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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. He

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Speaker 1: is a financier with his career at Goldban Saxy is

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Speaker 1: a diplomat with his public service to the nation as

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Speaker 1: ambassador to Germany, but now he's in the trenches the

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Speaker 1: governor of New Jersey. We're thrilled that Phil Murphy could

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Speaker 1: join us this morning. Phil Murphy, what do you need

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Speaker 1: from President Biden when he shows up in January? Tom,

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Speaker 1: good to be with you, Good, to be with you all. Um,

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Speaker 1: we need it before January. I echo uh, yours and

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Speaker 1: John's comments. UM. I can't say enough good things about

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Speaker 1: Speaker Pelosi. I think Steve Manooche it's a reasonable guy

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Speaker 1: and a smart guy. And interlockert. We need a deal.

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Speaker 1: We need a deal before January, and that has to

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Speaker 1: include state uh state aid, not obviously extending unemployment help

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Speaker 1: for small businesses, all all the needs that we know about,

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Speaker 1: but we need a big jolt of state aid. I

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Speaker 1: think if if president, if it becomes President Biden, and

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Speaker 1: that's where my money is, that's where my support is.

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Speaker 1: UM I would suspect we'll still lead more of that.

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Speaker 1: My guess is whatever deal we get may not be

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Speaker 1: may outfit the bill, and and and and big investments,

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Speaker 1: not just talking in infrastructure, things like the Gateway project,

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Speaker 1: which you guys know well, which is the most important

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Speaker 1: infrastructure project sitting there to be done in the United States. So, Murphy,

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Speaker 1: you grew up in Needa, Massachusetts, where you learn the

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Speaker 1: marginal value of a Red Sox victory. You went to

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Speaker 1: Harvard and did economics, where you learn the marginal dynamics

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Speaker 1: of economics. You're dealing now with the biggest marginal problem

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Speaker 1: in the country. The millionaires are gonna leave added a

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Speaker 1: ten point seven percent above a million, You've got the

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Speaker 1: two point four four percent property tax, and you've got

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Speaker 1: a lovely sales tax as well. There's no incentive. What

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Speaker 1: are you gonna do? What are you gonna say to

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Speaker 1: the millionaires that watch Lisa Bramo, it's every morning, Tom,

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Speaker 1: You'll you'll appreciate it. I don't see it that way,

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Speaker 1: and I haven't been holding my breath on the marginal

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Speaker 1: value of any Red Sox wins this year, given the

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Speaker 1: season they had, Listen, we we were successful. And asking

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Speaker 1: the wealthiest in our state, the biggest corporations, to pay

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Speaker 1: a few more pennies on their top dollar to help

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Speaker 1: us continue a historic reinvestment in our middle class. That's

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Speaker 1: good for everybody. The thing that chokes people in New Jersey,

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Speaker 1: the folks that that we lose are the retirees who

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Speaker 1: have a home, whose kids have graduated from our number

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Speaker 1: one school system in America. By the way, is property taxes.

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Speaker 1: So that's why our budget has a huge dose of

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Speaker 1: direct property tax relief. New Jersey is the the state

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Speaker 1: to raise a family. Will want to keep it that way.

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Speaker 1: Also a quintessential middle class state, and asking the wealthiest

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Speaker 1: among us to help us make those investments is good

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Speaker 1: for the middle class. Governor, governor the movers, governor for them.

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Speaker 1: The movers are moving out. They're not moving to Massachusetts,

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Speaker 1: they're not moving to Connecticut. They're moving to the nine

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Speaker 1: states with no sales. Text, what are you gonna do

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Speaker 1: to turn United Van lines and the rest of them

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Speaker 1: to turn those moving vans around to tom It's very

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Speaker 1: simple to give more of what they've got right now.

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Speaker 1: The best state in America to raise a family, if

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Speaker 1: you've got kids who are school age, if you're working,

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Speaker 1: if you care about healthcare, we have the number one

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Speaker 1: healthcare system in America, quality of life location, If you

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Speaker 1: care about talent for your business, there's no better state

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Speaker 1: in America. You get what you pay for in New Jersey.

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Speaker 1: Governor time, it's Tappa left back in. You remember the

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Speaker 1: headlines is he coming home? Can you confirm that I've

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Speaker 1: heard that. I have not spoken to him personally, but

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Speaker 1: I have heard the same John as you have heard,

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Speaker 1: and we welcome, we well come in back. Actually, our

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Speaker 1: number of millionaires over the past number of years is growing,

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Speaker 1: not shrinking. Notwithstanding the noise around moving vans um our

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Speaker 1: state is actually growing, including among the wealthiest. Where else

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Speaker 1: will you be able to raise taxes? We've had again

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Speaker 1: and again about the prospect of doing something around cannabis.

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Speaker 1: If that's is that just the low hanging fruits for

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Speaker 1: you now, gavinor John. It's on the ballot on November

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Speaker 1: three as a referendum item. I wish we could have

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Speaker 1: gotten it done through a legislative process. We just we

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Speaker 1: couldn't find the last few votes, so it's on the referendum.

