting a chance to show their to show their face. Um,

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<v Speaker 1>you know, I think clearly the consumer sentiment and small

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<v Speaker 1>business confidence. You can make this kind of political argument

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<v Speaker 1>about confidence surging after the election because of the unexpected outcome,

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<v Speaker 1>um you know, in terms of one and you had

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<v Speaker 1>unified Republican government, right, So I do think that there's

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<v Speaker 1>some support for that, you know, But I think in

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<v Speaker 1>other areas, UM it's, it's, it's it's a bit more ambiguous,

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<v Speaker 1>um as I say, I think, you know, this sort

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<v Speaker 1>of disconnect between soft data and hard data really only

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<v Speaker 1>applies to consumer spending. If you look at other areas

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<v Speaker 1>of the economy, you know, things I mean, for example,

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<v Speaker 1>the ice and manufacturing index searched as well, and you know,

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

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<v Speaker 1>you seem stronger actual industrial production too. Let let me

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<v Speaker 1>interrupt you again. What what about the some of the

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<v Speaker 1>some of the um negative things that we actually talked

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<v Speaker 1>about a year ago came true, such as the Trans

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

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<v Speaker 1>North America can Free Trade agreement. There's been reports that

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<v Speaker 1>you know, undocumented immigrants are being deported and that's potentially

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<v Speaker 1>hurting the economy. Are you concerned about any of these

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<v Speaker 1>factors being constraints on the economy in any way. You know,

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<v Speaker 1>I think it's too early to tell. I mean, um,

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<v Speaker 1>I mean, I think there's always a lot of sensitivity

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

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<v Speaker 1>look at look at the currencies and how they've performed

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<v Speaker 1>so far this year. I mean, the Mexican peso is

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<v Speaker 1>one of the best performing currencies this year, and nobody

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<v Speaker 1>thought that. Nobody thought that was going to happen, exactly right.

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<v Speaker 1>I mean that that would lend support to the idea

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<v Speaker 1>that the protectionist rhetoric that came out of the Trump

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<v Speaker 1>campaign hasn't really manifested itself in any meaningful sense. And

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<v Speaker 1>with respect to policy. Now, I think that you know,

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<v Speaker 1>you still might get the steel tariffs stuff. You might

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<v Speaker 1>get steel tariffs, you may get I mean, you have

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<v Speaker 1>some enforcement mechanisms going on with with softwood lumber. But

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<v Speaker 1>I mean there are other stories that are not as

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<v Speaker 1>widely reported. I mean, there was a you know, and

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<v Speaker 1>I haven't run some kind of sensitivity analysis, so I

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<v Speaker 1>don't know. But I mean, for example, I mean the

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<v Speaker 1>you know, US farmers selling beef to China. I mean,

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

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<v Speaker 1>doing that for years, and it wasn't it wasn't that

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<v Speaker 1>something that the Obama administration supposedly set up for Trump

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

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<v Speaker 1>but I mean it's um, you know, let's just look

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<v Speaker 1>at how the currencies have responded. I mean that the

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<v Speaker 1>loony and the Mexican Paso have strengthened over the last

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<v Speaker 1>six months. Right, So if it were true that you know,

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<v Speaker 1>NAFTA was being renegotiated in a way that was you know,

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<v Speaker 1>very detrimental to our major trading partners, that partners, that's

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

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<v Speaker 1>So um, you know, and you know, I think I

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<v Speaker 1>was reading an article recently talking about how, you know,

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<v Speaker 1>Trump has maybe cave somewhat to you know, with respect

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<v Speaker 1>to the summer visas and things like that. So I

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<v Speaker 1>think you can make a reasonably strong case that the

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<v Speaker 1>worst case outcomes out the market was pricing with respect

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<v Speaker 1>to trade, you know, protectionism, that's probably a bit have

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

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<v Speaker 1>is actually good and that kind of begs the question, though,

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

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<v Speaker 1>Things are looking pretty good. What are the risks going

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<v Speaker 1>forward coming out of the White House? You know, do

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<v Speaker 1>you see anything that could potentially derail this solid growth

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<v Speaker 1>that we're seeing right now, or do you think that

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<v Speaker 1>things are going to pretty much continue along? Guys? They are.

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<v Speaker 1>You know, I I sort of sympathize with it, with

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<v Speaker 1>the idea that that the White House at this point

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<v Speaker 1>can only screw things up as opposed to getting them better.

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<v Speaker 1>And but you know, as I say, I mean, one

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<v Speaker 1>of the things that I remember talking about with you

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<v Speaker 1>guys last time is this idea that you know, the

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<v Speaker 1>big risk to the economy would have been if they

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<v Speaker 1>actually got a significant stimulus through, right because if we were,

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<v Speaker 1>if we're operating close a full employment, then and you

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<v Speaker 1>and you and you sort of embark on a you know,

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<v Speaker 1>a package of tax cuts in large infrastructure spending and

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<v Speaker 1>run a wider budget deficit. We thought that was going

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<v Speaker 1>to cause inflation and cause bond yields to rise and

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<v Speaker 1>everything like that. Well, it would cause inflation, bond yields

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<v Speaker 1>to rise, a more aggressive fed but importantly would begin

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<v Speaker 1>to essentially crowd out activity in the construction industry at

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<v Speaker 1>a time when you know, the housing industry I think

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<v Speaker 1>needs those workers, right, So, I mean, you know that

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<v Speaker 1>that's that's basically been the problem this year in the

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<v Speaker 1>housing market is that you've seen you know, decent growth

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<v Speaker 1>and things like new new home sales and you know,

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<v Speaker 1>sort of signed contracts but purchase applications, but you know,

