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Constance Hunter gives us wonderful perspective this morning. How is your view on this change with the information of the last seventy two hours.
Yeah, well, so just to recap, right, it was the benchmark revisions, and it was PPI, and of course the benchmark revisions we could anticipate in advance that those were very well forecast and we knew that it was going to be large, and obviously it's the large. It's even larger than the two thousand and nine benchmark revisions. And what it foreshadows is that the labor market is weaker, which is the same thing the last two data prints have been telling us. And then of course PPI was
quite an interesting report. Yes, we saw goods prices see pressure and services prices soften. That's actually what the Fed sort of wants to see. I think they can look through higher goods prices. It is harder for them to look through sticky services prices. So that's quite encouraging actually, And of course the other thing that came out of PPI was that margins are companies are taking this, margins are shrinking and if that continues, that is not a very good outlook for the equity markets.
I have the Eco Go screen up on the bloomer here looking at these these headline numbers. Beneath that what is most important to you? What are you going to be looking for when you begin to support through that release.
Sure, we're going to be looking through all the details of goods, and of course it's going to be lumpy as these as these tariff effects get passed through. We haven't seen it in autos, for example. We did see some indication in the PPI that component parts are going up. Engines are going up, component parts are going up, and so we do expect that passed through to come eventually.
I think it's going to be lumpy, right, So we have a forecast each month of some average that we think is going to occur over the next six months, but very likely it's going to come in one or two month bursts and then it's going to subside.
Does Chinese deflation affect this report or is that just a sidebar on the other side of the world.
So that's a great question, Tom, because in the past, disinflation or deflation in China has been exported to the rest of the world, and it would be still being exported to the rest of the world except that we have put tariffs on and so that passed.
Through is not occurring.
Interesting, and we're not the only ones, by the way, if you look globally, deminimus taxes started in force in twenty twenty four from countries around the world, pushing back on the disinflation and deflation and excess supply.
Let me ask an unfair question here. There is so much scrutiny on the Bureau of Labor Statistics, and I think what that's done is and have gotten a lot of us to re engage with the processes that lead to the job numbers that we get. Indeed, these inflation numbers as well, just stepping back, how good are these numbers? How much are they telling us about the overall inflation picture.
So the robustness of the policies and procedures that all of our statistical agencies follow, including the BLS, are extremely robust. They have multiple failsafes and by the way, like all of us, they're always looking to find improvements, and they're always looking to say, ah, this isn't exactly right. We need to improve this, we need to improve that. And I just want to say, on the face of it, revisions are a really critical part of how data is
collected and then processed over time. Right. So the problem with the CPI is that it is an average basket and what we know is that people attached to what economists call salients.
Right.
So for me, it's that cup of coffee.
I thought I had a vertical demand curve for coffee, that there was no price at which I would not buy out, buy coffee out in the morning.
Yes, but that it.
Turns out I do have a price, and that price seems to be switching to Sanka. Well the eight coffee yeah, and eight dollar latte is a really it's really tough to swallow.
It's it's on our way in here, Lisa and your pumpkin lot. It is.
I know it's very expensive. And are you cutting back? Yes, I mean get home, let's.
Go down to you. There's something different this year at our remembrances of September eleventh. Here we see the former governor of New York, Andrew Como, in conversation with Michael Bloomberg, as well as others. Mayor Adams is there.
I saw Jase Johnson, the former Homeland Security Secretary with mister.
Navarro I saw as well, and Secretary Lutnik is there. I should say that Michael Bloomberg, who has endorsed Andrew Como, is founder and majority owner of bloom briguelp the parent company of Bloomberg Radio. To those conversations, it has become a right of passage in New York. I think we need to convey that across this nation is Paul Sweeney says so eloquently, the light changes and you can barely
get through it, and it gets harder every year. Navarro's standing with Cuomo the twenty David, your thoughts on these images.
Yeah, I mean, I we're going to see I believe that the Vice President of the United States making his way to Lower Manhattan as well. President Trump is going to go to the Pentagon, and we see images of outside the Pentagon as well as we kind of again mark the way that all of this unfolded back in two thousand and one. So these dueling memorials taking place here on this on this Thursday morning in.
