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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Stephanie Rothawolf Research is still with us. Stephanie, your take on what we're looking at right here?
I think the thing to remember is this is a period of time that was kind of peak uncertainty for the economy given the tariff headwinds. So now looking ahead, we should anticipate that payroll gains are going to remain fairly solid throughout the course of this year. Now they're going to slow down given the immigration trend, but we shouldn't expect an environment where the uneployment rate is rising
significantly and we're in a real layoff situation. We should expect a steady slow down in the pace of hiring just because immigration is gonna be a big headwind, but the economy is gonna.
Be largely okay, what kind of impact will immigration have?
Pretty significant?
So, by the way, this is not getting enough attention. But last week the Supreme Court rule that they can they can terminate five hundred and thirty thousand visas from people from Cuba, Haiti, Nicaragua, Venezuela effectively overnight.
So this is likely going to.
Show over the next couple of months as companies really realize they have to check visas. But we're gonna we're gonna see notable headwind bringing the steady state trended PAYOS growth below one hundred thousand. But what we're learning today is that might be in an underlying economy that's still fine.
And what is that due to the unemployment rate?
It brings it down by a couple by a couple of tents.
So how challenging is that for the Fed to cut.
They can, it's gonna be a difficult one. If we're in an environment where steady state PAYOS growth is running call an eighty thousand, and the unemployment rate is steady to lower and by the way inflation is running it close to three eight percent, they can't do anything.
They're going to have to just sit and wait it out.
And why would they if the economy is just running kind of fine and the inflation is still risk of certainly running notably above their target.
There's a real question about how much the actual employment rate and the payrolls figure is a leading indicator or a liking indicator. There has been a belief that companies will hold on before firing employees for a much longer period of time, especially since the pandemic. At what point is this the last thing that's going to fall apart as we see other ramifications to the economy and other sectors.
Yes, so we need to keep an eynprofit margins, and the idea here is effectively how much costs can these companies push through when it comes to tariffs. So if we're in an environment where consumer inflation is actually running close to that three percent in a way, that could be an okay thing, because that means you're not really
feeling the burden from a company perspective. Consumers can probably handle a little bit of goods inflation and they're not going to have to do layoffs because the companies are able to pass through a lot of that cost.
And this ultimately goes down to the question for the FED as well. If you do have companies that are absorbing more of it and not passing along the cost as much, it also would be more disinflationary or less inflationary than otherwise, and it would give them the ability to cut rates into what is, by all other measures, a softening market. So at what point is that going to be the base case at a time where you're looking at two rate cuts still fully priced into the market by the end of this year.
Yeah, I'm surprised that the market is still looking for two cuts at this point. It's probably just sort of the average of all outcomes, right, There's still the chance that the economy tips into recession as a result. I would say, if you survey a lot of investors, they're expecting call it one to two cuts. But I think the direction of travel here will be in an environment where the FED in the market are going to start to price in zero cuts for this year. Maybe towards
the back half of twenty twenty six. They can cut one or two more times, but we're sort of running out of time.
Why is that given the fact that the economy clearly is weakening to a lot of different metrics.
Well, it's weakening because we got hit over the head with a tariff headwind and a ton of uncertainty. But now the uncertainty is likely to defade to some extent. Now we understand this whole taco concept, which is silly, but like, it's true that Trump doesn't seem to want
to intentionally tip the economy into recession. So companies can feel better about investing investing in this environment they know there's less likely of a chance that the economy actually goes south, in which case, all right, my business is doing okay. Now I just have to continue to invest and grow.
Our intrepid economics correspondent has been parsing over the data, Sephanie Roth of wool Free Search, sticking with us Michael McKee, Oh, what do you see as you parse through the data?
