Latest / Bloomberg Intelligence / Weak US Services Activity, ADP Hiring Signal Some Tariff Strain

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Weak US Services Activity, ADP Hiring Signal Some Tariff Strain · Bloomberg Intelligence

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  Speaker 2: We have some economic data coming out right now. I
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  Speaker 2: have some services data coming out forty nine point nine.
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  Speaker 2: That headline consensus on US was fifty two, so not
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  Speaker 2: kind of flirting with a little bit of a contraction
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  Speaker 2: there in the services part of the economy, which again
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  Speaker 2: is about seventy percent of the US economy.
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  Speaker 3: Let's get right to it.
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  Speaker 2: Steve Miller, a chair of the is some services PMI
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  Speaker 2: on that data. Steve, I'm looking at that headline data
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  Speaker 2: forty nine point nine.
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  Speaker 3: That's below fifty. Talk to us about that.
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  Speaker 4: Good morning, Thanks for having me back. You know, zo
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  Speaker 4: point one percent below the flat in services industries.
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  Speaker 3: Flat is bad.
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  Speaker 4: You know, we've seen we see long term growth when
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  Speaker 4: we get to flat or just below flat, certainly negative indicators.
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  Speaker 4: On the positive side, we track the numbers by industry
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  Speaker 4: and how they contribute to overall GDP. What we're seeing
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  Speaker 4: is a slight increase in the percent of GDP that's
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  Speaker 4: representing growth, and a slight decrease in those that are
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  Speaker 4: saying that they're in contraction territory. What we saw bringing
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  Speaker 4: the number overall down was for accommodations and food services
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  Speaker 4: and the real estate rental and leasing. Although both still
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  Speaker 4: an expansion territory, they're not as high or as fast
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  Speaker 4: level of expansion as they were last month.
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  Speaker 5: So I was confused as to how im services employment
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  Speaker 5: actually ticked above that fifty level, whereas a new order
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  Speaker 5: is just tanked to forty six and the overall index
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  Speaker 5: is below fifty, what does that.
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  Speaker 4: Mean well on the employment side, my interpretation of those
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  Speaker 4: numbers is that we're still seeing confidence that the terror
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  Speaker 4: situation is going to get worked out and we're going
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  Speaker 4: to be able to return to growth. But the new
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  Speaker 4: orders and actually seeing backlog as well backlocker orders, we're
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  Speaker 4: seeing those very low. And another data point is when
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  Speaker 4: I look at the average of new orders and backlog,
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  Speaker 4: this is the lowest that it's been since two other
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  Speaker 4: points in the last twenty years. One was the beginning
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  Speaker 4: of the pandemic in March and April, and the other
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  Speaker 4: was in the two thousand and eight two thousand and
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  Speaker 4: nine time frame in the Great Recession. So for me,
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  Speaker 4: that's the biggest red flag is the drop in new
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  Speaker 4: orders as well as both the average level between the
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  Speaker 4: new orders and the backlog of orders.
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  Speaker 2: So we've got new orders lower that's concerned about just
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  Speaker 2: the economy slowing down, and we've got services prices paid
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  Speaker 2: coming in much higher than expected.
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  Speaker 3: Is that inflation?
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  Speaker 4: So I can't say yet whether it's inflationary, but I
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  Speaker 4: would tell you that the two month growth rate is
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  Speaker 4: what we saw just at the start of the acceleration
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  Speaker 4: and inflation back during the pandemic.
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  Speaker 3: So definitely that's right.
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  Speaker 2: See, we appreciate it.
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  Speaker 6: Thank you.
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  Speaker 5: Yeah, we know you've got to run, so we'll let
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  Speaker 5: you go. Steve Miller, Chair of the Ism Services, joining us.
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  Speaker 5: They're really rough new order, so we will keep track
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  Speaker 5: of all of that as it goes.
• 3:29
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  Speaker 5: So the economic data we keep hearing is going to
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  Speaker 5: be a few months off till we see any negativity
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  Speaker 5: hit the hard data. But let's just go over some
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  Speaker 5: of the data we got today. We got the ADP
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  Speaker 5: employment number, disappointing, coming in at just thirty seven thousand jobs.
