WEBVTT - Apollo Chief Economist Torsten Slok Talks Jobs Report

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<v Speaker 1>Bloomberg Audio Studios, podcasts.

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<v Speaker 2>Radio news.

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<v Speaker 3>Torson' slock of Apollo got two benefits there. One he

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<v Speaker 3>got an extra twelve minutes to go over all of this,

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<v Speaker 3>and two might be key setting them up perfectly because

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<v Speaker 3>Toaston New just sound there nodding, you agree, don't you?

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<v Speaker 4>Hundred resent? I mean, let's look at the numbers. Non

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<v Speaker 4>fine pay roles in August was better than in July.

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<v Speaker 4>The unemployment rat in August was better than in July.

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<v Speaker 4>Average arlie earnings higher than in July. And you look

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<v Speaker 4>at average weekly hours also better than in July. I mean,

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<v Speaker 4>this report is better than in July. This economy is

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<v Speaker 4>not slowing down in the way that markets anticipating we

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<v Speaker 4>will not get eight cuts over the next twelve months.

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<v Speaker 4>Here you should instead look at this report as this

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<v Speaker 4>is really telling you that there is a soft lending.

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<v Speaker 3>So help me with this. In October, when we look

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<v Speaker 3>back at this report and we get another revision, a

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<v Speaker 3>downward revision, don't we have to reframe some of this

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<v Speaker 3>conversation and just say everything gets keeps getting revised lower.

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<v Speaker 3>This is Leasta's point. Over the last few days, this economy,

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<v Speaker 3>this labor market is weaker than we initially thought.

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<v Speaker 4>It was. GDP in the second quarter was three percent.

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<v Speaker 4>It was just revised up. Jobless claims continues to be

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<v Speaker 4>a good. Continuing claims was also good. If you look

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<v Speaker 4>at the daily data for how many people go to restaurants,

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<v Speaker 4>how many people fly on airplanes, the weekly data from

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<v Speaker 4>Redbook on retail sales, if you're going across the boat

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<v Speaker 4>on bankruptcies, if you're going across the boat on credit

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<v Speaker 4>card spending. In the aggregate, the growth data is just

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<v Speaker 4>not showing signs of a slowdown. It is true that

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<v Speaker 4>the label marit is weakening, and yes the dual's data

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<v Speaker 4>has bidding a little bit, maybe more imbalance, as the

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<v Speaker 4>fit would be saying, But this whole notion that the

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<v Speaker 4>economy is slowing down rapidly, it is completely misguided.

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<v Speaker 2>What I thought was fascinating.

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<v Speaker 1>I was speaking to a number of retail executives at

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<v Speaker 1>this conference this week, and their biggest question was what's

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<v Speaker 1>going to happen with the consumer.

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<v Speaker 2>They didn't know, they had zero visibility. Even though you.

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<v Speaker 1>Are seeing some trends and signs of robustness, some signs

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<v Speaker 1>of weakness. They said, Ultimately, it just depends on whether

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<v Speaker 1>they have the money to spend. These labor market reports

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<v Speaker 1>are raising a red flag for a lot of people,

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<v Speaker 1>saying if they lose their jobs, they won't How fragile

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<v Speaker 1>is that sort of happiness that you're describing to a

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<v Speaker 1>scenario like that.

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<v Speaker 4>Certainly, if we do have a rise in the un

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<v Speaker 4>aplant rate, so that's not what happened there on Empliner

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<v Speaker 4>Way and down, it would become a problem. But if

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<v Speaker 4>you also exactly as you know too well, look at

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<v Speaker 4>what they did say the retailers during this earning season,

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<v Speaker 4>target Set, no sign of a slowdown, Walmart, no sign

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<v Speaker 4>of a slowdown, and also Costco no sign of a slowdown.

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<v Speaker 4>You saw dollar general. Some parts of consumers are under

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<v Speaker 4>more distress, but broadly speaking, looking at retail sales both

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<v Speaker 4>the monthly, the weekly, and across the board on credit

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<v Speaker 4>card data, there is just no sign of a sharp slowdown.

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<v Speaker 4>So the bottom line in this discussion is that you

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<v Speaker 4>only get a recession when you have a really big

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<v Speaker 4>shock to the economy, and that makes sense of course

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<v Speaker 4>with COVID human brothers going under of course, the bust

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<v Speaker 4>of the IT bubble in two thousand, But this is

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<v Speaker 4>not an exogynous shark with something coming from the outside.

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<v Speaker 4>This is all engineered by the FED trying to slow

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<v Speaker 4>things down. And now the Fed is telling us that

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<v Speaker 4>they're about to lower rates, So that's about to counter

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<v Speaker 4>some of those negative things.