Well, intrepidly looking through the data, we see that basically it's as kind of forecasts. Manufacturing jobs were down by eight thousand primary metals. We check that out, the steel mills one point three thousand, one three hundred additional jobs and fabricated metals, same numbers, so no impact from tariffs there. Construction up by four Retail jobs fell off by six thousand,
five hundred, warehouses and couriers. People were looking at that because of the idea of pulling forward orders, and we do see slight increases in the couriers six five hundred, a drop of fivey one hundred in warehousing. Government though interesting number from the federal government down twenty two thousand. Of course, we have to double check and make sure that's not the US Postal Service, which mostly is. But federal government accept the postal service down fifteen point eight thousands,
so we're starting to see some doge cuts there. The three digit unemployment rates four point two four four. That is up a little bit from four point one eighty seven, but not worth even worrying about at this point. The reason it looks like unemployment not changed very much is the number of employed falls by six hundred ninety six thousand. The number of unemployed rises by only seventy one thousand, but the labor force falls by six hundred and twenty
five thousand. That may be the story of this report. As immigration gets halted at the border, the labor force if that continues to shrink, will hold down any changes in the unemployment rate for a while.
Yeah, to Stephanie Ross's point, the idea of just generally lower numbers as the immigration trends really shift. Michael mckayth, thank you as always joining us now as Jeff Rosenberg of Blackrock. Jeff, we take a look at this report. Nothing to see here. Markets are taking it in stride, albeit with a little bit of a lift at the front end of the yield curve. What's your big takeaway as you do see numbers tempering but not exactly falling off.
Cliff, Yeah, I think the big takeaway is slowing but still a strong labor market. And I think that's why you're seeing a little bit of the bond market reaction here, pricing out a bit of that expectations in terms of the FED. But it's pretty close to expectations, a little bit on the high side.
I think the wage number is kind of the most interesting thing.
Doesn't seem to be affected by the wage week, so you know, this is part of the strength coming into it. But I smiled when you asked the question to Stephanie, you know what is really the forward looking out look here for labor markets. They'll come a point where we'll talk about labor markets and this labor market report, and it will be validating a trend that we may be concerned about and that will be told to us first by what's going on with profit margins.
Absolutely agree with that point.
It's really the pausing point that we're at here with this market report not really moving us either confirming the concerns that we had a month and a half ago around a recession or validating the response in financial markets that you know, the peak of uncertainty is over. I think we're still in that uncertainty environment and the data still that we need to validate whether or not which way that economy is going to go is still in front of us. So this is a little bit backward
looking bagging. To answer your earlier question to Stephanie.
So, Jeff, let's say we're sitting here in a couple of months and yeah, maybe payroll's growth are still slowing but holding in somewhat. Okay, what would be the driving factor? Is it the reconciliation bill? Is it that tariffs are having less of an impact? What's the upside story to the economy here.
Yeah, And I think it's what you were highlighting before about whether or not this is the peak. Uncertainty is behind us and its impact on decision making is not as greatly, not as great as we might have feared in the middle of April. And so I think that's really the determination is what impact does all this uncertainty, which I think we still have. We haven't resolved a lot of that uncertainty. We could debate that point, but really it comes down to what do we think about the uncertainty?
But what do we do about the uncertainty?
Do we press ahead and just make decisions, make investments, hiring as if nothing had happened, or is there a cooling effect on all of those decisions, whether they're on the business side or on the consumption side.
That's what's going to drive that economy.
It's going to drive the you know, the consumption side in terms of demand, and it's gonna drive business confidence in terms of what we see in terms of investment. And that's I think what the narrative is going to be two three, four months from now.
Well, do you think the business community will just keep treading water? How do you make those decisions. I mean, just moments ago, Peter Navarro, a trade aid to President Trump, is telling reporters that the China MEANE is expected in seven days, So in a week's time we could be dealt with a fresh blow of uncertainty.
Jeff, Yeah, I think the honest answer is we just don't know because the new data that's coming out, whether it's the challenges from the legal perspective, whether it's the change in terms of the negotiations, what is actually in those negotiations in terms of how much they relieve the uncertainty. We just don't know, And I think there is a cooling effect in the interim. It doesn't show up because the data is still lagged, so it'll show up in
the next couple of months. So I just think we don't quite know on the trade impact given.
The lag Do you think then the FED is going to be behind the curve? I mean Elon Musk, an insider who's now on the outs, was saying yesterday that Trump's tarers will mean a recession the second half of the year.