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  Speaker 5: Then you had the ISM services number and it was
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  Speaker 5: pretty rough. You had the overall index below fifty. That's
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  Speaker 5: contraction territory. But the big thing was new orders coming
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  Speaker 5: in at the lowest level. Like we saw bask in
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  Speaker 5: April twenty twenty. No one likes April of twenty twenty.
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  Speaker 5: Also back in two thousand and eight, two thousand and nine,
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  Speaker 5: no one liked two thousand and eight and two thousand
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  Speaker 5: and nine joining us now for more. Michael mckeib when
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  Speaker 5: we're going to National Economics and Policy correspondent, I'm like,
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  Speaker 5: is this the stagflation kind of thing?
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  Speaker 7: Well, if you took it at face value, it is
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  Speaker 7: in the sense that we're looking at prices going up
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  Speaker 7: and activity going down.
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  Speaker 3: What we haven't seen.
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  Speaker 7: Is, as you note, the hard data completely reflecting this,
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  Speaker 7: we're starting to get numbers that do. Remember we saw
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  Speaker 7: a big drop in imports during the last month, and
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  Speaker 7: that was largely because so much was pulled forward because
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  Speaker 7: of the impending tariffs, and so that will have an
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  Speaker 7: impact on second quarter growth, but we're not at this
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  Speaker 7: point able to say exactly where we go from there.
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  Speaker 7: It looks like service are bad, and I know you
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  Speaker 7: had the director of the Ism services on earlier and
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  Speaker 7: he said that the new orders really are looking bad
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  Speaker 7: right now. And that's just kind of a scary thought.
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  Speaker 2: Hey, Mike in our group chat here, I dropped in
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  Speaker 2: a note earlier that I said, you know, maybe a
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  Speaker 2: few months time, we're going to look back on today
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  Speaker 2: as the beginning of something, you know, whether it's tagflation,
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  Speaker 2: whether it's recession, whether it's inflation really warring its head.
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  Speaker 3: Am I being over dramatic there?
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  Speaker 7: I don't know if I would say today, but it
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  Speaker 7: could be this week in let's see what happens on
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  Speaker 7: Friday with the jobs report.
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  Speaker 3: This may be sort of the last.
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  Speaker 7: Hurrah week where we see numbers that are okay in
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  Speaker 7: terms of those things. The big question is going to
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  Speaker 7: be whether ADP reflects reality or not, because any number
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  Speaker 7: like that for Friday's payrolls figures would really scare the
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  Speaker 7: pants off Wall Street and get everybody excited about FED
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  Speaker 7: rate cuts, even if they're not going to happen right away,
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  Speaker 7: So yes, this could be not mincing those time to remember,
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  Speaker 7: Oh nice new us.
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  Speaker 5: Then how do you square how do we think about
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  Speaker 5: ADP versus the jolts that we got yesterday. I was thinking, like,
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  Speaker 5: is it the companies just aren't hiring, but they're not
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  Speaker 5: necessarily laying off either, Like how do we square those
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  Speaker 5: two together in the broader economic jobs picture.
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  Speaker 7: Well, it's not easy to square the two, except that
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  Speaker 7: you note that ADP that the jolts rather is two
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  Speaker 7: months old, so it is past data and things could
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  Speaker 7: certainly have changed, which ADP suggests might be the case.
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  Speaker 7: Now with ADP, what we're not seeing is whether companies
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  Speaker 7: were letting anybody go and whether they have openings that
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  Speaker 7: they want to fill. It just tells you they didn't
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  Speaker 7: hire very many people or add to payrolls. Now, it
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  Speaker 7: has historically been that ADP is usually way off from
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  Speaker 7: the private sector hiring is in the non farm payrolls figure,
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  Speaker 7: so we'll have to see how that proves out. On
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  Speaker 7: Friday last month, ADP said there were only sixty thousand
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  Speaker 7: private sector jobs created and the government found one hundred
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  Speaker 7: and sixty seven thousand, So I don't know whether ADP
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  Speaker 7: or Jolts gives us a better idea of what's going on,
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  Speaker 7: But I don't think people are going to pay a
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  Speaker 7: whole lot of attention to either one once we get
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  Speaker 7: the Friday figures.
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  Speaker 2: Tariffs, Mike, we have so many tariffs are very hard
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  Speaker 2: to kind of keep them, keep them in focus here.
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  Speaker 3: There's so many out there.