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<v Speaker 3>We get another headline from the Federal Reserve Mi McKay

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<v Speaker 3>from the neo FED President John Williams.

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<v Speaker 5>Yeah, John Williams is saying it is time now to

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<v Speaker 5>join the party. He is not commenting in his prepared

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<v Speaker 5>remarks about today's numbers. Of course he wouldn't have had

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<v Speaker 5>them ahead of time, but he does say it's time

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<v Speaker 5>to cut rates.

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<v Speaker 2>Excuse me.

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<v Speaker 5>With the economy now in equipoise, which he titled his

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<v Speaker 5>speech that means in balance and inflation on a path

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<v Speaker 5>to two percent, it is now appropriate to dial down

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<v Speaker 5>the degree of restrictiveness in the stance of policy by

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<v Speaker 5>reducing the target range for the Federal funds rate. So

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<v Speaker 5>the guy who's vice chairman of the Open Market Committee

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<v Speaker 5>is saying we're going to cut rates. He's not yet

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<v Speaker 5>talking about by how much, but there.

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<v Speaker 2>Is a Q and A so we'll keep an eye on.

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<v Speaker 3>And apparently uns Athosaurus for the New York fat tossin slock,

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<v Speaker 3>What do you make of that? What are you looking for?

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<v Speaker 3>From Kamanawalla?

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<v Speaker 4>So I do think Waller will also give some more

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<v Speaker 4>guidance in terms of what's going on, at least with

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<v Speaker 4>a bigger economic picture. But I don't think that he

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<v Speaker 4>will tell us much about whether this is twenty five

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<v Speaker 4>or fifty. It requires probably a very important debate given

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<v Speaker 4>the spectrum of where if MC members have been recently

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<v Speaker 4>in their speeches, some are clearly saying some are even

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<v Speaker 4>suggesting we should have much fewer cuts over the next

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<v Speaker 4>several quarters, and others, of course are suggesting that we

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<v Speaker 4>should go much faster. So I do think that they

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<v Speaker 4>need to gather in the room and think hard about

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<v Speaker 4>do we want to go towards twenty five or fifty?

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<v Speaker 4>I would say, and I would agree with the Mike

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<v Speaker 4>that twenty five is the right now. But given that

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<v Speaker 4>literally everything in this report was better than in July,

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<v Speaker 4>would it be.

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<v Speaker 2>A policy error though to go by fifty?

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<v Speaker 4>See that opens up the debate about our sty and

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<v Speaker 4>how far do we need to go down if our

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<v Speaker 4>star and where we need to go to and ultimately

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<v Speaker 4>so real rates plus inflation, if we only need to

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<v Speaker 4>go to four and a half. We're not far away

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<v Speaker 4>from that, so there's no rush to lower rates. If

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<v Speaker 4>we do need to go all the way down to

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<v Speaker 4>two and a half or three, then there is certainly

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<v Speaker 4>more of a rush. But given the incoming data across

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<v Speaker 4>the board is still good, why is there this rush

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<v Speaker 4>to cut rates or traumatically other than the our star

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<v Speaker 4>framework which says that we got to get going.

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<v Speaker 1>Jackson Hale speech was all about understanding the effect that

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<v Speaker 1>FED policy has in the overall economy.

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<v Speaker 2>The conclusion was, we still don't know.

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<v Speaker 1>We don't have a sense of exactly how quickly it

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<v Speaker 1>gets sort of transmitted in how much of the lag

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<v Speaker 1>effects that we're starting to see. There is an argument

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<v Speaker 1>if you cut rates more aggressively now you can get

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<v Speaker 1>ahead of some of the lag effects that we haven't

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<v Speaker 1>yet even seen.

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<v Speaker 2>Why don't you give credence to that?

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<v Speaker 4>Because there are three very important reasons why we did

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<v Speaker 4>not get that slow down that we all anticipated for

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<v Speaker 4>so long throughout twenty twenty three. Remember they started hiking

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<v Speaker 4>rates in mants of twenty twenty two. First, of all,

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<v Speaker 4>consumers and firms had locked in low interest rates. AI

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<v Speaker 4>investment has been very strong and fiscal policy has been

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<v Speaker 4>a huge tail when all these things combined have been

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<v Speaker 4>the key reason why the economy has not slowed down,

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<v Speaker 4>and those things actually still in place. A lot of

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<v Speaker 4>people still, of course have low interest rates in mortgages,

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<v Speaker 4>it investment, greade credit fixed rate also very locked in

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<v Speaker 4>for a long time, so that means that if you

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<v Speaker 4>do start cutting rates, it's actually the transmission is also

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<v Speaker 4>going to be weaker. On the downside, it was weak

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<v Speaker 4>when you were raising rates, it's also weak when you're

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<v Speaker 4>cutting rates. So because of that, AI investments still strong,

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<v Speaker 4>fiscal policy from Chips Act, Inflation Reduction Act, and infrastructure

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<v Speaker 4>acts still strong. All this argues that the data will

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<v Speaker 4>just continue to be steady over the next several quarters.

