Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you. It's Thanksgiving this week, so of
Speaker 1: course we're talking about the current level of consumption in
Speaker 1: the US and whether it can last with trade wars
Speaker 1: getting in the way of investment and exports. The US
Speaker 1: consumer has been single handedly keeping the US recovery on
Speaker 1: the road for much of In fact, without consumer spending,
Speaker 1: the economy would have shrunk in each of the past
Speaker 1: two quarters, and there are some concerns lately that even
Speaker 1: consumers are starting to wobble. In a few minutes, I'm
Speaker 1: going to talk about some new tools we have for
Speaker 1: monitoring US consumers, especially the retail side of the economy,
Speaker 1: with our chief US economist and Carl rick O Donna.
Speaker 1: I'm also going to give you just a final taste
Speaker 1: of the Bloomberg New Economy Forum in Beijing last week,
Speaker 1: a conversation about Brexit and the future or of Europe
Speaker 1: with Germany's Deputy Finance Minister. Your cookies, but first, our
Speaker 1: Atlanta based real economy reporter Mike Sasso has been testing
Speaker 1: the waters in a market that turns out to be
Speaker 1: a surprisingly good barometer of the U s consumer it's
Speaker 1: not punk kin pies or turkey, but luxury yachts. Let
Speaker 1: me get this guy on a took. If you guys
Speaker 1: don't mind, couldn't I just beat one minute and a
Speaker 1: Stevie Gay In South Florida, I meet Tom Convoy. He
Speaker 1: sells not just yachts, but super yachts, the biggest, flashiest
Speaker 1: votes and individual can buy. And this day he's giving
Speaker 1: private tours of vida of vessel that's long. A few
Speaker 1: Mexican businessmen shuffle in, Hey, how are you good man?
Speaker 1: How are you doing? Zeal Everything very well? Yeah, yeah.
Speaker 1: Boy's yacht is the kind of super rich plaything that
Speaker 1: few people will ever come close to it, and to
Speaker 1: preserve its pristine condition, even the wealthy guests climbing aboard
Speaker 1: were asked to leave their shoes and cocktails on the dock.
Speaker 1: The boat is built by a Dutch company called Heaths
Speaker 1: and Yachts. It comes with a master stateroom in five
Speaker 1: guest staterooms, a full gymnasium and quarters for thirteen crew members.
Speaker 1: Pursing it will set you back a cool fifty million dollars.
Speaker 1: Convoy took a break from the tours to speak about
Speaker 1: the yacht industry during the Fort Lauderdale International Boat Show,
Speaker 1: one of the biggest marine expos in the world. As
Speaker 1: it turns out, even people with money to burn are
Speaker 1: increasingly nervous about burning it. Chalk it up to the
Speaker 1: USS trade war with China and ugly Brexit in Germany
Speaker 1: teetering on recession. He says, this is a not this
Speaker 1: is a confidence by can you buy something like this?
Speaker 1: Your confidence has to be your confidence. And even when
Speaker 1: you have a great deal of money, you don't just
Speaker 1: go because when you give you that real good confidence
Speaker 1: that there's there's good things common, you know are not
Speaker 1: good things going, but things are gonna be going. Boating
Speaker 1: yacht sales are seen as a good barometer of the
Speaker 1: economy because they're highly discretionary, Plus buyers can easily put
Speaker 1: things on hold when conditions deteriorate. That's why the industry
Speaker 1: is nervous about a recent decline in boat purchases this
Speaker 1: year from small skiffs three hundred foot vessels. And it's
Speaker 1: not just about the ridge The U S boating industry
Speaker 1: employees or help sustain the jobs of more than six
Speaker 1: hundred thousand Americans. No one can say for sure if
Speaker 1: the sales slowdown is temporary or something more worrying, like
Speaker 1: a hint that the US economy is tilting towards recession.
Speaker 1: But with consumer spending accounting for seventy of the U.
Speaker 1: S economy, there's a lot writing on the answer. Chuck
Speaker 1: Cashman has a great vantage point into the U. S.
Speaker 1: Boating industry. He's the chief revenue officer of Marine Max Incorporated,
Speaker 1: America's biggest chain of boat dealerships. Nineteen is the shoppiest
Speaker 1: year he's ever seen. I think we're in a great economy,
Speaker 1: and historically great economy. I do understand we're closer to
Speaker 1: the end of a good cycle than we are in
Speaker 1: the beginning. Right, It's uh, it will go on forever. However,
Speaker 1: it's the growth and clock is right twice a day.