You know.
I think the FED has been very clear in their communications that the headline is weight and see and that the economy is in a good enough position where they can adopt that approach. I think if there's one thing to this report today, it kind of validates that approach.
Right.
We're not seeing an aggressive move in terms of the slowdown impact and hiring in the economy. We're not seeing a huge acceleration. I do you think there's some strength, some lingering strength there in wages, but not enough to really press on the inflationary concerns.
And so the Fed's in a good spot here to wait and see. Will they be lagged? Yes, This is kind.
Of the impact of moving from forecast dependence to data dependence is that the FED has to be reactive, and so they'll be lagged. The issue for the markets will be, you know, will they aggressively catch up if they are indeed, you know, behind the curve. In the event that the trade and tariff uncertainty, you know, leads to a bigger slowdown, then they're going to have to get more aggressive.
That's not priced in to the bond market.
As we were talking about, it's only one to two cuts because it's not yet showing up in the data.
You know.
I want to take a step back and talk about what you and Stephanie both brought up that this labor market information isn't necessarily going to be as tradable as some of the earnings data that we get with respect to profit margins, and I wonder if there's something of a paradigm shift where we were so data dependent and every economic indicator that came out for the past couple of years was a huge tradable moment that was going to give some sort of insight into what the Fed would do.
Is that era over?
And are we now earnings dependent, not necessarily when it comes to figuring out how much money they're making, but what companies are doing with what we're hearing about in the mess in real time in a way that this data cannot tell us anymore.
Jeff, Yeah, you know. I mean there's a long.
History to the payroll report in terms of moving the bond market.
You know, has it lost some of its efficacy?
I mean, certainly, you know, we've come out of this period where inflation has been the bigger driver. Clearly that has been the story of the last couple of years, and so the payroll report isn't really the kind of pre eminent data release on inflation. It has an important component with regards to to wages and wage inflation.
As it was just highlighting, you know.
When you think about kind of the demand side shocks that we typically associate with recessions, the payroll report can be you know, more confirmative on those trends and solidify the expectations for the FED. That's where the linkage is and the importance to the bond market comes from. But when the issues are more supply side, and we can kind of think of tariffs and the tariff shock as more of a supply side, it has both elements of
the supply side and demand side. But when you think about economic shocks driving financial markets that are more from the supply side, yes, the labor markets kind of lose their primacy of being kind of the pre eminent data release that we focus on.
Jeff Rosenberger, Blackrock, thank you as always for being with us.
Dan Ives of wood Bush writing.
This view does not change our bullish view of TESLA and the autonomous view, but clearly does put a fly on the ointment of the Trump regulatory framework going forward.
Dan joins us.
Now, Dan, great to see you, greed to be here, very curious to hear what you have to say about this, the fact that you do not change your bullish outlook on Tesla, even though it seems like there is a massive key Man risk. Please explain how you dismiss that.
Look, I mean, this is a its friend. It's like a Frenemi is in junior high school. That's essentially going on between Trump and Musk.
We're billionaires and leaders of massive empires.
And Look, the reality is that our view is that this is something where the friendship it doesn't end. In other words, I still believe that this will be resolved potential by the end of the day, by the weekend. And it's not our view that this changes the regulatory landscape. Four Musk when it comes to autonomous and the.
Broader vision, How do we even talk about the fundamental backdrop?
Though?
When you have a war of words whip sawing this company by more than one hundred and fifty billion dollars of market capitalization, does that introduce a risk that a lot of institutions just won't take.
Look, but we always start and we've turn on the ship for decades. It comes down like with Tesla, that's the reality. I mean, you're going to have the volatility, it's part of what we've seen with Musk. But in our view is that you have I have to see through the noise, understand the autonomous vision.
It's r V.
Ultimately, Waimo's at the kids table when it comes to autonomous and the AI future. And look this is it's Rod Serling. It's an episode out of the Twilight Zone yesterday. I mean, in my opinion, in all my years covering Tesla, it might win the prize top three, maybe top one for one of the strangers days that I've ever seen.