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Speaker 1: I'm strongly supporting it, first and foremost for social justice reasons.

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Speaker 1: It's a low end. Drug crimes are the biggest reason

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Speaker 1: by far that we have young persons of color, especially

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Speaker 1: young men of color, in our criminal justice system. But

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Speaker 1: to your point, beyond that, this is a potential significant

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Speaker 1: over time revenue item for the state, and a job

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Speaker 1: and a source of job growth, which is which are

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Speaker 1: also positives. I hope we'll see it pass in November.

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Speaker 1: Just quickly here on the tax on electronic trading? Are

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Speaker 1: you going ahead with that? Hey, Lisa. We're exploring it,

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Speaker 1: taking it seriously. We did not score it in the

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Speaker 1: budget because there's too much uncertainty around it. It's something

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Speaker 1: that we're taking very seriously and studying very seriously. In

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Speaker 1: the meantime, the virus is continuing to spread and we're

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Speaker 1: seeing some worsening numbers in New Jersey. What is the

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Speaker 1: threshold at which you will shut down in school in

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Speaker 1: person schooling and go back to our remote Yes, a, Lisa.

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Speaker 1: One of the blessings we have in New Jersey is

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Speaker 1: we've got hundreds of school districts so we reviewed each

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Speaker 1: and every one of their plans when we shut in March,

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Speaker 1: and each and every one of them when we reopened

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Speaker 1: in September. So that will overwhelmingly be a local specific decision,

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Speaker 1: and that's what that's what's actually playing out. The back

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Speaker 1: to school for us so far has been very successful

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Speaker 1: with it had only eleven outbreaks in school buildings out

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Speaker 1: of over three thousand, touching forty three kids and educators.

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Speaker 1: We take every one of those seriously, believe me. But

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Speaker 1: that's well within any expectation. I hope we never get

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Speaker 1: back to the point we were in March Lee so

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Speaker 1: where we had to make a statewide move to shut

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Speaker 1: everything down. Please God, Governor, one final question if I could,

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Speaker 1: and it is a question of delicacy within this pandemic

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Speaker 1: as you've confronted it, and Governor Cuomo confronted it early on.

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Speaker 1: We now have a touch point of a new pandemic

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Speaker 1: that crosses over to religion, where you need to work

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Speaker 1: with these zones, these small communities, in this case with

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Speaker 1: Orthodox Judaism. How are you gonna dovetail your pandemic response

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Speaker 1: from the with the need for religious freedom? How do

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Speaker 1: you do that? How do you execute that in the

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Speaker 1: coming days in Lakewood, New Jerseys, tom Yeah, I think

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Speaker 1: we've we've been able to do that from the get go.

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Speaker 1: We clearly had a period of beginning in mid March

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Speaker 1: where we had to shut everything down, and when we

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Speaker 1: did that, we were in close contact with with the

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Speaker 1: leadership across the whole spectrum of religions, including the leadership

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Speaker 1: in Lakewood UM And. As we've been able to reopen

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Speaker 1: and get back to worshiping first outside and now inside,

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Speaker 1: it's been done under strict limits, capacity limits, face masks,

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Speaker 1: social distancing, all the stuff that we all uh, we

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Speaker 1: all know. We've been in very close contact with the

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Speaker 1: leadership in the community, as you can imagine over the

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Speaker 1: past couple of weeks. I'm actually gonna be in Ocean

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Speaker 1: County tomorrow where Lakewood sits um AND and I can't

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Speaker 1: say enough good things about the cooperation of the elected

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Speaker 1: leaders and faith leaders there, but we are having an

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Speaker 1: issue with the transmission from that cooperation down to the

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Speaker 1: man on the street. Uh. And we've gotta nip it,

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Speaker 1: and we've gotta be aggressive about it. I'm not going

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Speaker 1: to mince words, Governor. I mean one final I I

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Speaker 1: guess question this comes back comes in from Michael Barr

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Speaker 1: in Bloomberg Businesses Sports. Is it your fault? The Giants

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Speaker 1: and the Jets are as bad as they are? What

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Speaker 1: are you gonna do? What are you going to initiate?

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Speaker 1: This is a state embarrassment. First of all, they're the

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Speaker 1: New York Jets to New York Giants, you own them,

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Speaker 1: God love you. That's great that they're in New Jersey.

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Speaker 1: They are terrible. Do something. What are you gonna do that?

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Speaker 1: They're owned by great families, right organizations, but they're off

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Speaker 1: to a really tough start. There's no other way to

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Speaker 1: put it. And by the way, South Jersey roots for

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Speaker 1: the Eagles. They're owed two and one. So we got

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Speaker 1: oh eight and one with the three proteins that people

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Speaker 1: follow in our state. The governor doing the math do

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Speaker 1: the math in the Texas as well. He is the

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Speaker 1: governor of New Jersey, Philip Murphy. We're thrilled he could

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Speaker 1: join us. Write down James Sweeney with us with credit squeets.

