Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
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Speaker 1: Jim Glassman now JP Morgan Chase Commercial Banking head economist
Speaker 1: traditions to catch out with each Jim ahead of the
Speaker 1: payrolls reports, So your base case please for the numbers
Speaker 1: that drop in eleven minutes time. I was thinking back
Speaker 1: from the slim pickings in February unemployment study, and you
Speaker 1: know what, Actually, I think we're sort of in the
Speaker 1: middle of a transition. To your most people who want
Speaker 1: a job already working, so we're gonna be seeing hiring
Speaker 1: slowing down. And that's why I think the most useful
Speaker 1: information is going to be from the weekly jobless claims
Speaker 1: that tells you something about layoffs and the trend in
Speaker 1: the unemployment rate. I think we're at cruising altitude and
Speaker 1: I think we're going to see job growth slow down,
Speaker 1: but everything sort of hold up pretty well. I'm really
Speaker 1: intrigued by the trend and jobless claims because we've had
Speaker 1: a lot of noises winter layoffs did pick up a
Speaker 1: little bit earlier this year, and now they're right back
Speaker 1: down to extremely low levels in every single state. So, Jim,
Speaker 1: the story you tell, the story you tell makes a
Speaker 1: lot of sense, made a lot of sense last year
Speaker 1: the year before as well. Why is it different this time?
Speaker 1: Why will payrolls finally start to de sounded right a
Speaker 1: little bit? Well, I'll tell you what. You know? What
Speaker 1: what what we look at the numbers for the last
Speaker 1: couple of years. What you know is that there still
Speaker 1: are these pockets of hidden unemployment. But what was really
Speaker 1: intriguing last month, even though we were all sort of
Speaker 1: taken aback by the payroll numbers, the household surveys telling
Speaker 1: you that the number of people who are having to
Speaker 1: work part time involuntarily has backed down to normal and
Speaker 1: the number of young adults who sort of dropped out,
Speaker 1: the participation of folks is getting is really moving back
Speaker 1: to where we were in two thousand seven. So this idea,
Speaker 1: I think, what we it's it's hard to know how
Speaker 1: long it's going to take to pull out people who
Speaker 1: were in these hidden pockets of unemployment. But I think
Speaker 1: now you could say we're much closer to where we
Speaker 1: need to be than we've been in the last couple
Speaker 1: of years. So I don't know when this is going
Speaker 1: to happen, but I would I would be shocked if
Speaker 1: we don't see payroll is slowing down at least by summer. So, Jim,
Speaker 1: there seems to be a d emphasis this time around
Speaker 1: on the wage growth, with the idea that the FED
Speaker 1: will be more tolerant of wages accelerating without having to
Speaker 1: raise rates. Do you think that that's true? Yeah, I
Speaker 1: think it's bigger stories than that. Actually, I mean, I
Speaker 1: think I think they're learning that just because wages are
Speaker 1: doing better doesn't mean that translates into inflation. Uh, businesses
Speaker 1: are very profitable, so there's no real pressure on businesses
Speaker 1: to be ramping a prices. In effect, the inflation news
Speaker 1: have been very tame. I think what's making the FED
Speaker 1: more patients is they believe that inflation is very cyclical.
Speaker 1: They know that it tends to go on the high
Speaker 1: side when the economy strong, and then fall off in recession.
Speaker 1: I think they're trying to take a longer view about
Speaker 1: inflation and try to target the average level of inflation
Speaker 1: rather than at any moment in time. So I think
Speaker 1: that's a that's a new idea to me, that's a
Speaker 1: really innovative idea. That we'll hear more about the summer
Speaker 1: in their conference, and I think it just makes them
Speaker 1: more patient. That must be one of the reasons why
Speaker 1: they're willing to sort of sit back and watch how
Speaker 1: things play out. That said, for corporate profits, certainly higher
Speaker 1: wages means lower margins and that could potentially weigh on
Speaker 1: equity valuations. Do you expect us to start to see
Speaker 1: a greater degree of wage inflation in this report and
Speaker 1: going forward? You know, we're already seeing a pickup. I
Speaker 1: think it's just returned to normal three and a half
Speaker 1: percent three or three and a half percent wage growth.
Speaker 1: In my book, there is normal diff inflation is running
Speaker 1: two percent um. I don't think there's no sign yet
Speaker 1: that this is putting pressure on wages, and I think
Speaker 1: we're living in a different era. Frankly, I don't think
Speaker 1: business is are going to be forced to raise wages
Speaker 1: to the point where they become less competitive. I think
Speaker 1: they're constrained also by the competitive markets they're living in.
