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The world's changed, and it's gone in a Neil dotted direction.
Neil Dutta joins from Renmec. Now that extended conversation. Neil, you've been talking about the slowdown? Did it begin at eight fifteen yesterday?
Come on, Tom, I mean you have not been long enough to know that I wouldn't pin all my hopes on the ADPM Ployment report.
Okay, but there was Moldy. What kind of claims number.
Do I need to see to confirm your disrespected ADP report?
Well, I think that break even level on claims is probably somewhere around two hundred and fifty to two hundred and sixty thousand, So we're getting awfully close. When I say break even, I basically mean the cutoff point between jobs growth and jobs flat. So we're getting awfully close to some pretty soggy employment reports. And remember, you know you can use the jolts data to kind of calculate
what the break even level on jobless claims is. And you know, when I run the numbers, it gets me to around, you know, around two hundred and sixty thousand, So you know, initial jobless claims are running about two hundred and forty right now, and I would just say that, you know, look, I mean anecdotally, it's really hard to think that the labor markets are fine. Just look at the last week Microsoft, Disney, and Procter and Gamble announcing
meaningful layoffs. I mean, if every company is restructuring at this same time, that becomes the macroeconomic issue. So I do think that not only are layoffs going up, but what's more important is that the job finding rate is really really weak, and so that means that the well of unemployment will continue to build, you know, at least over the foreseeable future.
Amia, We've now all had about twenty four hours to digest at ISM data yesterday. I kind of feel like yesterday may prove to be an important day. We had the services INDEXICO into a contraction area. We had prices paid surge, we had new orders really really declined well below fifty. How do you put all that together yesterday.
Well, I mean it's true that the ISM does get a lot of weight in the marketplace, but it's also important to remember that, you know, the there are multiple ways to kind of skin the cat if you were in business economics. Right, So we got a pretty soggy ISM services number, but we've got a very strong SMP Global Services PMI, right, And it's important to kind of look under the hood and see what's driving these indicators.
Right.
So you know, the ISM services, believe it or not, has a goods producing tint to it, right, So it includes things like mining, utilities, construction, agriculture that's in the ISM services number, right, those are companies that are surveyed by ISM. The SMP Global is more of a pure services indicator, I would argue, and it has a larger sample size. So it's not immediately clear to me that services are falling off of a cliff in the way
that the ISM is is implying. And you kind of just have to take all of these things sort of on board and put it into your process and just adjust accordingly. You know, the ISM tends to be more volatile. I mean, it's dip below fifty. Previously you know back in late late twenty twenty two. So you know, I just tomorrow is going to be more definitive, right, I mean, whatever happened with the job's number that offsets everything else for the week, And sure you know that's sort of
I'm thinking about it. I mean, it's it's interesting to see some of these data points kind of stacking up in a more negative direction. And I will tell your audience that surprises tend to line up in the same direction. Right, So if you get a week ADP a week ism, you know that that tends to build up, you know, sort of towards the job's number. But ultimately the job's number will settle the score.
We continue with Neil Dota of Renmack, my Economists of the Year a few years ago. Brilliant optimism amid the COVID gloom.
A little more.
Cautious maybe here over the last at twelve months. We welcome all of you on your commute across America. Good morning, an Apple car play? Is that the way you roll.
In your in your bamily?
Sure you got the Apple car play? Going Android Auto out with some new software. Congratulations Google on improving Android Auto each and every day. YouTube subscribe to Bloomberg Podcast. It's the way Neil Dutta partakes in what we do here each and every day, claims in sixteen minutes, Paul.
Neil, the consumer. How's the consumer doing out there? We understand there's kind of a bifurcated consumer. Just how do you kind of think about the US consumer going forward here?
