WEBVTT - CPI Reaction and Outlook for Rate Cuts 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.320 --> 0:00:32.159 Constance Hunter gives us wonderful perspective this morning. How is 0:00:32.200 --> 0:00:34.839 your view on this change with the information of the 0:00:34.920 --> 0:00:36.320 last seventy two hours. 0:00:37.080 --> 0:00:39.960 Yeah, well, so just to recap, right, it was the 0:00:40.000 --> 0:00:43.239 benchmark revisions, and it was PPI, and of course the 0:00:43.240 --> 0:00:46.640 benchmark revisions we could anticipate in advance that those were 0:00:46.920 --> 0:00:49.479 very well forecast and we knew that it was going 0:00:49.560 --> 0:00:52.600 to be large, and obviously it's the large. It's even 0:00:52.720 --> 0:00:55.720 larger than the two thousand and nine benchmark revisions. And 0:00:55.760 --> 0:00:59.200 what it foreshadows is that the labor market is weaker, 0:00:59.240 --> 0:01:01.240 which is the same thing the last two data prints 0:01:01.240 --> 0:01:04.520 have been telling us. And then of course PPI was 0:01:04.640 --> 0:01:08.360 quite an interesting report. Yes, we saw goods prices see 0:01:08.360 --> 0:01:12.720 pressure and services prices soften. That's actually what the Fed 0:01:12.800 --> 0:01:15.160 sort of wants to see. I think they can look 0:01:15.200 --> 0:01:17.760 through higher goods prices. It is harder for them to 0:01:17.800 --> 0:01:22.080 look through sticky services prices. So that's quite encouraging actually, 0:01:23.040 --> 0:01:24.480 And of course the other thing that came out of 0:01:24.520 --> 0:01:28.320 PPI was that margins are companies are taking this, margins 0:01:28.319 --> 0:01:32.000 are shrinking and if that continues, that is not a 0:01:32.120 --> 0:01:34.360 very good outlook for the equity markets. 0:01:34.400 --> 0:01:36.560 I have the Eco Go screen up on the bloomer 0:01:36.640 --> 0:01:39.640 here looking at these these headline numbers. Beneath that what 0:01:39.720 --> 0:01:40.960 is most important to you? What are you going to 0:01:41.000 --> 0:01:43.280 be looking for when you begin to support through that release. 0:01:43.440 --> 0:01:45.200 Sure, we're going to be looking through all the details 0:01:45.240 --> 0:01:48.360 of goods, and of course it's going to be lumpy 0:01:48.440 --> 0:01:51.600 as these as these tariff effects get passed through. We 0:01:51.720 --> 0:01:55.000 haven't seen it in autos, for example. We did see 0:01:55.000 --> 0:01:59.000 some indication in the PPI that component parts are going up. 0:01:59.120 --> 0:02:04.000 Engines are going up, component parts are going up, and 0:02:04.080 --> 0:02:06.720 so we do expect that passed through to come eventually. 0:02:06.800 --> 0:02:08.760 I think it's going to be lumpy, right, So we 0:02:08.800 --> 0:02:11.079 have a forecast each month of some average that we 0:02:11.120 --> 0:02:12.920 think is going to occur over the next six months, 0:02:12.960 --> 0:02:14.680 but very likely it's going to come in one or 0:02:14.680 --> 0:02:17.600 two month bursts and then it's going to subside. 0:02:17.720 --> 0:02:21.240 Does Chinese deflation affect this report or is that just 0:02:21.320 --> 0:02:23.600 a sidebar on the other side of the world. 0:02:23.720 --> 0:02:26.040 So that's a great question, Tom, because in the past, 0:02:26.160 --> 0:02:29.400 disinflation or deflation in China has been exported to the 0:02:29.440 --> 0:02:32.720 rest of the world, and it would be still being 0:02:32.760 --> 0:02:34.520 exported to the rest of the world except that we 0:02:34.600 --> 0:02:37.680 have put tariffs on and so that passed. 0:02:37.320 --> 0:02:38.480 Through is not occurring. 0:02:39.360 --> 0:02:41.320 Interesting, and we're not the only ones, by the way, 0:02:41.400 --> 0:02:45.680 if you look globally, deminimus taxes started in force in 0:02:45.720 --> 0:02:49.720 twenty twenty four from countries around the world, pushing back 0:02:50.240 --> 0:02:53.400 on the disinflation and deflation and excess supply. 