Speaker 1: So I think it's going to work a little differently
Speaker 1: than what we all grew up with, that that it's
Speaker 1: not wages aren't going to be driving inflation. It's going
Speaker 1: to be more of the strength of global demand and
Speaker 1: technology and things like that that are going on that
Speaker 1: are constraining inflation. We still haven't really got our hands
Speaker 1: around why inflation has become so muted when the economy
Speaker 1: is doing so well. Jim, it's really hot to reconcile,
Speaker 1: really hot to reconcile the conversation we're having right now
Speaker 1: about the strength of the labor market with some of
Speaker 1: the forecasts for a recession, as some of those recession
Speaker 1: calls are quite near term as well, reconcile those two
Speaker 1: things for me if you can, Jim, can you at home? Yeah? No,
Speaker 1: I don't think you can reconcile them. I think I
Speaker 1: think what you're hearing um when you have when you
Speaker 1: listen to people talk about recession, they can't tell you
Speaker 1: what's going on right now that might be a red
Speaker 1: makes them think this. What they really refer two is
Speaker 1: that you should look at our history books. What people
Speaker 1: have noticed is that when we get back to full employment,
Speaker 1: we just never stayed there more than a year or two. Jimmy,
Speaker 1: that's the sole reason why this conversation is coming up.
Speaker 1: And frankly, I mean, you've got to respect history. But frankly,
Speaker 1: I don't think there's anything that any of us economists
Speaker 1: see on the inflation side or on the financial balances
Speaker 1: that should make us be talking about recession. It's really
Speaker 1: just based on this history that somehow, for some reason,
Speaker 1: we just never seem to stay at full employment. I
Speaker 1: think that's a pretty weak argument myself, and I look
Speaker 1: around the economy. I think we're all struggling to understand
Speaker 1: tame inflation, and the financial system seems very balanced, the
Speaker 1: banking system is very strong. Um, I don't think there's
Speaker 1: anything that you can really point to that tells you
Speaker 1: this is really kind of unprecedent. This has the potential
Speaker 1: to cause a recession. So I think we're I think
Speaker 1: people are slowly beginning to ignore this conversation. Jim Glassman,
Speaker 1: JP Morgan Shase, Commercial Banking Head Economists. We can catch
Speaker 1: up with Mike Zanta now mkmpan as chief economist and
Speaker 1: macro strategist. You've had a couple of minutes, Mike to
Speaker 1: have a look at the data. Your first rate place. Yes, absolutely, John,
Speaker 1: So you know it's a decent number, but as Jim said,
Speaker 1: bounce back from the prior month, which was a big disappointment.
Speaker 1: What I like to do here is to take a
Speaker 1: three month moving average because as you know, the standard
Speaker 1: deviation in these monthly figures is too big to dry
Speaker 1: sweeping conclusions from. And if we do that, we still
Speaker 1: see about a hundred and eighty thousands. So that's good.
Speaker 1: You know, that does suggest some cooling, but that's what
Speaker 1: the Fed intended, right. They didn't raise rates and reduce
Speaker 1: the balance sheet for most of the last two years
Speaker 1: to boost the economy. They're trying to restrain it. If
Speaker 1: they have the restraint they want, then you know, no
Speaker 1: more FED rate hikes and and we can debate you know,
Speaker 1: potential easing. But you know, I think this is this
Speaker 1: is right in line with an economy moving to trend. So, Mike,
Speaker 1: every analyst that we spoke to ahead of this number,
Speaker 1: so that it's all about the participation rate, it's all
Speaker 1: about the headline jobless number. I would argue that the
Speaker 1: market reaction shows that's not the case. That actually still
Speaker 1: it's about the wage growth, which was disappointing. The headline
Speaker 1: number beat the actual wage growth disappointed, and you've got
Speaker 1: a bid for bonds. Right, So yeah, that's a good point. Um.
Speaker 1: You know, the wage growth number coming in a little
Speaker 1: cool with a with a pretty strong headline figure tells you,
Speaker 1: I mean, that's about as good as it gets for
Speaker 1: the market, right, because job growth is strong, so we're
Speaker 1: still going to have income generation. Yet you know, you
Speaker 1: don't have this light flashing red on the inflationary pressure. Right.
Speaker 1: If the wages are still modest or you know, still
Speaker 1: in line with the underlying productivity growth rate and the
Speaker 1: FEDS inflation target, then it doesn't look like there's any
Speaker 1: really any evidence of overheating. And so this is what
Speaker 1: the market on solid job growth but you know, no
Speaker 1: evidence of an inflationary problem. So this is a goldilocks report.
Speaker 1: Now it's a goldilocks report. Do we have any sense
Speaker 1: of the participation rate and who is coming back into
Speaker 1: the market at this point because we were speaking earlier
Speaker 1: with Jim Glassman and he was saying most of the
Speaker 1: people who wanted a job and who are employable already
Speaker 1: are employed. So this is on the peripectly, this is
Speaker 1: sort of raises some questions about who's left and what
Speaker 1: it's taking to bring them back in what's your sense, right, Well,
Speaker 1: what's interesting to me is that the prime age participation
Speaker 1: rate people twenty five to fifty four has been moving up.
