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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie 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.
There is a real question about whether the economic data actually justifies it, and someone who's been making that argument for quite a long time has been Neil Dada of Renmack, who does join us now? Neil, what did you make yesterday of the rhetoric coming out of the White House and the first in person meeting between j Powell and President Trump two point zero.
President from once lower Race. I mean, that's not exactly breaking news in my opinion.
There is a feeling, though, that there has been a number of data points, in particular yesterday's revision to GDP that shows personal spending personal income isn't necessarily keeping pace. We're expected to get core PC today. That does show that ongoing disinflationary trajectory. Do you think even with some of the on again off against tariffs, in the sense that companies have adapted and adjusted, there is a legitimate argument for the FED to be cutting more aggressively.
I do, you know, I think the Fed's job is to make decisions with imperfect information, So just using uncertainty as a crutch to just wait everything out, it's sort of besides the point, you know, I do think that companies are probably you know, for the time being. I mean, I think they're eating much of the sort of inflationary impact of the of the terrorifts, they're eating the tariffs. They're the ones that are burying the cost margins are
probably being squeezed. So it's not like it's a good thing. But I think the demand shock is more important to be focusing on. And this was going into a situation where the economy was already getting worse, and so you know, when I look at the data, I mean, to me, the most important thing that happened this week is that
extended unemployment claims hit a fresh high. That's important. Job finding rates are low, and you know, even though initial layoffs are low too, the fact that those newly laid off people can't find any work is basically why the
sort of ranks of the unemployed continue to grow. So I wouldn't be surprised to see, you know, the level of permanent job losers take up a bit more when the next unemployment sort of employment report comes out, So you can't rule out ongoing increases in the unemployment rate. The economy is growing below potential, and that's making it very difficult for laydoff people to find work, and as a result, the unemployment rate will keep rising.
Well, let's talk about the next job's number. It's going to be Friday, June six.
What are you expecting, Neil, Well, I mean, I wouldn't expect much. I mean I think I wouldn't rule out like a two tenth increase in the unemployment rate. You know, continuing jobless claims are basically sending you a message that the unemployment rate's going up. We may well be at the fed's unemployment rate forecast for Q four, a couple of quarters ahead of schedule.
Would that be enough for the Fed to cut do you think, given the fact that they talk about the uncertainty of policy in Washington.
I don't know that'll be enough for them to cut in June, but it'll probably get the markets betting on cuts, more cuts and sooner, So maybe it ups the odds of.
July.
But I think, you know, frankly, you can't rule out a scenario where, you know, it kind of looks like you know what we saw last year, where they're waiting, waiting, waiting, and then all of a sudden they make a very sort of abrupt pivot and do more than that expected.
You know, why doesn't the long end of the yield curve? For you, the fact that some people believe that there is going to be longer term structural inflation and a term premium and the FED looking more accommodative will only expedite that.
Sure, that's I mean again, I don't know that that's the reason why the long end is elevated. A lot of it I think has to do with what's going on globally. I mean, even if you look at some of the movements you know, in rates this year, it's been happening on days of some sort of like you know, some global development, whether it's a bad Japanese bond auction, bad inflation data overseas. What we know is not that people don't want to hold US long bonds. They don't
want to hold long bonds. I mean, the curve is steepening everywhere. So I wouldn't lay that, you know, as purely like a US centric thing. I think the bigger story is that, you know, the markets have really had to come to grips with the idea that the economy might be slow in we haven't really had that one piece of very you know, bad hard data where it's like, oh aha, like sort of you know, recession risks are
higher than we thought. Yeah, when that happens, I think you probably see, you know, mother nature kind of taking course, not only for equities, but with the fixed income market as well.
Mother nature is a fickle creature, as you know.
And there's been a change in the narrative recently, with the US Economics Surprise Index actually arising some of the highest levels.
That we've seen in months.
You've seen consumer sentiment actually changed to up up.
Itself to closer to some of the hard data.
Will gives you confidence that, especially as some of these tariffs get rolled back from worst case scenarios, there will be a slowdown that is not showing up at a lot of the earnings that we're getting at a number of different companies that are managing to whether that's just fine.
If you punch someone in the face over and over and over again, and then you decided not to them in the face, would that mean that they would be okay at that point? That's all the confidence data is telling you, right, I mean, we just I mean, I don't know that there's anything interesting, and that, to me, the most interesting data point within within the confidence survey was simply that consumer attitudes are on the labor market kept getting worse.
