Economy Appears to Have At Least 6 More Solid Months: Goldstein

help us understand the details is Ken Goldstein. He is the economist with the Conference Board, and he joins us here in our eleven three oh studios. Ken, always a pleasure, Thanks for being here. Not only do we have the information for December, but we have a number of revisions, and I'm wondering if you could just lay out the situation for us. Well, I look the revisions and the re benchmarking. It's so data cleaning, um, and we didn't

find out very much that we didn't already know. What is interesting I think is that not just this month, but the last three months, we've seen this pickup in the I S M index for new orders. If you like, that's kind of an intention to new order. So even though the ordering rate itself hasn't picked up, uh, that sort of last you know, leg over the fence, if

you like, looks like it might be improving. So not only is the economy continuing to move along with the signal that this is going to continue into the spring, but maybe with a little bit more kick, if indeed new orders are going to start to give us more strength. So ken we know that manufacturing is doing well, we know that the stock market is doing well, we know that credit markets are really robust. Um, I'm looking at these indications. The one thing that we don't know is

why people aren't getting paid more. And I noticed that the one decline in the indicators was for average weekly hours. Yeah, that's that's just a bounce. I don't know that there's any trend there, but certainly the lack of more pickup in wages and therefore more pick up inflation has indeed been one of the one of the strange things, one of the unanswered questions, not just this month, but really for the last two years. We keep saying it's going

to come. The labor market keeps getting tighter. Um, the question is when, and indeed when it does come how much, And that's tied two decisions about how much interstrates will pick up. Noticed not just that the indicators are also up, but that long term interest rates both US and now Germany are also starting to pick up. That's another sign of optimism, not just for the US, but we did across the globe can tell us about a commercial and

industrial loans. I was looking at those results, well, you know, the combination and again coming back to what we're just talking about. You know, where's the inflation here? And yet profits are still good, loan demand has started to pick up. It's like it's hard to see any you know, any party economy. Uh, that's beginning to stutter a little bit.

In fact, just the opposite. If anything, there are these sort of signs that I'm suggesting that if growth doesn't continue at the same pace, it's more likely that will be a little bit stronger than a little bit weaker. I guess I'm struggling with this idea of inflation. I mean, this is the big question. This is the reason why there is so much disagreement with respect to the sort of course of of bonds and where they're headed. I mean, right now, we're seeing yields take up, perhaps because of

Mario Dragon what he said today. But but but but by ten, your yields have been taking up. Yes, you're right, well before that um still though, I mean, I understand that the hourly wages is not a trend. But it's concerning that there is no momentum there, certainly no. It's concerning that it hasn't started yet, that we keep saying

it's still coming, and everybody believes it's still coming. That as the as the labor market continues to generate more than a d and fifty jobs a month, as the unemployment rate droughts below four percent, So a tight labor market getting even tighter, that's going to drive a wayes the question when does that begin to start, how strong is it going to be, and when does that trick tip off into a pick up in inflation. So that

Phillips Curve argument, very few people believe it's dead. All of us believe it's been asleep and it's about to wake up. So, just to be clear to Phillips Curve, whenever people say these things, just in case anyone doesn't know what that is, it's the idea of an inverse correlation between a low jobless rate and inflation. So ideally, when the market does get really tight and the jobless rate goes very far down, you should see increases in

wages and increases in inflation. We haven't seen that correlation, and people are wondering why and whether it just has to yet to start. So I just like to describe it all. Ken can also help me understand the diffusion index and what can we learn from the diffusion index. Well, this is really important because as I was just saying before, it's like, it's not just the labor market, it's not just the financial market, really goes across the board um

into virtually every segment of the economy. So the fact that not only do we have this strong upward momentum in the economy, could you know, and we're only talking about two to an a percent GDP growth, We're not talking about more than that, and yet it's that much could even take up a little bit higher. But it's spread out across the across all the sectors. They diffuse. Hence the name of this is not only diffused across industry,

it's diffuse also across regions. Uh, And so that is a further suggestion that this thing is not going to fall apart any time real soon. How far out does this to the leading economic indicators predict maybe the next three to six months? Okay, because this is this is helpful to remember, because we're hearing from Davos a lot of big thinkers and big investors and big executives say they expect the economy in the u US to be

good and robust for the next twelve months. But this tells us nothing about what happens after that, right, This doesn't tell us anything about that. But this kind of momentum, as I was just suggesting, you know, it's not going to fall up the cliff in one day. If it's going to start to decline, that's going to happen gradually.

And there's no sign here, not in the indicators, not in most of the forecast, not in terms of what the bond markets telling us that in the next twelve to eighteen months we're going to see any big significant drop absent a big economic shock, really quickly ten seconds. How long does it take before you start seeing the signs in the leading indicators before the downturn actually starts? Three to six months? Thank you so much, really helpful to have you on and break it down as always.