The USA today. I believe has now Vice President in advanced with changed plans and we'll go directly to Utah. Has it unsure on that? Yeah, we'll get out front of that. We welcome all of you across the nation. On this eleventh of September. We are on the constance hunters with us you as we look at the inflation and claims report. It completely unfair and I need to get the Jason Furman annualized statistics three months. But Adam Long had those numbers this morning, and I'm sorry they're
not two percent. This is the way it is. Do you say we're in an elevated inflation regime right now when you look at the annualized statistics?
Of course, I mean zero point four percent annualized is a bit above four percent. If that number continues now, we expect their content to be elevated inflation for the next six seven months or so, especially in goods. But over that time period we do expect to see some moderation and services prices, especially housing services, and so by this time next year, our forecast for three month annualized core is around two point two percent, right, so very
close to the FEDS target. And let's not forget that while we are seeing elevated prices and while people are attaching to salient whatever their salient price is right, and we saw feed inflation pretty significantly up in this book's report, the overall picture is that this is really being influenced by tariffs, which will feed through, that will pass through a year from now.
Constance, thank you so much, Constance under eiu at stay with us. More from Bloomberg Surveillance coming up after this.
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This should be a one hour conversation and along with a blistering essay oh in the last seventy two hours saying, look, the job character back eighteen months is a character of recession. Even though she says we may be in a new business cycle, We've got the inflation reports out as well, and I've got to go to the crafting of your paragraphs in the last seven hours or so. And you do an annualized calculation like Jason Furman at Harvard on
a three month annualized inflation, et cetera. How bad is it?
It's the three month annualized core CPI is three point six percent right now?
Wow, can you expand on that? Please? It's radio Anna, you have to it's.
You're not really well, yes, yes, tom So three point six percent is actually the one of the highests for over six months now. So I think the contour of three months annualized and this is a measure that Chris Waller has said he looks at. It's basically it has troughed a couple months ago and it's now on a rebound. And I think that what it is that.
The I think the rate hikes in the last couple of years in the level of that funds rate is only sufficient to bring inflation back down to about two point seven or two point eight percent, and thereafter it is installed and it's now going And that's that's the bus.
Let me squeeze in this question, because David's got a whole sequence of them that are smarter than mine. Is two point seven percent inflation life changing for our listeners and viewers. I would suggest analong it is.
Well, that is actually a very fair question.
So in many emerging markets, and I covered emerging markets earlier in my career, at many emerging marketsy four percent, five percent, six percent inflation with no problem with their economy, right.
And there are some many academic papers who has found that inflation start cutting into activity and people inflation expectations once the central bank decides to do something about it.
So if the FEDS inflation target is two percent, then inflation stuck at two point seven percent would be life changing in a sense that that distance that's zero point seven percentage point distance to travel well problem means over one hundred basis point of rate hike in order to get rid of I mean that is the what the kink in the flat part of the Phillips curve is about, is that once you get through the easy part of this inflation, which was the last three years, you're now
stuck at two point seven percent, and if you really need it to bring it down to two point zero percent, you are actually we probably need to increase unemployment substantially.
And I'm just confirming here the control room got you saying that's actually a very fair question to Tom King. That's a rare thing to hear from a gay from a guest here on this show.
I'm not sure that you're aware, Anna of the Greenawation doesn't give me this keydas it's been four days into the week, and I don't know if you're aware of how much the note that you wrote yesterday animated the show. But Tom quoted early and often from your report on your recession call that you made here, saying the revisions in those jobs numbers confirmed the labor market began to recover shortly after the FED started cutting rates in September
twenty fourth, then stalled out again. You said, it's possible the economy is either still in recession or in the early phase of a new business cycle. It was unfair you weren't with us yesterday. But I asked a question after reading that on air. So what so we marked that this may have happened, may be continuing. What does it tell us overall about the state of the US economy that the call that you made yesterday.