0:02:53.720 --> 0:02:55.680 Let me ask an unfair question here. There is so 0:02:55.760 --> 0:02:58.760 much scrutiny on the Bureau of Labor Statistics, and I 0:02:58.760 --> 0:03:00.640 think what that's done is and have gotten a lot 0:03:00.720 --> 0:03:03.799 of us to re engage with the processes that lead 0:03:03.840 --> 0:03:06.520 to the job numbers that we get. Indeed, these inflation 0:03:06.600 --> 0:03:10.720 numbers as well, just stepping back, how good are these numbers? 0:03:11.480 --> 0:03:14.239 How much are they telling us about the overall inflation picture. 0:03:14.880 --> 0:03:21.079 So the robustness of the policies and procedures that all 0:03:21.120 --> 0:03:25.760 of our statistical agencies follow, including the BLS, are extremely robust. 0:03:26.120 --> 0:03:29.440 They have multiple failsafes and by the way, like all 0:03:29.480 --> 0:03:34.120 of us, they're always looking to find improvements, and they're 0:03:34.160 --> 0:03:36.600 always looking to say, ah, this isn't exactly right. We 0:03:36.640 --> 0:03:38.600 need to improve this, we need to improve that. And 0:03:38.640 --> 0:03:40.000 I just want to say, on the face of it, 0:03:40.360 --> 0:03:45.840 revisions are a really critical part of how data is 0:03:45.920 --> 0:03:50.200 collected and then processed over time. Right. So the problem 0:03:50.280 --> 0:03:53.600 with the CPI is that it is an average basket 0:03:53.920 --> 0:03:58.360 and what we know is that people attached to what 0:03:58.760 --> 0:04:00.400 economists call salients. 0:04:00.480 --> 0:04:00.600 Right. 0:04:00.680 --> 0:04:02.280 So for me, it's that cup of coffee. 0:04:02.600 --> 0:04:06.240 I thought I had a vertical demand curve for coffee, 0:04:06.400 --> 0:04:08.120 that there was no price at which I would not 0:04:08.200 --> 0:04:09.840 buy out, buy coffee out in the morning. 0:04:09.960 --> 0:04:11.040 Yes, but that it. 0:04:11.000 --> 0:04:13.120 Turns out I do have a price, and that price 0:04:13.120 --> 0:04:17.960 seems to be switching to Sanka. Well the eight coffee yeah, 0:04:17.960 --> 0:04:20.640 and eight dollar latte is a really it's really tough 0:04:20.640 --> 0:04:21.200 to swallow. 0:04:21.760 --> 0:04:24.680 It's it's on our way in here, Lisa and your 0:04:24.680 --> 0:04:26.040 pumpkin lot. It is. 0:04:26.160 --> 0:04:29.400 I know it's very expensive. And are you cutting back? Yes, 0:04:29.880 --> 0:04:31.440 I mean get home, let's. 0:04:31.240 --> 0:04:34.400 Go down to you. There's something different this year at 0:04:34.440 --> 0:04:37.719 our remembrances of September eleventh. Here we see the former 0:04:37.760 --> 0:04:43.839 governor of New York, Andrew Como, in conversation with Michael Bloomberg, 0:04:44.760 --> 0:04:47.360 as well as others. Mayor Adams is there. 0:04:47.640 --> 0:04:50.919 I saw Jase Johnson, the former Homeland Security Secretary with mister. 0:04:50.800 --> 0:04:54.280 Navarro I saw as well, and Secretary Lutnik is there. 0:04:54.400 --> 0:04:58.240 I should say that Michael Bloomberg, who has endorsed Andrew Como, 0:04:58.360 --> 0:05:01.559 is founder and majority owner of bloom briguelp the parent 0:05:01.640 --> 0:05:07.400 company of Bloomberg Radio. To those conversations, it has become 0:05:08.360 --> 0:05:10.400 a right of passage in New York. I think we 0:05:10.440 --> 0:05:13.760 need to convey that across this nation is Paul Sweeney 0:05:13.839 --> 0:05:18.479 says so eloquently, the light changes and you can barely 0:05:18.520 --> 0:05:21.440 get through it, and it gets harder every year. Navarro's 0:05:21.440 --> 0:05:25.600 standing with Cuomo the twenty David, your thoughts on these images. 