Surveillance: NYC Flooding With MTA's Lieber

other organizations here on building collapses over historic rain. With that note, we get immediately to someone with the largest headaches of the morning. The acting chairman, the chief executive officer of the MTA, Genna Liebert, joins us this morning, Jenna, where's your biggest headache at this time in the morning. Well, with that, the subway system is coming back. It's incredibly resilient and um we've got you know, operating service from

most areas of the city. It's obviously got some limitations, but we're putting Humpty Dumpy back together again. And bravo to the cruise that that worked throughout the night to do it. There's there's one area in fourteenth ch area of West Side of Manhattan where there's the pumping is still going on in order for us to restore service

to that very important line. Um, but we think that by you know, mid afternoon, we're gonna have most of the lines really back in full functioning for an evening commute. So that's exciting. So you're telling you're telling me that we will see an evening commute. Uh yeah, I mean, fortunately, a lot of people elected to work remotely or stay

at home today, so a little lighter than usual. But we're we're we're gonna be able to move people on the subways and on the bus system, which performed heroically great. Bus drivers rescued tons of people, moved him home last night. Um. The commuter railroads is a little spotty, or Tom Metro North is really out of business today because in are there in mud slides and trees and so on. They had some hits on their electrical infrastructure. Long Island Railroad, however,

really back in action. They are. They've got most branches operating. More Washington Bridge still struggling, but Long Island Railroad is is mostly in operation. And Lisa Joe Ryan just reporting the death count has moved from eight to nine. Traffic flood and that's the flash flood emergency warning that came out that really highlighted that to death could be imminent. I'm wondering, Jeno, this is the second time in a month, in two months rather that the subway system has faced

flooding like this, this more extremely the last time. What is the mt A doing to prevent this from happening again. Well, after Superstorm Sandy, we invested a ton in coastal resiliency and are underwater uh tunnels, We've got eleven of them, all been rebuilt, the pumping infrastructure, upgrade and start, and they performed fabulously in this emergency. But what we're seeing now is in the air of climate change, with the extreme weather events, even the up the higher elevations are

experiencing this flash flooding. So we're gonna attack that even more. The big problem is when the street drainage and the sewer infrastructure gets overwhelmed, gravity takes water into the subway system. The subways are not a submarine, and and and you know it's not gonna it's not gonna ever be perfectly dry, but we're going to start attacking these higher elevations as well. And general or looking and we're looking at a situation where this is likely to become more and more frequent,

and these fortifications have to happen it quickly. Is the m t A sufficiently funded to make some of these adjustments at the same time that ridership is down, at the same time that the city is recovering from a pandemic and getting people and ridership back up to where we were before. Well, I mean, the first thing is that this has to be done in tando, as I said, with the City of New York, which controls the sewers and the street level drainage infrastructure. So that's part we have.

We have to do this in partnership. We have a fifty billion dollar capital program that has a lot of resiliency investments in in our yards in some of the low lying areas. But I think that there are some things we can do in tandem with the city to deal with this flash flooding risk, which is you know, new to this era of climate check. One final question, jenn if we can, and it is a way I

believe from this crisis and great respect. As you've mentioned to the bus drivers particularly, you've had a changing of the guard in Albany. Will you stay and support the new governor Kathy Hokel. Do you have any understanding of that relationship, the fractious relationship now with the m t A and the capital up the Hudson River. You know, I've had the opportunity to meet with Governor Hokel and talked to her. We've been in touch through the night

on our teams have been working together. She is she was a local official before she was a congressman and official. She gets emergency management. She displayed that just a few days ago when she came down to Uh to the city after we had a hit on the m t A subway operation. Um so uh. You know, she's a good, great partner for the m t A and these kinds of emergency management issues and more broadly so we're we're

looking forward to working with her very much. Generally, were toll to you and all of the m t A. Thank you so much. He's the acting chairman and chief executive officer as well. Stephen Roschudo is hugely qualified at MASSOO to talk about the American economy and Steve and I really want to take advantage of the encyclopedic knowledge and go where John Farrell was going, which is industry by industry, and to me, the supply dynamics seems to

be colored by the American automobile industry. Discussed that how are autos right now for you an asterick an outlier? Are they part of the American economy? Well, they are part of the American economy. They're an important component of the American economy. They have been declining in value as a percentage of your roll economy for years as his whole most of manufacturing. But you have to remember the

automobile industry is a pervasive product. I mean when you consider all the components going into them, whether it be glass, steel, electronic components, rubber components, plastic, leather, vinyl, I mean, it's a huge supply chain that's involved when you're talking about building automobiles, and therefore it's multiplier in terms of the economy.