Well, Paul, as you know, I mean, I think the bifurcated consumer is like a constant trope on Wall Street, k shaped. I mean, the high ends doing well as if that's not always the case. I mean, it's sort of I think it's kind of senseless to keep talking about it that way. You know, Ultimately, the story about the consumer is one of declining real incomes or slowing real incomes and limited savings to cushion themselves from potential shocks. Right,
So that's the main story. Last year you had about you know, maybe three percent growth, a little over three percent growth and real conser or spending, which is a very strong number. But that was despite real incomes then of transfers growing at about one and a half percent. So in other words, consumption grew twice as fast a real incomes excluding transfers. That means that people drew down their savings to jolt their consumption over the last twelve months.
So even if you assume the savings rate is stable, given the ongoing weakness in the labor market, you should expect to see consumption slowing at a minimum towards the growth and incomes assuming a stable savings rate. So that's what we expect, and that means that consumer spending is probably growing, you know, maybe one and a half percent, probably worse. And you know that on a trend basis, and that is you know, consistent with below potential growth.
So get to get away from the Atlanta GDP number, which is a present snampshot. You're migrate neal data from a three and a half four percent.
OMG Atlanta GDP number down to something a lot more tepid. Is that right? Yeah?
I mean I think the Atlanta Fed numbers overstating the health of the economy. I mean there's a lot of kind of you know, how much building is coming from the first quarter? I mean, how is this? I mean, remember, the Atlanta Fed is not a pure GDP bean count, right, because it includes survey data like ism services, not manufacturing
for example. You know, That's why I say, I mean, if you focus on the labor markets, it gives you the sort of cleanest picture in terms of what underlying GDP is doing, if you just look at total hours worked. So I think when you look at it that way, I mean, you're really talking about an economy that's that's growing below potential, and that'll mean upward pressure on the unemployment rate over time.
One final question, it's just as simple as this, did the.
FEDS mandate shift yesterday at eight fifteen or at eight thirty this morning? Or with a vengeance, will it shift at eight thirty one tomorrow?
Well, I definitely think that there is a you know, the FED has a modest dubbish bias. I mean if you look at their performance over the last number of years, and so, you know, my sense is that once the labor market begins to crack, they'll sort of stop worrying about inflation and start worrying about growth. And so, you know, given the way they're set up, he sort of needs to see that before they can kind of pivot. But
that's ultimately what I believe is. So if you continue to see weaker sort of employment data, you know, the Fed will will sort of stop paying attention to what's going on with inflation and kind of, you know, capitulate in a way.
Yeah, thank you, dear Doughter. Greatly appreciated from right back. Thank you.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Easter and on Applecarplay and Android Auto with the Bloomberg Business app, or watch us Live on YouTube.
To have an informed conversation here we could do that with a panache. Vishtaperture joins us in, a chief fixed income strategist at Morgan Stanley.
Totally unfair.
I'm mean I asked the first, you know, the first question that matters is a disinflation lower yield vector. Is it in place?
Still? Do you do we just have the.
Basic idea of a structural move to a lower rate regime or have you shifted on that?
So we think it's a complicated picture, Tom, and good morning, and thanks for having me on.
I think it's a complicated picture.
We have a view that the inflation in the immediate future, so the third quarter of this year, we will actually see inflation spiking as a consequence of once the effect of tariff's really begs to show up, we expect the code PC infation to get to you know, four and a half five percent by third quarter, and that prevents the ability of the FED to be able to cut this year. So unlike what the market is pricing today, market is pricing in litt lower two cuts in this year.
We are expecting no cuts this year, and market is pricing roughly between two and three cuts next year. Would think there will be a lot more cuts next year. We're expecting seven rate cuts next year. So the picture is a bit more complicated. I think that the right so cutting all the way down to five. So we are our expectation of where the profit rate is lower, but the timing is quite a bit different than what the market is currently.
No rate cuts this year, seven next year. These Morkings Stanley guys are always turn up trouble. They are anti corid census calls vishy. So what do we do in the backdrop there? I mean, I'm looking at the two year We're now well below four percent. I got my ten year we're down to four thirty two. How do you play the trade free market at this point?
So what we are suggesting really is a steepeners are still our trade.
We do expect steepening to occur.
We think that the maybe the at the moment, tactically we would be neutral on duration.
But we think we will around the As we go towards the end of the year, the market will begin to price in that the Fed will cut a lot more because the conditions for the Fed to cut, in our minds are inflation should not be going higher. Inflation should be should begin to show signs of slowing, which we expect to happen early part of next year. We also think that the race at the pace of huge opportion will slow substantially.
Visitaria fortuur us, we will continue. We are two minutes away from suddenly an interesting claims number. The two sets, the actual claims number with the revisions and those continuing claims which made news last week.
Paul visciually given kind of your interest rate outlook and some of the economic concertainty that that's out there, certainly as it relates to growth into inflation, we had some startling data yesterday. Credit risk talk to us how you talk to your clients about credit risk?
Sure?
Yeah, I would say reasonably constructive on credit in a way, you know, with the way I would look at it is that we are calling for a meaningful slowdown in growth, but we are not calling for a our base case that's not called for a recession in the United States. So we go from two and a half percent growth in twenty twenty four to one percent growth in twenty five. With twenty six and if you look at the credit fundamentals, the credit fundamentals enter this cycle at this point in
a pretty healthy stage. So if you look at leverage metrics, you look at interest coverage metrics, look, they don't look elevated, they don't show hows of excessive credit risk taking.
Also, the you know we are you know we are.
If you look at the rate of upgrades downgrades, it's stured much more in favor of upgrades.
So you put all these things together, you.
Add some more fun you know, technical factors such as the emergence of the yield total yield based buyer, you have a reasonably constructive outlook for high quality credit.
Officially, I look at the ten year inflation to justin yield. I know there's a number of ways to look at it, but the answer is that real yield is coming in.
Is that constructive for the FED?
Or is that the horse before the cart getting out in front of rake cuts?
So I think it is this quite doesn't reflect the effect of higher tariffs showing up in the inflation numbers yet. So when we when we start seeing the numbers, which we expect starting, you know, as soon as in this quarter, the next month numbers should begin to reflect the effect of the tariffs, So tarifs will be a pass through.
So we, as I said earlier, we expect to get the core PC numbers, the inflation levels that the FED cares about to get to four and a half five percent on an annualized basis, the temal number, you know, the month number numbers annualized basis to four and a half five percent, which will we expect to happen sometimes towards the end of third quarter, you know.
And that's uh. I think some of these uh.
You know that really prevent the you know, the sort of binds the right answer the fat for cutting this year, VIC.
We we've got our friends down in Washington, DC trying to pass some tax legislation and I don't know whatever version you're looking at, it looks like they're penciling in a big increase into you know, the deficits and debt. Does your bond market does it care anymore?
I think it maybe maybe maybe the bond market doesn't care about the projections for the ten year time for because I think the bond market does care what the near term is going to be. So we would have said that the one year twenty what happens in twenty twenty six, what would be the issuance requirements, what will be the composition of that that issuance bond market does care about that.
But I think where we are thinking.
Is that the the Frescolympetus coming out of this for the next next year, amount of deficit edition is not It's going to be a roughly three hundred billion, is what we are That's the number we are canceling in. I think that's that is something the market.
Vishi, thank you so much, really appreciate it. With Morgan Stanley and as Paul mentioned, the idea of seven cuts in twenty twenty six, stop the show. There vis tier porture again fixed income with Morgan Stanley.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Julia carnetto right Now, Micro policy perspectives.
Julia, I thought we were going to walk through the interview.
Not incredible amount of information off the dual mandate.
If labor breaks.
Weaker, but we get some form of tariff inflation. As a general statement, every study I've ever seen is they're going to side on the inflation decision. Are they really going to decide on the labor economy? I don't buy it.