0:05:25.440 --> 0:05:27.239 Yeah, I mean, I we're going to see I believe 0:05:27.279 --> 0:05:29.160 that the Vice President of the United States making his way 0:05:29.200 --> 0:05:31.520 to Lower Manhattan as well. President Trump is going to 0:05:31.920 --> 0:05:34.520 go to the Pentagon, and we see images of outside 0:05:34.560 --> 0:05:36.960 the Pentagon as well as we kind of again mark 0:05:37.040 --> 0:05:39.200 the way that all of this unfolded back in two 0:05:39.240 --> 0:05:42.680 thousand and one. So these dueling memorials taking place here 0:05:42.720 --> 0:05:44.080 on this on this Thursday morning in. 0:05:44.000 --> 0:05:46.680 The USA today. I believe has now Vice President in 0:05:46.680 --> 0:05:49.960 advanced with changed plans and we'll go directly to Utah. 0:05:50.160 --> 0:05:52.800 Has it unsure on that? Yeah, we'll get out front 0:05:52.800 --> 0:05:54.920 of that. We welcome all of you across the nation. 0:05:55.560 --> 0:05:58.279 On this eleventh of September. We are on the constance 0:05:58.360 --> 0:06:02.280 hunters with us you as we look at the inflation 0:06:02.400 --> 0:06:05.480 and claims report. It completely unfair and I need to 0:06:05.480 --> 0:06:10.159 get the Jason Furman annualized statistics three months. But Adam 0:06:10.200 --> 0:06:13.240 Long had those numbers this morning, and I'm sorry they're 0:06:13.279 --> 0:06:15.680 not two percent. This is the way it is. Do 0:06:15.800 --> 0:06:19.320 you say we're in an elevated inflation regime right now 0:06:19.480 --> 0:06:21.520 when you look at the annualized statistics? 0:06:21.760 --> 0:06:24.120 Of course, I mean zero point four percent annualized is 0:06:24.160 --> 0:06:29.000 a bit above four percent. If that number continues now, 0:06:29.000 --> 0:06:32.960 we expect their content to be elevated inflation for the 0:06:33.040 --> 0:06:37.680 next six seven months or so, especially in goods. But 0:06:37.800 --> 0:06:40.080 over that time period we do expect to see some 0:06:40.160 --> 0:06:45.880 moderation and services prices, especially housing services, and so by 0:06:45.920 --> 0:06:50.240 this time next year, our forecast for three month annualized 0:06:50.279 --> 0:06:55.480 core is around two point two percent, right, so very 0:06:55.520 --> 0:06:59.080 close to the FEDS target. And let's not forget that 0:06:59.320 --> 0:07:01.720 while we are seeing elevated prices and while people are 0:07:01.760 --> 0:07:05.960 attaching to salient whatever their salient price is right, and 0:07:06.000 --> 0:07:09.320 we saw feed inflation pretty significantly up in this book's report, 0:07:10.920 --> 0:07:14.720 the overall picture is that this is really being influenced 0:07:15.080 --> 0:07:18.239 by tariffs, which will feed through, that will pass through 0:07:18.560 --> 0:07:19.320 a year from now. 0:07:19.400 --> 0:07:22.440 Constance, thank you so much, Constance under eiu at stay 0:07:22.480 --> 0:07:26.360 with us. More from Bloomberg Surveillance coming up after this. 0:07:33.600 --> 0:07:37.200 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:07:37.240 --> 0:07:40.440 weekday afternoons from seven to ten am Eastern Listen on 0:07:40.480 --> 0:07:44.160 Applecarplay and Android Auto with the Bloomberg Business app, or 0:07:44.320 --> 0:07:45.960 watch us Live on YouTube. 0:07:46.360 --> 0:07:49.640 This should be a one hour conversation and along with 0:07:49.720 --> 0:07:53.880 a blistering essay oh in the last seventy two hours saying, look, 0:07:54.320 --> 0:07:58.280 the job character back eighteen months is a character of recession. 0:07:58.680 --> 0:08:00.520 Even though she says we may be in a new 0:08:00.920 --> 0:08:03.880 business cycle, We've got the inflation reports out as well, 0:08:04.080 --> 0:08:06.320 and I've got to go to the crafting of your 0:08:06.360 --> 0:08:10.920 paragraphs in the last seven hours or so. And you 0:08:11.040 --> 0:08:15.760 do an annualized calculation like Jason Furman at Harvard on 0:08:15.840 --> 0:08:21.160 a three month annualized inflation, et cetera. How bad is it? 0:08:21.160 --> 0:08:24.920 It's the three month annualized core CPI is three point 0:08:24.960 --> 0:08:26.080 six percent right now? 0:08:26.120 --> 0:08:30.640 Wow, can you expand on that? Please? It's radio Anna, 0:08:30.720 --> 0:08:32.679 you have to it's. 0:08:35.360 --> 0:08:40.760 You're not really well, yes, yes, tom So three point 0:08:40.840 --> 0:08:45.280 six percent is actually the one of the highests for 0:08:46.000 --> 0:08:49.560 over six months now. So I think the contour of 0:08:49.640 --> 0:08:52.920 three months annualized and this is a measure that Chris 0:08:52.960 --> 0:08:56.960 Waller has said he looks at. It's basically it has 0:08:57.160 --> 0:09:01.080 troughed a couple months ago and it's now on a rebound. 