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Speaker 1: This is an incredibly important interview because we keep track

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Speaker 1: of the tone of our great guests are great economist

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Speaker 1: James Sweeney, hugely optimistic on the European recovery amid the

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Speaker 1: deflation gloom of a couple of years ago. He's gotten

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Speaker 1: really cautious on the American economic experience. James Sweeney, I

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Speaker 1: am thunderstruck by the percent of companies firings. It's not

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Speaker 1: three or four percent. It seems to be a much

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Speaker 1: bigger number. Is that surprising to you? No, it's not.

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Speaker 1: It's not surprising. I think there's three categories of problems

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Speaker 1: for the labor market. One is is that you have

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Speaker 1: companies with damage to their earnings, to their balance sheets.

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Speaker 1: Their labor demand is lower. Second, you have companies whose

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Speaker 1: sales outlooks are still impaired because they know the economy

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Speaker 1: out there is weak and they know the pandemic is

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Speaker 1: still going, so their labor demand is lower. And and

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Speaker 1: then third you have companies that just from using Zoom

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Speaker 1: or other changes to technology use, or just pandemic life

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Speaker 1: changes have may be recognized that they could get by

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Speaker 1: with fewer workers from a longer term perspective, which might

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Speaker 1: be a productivity boost for them overall, But that leads

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Speaker 1: to lower labor of demand now, and I don't I

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Speaker 1: don't think all three of these factors have been fully

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Speaker 1: activated through the pandemic, and the layoffs you're seeing now

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Speaker 1: is companies responding to their particular circumstances in their particular mix.

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Speaker 1: But this is a big issue because what it means

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Speaker 1: is that labor income now has a big headwind when

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Speaker 1: you add the fact that that extra unemployment income has

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Speaker 1: been taken away at the beginning of August, and and

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Speaker 1: the fact that that state and local governments are straining

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Speaker 1: and maybe reducing some workers as well. Uh, You're you're

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Speaker 1: losing quite a lot of income support under under consumption,

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Speaker 1: which has recently a few months ago was extraordinarily well

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Speaker 1: supported by policy. So the momentum shift happening in the

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Speaker 1: economy is large. Let's build on this, James, the idea

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Speaker 1: of the momentum shift also away from the lower income

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Speaker 1: workers that were the initial victims within the pandemic layoffs

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Speaker 1: to the higher income workers that we now see. I

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Speaker 1: was just looking some data today showing that bank cuts

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Speaker 1: they have announced so far are on pace to top

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Speaker 1: what we saw last year. Insurance companies are cutting You're

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Speaker 1: seeing energy companies cutting jobs as these higher paid jobs

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Speaker 1: get eliminated from this system. Is that trickle down effect?

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Speaker 1: The other jobs, the lower income ones that those support,

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Speaker 1: or is that weakness being adequately accounted for in the

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Speaker 1: current projections. Um well, I mean I think this is

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Speaker 1: why when I think you talked to a lot of economists,

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Speaker 1: including myself, you're going to get a cautious tone about

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Speaker 1: the speed of the further decline in the unemployment rate.

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Speaker 1: So you're not gonna hear a lot of people say

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Speaker 1: we're going to have five unemployment within twelve months or

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Speaker 1: anything like that. So again, I would take it back

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Speaker 1: to those three factors I've mentioned. Some of this is

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Speaker 1: forward looking, some of this is backward looking, and some

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Speaker 1: of this is really just tweaking and trying to gain efficiencies.

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Speaker 1: Maybe some efficiencies that have been realized, but you know,

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Speaker 1: we're not recognized before the pass and we're just gonna

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Speaker 1: have a lot of this at one time, and it's

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Speaker 1: it's really going to slow the you know, the return

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Speaker 1: of about twelve million, thirteen million missing jobs that we

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Speaker 1: have in the in the economy overall, and that lowers income.

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Speaker 1: And if you add to that, you know, a failure

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Speaker 1: to get a fiscal stimulus done so that you know

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Speaker 1: the government is not helping anymore on that incremental income,

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Speaker 1: then spending is going to have a real, a real problem. James,

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Speaker 1: slightly academic of me, so forgive me. But looking further out,

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Speaker 1: a few years further out, what do you expect the

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Speaker 1: participation right in America to look like? Given the shifts

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Speaker 1: that we're seeing and some of the permanent changes as well.

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Speaker 1: You hear governments throwing around the words training, retooling and

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Speaker 1: things like that, and I always sit here and just think,

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Speaker 1: you first, you go away and get a new skill set.

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Speaker 1: It's not that simple, James, What do you think the

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Speaker 1: participation right in America looks like for years to come? Um?

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Speaker 1: I think it will rebound. I think it will rebound nicely.

