Surveillance: Moving Forward on Tariffs, Says CEA's Hassett

of Economic Advisors. Except as not Hassett's lame duck. He's out the door and we all know in advance, depending on what the report is, what Dr Hassett will say. This is the Interview of the Day. Jason Furman links economics with policy like no one in America. He's the liberal the conservatives have to read on the American economy, and Dr Furman joins us right now, Jason, I'm gonna cut to the chase. Do we know what technology is doing to our labor economy? Technology is a good thing

that creates a high class problem. It gives us more options, it gives us potentially higher incomes. But if we don't invest in education, training and the like. You know, we won't get that. Are we seeing the investment now? I mean this is something John and I were just traveling, and you see the investment in infrastructure of the investment in education. Uh. We had a David Rubinstein interview with

Melinda Gates about investment in young kids? Where is the state of investment on a long term basis leads to a better labor economy? Too little? On all of those young kids were about twenty second in the O E C D in terms of preschool R and D. Private is great. Our companies are investing in research, but we're not doing the basic research on the government side that has been falling for decades as a share of the UM and our infrastructure. You know, in many ways it's

very good. We have great ports in America UM, but there's there's a lot more we could do. Jason, I want you to give us a little bit of a clinic and it can almost clinic if possible, on the difference between g D P what is it versus g D I? What is it? And then walk me through the spread between them both right now and what that story is. Talent you you're all able bernanke this morning. That's very cool. This is this is one of my

favorite topics, and I'm thrilled you asked. We can. As I teach my students, you can measure the economy two ways. You can add up everything everyone spends, or you can add up one's income, profits, etcetera. And in theory does come to the same number. In practice, both of them are measured with error, and so the actual measures you get are different. Right now, over the last year, GDP has grown at three point two. G d I, which adds up everyone's income, has only grown at one point eight.

That is the biggest gap between those two measures that we've seen since the Great Recession. It's an unusually large gap for any time in the last seventy years. All the headline numbers are about the GDP at three point two. Based on my analysis, historically, the truth is about halfway between. When you have two bad measures, the best thing to imperfect measures, the best thing to do is combine them.

In this case, combined them about fifty fifty. So I think our economy could be running more like a two two and a half percent growth rate route now rather than the three point to a lot of people seem to think it's growing up. And that's okay, Jason, that's not bad. But what is it about adverse scenarios that explains why there is this massive spread between both g d I and g d P. You know, it's just

pure measurement. Art's not something you can explain because in theory are the same and you're just adding stuff up and it's a different set in the data and sometimes they give you different answers. And that's why, um, you want to combine. And that's actually especially important around turning points. I mean GDP. In the middle of two thousand seven, GDP was growing at nearly a five percent rate. It looks great. The economy looked really really hot, um, you know,

as as late as December two thousand seven. But um, you know, but it actually was turning and that was showed up in the revised data years later. Along the lines of John's wonderful questions on how we Parsons split the economy, Dr Ferman, we have the idea of a better than good domestic economy and then you bolt on trade dynamics and it's not as pretty obviously trade war

and all that. Do you, as an adviser to presidents aggregate in the sum of the economy, or right now, should our listeners and viewers should they partition a domestic performance verse is a really ugly trade side or external side right now? Yeah, I mean the external sides about of the US economy. So I think sometimes people make the mistake of overstating it. You know, the steel tariffs. I think they were a bad policy, but I never

expected a large macro consequence of them. If you layer the Mexico on top of the China, you're now starting to talk about potentially more than a percent of GDP, at which point you're talking about phine up the difference between a boom and a recession, but definitely increasing the risks of a recession by by a reasoning in some ways, Jason, do you think the issue with Mexico might be more important for the domestic US economy than the tension with

the Chinese at the moment? Oh? Yeah. Our exports to Mexico are about twice as large as a share of our economy, and that actually understates it. If you look at value added all of the things that move back and forth. Um, it's it's a lot more than that and a five percent tariff. If if only five percent of the content comes from Mexico, that's like a hundred percent on Mexico. Third of our auto parts are coming from there. I think it's a potentially really big deal

for the U. S economy. What's the log linear function of five percent tears, ten percent tears and ump up up we go. What's the impact is President Trump increases the tariffs on Mexico over time? Yeah, I think it's I think it's not log linear. I think it goes the other way. Um that you know, for ver each increment you do up, um, it could potentially get even worse. Do we know that? Or is it a mystery? Oh? People?