0:09:01.520 --> 0:09:04.560 And I think that what it is that. 0:09:04.440 --> 0:09:07.800 The I think the rate hikes in the last couple 0:09:07.880 --> 0:09:11.080 of years in the level of that funds rate is 0:09:11.120 --> 0:09:14.840 only sufficient to bring inflation back down to about two 0:09:14.880 --> 0:09:18.160 point seven or two point eight percent, and thereafter it 0:09:18.240 --> 0:09:21.800 is installed and it's now going And that's that's the bus. 0:09:22.000 --> 0:09:23.960 Let me squeeze in this question, because David's got a 0:09:23.960 --> 0:09:26.640 whole sequence of them that are smarter than mine. Is 0:09:26.679 --> 0:09:31.360 two point seven percent inflation life changing for our listeners 0:09:31.400 --> 0:09:34.200 and viewers. I would suggest analong it is. 0:09:36.120 --> 0:09:38.679 Well, that is actually a very fair question. 0:09:39.000 --> 0:09:43.160 So in many emerging markets, and I covered emerging markets 0:09:43.200 --> 0:09:47.319 earlier in my career, at many emerging marketsy four percent, 0:09:47.440 --> 0:09:52.080 five percent, six percent inflation with no problem with their economy, right. 0:09:52.280 --> 0:09:55.120 And there are some many academic papers who has found 0:09:55.200 --> 0:10:01.400 that inflation start cutting into activity and people inflation expectations 0:10:02.000 --> 0:10:05.400 once the central bank decides to do something about it. 0:10:05.800 --> 0:10:10.120 So if the FEDS inflation target is two percent, then 0:10:10.160 --> 0:10:13.240 inflation stuck at two point seven percent would be life 0:10:13.320 --> 0:10:16.920 changing in a sense that that distance that's zero point 0:10:16.960 --> 0:10:21.920 seven percentage point distance to travel well problem means over 0:10:22.080 --> 0:10:25.560 one hundred basis point of rate hike in order to 0:10:25.600 --> 0:10:28.640 get rid of I mean that is the what the 0:10:28.760 --> 0:10:31.640 kink in the flat part of the Phillips curve is about, 0:10:31.679 --> 0:10:34.280 is that once you get through the easy part of 0:10:34.320 --> 0:10:36.719 this inflation, which was the last three years, you're now 0:10:36.760 --> 0:10:39.280 stuck at two point seven percent, and if you really 0:10:39.400 --> 0:10:41.760 need it to bring it down to two point zero percent, 0:10:41.840 --> 0:10:46.920 you are actually we probably need to increase unemployment substantially. 0:10:47.080 --> 0:10:49.400 And I'm just confirming here the control room got you 0:10:49.480 --> 0:10:51.719 saying that's actually a very fair question to Tom King. 0:10:51.800 --> 0:10:53.720 That's a rare thing to hear from a gay from 0:10:53.720 --> 0:10:54.920 a guest here on this show. 0:10:55.679 --> 0:10:58.000 I'm not sure that you're aware, Anna of the Greenawation 0:10:58.120 --> 0:11:01.480 doesn't give me this keydas it's been four days into 0:11:01.520 --> 0:11:03.319 the week, and I don't know if you're aware of 0:11:03.400 --> 0:11:05.959 how much the note that you wrote yesterday animated the show. 0:11:06.040 --> 0:11:09.440 But Tom quoted early and often from your report on 0:11:09.520 --> 0:11:12.400 your recession call that you made here, saying the revisions 0:11:12.559 --> 0:11:15.040 in those jobs numbers confirmed the labor market began to 0:11:15.080 --> 0:11:17.560 recover shortly after the FED started cutting rates in September 0:11:17.600 --> 0:11:20.040 twenty fourth, then stalled out again. You said, it's possible 0:11:20.440 --> 0:11:22.560 the economy is either still in recession or in the 0:11:22.600 --> 0:11:25.080 early phase of a new business cycle. It was unfair 0:11:25.080 --> 0:11:27.000 you weren't with us yesterday. But I asked a question 0:11:27.040 --> 0:11:30.000 after reading that on air. So what so we marked 0:11:30.000 --> 0:11:33.520 that this may have happened, may be continuing. What does 0:11:33.520 --> 0:11:36.440 it tell us overall about the state of the US 0:11:36.440 --> 0:11:38.600 economy that the call that you made yesterday. 