You know.
To me, all the confidence data are reflecting is the fact that equity prices rose nothing, nothing else. And you know, it's important for people to remember, even though the stock markets had a really good run over the last twelve eighteen, twenty four months, that hasn't stopped labor market conditions from continuing to cooled off. That hasn't helped. I mean, you talk about loose financial conditions, how about that. If financial conditions are so loose, why are home sales so weak?
Because mortgages are still so high with the idea.
Sorry, you go ahead.
Well, mortgages are still too high for a lot of people to.
Get on the property ladder exactly.
So that means that financial conditions are in fact not that easy.
Neil.
This goes to the point of just how to interpret data that you say is unreliable. You think that the housing market data is actually the number one indicator to watch, as you did see pending home sales yesterday comes to some of the lowest levels.
I do think it's important. I think what's important about this decline and residential investment that we're seeing right now is that it's coming alongside an ongoing decline and units under construction that didn't happen last time, right, So there's less building going on, and if there's less building going on, there may be less need for construction workers. Simultaneously, we also know that resale inventories are rising and that's weighing
on home prices. Importantly, it's weighing on prices in the areas where the builders have been making the most homes. So again that goes back to the construction piece. But you know, again, it's important to kind of understand how the sort of some of these data points how the sausage is made. I mean you mentioned the surprise indicator. That's the city economic surprise indicator that you're probably mentioning. If you look at other measures like your own Bloomberg
Economic surprise and dex it doesn't really show that. So it's important to kind of know which indicators to look at and why those numbers are going up. I mean, you saw a very large increase in consumer confidence, and that delta is probably why these surprise indicators moved up. But when you sort of peel back the onion and take a look, you know the things that actually move more, you know, slowly, like labor market conditions, that shows you that things are continuing to get worse.
Neil, I will never look at some of the consumer confidence data in the same way after the punch in the face analogy that you just drew.
Neil Deta of run MAAC, thank.
You so much for being with us. A lot of investors are really watching what company CEOs have to say in the conference boards. Measure of CEO confidence fell to its lowest level since Q four of twenty twenty two, seeing the largest quarter of her quarter decline in nearly fifty years. According to the survey, the majority of CEOs are bracing for a recession in the next twelve to eighteen months. Dana Peterson of the Conference Board joins US now Data.
Thank you so much for being with us. I want to talk about how.
Surprised you were to see this data given the fact that a lot of sentiment data among consumers has been ticking up and we have gotten pretty good results in terms of earnings from a lot of companies.
Well, I wasn't terribly surprised.
Certainly, since the beginning of the year, there have been there's been a lot of volatility coming out of Washington in terms of policies around trade, around regulation and spending, and I think it just really spooked many CEOs, especially those who are very dependent upon trade for their businesses. And so we did notice that were the responses that were before May twelfth, where where we had this deta between China and the US on trade, and those afterwards.
The ones afterwards were a little better, but they were still negative. The idea of how to read this and how much of a forward indicator these surveys traditionally have been how much has a CEO confidence index really been something of a harbinger of a change in economic trajectory
versus kind of noise. The way that we have seen a lot of the consumer confidence surveys well over the well since we've been doing this almost fifty years, when the measure drops below fifty, which is you know, that means it's pessimism as opposed to optimism, it has done
a pretty good job of signaling recession. Now when we look at the measure today versus what it did back in twenty twenty two, late twenty twenty two or early twenty twenty three, we saw similar numbers where many CEOs were afraid that there was going to be a shortened, shallow recession. We didn't get a shortened shallow recession because consumers continued to work. And the reason why is because
companies didn't let them go. Companies cut elsewhere, and we think that, you know, certainly this time around, there's just a lot of noise, a lot of volatility, and it really spooked a lot of CEOs. We still hear a lot of them saying, well, we're going to raise prices, you know, because these tariffs are going to affect us. But we haven't heard much about them saying they're going
to let people go. Still, in all, if we do see these tariffs stay and even intensify, you know with some of these other investigations, that you may see some unemployment rates rise.
Well.
I found most interesting about the survey that most CEOs anticipate no change at all on the size of their workforce for the next twelve months. So doesn't that show that they can weather this storm?
I think so.
