Speaker 1: Bloomberg Audio studios, podcasts, radio news.
Speaker 2: Investors assessing the market impacts consumers and businesses already readjusting
Speaker 2: torson Snock of Apollo, writing, this is a weight and
Speaker 2: see economy. Consumers are more reluctant. The bottom line is
Speaker 2: that this eventually needs to a slow down in the
Speaker 2: hard data, and markets should prepare for that scenario. Towson
Speaker 2: joins us now for more. Tourston, good morning.
Speaker 1: Good morning.
Speaker 2: We've seen the shift and the soft data. The last
Speaker 2: time we spoke, you raise the issue are believe Lisar
Speaker 2: asked the question, with that soft data bleed into the
Speaker 2: hard data, do you sense inevitability now toward that?
Speaker 1: We are beginning to see that if you look at
Speaker 1: high frequency data, so over the last several weeks, we
Speaker 1: have seen and I know some of these indicators are
Speaker 1: a little bit special, but we've seen the number of
Speaker 1: people who are going to movie theaters, a number of
Speaker 1: people going to Broadway shows. If you look at the
Speaker 1: TSA data for how many people flying airplanes, even if
Speaker 1: you look at how many people are visiting the Statue
Speaker 1: of Liberty here in New York City. All that has
Speaker 1: actually started weeken and now we get another soft data
Speaker 1: print here at ten with the Michigan centiment for consumers.
Speaker 1: So overall it is still a little bit too early,
Speaker 1: but given that we have this weight and see situation
Speaker 1: both for consumers and for corporates, it does make sense
Speaker 1: that the soft data should eventually begin to spill over
Speaker 1: to at least some weakening in the hot data.
Speaker 2: One feature of this cycle that I think a lot
Speaker 2: of people underestimated, you not included is the resilience of
Speaker 2: this economy. What is our capacity to absorb sharks now
Speaker 2: has that been reduced?
Speaker 1: Well, that's a very important question because that depends on
Speaker 1: the nature of the sharks, and we're facing two sharks
Speaker 1: at the moment, name the DOGE, which is laying off
Speaker 1: government workers. Estimates suggests that will be around three hundred
Speaker 1: thousands workers that might be losing their jobs. Remember that
Speaker 1: for every federal worker, there are two contractors, according to Brookings.
Speaker 1: So Brooking starties show that in total, true employment in
Speaker 1: the federal government is roughly around nine ten million people.
Speaker 1: So if you now think about total above households one
Speaker 1: hundred and thirty million, and someone in the federal work
Speaker 1: or contract that lives together with someone in the private sector.
Speaker 1: You get that as much as ten fifteen percent of
Speaker 1: all households in some way or another is being impacted
Speaker 1: from a sentiment perspective by doose A loan and tariffs
Speaker 1: of course, also in particular impacts anyone who is associated
Speaker 1: with trade with Canada and Mexico, and you have that
Speaker 1: that is also a particular of course across the border
Speaker 1: to the north and to the south, playing a significant
Speaker 1: role in a number of states. So the bottom line
Speaker 1: is is not only terriffs and trade warm. It's also
Speaker 1: the combination of the risk that government workers and contractors
Speaker 1: potentially losing their jobs. That are the main reasons why
Speaker 1: the soft data is weakening the way it is. And
Speaker 1: it's not only consumer soft data is also corporate. If
Speaker 1: you look at the CAPEX planning from the regional feds
Speaker 1: Dallas FED, Field, Delpha FED, New York FED, that's showing
Speaker 1: that businesses in those districts are saying we're beginning to
Speaker 1: cut back CAPEX plans. Likewise, NFIB also roundtable surveys KAPEX
Speaker 1: planning is also moving lower. So both consumer confidence moving
Speaker 1: lower corporate confidence moving lower. It is a precursor for
Speaker 1: slow downcoming in the hot data.