Well, it really depends, as Chair Powell has said, on the magnitude of the miss relative to their mandate. So right now we're starting from a point where we're at their full employment mandate by almost every metric, and we're still missing and as Powell said, we've been missing for
four years their inflation mandate. So yes, in the near term they are going to lean on the inflation mandate, hold their fire on rate cuts, and wait and see as we navigate through this tariff shock, which you know very very likely will boost inflation at least in the near term. Even if it does turn out to be a one time change in prices, They're going to want
to verify that trust. But verify means so that means that the labor market has to really get a lot weaker and look quite recessionary, okay, before they cut rates.
Tomorrow's jobs report at eight thirty, is that going to deliver quote a lot weaker No.
I don't expect so. I mean we have a one hundred and fifteen k on non farm payrolls. That's a slowdown, but sort of a gradual one. And tom the complicating factor in interpreting payrolls in the next six months is going to be that we are implementing very drastically reared strictive immigration policy, and that in economic NERD terms, lowers the potential growth rate of the labor market and GDP. We should expect to see less hiring because there is
less labor supply. That is not a that's a sort of structural feature that it's not up to the Fed to offset with stimulus. So if we choose as a nation to have fewer immigrants, then we will have less GDP. Growth and less non farm payrolls. That so we're going to have to really look at the unemployment rate as the arbiter of Okay, we're seeing a slowdown in hiring, but are we seeing the unemployment rate rise? And I
don't expect. I have the unemployment rate holding it for two which is still, you know, quite low by historical standards.
Joeya looking back on yesterday's ISM data, I guess the headline was the services in next dipped below fifty, suggesting that maybe the service's economy against seventy percent of the US economy, might be contracting. But you also had some data showing I don't know, new orders plunging, prices paid kind of surging here. And then you look at today's initial job as claims that it came in higher than expected.
Are we starting to finally see in the hard data some of the uncertainty that's been unleashed by some of this tariff discussion.
Yes, I think the answer is a decisive yes to that. All of the April data came in soft. We saw decline in core retail sales, we saw decline in core capital goods orders, we saw decline in auto sales.
In April and May.
In the trade data that we got this morning, the detailed report, we are seeing confirmation that a lot of the demand we saw in Q one was pull forward ahead of tariffs, which means that we're in for a pothole in final demand in Q two. So yeah, I think we are seeing confirmation that number one, people did a lot of buying and spending ahead of tariffs. So for example, one thing we got in the trade report today was a drop in technology imports. That was something
that had really boosted investment in Q one. That will be a decline in Q two. So there's a little bit too much. I think hopium built in that data centers can save the economy, and I don't.
Think they can.
Just so you understand, they don't have Hopium in college station.
Now they have hope in Austin.
Just so, Julia, this once again, I guess I'll ask it this way. Does this once again raise aspector that this FED will be too late?
I mean, I think that the FED is constrained so too late. Uh, you know, when we are making policy choices to kind of make the monetary and fiscal trade offs worse, right, so we are choosing to expand the deficit. We are choosing to restrict immigration, we are choosing to instigate a trade war. All of this makes monitor Harry trade offs worse. That's not the Fed's fault. They didn't make these choices. So are they going to be late? Well, they have to make sure. They don't know right now.
Will the labor market stay resilient. We should certainly have seen that in the last few years. Will we actually see the burst of inflation? They're going to just have to calibrate on the data. There's so many possible scenarios from here.
Julia quick and you're just perfect for this.
We see Canada terrible exports to America, and then there's a sentence by CIBC that they made it up with buoyant exports to UK and China. Do you buy the idea all of these troubled nations can find other venues for their exports if we shut the door.
I mean they're going to have to find other venues. I don't think that that's going to be a perfect offset because the US has been the driver of the global economy for the last few years. So I think that this trade war is going to dent global growth. But I think most of our trading partners, including Canada and the UK and others, do see this as a structural break, like the US is not going to return to its ally status that it was, you know since
World War Two. We are choosing to turn away from allies and choosing to be an unreliable trading partner, right and they will have to. I mean, you'd be foolish not to look to diversify your exports.
Julia Carnatt, thank you so much, greatly appreciate it.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
It's just a great conversation.
Paul Sweeden's going to dive in here and lead it.
It's real simple.
In eighteen forty there was a huge famine in Ireland. Many went to Canada rather, and many from Canada went to a nascent steel industry in Pittsburgh, including the Rooney family.
Yep.
And they will, I mean celebrate this, you know, the Rooney family just iconic Paul, the Steelers will play in Ireland.
I know that's really.
Very, really cool exactly, and that's important for both sides. Neil Richmond joins us. He's a Minister of State for Diaspora and International Development for Ireland. Neil, thanks so much for joining us here. A lot going on out there on the geopolitical front. I'd just love to get your perspective, the perspective of the Irish government of how it's dealing with a lot of trade uncertainty just globally here. What's the perspective of Ireland these days?
I suppose I'd like to say two things in that regard. First and foremost, we are going to every length possible to stress how rich the trade investment relationship is, not just between the in the US, but particularly between Ireland and the US. Ireland is the sixth largest investor in the United States. There's more Americans employed by Irish companies in the US than there is Irish people employed by American companies in Ireland. But it's a really strong relationship.
The US is our largest trading partner. It's a really strong basis in terms of life sciences sector, in terms
of agrifood and signs of tech. But in terms of how we respond to this period of instability, to be quite frank, and we welcome any puzz in relation to tariffs is we're working with our European partners to make sure that the European response to any pronouncements or decisions is measured, is reasonable, that protects business and more importantly, that strengthens, if anything, the trading relentship relationship between the EU and the US. Let me be very very frank.
Tariffs are a bad thing. They're not good for our economies, they're not good for our companies, but crucially they're not good for the consumers, either in the United States or in Europe. People shouldn't be having to pay more for their drugs, or for medicines or anything else in this regard.
So that's the approach of the Irish government. We want to work on a bilateral basis, on a European basis, but crucially we're also working not just at a federal level, but at a state level, which is why I've spent the last couple of days in Pennsy Pennsylvania and Massachusetts.
So you mentioned Neil, the pharmaceutical company's strong presence in Ireland. What are you hearing from the pharmaceutical companies with bases in Ireland at the moment.
Yeah, we're very lucky that fourteen of the fifteen largest pharmaceutical companies in the world have either their European or Amia head offices in Ireland, and we're working really strongly with them to make sure that they are able to weather any uncertainty that their commitment to the European and American market is strong. But I'll be quite frank they are worried. They're worried that the decisions being taken elsewhere might limit their ability to grow their markets.
And more importantly, what.
We're very very worried from an Irish government point of view is we have a huge pipeline of expansion and modernization of some of the plants that are in Ireland. New drugs coming on stream, new device is coming on stream. But the hesitancy in the American situation means that those basis aren't possible to go forward in the in the New York term, And you.
Know you mentioned this strong relationship between the US and Ireland from the trade perspective. In fact, Ireland surplus with the US is one of the largest. And I know Secretary Howard Luckman has singled out Ireland in the past. How will Ireland respond to the extent that Trump really wants to put some pressure on Ireland specifically.
Well, well, I think one thing is when you take trade in goods and services, it's quite a balanced relationship. We know there's a huge surplace when it comes to goods and goods alone, but services together, it's really a balanced relationship. And our Deputy Prime Minister, our Minister Foreig Affairs and Trade, has met Secretary Lutnick a couple of times and we've spoken with them and we've really laid out that Ireland should not be seen as a rival
to the United States. It's a complementary relationship. The vast majority in the area of pharmacy, life science, it's the vast majority of goods that are producing art and actually your component goods that are finalized in the US and then sold into the US market.
Neil Paul from New York City emails in and he says, can you free up with your massive power with an Irish government? The Mariana Hotel from September twenty fourth to September twenty seventh at one thousand, five hundred and sixty six dollars per.
Night, Neil, can you free up a couple of rooms there for us? For the Steelers Vikings.
I can't even get a cup of coffee in the Maria Hotel. It's such a popular, wonderful venue. But what I will say to Paul from New York, I don't have a spare bedroom in my house. I've got a couple of young kids. But I know lots of wonderful accommodation in my district.
There were just Neil, tell me about real estate and Dublin. I look at it. I'm absolutely flabbergasted.
Paul's looking at you know, three four bedrooms there and it's like, you know, Bono prize, boom prices.
It is tough. When does Dublin just the it can't.
Go higher, right, Neil, Well, it can, and we've made a change there which is really welcome. At the moment, the highest building in Dublin is seventeen stories, but we've just see what's being constructed.
At the moment.
We have our first building that goes.
Past twenty stories.
So there was changes at a city level which removed the high cap in Dublin city in the last couple of years. So we're seeing a lot of introduction, particularly right in the city center along the River of high rise development, both in terms of office space and a d commercial So it is going up. It is becoming more dense, and that's really welcome.
But our biggest.
Concern from an Irish coping point of view is we needed to go higher quicker.
Noah Richard, thank you so much.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
One of my major faults, one is I don't do enough on municipal bonds, and the other is retire vironment is a tragedy in America. We all know that you don't need to be lectured by me on a Thursday morning. She is Pension B in the United Kingdom and the United States. Ramisavova is CEO at Pension B and joins us here from London. In the studios. On your website, you get fifty seven nine and twelve dollars. That's what I got in my four to oh one K. Whatever anybody's age is, I'll pick forty two.
It's not enough.
What percentage of people have four to one ks where you stayed actuarily.
It's not enough, I would say the vast majority, although not enough. Will also depend on where you want to retire exactly how much you want to spend, But overall, what we see in the numbers is generally speaking, the median person does not have.
Enough and enough.
The way you do this is to put more aside in the government. It's helping out sort of kind of like in that what's the bogey the pension B what's the number that I want to get to? Don't tell me it's seven hundred thousand. That's not going to get it done.
For John Tucker on the shore in New.
Jersey, well, I'm not leaving the shore, just to be clear, it's just east there forever.
Well, it depends on how much you want to spend in retirement, but the median person has around fifty to sixty thousand dollars in four to one K savings, and that will almost certainly not be enough anywhere A lot of the research we've done shows that around forty percent of Americans don't even have enough funds to retire for
one year, and so there's no real simple answer. The best thing you can do is figure out how do you want to live when you retire, When do you want to retire, and then work backwards from there, and that will tell you how much you need to start putting in.
You walk into any Starbucks in the United States and it's filled with people on laptops. I'm not sure what they're doing. I've been told they're part of the gig ecademy. What did those people do because they don't have the matching four one ks that a lot of companies offer, What did they do well?
I think it's a huge issue. It's a huge problem. Studies now indicate that gig economy workers are around fifty percent and will soon be more than fifty percent of the entire workforce, and they don't get the standard employee benefits that you would get in a big company, and
so retirement provision is really left up to them. One thing that a lot of self employed workers do look into is something called a step ira step ira, Yeah, and that is something it's a vehicle that gives you access to the ability to contribute substantially above the normal IRA limits.
Denmark just went to age seventy.
I believe I got this right, folks, don't If I'm wrong on this, you can stay with me.
It's part of the script.
Denmark went to seventy Are we not in out retirement? What do you think John seventy two, seventy six? What do you think we ought to be gone here here? Eighty?
Oh?
Should we?
Should we running this out to eighty years old?
For some people that is an economic reality.
Yes.
What do you say to the politicians in Washington or in London about fix this?
What's the number one thing they need to do?
Well?
For the politicians in the US, the number one thing is to mandate automatic enrollment across the board, and to find a way to mandate it for gig economy workers.
Too suppy, are you know?
Yes, because when we look at the numbers, only around fifty percent of workers are actually contributing. And the longer you leave it, the greater the shorter This is.
Great, Grand me so well, but thank you so much with pension me of course, they are all the good work of Peter or zeg Now at Lazard and I Think A Roger Ferguson and Tia Kraff.
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