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Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the

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Speaker 1: global economy to you. It's Thanksgiving this week, so of

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Speaker 1: course we're talking about the current level of consumption in

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Speaker 1: the US and whether it can last with trade wars

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Speaker 1: getting in the way of investment and exports. The US

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Speaker 1: consumer has been single handedly keeping the US recovery on

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Speaker 1: the road for much of In fact, without consumer spending,

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Speaker 1: the economy would have shrunk in each of the past

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Speaker 1: two quarters, and there are some concerns lately that even

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Speaker 1: consumers are starting to wobble. In a few minutes, I'm

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Speaker 1: going to talk about some new tools we have for

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Speaker 1: monitoring US consumers, especially the retail side of the economy,

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Speaker 1: with our chief US economist and Carl rick O Donna.

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Speaker 1: I'm also going to give you just a final taste

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Speaker 1: of the Bloomberg New Economy Forum in Beijing last week,

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Speaker 1: a conversation about Brexit and the future or of Europe

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Speaker 1: with Germany's Deputy Finance Minister. Your cookies, but first, our

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Speaker 1: Atlanta based real economy reporter Mike Sasso has been testing

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Speaker 1: the waters in a market that turns out to be

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Speaker 1: a surprisingly good barometer of the U s consumer it's

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Speaker 1: not punk kin pies or turkey, but luxury yachts. Let

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Speaker 1: me get this guy on a took. If you guys

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Speaker 1: don't mind, couldn't I just beat one minute and a

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Speaker 1: Stevie Gay In South Florida, I meet Tom Convoy. He

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Speaker 1: sells not just yachts, but super yachts, the biggest, flashiest

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Speaker 1: votes and individual can buy. And this day he's giving

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Speaker 1: private tours of vida of vessel that's long. A few

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Speaker 1: Mexican businessmen shuffle in, Hey, how are you good man?

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Speaker 1: How are you doing? Zeal Everything very well? Yeah, yeah.

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Speaker 1: Boy's yacht is the kind of super rich plaything that

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Speaker 1: few people will ever come close to it, and to

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Speaker 1: preserve its pristine condition, even the wealthy guests climbing aboard

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Speaker 1: were asked to leave their shoes and cocktails on the dock.

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Speaker 1: The boat is built by a Dutch company called Heaths

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Speaker 1: and Yachts. It comes with a master stateroom in five

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Speaker 1: guest staterooms, a full gymnasium and quarters for thirteen crew members.

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Speaker 1: Pursing it will set you back a cool fifty million dollars.

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Speaker 1: Convoy took a break from the tours to speak about

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Speaker 1: the yacht industry during the Fort Lauderdale International Boat Show,

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Speaker 1: one of the biggest marine expos in the world. As

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Speaker 1: it turns out, even people with money to burn are

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Speaker 1: increasingly nervous about burning it. Chalk it up to the

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Speaker 1: USS trade war with China and ugly Brexit in Germany

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Speaker 1: teetering on recession. He says, this is a not this

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Speaker 1: is a confidence by can you buy something like this?

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Speaker 1: Your confidence has to be your confidence. And even when

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Speaker 1: you have a great deal of money, you don't just

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Speaker 1: go because when you give you that real good confidence

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Speaker 1: that there's there's good things common, you know are not

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Speaker 1: good things going, but things are gonna be going. Boating

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Speaker 1: yacht sales are seen as a good barometer of the

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Speaker 1: economy because they're highly discretionary, Plus buyers can easily put

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Speaker 1: things on hold when conditions deteriorate. That's why the industry

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Speaker 1: is nervous about a recent decline in boat purchases this

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Speaker 1: year from small skiffs three hundred foot vessels. And it's

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Speaker 1: not just about the ridge The U S boating industry

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Speaker 1: employees or help sustain the jobs of more than six

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Speaker 1: hundred thousand Americans. No one can say for sure if

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Speaker 1: the sales slowdown is temporary or something more worrying, like

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Speaker 1: a hint that the US economy is tilting towards recession.

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Speaker 1: But with consumer spending accounting for seventy of the U.

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Speaker 1: S economy, there's a lot writing on the answer. Chuck

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Speaker 1: Cashman has a great vantage point into the U. S.

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Speaker 1: Boating industry. He's the chief revenue officer of Marine Max Incorporated,

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Speaker 1: America's biggest chain of boat dealerships. Nineteen is the shoppiest

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Speaker 1: year he's ever seen. I think we're in a great economy,

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Speaker 1: and historically great economy. I do understand we're closer to

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Speaker 1: the end of a good cycle than we are in

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Speaker 1: the beginning. Right, It's uh, it will go on forever. However,

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Speaker 1: it's the growth and clock is right twice a day.

