Bloomberg Surveillance TV: June 26, 2025
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.

Joining us now for a long discussion, Jim Zalter, the president of Apollo Global Management. Jim, good morning. Good morning, Jonathan. And happy birthday, sir. It's good to see you. Thank you very much. I appreciate it. We won't spend too much time on the Federal Reserve, but I do want your reaction to this journal piece overnight.

Well, I think that the president's already won. It's a great distraction of headlines. I personally don't think he's going to name anybody too early because right now he's in the catbird seat of blaming without accountability, which is classic Trump playbook.

So, I think the fact that we're talking about it is interesting. It's a great diversion from the reality. I think he does, there's no doubt he wants rates lower. That's what's part of his plan for many, many years and that's how he doesn't like to pay debt and he likes to pay low coupons on it. But the fact that, you know, I just don't think that if you're Trump right now and you take his playbook

he'll make this a conversation, but I don't suspect he's going to do anything premature because he's able to put blame on the current resident of the Fed and he likes to be in that position. - In your words, blaming with accountability, without accountability, is there something you think he should be accountable for?

Well, certainly I think if you think about what's going on in the last three or four months, the issues of tariffs, it feels like that's a little bit on the sidelines right now. I know we haven't resolved it, but the marketplace has absorbed the idea of a 10% plus or minus tariff, maybe a little bit higher. But to Trump's benefit and the administration's benefit, the market has absorbed that and moved on.

The issues about the Middle East and all the challenges of foreign policy, there was a lot of action last 10 days ago and a week and a half ago, and now that has been sort of absorbed in the marketplace. The big elephant in the room is still our deficit issue.

You guys have talked about it quite a bit. It's obviously the topic of appropriate conversation. And so I think that is an important topic that still remains. But, you know, we talked earlier this year about the decline of U.S. exceptionalism. I think Mark Twain was right that my death is a bit premature.

And certainly the market has moved on. So I think the tariffs are a little bit off on the side. The foreign policy issues are a little bit off the side right now. The deficit issue is a real issue. We could talk a little bit about what's going on with the dollar. I personally think what's going on with the dollar, I think there was a lot of investors around the globe that invested in U.S. assets and they made money both ways, on the currency and on the underlying assets for almost 10 years. And they turned around and they found themselves really unhedged.

And I think you're gonna see some pretty good numbers out of the big banks this quarter because investors around the globe have been rushing to hedge their dollar exposure. But I think it's a 10-year catch-up that people just didn't hedge their portfolios in massive scale.

So I don't look at this dollar decline as-- I look at it as more of a technical factor than a long, long run impact on the health of the US economy. There's a lot to unpack there, including the breakout of the hedging profits at some of the big banks, which we'll all be now looking for.

To build on what John is asking about, is the Fed on the brink, I don't wanna say of a policy error, but of being too late kind of to build on what President Trump is accusing him because you are seeing the weakening in the dollar accompanied by the biggest negativity, the biggest increase in downside economic surprises that we've seen

In a year? If you look at the Bloomberg page on rates of the G7 economies, other than the UK, we're the outlier in terms of where our 10-year yields are and our yield curve is. You know, I sit in my seat and I see a variety of inputs that some tell me the economy is slowing down a little bit with consumers. Some tell me inflation is still a little bit more...

represented in the economy. We see inflation around 3%, 3%, 3.5%. And I don't think it's obvious that the Fed should be cutting right now. I think it is a very legitimate question to be asking what's the trajectory of the Fed activity. And so I don't think it's a slam dunk decision. I know the market, the futures would tell you three cuts in the next--the rest of the year, three, 3.5 cuts.

You know, Toris and I are a bit skeptical on that. We see what's going on and I think there's maybe one cut. Your basic question, is the Fed conversation a really important one right now? It is. I have a view that rates are gonna be a little bit stickier and higher in the US than people think. We've had that view for quite some time.