Is still very very important. And when you see a retail sales numbers and autos like we did yesterday afternoon of a big drop down in sales to about thirteen point one million units from about fourteen point eight million units, you really get the sense that this is where the economy is losing some of its momentum, and it is related to the supply chain, because this is what's really happening in terms of the auto space. Stephen, Shooto, slow news day. Let us make some news right now. Are

you going to reduce your Q three GDP statistic? Now? I mean, I don't. I don't get into that game of trying to, you know, fine tune it one. We have all the data, the key source data coming out because still lots of moving parts in there. I mean, I go back to the days when a couple of people from the Bureau of Labor Statistics who did these components were caught for insider trading, trying to change trade

on the GDP number. And John does that. John trades off the GDP number we see him doing and in that result is they made absolutely no money because they couldn't figure out what the numbers were. Because all right, and that's and that's really the key issue they You know, unless you know the trade and you know the inventory numbers, it's really really hard to peg down the GDP number on a key source state of related basis. That's the

direction matters. And I want to go back to that Morgan Stanley call ellen Zentner, where they downgraded the third quarter GDP to two point nine percent from six and a half percent previously. David Smith from Regent's Bank said, this is actually significant, and the reason why is because there isn't necessarily a material impact on the full year GDP, but there isn't a mark up in the GDP for Q four. This is not to laid growth. This is lost growth, and I wonder how much that is starting

to factor into people's assessment of this recovery. I think you're a percent correct, and I think that's the real key factor there is that this is not going to be growth that's going to be reversed back. When I look at the numbers that they've just put out UH and they look at the big drop that they're anticipating in Q three and then the bounce back they're anticipating in Q four, I'm not so sure you're gonna get

that bounce back in Q four. There's a lot of people who keep on talking about pent up demand in this economy. There isn't really any pent up demand in this economy, so you might wind up seeing marking down third quarter GDP. Really marking down the year number in particular, and getting people to really look at their two estimates and begin to realize that those numbers are much too high. We're still much lower than the consensus on twenty two numbers.

We're in the three and a half percent area, and most people are substantially harder than that, and that's where we think the risk is from the kind of losses that you're talking about here for the third quarter. Meanwhile, we're looking at a labor economy that still hasn't recovered, and we're looking at millions of people still out of work. The why, though, behind it is less and less clear

as a lot of the economy reopens. What are you hoping to find out from Friday's from tomorrow's jobs report to understand more the trajectory of what's keeping people away from filling all those jobs, a record number of them that need to be filled. Well, I think what you're going to discover is is what's true about most of these jobs is that people are looking for a specific

qualified person to fill a job. If you're going to be in a work from home environment for a lot of these jobs, and I'm not saying a lot of the service jobs are work from home will have the jobs, but outside the service component, you're looking for a person who is plugged compab. You put them in and they start working s a paid not in an environment when you're working home where it's easy to train somebody and

bring them on board. So the net result is I think this work from home environment is one of the factors that is limiting the ability to find that specific worker that we want because those workers are rarer. In an environment where people are working in offices, there is the ability to train get people up to speed. Now we have less and less of that as an opportunity. So therefore you really need to find that unique person and that becomes harder and hard to do. It's finding

a needle in a haystack. Steve, what's the dynamic on service sector right now? We mentioned earlier that the GIGA texts are out twenty two of Standard and poors. What's that mean for our service sector versus good sector. What it really comes down to is we're driving everything from a productivity standpoint. I know, you look at the productivity numbers here in the unit labor cost numbers, and you talked about the uptick in the unit labor cost numbers

that we've had here. The reality is, when you're looking at the productivity environment of the economy and the increased productivity that has been pushed into the economy as a result of the COVID nineteen environment, it's understandable while you're seeing what you're seeing in terms of the growth related portions of the economy, in particular in the tech space, because we're relying more and more on that technology in

this work from home environment. As you look at more and more companies who are sitting there saying we're delaying openings or making it easier for people not to come back to the office after labor day or in October, the net result is you're going to demand more and more on this type of technology, and that's going to continue to drive the demand up for that product. And so I think it just very hits, very very much with the changes in the underlying dynamic that are unfolding

as a result of the COVID nineteen mitigation strategy. Meanwhile, throughout the show this morning, we've been talking about mitigation efforts to some of these storms that are historic. We saw what happened with Hurricane Ida over in Louisiana. In New York City, the weather system actually issued its first ever emergency flash fast flood emergency warning, not the fast flood fast flash flood excuse me of warning, but emergency war. Trying to look at how people are possibly going to die.