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  Speaker 2: Do we have any idea kind of what percentage of
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  Speaker 2: the tariffs have found their way into the economy at
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  Speaker 2: this stage or is it just too early to tell here?
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  Speaker 7: Well, there have been some rough back of the envelope
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  Speaker 7: calculations that about what Bloomberg Economics has done one about
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  Speaker 7: six percent of US imports have been affected by tariffs,
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  Speaker 7: because we're looking at autos and we're looking at steel
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  Speaker 7: and aluminum. Basically, tariff's likely coming. The Congressional Budget Office
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  Speaker 7: just a short time ago put out a couple of
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  Speaker 7: new reports, one suggesting that the Big Beautiful Bill is
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  Speaker 7: going to add something like ten trillion dollars on to
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  Speaker 7: the overall deficits over a period of years, and then
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  Speaker 7: that the tariffs would reduce that by about three trillion.
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  Speaker 7: So if all the tariffs were carried through and that's
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  Speaker 7: the caveat that the CBO puts on their numbers today
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  Speaker 7: that they don't know what tariffs are actually going to
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  Speaker 7: be imposed. So that's the hard part for everybody at
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  Speaker 7: the moment is how much are we going to tariff people?
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  Speaker 7: And who are we going to tariff?
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  Speaker 5: Mike, what's what's that nerdy chart that you have on
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  Speaker 5: your desktop right now?
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  Speaker 3: Actually?
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  Speaker 7: I was looking at steel today and because of you,
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  Speaker 7: of course, Alex Steele, the fact that when Trump put
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  Speaker 7: on tariffs in twenty seventeen, we saw a short term
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  Speaker 7: rise in employment at steel mills, but then that rolled
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  Speaker 7: over and the number of jobs in the downstream people
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  Speaker 7: who use steel in their industries fabricated medical metal producers
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  Speaker 7: really fell significantly, lost about seventy five thousand jobs there.
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  Speaker 7: So it'll be something we're gonna have to watch those
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  Speaker 7: two numbers in Friday and the following month's reports on
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  Speaker 7: how the steel tariffs are affecting the economy.
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  Speaker 3: Yeah. I love that. I think I better come in
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  Speaker 3: on Friday, Big Day. Are you going to be off Friday? No,
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  Speaker 3: I think I'll be d I mean the thing is
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  Speaker 3: from what we've been.
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  Speaker 5: Learning, like maybe we'll get little cracks, but it's stillly
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  Speaker 5: going to be in the next two months, maybe that
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  Speaker 5: we'll get hard data. So I feel like you can
• 9:53
  Speaker 5: still get that on the Jersey Shore, but it's gonna
• 9:56
  Speaker 5: be rainy tvd oh well, then definitely come in from that.
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  Speaker 5: All right, thanks, Mike, really appreciate it. Michael mckei, Bloomberger
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  Speaker 5: National Economics and Policy Correspondent.
• 10:04
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 10:18
  Speaker 5: All right, let's pick up with one of the stocks
• 10:19
  Speaker 5: that Norm was just talking about, and that is Wells
• 10:22
  Speaker 5: Fargo taking a look at that asset cat finally being
• 10:25
  Speaker 5: removed and what does it then mean after the seven
• 10:28
  Speaker 5: year old cap is removed for CEO Charlie Sharp, joining
• 10:31
  Speaker 5: us now is Hannah Levett, senior finance reporter from Bloomberg News. Now, Hannah,
• 10:34
  Speaker 5: Wells Fargo's been working at this for a very very
• 10:37
  Speaker 5: long time. How are they then positioned for this next
• 10:39
  Speaker 5: stage of growth?
• 10:41
  Speaker 8: Yeah, so this has truly been such a long saga
• 10:44
  Speaker 8: for them. Like I started covering Wells Fargo more than
• 10:47
  Speaker 8: seven years ago, they had just gotten put under this cap.
• 10:51
  Speaker 8: At the time, I was still enjoying my mid twenties,
• 10:55
  Speaker 8: and you know, now we are no longer there. For
• 10:59
  Speaker 8: Charlie Sharp, this means that he can finally play offense.
• 11:02
  Speaker 8: He can you know, they're not capped in size to
• 11:05
  Speaker 8: their level at the end of twenty seventeen anymore. And
• 11:07
  Speaker 8: remember that's been a huge deal for them along the way.