Yes, it has tremendous implications. So suppose that we are in the early phase of the business cycle. It means that the moment the Fed cuts in late next week, we are probably going to see a pretty sharp recovery. But what's unique about this economy right now is there's a bottle, there's bottling up a lot of inflationary pressure.
Firms are itching to pass through these tariff higher costs to consumers, but they couldn't so far, so they're waiting for the moment the economy is turning to pass it through. And I think once the economy is well in the recovery phase, that is when we are going to see a lot of these tariff pass through. And I think today's CPI report gives a little bit hints of that, which is that we see hotel prices and airfare prices go sharply up. And this is not something a recessionary
economy should look like. That we should be seeing airfares and hotels plunging, not urging.
And Joe Wisenthal folks saw as well beef prices confirming through the roof is doctor woe. Please stay with us. We have an exceptional five six, seven minutes here with remembrance, but anamog. Please stay with us, and we hope to pick up this conversation depending on the comments of the President of the United States in the last eighteen months, you know, somewhat argue the most influential rbider of our
market economics in America. And I want to pick up on the essay David Gerra mentioned where you talked about recession. Why can anawong study a recession so acutely and with your optimism say it's a new business cycle. And I've got to wait till the Red Sox win a world series for the NBER to formally say there's a recession.
Why the delay, Well, because.
Usually in the late part of a business cycle, you see that firms, small firms tend to go bust, and those small firms are very hard to capture in national statistics, so bls use a model to forecast this. Now, we have a lot of private sector alternative data nowadays, and the data we look at is a payroll provider focus a small to medium businesses, and these businesses were showing that the last two years had been terrible for them.
But what I've been seeing in the last three months, maybe two or three months, is that these there is an upswing in these small to small medium businesses and
in fact our own forecast error. Everyone makes errors, forecast errors, including us, And I've noticed that, based on these small medium businesses, our forecast error in the last two months have been consistently on the upside, which suggests to me that maybe that there is this early phace dynamics that's going on where you know, you see small caps and smaller business rebounding first before everything else are lifted.
And I look at the note and look at what you wrote about those preliminary revisions. You say they flag a strong possibility that the economy entered a recession last year and recovered after the FED cut rates in late twenty twenty four. So say Chair Powell wanders into the anti chamber outside his office, there's the Bloomberg terminal. He
pulls up your report. What does it say to him about perhaps mistakes made, but the path forward here if in fact that happened, how it might have colored if we do the counterfactual here, that the decisions that the Fed's made in the months between.
I think Powell actually felt vindicated because he was the one who pushed for the fifty BIPs right it cut last September on the basis of the Beige Book. The Beige Book is a bunch of anecdotes and soft data, and many people in the market discounted these soft data, saying that hard data does not is showing that things are great well. But the soft data in the Beige
Book is saying that employment was flat and declining. Now today the Beige Book is saying that employment is rising just slightly, so things are not as bad as last summer. Things are arising, you know, just barely, which is consistent with payrolls around twenty thousand or ten thousand per month. So I think Powell will look to this as saying that while he's going to take more signals from anecdotes and talking to businesses and firms.
And I'm brilliant, and thank you so much for all of us the team's surveillance, for your work here. She's been just extraordinary over the last seventy two hours. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch US Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch US Live on.
YouTube right now, we would digress and we've heard from a number of economists that the airlines are sprightly. I guess the defense business is sprightly. Germany's back in business. We have truly an expert this morning. This is someone that isn't just like, you know, what's Boeing going to do, what's Airbus going to do, but as a really encyclopedic handle on the defense business. Shia Luju joins US Aerospace and Defense equity research at Jeffreys as well. I got
to ask the first question, whither Boeing? Is it finally up for Boeing?
Yeah, the orders in August we're great. The deliveries were even better, So they finally seem to have a run rate of deliveries hitting their target and goal of thirty eight for our month. By the end of this year, we're going to forty two on the max.
I mean, it was at one forty when Shila said by it and we're now popping to twenty seven. So it's back to being a blue chip security.
Boeing is a tough name. It's not one of these momentum names that you could continue to say, you know, we're going to go from twenty four Max's last year a month to thirty eight this year.
Those are big.
Growth rates for any if you're building a widget, let alone an aircraft. So I think you have to take that into account when you look at Boeing's momentum. But they are doing the right things. They're producing aircraft better, they're finally starting to turn the corner on free cash low. Their defense business is also turning the corner. This is a business that was losing about three billion dollars last year, so we're doing better there as well.
Okay, she will be focused so much on these trade deals, but really, of course they're more than that, and you look at sort of what's been announced, and there are many where we don't have a lot of granular detail, but they're often kind of complimented by corporate deals and purchasing deals as well. And we were talking about yesterday the involvement of the US government and Intel these other companies.
What's the effect that that's had that as the president and his team negotiate these deals, often there is a component part that involves purchasing X amount of aircraft or why amount of aircraft from Boeing or another company.
It was one of my favorite pieces we published this year on April eighth, and it was really looking at how many airplanes does it take to get to the bottom of a trade deficit? So we looked at the biggest trade deficits that the US has among countries and how any airplanes they could buy per annum to offset that deficit. And sure enough, you know what's easier to offset a deficit than an aircraft that costs one hundred
million to two hundred and fifty million. They add up kind of quickly, and we've seen that happen with multiple countries and some of Boeing's largest orders this year.
Can I ask a dumb question that was brilliant what you just said? Apple iPhones are fifteen hundred two thousand bucks, but nobody spends that. We go to our phone carrier and we do a monthly plan. When you buy a Boeing seven seventy seven, do you buy it with a lump of one hundred million or they do it a monthly plan. No, it's just like my iPhone.
When you put in an order, usually it's five percent down. But you know, you buy an aircraft upround when you when you receive the air cash. Yes, so you have delivery. Whether you finance it or release it, you are paying for the aircraft upfront. I'm curious, I'm delivery.
Sorry, I'm curious of how the administration's approached defense has changed it on the industry side. So hexith running the Department of War as it's being called at least five by the administration itself. We've heard so much talk about new missile defense systems and the like. Famously, it's hard for the government to pivot. It's hard for the Pentagon
to pivot. Is that happening now? Is it underway or we had a point where in terms of the weapons and programs that they're focused on, they're going to be different.
Where are we in that process?
I think that's where I've been a little bit surprised. So well, Golden Dome was first announced in January. It was sort of this concept. No one knew what it was. No one still knows what it is, but it's going to be one hundred and seventy five billion dollar missile defense shield system encompassing all sorts of threats. And fast forward eight to nine months, we're now at the stage where we have to spend twenty five billion. It's in
the reconciliation bill by twenty twenty six. So the government has to essentially allocate the five large defense contractors and a bunch of small ones twenty five billion. And if you think about the defense budget, yes it's a trillion dollars, but really the allocation to R and D and procurement dollars is around four hundred billion, so twenty five billion actually increases their spending and potential. So Golden Dome is the contract. Our favorite name in defense is LHX. Another
name we like is Letos. It's ID Services. We hosted lhx's CEO last week at our Jeffrey's Industrials conference, and they're putting in RFP. It's not even an RFP process. The government saying what can you demo for me? When come in and let's see what you got.
We would have to go in a moment here with a huge news flow. Today, as we speak, the ECP comes out with their headlines there's no rate change. You'll have Leguard's press conference. But I'm looking at nominal GDP, the inflation plus growth espers out there that are tepping as well. With all your expertise, Shila, do you believe that Germany will actually spur defense spending and a nominal GDP oomph in Europe?
I was in Europe three weeks ago. I met with sixteen clients the equivalent of their labor day weekend. That does not happen in Europe. A defense analysts going to meet with sixteen investors, they've usually been hands off defense. But all I heard about was defense. So yes, I do think that the NATO countries are going to actually increase their spending. Historically, fifty percent of that has come
back to US contractors. Let's say if it's even twenty five percent, that's two hundred and eighty billion additional dollars to the US contract I believe in the story. Wow, it's happening. I mean we're seeing orders from countries like Serbia to albert that Serbia has never been a country to order two billion dollars of equipment.