But so it is a good question for the administration to have right now, but I'm not sure that's the primary question for the market. - One of the reasons why people keep asking this question is would the Fed be considering cutting for the right reasons or the wrong reasons? The right reasons being disinflation, which you reject, but the wrong reasons being because we are seeing a weakening in the labor market as we see as the increase in jobless claims.

What's your sense of that based on what you've seen with portfolio companies, what you've seen with your investments? Is that valid? Yes. I think long term, you can't argue with the long term deflationary impact of technology and AI. That is out there. Now, whether that's six, 12, 18, 24 months, there's a massive deflationary impact from that activity.

I just don't think it's on the center of the plate right now in the markets. It's out there.

And I think that you're fighting with short-term still supply interruptions, hiring interruptions, and some short-term challenges that are inflationary versus a long-term backdrop of deflationary trends because of AI around the globe. I think that's sort of the center of conversation. When I'm back here in 2026 and 2027, I think rates will probably be a bit lower because of the technology impact.

But I think in the next six to nine months, I don't think rates are going to be dramatically lower. If you'd taken six months off and came back to work and look where the market was, I don't think you'd have a clue anything could happen here. Equity is close to all-time highs. Credit spreads are very tight. It's not a market that's screaming out for rate cuts. From your standpoint at Apollo, when you look at valuation, underwriting, any red flags getting your attention at all at the moment?

You know, the economy is amazingly resilient in the U.S. When I was here three or four months ago, there was concern hand-wringing about the trajectory of the economy. There was hand-wringing about U.S.--non-U.S. investors, global investors investing in the U.S. I've been all around the world the last 12 weeks. American exceptionalism is front and center back. You talk about where valuations are and levels of equities and rates, they're back.

Global investors want to invest in the US. They made a lot of noise, they thought they were going to diversify themselves away, and they realized the breadth and depth and the strength of the US economy and the scale of what they need to invest, and the US is the primary place to invest. It still is.

You know, it's very interesting. I was in Europe a few weeks ago. I was with your folks. I want to talk about that. Amazing is going on in Germany right now. The reality is public markets are the narrative, but private capital drives the economy. And we're seeing it. We've been amazingly active. ED&F last week, Automatica, what's going on in a variety of financing. So it's been a very, very busy time, but I'm not seeing any red flags going off. And I really, I want to make sure we talk today about this

about the private capital, private credit bubble versus just an economic cycle. We're due for a credit cycle, but that does not mean it's a bubble. And private capital's playing a bigger and bigger role. Look what we did last week for EDNF in the UK and Germany.

$4.5 billion sterling, private capital financing, long duration debt to finish out their nuclear power plant build. Really, really important that we're playing that role. - We'll sit in Europe, let's just stay there, off the back of your travels. So you mentioned EDNF, big sterling transaction. Also a big target from you and the team to invest, what is it, 100 billion in Germany over the next decade or so? - Yeah, if your leadership and journey right now, your goal is to get a 4 trillion economy to a 6 trillion economy. And you are, I was with the administration, you can talk to MERS,

You know, they really are embracing the role of private capital along with government spending over the next five or ten years. They've been so dependent on the banking system in Europe for such a long time. Can they get away from that? Because I feel like I've been talking about this for more than a decade. Well, I think the evidence is there. If you look at the last 24 months and what's going on with the leading Italian banks, look what's going on with HSBC, you know, look what's going on with Barclays and Deutsche Bank. They're operating in a much different

capital regime with a focus on shareholder value, with a focus on ROE, and they're really not taking all the policy lending on their balance sheet like they had in the past. So they're actually operating the right way. What you didn't really see before is the government really embracing in Germany, in France, in the UK, they want private capital to be part of the solution because they know the government balance sheets cannot do

all that's needed in terms of the massive capex of transmission line, of transportation, of AI, of data centers. They know they're behind. So if anything, this administration in the U.S., the memo they sent out about what's going on in the U.S. and Europe stepping forward, European leadership has taken notice. Let there be no doubt.