But we also need to remember that there's still labor shortages going on. You still have many, many people, thousands of people retiring every day, and you have you know, younger workers, but they have less experience. So I think that you know, that's that story is still there, that narrative is still there. Companies will cut other places, cut investment because indeed the investment measures were worse, and they'll raise prices, but they're not going to let go over their workers.
We have almost mixed reviews when it comes to Corporate America in terms of how they're dealing with the tariffs. Costco yesterday, they're sourcing more locally produced mattresses and pillows, and they seem to be weathering this brilliantly almost gap. On the other hand, they're anticipating as much as three hundred million dollars in a tariff impact. But I want to get a sense from you. Do you think Corporate America is using terrafts sometimes as an excuse for other issues in their business.
That's always possible, but I would say in general that most people will most companies and CEOs understand what tariffs are. Tariffs are attacks on their imports, and they're not going to absorb those costs, and so they just keep passing it down to the wholesale, to the retailer and ultimately
the customer. And so you know, you know, retailers that sell clothing, most clothing is not made here in the US, so it makes absolute sense that they'd be more nervous versus maybe other types of entities that can source things from the United States. So I think that, you know, maybe some companies may use it as an excuse, but
in general, this is a real thing. This is a real risk for many companies, and you know, they have to figure out a way to weather this, and a lot of it is going to be to raise prices.
Dana Kann into this year, there was a tremendous amount of optimism and companies were talking about capex spending, mergers, acquisitions.
Do we have a sense on.
A holistic level of how much they've actually goes back in a more sort of sustained way as a result of some of the policy uncertainty.
Sure.
I mean at the beginning of the year, I think a lot of companies were anticipating deregulation, maybe some tax cuts for corporations, and then you know, the script flipped.
We were, you know.
Less worried about that, and I mean, uh, you know, those kinds of benefits faded away with the trade with the trade wars, and we did notice that there was a in the number of ceo saying that they were going to increase their capex investments. But I think many companies are on pause. They're waiting to see what's going
to happen. And there unless you have some kind of long term project where you know, politics doesn't matter as much, I think a lot of companies are going to remain on hold until they see what's really going to happen. And also a number of companies are probably concerned about
demand destruction. We think we're actually going to see some weakness and consumer spending, maybe even starting in the most recent data, but certainly in the third quarter, and that's going to be very gnarly from many CEOs and many companies.
Dani Pittersoner of the Conference Conference Board, thank you so much for being with us. Joining us now is Lindsay Pie of Stephel Lindsay, what's your take on that resilient consumer and how much their incomes rose as well as their ability to spend on an inflation adjusted a basis.
Well, certainly welcome support from that organic component of income supplementing consumer's ability to go out into the marketplace and spend, albeit at a reasonably reduced pace. We are seeing some loss of momentum, so the consumer is still resilient, but again it is at less robust levels than what we've
seen over the past couple of years. And this supports exactly what we've seen in the price index, that deceleration in headline costs reflecting the fact that businesses aren't able to pass on further price increases to the consumer to the end user without the risk of losing market share. So while consumers are outspending, they are becoming increasingly cost sensitive. But for the FED, this is good news.
We have a.
Resilient economy, resilient consumer and inflation that has been decelerating now for the past couple of months.
Is it enough for the Fed to, potentially, if inflation's coming down, to think about cuts this year?
Well, I think the Fed is already thinking about rate cuts, but the window of opportunity for action is very limited.
Against the backdrop of negative growth in the first quarter, against the backdrop of that deceleration of price pressures, the FED could act to cut rates and minimally maybe two twenty five basis point cuts mid year, But as we look out towards the second half, further out towards the fourth quarter, I do expect a more positive impact, a stronger impact from some of these trade policies, from tariffs to set into price pressures, risking upside momentum in costs
and really removing any window of opportunity for rate cuts and potentially shifting the conversation back to rate hikes by the end of the year.
Wow, rate hikes at the end of the year.
And that's driven by what exactly, because the concern of in inflation driven by tariff policy.
Well, again, right now, the Fed is walking a very delicate line as we saw in the FOMC meeting. There are downside risks to growth and employment, which we've already seen that storyline playing out, as I said, in the first quarter, and likely to see very minimal momentum in the economy in the second But by the second half of the year, those upside risks to inflation, I do think are going to become more prominent, and the FED
has to focus on getting inflation back under control. Now, the numbers this morning in the PCE were favorable, that headline is moving closer to two percent, but the core numbers still remain stubbornly sticky, up at two and a half, and again the risk is to the upside.