Don't be a stranger, sheilacter her. Thank you so much. Stay with us. More from Bloomberg Surveillance coming up after this.
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Terry's got the most important job in tech. He's a legend on Wall Street and it manages the technology analysis of City Group Right now. You had your soiree a few days ago. What was the biggest surprise for you at that event?
I think the biggest takeaway We had two thousand people here in midtown, two hundred and fifty over two hundred and fifty company management teams, forty private AI companies that we hosted across a number of sessions and tracks, and I think the thing that everybody walked away from was with was this sense of urgency around artificial intelligence and just the pace of things.
The pace of it it is.
You know, their comparisons and Gershen and I were talking in the green room before this, there are comparisons being made to sort of prior cycles and technologies that we've been through, and where all of those comparisons fall flat is just the speed that is that this is moving at. And I don't think anybody walked out of that conference.
Fire Tyler Radkey two days ago when he got Oracle wrong, Tyler Keith, I've never seen this. Look, I've never seen a jump in a blue chip stock like Oracle.
Yeah, I'm right there with you. I've never seen anything like that. Tyler's a fantastic I'm medicated. I know as an analyst who's been doing this for like twenty five years, you've gone wrong. I've certainly gotten wrong right now.
I mean, I know it's a brutal day for the nation. But the FBI is speaking right now, but they have Gersten Distant Felt and Heath, Terry and David when we invented this. This is what it's about. You.
You're jealous that you were in the green room.
They were talking out of Alabama with a slide roll he got from Werner von Braun and it was before Excel spreadsheets when Heath was doing this continued today.
Let me pick up on the surprise that Tom's talking about and you're picking up on with those Oracle results. Put them into the broader picture here. What does it indicate about the speed the trajectory that we're on that we saw really such an exuberant growth there in Oracle as it's changed kind of its tack.
More broadly, well, look, I think in that bigger picture, it is the combination of what we saw from Oracle, what we saw from Mango dB, what we saw from Snowflake. This AI moment that we're in is moving up the stack, right. This was an Nvidia Amphenol Arista Networks sort of thing as we did the picks and shovels part of this, and now we're moving up the stack to the data layer, the consumption layer, and so anything that sort of leveraged
a consumption. We saw this in Microsoft's numbers back when they reported their June numbers. Anything leverage to consumption is seeing the kind of benefit that you saw out of Oracle. The reason Oracle had such a big reaction to it is because it is more of a surprise when you see it out of Oracle than it is when you see it out of micros.
All some Microsoft doing this big deal with a Dutch company this week and other I just okay.
Keep up with Mistral. They're doing an ASLM did a thing with Mysterill of France to keep them away from the Americans. What is the behavior of the executives? Are they like frenzy exuberants? Are they measured what's the actual demeanor.
Yeah, I think frenzied is probably a lot closer than sort of measured.
Right.
No company wants to be left behind in this. This is a technology that is going to reorder the competitive stack across every industry. And so no board, no CEO is sitting there saying, you know what, let's play wait and see on this and the ones that are probably to regret it. We have a generation of leaders in office now that have been trained on the innovator's dilemma, and no one wants to be the next one of those companies left.
We are honored that Heath Terry of City Group is with us. I made note of actually I think it was Tyler red that sent me some research on this, but in a very important visceral City Group meeting on all this technology. And when you look at the companies and the executives as well, they're all generally younger. They've seen cycles of that, your Steve Jobs and others Terodyne, Teledyne names that are ancient history, but this is the
new new Which company has the best model? When you talk to the I don't know eighty seven analysts that report to you which company right, now is doing it best for Heath Terry, Well, look, I.
Think if you look at the public companies that are out there, I'm assuming that's what you're what you're talking about. The companies that have the most leverage to this are the companies that are providing the models and the tools and the infrastructure for this. So Microsoft's obviously at the at the top of that list, alphabet Google is very
close to the top of that list as well. And then you start to see some of these neo clouds that are emerging companies like core Weave that are that are really providing a lot of the capacity and benefiting from Nvidia's willingness to supply these clouds with the chips that are in such a short supply.
David asked a question because I got a rude follow up, But you want Heath to stay around.
Where are we in terms of domestic production for those chips. Of course, the swirling story here in the conversation about trade policy has been about in Nvidia about the export of those chips, but also just about the need to manufacture these high end chips here in the United States. How do you assess the progress the country's making and pushing ahead to that, which I know will take an ample amount of time, shall we say, to get up and running.
Look, we have capacity in the US from TSMC's investments in Arizona, so you're starting to see that happening. We're still a very long way away. And what's perhaps even more important than the production capacity is the talent that's needed to produce those chefs. Most of that cutting edge salent, my question, is still sitting in Taiwan, and that's something that we clearly have to invest in.
I got two questions here, and let's pretend you're in the office with Missus Frasier and she's just grilling you. Why in God's name is Lisa Matteo electric bill going up to pay for fancy tech people's AI development discuss?
No.
Look, that is going to be a huge challenge for the development of this. The utilities, the regulated utilities, are going to have to figure out how to divide this because there's a big difference between the electrical demand that you're seeing for AI and the trends that we were seeing in overall efficiency and power demand. And if this is going to be a cost that is driven by AI,
driven by data centers. Then it's going to be a cost that needs to be borne by those data centers, and by the way, they've got the capacity to be able to do it.
Back to John Reid and Walter Risten, you people Owned International, Do you have any studies the show that we can develop many thousands American manufacturing forces to do what they do in Asia? Or does City Groups City Bank? Did you just assume that we're going to import Asia manufacturing skill sets? How are we going to do this?
I think it has to be both. I think you have to train people here at home. I think you have to import the talent from abroad. There is no way that you can get people up to speed as fast as they need to be to meet the moment that we're in right now. So that means having the kind of immigration policy, having the kind of active effort at bringing that kind of talent into the US. But then you also have to make the investment in the people here as well.
Talking with Heath Terry had a tech and research at City As we watched that press conference in Utah rap up again with the head of Public Safety in Utah, the FBI Special Agent in charge, and the headlines from that update on the assassination of Charlie kirk Or. The police have been able to track the movements of the shooter involved. They have video that they're going through. There's also solicitation there at that news conference of video and
footage photos from the event. They're trying to piece together what's happened here. Of course, we'll keep tabs on that over the course of the day as we follow that story, and keep your prize to memorials that are ongoing in Northern Virginia and Lower Manhattan Heath Terry, let me go back to that conference you mentioned at the top, because I want to get a sense from you how the conversation has changed or is changing. There is a moment when I think a lot of executives knew they had
to do something with AI. They poured a lot of money into that effort, building up their capacity to do it. Is that still where we're at, or are you finding that more and more executives have a feeling about how to more narrowly tailor AI to the work that they're doing day in and day out, such that it's actually making a difference in terms of their productivity and what these companies are able to do.
Yeah, I think we're somewhere in the middle of those two. You're still seeing this effort to really put a lot into proof of concept to try and bring these things on. At the same time, we are beginning to see sort of the proof of concepts go into production and it
is having an impact. You look at some of the efficiency announcements that you've seen, Hiring starting to slow down as companies sort of take a break, particularly in areas like code development and customer service, take a break to figure out what they really have and what they need. As we get through this, our view on this is that if you make people more productive, particularly code developers, you're going to want more of them, not less.
I got one final question, Tyler, Ricky, how did he get this across your desk? He has a four to ten target on Oracle, which I believe is top of the reset here, you know, September nine, September tenth. How does that work? Does the securities analysts have to get approval from you on a price target?
No, they don't. Tyler's independent.
He makes it up in a bar downtown.
So again, Tyler, we're going to get Tyler in here talk so much about him. I feel like he's gotta you know, Tyler's just downtown.
I'm just does Alabama football team this year. I'm not sure I will.
We'll see this weekend, so I will. I will be in Tuscalos, all.
Right, report he Jerry will be in tuscles to thank you so much. He's just sitting group driving all of their technology coverage.
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