I go to Europe three, four times a year. I've never been so embraced as we were three weeks ago in Germany and France about the role of private capital in this build-out. How much is that driven by this U.S. administration? A lot. I mean, it's clear that they know that the European leadership has, even if you look this morning, about how they're stepping up on defense spending with NATO. So I think...

When I think about the globe right now, again, tariffs are a little bit off on the sidelines. They're part of the conversation. It's a question of how much, not if or when. And I do think they feel like there's a responsibility that they have for their citizens because when you look at the last 15 years and where the U.S. has grown versus Europe growth, it's startling. When I got out of college...

a few decades ago was all about Japan. Japan was gonna take over the world. It was all about Germany, industrial taking over the world. That did not come to play and I know they have a lot of catching up to do. And I just think it's a very, very, now, you know, if you watch, if you listen, if you read the Draghi letter and what he put forth 18 months ago now,

If they follow all 156 pages in great detail, it would be a watershed economic opportunity. And I think parts of that will come forth. But they're already making moves on securitization, other activities. And to Jonathan's point, the European banks are

a bit behind the US in terms of the fundamental focus on ROE and shareholder return and capital efficiency. But I think they're, I don't want to say they're catching up, but they're getting in line clearly. You've talked about macro paralysis in the past. I don't see any sign of paralysis when I look at, say, high yield issuance, when I look at activity. Do you see paralysis at all?

I don't. And back to this last topic, I mean, as you point out, Lisa pointed out, the two big topics that they need to really deal with right now is the tariffs on July 9th and the big beautiful bill. But we're not talking about that this morning. We're talking about a Fed chairman in nine months. And I look at everything through what this president has been in the past. As a real estate developer, it's all about location, location, location. The Fed pick will be about loyalty, loyalty, loyalty. Let's not get confused.

There isn't paralysis in the market. As I mentioned before, you know, the public markets are the narrative, the private capital is really the driver of the economy. A lot of activity going on in the U.S. on refinancing, in Europe on the global industrial renaissance. So we are on pace to have our busiest quarter in origination we've had in a number of years.

a tremendous amount of activity across our equity platform, our infrastructure platform, our credit platform. So I do think there was a lot of hand-wringing, as I said, three, four months ago. And I think that's now on the sidelines, maybe not on the narrative, but certainly on activity. Is that activity in lieu of some of the deals activity that we were expecting? Was it sort of expected to be the deals and the IPOs and the big boom for the banks, and instead it's

Apollo coming in and doing a lot of financing deals in the back? Well, I think, too, I think beginning of the year, people projected that the busiest folks on Wall Street would have been the ECM, equity capital markets teams, and the M&A teams. And while they've both been busy, the busiest folks have been the rate hedging and derivatives teams because of what's gone on in the dollar and concern about tariffs and such.

But it's an interesting backdrop. Even listening to your program this morning, the fundamental economy is doing fine. It's doing well, maybe not to the growth expectations that people had earlier this year, and will come out somewhere around a 2% growth with about 3% inflation. But whether it was Nvidia, whether it was Micron, a lot of CapEx still going. A lot of companies in the AI space raising tremendous amounts of capital at high valuations.

with a long list of investors coming in. And the activity, as I said earlier, what's going on in Europe right now about that industrial renaissance, it's still going on. So again, I think there's the headlines and then there's the reality of the underlying economy and the role of private capital, which is a much, much bigger, longer-term story. How do you think you're going to decipher the reality versus the headlines when it comes to New York City? You have a huge company here in New York, and a lot of people are concerned about a democratic socialist becoming the mayor of the city.

It's probably one of the most complicated jobs in the world on the political stage in terms of bringing a variety of the five boroughs together,

the business, the community, the unions, all the folks that make New York the special place it is. As I mentioned before, three out of every hundred college graduates a year come to New York in the U.S. It's still the magnet of talent and ambition. So when you see somebody that on the surface does not appear to have a long career,

resume of leadership and making tough decisions really concerning. And I think that we'll see now just winning the primary while in the past it might have been the litmus test for being the mayor. I think there's still a long time coming until November.