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<v Speaker 4>There is no reason to expect this to be a

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<v Speaker 4>hard landing. There is no exctanness shock similar to what

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<v Speaker 4>we have seen during previous recessions.

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<v Speaker 6>Chirstan kruglebaks the revision for a second. If you take

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<v Speaker 6>off the twenty five thousand we took off last month,

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<v Speaker 6>and you do here for August, you'd get one seventeen.

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<v Speaker 6>Would you still feel this way if it printed one seventeen?

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<v Speaker 4>Sure? Of course, the revisions are very important because we

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<v Speaker 4>have seen some modest slow down, but broadly speaking, the

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<v Speaker 4>data was still better than what it was in July,

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<v Speaker 4>so taken as the overall picture of him, particularly with

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<v Speaker 4>the un aploiner rate, which is especially important when you

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<v Speaker 4>put that into your tailor rules and try to figure

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<v Speaker 4>out what should the reaction function be from the fit

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<v Speaker 4>And that's how all the regional feds prepare the forecast.

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<v Speaker 4>And if there on a planinar rate goes down, it's

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<v Speaker 4>hard to argue why they should be going fifty. To

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<v Speaker 4>go fifty, you need some very excuse me, academic argument

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<v Speaker 4>about our star and you've got to get going with

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<v Speaker 4>low rates very very quickly. And the question is with

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<v Speaker 4>the incoming data being so strong, it's mon up rypolsia

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<v Speaker 4>really so restrictive. It doesn't look like it's restrictive. If

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<v Speaker 4>it was really restrictive, the important report would be a

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<v Speaker 4>lot weaker.

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<v Speaker 3>Pause because this is exactly where I wanted to finish

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<v Speaker 3>with you. You're saying five point fifty still not that restrictive

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<v Speaker 3>for this economy.

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<v Speaker 4>So if ASDA, if where we're going in the terminal

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<v Speaker 4>rate is four and a half, it's five and a

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<v Speaker 4>half far away from four and a half. I know we,

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<v Speaker 4>excuse me, have been somewhat not quite brainwashed, but very

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<v Speaker 4>distorted by a lot of fmcemen. Was continuously saying we

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<v Speaker 4>got to normalized race, normalized raise, normalized rates. But let

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<v Speaker 4>me ask you this, John, if we really had restrictive

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<v Speaker 4>monetary policy, why have we for two and a half

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<v Speaker 4>years and counting, still been getting very good economic data,

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<v Speaker 4>including GDP in the second quarter at three percent.

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<v Speaker 3>The lassage is so longer, they might say, the lags

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<v Speaker 3>are just long.

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<v Speaker 4>It should be the reason for that. The tailwinds from

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<v Speaker 4>AI continue to be strong. The tails for fiscal policy

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<v Speaker 4>is still strong. We have locked in low interest rates

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<v Speaker 4>for the consumer and for corporates. Where is this very

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<v Speaker 4>significant transmission of monetary policy.

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<v Speaker 3>We sit here and do this again a year from now,

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<v Speaker 3>We'll do it before then. Don't worry. In twelve months time,

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<v Speaker 3>where do you think rates are. They've got a four handle,

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<v Speaker 3>they still got a five.

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<v Speaker 4>I think that they will be much higher than what

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<v Speaker 4>the market is pricing at the moment. Because this is

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<v Speaker 4>not a shock that is generating a recession. Why haven't

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<v Speaker 4>we had a recession for now? Thirty six months in counting.

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<v Speaker 4>I mean, it is really the case that the economy

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<v Speaker 4>and the economic data has just been much better than

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<v Speaker 4>what literally any model had predicted for the reasons that

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<v Speaker 4>I just mentioned, name be locked in low interest rates,

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<v Speaker 4>tales from fiscal policy, and AI spending being completely independent

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<v Speaker 4>of whatever the Fed is doing.

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<v Speaker 3>This is box office and we should do it again

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<v Speaker 3>next week. Tosin sluck and looking forward to it. Tosson'

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<v Speaker 3>sluck of Apollo, Thank you very much,