Ken Goldstein, who is an economist with the Conference Board, talking about the December leading economic indicators showing ongoing strength certainly over the next three to six months in the United States, an increase of six tents of in December. That's right. Well, right now I'm looking at a headline that gets me a little bit depressed. The doomsday clock just moved. It's now two minutes to midnight, the symbolic hour of the apocalypse. This is from the Washington Post.

Here to put my mind at ease, make me more worried. Jack Divine He is founding partner and president of the ark And Group, also a member of the Council of Foreign Relations UH and he is also the author of Good Hunting, a Spymaster's Story. Former acting director of the c I A. Jack, I'm having too much fun in life to be worried about doomsday, so I'm not miss all right, let's talk about North Korea right now. Now, now we can shift to doomsday. All right, So where

are we in this? You know, it's been one year into Trump's tenure. We are seeing, uh, not a lot of progress. Where's the throat right now? I think he actually blinked. Who is he? Kim Jong? I mean, I think the first of all, I would say off the right, off the top, that I don't see any military resolution of this. There is no good way to resolve this militarily. I don't see how we could engage take out the site.

So I've been from the very beginning of the most recent flare up in the relationships with with North Korea, UH, pushing the thought that we need to return to the table. So just the Trump administration adhered to that, do they Well, it's it's I think the Trump administration has taken a strong line. Uh. Interestingly enough, South Korea the new President Moon have sort of tried to war arm up relations and the question was whether Kim jongan was going to respond.

And I find it interesting that he has now going to participate with the South Koreans and the Olympics and and is talking to them now. I would hope that behind closed doors, we're trying to expand those talks into the old six parties China, Russia, South Korea ourselves and try and come up with a eight some sort of temporary solution just slow him down. We're not gonna he's not gonna roll back his newclear program, but he's moving

too fast and we don't have a military solution. So I think going back to the table, negotiating some sort of temporary arrangement, I think it's our best course of action. I was just gonna say on China, I was just gonna say one thing in China that you know, the Trump administration is putting a lot of it's betting on China support. I've been agnostic about that at best all along, but I do take some comfort recently if you believe the Chinese official statement that they've cut off coal and

oil supplies, fuel supplies to China. I mean, if they actually stay the course and increase the pressure, then there's more more incentive to get the North Korea to the table. But they're not a band in the program. The question is whether or not we can stabilize it about where it is today. Well, since you mentioned China, then I've got to ask you about this, uh continuing news story about the Jerry should Shingle naturalized US citizen. He now

lives in Hong Kong. He was taken into custody at the JFK Airport former c I a case officer, and he's under unrest on charges of illegally retaining highly classified information relating to US spy networks in China. Well, first of all, let me self reveal again I'm of the view that in the intelligence world, we always have a mall, you know, if you're the director of CIA, and I've talked a lot of them, and so they've gone in. I've made the point that there somewhere in the institution

there's a there's a mall. It's part of the business. We have malls within the Russian system, within the Chinese system, I'm sure we have them and and have had for years. And they have had ten hours. It's finding those malls

and finding out how much damage they've done. I was very familiar with the Hansen and rick Games cases and what was interesting, and this is from the public domain, that at the beginning, when they started to lose so uh the agency begin lose Chinese assets, it was well, it must be bad tradecraft in China, and then it was it must have been a communication, it must have hacked into something that's very reminiscent of the hunt for Rick Games at the beginning, no one could accept the

fact that you had a trader in your meds who could do that, who could be in a be a member and be a trader and people should hasten so well, why do you think that others betray themselves in our work in the system. But eventually it became obvious that we had a there was a penetration, and it's part of uh part of doing business. But part of doing business is also being vigilant on this point. And I think I think this is just another reminder too bad,

is so painful? All right, So I just wanted to follow up with this because I'm wondering what your perspective is on the president's comments and attitude. It seems to be that is sometimes put out in public on Twitter characterizing either the FBI but also the CIA and the U S Security forces. I think the burden of the criticism has been directed more to the FBI and surrounding

the correct investigation. UM. I think it's worthwhile remembering the very first official government act and and visit was to the CIA. Okay, I think it's a very good it's demonstratively good with the director of of CI A One thing about as I reflect on what people in CI a military tender like is strong, decisive leadership, and then from their flows it's less political after that. Half the people in cee I A. I'm sure, sure, I'm inclined to believe, vote Democratic Party and the other half vote

to Republican Party. It's made up pretty much of what America is. But there is a common thing, which is decisiveness and leadership. So I I question sort of just how much um turmoil or is around this issue in the CI. The FBI, of course, is going through what I think is very horrendous situation. I hope they for our country, I hope this passes quickly. For the we need the FBI, but there are there are real problems

that need to be addressed. So with with respect to UH President Trump, he's been in office a year, do you think that the U. S Is in a more dangerous spot because of our perhaps less robust relationships with some of our allies like Canada. One of the things that I think it always struck me through the years is the public and private behavior of foreign governments, perhaps even our own, and that is you might have public outcries, but I will tell you in the back rooms around

the world. It's still the predominance of how do you get along with the US governed. It's so important to the lives of everybody in every country that most most of our major allies are looking for ways to deal with us. In Davos, it's gonna be very interesting the sidebar discussions. So I think what they're not used to right now the foreign government is that the president is exerting, uh, pretty a very strong position that's not sort of consensus driven.