0:11:39.280 --> 0:11:43.240 Yes, it has tremendous implications. So suppose that we are 0:11:43.280 --> 0:11:46.040 in the early phase of the business cycle. It means 0:11:46.080 --> 0:11:50.400 that the moment the Fed cuts in late next week, 0:11:50.720 --> 0:11:54.760 we are probably going to see a pretty sharp recovery. 0:11:54.800 --> 0:11:58.840 But what's unique about this economy right now is there's 0:11:58.920 --> 0:12:02.440 a bottle, there's bottling up a lot of inflationary pressure. 0:12:02.800 --> 0:12:06.960 Firms are itching to pass through these tariff higher costs 0:12:07.200 --> 0:12:10.640 to consumers, but they couldn't so far, so they're waiting 0:12:10.720 --> 0:12:13.880 for the moment the economy is turning to pass it through. 0:12:14.200 --> 0:12:17.280 And I think once the economy is well in the 0:12:17.360 --> 0:12:20.560 recovery phase, that is when we are going to see 0:12:20.600 --> 0:12:22.959 a lot of these tariff pass through. And I think 0:12:23.000 --> 0:12:26.360 today's CPI report gives a little bit hints of that, 0:12:26.520 --> 0:12:30.479 which is that we see hotel prices and airfare prices 0:12:30.880 --> 0:12:34.760 go sharply up. And this is not something a recessionary 0:12:34.880 --> 0:12:37.679 economy should look like. That we should be seeing airfares 0:12:37.720 --> 0:12:39.960 and hotels plunging, not urging. 0:12:40.160 --> 0:12:43.679 And Joe Wisenthal folks saw as well beef prices confirming 0:12:43.880 --> 0:12:46.640 through the roof is doctor woe. Please stay with us. 0:12:46.640 --> 0:12:50.559 We have an exceptional five six, seven minutes here with remembrance, 0:12:50.559 --> 0:12:53.120 but anamog. Please stay with us, and we hope to 0:12:53.160 --> 0:12:56.480 pick up this conversation depending on the comments of the 0:12:56.520 --> 0:13:00.000 President of the United States in the last eighteen months, 0:13:00.440 --> 0:13:04.400 you know, somewhat argue the most influential rbider of our 0:13:04.440 --> 0:13:07.760 market economics in America. And I want to pick up 0:13:07.800 --> 0:13:11.560 on the essay David Gerra mentioned where you talked about recession. 0:13:12.120 --> 0:13:16.400 Why can anawong study a recession so acutely and with 0:13:16.520 --> 0:13:19.719 your optimism say it's a new business cycle. And I've 0:13:19.760 --> 0:13:21.840 got to wait till the Red Sox win a world 0:13:21.960 --> 0:13:26.520 series for the NBER to formally say there's a recession. 0:13:27.040 --> 0:13:30.679 Why the delay, Well, because. 0:13:32.360 --> 0:13:35.720 Usually in the late part of a business cycle, you 0:13:35.800 --> 0:13:41.079 see that firms, small firms tend to go bust, and 0:13:41.400 --> 0:13:45.000 those small firms are very hard to capture in national statistics, 0:13:45.120 --> 0:13:48.800 so bls use a model to forecast this. Now, we 0:13:48.880 --> 0:13:52.440 have a lot of private sector alternative data nowadays, and 0:13:52.920 --> 0:13:56.560 the data we look at is a payroll provider focus 0:13:56.640 --> 0:14:01.720 a small to medium businesses, and these businesses were showing 0:14:01.720 --> 0:14:04.200 that the last two years had been terrible for them. 0:14:04.600 --> 0:14:07.400 But what I've been seeing in the last three months, 0:14:07.760 --> 0:14:10.600 maybe two or three months, is that these there is 0:14:10.640 --> 0:14:15.360 an upswing in these small to small medium businesses and 0:14:16.080 --> 0:14:20.400 in fact our own forecast error. Everyone makes errors, forecast errors, 0:14:20.400 --> 0:14:23.920 including us, And I've noticed that, based on these small 0:14:24.160 --> 0:14:27.040 medium businesses, our forecast error in the last two months 0:14:27.080 --> 0:14:30.680 have been consistently on the upside, which suggests to me 0:14:31.000 --> 0:14:36.240 that maybe that there is this early phace dynamics that's 0:14:36.280 --> 0:14:38.400 going on where you know, you see small caps and 0:14:38.480 --> 0:14:43.320 smaller business rebounding first before everything else are lifted. 