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Speaker 1: I mean, if you're if you're looking at the big

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Speaker 1: shifts in participation over the left ten or fifteen years,

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Speaker 1: you have to account for the demographics. So the fact

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Speaker 1: that baby boomers born after I started turning sixty in

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Speaker 1: two thousand ten meant that, you know, total participation for

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Speaker 1: the economy was really destined to move lower as that

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Speaker 1: cohort moved out. But if you adjusted for that, you

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Speaker 1: would find still some missing workers, some non participants. And

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Speaker 1: this was deeply injured parts of the labor market going

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Speaker 1: through that oh eight experience and maybe experiencing some social

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Speaker 1: troubles which were intensifying at the same time. So a

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Speaker 1: lot of progress has been made on those things, and

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Speaker 1: on demographic adjusted participation measures, we've actually gotten back to

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Speaker 1: pretty decent long term levels, again accounting for that aging.

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Speaker 1: But um, but now you have this, and you have

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Speaker 1: this whole in twelve million jobs, and um, even if

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Speaker 1: we have a decent rebound and the unemployment rate does

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Speaker 1: get back to the respectable levels, you know, with in

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Speaker 1: a year or two, we probably will have again some groups,

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Speaker 1: some cohorts, um, which which are injured, which are damaged,

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Speaker 1: where there's been some skills atrophies, some disconnection with firms,

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Speaker 1: and some people with persistent difficulties in resuming. So you know,

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Speaker 1: so I'd expect me in reversion being reversion and participation

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Speaker 1: over time, but I would I would subtract a little

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Speaker 1: bit from that due to the long term consequences for

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Speaker 1: particular particular workers. James, just a final one from me.

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Speaker 1: I'm thinking about a very specific cohort maybe late six

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Speaker 1: days in the journalism business. Um, do you expect this

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Speaker 1: particular to Yeah, those kind of those kind of pick

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Speaker 1: James read my mind. Those kind of people. Do you

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Speaker 1: expect them to retire anytime soon? Or will that be

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Speaker 1: increasingly difficult? Honestly, I think we're stuck with them, really, Okay, James,

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Speaker 1: thank you, sir, perfect, thank you, thank you very much.

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Speaker 1: Just for a serious question at the end that James

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Speaker 1: sway chief economist Jim Sullivan with his t D securities,

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Speaker 1: who has to sort all this out? And of course

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Speaker 1: the economics into the markets as well. Jim, you know

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Speaker 1: from chapter twenty three of econ one oh one, the

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Speaker 1: markets get out front and expect are the markets signaling

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Speaker 1: a better economy? Q one next year? Q two next year?

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Speaker 1: And Hi Tom, good morning, high John, everybody, And well,

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Speaker 1: I would think so. I mean, it's hard to say

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Speaker 1: exactly what's priced into markets, but there does seem to

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Speaker 1: be a lot of optimism priced into two markets. I mean,

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Speaker 1: I don't think people expect to see the strength that

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Speaker 1: we were seeing in the third quarter or just saw

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Speaker 1: on the third quarter to be repeated going forward. But

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Speaker 1: clearly people are assuming that it's it's up and pretty

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Speaker 1: solid from here. I mean exactly how strong, But yes,

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Speaker 1: I would I would say the risk is that people

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Speaker 1: probably are a little ahead of themselves from that perspective.

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Speaker 1: The recovery and the vector is the idea of getting

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Speaker 1: back to the trend line that we were on in

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Speaker 1: January or February of this troubled year. How long does

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Speaker 1: it take us to get back to a constructive trend line?

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Speaker 1: Is it quarters or is it years? Well, I mean

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Speaker 1: we would say years. I mean, certainly in terms of

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Speaker 1: just getting back to the level of GDP that we

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Speaker 1: were at at the end of two thousand nineteen. I mean,

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Speaker 1: I think that, I mean that that could well happen

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Speaker 1: during two thousand and twenty two. But of course, in

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Speaker 1: the meantime, if trend growth is one and a half

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Speaker 1: to two percent per year, when you're certainly talking much

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Speaker 1: much later than that. And I think the way to

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Speaker 1: think about is more the unemployment rate. If we were

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Speaker 1: at three and a half percent back in February, how

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Speaker 1: long before we see something close to four percent again?

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Speaker 1: And obviously the FEDS projections, their medium projection has them

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Speaker 1: hitting that level at the end of three I think

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Speaker 1: that's plausible, but it's probably being optimistic. If anything, it's

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Speaker 1: probably even later than that. Well, Jim and they weren't

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Speaker 1: optimistic enough going into the year end. Initially they were

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Speaker 1: looking for something north of nine on the unemployment right

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Speaker 1: we're now in and around eight. Jim talks, it's about

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Speaker 1: that the correction down to eight, the positive of move

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Speaker 1: we've seen in a very short amount of time, and

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Speaker 1: how much harder it will be to get from eight

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Speaker 1: to four. Yes, I think in general, I mean Trump

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Speaker 1: is right, I guess to start it off in the

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Speaker 1: sense that we've had a record recovery. I mean, certainly

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Speaker 1: the numbers over the last four months or so have

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Speaker 1: been stronger than we expected, and I think most people expected.

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Speaker 1: Pay rolls up over ten million, and four months looks

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Speaker 1: like third quarter g d P. We've got a annual rate.