And I think they're making adjustments. But um, I don't think any of the alliances are are at risk. It's just they need to figure out how to deal with the new president the United States. Jack Devine, thank you very much. Please come back and spend more time with us. We've barely touched on a variety of topics that, of course are interesting to our listeners and around the world. Jack Divine is the founding partner and president of the ark And Group, and he is the author of Good Hunting,

a Spy Master's Story. And he of course is also a former acting head of an associate director of the CIA Central Intelligence Agency. Right now, I want to turn our attention to airlines we talked about them a little bit earlier. United shares down wow, oh my goodness, in the past two days, down more than fourteen per cent, the most for two days going back to June. Here to talk about it is George Ferguson, Bloomberg Senior Aerospace,

Defense and Airline analyst for Bloomberg Intelligence. Uh, George, what happened here? Can you just give us a lay of the land? Yeah? So, investors very focused right now on the amount of capacity coming to the airline market, especially the domestic US market. Uh. And uh, you know, United a big participant in that market, and so anything that was well above GDP was going to concern investors that they were going to dilute fairs, push push fairs, just

to be clear about what capacity is. In other words, they are expanding the locations that they're serving. Correct. Oh, yeah, Well, so United is trying to serve their hubs better. United has a lot of great hubs in the US and they want more frequency. They want more flights in and out of those hubs, um so that they can. They've basically had peeled back some of that service over the last decade or so, and so they want they want to expand that service. They want more of a domestic

US footprint. I think it's what it all boils down to. Because domestic US yields, which is the price of a customer pace per mile they're flown, are higher than any other market in the world. Uniteds are lower in the US and their peers over at Delta, and so they want to change that. They want to get yields from the US that are as good as Delta, and they see that as their avenue to getting profitability as good

as Delta. So they're expanding capacity into their hubs. Hey, George, do the airlines have a mismatch when it comes to the actual equipment the aircraft that they're using on the roots that they want to expand? Uh, you know, I don't know. I don't know if they have a mismatch,

you know. I think one of the interesting things about United is if you look at some of their service in the United States as part of this expansion for more US market share, you'll see them flying triple sevens coast to coast into l A and things like that.

You don't see that out of their competitors. I mean, I think, you know, United is flying a lot of business between their major hubs, and there's a lot of traffic back and forth between places like Newark and l a UM Actually LA is not their hubs, or in Newark and San Francisco, h Newark in Chicago and and and into Houston. So they're flying some bigger gauges and I think that's part of the problem as United wants

to be servicing some of the smaller markets. You know, I don't know right well, that's where I was going because I mean, I was listening to comments from the business from the commercial jet head of embra Air, and I know embra Air and Boeing, you know, they're talking

about some kind of type. But they were saying that the reason that Boeing is interested in Embra Air is because Boeing and air Bus have more difficulty shrinking the size of their equi in order to meet the right size demand, and it's better to actually focus on smaller aircraft that might have to be expanded. And that depends

what market you're going into. So as I was about to say, if you're going into Rochester, Minnesota, which I think is one of the examples we heard the other day, yeah, you might want a hundred seeds or a hundred thirty seed and that looks like an Umbrera, that looks like a Bombardier C series. We heard in the jet Blue call today. Jet Blue said they're sort of rethinking their embraer onet and given the Airbus and Bombardier joint venture with C series, they see new opportunities. They are very

air Bus focus shop. So that's an example where you know an airline is looking for the right gauge to get into those smaller markets, the right side. What's the rational of United and why do they think it's going to be good for their business and why is it being taken exactly the opposite by the market. Yeah, so you know they're they're adding a lot of capa looking at four to six percent more capacity this year, which is well above GDP growth, which is typically dilete of affairs.

And what they want to do is they they're trying to go after these better fairs that they see in the US at Delta an American have captured over the last decade or so, going into those smaller markets like Rochester and connecting Rochester into a major hub. Because if you're if your service, you know there's one or two airlines servicing a small market, there's less competition for that flyer.