Lindsay Neil Dotta was talking earlier this morning that the housing market is kind of the fly in the ointment for this argument.
That you've seen a real fall off in terms of.
Activity people on its ability to buy homes. You've seen even prices come down in certain regions for the first time in years. There's a feeling that that aspect of inflation, which is a massive one, is really going to be more of a drag than some sort of boost, and that financial conditions have actually been incredibly tight in that area.
Make of that argument, well, I think when we look at the inflation numbers, it's going to be very difficult for the FED to achieve a sustainable two percent level without further reprieve in housing costs. Remember CPI shelter costs are still up over four percent, so that's double what the Fed's intended targeted. So intended target is and so it's going to be very difficult for the FED to achieve again that broader measure of price stability without further
reprieve in the housing market. That being said, we haven't yet seen a sizeable amount of relief. Now price pressures have slowed, but nominally prices are still very elevated, as would be home buyers face a near record low affordability rates, so there's still a lock out effect, and existing homeowners are still facing a lock in effect whereby they're largely precluded from offloading their existing property for fear of resetting to significantly higher rates.
Remember, even if you're.
Buying a lower cost nominal asset, if you're resetting from sub three percent up near seven percent, well that's going to result in a sizable increase in your monthly payment, which most Americans simply cannot afford, so that lack of mobility both into and out of the housing market, I think is going to slow any further progress for the price pressures that we're seeing in the shelter component.
There's a theory out there that the tariffs and trade debates will dampen growth, and that we're seeing that on the margins, whether it's people getting more concerned emotionally and maybe not in their spending habits, as well as companies that aren't hiring as robustly or doing capital investment plans the way that they have been in the past. Why do you think that won't be enough of a dampening effect to counterbalance some of the inflationary pressures and strength.
Frankly that we're seeing in the consumer well.
I think the biggest impact that we've seen thus far has been on the soft data on the confidence numbers. Consumer confidence has fallen into a multi year low as consumers are anticipating these dire conditions coming down the pipeline,
driving inflation expectations up to a multi decade high. But on the business side, we've also seen that we've seen that impact on confidence come down to a multi month low, with ninety percent of businesses saying now is not a good time to hire, Now is not a good time to invest. But as we saw this morning when we look at that hard data, consumers are still spending, businesses
are still investing. So it's as if we're vocalizing more concern than we are actually changing behavior, and so again that's going to perpetuate this resilient notion for the economy, both on the consumer and the corporate side, and help to offset that impact on inflation and still leave us facing significant upside risks in terms of price pressures.
Lindsay Paxstepaul, thank you so much. I am still pleased to say joining us now. United Airlines Executive vice president and chief commercial Officer Andrew Andrew, thank you so much for being with us. First, can you just tell us why you thought this was an important deal to do.
Sure, it's great to be here, good morning. You know, I think United is the largest airline in the world, In fact, I know it, but we also have a few gaps in our network and we would like to be a better choice for travelers in the New York City area. We're very strong on the New York on the New York side of the river, and we'd like to have a presence on the other side along with in Boston. That's more significant than we have today, and this partnership with jeff Blue is going to get us there.
How much is this tied to some of the issues that Nework has had with air traffic control signals and all of the publicity around that diversifying so that there are some options in the New York City region apart from that hub.
Sure, it's a good question. We've had a very long term goal of being back at JFK Airport. We've been working on this particular partnership for Jeff Blue for a long time. So what's happened in New York and New York in particular of the LOWD few weeks is a bit of a speedbump. But the second runway will be operational again in just a few short weeks and we should be back to normal.
Do you expect other types of agreements like this, Andrew? At a time when we know that airlines have been trying to come up with agreements to flesh out their service area, their options for consumers, is this kind of the path of travel?
Well, that's a really good question. United We've always been focused on the consumer and providing choice, whether it's from basic Economy, our most basic offering to Polaris if you're trying to go to Singapore and have a Lifelive bed, and now the Polaris Studio, which is a brand new product we announced a few weeks ago. So we're always trying to figure out what the next step is, how to innovate, how to offer more choice to consumers. I think the rest of the industry is just finally caught
up with that. I call it the Great Reset. The other airlines are out there are doing a big reset trying to figure out how to gain foot and again, whereas United we figured that out a long time ago. We figured out the consumer was in charge. Biden, optionality was what they wanted, and we're just a step ahead, a generation ahead because of that.