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Speaker 1: If anything, the tracking numbers like Atlanta fed or over

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Speaker 1: thirty percent at this point, I mean, there are record numbers,

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Speaker 1: no question about it. But of course the net of

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Speaker 1: it is still down pretty sharply. Employment as of now

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Speaker 1: is down eleven and a half million from where we

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Speaker 1: were in February, and plus, as you're touching on, clearly

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Speaker 1: momentum seems to be fading. I mean, there's no question

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Speaker 1: I think that momentum is slowing relative to the third quarter,

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Speaker 1: and the question then is how much. I mean, we'll

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Speaker 1: get an update on that, of course tomorrow with the

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Speaker 1: employment report. We think the risks are tilted toward a

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Speaker 1: weaker number tomorrow. With the idea that momentum is clearly

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Speaker 1: slowing here and how much of that is because of

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Speaker 1: fiscal stimulus fading is not clear, but we do think

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Speaker 1: momentum is fading fairly significantly. Well, Jim, that's what I

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Speaker 1: wanted to touch on with you. I think it quote

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Speaker 1: this stands out for everyone in the last quarter, the

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Speaker 1: start of summer, Jamie Diamond. JP Morgan said the following,

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Speaker 1: this is not a normal recession. The recessionary part of

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Speaker 1: this you're going to see down the road. I assume

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Speaker 1: he's alluding to the fact that even with the labor

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Speaker 1: market shock because of fiscal action, we didn't have the

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Speaker 1: income shock. Jim, where are we now just in terms

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Speaker 1: of disposable income and the amount of cash in the

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Speaker 1: hands of consumers, even as this fiscal package just fade

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Speaker 1: into the background. Well, there's been there was, of course,

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Speaker 1: a huge increase in income even as employment plunge, and

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Speaker 1: with with with with the plunge in the economy, and

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Speaker 1: I mean even now income, I mean, it's coming off

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Speaker 1: a little bit the last couple of months, and it's

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Speaker 1: going to be down again in this morning's report for

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Speaker 1: August almost certainly as unemployment benefits were clearly down on

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Speaker 1: the month, But the net of it is still is

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Speaker 1: still a boost, certainly from the very very fiscal support.

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Speaker 1: And I think it's because of the big surgeon income

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Speaker 1: that we've seen strength and consumers spending in particular, and

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Speaker 1: within consumer spending, good spending has been stronger than before

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Speaker 1: the crisis. But the overall economy clearly is not anywhere

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Speaker 1: near back to where it where it was. But at

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Speaker 1: this point it looks like income is fading, and certainly

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Speaker 1: the stimulus part of that is fading. Now that that's

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Speaker 1: why I mean, these talks are going on in Congress.

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Speaker 1: Do we get another round or not absent another round?

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Speaker 1: It looks like fiscal stimulus is waning to the point

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Speaker 1: where it actually turns into a drag in the fourth quarter.

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Speaker 1: How much of a well, I mean, it's hard to

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Speaker 1: quantify in terms of the exact numbers, but for what

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Speaker 1: it's worth, the CBO puts out calculations based on current

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Speaker 1: baseline assuming no further legislation. They say that fiscal stimulus

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Speaker 1: goes from adding thirteen points to the annualized growth rate

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Speaker 1: in the third quarter to subtracting seven points in the

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Speaker 1: fourth and subtracting six points in the first. Those estimates

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Speaker 1: come with white uncertainty bands. But I think the direction

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Speaker 1: is is pretty intuitive. Just when you look at the

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Speaker 1: flow of cash outlays from the treasury, they surged and

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Speaker 1: now they're coming back down again. Jim, how do you

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Speaker 1: trade this given the degree of uncertainty and the wide

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Speaker 1: range of outcomes? You know, I mean, I guess my

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Speaker 1: focus is more the pure, pure macro and I think

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Speaker 1: in general, certainly the backdrop here is such that I mean,

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Speaker 1: the FED is going to have to be highly accommodated

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Speaker 1: for many, many years. So I mean, I think you

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Speaker 1: would trade the ups and downs in bondill certainly, and

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Speaker 1: the news flow can go up and down, and I mean,

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Speaker 1: if if we're right, I think people will be disappointed

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Speaker 1: by the employment report tomorrow, for example. But certainly the

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Speaker 1: broad thrust of this is that interest rates are going

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Speaker 1: to be low for many, many years. I mean, exactly

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Speaker 1: what that means for the equity market. There's so much

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Speaker 1: more that comes into it, the politics and how do

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Speaker 1: people react to the election. So there's a lot there.

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Speaker 1: Obviously people have to have to figure out. Jim, when

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Speaker 1: you when you look at this job's report and when

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Speaker 1: you look at all in American experiment, it comes down

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Speaker 1: to potential g d P. Have you lowered your potential

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Speaker 1: GDP off this pandemic? And I can't say of an

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Speaker 1: official number of potential GDP, And I think to some

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Speaker 1: extent it's moved in terms of the next year or

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Speaker 1: two years, I mean ultimately, I mean, I know, the

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Speaker 1: whole idea of NIRO and full employment has been has

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Speaker 1: been emphasized in recent years. But I mean I think

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Speaker 1: to the extent you think full employment of the economy

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Speaker 1: was something in the four percent range for the unemployment rate,

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Speaker 1: I mean, we are so far from that right now

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Speaker 1: that it's mood and it's going to be several years

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Speaker 1: probably before we get there. And I mean I think,

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Speaker 1: I mean, of course, over the long run, potential growth

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Speaker 1: depends on productivity, growth depends on labor for its growth,

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Speaker 1: and both of those have slowed in recent decades. And

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Speaker 1: I mean there's nothing recently to suggest that we should

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Speaker 1: be marking those numbers up again. Of course, the CBO

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Speaker 1: just came out with longer term numbers and just was

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Speaker 1: it last week or the week before, and they marked

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Speaker 1: down their longer term projections. But I can't say I

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Speaker 1: have an official number on on potential growth. But when

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Speaker 1: we're talking, when you're arguing whether it's one point six

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Speaker 1: percent or one point nine and GDP is down as

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Speaker 1: much as it is right now, I think it's it's moot.

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Speaker 1: I mean, ultimately it becomes a factor again in terms

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Speaker 1: of what's full employment and what should have FED be

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Speaker 1: aiming for. But at this point, given where the employment

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Speaker 1: rate is, we're clearly so far from potential that it

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Speaker 1: has moved from the FEDS perspective right now, Jim, just quickly,

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Speaker 1: twenty four hours and about fifty minutes away from a

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Speaker 1: payrolls report in America, you kept saying that you expect

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Speaker 1: the down side surprise. Let's put some muscle on those

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Speaker 1: bones just quickly. Here's the estimate. Eight seventy two is

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Speaker 1: the median estimate in our survey. Unemployment expected to come

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Speaker 1: in and around eight point two Jim, Historically, for our

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Speaker 1: audience that are familiar with you historically you are a

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Speaker 1: very very accurate forecaster of payrolls. What are you actually

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Speaker 1: looking for? And we've got four hundred total paerills. I mean,

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Speaker 1: I think there will be an important detail in this

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Speaker 1: report private versus government, and we've got private up six

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Speaker 1: hundred thousand and then government taking two hundred thousand. I mean,

431
00:22:43,800 --> 00:22:46,760
Speaker 1: one issue is with usually there there there there's a

432
00:22:46,760 --> 00:22:49,920
Speaker 1: surge of employment back onto government books with state and

433
00:22:49,960 --> 00:22:52,640
Speaker 1: local education workers in particular in September, to the extent

434
00:22:52,680 --> 00:22:54,840
Speaker 1: you get fewer than usual this year, and the seasonal

435
00:22:54,920 --> 00:22:58,040
Speaker 1: factors will overcompensate for that. So and then we'll see

436
00:22:58,040 --> 00:23:00,439
Speaker 1: on the private we've got six hundred thousand, so positive

437
00:23:00,520 --> 00:23:02,920
Speaker 1: numbers still. But obviously if you look at total payrolls,

438
00:23:02,920 --> 00:23:05,960
Speaker 1: there were four point eight million in June, one point

439
00:23:06,000 --> 00:23:08,920
Speaker 1: seven million in July, one point four million in August.

440
00:23:09,000 --> 00:23:11,520
Speaker 1: So if you get something like four thousand, I think

441
00:23:11,560 --> 00:23:14,840
Speaker 1: people will extrapolate and start speculating a boy, the possibility

442
00:23:14,880 --> 00:23:17,000
Speaker 1: we get a double dip in the fourth quarter, the

443
00:23:17,040 --> 00:23:21,320
Speaker 1: deceleration story. Jim Grata, Catchops, Jimmy Sullivan, Data Securities chief,

444
00:23:21,400 --> 00:23:28,320
Speaker 1: US mac Roy strategist, thank you. If you need real caution,

445
00:23:28,560 --> 00:23:31,560
Speaker 1: there's no other place to look at real estate, and

446
00:23:31,640 --> 00:23:35,120
Speaker 1: maybe not, you know, selected suburbs booming as people leave cities.

447
00:23:35,440 --> 00:23:39,240
Speaker 1: But in commercial real estate the operative word is grim.

448
00:23:39,280 --> 00:23:42,879
Speaker 1: Rebecca Rocky keeps scored Kushman in Wakefield is global. How

449
00:23:42,960 --> 00:23:46,520
Speaker 1: to forecasting with four or five twelve degrees from Penn

450
00:23:46,600 --> 00:23:50,120
Speaker 1: State also work out of the Johns Hopkins University. Rebecca,

451
00:23:50,200 --> 00:23:55,280
Speaker 1: good morning. I love your report and the mathematical acuity.