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Speaker 1: If everybody is just gonna say we're heading for a downturn,

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Speaker 1: yeah we are. But when a point right, I don't

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Speaker 1: think this weekend, So you know that's how I'll attack

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Speaker 1: this weekend. Yeah. Overall, boat sails and should hit their

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Speaker 1: second highest level in the past dozen years, according to

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Speaker 1: industry data, and there's no sign of any slowdown. In Florida.

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Speaker 1: In early November, organizers of the boat show created an

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Speaker 1: exclusive super yacht village this year, where the wealthy arrived

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Speaker 1: by water taxi to tour ships as long as three feet.

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Speaker 1: Local hotels were sold out all around the show's vast

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Speaker 1: marina complex, and parking spaces a half mile away costs

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Speaker 1: forty dollars. Lindsay Pieza is an economist at Steple Financial.

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Speaker 1: She said consumers are behaving oddly this year. Given the

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Speaker 1: strong economy, she would have expected people to keep spending

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Speaker 1: more each month. Instead, they're buying some items only to

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Speaker 1: cut back on others. The consumer is still out there.

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Speaker 1: May be buying that big screen TV one month, but

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Speaker 1: in doing so, he or she is foregoing uh that

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Speaker 1: other purchase, be that a new winter code or going

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Speaker 1: out to eat with the family. So we're seeing this

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Speaker 1: dramatic shift month to month, and that doesn't necessarily insinuate

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Speaker 1: a very strong consumer going forward. Bob Dennison is a

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Speaker 1: luxury yacht broker from Fort Waterdale. You remain somewhat upbeat.

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Speaker 1: Most people will tell you that they are sort of

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Speaker 1: cautiously optimistic. Orders are being made on new boats, used

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Speaker 1: boats are buying. Weather is nice, but we're a somewhat

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Speaker 1: smart bunch, and we know that. You know, there are

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Speaker 1: economic cycles that come in and out, and this market

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Speaker 1: specifically is usually hit harder than most when there is

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Speaker 1: an economic downturn because the things that we sell are

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Speaker 1: things that are truly um things you buy for no

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Speaker 1: you know, utilitarian reason you own a yacht unless you're

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Speaker 1: a fisherman or your craft. You know, the the only

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Speaker 1: reason that you're buying from these yacht, these white yachts

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Speaker 1: at the boat show is just for fun. But maybe

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Speaker 1: people aren't going to be having as much fun anymore.

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Speaker 1: The US will hold its presidential election next year, and

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Speaker 1: to the leading candidates, Bernie Sanders and Elizabeth Warren are

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Speaker 1: calling for a new tax on the wealthiest Americans. The

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Speaker 1: voting industry fears that could scare yat buyers and persuade

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Speaker 1: them to hold off on purchasing. A few years ago,

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Speaker 1: Dennison studied boat buying trends. He found that sales fall

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Speaker 1: off in the months before presidential election, although they pick

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Speaker 1: up again after it's over. That could make boat sales

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Speaker 1: a bit cloudier as an economic barometer these days, which

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Speaker 1: means we may have to look at other items to

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Speaker 1: gauge whether there's going to be a recession. Economists also

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Speaker 1: watch sales of movie tickets, big screen TVs, and even

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Speaker 1: cosmetic surgeries to see if the economy is turning. There

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Speaker 1: are also market indicators with coable reputations, like the difference

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Speaker 1: between yields on different maturities of treasury bonds. It's fair

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Speaker 1: to say that the voting industry is increasingly anxious. However,

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Speaker 1: Tom Conboy, the super yacht sales mean we heard from

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Speaker 1: at the beginning, doesn't like the look of the election

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Speaker 1: season so far from here. I think of this politicals

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Speaker 1: thing just keeps going, and there's you know, and there's

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Speaker 1: muddy trench that it's and I did it's not going

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Speaker 1: to help us for Bloomberg News and Michael Sasso. So

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Speaker 1: that's the view of consumers from the ground, or maybe

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Speaker 1: in this case the marina. I'm now joined by Carl

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Speaker 1: rick O Donna, our US chief economist. Carl, thanks for

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Speaker 1: being here, and you have given us some interesting new

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Speaker 1: research in the last week or so looking at this

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Speaker 1: crucial question of the strength of the US consumer going

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Speaker 1: into the holiday season. Tell us a bit about what

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Speaker 1: you found. Well, there's a broader question over the the

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Speaker 1: the ability for consumers to really continue propping up economic growth.