• 11:11
  Speaker 8: I mean some of the businesses that he's marked for growth,
• 11:13
  Speaker 8: like the trading business most notably, that's been constrained because
• 11:18
  Speaker 8: it's more balance sheet heavy and they haven't been able
• 11:20
  Speaker 8: to allocate that balance sheet because they're restricted. And like
• 11:23
  Speaker 8: just for context, JP Morgan, the biggest US bank, has
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  Speaker 8: grown almost an entire Wells Fargo in terms of assets
• 11:30
  Speaker 8: in the time that Wells has been capped.
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  Speaker 2: Wow, all right, hann I you know full discorder. I
• 11:35
  Speaker 2: have my checking account with Wells Fargo, but I'm guessing
• 11:39
  Speaker 2: the CEO and the management team there they want to
• 11:40
  Speaker 2: do something more than that. They think they can do
• 11:42
  Speaker 2: a little bit bigger and better than Paul's. And he's
• 11:44
  Speaker 2: checking account. So what are some of the businesses you
• 11:47
  Speaker 2: mentioned trading? Are there other eritors where they think they
• 11:51
  Speaker 2: can really grow by allocating more capital there?
• 11:54
  Speaker 8: Yeah, absolutely, so the businesses that Charlie Sharff marked for growth,
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  Speaker 8: you know in time while he was running the firm,
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  Speaker 8: but it was still under the cap where investment, banking
• 12:05
  Speaker 8: and trading and wealth management and credit card. But he
• 12:09
  Speaker 8: was saying on CNBC today that virtually every business aside
• 12:12
  Speaker 8: from mortgage, which they've said they're shrinking, and remember wells
• 12:15
  Speaker 8: Farga used to be huge, and mortgage at one point
• 12:17
  Speaker 8: they were churning out one in every three home loans
• 12:19
  Speaker 8: in the country. Every business other than that should grow
• 12:22
  Speaker 8: now and they have room to do that. But I
• 12:24
  Speaker 8: think those businesses where they've already said that they're targeting growth,
• 12:29
  Speaker 8: that may be where the earliest moves are. You know,
• 12:33
  Speaker 8: we've reported that they're working on a high end credit card,
• 12:37
  Speaker 8: so that could be something that people see. But yeah,
• 12:42
  Speaker 8: so it really just it goes across all of those
• 12:43
  Speaker 8: and beyond now because they don't have this constraint anymore, so.
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  Speaker 5: How quickly can they scale in the other parts of
• 12:51
  Speaker 5: their business.
• 12:52
  Speaker 8: Yeah, Well, it's an interesting question, right because we've seen,
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  Speaker 8: you know, the tales of banks trying to grow too
• 12:58
  Speaker 8: fast and then having you know, a calamitous blow up,
• 13:02
  Speaker 8: and so that's something that they definitely want to avoid.
• 13:05
  Speaker 8: And Charlie Sharff has talked about that that it's not
• 13:08
  Speaker 8: like an on switch day one, but it does give
• 13:11
  Speaker 8: them more flexibility so they can you know, the most
• 13:15
  Speaker 8: immediate thing is the trading business, where they just have
• 13:17
  Speaker 8: capacity today that they didn't have yesterday. But besides that,
• 13:22
  Speaker 8: it's more being able to lean into more enthusiastically those
• 13:28
  Speaker 8: growth initiatives that they've already kind of outlined.
• 13:33
  Speaker 2: Right, So, Hannah, they now have the regulatory capability to
• 13:37
  Speaker 2: maybe do more, to maybe grow a little bit more quickly.
• 13:41
  Speaker 3: Did they have the balance sheet to do that? Did
• 13:42
  Speaker 3: they have the capital to do that?
• 13:44
  Speaker 8: Yeah, they have a ton of excess capital. And that's
• 13:46
  Speaker 8: been a theme throughout. I mean even in the earliest
• 13:49
  Speaker 8: days of the asset cap like they couldn't deploy that capital,
• 13:53
  Speaker 8: so they gave investors a bigger dividend and more buybacks
• 13:57
  Speaker 8: than they were expecting. It was sort of like a
• 14:01
  Speaker 8: you wouldn't think that would be the outcome, but it
• 14:03
  Speaker 8: was at the time so they've had excess capital, and
• 14:07
  Speaker 8: also because the banks in general were preparing for the
• 14:10
  Speaker 8: possibility of tougher capital rules that have not panned out,
• 14:15
  Speaker 8: so they were a lot of them have been hoarding
• 14:16
  Speaker 8: capital anyway, sitting on a bunch of extra.