452
00:23:55,359 --> 00:23:58,640
Speaker 1: Let me go to the price dynamic. Why aren't rents

453
00:23:58,800 --> 00:24:03,640
Speaker 1: going down or do you predict they will plunge? Hi, well,

454
00:24:03,680 --> 00:24:06,000
Speaker 1: good morning, and thank you for having me and thank

455
00:24:06,000 --> 00:24:09,760
Speaker 1: you for that feedback. Um. You know, for for rents

456
00:24:09,840 --> 00:24:13,640
Speaker 1: in the commercial property markets, it takes time for asking

457
00:24:13,720 --> 00:24:16,400
Speaker 1: rates or face rates to start to move, and so

458
00:24:16,840 --> 00:24:20,520
Speaker 1: that's not unusual. It happens at different paces and different

459
00:24:20,680 --> 00:24:22,639
Speaker 1: regions that we cover in the report, but certainly in

460
00:24:22,680 --> 00:24:25,679
Speaker 1: the United States. What we see in the aggregate across

461
00:24:25,720 --> 00:24:28,439
Speaker 1: the country that takes a few quarters for landlords to

462
00:24:28,440 --> 00:24:31,320
Speaker 1: be willing to move that qright. What does tend to

463
00:24:31,359 --> 00:24:33,920
Speaker 1: happen a bit sooner is that we start to see

464
00:24:34,000 --> 00:24:37,959
Speaker 1: increases in confessions in free rents, and those sorts of

465
00:24:38,000 --> 00:24:41,600
Speaker 1: things which sort of serve as a precursor to movements

466
00:24:41,640 --> 00:24:45,040
Speaker 1: in the asking rates, which is how you're forecasting this forward.

467
00:24:45,160 --> 00:24:47,400
Speaker 1: In your report, you predict that it's going to take

468
00:24:47,480 --> 00:24:50,720
Speaker 1: until twenty twenty five for office rents to get back

469
00:24:50,760 --> 00:24:53,600
Speaker 1: to where they were pre pandemic, and that rents will

470
00:24:53,640 --> 00:24:57,479
Speaker 1: decline nearly eleven percent over the next two or so years.

471
00:24:57,920 --> 00:25:00,240
Speaker 1: What about the coastal cities in the United States? How

472
00:25:00,320 --> 00:25:04,040
Speaker 1: much more office rents decline there? Sure? I think you know,

473
00:25:04,680 --> 00:25:07,960
Speaker 1: when you think about where there's more risk versus less,

474
00:25:08,000 --> 00:25:12,439
Speaker 1: it's not necessarily coastal versus non coastals, right, So I

475
00:25:12,480 --> 00:25:15,560
Speaker 1: think where we're going to see a greater potential rent

476
00:25:15,600 --> 00:25:20,080
Speaker 1: correction is possibly in markets that have higher levels of

477
00:25:20,080 --> 00:25:22,919
Speaker 1: construction coming to the market relative to the size of

478
00:25:22,960 --> 00:25:27,560
Speaker 1: the market, where we also are potentially expecting greater declines

479
00:25:27,600 --> 00:25:30,439
Speaker 1: in demand. And that's not just markets that may have

480
00:25:30,760 --> 00:25:33,000
Speaker 1: obstruction wave headed their way. There are a number of

481
00:25:33,080 --> 00:25:36,200
Speaker 1: markets that maybe don't have some of the demographic backdrop

482
00:25:36,480 --> 00:25:40,359
Speaker 1: to support future office job growth that other key markets have.

483
00:25:40,520 --> 00:25:44,080
Speaker 1: We think this is key, and I apologize for breaking

484
00:25:44,080 --> 00:25:46,399
Speaker 1: in here, but everyone seems to think that the biggest

485
00:25:46,400 --> 00:25:48,719
Speaker 1: cities are going to empty out and become ghost towns

486
00:25:48,720 --> 00:25:51,520
Speaker 1: of office buildings that are relics from another era. What

487
00:25:51,680 --> 00:25:54,640
Speaker 1: you're saying is completely different. I'm guessing that you're talking

488
00:25:54,640 --> 00:25:57,919
Speaker 1: about secondary of tertiary cities that have been building up

489
00:25:57,960 --> 00:26:01,400
Speaker 1: recently in the response to people moving in recent years.

490
00:26:01,440 --> 00:26:04,159
Speaker 1: Those might be the hardest hit. Am I right? You know,

491
00:26:04,200 --> 00:26:06,640
Speaker 1: I don't think we know the answer quite yet. There's

492
00:26:06,720 --> 00:26:09,800
Speaker 1: a lot of noise in even the residential data when

493
00:26:09,800 --> 00:26:13,000
Speaker 1: you look at some of these gateway cities versus lower

494
00:26:13,040 --> 00:26:15,920
Speaker 1: cost cities. On the margin, we have seen some movement.

495
00:26:16,320 --> 00:26:19,760
Speaker 1: How temporary versus permanent that is is a big question mark,

496
00:26:19,880 --> 00:26:22,720
Speaker 1: and for these big cities. I think what's also key

497
00:26:22,800 --> 00:26:25,800
Speaker 1: is most international borders are shut down, and it's very

498
00:26:25,880 --> 00:26:30,760
Speaker 1: typical of Los Angeles, Boston, New York, DC, Miami to

499
00:26:30,920 --> 00:26:35,359
Speaker 1: have international migrations serve as a source of population growth

500
00:26:35,480 --> 00:26:39,040
Speaker 1: in in those cities. So you know, this is not unusual, Rebecca.

