Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is a blur for Paul and I. It is
Speaker 2: just an extraordinary advantage of wonderful conversations. And then somebody
Speaker 2: will say something which sticks with me. I'm walking down
Speaker 2: the street six months later, I'm going damn that.
Speaker 3: Nancy Lois.
Speaker 2: She said something last year that made up my interview
Speaker 2: of the year of this American labor economy joining us
Speaker 2: now from Piper Sandler, their chief global economists. Truly iconic,
Speaker 2: Nancy Lazarre, you basically said the strong labor economy is
Speaker 2: a fiction, it's all government and healthcare supported, and that
Speaker 2: the private investment in private jobs formation is broken. What
Speaker 2: does a war do to that?
Speaker 1: Well, that was a year ago, as you said, and
Speaker 1: I would actually argue that you're starting to see a
Speaker 1: healing in the private sector labor market now, to be sure,
Speaker 1: will curb business confidence. But wait a second, I just
Speaker 1: got a bunch of business confidence surveys, a group of
Speaker 1: manufacturing surveys through March which captured the war and the
Speaker 1: increase of the price of oil and their employment in
Speaker 1: disease actually rose. So I think you have to look
Speaker 1: at the economy broader than just a war and increase
Speaker 1: in the price of oil.
Speaker 2: I look at the Guadalcanal Low how miserable we were
Speaker 2: in forty one, forty two into that battle in the
Speaker 2: South Pacific that we didn't want to talk about at
Speaker 2: the time. And then up, up, and away we went
Speaker 2: for a year, basically for years into the deflationary fifties.
Speaker 2: I guess is it the same thing as well, that
Speaker 2: this work could be a stimulus of sorts.
Speaker 1: I'm not sure the war itself is a stimulus other
Speaker 1: than the backbone of the US economy is indeed strong.
Speaker 1: We've had surges in the price of oil several times
Speaker 1: over the past thirty forty years. Obviously, in the nineteen
Speaker 1: ninety Golf War, the economy wasn't as strong then as
Speaker 1: it is today, but boy, as that thing ended, oil
Speaker 1: prices came down strong. Obviously, the next leg was the
Speaker 1: US tech Revolution, and then after two thousand and eight
Speaker 1: you also had a surge in the price of price
Speaker 1: of oil. Then you had almost a decade prior to COVID,
Speaker 1: a decade of a stronger US economy supported by domestic
Speaker 1: capital spending. We had, even more recently a surge in
Speaker 1: the price of oil Obviously, back in twenty one, you
Speaker 1: went from fifty to one hundred and twenty dollars. The
Speaker 1: US economy stumbled slightly in the first part of twenty two,
Speaker 1: but then we took off again, supported by supported by
Speaker 1: capital spending. So the thing that I keep reminding myself
Speaker 1: is that the economy is not just driven by one variable.
Speaker 1: It's not just oil. It's a function of monetary physical
Speaker 1: policy in general. And physical policy right now is underappreciated
Speaker 1: as a support what I would call the right way,
Speaker 1: not through a boom in government spending, but companies have
Speaker 1: just seen one hundred and eighty billion decline in their
Speaker 1: tax cash tax payments because they're incentivized to do capital spending.
Speaker 1: Deregulation is underway, and that's beneficial to small medium sized businesses.
Speaker 1: I hear particularly from the banking banking system. Banks are
Speaker 1: easing lending lending standards. So right now, we for sure
Speaker 1: are at risk of the US economy slowing stalling out
Speaker 1: depends upon how long sure surgeon the price of oil
Speaker 1: goes on. But this is a pretty strong economy.
Speaker 3: How's the US consumer doing with this backdrop here?
Speaker 1: So the consumer is a little bit in a tug
Speaker 1: of war. On one hand, they obviously consumer confidence is down.
Speaker 1: We have a daily survey of consumer confidence, which is
Speaker 1: a little nuts but it works, and it is down
Speaker 1: about fifteen points. But it's still above where it was
Speaker 1: during the government shutdown, way above where it was during
Speaker 1: the COVID low, way above where it was during the
Speaker 1: GF during the GFC, So confidence, consumer confidence has gotten hit.
Speaker 1: But at the same time, we monitor your weekly retail
Speaker 1: sales data and actually they through mid March we're on
Speaker 1: the stronger side. That is, again, consumer is driven by
Speaker 1: more than just gasoline. We have these tax refunds, to
Speaker 1: be sure, some of them are being eaten up by
Speaker 1: the higher gasoline prices. But the labor market, as I mentioned,
Speaker 1: if you look at unemployment claims, and I'm seeing more
Speaker 1: and more commentary on Bloomberg on other news programs that, wow,
Speaker 1: the labor market may not be as weak as I thought.