People were people turned through those numbers and and and and tend tend tend to find that what you is a mystery? Is what is it? Jeod expectations? You know, if this dread is pulled back later today on Mexico, will businesses that are building supply chains thinks that the thread is gone forever or will they feel they need to redo their supply chains just in case it comes back. I have a strong suspicion about the answer to that,

but I can't prove it is Jason Furman. What a joy yesterday to speak to Austin gouls Be of Chicago about Alan Krueger's new book on rock eComics. This is the final book of Alan Krueger, who recently died, Jason Furman. When we look at Alan Kruger's work, it is about the minimum wage. Do you have any study of the fifteen dollars in our hour is causing harm? We've only done fifteen dollars an hour in high wage places. There was one study or Seattle. I think unfortunately it was

flawed and I wouldn't take anything from good today. UM, I personally would be nervous if we very rapidly went to fifteen dollars an hour UM for Alabama, New Mexico and um Main those are much lower wage places than Seattle or the parts of Scala foreigners have gotten they're already. Jason, is great to catch out with your Friday. Really appreciate your time, really intri instance staff Jason firm. And there

the former Council of Economics chair John Ferrell. Why don't you bring him Dr Cornado and the forty seven flavors of Jobs Day today. Let's do it right now, so payrolls Friday is what ten eleven minutes away the median estimate here at Bloomberg in our survey is one hundred and seventy five thousand is two hundred and sixty three, Julia, you're looking for ten k south of the median estimate.

It's not a big move lower from there. But what has been impressive, and we usually discussed it every Friday of the first Friday of every single month here at Bloomberg, is just how strong this economy has been able to

produce in and around every single month. Can we keep doing that way above what we think is sort of equilibrium, which is closer to a hundred to k. So that has been sustained by improvement in labor force participation amongst primate workers, and that kind of faded in the last couple of months, but I expect that to be one area where we see it returned this month. So I expect to pop up in primate participation. I still see an upward trend there and that that's what helps sustain

these these gargantuan job games month after months. So I do think there's some room to run there too. I primate participation for both men and women. And again we're talking about twenty five fifty four year old tire. It's still below last cycle and certainly the nineties cycle. So there's no reason that these workers can't re engage with

the workforce. Let's talk about that. Some people that think this may be unique, this cycle might be unique, and maybe the participation rate can stay somewhere in and around the low sixties. Where do you see a heading. Well, we do have the downward pressure from the retiring baby boomers. So that is sort of a demographic reality that may fluctuate to some greater or lesser degree depending on whether they retire earlier or later. But we know that's a

depressing force. It's going to hold it relatively black. And the question really revolved around how much younger workers are able to engage um and and return after periods outside the labor force. Julia Mrs Keene emails in and says Dr Coronado, please define prime age? Is that is that fifty nine to sixty two? What's so? I don't mean to say that you're not prime in your prime time, because you certainly are you um and uh and in trime you know, probably should expand the definition. Yes, I

agree with that. What is primate? Surely to to people like you? What is primates? The typical definition from the Bureau of Labor Statistics is people aged twenty five to thirty excuse me, to fifty four. So you're definitely post schooling. You know, whether you've gotten a and or a master's degree, you're probably largely done. And then uh, you're probably not yet moving into retirement. So that's that's when you should Well, I got that one nailed. What is the prime ates

changed over thirty fifty years? I mean, do you shift that out and expand to an older audience like we're all doing with our kids. We I mean, so the BLF has not done that, but you know you can expand it certainly, you can look at whatever age groups that you're interested in. And we have seen a trend towards later retirements, both for economic reasons because people took a huge hit in the Great Recession and couldn't retire um and then also because people are you know, living longer,

they're more in service after jobs where they can work longer. Uh, And so we are seeing people engage in the labor force for longer and longer. If you talk to people like David John at a RP who spoke at the Chicago He thinks there's a lot of scope for engagement of older workers, you know, even on a part time basis, Like a lot of people do want to engage in the labor force at older age. The Bloomberg And of course this is from a pewer of labor statistics. Folks.

We're making jokes about it, but their granularity of participation is wonderful. They have here John and statistic US labor force participation for World War two, Korean War in Vietnam males, which has obviously been declining with death. But but I mean the granularity is extraordinaries some real day town. Yeah, Julia Cornado, thank you so much. Really appreciated than sticking with this, you know, as we approached the pay for I don't know, there's some quick reaction with Julia. So

let's digest some of that data, shall we. Seventy five K the median estimate one seventy five A big downside surprise in the FX market a week a dollar down a third of one percent, back to a ninety six handle on the dollar index. In the bond market, this is how treasuries shape up. Yields coming in four basis points on tens, coming in seven basis points on a two year yield, Your two year yield one eighty one,

your ten year two point zero eight percent. The interesting part though, risk assets hanging in their future still just about positive up five points and positive two tents of one percent. But looking at the economic data tom to Julius point earlier in the program, there were some concerns around the big census story and how volatile it might make the headline number. If you look at the change in private payrolls ninety k that's a massive downside surprise

as well. The estimate was one and with revisions down as well. Dr Cornetta could help us with that, Julia. We get a report our that has some constructive elements. I think, I think we need to go to the ADP Mouldy double digit number over to non farm payrolls seventy five, the two month revision. This is something. This is important, folks. Negative seventy thousand one month doesn't make your report, but if this extrapolates out what happens. Yeah,

this is a worrisome report. I mean, we're seeing the weakness isn't just doesn't look to be concentrated in one sector. It looks we got the expected weakness in manufacturing and goods producing sectors, but also weakness and private service sectors. So retail was job losses, information technology saw job losses, and the government actually subtracted seventeen excuse me, fifteen thousand workers instead of adding about this thing, which is what

was mostly expected. Do you see your census in there? Did you have time? You have to see a sense of statistic So so it looks like census is not only not hiring, but the uh actually most of the job losses in the government sector were on the state and local side. So um, yeah, a lot of a lot of a lot of weakness here. You know. To see the service sector crack like this is is something

we definitely need to keep an eye on. Okay, Julia Cornado, thank you so much, greatly, greatly appreciate the perspective today with the macro policy perspective, working in fixed income but with a wonderfully holistic and I should also point out mathematical bassis. Jeffrey Rosenberg of Black Rock, Jeff, I want to rip up the script right now and go to Walton out on Twitter. Who's got a brilliant observation. Let me quote it exactly, Jeff Rosenberg, just like we quote

the President when he tweets. I wonder how retirees in Germany are supposed to live off of a negative fixed income. Where do people in Germany think the money for retirees comes from the tooth ferry? Jeff. This this was something in London a theme. How do savers exist in negative interest rate nations? Well, they camp with their savings into safe assets and um you basically force savers out of the currency, which means you know something U s and msters don't think a lot about. But in the rest

of the world there's a lot more willingness. And when you have a negative interest rate structure, you're forced to take your money outside of the U outside of your home country. You know, you look in Japan where they've had zero interest rates for a much longer experience. It's just a much longer experience with foreign investing, and you're forced to do that. So you have to move out the risk spectrum. It's uncomfortable. Um or you have to change your expectations in terms of how you plan for

retirement and what you're expected return is. And even though we don't face negative interest rates, we face the same issues of the lower expected returns. Jeff, I'm looking at the German tenure yield. I'm looking at, folks, what's called a two standard deviation study. You and I took this final year where you know, we had to take a break because we were going to Fort Lauderdale or whatever. Rosenberg did standard deviations in fourth grade. I mean, Jeff Rosenberg,

I'm sorry. The vector on the German tenure yield speaks of instabilities to come. What are those instabilities? Well know, the German tenure yield has been declining alongside of the U S yield and global yields, all pricing in a global growth slow down, the differences. They're starting from a much lower point. So right now the German tenure yield is negative two point negative point to five five and

it's done a very steep downward trajectory. A lot of the other stories in the rest of the world away from the US, is that the growth has been slowing there as well. Uh, there's a lot more challenge when when the ECB is at the effective lower bound um, they have fewer tools. This was yesterday's news in terms of the ECB meeting. UH, and they're they're going to have to continue to try to support with perpetually, you know, negative interest rates. Jeff Rozenberg, We're gonna fold you over

to being a trade expert. We see futures advanced, they explode from flat, DWAL futures up, SMP futures up eleven. I think it's called a bull market, and the yields churn. Here is the sequence of headlines that have come out a moment ago. I'm going to be very careful with this, folks, because this is a moving UH target. The president of Mexico feels Mexico thinks economy is doing fine. We respect rating companies points of view, of course, to rating companies,

UH modifying their constructive view on Mexico. The oil company paymex has no problem to restructure debt, the oil company to start producing more by year end. He goes on to say, um, I am optimistic. Will we will reach a deal with the United States. I will review my stance on US situation on Saturday, and Bloomberg would note that the Mexican pace erases losses as the US payrolls. Uh,

excuse me. Information came in this show's Jeff Rosenberg. If we get constructive Mexico and Chinese trade talk, how markets flip on a dying doesn't it? Well, it's been the issue, and the issue is that, going back to May six and and the China breakdown, that markets were really expecting

a very different outcome than what they got. They were expecting a deal to go through unnecessarily sure how much teeth that deal would have, and that whole expectation has been under mind and in the aftermath has been a ratcheting up. Now, the Mexico thing was a new development. Let's use tariffs to address a non trade related issue,

which only further heightens uncertainty. But the but the punchline here is that policy has moved from expansionary and supportive to to contractionary through the degree it increases uncertainty, and businesses don't like uncertainty. Uncertainty is bad for growth. Jeff, I want to get a little wonky here. We can do that with a gentleman from Carnegie Mellon, and that

is the left tail of all that we observe. We had a wonderful conversation this morning with our Cameron christ about the difference in yield between three months and two year and then the difference in yield between two year in tenure and the dynamics there are extraordinary. What do these extraordinary yield curve discontinuities, what do they mean to the stability of the real risk part of the curve of the left tail? Well, it's it's clearly and this has been the story for a while. But the bond

market is telling you about its concerns. Everything we've been talking about this morning, from the payroll report to uncertainties created by trade is a decline in growth and a potential shock thank you growth, And that's what the bond market is, This is saying and expecting. This is why we have Jeff Rosenberg on, folks. This is so so so important. There are four or five, three, seven things

that always make a determinant of price. And on the Fisherian rule going back a zillion years, Irving Fisher it's you see it in the bond market. Price up, you'll down or the other way as well. And Jeff, I agree with you that growth worries have overwhelmed every other analysis.

Is that correct? That is correct, and it's a real pivot from where we were only you know, six seven weeks for where the pivot on trade that were the concern was on inflation and what that meant for the ability of the Fed to raise rates in the process of normalization. And and this is occurring again in an environment where global growth has been weakening, and with the weakening in the outlook from trade and uncertainty, you added to a sense that this is really a new risk

to a recessionary outcome. And that's what the bond markets basically started pricing in. And then with that comes the expectation, of course that the it is going to react, and now all the narrative around the insurance cut and when will they move and how much will they move by and the bond markets pricing in a lot. Jeff Rosen, thank you so much. Kevin Hasset is out of the

Wonderful Economics Program at the University of Pennsylvania. He has been on the show in different guys as many times recently as chairman of President Trump's Council of Economic Advisors. He has been someone who was always pushed for free trade. It is good to have a job today conversation with Kevin Hassett is leaving the White House. Here he is

with John Pharaoh. Now we can get the Trump administration's views on the job for a called we joined on TV and on radio by Kevin Hassett, Council of Economic Advisors Chairman, Kevin. Great to see you, as it always. Let's just stop arose report your initial thoughts, Kevin on that downside surprise, Well, you know, I think that it was a little bit below our expectation and the market expectation,

but there were some special factors. I think one of the special factors that we were following closely that have not seen a lot of people talk about is the impact of the flooding, which you know, shut down I twenty nine made it so that a whole bunch of the ports could not operate. And our estimate is that knocked maybe about forty thousand jobs off the number. And if you had that back in then you know, it's

pretty much close to a normal up and down. For sure, there's a little bit of job slowing, but we're still looking at I think, you know, controlling for that a three month average that's probably you know, next week is going to look in the one range, which is about what we've had for the last two years, just in terms of a trade story and the damage that it may or may not be doing to certain industries. Right now, if you look at primary metal, steel, aluminum, metal fabricators

all down for a third straight month. Here many economists predicted this would happen. Kevin, do you think that is a consequence and result of the tariffs of this administration wang on those sectors at the moment? Well, I think that, you know, for steel at aluminum, the tariffs definitely you to have help to the you know, I've looked at the numbers and they inflected quite a bit when they went in. The thing about the job's number just just

a pivot. I've heard a lot of folks also talking about how well, maybe the job's number reflects, you know, the trade problems. But remember that this is May, and so this job's number comes before anything regarding Mexico. And also the only thing that really happened me was that the Chinese talks that are wood block, and so I think that it's hard to imagine that a roadblock of the Chinese talks could have a really big macroeconomic effects so I think that looking at the effect of trade

on the numbers right now. For sure, there are specific things and specific industries, but overall, I don't think it's a really big part of the storage. Kevin sending that persistent tension that is wank on financial conditions, it's wank on confidence, and it seems to be wank on investment as well. There is quite a clear read through. Are you saying this no, Well, I think that absolutely uncertainty, you know, can be a negative for the economy, but

there's upside risks and downside risks. And I think that with China, you know, if we if we remember how happy markets send it to me every day that we got closer to a deal, you know, if we at the G twenty talks, can can finally you know, get that thing over the hub. That's a really big upside risk with the outlook for I think that you know, we're trying, we're shooting for yeah, but we're shooting for reform,

right and I think that reform is uncertain. But I think that if you look at how broke at our trade relationship with China was that it makes sense for the president to prioritize reform and many many economists would agree with you. It's an economic so for a positive economic accountcome. Mexico is very very different. It's an economic tool for a political outcome. So talk to me about what is happening with talks and why you think progress has been made. What is it about these talks where

the progress has been made, Kevin, what specifically right? Well, the specifics are going to be presented to the President when he lands about four thirty today and then he's gonna weigh all his options. But but you know, they've

been ongoing talks throughout the week. Secretary of Pompeo has been meeting for the Foreign Minister of Mexico, and you know, my briefing on their talks have been that they're they've made a lot of progress that a lot of the material things that our professionals have said that they need to be done by Mexico to help with secure the

border that they're agreeing to do. I don't know if they're gonna go all the way to what the president wants, but I'm sure the President will have some important evidence to weigh when he lands at the end of the day. In the meantime, Kevin of the Council of Economic Advice has modeled the impact of tariffs on the U. S. Economy, tariffs on Mexico and what it means for U. S GDP. You know, our our job is to is to provide a material advice to the President on all of his decisions.

But unless we publish it, then we're not meant to talk about it again. So yeah, I can't talk about what I've presented to the president or not. Well, you can told to me about a kind of advice you given to the president and the kind of damage you think it would do to the U. S. Economy. Do you think it could be positive for the U. S. Economy? You know, I think that that the crucial thing for the c h AIR is to advise the president, you know, and to make that advice, you know, be between them

when decisions are made. No, it's true, and then would not a loyal team player. I can't disagree with the decision. You say you disagree with the decision, then no, that's what you're trying to know. I'm asking you, did you disagree with the decision. I think that the President's right

to emphasize reform and with Mexico. I think we have a border crisis, and if you weigh the costs of of the border crisis, that it's very easy to think that, you know, the leverage that he's gained with Mexico could easily pass a cost spend of the test. Did you disagree on the tariff decision, Kevin? Did you disagree on the taff decision? Did you agree with him? Uh? I'm not supposed to talk about my my private conversations with the president, but not about the private conversations with Say,

if you do this, let's let me talk. Please carry on to say, if you do this, here's what happens. If you do that, that's what happens. You come on this program to tell us what you also think about the damage that could be done from the tariffs. I mean, you don't have to reveal the private conversation with the president. Please tell me in your assessment do you think it could weigh on US GDP this year if these tariffs

go into effect on Monday. I think that the five percent tariff is a much worse problem for Mexico, as I've said in previous interviews this week, than it is for the US. But I think that, you know, beyond that, we'll have to wait and see. I think Mexico is highly motivated because of that to make sure that that doesn't happen by helping us secure the border. Kevin. Many people think that you're stepping down because you do disagree

with the President on the tariffs. Just put the record straight there for us as you are on your way out. What are your thoughts? What actually happened? Oh? I mean, what do you mean? What I actually have? But it's their utterly separate things. The chair is almost all you could go back and look surfer about two years. I've got a son who is about to be a senior in high school as the youngest, and it's a good

time to spend more time with Bailey. And it's also a normal circle of life for c A to hand the slot off to somebody else after a couple of years. We'd love to know what's coming next for you, Kevin. What is coming next? And have you spoken to the President? Yeah? I really don't know yet, but thanks for for asking. But but you know, I really haven't made any friend. What about a job at the Fed? Would you be interested in a job at the Fed? Kevin? Absolutely not,

absolutely not. You can rule that one out? Is there a chance you can rule that one out? Kevin has it. Always great to get your thoughts and your thoughts on the things you can't tell us as well. Kevin has it there. Thank you very much, good luck for the rest of the month before you step down. Thank you for joining us as always. John Ferroll in conversation with the Chairman Presidents Council of Economic Advisors. Thanks for listening

to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.