Build out the office in Florida. Is that what you're hearing? Texas. That was the most diplomatic response ever. Look at the resume. We are a New York company. There we go. We are determined to be here. I'm determined to be here. Our leadership's determined to be here. We have people in the office five days a week. He's running. You know, it's... You tell him, Jim. Jim, it's good to see you. Happy birthday. Thank you very much. Jim sounds like Apollo.

If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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Jobless claims, initial claims lower than expected, continuing claims higher than expected and creeping higher over the past few months. From your vantage point, President Daley, how much weight would you put on one versus the other? And what's the labour market picture look like in your point of view, your opinion?

Well, the labor market is shaping up to be solid, and the data today confirmed that. Now, continuing claims are going up because it takes a little longer to find a job. That's consistent with the hiring numbers just being slower as the economy comes to a more sustainable pace. But when I look at the labor market, there are really no warning signs that it's weakening. We'll continue to watch that, but right now it's progressing solidly, although more slowly than before.

President Daley, a lot of people have said that it is a data-dependent Federal Reserve, and yet we haven't seen enough data to really understand whether inflation is the primary objective or whether it really is. Some of the weakening that we've seen in the labor market, albeit from a strong place, when will you have enough data to really make that determination?

Well, one of the challenges of central banking that you just have to accept is that we never have perfect data, so you're always making judgments, and you want sufficient data to make a judgment that is really going to be best for the American people. So right now, we have incoming information on the labor market, which does not signal real weakness. It just signals slowing, so we'll continue to watch that.

and then on inflation the data have been good so far coming in if we were only backward looking we would say oh it's time to adjust the interest rate we have to be forward looking and then you have to make judgments about how you think inflation will shape up going forward and there is really see three scenarios and i'm leaning towards one that i'll tell you more and more but

The one scenario, of course, is that it's just delayed. The tariffs are going to have some impact on inflation. It is, after all, at an increasing cost, and that will be a more persistent effect. The second opportunity or possibility is that it's delayed, but it will be a one-off. And then the third, of course, which I think is increasingly...

possible. It's not my modal, but it's increasingly possible, is that this just doesn't amount to as much as the models in history would tell us because businesses find ways to absorb the costs and they split it down the production chain and ultimately consumers pay less of that. So I think those last two scenarios, it's delayed, but it's a one-off or it doesn't materialize to the extent that the models would suggest. Those are where our

you know, I'm putting increasing probabilities and we'll just have to collect some more information to make a decision. But, you know, ultimately we can't wait for perfect information or we'll be behind and we can't do that to the American people. It sounds like President Daley, you're leaning toward a sooner rate cut if it is confirmed that this tariff impulse isn't as inflationary as people expected. Is that correct?

Well, sooner than what? I mean, my modal outlook has been for some time that we would begin to be able to adjust the rates in the fall. And I haven't really changed that view. It does seem like that. Of course, if the tariffs are a one-off, you can look through them. And if they're just not going to materialize, then you have to watch both sides of the mandate.

And I think that's really important. It's not one or the other. It's both sides of our mandate that have really come into frame since we brought inflation down from the really high levels to something that's closer to our target. Ultimately, we have to watch both sides, and that's what I'm doing.

And then the fall looks promising for a rate cut. I don't know for sure. I mean, we have to be open about what we don't know. Humble is, I think, the word that comes out of the inflation run-up. And so, but we will, you know, there's a lot of differences of views on the committee. I see that as a real positive right now because people bring their perspectives and the data will guide us to what is the one that ultimately looks like reality. President Daley, John was talking about the palace intrigue. And I do wonder about

how the increasingly political overlay to the Fed has complicated your messaging, given that there is this debate about the dual mandate, etc. How much has it affected the way that you communicate? You know, not really. One of the things that I recognize on a regular basis is if I go out and talk to the people who live in the 12 Federal Reserve Districts, so that's nine states, very diverse states in the West, they don't actually bring this up at all. What they bring up is,

what do you think's going to happen to inflation will you be able to restore inflation to two percent we will restore price stability do you think the labor market is going to be preserved during it because ultimately i really want both jobs and lower inflation i want to get ahead and so far

the people in my district are are cautiously optimistic overall thinking that the economy is weathering some of the worst concerns and the uncertainties but continuing to move along so cautiously optimistic is where they're where they are in and i think that reflects what's on top of their mind less about what's happening in in washington and more about what's happening in their lived experience in their

communities. So President Daley, would you dismiss some of the discussions around shadow fed and all of that as simply palace intrigue and not necessarily affecting what would happen on the Fed? Are you concerned about that?

You know, ultimately what I'm concerned about is the two mandates Congress gave us, full employment, price stability. There's work to do there. That's where all of my focus is. And the Federal Reserve is an institution. It weathers a variety of different points in time, ultimately because we only think of one thing, how our work can further the American people

uh... in their lives and livelihoods and how we do that through our congressional mandated call so that's what we think about we've had a durable history since nineteen thirteen and i would can i consider that to be continuing to do our job well president any one argument we've had to reduce interest rates sooner than maybe site before issue indicated is that basically the labor market right now is no longer a source for inflation and with that in mind the risk-based reduce interest rates because the fed believes that the policy right still restrictive

Does that not convince you enough right now? Not completely, because remember, inflation's been above our target for some time, well above our target during periods of time. And there's a sense where people really want us to get that down. Inflation is a tax on people. And every time we let people continue paying that tax, it erodes their well-being. So I'm very focused on getting inflation down to 2%.

us being sure that we're on that sustainable path as long as the labor market doesn't show signs of weakening is really important. So you have to make a view, you have to have a view about what you think tariffs will do to inflation. Now, my own view is that they will...

potentially raise inflation, that's my modal outlook, but they should dissipate over the period. It's not going to be something that builds into inflation expectations and thus we really have to lean against it. But we can't just be assuming we know just because that's our modal outlook. We have to really collect the information and understand. Remember, data dependence isn't a backward-looking activity, it's a forward-looking activity. Right now we're looking forward by talking to our contacts

and they still feel uncertain about what they will do. They're going to try to pass some along, but they, as a number of people you've had on your show have mentioned, firms don't have all those abilities, whether they're managing their brand or just they have exhausted consumers who can't take anymore. That's what we're waiting to find out. But I don't think we're behind in our waiting. We've got policy in a good place, the economy's in a good place, and that's what we'll continue to monitor.

President Daley, how much of a lesson was it last year when the Fed cut by 100 basis points only to see long-term yields rise significantly in the face of growth and inflation expectations? Is that something that you worry about could happen now?

You know what, really, financial markets are an input to my decisions, not an output that I'm worrying about. And ultimately, you know, we want to see financial conditions align with what we're trying to do for the economy, and we'll adjust as needed. But, you know, we make policy. There's many things that affect yields. We make policy that we believe will...

be with the lags in monetary policy, supportive of both of our goals. And so I don't spend a lot of time wondering what the bond market will do, especially given there's so many things going on in the bond market right now. It's been quite volatile. So really it's about what do financial conditions overall do and what does that do to growth and activity and inflation? Does it restrain it or support it? And that's where my focus is. Final question. Just quickly, President Daley, just want to squeeze this in.

What would life be like with a permanent role in Washington, D.C., compared to, say, San Francisco? How would that feel? Hotter.

But seriously, you know, one of the things that I've, my experience with the Federal Reserve is you have to contribute from wherever you sit. And that's what we all do when we get around that table. There's 19 of us and we don't think about who is in what role. It's really how do we debate, discuss, bring our best thinking and our best disagreement to bear so we can make the right decision at the right moment for the people we serve. President Daley, appreciate your time. Very diplomatic. Thank you.