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<v Speaker 1>fairly sluggish growth and single family residential construction. So you know,

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<v Speaker 1>to me, the fact that you know, I mean, we

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<v Speaker 1>can call it chaotic. You know, I think that the

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

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<v Speaker 1>in summer specs is a good thing to me that

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<v Speaker 1>mitigate that mitigates a downside risk because you know, I

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<v Speaker 1>would just say that we don't number one, we don't

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<v Speaker 1>really need the stimulus right now. I think the FED

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<v Speaker 1>can essentially take care of it. And you know, if

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<v Speaker 1>if if you were to actually get that large stimulus,

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<v Speaker 1>it would it would it would draw resources, labor resources

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<v Speaker 1>away from industries that that that need them quite frankly,

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<v Speaker 1>and that's an important point is that the economy that

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<v Speaker 1>was inherited by the new administration was not an economy

0:12:27.200 --> 0:12:30.040
<v Speaker 1>that was in crisis. This is not two thousand and nine,

0:12:31.160 --> 0:12:36.000
<v Speaker 1>so you know, I mean as corporate tax reform nice, Yeah, absolutely,

0:12:36.080 --> 0:12:37.800
<v Speaker 1>it would be nice to have, but it's not a

0:12:37.840 --> 0:12:39.920
<v Speaker 1>need to have. I mean, the economy isn't begging for

0:12:39.960 --> 0:12:43.240
<v Speaker 1>it at the moment. We'll just well, just building on

0:12:43.280 --> 0:12:46.280
<v Speaker 1>that question the issue that Gina raised, we have one

0:12:46.280 --> 0:12:49.600
<v Speaker 1>more thing coming this year, and that's the UH debt

0:12:49.679 --> 0:12:52.600
<v Speaker 1>ceiling that has to get increased or else we could

0:12:52.679 --> 0:12:56.000
<v Speaker 1>see some consequences in the markets. You could see a

0:12:56.080 --> 0:13:00.360
<v Speaker 1>government shutdown. How much of that is a is a

0:13:00.480 --> 0:13:03.760
<v Speaker 1>risk now you know that could really have some tangible

0:13:03.800 --> 0:13:07.000
<v Speaker 1>impact or do you feel confident that that's probably gonna

0:13:07.000 --> 0:13:09.360
<v Speaker 1>get resolved either way. I think it's a risk, but

0:13:09.400 --> 0:13:11.400
<v Speaker 1>it's a very small risk. I mean, I think it's

0:13:11.480 --> 0:13:13.360
<v Speaker 1>very unlikely that you're going to get this kind of

0:13:13.440 --> 0:13:16.800
<v Speaker 1>brinksmanship in a unified government. I mean, you know, the

0:13:16.880 --> 0:13:19.440
<v Speaker 1>debt limit isn't the same thing as getting healthcare reformed

0:13:19.520 --> 0:13:22.880
<v Speaker 1>ut um. So I think that it's it's it's it's

0:13:22.960 --> 0:13:26.760
<v Speaker 1>highly likely that this turns out to be um, you know,

0:13:26.840 --> 0:13:29.040
<v Speaker 1>sort of an event that kind of comes and goes

0:13:29.160 --> 0:13:32.600
<v Speaker 1>and using this to kind of extract kind of some

0:13:32.679 --> 0:13:35.319
<v Speaker 1>kind of a concession I think is unlikely. Um, So

0:13:35.760 --> 0:13:39.760
<v Speaker 1>you know, I'm not worried about about government shutdowns or

0:13:39.840 --> 0:13:43.640
<v Speaker 1>you know, sort of debt limit drama in any meaningful

0:13:43.640 --> 0:13:47.400
<v Speaker 1>sense that's gonna kind of, um get the markets spooked

0:13:47.559 --> 0:13:50.680
<v Speaker 1>in the fall. So ignore the drama that seems to

0:13:50.679 --> 0:13:53.520
<v Speaker 1>be the main message that I'm hearing from you. Well,

0:13:54.000 --> 0:13:55.880
<v Speaker 1>Neil Dudda will have to leave it there. Thanks so

0:13:55.960 --> 0:14:02.800
<v Speaker 1>much for joining us today. Benchmark will be back next

0:14:02.840 --> 0:14:04.520
<v Speaker 1>week and until then, you can find us on the

0:14:04.559 --> 0:14:08.199
<v Speaker 1>Bloomberg terminal, Bloomberg dot com, our Bloomberg app, as well

0:14:08.240 --> 0:14:12.120
<v Speaker 1>as on Apple Podcasts, pocket Casts, and Stitcher. While you're there,

0:14:12.200 --> 0:14:14.080
<v Speaker 1>take a minute to rate and review the show so

0:14:14.120 --> 0:14:16.760
<v Speaker 1>more listeners can find us and let us know what

0:14:16.800 --> 0:14:18.719
<v Speaker 1>you thought of the show. You can follow me on

0:14:18.720 --> 0:14:22.600
<v Speaker 1>Twitter at at Scott Lanman, Gina you are at you

0:14:22.640 --> 0:14:26.280
<v Speaker 1>can find me at Gina Smile, and you can find

0:14:26.320 --> 0:14:30.440
<v Speaker 1>analysis from Neil and his colleagues at at Wren mac

0:14:30.640 --> 0:14:34.640
<v Speaker 1>l l C. Benchmark is produced by Sarah Patterson. The

0:14:34.680 --> 0:14:38.240
<v Speaker 1>head of Bloomberg Podcast is Alec McCabe. Thanks for listening,

0:14:38.360 --> 0:14:39.120
<v Speaker 1>See you next. Time