Speaker 1: So if we just look at the overall level of unemployment,
Speaker 1: it's essentially been flat for a year really right around
Speaker 1: you know, we were right at these levels three eight
Speaker 1: percent last May, and so job growth is stronger than
Speaker 1: what you'd get from working age population growth. Then that's
Speaker 1: been fulfilled by a rising prime age participation and rate,
Speaker 1: which is really good news. And these are folks that
Speaker 1: were not counted because they had not been in the
Speaker 1: you know, count it as in the labor force. So
Speaker 1: in the feeling has been that either through disability or
Speaker 1: opioid addiction, um, you know, that they weren't going to
Speaker 1: be able to come back. But they're coming back, and
Speaker 1: that's that's a good story. One big question that I've
Speaker 1: bandied around with a number of people is how does
Speaker 1: this job's number account for people working multiple jobs? Well,
Speaker 1: you know there are some statistics on that. Um, you know,
Speaker 1: I think I did it write up a while ago.
Speaker 1: I can send you guys but you know, there's been
Speaker 1: this focus on the so called gig economy, that's where
Speaker 1: it was going to work. But yeah, it's not. It's
Speaker 1: interesting because it's something that you know, we see every
Speaker 1: day when we use uber and so on and so forth,
Speaker 1: but it's not really in the statistics. You know, at
Speaker 1: least people working part time for economic reasons. That number
Speaker 1: has been essentially plunging ever since the labor market recovery started.
Speaker 1: So could be one of those situations where what seems obvious,
Speaker 1: you know, maybe within the context of a you know,
Speaker 1: the quite large labor market really just isn't as significant
Speaker 1: as it seems. So I want to go back to
Speaker 1: wages for a second and sort of what it says
Speaker 1: that we're not seeing inflation accelerate even to the degree
Speaker 1: that many people were expecting, which still wasn't that much,
Speaker 1: Philip Scarf dead, is that basically the big takeaway again
Speaker 1: and again that we're beating over the head with every
Speaker 1: single job support since the financial crisis. Yeah, it's really
Speaker 1: for the Fed, you know, that's sort of their base
Speaker 1: model of inflation, and it's certainly been a moving target,
Speaker 1: right they seem to just adjust there, you know, their
Speaker 1: estimate for the sustainable unemployment rate down this based on
Speaker 1: what's been happening with you know, very little inflation pressure.
Speaker 1: So it's a it's a problematic model, um, you know.
Speaker 1: And we also have this issue. We just were talking
Speaker 1: about prime age participation moving up, and so you know,
Speaker 1: if you're looking at it just too narrow of measure
Speaker 1: of labor market slack, then you can, you know, you
Speaker 1: can also come to the wrong conclusion about spare capacity,
Speaker 1: even within the context of the Phillips curve model. So
Speaker 1: for example, the prime age employment to population ratio is
Speaker 1: just finally just finally getting back to the you know,
Speaker 1: the two decade pre crisis median level. But we're still
Speaker 1: you know, unless i'm you know, I haven't been able
Speaker 1: to appraise all the numbers so far today. But you know,
Speaker 1: at least recently, we were not back to the high
Speaker 1: scene um during the last cycle, are certainly the cycle
Speaker 1: before it. So if there's a bit more slack out
Speaker 1: there than what most people believe just looking at the
Speaker 1: unemployment rate, then that could be one reason that the
Speaker 1: so called Phillips curve isn't isn't working. Another reason is
Speaker 1: that it just might not be a very good model
Speaker 1: of the inflation process. So so yeah, we don't have
Speaker 1: we don't have much inflationary pressure to to write home about.
Speaker 1: It's one of the reasons the FED paused right the
Speaker 1: last press FED press conference, Paul Powell was talking about
Speaker 1: the idea that you don't want a situation where inflation
Speaker 1: and expectations permanently ratch lower. And so there's just this
Speaker 1: ongoing expectation that the FED you know, continues to undershoot
Speaker 1: or fail on its inflation goal. Yeah, just want'll take
Speaker 1: a look at markets. The TAO in particular, is extending
Speaker 1: gains following this report. Green across the screen on the
Speaker 1: equity side, on the bond side, also a bit of
Speaker 1: a bid. Just real quick up, Mike Darta of mk
Speaker 1: M Partners. Is bad news good news? Or is tupid
Speaker 1: news good news? Again? You know, I think it's a
Speaker 1: situation where, you know, the Goldilock scenario is good news, right.
Speaker 1: I mean, I don't think risk markets are going to
Speaker 1: like the idea of a potential recession and the business cycle.