Speaker 1: If everybody is just gonna say we're heading for a downturn,
Speaker 1: yeah we are. But when a point right, I don't
Speaker 1: think this weekend, So you know that's how I'll attack
Speaker 1: this weekend. Yeah. Overall, boat sails and should hit their
Speaker 1: second highest level in the past dozen years, according to
Speaker 1: industry data, and there's no sign of any slowdown. In Florida.
Speaker 1: In early November, organizers of the boat show created an
Speaker 1: exclusive super yacht village this year, where the wealthy arrived
Speaker 1: by water taxi to tour ships as long as three feet.
Speaker 1: Local hotels were sold out all around the show's vast
Speaker 1: marina complex, and parking spaces a half mile away costs
Speaker 1: forty dollars. Lindsay Pieza is an economist at Steple Financial.
Speaker 1: She said consumers are behaving oddly this year. Given the
Speaker 1: strong economy, she would have expected people to keep spending
Speaker 1: more each month. Instead, they're buying some items only to
Speaker 1: cut back on others. The consumer is still out there.
Speaker 1: May be buying that big screen TV one month, but
Speaker 1: in doing so, he or she is foregoing uh that
Speaker 1: other purchase, be that a new winter code or going
Speaker 1: out to eat with the family. So we're seeing this
Speaker 1: dramatic shift month to month, and that doesn't necessarily insinuate
Speaker 1: a very strong consumer going forward. Bob Dennison is a
Speaker 1: luxury yacht broker from Fort Waterdale. You remain somewhat upbeat.
Speaker 1: Most people will tell you that they are sort of
Speaker 1: cautiously optimistic. Orders are being made on new boats, used
Speaker 1: boats are buying. Weather is nice, but we're a somewhat
Speaker 1: smart bunch, and we know that. You know, there are
Speaker 1: economic cycles that come in and out, and this market
Speaker 1: specifically is usually hit harder than most when there is
Speaker 1: an economic downturn because the things that we sell are
Speaker 1: things that are truly um things you buy for no
Speaker 1: you know, utilitarian reason you own a yacht unless you're
Speaker 1: a fisherman or your craft. You know, the the only
Speaker 1: reason that you're buying from these yacht, these white yachts
Speaker 1: at the boat show is just for fun. But maybe
Speaker 1: people aren't going to be having as much fun anymore.
Speaker 1: The US will hold its presidential election next year, and
Speaker 1: to the leading candidates, Bernie Sanders and Elizabeth Warren are
Speaker 1: calling for a new tax on the wealthiest Americans. The
Speaker 1: voting industry fears that could scare yat buyers and persuade
Speaker 1: them to hold off on purchasing. A few years ago,
Speaker 1: Dennison studied boat buying trends. He found that sales fall
Speaker 1: off in the months before presidential election, although they pick
Speaker 1: up again after it's over. That could make boat sales
Speaker 1: a bit cloudier as an economic barometer these days, which
Speaker 1: means we may have to look at other items to
Speaker 1: gauge whether there's going to be a recession. Economists also
Speaker 1: watch sales of movie tickets, big screen TVs, and even
Speaker 1: cosmetic surgeries to see if the economy is turning. There
Speaker 1: are also market indicators with coable reputations, like the difference
Speaker 1: between yields on different maturities of treasury bonds. It's fair
Speaker 1: to say that the voting industry is increasingly anxious. However,
Speaker 1: Tom Conboy, the super yacht sales mean we heard from
Speaker 1: at the beginning, doesn't like the look of the election
Speaker 1: season so far from here. I think of this politicals
Speaker 1: thing just keeps going, and there's you know, and there's
Speaker 1: muddy trench that it's and I did it's not going
Speaker 1: to help us for Bloomberg News and Michael Sasso. So
Speaker 1: that's the view of consumers from the ground, or maybe
Speaker 1: in this case the marina. I'm now joined by Carl
Speaker 1: rick O Donna, our US chief economist. Carl, thanks for
Speaker 1: being here, and you have given us some interesting new
Speaker 1: research in the last week or so looking at this
Speaker 1: crucial question of the strength of the US consumer going
Speaker 1: into the holiday season. Tell us a bit about what
Speaker 1: you found. Well, there's a broader question over the the
Speaker 1: the ability for consumers to really continue propping up economic growth.