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Speaker 1: But what we did here I would look a little

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Speaker 1: bit more narrowly at the holiday shopping season UH and

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Speaker 1: identify the categories that are really relevant to that end

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Speaker 1: of season surge in sales. And of course that starts

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Speaker 1: with the Black Friday holiday in the US, and it's

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Speaker 1: called Black Friday because that's a historically the day of

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Speaker 1: the year where retailers actually go from being in the

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Speaker 1: red to being in the black given that pick up

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Speaker 1: an activity, and there have been I'm actually I'm going

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Speaker 1: to be in New York on on Black Friday, and

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Speaker 1: I'm going to do everything I can to avoid any

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Speaker 1: large shops. But there has been some worry in the

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Speaker 1: last even just in the last few weeks about whether

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Speaker 1: consumers are starting to falter, whether we should worry about

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Speaker 1: them carrying the US economy on their shoulders into twent twenty.

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Speaker 1: What do you think about that. If consumers are are buckling,

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Speaker 1: we've got a real problem on our hands. If we

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Speaker 1: look at GDP growth excluding consumers. UH. In fact, the

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Speaker 1: economy is bending contraction for the last two quarters and

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Speaker 1: would continue to contract into year end. So kind of

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Speaker 1: the ex consumer economy really we could say, is in

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Speaker 1: a recession. Now consumers are sent the picture, so it

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Speaker 1: kind of doesn't make sense to take consumers out of

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Speaker 1: that out of that equation, but that gives you a

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Speaker 1: context of what's really propping up growth at the moment.

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Speaker 1: So we really have to keep a very watchful eye

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Speaker 1: on consumers, not just those retailers that are looking to

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Speaker 1: go into the black, but also the broader retrajectory of

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Speaker 1: the economy. And when we look at that trend, UH,

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Speaker 1: there's been reason for concern, but I'll say not panic

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Speaker 1: in some of the latest data. So for example, if

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Speaker 1: we look at all of these inputs that we run

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Speaker 1: into this holiday shopping model, things like demand for motor

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Speaker 1: vehicles or overall spending momentum in the unomy, consumer attitudes,

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Speaker 1: the household savings rate UH, and most importantly the household

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Speaker 1: income trend, the wage and salary trend, all of those

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Speaker 1: have been cooling over the last couple of months, if

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Speaker 1: not quarters, and tell us that we are on a

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Speaker 1: weaker trajectory. I know, people listening when we have these conversations,

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Speaker 1: people always say, what about internet shopping? Are these of

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Speaker 1: these old data that the traditional data, surely it's not

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Speaker 1: capturing how much of us are now buying online? Do

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Speaker 1: you do you feel confident that we're capturing that side

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Speaker 1: of the economy. Now, there have been problems historically that

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Speaker 1: the Internet sales were not being captured is fully in

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Speaker 1: the data series. But what we're using for this particular

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Speaker 1: study is the retail sales data from the Census Bureau UH,

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Speaker 1: and that does capture Internet sales. And we can see

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Speaker 1: that category growing at a very robust pace, about fifteen

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Speaker 1: percent in year in year terms. So what in fact

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Speaker 1: it is slowing? I can remember ten years ago looking

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Speaker 1: at this data and it was growing at about a pace.

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Speaker 1: But that that's a micro economic story within the broader

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Speaker 1: data set. So we are capturing uh, Internet retail in

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Speaker 1: this data. What we don't capture here is the service

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Speaker 1: side of the economy. Now, when we talk about consumer

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Speaker 1: spending more broadly, absolutely services are included. But as we

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Speaker 1: look at retail sales data here, and the big story is,

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Speaker 1: you know, millennials want to buy experiences and not not

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Speaker 1: items that they have to store in their very tiny apartments,

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Speaker 1: and so those experiential purchases, if you're gifting someone a

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Speaker 1: vacation or a massage or or some kind of service

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Speaker 1: at at the holiday season. Now, that's not going to

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Speaker 1: show up in these metrics. Yeah, and as we know,

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Speaker 1: a lot of them, they do not get used, which

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Speaker 1: is a nice little earner for the people who give

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Speaker 1: out the vouchers. You know, we've just been hearing about

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Speaker 1: luxury yacht industry and how that's being affected by the

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Speaker 1: mood among consumers. It makes you think a little bit about, uh,

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Speaker 1: one of the big political issues that we're going to