Speaker 1: Claims are indeed in a declining trends. That's helping the consumer.
Speaker 3: So how do we think about inflation here? Because you
Speaker 3: did mention consumers are seeing it at the pump, a
Speaker 3: big increase, and we'll probably see it in other parts
Speaker 3: of the economy. As it higher energy costs flow through
Speaker 3: to you know, fertilizers and food and all that type
Speaker 3: of stuff. How do you think better inflation?
Speaker 1: So first, energy spikes are a tax on the US
Speaker 1: economy unless the Fed monetizes them, as they did during
Speaker 1: the nineteen seventies.
Speaker 3: So we do that bike just cutting rates.
Speaker 1: Cutting rates, putting liquidity in the economy. You had double
Speaker 1: digit money growth in the seventies, very very and you
Speaker 1: had double digit money growth twenty one twenty two, which
Speaker 1: is why inflation was indeed more sticky. But similar to
Speaker 1: a year ago when you had the tariffs. Almost a
Speaker 1: year ago you had the tariffs. Our point then was
Speaker 1: it was a tax and you did see one price
Speaker 1: went up, other prices went down, And so I think
Speaker 1: you're going to see the same thing today. Energy takes
Speaker 1: time to flow through to overall GDP consumer spending. It
Speaker 1: very quickly impacts the CPI. So the March CPI will
Speaker 1: be bad zero point six, zero point seven percent, But
Speaker 1: again it's a tax. I. Think as you go through
Speaker 1: the year, you can see other prices go down.
Speaker 2: What's the state of American capitalism? Now you've done so
Speaker 2: much thinking about the arc of the larger picture, now,
Speaker 2: how do we incentivize ourselves to better productivity, better prosperity.
Speaker 1: So I was actually in Europe last week and I
Speaker 1: have a chart of US productivity relative to Europe and
Speaker 1: the rest of the world. Yeah, no, it's it's we.
Speaker 2: Just worked longer hours. As I look at Alexis Christopher's
Speaker 2: over there, and we French have the same productivity we do.
Speaker 2: They just worked less hours.
Speaker 3: Yeah, they're smarter than we are.
Speaker 1: Actually, actually they don't. But we also invest in technology.
Speaker 1: I'm just sitting in this beautiful room and again I
Speaker 1: heard over and over again that Europe is indeed way
Speaker 1: behind from an investment perspective, from a technological innovation, embracing it,
Speaker 1: allowing creative destruction which they don't allow, which we do.
Speaker 1: And so productivity has been in an accelerating trend for
Speaker 1: about ten years. We're back up to something close to
Speaker 1: two two and a half percent. And given all the
Speaker 1: R and D that's going on right now within corporate
Speaker 1: America and being incentivized to do more R and D
Speaker 1: through the tax to the tax legislation, we think productivity
Speaker 1: growth can move up towards three percent. So the state
Speaker 1: of American capitalism with these capex incentives, with deregulation, we
Speaker 1: think is pretty healthy.
Speaker 3: There's little to no population growth in this country these days.
Speaker 3: So for this economy to grow, can it grow because
Speaker 3: of increased productivity? Maybe AI enhancing that bingo?
Speaker 1: I mean so much. I hear from Wall Street, Oh,
Speaker 1: the fantastic cut rates because there's no labor force growth,
Speaker 1: and it's like, wait, potential GDP growth is two has
Speaker 1: two components. One is labor force growth population growth, and
Speaker 1: the other is productivity growth. And they seem to forget
Speaker 1: about that, and productivity growth is boosting. All you have
Speaker 1: to do is look at the CBO data. CBO has
Speaker 1: data on potential GDP growth and it has moved up
Speaker 1: to about two and a half percent, which I don't
Speaker 1: hear anybody talking about, which suggests that real interest rates
Speaker 1: are about right. We don't need cuts and interostrates obviously,
Speaker 1: now the community is talking about higher rates. We don't
Speaker 1: think that either, simply because this is a tax on
Speaker 1: the economy. FED policy is not overly aggressive. So at
Speaker 1: the end of the day, we think rates are about right.
Speaker 3: So I mean again, if you look at the w
Speaker 3: I RP function on the Bloomberg criminal the market kind
Speaker 3: of agrees with you. I mean to get some people
Speaker 3: looking for a little bit because I don't.
Speaker 2: Know how to look up to help you, Paul, where
Speaker 2: are we on that we're looking at no rate, nothing out.
Speaker 3: Yeah, I mean kind of just got that we have problem.