Speaker 1: But what we did here I would look a little
Speaker 1: bit more narrowly at the holiday shopping season UH and
Speaker 1: identify the categories that are really relevant to that end
Speaker 1: of season surge in sales. And of course that starts
Speaker 1: with the Black Friday holiday in the US, and it's
Speaker 1: called Black Friday because that's a historically the day of
Speaker 1: the year where retailers actually go from being in the
Speaker 1: red to being in the black given that pick up
Speaker 1: an activity, and there have been I'm actually I'm going
Speaker 1: to be in New York on on Black Friday, and
Speaker 1: I'm going to do everything I can to avoid any
Speaker 1: large shops. But there has been some worry in the
Speaker 1: last even just in the last few weeks about whether
Speaker 1: consumers are starting to falter, whether we should worry about
Speaker 1: them carrying the US economy on their shoulders into twent twenty.
Speaker 1: What do you think about that. If consumers are are buckling,
Speaker 1: we've got a real problem on our hands. If we
Speaker 1: look at GDP growth excluding consumers. UH. In fact, the
Speaker 1: economy is bending contraction for the last two quarters and
Speaker 1: would continue to contract into year end. So kind of
Speaker 1: the ex consumer economy really we could say, is in
Speaker 1: a recession. Now consumers are sent the picture, so it
Speaker 1: kind of doesn't make sense to take consumers out of
Speaker 1: that out of that equation, but that gives you a
Speaker 1: context of what's really propping up growth at the moment.
Speaker 1: So we really have to keep a very watchful eye
Speaker 1: on consumers, not just those retailers that are looking to
Speaker 1: go into the black, but also the broader retrajectory of
Speaker 1: the economy. And when we look at that trend, UH,
Speaker 1: there's been reason for concern, but I'll say not panic
Speaker 1: in some of the latest data. So for example, if
Speaker 1: we look at all of these inputs that we run
Speaker 1: into this holiday shopping model, things like demand for motor
Speaker 1: vehicles or overall spending momentum in the unomy, consumer attitudes,
Speaker 1: the household savings rate UH, and most importantly the household
Speaker 1: income trend, the wage and salary trend, all of those
Speaker 1: have been cooling over the last couple of months, if
Speaker 1: not quarters, and tell us that we are on a
Speaker 1: weaker trajectory. I know, people listening when we have these conversations,
Speaker 1: people always say, what about internet shopping? Are these of
Speaker 1: these old data that the traditional data, surely it's not
Speaker 1: capturing how much of us are now buying online? Do
Speaker 1: you do you feel confident that we're capturing that side
Speaker 1: of the economy. Now, there have been problems historically that
Speaker 1: the Internet sales were not being captured is fully in
Speaker 1: the data series. But what we're using for this particular
Speaker 1: study is the retail sales data from the Census Bureau UH,
Speaker 1: and that does capture Internet sales. And we can see
Speaker 1: that category growing at a very robust pace, about fifteen
Speaker 1: percent in year in year terms. So what in fact
Speaker 1: it is slowing? I can remember ten years ago looking
Speaker 1: at this data and it was growing at about a pace.