501
00:26:39,119 --> 00:26:41,760
Speaker 1: I want to go back to the balance sheet and

502
00:26:41,800 --> 00:26:44,520
Speaker 1: the income flows of commercial real estate, and of course

503
00:26:44,600 --> 00:26:48,320
Speaker 1: Cushman Wakefield where their their venerable history back across the

504
00:26:48,359 --> 00:26:52,040
Speaker 1: twentieth century, Rebecca, is this going to be worked out

505
00:26:52,560 --> 00:26:55,800
Speaker 1: on a balance sheet where you know there's bankruptcies and

506
00:26:55,960 --> 00:26:59,320
Speaker 1: things clear and loans are written down, etcetera. Or is

507
00:26:59,359 --> 00:27:02,040
Speaker 1: it going to be worked out on the income statement

508
00:27:02,560 --> 00:27:06,720
Speaker 1: with reduced cash flows reduced rents. Which way will that cut?

509
00:27:07,400 --> 00:27:08,919
Speaker 1: You know, I think it may be a little bit

510
00:27:08,960 --> 00:27:14,120
Speaker 1: of both. Um. You know, we're certainly working with our

511
00:27:14,320 --> 00:27:17,399
Speaker 1: landlord clients to protect those cash flows. But in the

512
00:27:17,480 --> 00:27:20,920
Speaker 1: event where it's just not necessarily something that can be done,

513
00:27:21,119 --> 00:27:24,920
Speaker 1: that's certainly going to be idiosyncratic in nature. Um, we

514
00:27:25,040 --> 00:27:28,080
Speaker 1: may see it play out a different way. You know, Rebecca.

515
00:27:28,119 --> 00:27:30,040
Speaker 1: What's fascinating to me and Lisa and I live this

516
00:27:30,119 --> 00:27:32,840
Speaker 1: is is I know there's class A, Class B, Class C,

517
00:27:33,040 --> 00:27:36,159
Speaker 1: D E property as well. When you drive down the

518
00:27:36,200 --> 00:27:39,400
Speaker 1: streets of any city in this country and you see

519
00:27:39,400 --> 00:27:44,440
Speaker 1: the retail apocalypse because of Amazon, because of the pandemic,

520
00:27:44,960 --> 00:27:48,640
Speaker 1: how does Rebecca Rocky think you clear that market, all

521
00:27:48,680 --> 00:27:51,840
Speaker 1: those empty storefronts. Yeah, I mean, you know, the way

522
00:27:51,880 --> 00:27:54,320
Speaker 1: you clear markets is for pricing to adjust. So I

523
00:27:54,359 --> 00:27:57,239
Speaker 1: think that that's something we're witnessing. Rebecca. I don't mean

524
00:27:57,280 --> 00:28:00,119
Speaker 1: to interrupt. Lisa interrupted, so I get to interrupt. We

525
00:28:00,200 --> 00:28:04,480
Speaker 1: do balancing, interrupting at Rebecca, But but Rebecca, what are

526
00:28:04,560 --> 00:28:08,399
Speaker 1: we waiting for to have those rents come down? You know,

527
00:28:08,480 --> 00:28:11,640
Speaker 1: I think we're waiting for transactions, right. There's just it's

528
00:28:11,640 --> 00:28:14,240
Speaker 1: a frozen market at this time, and there's still a

529
00:28:14,280 --> 00:28:17,520
Speaker 1: lot of uncertainty. So when we're talking to clients, they're

530
00:28:17,960 --> 00:28:22,240
Speaker 1: they're they're doing an exercise of information gathering. They're they're

531
00:28:22,320 --> 00:28:27,040
Speaker 1: figuring out and waiting very likely until we have some

532
00:28:27,119 --> 00:28:30,760
Speaker 1: degree of more certainty. And that's really hard right now

533
00:28:30,800 --> 00:28:34,920
Speaker 1: because unlike other recessions or down cycles where it was

534
00:28:34,960 --> 00:28:39,160
Speaker 1: truly market based threat shocks, we're dealing with something that's

535
00:28:39,520 --> 00:28:43,320
Speaker 1: fundamental ambiguity, right, a medical crisis. Trying to figure out

536
00:28:43,400 --> 00:28:47,320
Speaker 1: how that translated into the economy and real estate fundamentally

537
00:28:47,320 --> 00:28:50,280
Speaker 1: more difficult exercise. Rebecca, Thank you so much, very valuable.

538
00:28:50,360 --> 00:28:54,120
Speaker 1: Rebecca Rocky with Cushman and Wakefield there and commercial real estate.

539
00:28:54,280 --> 00:28:58,440
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

540
00:28:58,520 --> 00:29:03,840
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

541
00:29:03,880 --> 00:29:08,120
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane Before

542
00:29:08,160 --> 00:29:12,000
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg

543
00:29:12,080 --> 00:29:12,360
Speaker 1: radio