Let's turn to NATO. Member countries agreeing to a defence spending target of 5% of GDP. Mike Schumacher of Wells Fargo writing, just say no to 30-year bonds. Rising defence spending means heavier issuance, meaning pressure on the long end. Mike joins us now for more. Mike, welcome to the programme, sir. Provocative piece, and I think a lot of people will agree with you. And, Mike, the interesting thought that you and the team have got is this is not just the United States. This seems to be a global story.

It is, John. We think it's got legs. So you think about a secular shift in defense spending, we're talking probably five, 10 years, something like that. It's going to have a long time to go. And I get it. There's a lot of skepticism. People say, well, NATO's target's been 2% for a long time. How many countries have actually hit that? Not many. So why would they go to 3.5% or 5%? Maybe they don't get there. But really, the point is they go up in terms of spending. And

And I think most countries probably ratchet their spending up in the next couple of years. So if your runway is two or three years, you say, well, your average NATO country boosts defense spending by 0.5% of GDP. Do the math. That's a lot of bonds. We think a lot of long-term debt. And I doubt that it's fully priced.

A lot of people have pushed back on the argument that issuance matters. And I know that this is sort of the popular idea. And yet in the U.S., it hasn't because we've increased our debt dramatically in periods where we saw rates at near zero. So I'm just wondering at what point, what's sort of the tipping point where people become bond vigilantes and pay attention to issuance rather than just inflation?

Yeah, it's interesting. I think issuance does matter. So think about not just nominal rates, but real rates. I agree, inflation's high. That's why you've got high break-evens. But think about your nominal interest rate. Decompose that. Break-even inflation, real rate. I'll give you a couple numbers. So in the decade prior to COVID, the average real rate on a 10-year treasury was 40 basis points, 4-0.

Today, it's about 2%. That's a massive premium. Issuance does matter. So the market's saying, look, we've got the U.S., which is profligate. It's got 6% something budget deficit, a lot of bonds to come out. We have to charge a relatively high penalty. So I think the market's been opposing that for a while. Germany is considering this 50-year bond. Mike, who is best positioned to tap their debt markets when it comes to this defense spending?

Ooh, 50 years is tough. I remember when the U.S. talked about a 50-year back in the first Trump administration. I personally polled probably 40 or 50 clients. How many buyers did we find? Zero. So perhaps the Germans have more luck today, but I think when you look at really long-term debt, it's tough. But I would say in general, whether it's a 50-year or a 30-year, the countries that are best positioned are the ones that are starting with a relatively low budget deficit and low issuance. Germany is the obvious example.

When you think about the outstanding volume of boons, it's less than $2 trillion. Just to put that in context, Treasuries, you've got $24 trillion. Germany has a pristine credit rating. Germany will find buyers for long-term debt relative to other countries, but probably has to focus more on 20 and 30 or less on 50, in my opinion.

is the idea of higher rates for longer. What does that do to valuations over a longer term? We've already seen what that's done to the housing market and sort of the stasis that sits there. But do you expect equity returns globally to be substantially lower over the next five years, 10 years because of rates that are permanently sort of pegged at a higher level?

It probably makes people think about that trade-off a bit more carefully. And it's interesting. We used to do a lot of comparisons between the equity risk premium and bond yields. The problem is that model has shown the equity market, whether it's the US or elsewhere, to be rich for a long time.

But I do think that if bond yields are persistently high, so let's say that the quote average rate on a U.S. tenure for the next five or ten years is 3.5 or 4% instead of 2-something, does that impact the equity market? Probably. Is it something people can trade today? I don't think so.

When you consider longer term allocations, it probably does play a role and probably eventually makes bonds more attractive. Mike, some of the naysayers at NATO, though, were saying that this defense spending, this 5% target of GDP, is only because Trump is there. He has a four-year term. How much of this analysis you have on only because Trump's president and then potentially in four years, they're not going to reach even close to that spending?

That's a great point. That's why we focus really just on the next few years. So for us, we'd say, look, Trump is going to harangue NATO members to spend more on defense. That's pretty clear. He's done it already. He's been successful. Look at Canada. It's going to spend 2% of GDP on defense in the upcoming fiscal year after being 1.3 or 1.5, something like that. So he's already getting that done. So for us, it's not so much about what happens in 2030 or 2035 when who knows is the U.S. president, but

If you think about the path for the next two to three years when Trump will be very visible, very loud, I think it's reasonable to say that most countries in NATO will ratchet up their spending quite a bit. So for us, that's the big impact on the markets. It's much less about what happens in the out years. My quick final question, a question I think we'll ask a few times this morning. If the next Fed chair is a White House puppet, do we have to introduce some kind of EM premium to the long end of the curve?

Yeah, I'm skeptical about that, John, and here's why. When you think about the nominee, it's pretty clear people want to act a bit dovish to try to get that job, to get the interview, to get the nomination. But once the Fed chair is in place...

How much control does the president actually have? Not much. It was a great point. Powell's a Trump nominee, Trump appointee. Can Trump really control what he does? No. So if it's Kevin Hassett or if it's Waller who gets the job, once that person's in the seat, once that person's been confirmed, I think he or she is going to take his own direction. So I'm not super concerned about that right now. But I think the markets might overreact between now and September, October, whenever that nomination comes out.

Appreciate the input. Mike, thank you, sir. Mike Schumacher of Wells Fargo.

Thank you.

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Joining us now is Nita Richardson of ADP. Nita, good morning. Good morning. You and others have talked about this so-called load-sharing dynamic in this labor market. Is it getting harder to get a job? It is. And it is especially for new graduates. We've seen that be a predominant story. So what companies are doing is they're taking a pause on welcome

welcoming younger workers into the workforce. They're taking a pause on hiring, maybe even hiring senior roles. They're still in that wait and see mode, a slowdown in the hiring momentum that we saw at the beginning of the year. Can there be this low churn type of dynamic for a really prolonged period of time without there being some at least perceived weakness in the labor market that becomes reality?

You know what, it's interesting how concentrated hiring has become. If you look at that last government report, what you see is 96% of the hiring has come from healthcare and leisure and hospitality. Two-thirds came from healthcare.

There's a lot a company can do other than let go of a worker. One thing they can do is cut hours. 55% of workers in the United States are hourly. So we may not be seeing the slowdown in the initial jobless claims numbers, but they are showing up in hours worked. And I think that's a number to watch.

continuing claims is a number to watch, and then the concentration of the employment that's coming, mostly in a very non-cyclical sector, a structural sector like healthcare, that's an indication that everybody else is in wait and see mode. - You know, this is such a difficult market to get a hand around because is it weakening or is it weak? Is this normalizing or is this really problematic and does it highlight a potential crack to come? What's your take on that? What's the sort of tell?

There's nothing normal about the economy that's not dynamic, especially a U.S. economy. It feeds on dynamism. So I would read the labor market as in a stasis. There's no movement. And that doesn't play out. You asked me how long does this happen until we call it a weak market. Well, it shows up in productivity. If you have...

a labor market that's not dynamic, that is not ingesting new talent, is not moving and workers are going to higher paying jobs and being promoted, that feeds into the productivity numbers. And we saw that the last read on productivity was quite weak, 1.4%. The power of exceptionalism comes from not just workers, but output per worker. And that's what's slowing. That's where you're going to see the weakness first. Neela, you say it's harder to get a job, but is it easier to get fired right now?

Wow.