So last year Elon mus said, take away the subsidies. It only helped Tesla.
Why does he or.
Based on reporting out of the Speaker Johnson, out of President Trump, why has there been this reversal from him regarding the eed subsidies.
He's no longer in the White House.
I mean, you've talked about it. It comes down to like he's now trying to distance himself for a few reasons.
One that would hurt Tesla not as.
Much as the others in terms of Detroit Big Three.
But then you also look at what's happening here.
I believe there's some poker going on as well that he's trying to distance himself from Trump because of China, because he also needs to play nice in the sandbox in Beijing with in that we see as given the China market raw material is how.
Important that is from a demand perspective.
He's trying to be sure that I think balances and for a Musk, even though some of it could come out sort of spur of the moment, I do believe potential there's a longer game here.
Is he rebranding for a midterm election where most people think the Republicans are going to get absolute shellacking.
Well, look in the reality is is that That's why in d C. I mean, you know, if you're a hater or whatever, a Musk he is going to be a huge player. And that's why for all parties. That's why White House, you know, it seems trying to put together this phone call because no one's a winner, Trump or Musk in this front of me his battle. I think it's two kids in the sandbox. I do think the play date will be back on at one point. It's just going through definitely some little tension here.
Wait, you're actually suggesting something that's pretty important that there is an aspect of deliberateness to this by Elon Musk to revive the brand around Tesla, to try to paint it with a less maga type of brush after a lot of blowback and a lot of falloff in sales, particularly outside of the United States. Do you really think that actually this is a vocal way of his distancing himself and that he can get back in good with
President Trump. But this is an effort to revive a brand that suffered a black eye, just like Elon Musk.
Look, I think there's some of that potentially at play, but you don't burn the house down just so you can meet the firefighters. I mean, the point is you need to navigate this situation very carefully.
You need Trump as a friend, not a foe.
And that's why Tessa down so much, is because if you're on the regulatory it's going to be a green light when it comes to autonomous and especially Tesla, and I view is a huge advantage there. You can say, way mow Little as well. You don't need Trump now as an enemy, you need him as a friend. Hopefully by the end of the day the candlehight dinners back on. I just do not believe that these friends become enemies again.
It's a frend of me's junior high school situation between two, as we know, a very stubborn individual.
Let's say in episode six they still haven't gotten back together. Do you change your view and become more bearished on Tesla.
Look, if this continues to continue to play out longer and longer term.
Obviously that would be a huge negative.
But my view just say junior high school, they will get back together as friends, but it's going to take some intermediaries. That's why the White House, there's a lot in DC on the Republican Party and everywhere.
Well, the distance is already there, and there's some things that happened yesterday that potentially the White House are really upset with and maybe are going to create a lot of tension for a long term, even if they start playing a little bit nicer.
Is this an opportunity potentially for.
China to use BYD We can see BYD cars made in the United States.
Look, I think this is just a broader game of poker going on, and Musk and Trump are key players at that poker bakra on table. Whatever you want to think about it, China definitely is watching this carefully because also remember or musk Is, I'd say, along with Cook, I mean to know the China market better. They also play nice in Beijing as well, So there is some bounds going on here. But look, must we want him
to distance himself from Trump still be a friend. It's been a very strange few weeks, a few months, and obviously twenty four hours. But I do believe by the end of the day and going into the weekend, I don't expect this to get work. I do believe this will start to be cooler. Heads prevailed, and that's why Tessa stock will be up there. I think Tessa is way over sold. Like, unless you think draconian, this goes into like a dark period to me, I think we view this as an opportunity.
So Dan, let's get back to the American consumer for a second. So what I hear you saying is you're assuming that Elon is not going to form a third political party, which I think we can all say we're relieved about. Has what's happened caused a measure of irreversible damage? And if not, how long is this going to take for the American consumer to disentangle Hammer herself from the politics of all.