• 14:20
  Speaker 5: Well, we're seeing in Wall Street it's definitely a competition
• 14:22
  Speaker 5: for talent, particularly if you wrap in hedge funds as
• 14:25
  Speaker 5: well as huge ass at managers.
• 14:26
  Speaker 3: Are private equity.
• 14:27
  Speaker 5: Can weils Haargo play in that game?
• 14:30
  Speaker 8: Yeah, they already have been. I mean they hired Fernando
• 14:34
  Speaker 8: Rivas who is the head of the corporate investment bank there.
• 14:38
  Speaker 8: He was a major hire from JP Morgan, so that
• 14:41
  Speaker 8: that was huge for them. And you know they've made
• 14:44
  Speaker 8: other hires over the years. Doug Bronstein is there, another
• 14:48
  Speaker 8: former JPM executive and he's vice chair. They have Vary
• 14:54
  Speaker 8: Summers running wealth, so they have you know, they've been
• 14:56
  Speaker 8: able to get talent at the highest level and then
• 14:58
  Speaker 8: you know even further down as well.
• 15:02
  Speaker 2: All Right, I think the street kind of like this.
• 15:03
  Speaker 2: Stocks up about seven tens to one percent today, It's
• 15:05
  Speaker 2: up eight and a half percent year to date, up
• 15:08
  Speaker 2: thirty percent over the trailing twelve months, so it looks
• 15:10
  Speaker 2: like this street is kind of warming up to a
• 15:11
  Speaker 2: story which has been going to middle of the road.
• 15:13
  Speaker 2: Given some of the regulatory constraints, will stay on top
• 15:15
  Speaker 2: of that.
• 15:16
  Speaker 3: He a lovit.
• 15:16
  Speaker 2: Thanks so much for joining us at Bloomberg Senior financi
• 15:18
  Speaker 2: reporter on Wells Fargo.
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  Speaker 6: Yeah, so, I guess maybe the thing to start with
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  Speaker 6: it is on you. And we've seen that, you know,
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  Speaker 6: play out. When Tesla customers have you know, tried to
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  Speaker 6: come after the company, the company says, look, you know,
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• 17:22
  Speaker 6: and you know, even to take it further than that,
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  Speaker 6: you know, take the human out from behind the wheel altogether.
• 17:29
  Speaker 6: And we hear Musk, you know, talk about that quite
• 17:32
  Speaker 6: a bit lately because it's something that they're actually trying
• 17:34
  Speaker 6: to commercialize, even just in the next matter of you know,
• 17:38
  Speaker 6: next week or so. There's a lot of questions about
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  Speaker 6: how exactly they intend to do that, whether they can
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  Speaker 6: do it, especially after he's predicted, you know, year after
• 17:48
  Speaker 6: year that they're on the cusp of doing it. And
• 17:51
  Speaker 6: part of the reason there are doubts is is because
• 17:53
  Speaker 6: of the hardware. And I think that's kind of an
• 17:56
  Speaker 6: important aspect of today's story is is this particular crash involves,
• 18:01
  Speaker 6: you know, an incident where a driver was using full
• 18:04
  Speaker 6: self driving driving into the sun, and that appeared to
• 18:09
  Speaker 6: play a part in the crash, which resulted in a fatality,
• 18:14
  Speaker 6: and it led to a federal investigation that is ongoing.
• 18:20
  Speaker 5: I mean, this is all very much feels as part
• 18:23
  Speaker 5: of the growing pains as we kind of understand this
• 18:25
  Speaker 5: technology and how it works itself out. So what are
• 18:29
  Speaker 5: the steps that Tesla's taking and that the regulators are
• 18:32
  Speaker 5: taking at this time?
• 18:34
  Speaker 6: Yeah, so you know, we should acknowledge that this incident
• 18:37
  Speaker 6: happened in November twenty twenty three. You know, Tesla has
• 18:41
  Speaker 6: has changed. They've they've made upgrades both to hardware and software.
• 18:46
  Speaker 6: You know, hardware for certain customers, they should say, but
• 18:50
  Speaker 6: you know, in terms of their approach to the sensor
• 18:55
  Speaker 6: system for their vehicles, Elon Musk has been you know,
• 18:59
  Speaker 6: really sort of down a limb and having this view
• 19:02
  Speaker 6: that all you need is cameras and company companies that
• 19:06
  Speaker 6: are also in this space. I think the one people
• 19:09
  Speaker 6: recognize the most is Weymo, the Google company, and they
• 19:13
  Speaker 6: use a mix of camera, radar and wide R and
• 19:17
  Speaker 6: their sensor set is much more expensive. It's more extensive.
• 19:20
  Speaker 6: You know, these sensors are placed all over the vehicle.
• 19:23
  Speaker 6: But you know, the sort of bet here on the
• 19:27
  Speaker 6: part of Weimo is that is worth it. It will
• 19:29
  Speaker 6: mean this system is safer. What Musk has tried to
• 19:32
  Speaker 6: do is go with the cheaper route, go with the
• 19:36
  Speaker 6: you know system that he can afford to put in
• 19:38
  Speaker 6: every Tesla, and make this bet that you know, he
• 19:41
  Speaker 6: can develop his way to autonomy faster by sort of
• 19:46
  Speaker 6: leveraging the broader Tesla fleet. Even if it means putting
• 19:50
  Speaker 6: you know, cars on the road that you know, draw
• 19:52
  Speaker 6: scrutiny from federal regulators as to whether or not that
• 19:56
  Speaker 6: this is you know, unreasonably unsafe.
• 20:01
  Speaker 2: So, Craig, I think Elon Musk is back at the company.
• 20:06
  Speaker 3: What does that mean?
• 20:07
  Speaker 2: I mean, are you hearing anything like, Okay, now we
• 20:10
  Speaker 2: can get back on track, Now we can really move forward,
• 20:13
  Speaker 2: maybe at you know, a higher velocity.
• 20:15
  Speaker 3: What's that mean?
• 20:17
  Speaker 6: Yeah, I'm you know, I think it's difficult to tell
• 20:19
  Speaker 6: at this point because he's kind of coming back to
• 20:23
  Speaker 6: business means coming back to so many businesses, right, and
• 20:27
  Speaker 6: so on a day to day Yeah, we're you know,
• 20:30
  Speaker 6: we're seeing him travel to to his various companies, you know,
• 20:34
  Speaker 6: devoting some time and attention to to them. But it's
• 20:38
  Speaker 6: not as though he's sort of one hundred percent, uh,
• 20:41
  Speaker 6: you know, focusing in on Tesla and neglecting all of
• 20:44
  Speaker 6: his other businesses. We see him you know, regularly engaging
• 20:48
  Speaker 6: with you know, users on x about you know, troubleshooting
• 20:52
  Speaker 6: problems that they have with that service. You know, I
• 20:55
  Speaker 6: would say he is you know more actively engaging there
• 21:00
  Speaker 6: on Tesla matters and definitely is trying to sort of
• 21:05
  Speaker 6: send this signal that you know, okay, it's it's time
• 21:07
  Speaker 6: to get back to business here. But whether or not
• 21:10
  Speaker 6: that's you know, resulting in sort of tangible changes at
• 21:13
  Speaker 6: the company, I think remains to be seen.
• 21:17
  Speaker 5: I guess, I mean quickly twenty seconds. What's the rush
• 21:21
  Speaker 5: for autonomous driving?
• 21:24
  Speaker 6: You know, I think forty thousand people die on US
• 21:28
  Speaker 6: roads every year, right, and so the rush, of course
• 21:30
  Speaker 6: is to bend that, you know, to change that. And
• 21:34
  Speaker 6: I think one of the challenges that you have if
• 21:37
  Speaker 6: you're a company in this space is we've now you know,
• 21:40
  Speaker 6: seen a lot of companies pursue this for you know,
• 21:42
  Speaker 6: roughly a decade that number has not budged. So you know,
• 21:46
  Speaker 6: we still have a long way to go to where
• 21:48
  Speaker 6: this capability is you know, making putting a dent in
• 21:53
  Speaker 6: those figures.
• 21:56
  Speaker 5: All right, Craig, Thanks A Lott, Really appreciate credit you
• 21:58
  Speaker 5: Dale joining US Global Auto's editor on Tesla and autonomous driving.
• 22:02
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