Speaker 1: We saw that obviously play out late last year. At
Speaker 1: the same time, you know, the data is so strong
Speaker 1: that it's going to be pushing the fed into continual tightening,
Speaker 1: and then we have to worry about the FED over
Speaker 1: doing it. That may not be so good for risk
Speaker 1: markets either. This is about perfect right, and the yield,
Speaker 1: the yield curve is sort of disinverted on its own
Speaker 1: and defends just sitting there watching the data, and you know,
Speaker 1: the data is in line with the modest growth economy
Speaker 1: with not a lot of inflationary pressure. It's about as
Speaker 1: good as it gets for equity markets, about as good
Speaker 1: as it gets. Michael darda chief economist, who market strategist
Speaker 1: and partner at m k M Partners, for the Trump
Speaker 1: Administration's views on the job report now in very place
Speaker 1: to say. We joined on Bloomberg CV and on radio
Speaker 1: by Larry Cudlow, National Economic Council Director. Larry always great
Speaker 1: to catch up with your body. Let's just talk about
Speaker 1: the payrolls report to begin with. It looks solid, it
Speaker 1: looks like a bounce back. You first read, yeah, it's
Speaker 1: a good number. It's a very good number. One plus
Speaker 1: when you put the revisions and you get up to
Speaker 1: two hundred eleven. I like that number a lot. I
Speaker 1: think the wages are still well above three hours worked,
Speaker 1: are rising and you know. Even away from that, I
Speaker 1: just want to note it's been a tough you know,
Speaker 1: between government shutdowns and lousy winter seasonal adjustments. But it
Speaker 1: looks like the economy is really coming back now and
Speaker 1: we'll be better than two P and Q one at
Speaker 1: least that's our hope, and then I think you'll get
Speaker 1: back towards three percent for the rest of the year.
Speaker 1: What's interesting here, last point on these numbers. This is
Speaker 1: very similar to what happened last year. You had a
Speaker 1: week first quarter. We've had week first quarters. I don't know,
Speaker 1: bad seasons three years, but then the economy snap back.
Speaker 1: We've got three percent growth. It's a repeat and I
Speaker 1: like it very much. And I think President's Trump's rebuilding
Speaker 1: of the economy from the supply side with tax cuts
Speaker 1: and deregulation and trade reform. I think we're still very
Speaker 1: much in place. Labor market looks solid, lottery. That's your view,
Speaker 1: you expect to see three percent GDP growth. Some people
Speaker 1: do share that very optimistic view. This is what I
Speaker 1: struggle with. How do you reconcile that very very constructive
Speaker 1: assessment of the US economy with coals for the FETE
Speaker 1: to cut rates Larry, how do those two things work well?
Speaker 1: I think the issue on that is a precautionary issue.
Speaker 1: A couple of points here quickly. Number one, we are
Speaker 1: facing a worldwide slowdown, you know, recession. Arguably, I don't
Speaker 1: want to make that call, but Europe is not doing well.
Speaker 1: Germany itself may be in recession. That troubles us. Okay,
Speaker 1: that's point number one. Point number two, There is no inflation.
Speaker 1: There is no inflation. I mean we're talking about maybe
Speaker 1: one and a half percent max. And productivity rising at
Speaker 1: one point eight percent last year. So wages are rising
Speaker 1: at whatever three point two percent that's being covered by
Speaker 1: productivity without inflation. Why raise interest rates? And look, we
Speaker 1: just don't want any threats to this rebuilding, reviving, growing
Speaker 1: economy and um looking at the yield curve and other
Speaker 1: market based measures. I think on their time, the fet
Speaker 1: is independent. Not emphasize that if that is independent, but
Speaker 1: the President has said and I concur that I think
Speaker 1: that we could do at some point with some reductions
Speaker 1: in the FEDS target rate letry. The Federal Reserve is
Speaker 1: operationally independent. That's a matter of fact. You're allowed, by
Speaker 1: a matter of process to nominate who you like to
Speaker 1: the Federal Reserve. Your administration will do it. Previous administrations
Speaker 1: have done it as well. No issue with that whatsoever.
Speaker 1: But when you call for rate cuts, can you see
Speaker 1: how that puts the Federal Reserve between a rock and
Speaker 1: hard place. Well, I don't know. You know, it's a
Speaker 1: free country. President has a lot of well informed opinions.
Speaker 1: As a successful businessman and investor, I've been covering this
Speaker 1: bid for a long time. We're not pressuring, We're not
Speaker 1: going after their independence. We have our point of view.
Speaker 1: I think a lot of people, by the way, the
Speaker 1: markets have a point of view. The markets, as you
Speaker 1: probably know better than I do, have actually been starting
Speaker 1: to price in a federal funds rate reduction. So that's
Speaker 1: all it is. We're all entitled to our opinions nowadays.
Speaker 1: It's a great country. The larry where your opinion becomes original,
Speaker 1: and it is original, is because the rate market is
Speaker 1: predicting a forecasting price in a rate cut, because it's
Speaker 1: simultaneously forecasting the rapid deceleration in US growths. Most of
Speaker 1: the people that I find that agree with you that
Speaker 1: the Federal Reserve is gonna cut twice in the next year,
Speaker 1: they're also forecasting much much like a GDP growth in
Speaker 1: your three percent. That's where it becomes original. And I
Speaker 1: think the optics really really matter here. When I ask
Speaker 1: guests from the street whether they think the perception, not
Speaker 1: your intent, the perception the optics of federal reserve independence,
Speaker 1: whether that is being compromised, the answer I keep getting
Speaker 1: is yes, Larry, we're treading to fine line here. Well, look,
Speaker 1: I respect people may disagree with this, but let me
Speaker 1: make this point. Let's go to a broader measure, not
Speaker 1: real GDP, but nominal GDP, which is related to monetary policy.
Speaker 1: So nominal GDP is real output plus inflation. I think
Speaker 1: overall nominal will slow, but the slowing is not gonna
Speaker 1: be in real It's not gonna be output. It's not
Speaker 1: gonna be business investment or jobs. The slowing in that
Speaker 1: measure is from lower inflation. And I think that's a
Speaker 1: big surprise, and I think that's something everybody has to consider.
Speaker 1: So I as I look at the Eel curve and
Speaker 1: I look at other measures of the dollar and Golden
Speaker 1: commodity index, is what I'm seeing, you know, take the
Speaker 1: tip spreads. I'm seeing a reduction in the expected rate
Speaker 1: of inflation, and I'm seeing a reduction in the actual
Speaker 1: rate of inflation. It's disinflation, if you will. And therefore,
Speaker 1: I think in that sense, we have room to lower
Speaker 1: the FED target rate at their you know, on their speed,
Speaker 1: on their dime. I'm not pressuring and going up against
Speaker 1: the independence. I just think, you know, let's go back.
Speaker 1: I'm not exactly going to break news here, but a
Speaker 1: long held Cuddlow view. More people working and prospering is
Speaker 1: not inflationary. And in this particular business cycle which we
Speaker 1: have started as president rebuilds the economy, this is supply
Speaker 1: side expansion. These are lower tax rates and regulations right,
Speaker 1: better after tax returns for investment and hence productivity and
Speaker 1: hence labor force growth. So you see what I'm saying.
Speaker 1: We're pushing the supply curve out that actually lowers inflation,
Speaker 1: and I think the authorities have to keep that in
Speaker 1: mind as they go about their business to set interest
Speaker 1: rates and the balance sheet. I want to raise that point.
Speaker 1: Uh be great. I think to freeze the balance sheet
Speaker 1: and then stop the reduction of the balance sheet. What's
Speaker 1: the appropriate science of the balance sheet, Larry H. I
Speaker 1: don't know, and you know, that's a very difficult question.
Speaker 1: I don't know what I suspect though, is we don't
Speaker 1: want measures that will restrain the economy or financial market conditions. Okay,
Speaker 1: we don't want that, so I would tread very cautiously.
Speaker 1: And I think in this new environment, with the supply
Speaker 1: side growth take off and rebuilding an economy, I think
Speaker 1: some people have to rethink some of their assumptions. And
Speaker 1: by the way, by the way, I'm not sure the
Speaker 1: FED really has much of a disagreement with the sorts
Speaker 1: of things I'm talking about. I think we're reaching common
Speaker 1: ground here, Larry. I agree with you. I mean, I've
Speaker 1: got rid of a blank rock next to me who
Speaker 1: also thinks that wage growth won't lead to consumer price pressures.
Speaker 1: I don't think what you're saying is outlandish, but I
Speaker 1: think your assessment of Federals serve policy is a little
Speaker 1: bit difficult. The FED funds rate on a real basis
Speaker 1: is barely positive. Most people will conclude that this isn't
Speaker 1: time monetary policy at the moment, and people are trying
Speaker 1: to figure out the message that you're trying to send
Speaker 1: to the f O m C. If you nominate people
Speaker 1: like Steve and more and Herman Kaine, what is the
Speaker 1: message you're sending to the FED if you follow through
Speaker 1: on those nominations. Well, look, these are very capable of people,
Speaker 1: and I think what you have here is a philosophy
Speaker 1: that strong growth is not inflationary, especially when it comes
Speaker 1: from the supply side of the economy, which is where
Speaker 1: it's coming from, you know, as you look at the
Speaker 1: jobs and the hours work and the business investment. So
Speaker 1: these are people that would like a steady dollar and
Speaker 1: they don't believe that growth causes inflation, and therefore they
Speaker 1: will reflect those views to balance perhaps some of the
Speaker 1: other views on the Federal Reserved. Again, I want to
Speaker 1: indicate that I don't think the FED right now today
Speaker 1: is very far away from these points of you. Yeah.
Speaker 1: I mean, I've watched the chairman speak, I've watched the
Speaker 1: vice chairman, Richard Claren to speak. Uh, I'm not sure
Speaker 1: we have a big disagreement here. Maybe one of timing.
Speaker 1: I don't know. I don't want to get into that
Speaker 1: because the FAT is independent. But for heaven's sakes, strong
Speaker 1: growth is not inflationary. More people working can't be inflationary.
Speaker 1: And that's a point of view that I've held for
Speaker 1: three or four decades, as you probably know, and watch
Speaker 1: the market indicators, and I think that's what those two
Speaker 1: candidates that haven't been vetted yet, but those two candidates
Speaker 1: believe that, and I think that's a good balance to
Speaker 1: the fete. So Larry, you and I can have a
Speaker 1: back and forth on this in the future. Now, you
Speaker 1: want a little bit of time to talk about the
Speaker 1: trade story, and I want to provide that for you.
Speaker 1: It's felt like the end game for a while. Now
Speaker 1: we have this March first self and post deadline, it's
Speaker 1: come and gone. Just exactly what have the Chinese done
Speaker 1: to secure the extra time from the United States. What
Speaker 1: are the concessions that you've secured? You know? Uh, point
Speaker 1: of fact, we never had a deadline. Just want to
Speaker 1: make that point, We never had a deadline. What we
Speaker 1: need This came out yesterday in the Oval Office and
Speaker 1: it's been well reported. We need a great trade deal
Speaker 1: for the United States, one which hopefully works for China.
Speaker 1: We need a great trade deal. And then when we
Speaker 1: get that deal, and we've come a long way, as
Speaker 1: President characterized yesterday, the talks this week which are still
Speaker 1: going on, they're still talking this morning. By the way,
Speaker 1: these are productive talks. These are talks that are you know,
Speaker 1: moving the ball in the right direction. We're making hay
Speaker 1: on this. President also indicated correctly that we have been
Speaker 1: satisfied on a number of issues. We've come further than
Speaker 1: we thought we would get and um I salute my
Speaker 1: Chinese counterparts as well for doing this. So we're moving
Speaker 1: towards it. We're not done yet. We have some issues
Speaker 1: to get through. It's not so much timing, it's making
Speaker 1: a good deal. That's the key point. Well, let's talk
Speaker 1: about the sticking points, the fight of the existing tariffs
Speaker 1: and the enforcement mechanism. You said we might progress have
Speaker 1: we might progress on those. Choose and define how, Larry,
Speaker 1: if you can. I don't want to get into specifics.
Speaker 1: It's not my role right now, particularly because the negotiations
Speaker 1: are ongoing, but I will just say this is the
Speaker 1: broadest deepest discussions in US Chinese trade relations history. Uh.
Speaker 1: Somebody said in the meeting yesterday is it's a forty
Speaker 1: year history. We have never come this far, We've never
Speaker 1: done that much. We've never had these conversations before. That
Speaker 1: is a very good thing. Now we are making headway
Speaker 1: in a lot of areas, and you know that includes
Speaker 1: enforcement that includes I P theft, that includes force, technology, transfers, ownership, cyberspace, commodities,
Speaker 1: and all the rest of it. I'm not here to
Speaker 1: provide details. Uh, those are of course in the middle
Speaker 1: of the negotiations that are ongoing. But we've come further
Speaker 1: and farther than ever before. It's the point the President made.
Speaker 1: I think it's a very important point. The talks around coming, Larry,
Speaker 1: are they coming through the weekend? I don't think so.
Speaker 1: I've not heard that. Just let me say I have
Speaker 1: not heard that. But in any case, I mean I
Speaker 1: think Mr Vice premierly you Hey has to get back
Speaker 1: to Beijing. Uh, you can expect is the next step
Speaker 1: after today's talks are completed, and you know, it's quite
Speaker 1: possible we'll make even additional headway today. As regarding next
Speaker 1: week the principles, the top level on both teams will
Speaker 1: be in touch through teleconferencing and the professional staff will
Speaker 1: be hard at it. There's no let up here. This
Speaker 1: is an ongoing process. So letty just as a final question,
Speaker 1: there will be some people confused watching this because they
Speaker 1: thought there was a March first deadline that was somewhat
Speaker 1: self imposed. Then was what pushed aside looking forward expectations
Speaker 1: for me? When is it realistic that these talks conclude
Speaker 1: that the two leaders President Trump, President She sit around
Speaker 1: the table together and sign a deal. I've tried to
Speaker 1: tell your folks that everybody else. We never had a deadline.
Speaker 1: You can't cancel a meeting that wasn't scheduled. But look um,
Speaker 1: the prospects for deal are good, and President said that
Speaker 1: yesterdays Premierly o Hey said the same thing. That's terribly
Speaker 1: terry employing. The trick here is to get a good
Speaker 1: US China trade deal that covers the key areas and
Speaker 1: that is enforceable. That is a trick once we get
Speaker 1: If we get I should say, if we get a
Speaker 1: good President characterizes as a great trade deal, then the
Speaker 1: two leaders will hold some kind of summit and to
Speaker 1: sign it. But the key point is the substance, and
Speaker 1: we're working on the substance and we're getting closer. We're
Speaker 1: making headway. It's very productive. I don't know have many
Speaker 1: ways to say that. It's never been timetable driven. And
Speaker 1: we wish you the best of a lot, Larry. We
Speaker 1: will take you thank you very much joining us now
Speaker 1: to talk a little bit about the jobs numbers as
Speaker 1: well as what we just heard from the White House's
Speaker 1: Chief Economic council is Tiffany Wilding of PIMCO. Tiffany Wilding,
Speaker 1: chief US economist. What was your take if you were
Speaker 1: listening in on the Cudlow interview from what he said,
Speaker 1: was there anything that really stood out to you? Yeah? Well,
Speaker 1: thanks for having me. You know, so, I think that
Speaker 1: I think it's a policy debate right now. Is with
Speaker 1: respect of monetary policy as well as fiscal is really
Speaker 1: the extent to which you know, running the economy a
Speaker 1: little bit hot can engender some of the sort of
Speaker 1: supply side repair and improvement after we saw you know,
Speaker 1: you know, incredible damage after the two tho eight financial crisis.
Speaker 1: You know, when I think if you kind of look
Speaker 1: at the economy and kind of survey the different areas
Speaker 1: where we've seen the most uh, sort of supply improvement
Speaker 1: from from running things a little bit hot, as on
Speaker 1: a labor market side. Um so, we've seen continued improvements
Speaker 1: in participation rates, in particular for prime age people, prime
Speaker 1: age women. Participation rates have increased, you know, quite notably
Speaker 1: and I think there's been even you know, an encouraging
Speaker 1: you know, uplift in in prime age mail participation, and
Speaker 1: that's after some what look to be secular declines, you know.
Speaker 1: So I think that that you know, that's that's obviously
Speaker 1: very encouraging for the you know, the longer run growth prospects.
Speaker 1: But if you look at you know, the other sectors
Speaker 1: of the economy, productivity and productive capacity, I think maybe
Speaker 1: there's a little bit of less evidence. You know. Now
Speaker 1: it's kind of the I think early stages, and we
Speaker 1: need to continue to watch this. It will happen over time. Um.
Speaker 1: But one thing to watch I think is UM is
Speaker 1: the I t UH in tech related investment R and
Speaker 1: D in the past that's tended to lead gains in
Speaker 1: productivity sort of increases in trend productivity. So that's something
Speaker 1: that certainly will be watching. And then the one last
Speaker 1: point that I would just want to make is, you know,
Speaker 1: the FED. You know, I think I agree that inflation
Speaker 1: pressures are our our modest um and that allows the
Speaker 1: FED to be patient and sort of potentially allow these
Speaker 1: um improvements to run, you know, but you also the
Speaker 1: FED also have to weigh this against financial stability risks, um.
Speaker 1: And you know, while we would also say that financial
Speaker 1: stability risks are low, you know, this is something that
Speaker 1: you know, we also have to monitor in the context
Speaker 1: of lower rates and easier financial conditions. So, Tiffany, the
Speaker 1: FED affears to be quite comfortable sitting on the sidelines.
Speaker 1: And I think what we just heard from Larry Cutlow
Speaker 1: speaking with John Farrow is that the administration is comfortable
Speaker 1: with the FED on the sidelines, if not maybe even
Speaker 1: cutting rates. Um. Was there anything the jobs report today
Speaker 1: that is likely to change that outlook in your opinion? Um? No,
Speaker 1: I I didn't think so. I mean, I thought the
Speaker 1: report overall was was, you know, relatively in line with
Speaker 1: kind of our expectations least underlying details and the sense
Speaker 1: that you know, we are looking for some deceleration in
Speaker 1: growth over the next year. You know, our forecast is
Speaker 1: is two percent in an end of twenty nineteen. So
Speaker 1: that's a deceleration and that's really being led to some
Speaker 1: extent by by the good sector of the US economy
Speaker 1: and manufacturing, which is you know, has important links to
Speaker 1: the global economy, which is slowing. So there's some spillover
Speaker 1: effects that will have an impact there. And similarly, we're
Speaker 1: seeing some slowing in the jobs in the jobs data
Speaker 1: on the manufacturing and good side. Um, you know, so
Speaker 1: that that sort of slowing was in line with our expectations.