Speaker 3: There's an argument being made that if what was propping
Speaker 3: up the United States economy was goverm meant spending, it
Speaker 3: wasn't that strong to begin with, And this is actually
Speaker 3: somewhat of a withdrawal from a sugar high from an
Speaker 3: incredible amount of fiscal spend in the direct aftermath of
Speaker 3: the pandemic.
Speaker 1: Do you buy that there is some truth to the
Speaker 1: detox argument in the sense that if you look at
Speaker 1: hiring in nonfound payrolls over the last two years, twenty
Speaker 1: five percent of jobs created in twenty twenty three and
Speaker 1: twenty four were government jobs. The previous years it was
Speaker 1: like five ten percent much months or less, So a
Speaker 1: very significant part of jobs in the last two years
Speaker 1: had been coming from the government sector. So it is
Speaker 1: true that job growth has been slowing in the private sector,
Speaker 1: even going into these shocks that we're looking at the moment.
Speaker 3: Heading into twenty twenty five, you are pretty clear that
Speaker 3: you think that the inflationary shock was going to be
Speaker 3: maintained and that it was going to create a real
Speaker 3: problem for the FED to actually offer response to that
Speaker 3: kind of weakness in the economy. Do you continue to
Speaker 3: see that even though the shocks that we're seeing right
Speaker 3: now to policy might have a bigger ramification on growth
Speaker 3: than you'd previously expected.
Speaker 1: Well, the real challenge is that going to tariffs, we
Speaker 1: had that inflation unfortunately was still too high at around
Speaker 1: three percent, and most calculations suggest that you will add
Speaker 1: roughly half a percent's point to core PCE as a
Speaker 1: result of terriffs. So it makes a huge difference where
Speaker 1: you start. If you start with inflation at three and
Speaker 1: you add half a percent, of course, the risk is
Speaker 1: that you will have too much upside and we're way
Speaker 1: above the FETs target. Whereas if inflation had started at
Speaker 1: one and a half, which is where we were in
Speaker 1: twenty sixteen, and you add half a percent, then inflation
Speaker 1: will move up towards the FEEDS target. So the problem
Speaker 1: was really that the starting point for inflation when these
Speaker 1: policies came along was that it was unfortunately well above
Speaker 1: the FETs target. So the risk is in this situation
Speaker 1: that you have inflation moving higher and growth flowing down,
Speaker 1: which of course is a definition of as deflationary shock.
Speaker 3: We were talking to Mohammad Olarian earlier this week and
Speaker 3: he made the point that given these dual shocks, the
Speaker 3: FED should probably allow inflation to run a little bit
Speaker 3: hotter for a longer period of time and address the
Speaker 3: growth issues and cut rates at least once this year.
Speaker 3: Do you agree that that's more prudent at a time
Speaker 3: where there are these stagflationary forces starting to loom?
Speaker 1: Absolutely, because the FED has the dual mandate. On the
Speaker 1: one side, if growth is slowing is saying the fat
Speaker 1: should be cutting. If inflation is going up is saying
Speaker 1: the feature should be hiking. I think the FED will
Speaker 1: look at if growth starts to slow, and if we're
Speaker 1: with the next several weeks, begin to see that unemployment
Speaker 1: begins to go up. Let's not forget that non farm
Speaker 1: payroll is always done in the week of the twelfth
Speaker 1: means this week, so this is the week when they
Speaker 1: do the survey for the employment report. And if we
Speaker 1: do believe that this week was somewhat intense on the
Speaker 1: policy front, then there is of course a chance that
Speaker 1: non farm payrolls for March could be on the weaker side.
Speaker 1: And if that's the case, then in the next seven
Speaker 1: weeks and particularly going into April and with the April
Speaker 1: second deadline also from Trump, with a reciprocal tariffs. We
Speaker 1: come to the conclusion that the risk is that we
Speaker 1: might begin to see growth slow down, and the FED
Speaker 1: will say, well, as long as inflation expectations are anchored, yes,
Speaker 1: actually inflation may be higher. But if inflation explctiations are anchored,
Speaker 1: they will be focusing on growth slowing down, and therefore
Speaker 1: the risks are that markets will be pricing in more
Speaker 1: cuts at the time. By the way, it looks like
Speaker 1: from stock markets that they are almost saying, well, the
Speaker 1: fit should be cutting many more times, whereas race markets
Speaker 1: are saying, no, no, we only need two more cuts.
Speaker 1: So there's almost an inconsistency between the messaging from stocks
Speaker 1: that are now in correction territory and race markets saying no, no,
Speaker 1: we only need two more cuts.
Speaker 2: In the news conference on March nineteenth, next Wednesday, how
Speaker 2: does Chairman Pound address those issues? What are you looking for?
Speaker 1: So I'm looking very much for how much he's focusing
Speaker 1: on the soft data slowing down. He did do that
Speaker 1: at the USMPF last Friday here in New York City,
Speaker 1: where he was in his prepared remarks saying, ah, everything
Speaker 1: is generally okay. But when he was sitting down with
Speaker 1: Andrew Cashev and asked questions. He was more saying, hey,
Speaker 1: something is going on that has some downside risks that
Speaker 1: we maybe should be putting more weight on. So I
Speaker 1: do think that he will begin to talk about, well,
Speaker 1: there's softness in the soft data, but maybe we're also
Speaker 1: worry about softness in the hot data.
Speaker 2: We have seen this incremental shift from the November meeting
Speaker 2: into December. We don't assume, we don't guess, we don't speculate.
Speaker 2: Then in December there was some assumption, some guessing, some speculation,
Speaker 2: and then I agree with you the recent address we
Speaker 2: had from Chairman Power, there was another subtle shift. Just
Speaker 2: started to tackle policy issues head on in a way
Speaker 2: he hadn't done in the previous few months.
Speaker 3: And on some level he kind of has to, because
Speaker 3: there is a sort of scenario analysis that has to
Speaker 3: come from the FED for them to even be relevant
Speaker 3: about how they're measuring some of these aspects. And that's
Speaker 3: probably why the statement of economic projections, which could be
Speaker 3: a darkboard, but it is sort of a messaging tool
Speaker 3: about how they're going to potentially respond to what is
Speaker 3: transpiring in policy and how it's transpiring and data even
Speaker 3: if it doesn't necessarily come to full pass.
Speaker 2: The difference now, I guess is we're actually getting the policy.
Speaker 2: They don't have to speculate about it anymore. But that
Speaker 2: policy comes with a lot of volatility and tours, and
Speaker 2: they've got to manage interest rates through the cycle. Maybe
Speaker 2: Chairman Power steps down in the next couple of years.
Speaker 2: I imagine he will. I don't know for sure, but
Speaker 2: I think we all think he will. I want to
Speaker 2: understand from that perspective. You sit there and you acknowledge
Speaker 2: the risks right now, but also you've got to think
Speaker 2: about tax cuts, the potential for looseid regulation further down
Speaker 2: the road. How do you manage through the cycle with
Speaker 2: that in mind.
Speaker 1: Well, that's why this did betabout is it policy dependent?
Speaker 1: Is it data dependent? Becomes really really important because of
Speaker 1: course the policy that's in place suggests that well so far,
Speaker 1: the two things that we have seen from the beginning
Speaker 1: is those which is putting the unemployment rate up, and
Speaker 1: also terrorists, which is putting inflation up. So if that's
Speaker 1: the case, they need to deal with that shock as
Speaker 1: the first thing. Even as you say, if there are
Speaker 1: other policies coming on deregulation, on lower taxes and potentially
Speaker 1: also more energy production.
Speaker 2: Toston Clinic has always got to say, sir. Looking ahead
Speaker 2: to next week March nineteenth for Federal Reserve next Wednesday
Speaker 2: for that meeting, including a news conference and forecast for
Speaker 2: the Chairman J. Powell tosson slock of Apollo