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Speaker 1: hear a lot talk about a lot as we go

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Speaker 1: into the US presidential campaign, the way that money has

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Speaker 1: gone into the pockets of the very, very wealthy over

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Speaker 1: the course of the last um ten or fifteen years particularly,

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Speaker 1: do you see I mean, we would tend to think

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Speaker 1: that if wage growth, for seeing wage growth at the

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Speaker 1: bottom end of the wage spectrum, that's going to be

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Speaker 1: better for overall consumption than just having a lot of

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Speaker 1: money going into the bank accounts of the super rich

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Speaker 1: because they're not going to spend at all. Is that

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Speaker 1: is that something you see? Because I know the pattern

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Speaker 1: of wage growth has been you know, has been a

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Speaker 1: bit better for the lower wage end of the spectrum

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Speaker 1: in the last few years. Sure, as you look at

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Speaker 1: the composition of spending by income quartile, for instance, we

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Speaker 1: definitely are seeing that this is now looking like a

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Speaker 1: more mature economic cycle, to the extent that initially in

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Speaker 1: economic cycles, you don't tend to have a very weak

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Speaker 1: econ conditions for the upper income demographics. The lawyers and

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Speaker 1: doctors tend to not be unemployed when the economy is

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Speaker 1: in recession. UH. And then later on in the cycle

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Speaker 1: we see the unemployment rate for those with uh let's say,

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Speaker 1: less education that tend to be in lower income demographics. UH,

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Speaker 1: that tends to improve. And that's really what we're seeing

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Speaker 1: in the data lately. UH. And to answer your question, UH,

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Speaker 1: those demographic groups tend to have a much lower savings rate,

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Speaker 1: which means that every dollar earned tends to get transferred

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Speaker 1: into consumption. And so there is a stronger macroeconomic consequence

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Speaker 1: from improvement in in that end of the income spectrum

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Speaker 1: compared to the top which tends to have a very

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Speaker 1: high savings rate. UH. And so those dollars earned then

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Speaker 1: get reinvested into financial assets typically, and that is going

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Speaker 1: to be one of the things that I'm sure we'll

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Speaker 1: get talked about in the presidential election. Is certainly something

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Speaker 1: that the likes of the International Monetary Fund has pointed

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Speaker 1: to and saying that income income inequality, having the gains

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Speaker 1: from growth not evenly spread can actually hurt growth itself.

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Speaker 1: Plenty of stuff to talk about, Plenty of stuff that

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Speaker 1: we want you, Carl to be watching very closely going

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Speaker 1: into twenty But thanks very much and happy Thanksgiving. Thank you.

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Speaker 1: So I did promise you a final taste of the

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Speaker 1: Bloomberg New Economy Forum last week in Beijing, and here

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Speaker 1: we have it. It's part of a debate about Brexit

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Speaker 1: and the future of Europe. Here's my conversation with your cookies,

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Speaker 1: Germany's Deputy Finance minister, your cookies. When people often in

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Speaker 1: the UK in this debate, people have pointed to Germany

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Speaker 1: as the country that would push hard for a good

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Speaker 1: deal for Britain because German companies would be so affective. Um,

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Speaker 1: it feels a bit like Germany, and indeed other parts

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Speaker 1: of Europe have just now just putting their hands up

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Speaker 1: saying let's just get this done. We're not we just

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Speaker 1: want to get past Brexit now. Whatever it takes. Is

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Speaker 1: that is that the German I want to get onto

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Speaker 1: the impact of the broader impact on Europe, But what

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Speaker 1: about the German starts now on Brexit. Well, okay, so

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Speaker 1: first of all, I think you're half sentence because is

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Speaker 1: not complete when you say because the German companies are

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Speaker 1: so affected. That's true, the German companies are affected. But

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Speaker 1: I think the much bigger reason why Germany has tried

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Speaker 1: so hard to UM to make the best of of

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Speaker 1: Brexit is because of the very deep rooted friendship between

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Speaker 1: our countries and the very close cooperation that we've had

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Speaker 1: over decades and the work that we've done together in

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Speaker 1: the in the European Union. So so we're losing a

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Speaker 1: very dear friend and UH and partners. So that's that's

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Speaker 1: really the biggest UM reason why we try to be

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Speaker 1: as constructive as we can in this And I would

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Speaker 1: say that even the second round of negotiation, the German

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Speaker 1: government has taken a very constructive stance in terms of

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Speaker 1: trying to build bridges and trying to facilitate things the

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Speaker 1: best we can UM and the other aspect. I think

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Speaker 1: that's also very important for them For the question of UM.