And first, I'm disappointing you. I feel we were matched today. But I'm not going to artorial splendor. I think so it's but it's file. Look I don't I don't view that. I think it's something there is brand damage and there was there is things that must needs to turn around. In terms of us, we said five seven potentially ten percent brand damage the American consumer. Look, I think there's confusion when it comes to us because obviously alienated you know Many and Democratic Party.
Now you actually alienate in the Republic.
So now it's like, if you want to alienate everyone, you've actually done a great job. Okay, So now it's point like, okay, how do we sort of build this back? Does the board get involved? Because again it goes back to the board needs. I think in a situation like this, they do need to play a hand in some way to make sure that this doesn't go off the rails.
If it's a junior high schoo situation, there needs to be an adult in the room.
Do you need a doom you need to do on the room with the pro Yeah, come on, get home, it's your curfew. Dan, I haves of wood Bush.
Thank you, so much with your sartorial splendor, Julian, I love that phrase. Joining us now is ad Mills of Raymond James, and I do want to start on the China and You as trade negotiation, just simply because maybe it has a bit longer legs. Maybe we don't really know. I just am curious about your takeaways yesterday from what we know about that phone call and what we don't know.
Yeah, Lisa, I think it's so fascinating to see this focus on the rare earth minerals.
Uh.
The day after some of these restrictions came in from China, I got a phone call here at Raymond James and said, do you realize that we have about six months supply of this and at the end of that, we can't make a missile, we can't build a car, we can't build a near place. Our industrial capacity is permanently impeered if we do not have access to these rare earth
and critical minerals. So China and Trump two point zero know exactly where those choke points are and they're using them, Lisa, and so because of that, I am optimistic that we ultimately get a deal because we cannot sustain this and I do think that longer term, we are going to see a lot more production here in the United States, and a lot of these trade deals look to get those rare earth and critical minerals from other sources from China.
We had a Defense Production Act signing last week from Trump where it says you can bypass a lot of the normal routes to make sure we can get that, and so focusing on that and realizing that that's important is where we get the deal. The final piece here is Lutnik getting added to the list of folks that will be in the next trade delegation. Lutnick's Commerce department has been putting a lot of restrictions on semiconductors and
other exports into China that China also really needs. So working on that, but I'm not quite sure that the Commerce Department, Lutnik and the Trump administration is going to ease up on our restrictions. So China is going to be very tough on theirs.
Can we just stick for a segment the rare earths?
Why do you think that actually there's going to be a loosening of these restrictions and the ability for the US to get licenses given the fact that the easing of the controls was not in the Chinese readout, so.
I think because we need them, because there's not really another alternative. I do think that the United States is probably going to have to ease up on some of the things that we are doing. First and foremost, it was easing up on that one hundred and forty five percent terra freight. I think that China is going to be able to ask for more in some of these negotiations than I think that Trump expects. I do think that there's ultimately other sources of this. Globally, rare earths
are not actually all that rare. What is rear is where we are willing to extract them where we're willing to refine them, but that is going to take years, an Marie, So I do think that they are willing to provide that as long as the United States is willing to provide other things to China, such as some of the technology that we're restricting. But politically that's a really tough thing.
Well, with Commerce Secretary Howard Lutnex inclusion now and the trade negotiations, and we're waiting for a time and place. Do you think it's going to ease Beijing's ability to get a handle in these semiconductors, or actually potentially make it harder because he's quite hawkish.
Yeah, if I had to choose something, it's harder. What we are seeing is we've had a lot of conversations about IEPA, this International Emergency Economic Powers Act, which has been used to put the tariffs globally challenged by the courts. But look for AEPA to be used next to further restrict a lot of technology that is going into China. Since that meeting in Geneva, there has been a worldwide
ban on Huawei from being used from our allies. If they use that, that's a violation of US export controls. We are going to see an uptick in other SEMIICAP equipment, EDA software, things that are important and critical on making semiconductors in China. All of those things have bipartisan support, and if you look to the Hill, they want the administration to go even further geolocation on any chip that goes into China to make sure that chips that shouldn't be going there do not go there.
Emory ed Mills of Raymond James, thank you so much for being with us this morning as we try to figure out which story has staying power for the next couple of hours.
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