0:14:44.000 --> 0:14:46.200 And I look at the note and look at what 0:14:46.200 --> 0:14:48.360 you wrote about those preliminary revisions. You say they flag 0:14:48.400 --> 0:14:50.960 a strong possibility that the economy entered a recession last 0:14:51.040 --> 0:14:53.840 year and recovered after the FED cut rates in late 0:14:53.920 --> 0:14:57.040 twenty twenty four. So say Chair Powell wanders into the 0:14:57.040 --> 0:14:59.560 anti chamber outside his office, there's the Bloomberg terminal. He 0:14:59.600 --> 0:15:02.440 pulls up your report. What does it say to him 0:15:02.480 --> 0:15:06.120 about perhaps mistakes made, but the path forward here if 0:15:06.160 --> 0:15:09.320 in fact that happened, how it might have colored if 0:15:09.320 --> 0:15:11.600 we do the counterfactual here, that the decisions that the 0:15:11.600 --> 0:15:13.120 Fed's made in the months between. 0:15:14.880 --> 0:15:19.240 I think Powell actually felt vindicated because he was the 0:15:19.280 --> 0:15:21.640 one who pushed for the fifty BIPs right it cut 0:15:21.800 --> 0:15:25.280 last September on the basis of the Beige Book. The 0:15:25.320 --> 0:15:29.080 Beige Book is a bunch of anecdotes and soft data, 0:15:29.160 --> 0:15:32.360 and many people in the market discounted these soft data, 0:15:32.520 --> 0:15:35.600 saying that hard data does not is showing that things 0:15:35.640 --> 0:15:39.280 are great well. But the soft data in the Beige 0:15:39.280 --> 0:15:42.520 Book is saying that employment was flat and declining. Now 0:15:42.560 --> 0:15:47.960 today the Beige Book is saying that employment is rising 0:15:48.800 --> 0:15:52.080 just slightly, so things are not as bad as last summer. 0:15:52.680 --> 0:15:57.160 Things are arising, you know, just barely, which is consistent 0:15:57.240 --> 0:16:01.960 with payrolls around twenty thousand or ten thousand per month. 0:16:02.480 --> 0:16:06.040 So I think Powell will look to this as saying 0:16:06.080 --> 0:16:09.239 that while he's going to take more signals from anecdotes 0:16:09.280 --> 0:16:11.280 and talking to businesses and firms. 0:16:11.560 --> 0:16:13.840 And I'm brilliant, and thank you so much for all 0:16:13.920 --> 0:16:16.640 of us the team's surveillance, for your work here. She's 0:16:16.680 --> 0:16:20.880 been just extraordinary over the last seventy two hours. Stay 0:16:20.920 --> 0:16:24.800 with us. More from Bloomberg Surveillance coming up after this. 0:16:32.040 --> 0:16:35.640 You're listening to the Bloomberg Surveillance podcast. Catch US Live 0:16:35.680 --> 0:16:38.840 weekday afternoons from seven to ten am Eastern Listen on 0:16:38.920 --> 0:16:42.600 Applecarplay and Android Otto with the Bloomberg Business app, or 0:16:42.760 --> 0:16:43.840 watch US Live on. 0:16:43.800 --> 0:16:46.400 YouTube right now, we would digress and we've heard from 0:16:46.400 --> 0:16:50.480 a number of economists that the airlines are sprightly. I 0:16:50.480 --> 0:16:54.320 guess the defense business is sprightly. Germany's back in business. 0:16:54.920 --> 0:16:57.960 We have truly an expert this morning. This is someone 0:16:58.360 --> 0:17:01.040 that isn't just like, you know, what's Boeing going to do, 0:17:01.120 --> 0:17:04.440 what's Airbus going to do, but as a really encyclopedic 0:17:05.200 --> 0:17:10.280 handle on the defense business. Shia Luju joins US Aerospace 0:17:10.280 --> 0:17:13.440 and Defense equity research at Jeffreys as well. I got 0:17:13.440 --> 0:17:16.000 to ask the first question, whither Boeing? Is it finally 0:17:16.160 --> 0:17:17.000 up for Boeing? 