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Speaker 1: I mean, we don't have a choice, but to except

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Speaker 1: accept the Brexit decision, but we do have a choice

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Speaker 1: to try to make the response of the European Union

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Speaker 1: in terms of the transitional agreements UM, in the financial

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Speaker 1: markets UM, in all of the rules and regulations that

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Speaker 1: we have as UM as reasonable as possible UM, you know,

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Speaker 1: like equivalence decisions with respect to UM the financial markets

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Speaker 1: I think are extremely strategically important. And the German government

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Speaker 1: has been very very active in UM making sure and

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Speaker 1: UM and UM and taking a position in the European

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Speaker 1: Union UM of a constructive stance within the Brexit context,

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Speaker 1: and if we think about the longer term impact for

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Speaker 1: Europe UM. There had been an argument that said, once

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Speaker 1: you lose Britain, it's all very sad, but you're also

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Speaker 1: liberated to have some of the closer integration that Britain

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Speaker 1: had resisted from inside the European Union. UM. Do you

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Speaker 1: think there is that potential that you would we would

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Speaker 1: think of this as a as actually giving a new

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Speaker 1: lease on life to us to a closer integration or

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Speaker 1: will we actually say no, This was when a hole

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Speaker 1: got blown out of the U and it was the

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Speaker 1: beginning of a further disintegration. So, first of all, I

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Speaker 1: don't quite agree with the assessment because you know, if

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Speaker 1: the assessment were true that it was Britain that held

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Speaker 1: back the integration of the European Union, then the institutions

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Speaker 1: of the Eurozone should have been much stronger and made

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Speaker 1: much more progress because the United Kingdom never played at

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Speaker 1: all in that, because it's not in right. But you

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Speaker 1: look at the lack of progress in the banking Union,

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Speaker 1: which is only the the e U nineteen either the

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Speaker 1: Eurozone countries. It's not like we've made a huge amount

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Speaker 1: more progress in that than in the other agenditis. So

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Speaker 1: I don't think it's really an issue that that Britain

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Speaker 1: held us back. UM. What I do think what is

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Speaker 1: what people are realizing and why there has now been

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Speaker 1: a new impetus to both the Banking Union and the

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Speaker 1: Capital Markets Union, is of course that everyone now realizes

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Speaker 1: that once the direct access and integration with London UM

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Speaker 1: may change. We hope it doesn't change radically, but it

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Speaker 1: will change. Of course in some aspects. There has to

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Speaker 1: be a response from the European Union and the if

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Speaker 1: we want to assure the funding and financing of our

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Speaker 1: real economy to the extent that we've had so far, um,

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Speaker 1: we have to do our homework on banking union and

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Speaker 1: capital markets union. I mean, any large global corporate in

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Speaker 1: Germany that has sought financing for any large transaction at

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Speaker 1: the global scale all has been doing it through London

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Speaker 1: in the last twenty years, right, thirty years, and that

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Speaker 1: is now going to be more difficult. So if you're

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Speaker 1: a dozen't respond and strengthen its banking union capital markets union,

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Speaker 1: it will be to the detriment of Europe. So that's

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Speaker 1: that made maybe the the sort of healthy thing that

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Speaker 1: we have to get our act together. Thanks for listening

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Speaker 1: to Stephanomics, and a very happy Thanksgiving to my fellow Americans.

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Speaker 1: We'll be back next week with more on the ground

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Speaker 1: insights into the global economy. In the meantime, you can

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Speaker 1: find us on the Bloomberg Terminal, website, app, or wherever

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Speaker 1: you get your podcasts. We'd love it if you took

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Speaker 1: the time to rate and review our show so it

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Speaker 1: can reach more listeners. And for more news and analysis

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Speaker 1: from Bloomberg Economics through the week, follow at Economics on Twitter.

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Speaker 1: You can also find me on at my Stephanomics. The

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Speaker 1: story in this episode was reported and written by Michael

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Speaker 1: Sasso was produced by Magnus Hendricks and edited by Scott Landman,

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Speaker 1: who is also the executive producer of Stephanomics. Be sure

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Speaker 1: to read Mike's original article on this topic, which was

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Speaker 1: edited by Anita Sharp and Sarah McGregor. Special thanks finally

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Speaker 1: to carl Rickardonna, German Deputy Finance Minister, Your Kukies, and

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Speaker 1: the Bloomberg New Economy Forum. Francesco Leedy is the head

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Speaker 1: of Bloomberg Podcast