Speaker 1: It is. We had that call before the oil shot,
Speaker 1: before the war. Because again, we have a fiscal policy
Speaker 1: which is stimulative to growth, so that about one and
Speaker 1: a half percent of GDP. It's again it's the right stimulus,
Speaker 1: it's tax and center of its capex incentives. Second, the
Speaker 1: Fed has already cut rates one hundred and seventy five
Speaker 1: bases points. They're below nominal GDP growth. And then and
Speaker 1: then third, banks are easing lending standards, and so there
Speaker 1: is liquidity in the economy.
Speaker 3: What do you think about this whole AI thing? How
Speaker 3: do you put that into context? Because you know, prior
Speaker 3: to this war, that was it for the market. It
Speaker 3: was all AI. It's all we talked about. How do
Speaker 3: you think about it in terms of how big is
Speaker 3: it going to be for this economy?
Speaker 1: So, as Tom often reminds views, I've been in the
Speaker 1: business a long time and I started in the nineteen
Speaker 1: in the nineteen eighties when there were computers.
Speaker 2: Yes, for the first calculator, Yeah.
Speaker 1: That was in the seventies, in the eighties. I remember
Speaker 1: that too. In high school in the in the eighties,
Speaker 1: we went from a typewriter and a terminal to a
Speaker 1: computer and it was IBM at the time. And that
Speaker 1: was very, very disruptive. I mean, accounts, et cetera. All
Speaker 1: of a sudden you could do things very quickly on computers.
Speaker 1: And the productivity that created, or the for I worked
Speaker 1: at C. J. Lawrence, was tremendous. It didn't it did
Speaker 1: make a huge difference. And over the past forty five years,
Speaker 1: every every level of technological innovation has gotten smarter and
Speaker 1: smarter and more and more and more productive. And I'm
Speaker 1: excited about AI as far as again we're making these
Speaker 1: leaps and bounds. And other other countries.
Speaker 2: Are Richard mentioned worldwide? It was Heimen Lazaar. It was
Speaker 2: like a thing, you know, it was like red Sox pitching.
Speaker 2: There were two pictures. So and then you go on
Speaker 2: to Edgeyard Denny. Does Nancy Lazzar believe in Yard Denny's
Speaker 2: bond Vigilantes? Is this a market that's going to tell
Speaker 2: the President what to do.
Speaker 1: But I do believe in the bond market vigilante, a big, big, big,
Speaker 1: big time. And I don't believe that the Fed's going
Speaker 1: to do financial market repression. And yeah, I think I
Speaker 1: think the bond market, bond deals have moved up some.
Speaker 1: I think that's quite frankly, not the right call. I
Speaker 1: don't think inflation is a problem. I don't think the
Speaker 1: FED has to raise rates. But at the margin, are
Speaker 1: these higher yields a little bit of a of a
Speaker 1: signal to to to Washington and to be careful, What.
Speaker 3: Is your biggest concern about this economy these days?
Speaker 1: Well, it has to be on the uncertainty about what's
Speaker 1: going on in the Middle in in in the Middle East.
Speaker 1: That is my h to be sure, my single the.
Speaker 3: Companies are holding back either like on capital spending or
Speaker 3: M and A or I don't see it.
Speaker 1: I don't either. I mean, we just got these manufacturing
Speaker 1: surveys for the month of March from the regional FED districts,
Speaker 1: and their CAPEX components are like moonshots. And I think
Speaker 1: again it takes a step back that there's incentives to
Speaker 1: do CAPEX and companies are doing it.
Speaker 2: Are they Are you concerned about the way that the
Speaker 2: mag seven, the data centers and all are doing the capex?
Speaker 2: Or can they just do it like we learned in school,
Speaker 2: take it out of a bond investment and instead of
Speaker 2: using all cash, go to the bond market, get cash
Speaker 2: and build this out.
Speaker 3: Well, that's tough.
Speaker 2: We've built the railroad truth.
Speaker 1: And that's classic. And there is also incentives that these
Speaker 1: companies can write off with the one big beautiful Act.
Speaker 1: They can write off all of their investment software, R
Speaker 1: and D. They can't write off the box of the
Speaker 1: data center itself, but everything they put in it they can,
Speaker 1: and then they can then they can borrow. But that's
Speaker 1: you know, classic business li likele stuff.
Speaker 2: Have you ever been pessimistic?
Speaker 3: Oh?
Speaker 1: Yeah, I was too pessimistic in twenty three, I quite frankly, Am,
Speaker 1: is some of the stuff that I've just talked about,
Speaker 1: and so.
Speaker 2: Yeah, I just my answer was no. Nancy Blizzar, thank you,
Speaker 2: thank you, thank you so much for coming in this morning.
Speaker 2: I just can't say enough about her effort, folks. She's
Speaker 2: a Piper Sandler