0:17:17.560 --> 0:17:21.880 Yeah, the orders in August we're great. The deliveries were 0:17:22.320 --> 0:17:24.960 even better, So they finally seem to have a run 0:17:25.040 --> 0:17:28.920 rate of deliveries hitting their target and goal of thirty 0:17:28.960 --> 0:17:30.800 eight for our month. By the end of this year, 0:17:30.840 --> 0:17:32.240 we're going to forty two on the max. 0:17:32.359 --> 0:17:34.520 I mean, it was at one forty when Shila said 0:17:34.520 --> 0:17:37.520 by it and we're now popping to twenty seven. So 0:17:37.560 --> 0:17:40.639 it's back to being a blue chip security. 0:17:41.440 --> 0:17:44.160 Boeing is a tough name. It's not one of these 0:17:44.200 --> 0:17:46.800 momentum names that you could continue to say, you know, 0:17:46.800 --> 0:17:49.880 we're going to go from twenty four Max's last year 0:17:49.960 --> 0:17:51.800 a month to thirty eight this year. 0:17:51.960 --> 0:17:53.000 Those are big. 0:17:52.760 --> 0:17:55.440 Growth rates for any if you're building a widget, let 0:17:55.480 --> 0:17:57.960 alone an aircraft. So I think you have to take 0:17:58.000 --> 0:18:01.960 that into account when you look at Boeing's momentum. But 0:18:02.040 --> 0:18:04.680 they are doing the right things. They're producing aircraft better, 0:18:04.800 --> 0:18:07.840 they're finally starting to turn the corner on free cash low. 0:18:08.520 --> 0:18:11.080 Their defense business is also turning the corner. This is 0:18:11.080 --> 0:18:13.840 a business that was losing about three billion dollars last year, 0:18:13.920 --> 0:18:15.520 so we're doing better there as well. 0:18:15.640 --> 0:18:18.800 Okay, she will be focused so much on these trade deals, 0:18:18.840 --> 0:18:20.800 but really, of course they're more than that, and you 0:18:20.840 --> 0:18:22.639 look at sort of what's been announced, and there are 0:18:22.640 --> 0:18:24.359 many where we don't have a lot of granular detail, 0:18:24.359 --> 0:18:28.000 but they're often kind of complimented by corporate deals and 0:18:28.080 --> 0:18:30.720 purchasing deals as well. And we were talking about yesterday 0:18:30.720 --> 0:18:33.360 the involvement of the US government and Intel these other companies. 0:18:34.119 --> 0:18:36.679 What's the effect that that's had that as the president 0:18:36.760 --> 0:18:38.879 and his team negotiate these deals, often there is a 0:18:38.880 --> 0:18:42.280 component part that involves purchasing X amount of aircraft or 0:18:42.320 --> 0:18:44.919 why amount of aircraft from Boeing or another company. 0:18:45.280 --> 0:18:48.000 It was one of my favorite pieces we published this 0:18:48.119 --> 0:18:51.480 year on April eighth, and it was really looking at 0:18:51.720 --> 0:18:53.879 how many airplanes does it take to get to the 0:18:53.920 --> 0:18:56.200 bottom of a trade deficit? So we looked at the 0:18:56.200 --> 0:18:59.719 biggest trade deficits that the US has among countries and 0:18:59.720 --> 0:19:03.120 how any airplanes they could buy per annum to offset 0:19:03.160 --> 0:19:06.040 that deficit. And sure enough, you know what's easier to 0:19:06.080 --> 0:19:09.080 offset a deficit than an aircraft that costs one hundred 0:19:09.080 --> 0:19:11.560 million to two hundred and fifty million. They add up 0:19:11.640 --> 0:19:14.000 kind of quickly, and we've seen that happen with multiple 0:19:14.000 --> 0:19:17.080 countries and some of Boeing's largest orders this year. 0:19:17.520 --> 0:19:20.159 Can I ask a dumb question that was brilliant what 0:19:20.240 --> 0:19:24.320 you just said? Apple iPhones are fifteen hundred two thousand bucks, 0:19:24.480 --> 0:19:27.439 but nobody spends that. We go to our phone carrier 0:19:27.440 --> 0:19:30.199 and we do a monthly plan. When you buy a 0:19:30.240 --> 0:19:33.639 Boeing seven seventy seven, do you buy it with a 0:19:33.720 --> 0:19:36.239 lump of one hundred million or they do it a 0:19:36.240 --> 0:19:38.600 monthly plan. No, it's just like my iPhone. 