What are you seeing right now the consumer really wants when it comes to.
Travel, Well, I think they want choice. And what I'd say is the US consumer has been very resilient, and for example, trips to Japan I think are just really in fashion right now. To Japan I would describe as one of our hots destinations. This summer where everybody's trying to take the family to Japan. I'm not sure we'll have enough seats to be frank, but the consumer wants choice in a product range. They'd like the optionality of flying basic economy, but they also like, you know, sitting
in a premium seat from time to time. And most importantly for United, they like the optionality we provide to go around the world. Whether you're trying to go to Mongolia or Cape Town or anywhere in between, United can get you there.
It's interesting you talk about Japan because I remember Lisa sent her son to Japan and perfectly nailed it when the yen was really to her favor in terms of doing the currency exchange. Where else are travelers going this summer because people have been talking about there's all this concern about whether people are going to spend and travel because of terifs. But it sounds like for you it's pretty robust.
Yeah.
I think it's going to be a very busy, busy summer and our airplanes are going to be full. In addition to Japan, I would say that the hotspot, and this is for now the third year in a row, is Southern Europe. We just started flying to Sicily last week, and we fly to Naples, we fly to Rome, Athens, Spain. People in the United States are anxious to get to southern Europe and it's just, you know, it's a really great vacation, and I think that is another big hotspot across the globe.
One big question has been not necessarily outbound traffic for tourism outside of the US, but inbound traffic with people from overseas coming to the US. How much have you seen a real drop off, especially as we have heard a lot of headlines and tensions between the US and other countries.
I think that is a fair point. We have seen a small drop off. We've talked about it from Canada. There are previous reports that were just completely false, but it is a small drop off, and other parts of the world some of it driven by currency. I think
Japan is largely driven by currency. But you know, the US consumer has been incredibly resilient and so from you know, load factor point of view on our jets, that small drop off overseas has been more than offset with more US consumers seeking that vacation to Rome or Japan.
This year, we're about to get a read on inflation as well as consumer spending and income, and there's been a real question about what's driving disinflation.
It has been airline prices.
Actually, airplane tickets have been coming in, and I wonder whether you expect that to continue or whether that was a temporary blip that has changed, especially as people are feeling better well.
As you imagine, airline tickets over the long run are a great bargain if you adjust for inflation, for sure, and we have seen a lot of inflation. I do think, you know, earlier this year, when we did see some consumer weakness, we adjusted our posture in terms of how much we're charging to fly within the United States and
around the world. So that did stabilize demand, but yield, our ticket prices from our perspective, are a little bit lower than we expected this spring in this summer if you roll back to the very beginning of the year, based on what we see from consumer demand, So we do think there's a lot of bargains out there.
Do you expect that to change later in the year.
That really depends. It's hard to predict the economy. As you know, we spend all day trying to think about that. If the economy gets stronger, then of course we would reset. But once we get out of summer, my guess is these trends will probably continue for a bit. But twenty twenty six I think is going to set up to be a very great year for United. We have a bunch of new products we're introduced in including Star length and newclear seats, so we're bullish about the long term United.
Andrew, it is so great to have you. Before we let you go, I want to ask, just finishing.
Where we started with the idea of JFK versus Newark and the foray into JFK. I'm wondering whether this is the beginning of a broader expansion once again.
I know you've had a love hate relationship with the airport.
Is this sort of the first foray into getting a bigger footprint at that hub.
There's no doubt we would like to get a bigger footprint at GfK. You know, we're going to be starting off with a high single digit number of flights, which is rather small for United. We are the largest airline in the world, so we look forward to looking for more opportunities to expand there. But GfK not like the
other New York City airports are runway restricted. The runways are very full, as we've talked about often, and so the ability to grow at JFK or any of the three New York City airports is constrained by these runways. So we're sure hoping that there's advanced technology that allows runway expansion to continue. But in the medium term to short term, the runways are full at the New York City airports and our ability to grow by any airline is quite limited.
We have all experienced that.
Andrew Nocella, thank you so much for taking the time wonderful to speak with you. United Airlines Chief Commercial Officer there.
This is the Bloomberg Saventans podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am 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.