Speaker 1: But that that's a micro economic story within the broader
Speaker 1: data set. So we are capturing uh, Internet retail in
Speaker 1: this data. What we don't capture here is the service
Speaker 1: side of the economy. Now, when we talk about consumer
Speaker 1: spending more broadly, absolutely services are included. But as we
Speaker 1: look at retail sales data here, and the big story is,
Speaker 1: you know, millennials want to buy experiences and not not
Speaker 1: items that they have to store in their very tiny apartments,
Speaker 1: and so those experiential purchases, if you're gifting someone a
Speaker 1: vacation or a massage or or some kind of service
Speaker 1: at at the holiday season. Now, that's not going to
Speaker 1: show up in these metrics. Yeah, and as we know,
Speaker 1: a lot of them, they do not get used, which
Speaker 1: is a nice little earner for the people who give
Speaker 1: out the vouchers. You know, we've just been hearing about
Speaker 1: luxury yacht industry and how that's being affected by the
Speaker 1: mood among consumers. It makes you think a little bit about, uh,
Speaker 1: one of the big political issues that we're going to
Speaker 1: hear a lot talk about a lot as we go
Speaker 1: into the US presidential campaign, the way that money has
Speaker 1: gone into the pockets of the very, very wealthy over
Speaker 1: the course of the last um ten or fifteen years particularly,
Speaker 1: do you see I mean, we would tend to think
Speaker 1: that if wage growth, for seeing wage growth at the
Speaker 1: bottom end of the wage spectrum, that's going to be
Speaker 1: better for overall consumption than just having a lot of
Speaker 1: money going into the bank accounts of the super rich
Speaker 1: because they're not going to spend at all. Is that
Speaker 1: is that something you see? Because I know the pattern
Speaker 1: of wage growth has been you know, has been a
Speaker 1: bit better for the lower wage end of the spectrum
Speaker 1: in the last few years. Sure, as you look at
Speaker 1: the composition of spending by income quartile, for instance, we
Speaker 1: definitely are seeing that this is now looking like a
Speaker 1: more mature economic cycle, to the extent that initially in
Speaker 1: economic cycles, you don't tend to have a very weak
Speaker 1: econ conditions for the upper income demographics. The lawyers and
Speaker 1: doctors tend to not be unemployed when the economy is
Speaker 1: in recession. UH. And then later on in the cycle
Speaker 1: we see the unemployment rate for those with uh let's say,
Speaker 1: less education that tend to be in lower income demographics. UH,
Speaker 1: that tends to improve. And that's really what we're seeing
Speaker 1: in the data lately. UH. And to answer your question, UH,
Speaker 1: those demographic groups tend to have a much lower savings rate,
Speaker 1: which means that every dollar earned tends to get transferred
Speaker 1: into consumption. And so there is a stronger macroeconomic consequence
Speaker 1: from improvement in in that end of the income spectrum
Speaker 1: compared to the top which tends to have a very
Speaker 1: high savings rate. UH. And so those dollars earned then
Speaker 1: get reinvested into financial assets typically, and that is going
Speaker 1: to be one of the things that I'm sure we'll
Speaker 1: get talked about in the presidential election. Is certainly something
Speaker 1: that the likes of the International Monetary Fund has pointed
Speaker 1: to and saying that income income inequality, having the gains
Speaker 1: from growth not evenly spread can actually hurt growth itself.
Speaker 1: Plenty of stuff to talk about, Plenty of stuff that
Speaker 1: we want you, Carl to be watching very closely going
Speaker 1: into twenty But thanks very much and happy Thanksgiving. Thank you.
Speaker 1: So I did promise you a final taste of the
Speaker 1: Bloomberg New Economy Forum last week in Beijing, and here
Speaker 1: we have it. It's part of a debate about Brexit
Speaker 1: and the future of Europe. Here's my conversation with your cookies,
Speaker 1: Germany's Deputy Finance minister, your cookies. When people often in
Speaker 1: the UK in this debate, people have pointed to Germany
Speaker 1: as the country that would push hard for a good
Speaker 1: deal for Britain because German companies would be so affective. Um,
Speaker 1: it feels a bit like Germany, and indeed other parts
Speaker 1: of Europe have just now just putting their hands up
Speaker 1: saying let's just get this done. We're not we just
Speaker 1: want to get past Brexit now. Whatever it takes. Is
Speaker 1: that is that the German I want to get onto
Speaker 1: the impact of the broader impact on Europe, But what
Speaker 1: about the German starts now on Brexit. Well, okay, so
Speaker 1: first of all, I think you're half sentence because is
Speaker 1: not complete when you say because the German companies are
Speaker 1: so affected. That's true, the German companies are affected. But
Speaker 1: I think the much bigger reason why Germany has tried
Speaker 1: so hard to UM to make the best of of
Speaker 1: Brexit is because of the very deep rooted friendship between
Speaker 1: our countries and the very close cooperation that we've had
Speaker 1: over decades and the work that we've done together in
Speaker 1: the in the European Union. So so we're losing a
Speaker 1: very dear friend and UH and partners. So that's that's
Speaker 1: really the biggest UM reason why we try to be
Speaker 1: as constructive as we can in this And I would
Speaker 1: say that even the second round of negotiation, the German
Speaker 1: government has taken a very constructive stance in terms of
Speaker 1: trying to build bridges and trying to facilitate things the
Speaker 1: best we can UM and the other aspect. I think
Speaker 1: that's also very important for them For the question of UM.
Speaker 1: I mean, we don't have a choice, but to except
Speaker 1: accept the Brexit decision, but we do have a choice
Speaker 1: to try to make the response of the European Union
Speaker 1: in terms of the transitional agreements UM, in the financial
Speaker 1: markets UM, in all of the rules and regulations that
Speaker 1: we have as UM as reasonable as possible UM, you know,
Speaker 1: like equivalence decisions with respect to UM the financial markets
Speaker 1: I think are extremely strategically important. And the German government
Speaker 1: has been very very active in UM making sure and
Speaker 1: UM and UM and taking a position in the European
Speaker 1: Union UM of a constructive stance within the Brexit context,
Speaker 1: and if we think about the longer term impact for
Speaker 1: Europe UM. There had been an argument that said, once
Speaker 1: you lose Britain, it's all very sad, but you're also
Speaker 1: liberated to have some of the closer integration that Britain
Speaker 1: had resisted from inside the European Union. UM. Do you
Speaker 1: think there is that potential that you would we would
Speaker 1: think of this as a as actually giving a new
Speaker 1: lease on life to us to a closer integration or
Speaker 1: will we actually say no, This was when a hole
Speaker 1: got blown out of the U and it was the
Speaker 1: beginning of a further disintegration. So, first of all, I
Speaker 1: don't quite agree with the assessment because you know, if
Speaker 1: the assessment were true that it was Britain that held
Speaker 1: back the integration of the European Union, then the institutions
Speaker 1: of the Eurozone should have been much stronger and made
Speaker 1: much more progress because the United Kingdom never played at
Speaker 1: all in that, because it's not in right. But you
Speaker 1: look at the lack of progress in the banking Union,
Speaker 1: which is only the the e U nineteen either the
Speaker 1: Eurozone countries. It's not like we've made a huge amount
Speaker 1: more progress in that than in the other agenditis. So
Speaker 1: I don't think it's really an issue that that Britain
Speaker 1: held us back. UM. What I do think what is
Speaker 1: what people are realizing and why there has now been
Speaker 1: a new impetus to both the Banking Union and the
Speaker 1: Capital Markets Union, is of course that everyone now realizes
Speaker 1: that once the direct access and integration with London UM
Speaker 1: may change. We hope it doesn't change radically, but it
Speaker 1: will change. Of course in some aspects. There has to
Speaker 1: be a response from the European Union and the if
Speaker 1: we want to assure the funding and financing of our
Speaker 1: real economy to the extent that we've had so far, um,
Speaker 1: we have to do our homework on banking union and
Speaker 1: capital markets union. I mean, any large global corporate in
Speaker 1: Germany that has sought financing for any large transaction at
Speaker 1: the global scale all has been doing it through London
Speaker 1: in the last twenty years, right, thirty years, and that
Speaker 1: is now going to be more difficult. So if you're
Speaker 1: a dozen't respond and strengthen its banking union capital markets union,
Speaker 1: it will be to the detriment of Europe. So that's
Speaker 1: that made maybe the the sort of healthy thing that
Speaker 1: we have to get our act together. Thanks for listening
Speaker 1: to Stephanomics, and a very happy Thanksgiving to my fellow Americans.
Speaker 1: We'll be back next week with more on the ground
Speaker 1: insights into the global economy. In the meantime, you can
Speaker 1: find us on the Bloomberg Terminal, website, app, or wherever
Speaker 1: you get your podcasts. We'd love it if you took
Speaker 1: the time to rate and review our show so it
Speaker 1: can reach more listeners. And for more news and analysis
Speaker 1: from Bloomberg Economics through the week, follow at Economics on Twitter.
Speaker 1: You can also find me on at my Stephanomics. The
Speaker 1: story in this episode was reported and written by Michael
Speaker 1: Sasso was produced by Magnus Hendricks and edited by Scott Landman,
Speaker 1: who is also the executive producer of Stephanomics. Be sure
Speaker 1: to read Mike's original article on this topic, which was
Speaker 1: edited by Anita Sharp and Sarah McGregor. Special thanks finally
Speaker 1: to carl Rickardonna, German Deputy Finance Minister, Your Kukies, and
Speaker 1: the Bloomberg New Economy Forum. Francesco Leedy is the head
Speaker 1: of Bloomberg Podcast