0:19:38.640 --> 0:19:41.200 When you put in an order, usually it's five percent down. 0:19:41.320 --> 0:19:45.040 But you know, you buy an aircraft upround when you 0:19:45.600 --> 0:19:48.680 when you receive the air cash. Yes, so you have delivery. 0:19:48.720 --> 0:19:52.160 Whether you finance it or release it, you are paying 0:19:52.160 --> 0:19:55.320 for the aircraft upfront. I'm curious, I'm delivery. 0:19:55.359 --> 0:20:00.560 Sorry, I'm curious of how the administration's approached defense has 0:20:00.680 --> 0:20:04.359 changed it on the industry side. So hexith running the 0:20:04.520 --> 0:20:07.000 Department of War as it's being called at least five 0:20:07.040 --> 0:20:09.520 by the administration itself. We've heard so much talk about 0:20:09.520 --> 0:20:14.360 new missile defense systems and the like. Famously, it's hard 0:20:14.359 --> 0:20:16.280 for the government to pivot. It's hard for the Pentagon 0:20:16.400 --> 0:20:19.199 to pivot. Is that happening now? Is it underway or 0:20:19.200 --> 0:20:21.440 we had a point where in terms of the weapons 0:20:21.600 --> 0:20:24.320 and programs that they're focused on, they're going to be different. 0:20:24.480 --> 0:20:25.680 Where are we in that process? 0:20:27.000 --> 0:20:28.840 I think that's where I've been a little bit surprised. 0:20:28.880 --> 0:20:31.480 So well, Golden Dome was first announced in January. It 0:20:31.560 --> 0:20:33.439 was sort of this concept. No one knew what it was. 0:20:33.480 --> 0:20:35.080 No one still knows what it is, but it's going 0:20:35.119 --> 0:20:37.080 to be one hundred and seventy five billion dollar missile 0:20:37.119 --> 0:20:42.160 defense shield system encompassing all sorts of threats. And fast 0:20:42.160 --> 0:20:44.280 forward eight to nine months, we're now at the stage 0:20:44.320 --> 0:20:46.280 where we have to spend twenty five billion. It's in 0:20:46.280 --> 0:20:50.119 the reconciliation bill by twenty twenty six. So the government 0:20:50.240 --> 0:20:53.760 has to essentially allocate the five large defense contractors and 0:20:53.800 --> 0:20:56.280 a bunch of small ones twenty five billion. And if 0:20:56.320 --> 0:20:59.280 you think about the defense budget, yes it's a trillion dollars, 0:20:59.320 --> 0:21:03.080 but really the allocation to R and D and procurement 0:21:03.119 --> 0:21:06.480 dollars is around four hundred billion, so twenty five billion 0:21:06.560 --> 0:21:10.920 actually increases their spending and potential. So Golden Dome is 0:21:10.960 --> 0:21:14.080 the contract. Our favorite name in defense is LHX. Another 0:21:14.160 --> 0:21:17.480 name we like is Letos. It's ID Services. We hosted 0:21:17.600 --> 0:21:22.280 lhx's CEO last week at our Jeffrey's Industrials conference, and 0:21:22.359 --> 0:21:25.520 they're putting in RFP. It's not even an RFP process. 0:21:25.600 --> 0:21:28.160 The government saying what can you demo for me? When 0:21:28.480 --> 0:21:30.680 come in and let's see what you got. 0:21:30.960 --> 0:21:32.600 We would have to go in a moment here with 0:21:32.680 --> 0:21:36.200 a huge news flow. Today, as we speak, the ECP 0:21:36.359 --> 0:21:38.520 comes out with their headlines there's no rate change. You'll 0:21:38.520 --> 0:21:42.160 have Leguard's press conference. But I'm looking at nominal GDP, 0:21:42.359 --> 0:21:45.800 the inflation plus growth espers out there that are tepping 0:21:45.880 --> 0:21:49.280 as well. With all your expertise, Shila, do you believe 0:21:49.680 --> 0:21:55.359 that Germany will actually spur defense spending and a nominal 0:21:55.359 --> 0:21:57.679 GDP oomph in Europe? 0:21:57.880 --> 0:22:00.760 I was in Europe three weeks ago. I met with 0:22:00.840 --> 0:22:04.200 sixteen clients the equivalent of their labor day weekend. That 0:22:04.240 --> 0:22:06.560 does not happen in Europe. A defense analysts going to 0:22:06.600 --> 0:22:10.040