- Are they the same? - It depends who you ask. - You know, it can be quite easy to get fired depending on what you do. - I mean, take out some of the personal issues. Are companies laying people off? - It doesn't look like that. It looks like people are holding on to their workers. And in fact, we've seen at ADP in the data, in the payroll data, not only are they holding on to existing workers, they're actually rehiring workers that have left and come back. And I think, I mean, to your question,

Hiring has become more cautious. They've changed the composition. Employers are less likely to take a new bet on a worker they don't know. They'd rather hire someone they do know who can onboard quickly, who's very efficient, or not hire at all. That's what we're seeing in the data, and that again feeds back into the lack of dynamism that we might be experiencing. - I'm gonna ask the question Jonathan always asks. If you're hired right now, you have a job, are you going in and asking for pay rises?

You're probably going in and asking for a pay raise, yes, and not getting it.

So yeah, the ask is there, but the action is not. And you can see that in how our initial job switcher data is looking. Yes, you get a bump from switching jobs, but it's not the same bump that you would have gotten two years ago. And it's not the premium of getting that bump versus what your pay growth would have been if you stayed at your previous employer isn't really there. So yeah, you can ask.

Be careful how much you ask for. Keep asking. Keep asking. I always say that. Keep asking. The companies don't want you to ask, do they? They want to have that leverage. Get comfortable not earning enough. Yeah, keep asking because the firing rate isn't that high. So, you know, go for it. Keep pushing. Mike McKee is going to keep pushing. Mike McKee has more data for us. Mike, you wanted to focus on the trade numbers, right?

Well, trade numbers and durable goods, there's a couple of interesting things here. The exports for the United States fell 5.2 percent. That is the most since the largest drop, shall we say, since 2020. It isn't clear why that would be because prices for U.S. goods have been dropping as the dollar drops.

So this is, in the trade business, pretty much a story about exports not living up. Now, on the durable goods side, we saw a rise of 16%, which is the largest since 2014, an increase of 16.4%. But it's almost all Boeing, 158% rise in Boeing non-defense aircraft sales or orders during the month.

and some mixed news underneath because factories, stuff we normally think about like machines and primary metals, fabricated products, those rose but computers, communications equipment, electrical equipment and appliances

all fell orders for those during the month. So it isn't clear exactly how strong durables are, even though the headline number is pretty strong. Mike McKee, appreciate the update. Mike, thank you. Nita's still with us. Nita, I wanted to turn to you on the Federal Reserve just briefly. Matt Lozelli at Deutsche Bank said this is not uncertainty. He says you can see in the forecast a lot of division. Do you hear and see a lot of division? Yeah, I think that's

When things are really bad or really good, you should see a lot of consensus. The gray areas are where it's hard to drive that consensus, and it really depends on whether you want, as a policymaker, to make a preemptive move, because you may think that the economy is weakening and rates are too restrictive, or you're still in wait-and-see mode, and you can see that various actors are playing, are responding to different parts of the economy. It's like we all are looking at a puzzle with missing pieces.

And you're trying to figure out what's in the center of that puzzle, and you don't have the pieces at the ready. And those pieces probably won't materialize for months, and in some cases years, if you're talking about long-term capital investments. So you're guessing. You're guessing what the center of the economy is. You're guessing about policy over the next six months, over the next even six years, and

because many companies that are manufacturers are making 10-year investments, not three-month investments. Do they have sufficient information to sit there and say, "We're forced to make a guess right now and we've got to make a call"? Is that as soon as July or can they keep on waiting? Because the chairman keeps saying, "We can wait. The economy's solid." Is the economy solid?

If you're looking at the unemployment rate, you can go with a solid message. It has not budged in a couple of months, and it's still quite low if you look at it historically. So there is a reason to wait. If you're looking at an economy where if you look at all the typical median projections, they are expecting slower growth.

growth, higher inflation, higher unemployment. If that is your forecast, you might want to make a preemptive move. And that's what some of the committee is doing. But overall, the consensus looks like to wait and see. And they have the data support to do so. Nita, it's good to see you, as always. Thank you. Nita Richardson there of ADP.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.

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