What is the impact on GDP, on growth, on the resumption of people back into their jobs as a result of some of these storms. You know, I will tell you when we go back and look and trying to ascertain the impact of any particular storm. Um, you know, you can go back and you look at Katrini, you can look at Sandy, and those were much much bigger in magnitude. I'm not arguing that the suffering going on

by people right now isn't real and isn't important. It is, but the magnitude of it in terms of the population, the breath of the economy involved in that are substantially greater. I don't expect to see much of a real statistical impact at the macro level. At the micro level, to a certain extent, you wind up seeing a lot of the expense expenses that have come to recover from that wind up driving the economy back to fill that void. Very very quickly, which is why statistically we don't see

it on a quarterly basis. You'll see it in some of the regional monthly numbers, but you won't see it in the quarterly data. Stave good ahead from you at don't try g d pet The message from statehot the chief US Economists just springing Steve chevaron and continue this conversation, so con federate to them. I support folio. I managed to join just now, Steve, let's build on this. Do you think we can get infrastructure down down at day's sake? Oh? Yeah, I think. Look, I think the BI part is an

infrastructure bill. You know, there's certainly a clear path for that. I think when you start thinking about the three and a half trillion dollar kind of softer infrastructure plan, I think there's a lot more uncertainty there, and there's still a battle between the progressives and the model. But I think we've got a pretty clear track over the course of the next several months for at least that by

partisan one trillion dollar bill. You know, I would say, though, John, I I could go a little while without one of these five hundred year events between you know, once in every five hundred year plague. You know, once in every five d years storm. I think we've had our fill for a while. Let let's let's just calm down for a while. It's carried over Steve to your great abilities to asset allocate. How do you sset allocate into a

once every five hundred years fiscal stimulus? Yeah, I mean, look, and it's even been a little bit more complicated because I think the way you you historically would allocate into a stimulus or a large stimulus as you want to be long in terms of cyclicals, you want to be short on duration on the bond side. And that's been the way that we've been positioned for the better part,

you know, the last almost year. However, that really hasn't worked since since since May, and and that's been because you know, you've had this resurgence of covid um and and that's kind of put a damper on some of those animal spirits. With those hospitalizations starting to peak, uh and renewed spending likely to come, we think that that trade can reassert itself, but you've had to have been patient with it because it really hasn't worked over the

last couple of months. What's that is most important to you. And I'm thinking about this as you talk about some of the biblical types of events that we've had and the idea that we've seen that reflected in some sentiment surveys that have been coming off recently. I mean, what catches your attention and makes you rethink perhaps a bullish outlook, Well, you know, consumer confidence coming down a little bit. I

think it is something to watch. It did that last year going into the fall, so that was a little bit of a head fake. But you know, confidence is important. It's the middle syllable of economy, so we are watching that closely. I think we're likely to get more certainty and confidence over the course of the next couple of months, and I think it really starts with tomorrow's jobs report.

If that job's report is at least reasonable, I think that clears the way for the FED to maybe announced taper as soon as September, and then we know the rules of the game, you know, at least for the next let's call it six or nine months. So that's the thing I'm really watching state just quickly. This is a line from Bill Gross his quote a ready out for you, and he's probably had better be dumb with digit plus arrass that could join the garbage truck. Are

you expecting decent ernings cross, Steve, absolutely, we had. We had UH record margins in the second quarter. Earning's estimates are moving. Are companies are able to pass on price and the price that they took? You know, they're not giving back. So I think companies are navigating these once in a five year events, you know, extra extraordinarily. Well.

I think they'll continue to do so, Steve got ahead from you, Steve Cheffer and federate today and put Filio manager Pausania and Tom Keane with a lovely David Rosenberg this morning with the Dow up a hundred and seventeen points, David, you are the best I know it parsing inflation of our audience worldwide says this is serious inflation. Why does

the FEDS say no, it's not. I think the FED is telling you that we do have UH an inflation burst that's caused by all the distortions in and around the pandemic, which clearly hasn't gone away, and the supplied chain issues, and they were fasturbated, of course by the gargantean fiscal stimulus we had back in the second quarter. What the Feds telling you is that they don't believe that it's going to be a permanent situation. And I think it's probably probably the most important thing Powell said

on Friday was the risk of making a policy mistake. Uh, you know, not by falling behind the proverbial curve that a lot of people are talking about. Uh, you know, keeping in mind that what the said does today has its maim an impact at least a year down the road. Um. And if they're prevailing view was that this is a

temporary inflationary situation. Uh, they're not going to start to tighten policy disturbed demand growth if they believe that inflation is going to And I think that's really it's it's really the state not inflation here. It's really is a temporary or permanent that's the debate. Well, my inflation is add to buy impair of glasses yesterday for afterthought, and it was painful. David, Are we seeing incomes go up to match the inflation and the prices going up? No?