Speaker 1: But you know, on the other hand, you know, obviously
Speaker 1: we've seen you know, wage we've seen some wage acceleration,
Speaker 1: but it's largely following productivity gains. So we don't think
Speaker 1: that that passes through to a large extent to really
Speaker 1: accelerate consumer price inflation. You know, So this idea that
Speaker 1: the Fed can remain on hold for a prolonged period
Speaker 1: of time, you know, I don't I don't think really
Speaker 1: changed given today's report. One thing that I'm really struck by,
Speaker 1: and I feel like, perhaps is the unspoken headline of
Speaker 1: this whole thing, is that this report comes out better
Speaker 1: than expected. Headline number. Sure, wage growth is tepid. The
Speaker 1: chance being priced into the market of a rate cut
Speaker 1: starting at the beginning of next year by the Federal
Speaker 1: Reserve has increased since this report, even though people are
Speaker 1: saying that it indicates it's uh pretty good strength in
Speaker 1: the US labor market. Economists are saying that bond traders
Speaker 1: are too pessimistic, but bond traders have gotten it right
Speaker 1: and economists have gotten it wrong more frequently. So what
Speaker 1: is it that analysts are seeing right now that gives
Speaker 1: them confidence that we're not going to see a downturn
Speaker 1: and that it's premature to price in a FED rate cut? Um? Well,
Speaker 1: so I think that what's in terms of premature to
Speaker 1: price a rate cut? Um? You know. I think I
Speaker 1: think one of the things is that traditionally when we
Speaker 1: see rate cuts is it's usually because you see a
Speaker 1: more pronounced downturn in the US economy, you know. And
Speaker 1: although we think growth will decelerate next year, you know,
Speaker 1: we we don't think that the probability of recession at
Speaker 1: least over the next year or so, um, you know,
Speaker 1: is materially high enough to build it into our kind
Speaker 1: of basic case outlook. Of course, it's always a risk, um.
Speaker 1: But but so I think that, you know, and the
Speaker 1: reason why we don't think that recession is is you know,
Speaker 1: appropriate for the base case outlook, is because you still have,
Speaker 1: as others have said, the um the household sector is
Speaker 1: is still pretty strong. You never really saw the leveraging
Speaker 1: up in the household sector after the financial crisis, you know,
Speaker 1: which can cause those deleveraging effects to really weigh on
Speaker 1: growth and push the economy into a recession, you know.
Speaker 1: On the other on the other side of that as well,
Speaker 1: the banking sectors is much more more robust. So if
Speaker 1: we do get you know, some additional slowing in global
Speaker 1: growth that does spill over into the US market, we
Speaker 1: think that would be relatively contained because the banks just
Speaker 1: aren't going to be the type of contagion agent um
Speaker 1: that that they were, you know, in the last financial crisis.
Speaker 1: So those things make us pretty you know, still make
Speaker 1: us pretty confident on the growth outlook for the US.
Speaker 1: So just following up on that a little bit, Tiffany,
Speaker 1: how concerned are you that the weak growth coming out
Speaker 1: of the European Union and a slowing Chinese economy albeit
Speaker 1: still growing, you know, mid single digits admittedly, how much
Speaker 1: are you concerned that could weigh on the US economy
Speaker 1: maybe in the back half of this year into next year. Yeah,
Speaker 1: I mean, so we think that's ultimately going to be
Speaker 1: a headwind for for the U S economy. I think
Speaker 1: it's starting to be so, you know, in an export
Speaker 1: growth to the to China, uh and and to to Europe,
Speaker 1: we started to see that decelerate. In addition, there tends
Speaker 1: to be UM, you know, a relationship between ups and
Speaker 1: downs in US investment activity with the sort of ups
Speaker 1: and downs in Chinese growth UM, and that relationship, you know,
Speaker 1: that kind of happens with the lags. So you see
Speaker 1: those spillover effects of deceleration in China in particular. UM.
Speaker 1: You see that I think starting to happen now with
Speaker 1: some deceleration and equipment investment, heavy equipment investment and things
Speaker 1: like that in the US. And I think that continues
Speaker 1: throughout the better part of this year, you know. And
Speaker 1: I think the questions we've seen more recent stabilization or
Speaker 1: policies from from the Chinese government to stabilize their own
Speaker 1: economy fiscal as well as some credit easing policies, UM.
Speaker 1: You know, and I think the question of you know,
Speaker 1: does that take hold kind of in the latter part
Speaker 1: of that this year, you know, and does that sort
Speaker 1: of help support the global economy? You know, No, we don't.
Speaker 1: We don't think that you get another synchronized recovery like
Speaker 1: you do Inen. But you know, by the end of
Speaker 1: this year, you know, those sort of headwinds we think
Speaker 1: will fade. Tiffany Wilding, thank you so much for spending
Speaker 1: the time with us on this Job's Day Friday. Tiffany
Speaker 1: Wilding is US economist for PIMCO, joining us from California,
Speaker 1: and it really interesting to me to see just how
Speaker 1: much of this report is being digested as goldilocks. As
Speaker 1: many people have said, Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
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