That flyer pays more money. United let that go to their competitors, and now they want it back because US fairs are better than the rest of the world. That's going to create a market share battle that's going to cost everybody. Uh, you know the fair price. You have to push the fair price lower to fill those airplanes. Thanks very much, George Ferguson, our senior aerospace, defense and

airlines analysts for Bloomberg Intelligence. It's a big day to day. Uh. In currency markets, I'm looking at the dollar spot right now at the weakest level since December fourteen, the euro strengthening against the US dollar that has reached the strongest levels since twent sixteen. Have we reached a tipping point? Steve England are joins us now. He is head of research and strategy at Raffiki Capital Management. He is also a Bloomberg profit Stephen, thank you so much for being

with us. So are we are we at some kind of threshold of a bigger move? Is this a capitulation? Is this sort of the calm before a bigger storm? Look, the euro has moved the dollars moved a certain amount, and I think to some degree, the questions go to be how the FED responds to this. Um. I think if they show any kind of tolerance for inflation drifting and you know, staying temporarily above two percent, the dollars

got much further to go. Um. You already see that in that US real interest rates haven't gone up despite the upward movement inflation expectations, so the market doesn't really see that much hawkishness there. Um. You know, if they come up and they say, look, two percent is two percent, and that's our target, then then what probably see the dollars stabilized within a couple of percent of where we are right now. Stephen England, could you comment on China,

It's US treasury holdings and what you see for the future. Yeah, look, you know, I think that the UM. I think conventional thinking is that they have the US over a barrel because they hold so many treasuries. Um. You know, I think correct thinking is that their U S has them over a barrel. Both ways. One is that they're very much dependent on trade with the US. Obviously they ship a lot more to the U S and the U

S ships to them. So if there's a full fledged trade ward, there's a lot more Chinese factories and jobs are going to be lost in US jobs. And the second is that, yeah, they can fire a cannonball through the U. S. Treasury market, but that cannonball is going to do a boomerang and go right through them because they own so many of it and it's really hard to sell. So I think that right now they would love to be in a different position, but they're they're

actually kind of on the weaker side. I think of these uh, you know, trade issues. Okay, So having said that, why is it that you continue that that it's possible to find, you know, very smart people who give you the opposite version. I mean, clearly they don't pay. They've never played poker with some of that owes the money. Um. Yeah, look, I I think, you know, it's hard to explain things two people that you know to to make a market.

But there are different ways of approaching gets. And they would say that the one advantage of China has not all the stickering is that, um, they can pull together an army of formal and informal lobbyists to argue their case in Washington. Um, you know, it's much harder for the US do that to do that in Beijing. So, um, they may not have the best position, but they probably can handle their position better than the US can, at

least in you know, the public sphere. So Stephen uh Leaving China aside, the US Treasury Department is going to sell treasuries in larger chunks throughout the year. This year. That is the expectation of a lot of people. The US has to fund a deficit that is widely expected to increase by a trillion dollars or more over the next decade. Um. I'm looking at a ten year treasury yield that is the highest in a very long time. I'm looking at a German tenure yield also breaching the

highest levels and years. How high are we headed with the US tenure yield? And what's going to be sort of the trajectory here? Is it going to be at some point a steady upward climb or are we going to see kind of a choppy give some takes, some give some takes. Well, look, you know, in wallets in motion, it's always choppy in retrospect. You know, you can look on the chart and state that was a pretty straight line.

The U S nominal GDP growth is going to be somewhere between four and a half and five percent UH this year. Treasuries running to sixty five by historical metrics are are pretty low. And we've spent the last you know, six or seven years telling ourselves that we're in a different world that you know, the the the phrase the FED talks about our star real insuri strate equity real

in strates or zero UM. Now it looks as if we're kind of getting back into a world that we're familiar with, where you know, we've become slightly more worried about inflations and disinflation, and where um confidence that investment is going to pick up housing is relatively strong. That's back there. So yeah, upward pressure on rates, I think it is still going to be there. To six five

is not that high relative to where we are. Steve in Englander just quickly, do you think that a falling the fallen value of the US dollar is going to help the US economy marginally? I I look, you know, the sad fact of the last ten years or twenty years is that everybody talks about the currency, but the actual impact on activity is low. Impact on earnings is much higher because of translation effects. But how many jobs a week er dollar creates I say it's pretty minimal,

So no effect in terms of things. Also, like trade policy, you think that's going to help the economy, No small effect, right, the you know ten percent appreciations with dollars, like you put a ten percent subsidy to exports, ten percent tariffy and imports. It matters, but it just doesn't matter that much, all right. Thanks very much for helping us understand that. Steve england Or is the head of research and Strategy

at Rafiki Capital. He is also a Bloomberg profit. In Bloomberg, profits are professionals offering actionable insights on markets, the economy, and monetary policy, and contributors may have a stake in the areas about which they write. Thanks for listening to the Bloomberg p m L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one

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