In fact, you know when you're taking a look for example, and then we'll get a fresh number tomorrow obviously, Uh, real hourly and weekly earnings and real terms are actually declining. And so what's happening against that backdrop, which nobody talks about because everybody's got inflation on the brain, is they're not talking about what's happened in real economic activity. And you know, we have we have a consensus that is

stubbornly near seven percent growth for the third quarter. I don't know how you get there when you have real consumer spending already built into the third quarter that's actually flat. Uh so so real. So this is what's different really about the nineteen seventies when you had radical unionization, pretty well, everybody had a cola clause, so you were fully protected against inflation. That's how you got the weights priced by all.

That's not going to exist today. Uh, And so I think that what's going to happen here is that you know what what what prices companies want to impose on the consuming public. Uh, those price increases won't be able to stick so long as wages lagged behind. And really that's exactly what's happening. And Paul, the real economy issue here is so true. And that Paul, you know you're

better at this than I am. There's essentially two economies out there, there's everything else and there's the giga text, and it's like two separate worlds, two separate worlds. The real folks are seeing inflation at there. And and David is interesting when we get the job's report tomorrow of interesting to again, just a lot of numbers to part

and we talk about wage inflation. UM. Even pre pandemic, when we were at quote unquote full employment or thereabouts, we only had you know, wage inflation of three three and a half percent. Is there something structural in this economy here in terms of the job makeup that just

doesn't allow for meaningful inflation and in terms of wages. Well, uh, I think that again, that's something that Powell talked about on Friday, and I'm glad he did, which talked about, you know, the secular forces at play that are still very disinflationary. And look when you go back to the last cycle, and you go back to two thousand and ten, two thousand eleven, we had early cycle uh inflationary pressures um and the same people are saying the same thing.

The FED didn't start the snug policy till two and fifteen, UH, and so you know, we've had the situation where you know, we have the pandemic. Uh, the incoming data have been six times more volatile than they've been historically. And that tells me that you have to take a grain of

sault in both directions. Um. But yeah, I would say that, UM, that is still I think one of the big differences between now uh and the nineteen seventies is you don't have a labor market that is as protected through unionization antro coal of pauses today that we had back then. Look, there's there's no doubt that there's been shortages in some critical sectors. Um. You know critical well, I guess mostly leisure, hospitality, and retail. Um. That's not a predominant share of of

the labor market. But companies have been competing with the government for employment because you know, you've been paid in these sectors, you know, not to go to work. So let's I say, let's let's keep it open mind. Uh. You know, we're we're already pretty well on the precipice of seeing uh, you know, these generous extended federal benefits roll off, uh, and we'll start to see I think

greater competition for the job openings out there. And the one thing we know about competition is that it tends to lead to lower, not higher inflation pressures. So in this context in the labor market, I think one can assume that if these people, if if they don't want to starve, they've got to come back and compete for these jobs. I think we're gonna have in the next several months and quarters at different story on wages than we've had over the course of the past several months,

just because of the federal government intervention on this score. Yeah, and David, you know it seems like table stakes now for any restaurant or any you know, kind of retail or leisure is fifteen dollars per hour. That's significantly higher than what we've seen before. Um, is that something that is going to move the needle? Do you think? Is that? Are we going to see and an ear come in here as people, as businesses reopened, that we will see

on the lower ends some significant pressure upward on wages. Well, look, we've already seen that happen. I think the most dangerous thing you could do in this environment is, um, extrapolate you know, the past several months into the future. Uh, you know, we've we've in some sense you could say in these sectors said a bit of a a wall on labor supply, and a lot of it is related to the pandemic and health concerns. Coming back to work a lot of us because the government's been paying you

not to work in these low wage sectors. The corporate factor, especially in these um labor intensive service sector industries, they have been compelled UH to raise their wages for now to attract these people off the couch and back into the workforce. Question is that a permanent shift in the landscape or is this something we're living with now? What are we gonna be talking about twelve months from now?

You know, it takes me back to the summer of two thousand and eight UM when inflation was over five percent. Oil is a hundred and forty dollars. Everybody was talking about, you know, the supercycling commodities. Everybody was talking about inflation. People tend to forget that, you know. In the summer of two thousand and eight, the e c B under Creche actually raised rates and Bernankee shifted UM to a tightening stand in the summer of oh eight, so we

had over five percent inflation. The summer of o eight. Everybody I was still to do back then was super imposing that inflationary experience into the future. And where were we twelve months later, the year of a Year Princess. You know, I was running negative. So all I'm saying is that, yes we have wage inflation, and now yes we have a a in inflationary bulge. Absolutely, but it doesn't make sense to me that we're going to super

impose that into a whole new cycle of inflation. So I line up squarely in the Powell camp that this two shell pass. David gotta leave it there, David Rosenberg, Thank you so much. With David Rosenberg Economics. Uh this morning, this is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment,

and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg