Dana Peterson, The Conference Board Chief Economist, says there's still quite a bit of fragmentation in the economy. Phil Orlando, Federated Hermes Chief Equity Market Strategist, expects one more quarter point hike from the Fed and than a potential pause that may "last a while." Mohamed Younis, Gallup Editor-in-Chief, says nobody in the current GOP lineup is close to giving Trump "any kind of challenge." Anna Ashton, Eurasia Group Director of China Corporate Affairs and US-China, says US Commerce Secretary Raimondo's trip to China is "the most important visit we've had so far from a member of the administration."
Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance
This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. I wanted to talk about debt right now with Dana Peterson, Chief Economists the Conference Board. The Conference Board hugely aware of the consumer and the business tone that's out there in America along that line, and to take it from the academics data, are we over debted right now? Are we up to our eyeballs in credit debt?
Absolutely? Certainly.
When would look at the consumer credit debt has risen to where we were pre pandemic, delinquencies are up. When we look at the sovereign debt in the US, it's extremely elevated. Interest rates are rising and that's causing debt service to rise as well. And we're concerned about both the sovereign situation as well as consumers heading into a season when they're going to run out of excess savings and also maybe laden with student debt loaner payments.
Well to that exact point, Dana, we've been talking a lot about the month of September. I am interested in October, when those payments resume after years of being on pause due to the pandemic. What economic impact is that likely to have, given how this could be a very large factor in household budgets.
Well, it's probably going to take several tenths off of GDP growth in October, and it's going to weigh on the outlook going forward because certainly, if people were using credit cards to finance their debt, and they were also taking that reprieve from student loan payments, when all those things come doue, they're not going to spend and they're probably going to start fearing for the economy in general because their own personal finances will not be as robust as they were.
Are we starting to see consumer behavior change already in anticipation of that data. What evidence might you be seeing of that?
Well, not really. We think consumers are still looking at the fact that many of them are still working, They're still spending on services, even though they're saying that the types of services are going to spend on will be more towards needs rather than once. But the point is that they still anticipate that they're going to be spending and they're not really looking forward to the fact that, yes, they're going to have higher debts, their balance sheets are not going to be as healthy, and certainly interest rates are going to be very elevated in case they have any emergencies where they might need to finance something. So I think consumers are not really focused that much on the future as much as they should be.
A Dana, you're expert at this. The theme that Jackson Holme particularly our day was Managing director Gurghava of the IMF and with Laguard the ECB, they both brought up fragmentation. How fragmented is America right now? How disaggregated are we in our economics?
Well, I mean, you do have very different responses to what's going on in the economy. Even when we look at our own consumer confidence measure, you get different readings by age and by income, and so we do think there is quite a bit of fragmentation in the economy right now.
Well, the fragmentation that's there I guess we see it in the jobs report on Friday. A lot of people are waiting for el, say sub one hundred thousand non farm payrolls. How disaggregated is that number? I mean, it's one hundred and fifty million for conversation, but as part of that one hundred and fifty million flat in their back any other part confident?
Well, I think it really depends on what industry you're in. Certainly, the industries where you have to show up to work are still hiring. But the industries that were former pandemic darlings like and finance, even transportation, warehousing, they're seeing job losses and weakness. And even with the big revisions that we saw in the payrolls data dating back from March to twelve months prior, we saw that there were entire gains wiped out. And so if you're in those sectors, you're probably not as a buliant as if you are in say hotels or restaurants or even healthcare, where there's still quite a bit of hiring going on.
And finally, Dana, can I ask you about the housing market and the mortgage rates that people are facing if they're trying to buy a home or contending with it. They're thinking about selling the home that they're in that they have a lower rate on. How is that a factor in the perception of the economic health of the country that consumers feel if they're looking at home affordability that is the worst it's been in decades. Rents that also are incredibly high.
Well, it's interesting you actually see bifurcation in the housing market. Is this seeing home sales or down in the de and prices are falling year on year because mortgage rates are so high. Why would you move if you're going to have a higher mortgage rate than what you have now after you've probably refinanced a couple of times during the pandemic. But then with new housing we're starting to see a little bit of a pickup because you can't get an existing home. But all in all, bordability is certainly down because interest rates are so high, and also in certain markets prices are still rising year on year because this is very much about location.
Dana, thank you so much. Dana Peterson the conference board with US.
Philo Landa joined US now chief equity strategists of Refederated her Mace. Phil I'll ask the cool question again, is the pullback more than I sational setback?
So Julian's a very smart guy. We've been looking for, let's call it, a ten percent correction in stocks over the course of the August of ten October period, which would be seasonal. The question is what does valuation look like these big technology stocks versus the rest of the market. In the first you know, seven months of the year, the tech stocks have dramatically outperformed the rest of the market, and we felt that there would be sort of a reversion of the mean during this you know, third quarter period. You know, ten twelve percent is a reasonable place to start, and let's see what the valuation looks like once we get there.
So I'm coming into labor dam. I'm at the kitchen counter at the second home, and I'm trying to reallocate my portfolio. Am I reallocating with enthusiasm to equities looking out three years? Or can I not have a three year view because of the jumble of the news slow right now?
No, if you've got a three year time horizon, Tom, we're extraordinarily bullish. Our near term call somewhat tactical, is somewhat defensive. That we've got a three percent overweight to stocks overall, but our overweights are in domestic value, in small cap and international. The one area that we've got sort of a negative bias on is these grow technology names, which we think got ahead of themselves. As we look out three years, we will have seen peak inflation, we will have seen peak FED valuation levels will be more reasonable, maybe we get a change in leadership in Washington with better fiscal policy approach. All of that suggests that stocks three years from now we're going to be in much better shape.
Okay, So, Philip, you suggest that we'll see the peak and inflation, we'll see the peak and FED funds at some point between now and three years from now, can you get more specific about where that is? If we're talking about higher for longer, how much longer? Realistically?
So, I think we're looking Kaihlee at about a six to twelve month timeframe. The inflation has clearly peaked in our mind last year. The question is the divergence between the decline in headline inflation versus core inflation. Core inflation is coming down at a much slower pace. Federal reserve in our view, probably has one more quarter point hike up their sleeves, maybe that November first meeting and then they go on pause. But pause is going to last a while. We don't expect them to come back in and start cutting rates until perhaps this time next year. Valuation levels, you know, because of the tech stocks were extended, those valuation levels are coming back. Stocks are down about six percent over the course of the last month or so. And then, of course we've got this big election coming up in November of next year, so it's going to take a year or so for all of these things to shake out. But again, using Tom's three year time horizon, we're pretty excited about what the longer term picture looks like.
How does the longer term view on equities conflate with what you expect in the bond market, because right now the bond market frankly looks quite confused. But I wonder how much the rate story is actually what is attribute to the stagnation in the equity market we have seen no.
A great question and the backup in rates that we've seen here from three and a quarter to four and a quarter and benchmark ten's over the last say six months or so, and that's exactly what our Duration Committee shaired by R. J. Gallo was looking for. The idea is that rates are going to peak here, you know, in this four and a quarter four and a half percent neighborhood, and looking out over the course of the next six to twelve months, we're going to see rates rally back, you know, into that three to three and a quarter neighborhood. So, you know, it's been painful for bond investors over the last six months or so. We think looking out over the course of the next year, with the potential for slower economic growth, bonds will rally.
Phill Orlando retail got absolutely slammed last week. Does that give you pause on profitable Walmart trading at twenty x times you know earnings?
Tom It certainly gives us pause because one of the things we track pretty closely is the performance of the consumer during Mapril, back to school and Christmas and back to school season. We're only two months in. We've got June and July data, but retail sales are only up about two point four percent year on year. A year ago, retail sales are up nine point eight percent over that period of time. We saw the same situation with Mapril the March and April Easter sales, we're only up one point seven percent year on year. We think Christmas sales are going to be again sort of that low single digit. So for a number of reasons, the consumer is slowing down. GDP is seventy percent generated by the consumer, so that's something we're watching pretty closely.
So do you thinkish some tension here between what we're pricing in the bond market, particularly the front end, which is high for longer, and what's developing abroad, specifically in China.
So China has been a disappointment, no question. We've got a longer term review on China that given the problems that they're having right now, it is inconceivable to us that we do not see aggressive fiscal and monetary policy in China looking out over the next six to twelve months to try to reverse those fortunes. So we like international in part because we're expecting the Chinese government is going to step in here and try to turn things around and improve the economic fortunes of China over the next year.
Now happens yet in a big way, that's for sure, Phil, Thank you sir, that's for sure. Phil Orlando, Federated Hermei's range of efforts from Chinese policy makers over the weekend.
It is the end of the summer. We are all recalibrating. Children are being lectured on summer reading and getting ready for school. Part of that across this nation is to get the tone of America. No one does that better than Gallup, Venerable Gallup, their editor in chief, Mohammad Units has just been exquisite on the big picture of America. Mohammed an open question. What is the mood of America as we enter September?
Not good on the several fronts. Not good. If you are a federal government official.
No matter what institution you're leading, right now, you're facing a record.
Low in confidence. And that even applies to the Supreme Court and the military.
But politically speaking, guys, what we see is really the Biden administration struggling to get Americans behind what they're doing with the economy. Big effort the past couple of weeks, you guys covered it. But right now President Biden has sixty plus percent of people who disapprove of the way he's handling this economy. So as people go back to school and as confidence at higher institutions is.
Also at a record low. People have the economy on their mind this fall.
Does President Trump own the Republican Party or is there a party out there of our collective memory.
Right now, if you follow the numbers he does.
Nobody is even close to giving him any kind of a challenge in terms of favorable ratings.
That being said, his favorable rating is not high. It's forty one. It's the same as President Biden's.
And again we're going to see an election where Americans for the most part, are choosing between options they're not thrilled about unless somebody knew and miraculous jumps in the ring, and it doesn't look like that's going.
To happen right now.
Mohammed, to return to the subject of President Biden and his approval ratings, and as you know, they remain low. On the economy. You have a graphic in your polling that just shows that even over the course of the last year in change, as we have seen inflation continually going down, the line almost moves sideways. He's not getting any credit for things improving well. The greater credit come potentially on the downside in the form of blame for any further deterioration. We see from here.
Yeah.
I mean, look, presidents either do a great job taking credit for the economy or they do a horrible job and they get blamed for anything that's going wrong. I think right now the Biden folks are in that ladder category. In contrast, of course, President Trump was doing a pretty good job taking credit for a booming economy before COVID. Those dynamics are probably not going to change, Kayley, I don't see President Biden suddenly convincing the public that he's doing great. His basis supporting him. Support among Democrats was a little bit lower. It's back up to about eighty one. So he's really got who he's got historically speaking. To really be an incumbent that has a chance, you've got to hit the fifty percent plus mark.
And the big debate in the polling world these.
Days is is that a dynamic of the past and are we moving into a different era right now?
Neither Biden nor Trump are even close to fifty.
Okay, So on the subject of Trump, I was mentioning earlier, Mohammad, we have this hearing in the Washington case. There's a hearing in Georgia as well. Today when we're going to be talking about a trial that could fall in the middle of primary season. We understood from reporting over the w that all the fourth indictment of the president, his arrest and mugshot in Georgia, seems to have accomplished for him at least at this point is raising a bunch of money seven million dollars four point two I believe on Friday alone. Do you have any reason to expect that he will start to see a deterioration in his attractiveness to his base as these legal challenges just keep mounting.
I don't, And here's why.
We did a recent analysis looking at the past twenty years of the issues Democrats and Republicans have diverged the most. On the number one issue, Kayley, has been the size of the federal government, a fifty point gap between Republicans and Democrats. And you'll notice that President Trump is framing his entire defense essentially based on an overreach of government that's stifling his right to free speech, his right to.
Challenge the election, etc.
The more that he does that, the more that he's driving right into the narrative that his base wants to hear most of all, So before those reasons I really don't see it harming him much.
Mohammed, which state is your galap guide state towards November of next year? Is there one state where you wake up and say, pay attention to Ohio or pay attention to Georgia? I mean, which is a state that you study?
There are none that we study, really, Tom.
What we do is try to understand the national mood and the national average. Now, of course swing states are key, but really every cycle, in the last three to four cycles, there have been different key swing states. It's really early, I think right now. Depending maybe when we have a one person running for the Republican Party, you point to a state if that person is connected to it.
But it's not just going to be a one state game this year.
Finally, Mohammed, when I look at your breakdown of the different approval or situations and the approval for the president, I noticed that his highest approval rating is on the situation in Ukraine. As we had on the debate stage, candidates calling into question last week the idea that the US should continue to provide funding. Members of Congress also making a lot of noise about the US not aiding Ukraine in the same way we have for the last eighteen months. Where are the American people on this issue?
The American people are mostly behind Ukraine, but Republicans are split on Ukraine. And this is a really persistent split that's consistent now since the beginning of the war. You have half of Republicans that very much are the opinion that we should not be doing so much. But there's another half of the Republicans around forty five percent that really want to see Ukraine fight through and win back all the territory they've lost.
Mom in ten seconds, what's been the Taylor Swift impact across America? Is it permanent?
I think? I'm from Los Angeles, I think so.
I think the future of America has more to do with entertainment than anything.
Right there we go, mahamm thanks for that final point. Appreciate it. Annaeshton joins us this morning, and what do you think of the Chinese coverage? It's a cottage industry right now for people like you, there's like five articles a day. I feel like I have to read What am I missing? What do you see in your China analysis? That's not in the zeitgeist right now?
So, you know, I wish there were only five articles a day that I had to read, because it definitely has become something of a cottage industry. I think that the interesting thing that's happening right now really is this statunt that the Biden administration and Chinese leadership have been pursuing for the entirety of the summer. And I know that that's not new, and it is something that people have had every reason to see, but I think you know the fact that it's being carried out by the Biden administration at this time when we're headed into a presidential election year, and I really had expected a couple of years ago that by now there would be nothing but a competition to be the most hawkish on China. It's very interesting to see the Biden administration deciding that stability is the course it wants to.
Chart, and this way key for Secretary Ramondo. What would you expect from four days and meetings from the COMMAS Secretary?
I think that this is the most important visit we've had so far from a member of the administration because she oversees export controls, and export controls are the things, among others, but a mainstay of the tech policies that the United States has rolled out in recent years that China is most bothered by. Feels that this is an effort to contain their technological advancement and even likely to undermine their economic prosperity. So they're pretty upset about the export controls and about things like the Executive Order on outbound investment that also constrains US abilities to invest certain sectors in China, including AI, quantum and semiconductor chips. And now they're going to be with the woman who is overseeing all of that. She's already sat on the ground that national security concerns are non negotiable, but emphasized that that's just one percent of the US economy, And she's really pushed for a more robust and more stable commercial relationship, and she's gotten some receptivity from her counterparts.
Yeah, we've heard that they're going to be talking. There's going to be an export group meeting tomorrow on August twenty ninth. To your point, Anna, we've heard from her and continuously from administration officials that this is about protecting national security interests. It is not about holding China back economically. But can you really have one without the other? Isn't protecting national security interests to at least a certain degree, going to hit China economically by default.
Yes, by default, it absolutely will, Kaylee. And you know, the reality is that these export controls, starting last October, with the ones that Jake Sullivan announced, they're really quite restrictive. They don't just prevent China from buying things that are state of the art. They prevent China from buying anything in the future that is smaller than what these restrictions have set down, and smaller being more state of the art. So they're kind of trying to hold China at a certain place in its technological development.
And all of this is about fancy technology stuff. But the fact is in my house still like eighty percent of the garbage that comes in the door in cardboard boxes says made in China. Has there been any lessening of all the stuff we buy that's made in China. It's not going to be in a balloon over Wyoming.
This is an interesting question because of the recent numbers. So the numbers for all of twenty twenty two showed that trade was an all time high over seven billion dollars, but recent numbers have indicated that experts from China and to the United States specifically have dropped by twenty five percent so far this year, the biggest drop in a very long time.
What was that? But this is important? What was the drop due to? Was it electric vehicles from China? Or was it you know, the coasters? We just had to get coasters, John for the deck, you know the tonic the got and what caused that drop in Chinese exports to America.
So there's there's lots of speculation about that, but I think that it really is likely that it is a sign of US companies beginning to diversify their supply chains and so more of the inputs for the goods that they are bringing into the United States are made in places other than China. That doesn't mean that they're leaving China. It just means that we're the for the business that involves manufacturing to export to the United States, more and more of them are doing that elsewhere.
So ana is it going through India, Vietnam? Why do we use seeing that show up.
A combination of those and other places. But you know the reality is that there are no markets that can just absorb all of the export or all of the manufacturing that is done in China for the US market. So at a certain point, probably in the near future, these other markets are gonna take capacity, and then it'll be much more difficult and more expensive for companies to figure.
Out where to go and out of interest, Who do you think is got the best strategy in how to handle that to move your manufacturing base out of China without isolating the Chinese consumer.
Well, I'm gonna I'm gonna avoid naming any company, but I think I think the strategies that are really focused on in China for China and ramping up the manufacturing and development that's going on for the Chinese market are good strategy. They don't check every box for the Chinese government or in terms of risk management, but they check the most boxes.
What a change, Anna Ashton of you Wright, you great, Kana, Thank you.
Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern im Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always on the Bloomberg terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg