Harvard economist on 'shocking' contraction of US economy in Q1
let's get some expert analysis here on this gdp number which of course is a decline of 1.4 percent versus an estimate of a gain of 1.1 percent joining me right now is former chief economist at the imf harvard university economics professor kenneth rogoff ken it's always a pleasure to see you give us your reaction to this gdp number this morning down 1.4 on the first read yeah well it's a preliminary number i was expecting a low number but it's shocking i really don't want to say it's uh you know even below the worst that i thought it might be eight and a half percent inflation more than minus one percent gdp growth not a very good quarter uh where do you think this goes from here ken and what's going to save us we spoke with brian moynihan on this program yesterday the ceo of bank of america talked about how strong the consumer is right now ken and i know you are also studying this shift in spending and even though the consumer has shifted spending from buying goods to spending money on things like travel and getting out and services you're still seeing a growth story that is deteriorating well i think he said it exactly right it's a growth story but it's deteriorating and the question is how far the consumer has a lot of money saved up from stimulus checks and savings from the pandemic but on the other hand you know inflation is really high the war is still going on and i think the biggest unknown is this fed tightening cycle if they don't hike rates a lot there's going to be inflation and if they do there's going to be a massive recession well we're expecting a rate hike next week uh in early may we're expecting a 50 basis point hike is that going to be effective and this string of rate hikes in stamping out inflation ken well they've decided to go faster but they really haven't decided to go far and the markets still seem to believe that you know they can raise them three percent and maybe everything will be fine two three percent but i think they're gonna have to go to four and five percent to stamp out inflation will they they talk tough but when you know the rubber hits the road and it really gets grim in the economy and the midterms coming up i suspect as i think i told you last time we spoke dell end up allowing inflation to stay elevated and will be in a low growth high inflation story uh liz peak jump in here uh it seems maria as though some of the shortfall in the first quarter was like uh an unexpected not um not particularly strong spending on inventory building but i would call your attention also to the pce the price index uh which was up seven percent in the quarter compared to an increase of six point four percent in the fourth quarter so i think what we see is as of perhaps we all knew that inflation is not moderating at least it didn't in the first quarter but in fact it got worse also i think a fall-off in government spending contributed to this i i would go back to your interview with brian moynihan i think the consumer is still actually spending and in fact the disposable personal income numbers and spending numbers for the consumer in this first quarter were pretty good so i don't think this is a consumer story i think the inventory issue might be more supply chain problems and an inability to build inventory i think that's the thing we have to watch because that's been a big underpinning of growth and if companies now feel their inventories are in good shape that's going to bode ill for the second quarter growth as well and ken what about that because we've got this graphic here of what's going on in outside of shanghai uh where of course the whole city is locked down because of covert restrictions and that is adding to an already very nervous supply chain situation this is a picture of the tankers and the cargo vessels that are stuck unable to load and unload your take on the uh the input here of the supply chain and that's impacting inventories uh causing this one and a half percent decline in gdp yeah well i mean there's a technical aspect of the decline so we're growing but it's slowing down but what's going on in china is very scary uh their covet 19 policy is just not working they don't seem to be willing to admit it i think the chinese economy may already be teetering on recessions something we thought just wasn't even possible in china we thought you know they get two or three percent growth that's terrible the supply chain issues are going to keep coming at us the war is not over uh china is nowhere near an exit to this and so we're going to keep seeing the supply chain issues and we're going to see demand starting to be curtailed as the fed raises interest rates and inflation hits into you know people's spending power yes consumer is still strong but it's you know going to be challenged as the next 12 months go on so so ken obviously the question becomes are we going to see a recession there are a lot of uh you know opinions out there a debate on whether or not a recession hits this year or next year where are you on that this clearly the first of what could become uh you know more weak stories on gdp i know it's just the first read we're going to get uh we're going to get an update on gdp but do you think we're going to see a recession i think the chances are at least 50 50 that we'll see recession over the next year what i feel really worry about is i don't see how the fed will both bring inflation down to say two and a half and three percent and not have a massive recession i think to do that they'd have to hike rates you know four or five percent at least and over the next year and a half i don't think they're going to do that i suspect we're going to end up with still high inflation and you know maybe even still a recession now we're talking about the pce index liz brought it up i want to get back to cheryl she's got more data and i want to get your analysis on it ken stay right there cheryl what have you got well there's a couple of things in here i want to bring up first it's business inventories okay if you take if you look specifically at the business inventory change that cuts .84 of a point off of gdp you would still have a negative number but that's substantial maria okay that's substantial because i was looking to see where the real pressure was and i mentioned exports also if you take the data and you strip out motor vehicles if you strip out that out that was also negative uh as well so that and then that so the export data those are the three things i found now to the price story and the pce uh numbers that that lost peak initially brought up that pc price index uh that core pc price index was 5.2 percent and then if you in the
headline number for pc price index was 7 percent but real final sales down 0.6 in the quarter real final sales so i think this gives us a little more color into kind of where the weaknesses were for the report but again that business inventory piece of the pie that is that's half of your one and a half percent negative number that we got this morning maria ken your reaction well i think this all adds up to this growing risk of a perfect storm in the global economy where europe because of the war is going in recession china because of its covet 19 lockdowns is going into their version of recession and the us with the rate hike cycle they all reinforce each other and the odds of really having a global recession are really rising by the day and this report certainly doesn't do anything to dampen that view yeah so where is the growth that you see right now i want to bring in uh the ceo of holagic stephen mcmillan because stephen has been overseeing a growth story at holagic uh particularly as it relates to health care and stephen that's where i want to start with you we've got ken rogoff here talking about the macro story give us a sense of what you're seeing in terms of the growth in in in products you are one of the leading makers of the mammogram machine and i know you've got incredibly innovation happening at hologic where is the growth from your standpoint sure first off interesting for me to be on a panel with uh ken rogoff my economics professors at davidson would be really excited by that but you know back to uh but back to the business the supply chains and certainly the lockdowns in china have had an impact in terms of as we've all known the global semiconductor chip shortage and that's created a challenge for us in the short term on our mammography machines because we haven't been able to get as many chips so it's back to where all the unintended consequences of these lockdowns really rippling through the global economy at this stage now you know in our case so many of the positives are offset by our positive both covet business but also our underlying women's health testing uh for you know sexually transmitted infections and our you know kind surgical business but our mammography business right now for the next couple of quarters we're not able to fill the demand because of the supply chain issues mm-hmm and and what do you see in terms of any alleviation there what what i mean you don't have the product you can't sell the product and that you know it hits uh the whole supply chain and the whole you know business standpoint has a lot of impacts there if you don't have the product you can't sell it that impacts growth yeah and more importantly maria it impacts women's health you know our what i'm so proud about our team right we've been waking up every day making a difference in the world you know when the world's shut down as you remember you know we were talking to you our team showed up every day to develop one of the first molecular covid tests in the world and our team you know flat out producing those tests for the last couple of years and and coming to the world's rescue when they've needed us you know we do worry right now on women's health issues that with so many things going on in the world women's health is really taking a little bit of a back seat you know you all know it that you know women have prioritized other people's health and we need to get back to you know women getting their screenings and all of those things going forth so that we can get back to a more normal focus on total health and not just on covid and i think that focus on covet is rippling through the economy here in so many ways all the additional spending the inflationary pressures right because we've taken a one-size-fits-all approach instead of really trying to to approach it more holistically yeah i think this is such a great point and and let me come back to you ken rogoff in terms of where you see growth right now and whether or not inflation is undermining that growth we had bob nardelli on the show yesterday former ceo of home depot former ceo of chrysler he said you know he's on a number of boards he said inflation is killing his businesses well i mean absolutely uh inflation's having a huge negative impact and it's only going to get worse we're going to see wages going up to catch up i don't think this is just a matter of commodity prices coming down but i i think uh first of all hello to professor davidson um but at your uh the medical uh profession the tech industry is really doing incredible things i mean long-term quality of life but i i do get very concerned about uh all the postponed health care that's taken place under covid how that will affect life expectancy quality of life in in future years and that's something we need to get back to normal that's a great point um let me let me get your take stephen on what you heard on wages there from ken because you know we had jamie dimon on the show a couple months ago he said never in his career has he seen this labor market as tight as it is so stephen the question for you are you being are you being pressured to pay up in terms of salaries is it harder to retain talent what's going on in terms of the workforce right now at the company stephen well certainly i think we're all feeling that and you know the idea that uh inflation was going to be transitory back at the beginning we were all saying i you know i think a lot of us business leaders were thinking this does not look transitory despite what the government might be saying and i think we're feeling that so we've certainly had you know some of our employees getting you know big offers of raises elsewhere and we've never seen the pressures that we're seeing you know i think it will ripple through for probably another year or so uh you know we're trying to take as good of care as we can with our people uh but i think we all are certainly experiencing that you know particularly in the us but uh you know even around the world so you've got to grow regardless of the macro story around you stephen what are you going to do tell me what's in the pipeline and what you're expecting to lead growth at a logic then in the coming year sure what we're so excited about is you know while everybody else was you know focused and particularly wall street was very focused on a lot of our covid business over the last couple of years we did some nice acquisitions but our r d teams have also been incredibly busy and we've come out with new products across all of our businesses and you know even within just our women's health we've got an exciting new assay for uh what's known basically is bacteria vaginosis which is one of the primary reasons women go to their ob gyn uh to get you know tested and we've developed the first molecular test that's really great for detecting that so we have you know and we have you know new products coming out in our mammography business uh as well as our surgical business so we've got a great pipeline of things coming through all of which you know bode really really well for our growth ahead yeah i mean and thank god for you and for the health care industry that's one of the areas that the u.s is counting on growth along with technology uh ken uh in terms of the most important metrics that you're looking at this morning ken rogoff to give you and inform you of where we are in this cycle please let us know we know that the gdp is somewhat backward looking and we are going to get more revisions here what's most important in terms of the metrics you're looking at well consumption is almost you know roughly two-thirds of u.s growth and so that's obviously the main thing when that starts fading we're really in trouble but the supply chain issues are really you know vicious and not going away by the way uh our tech industry is great but i don't know what we're going to do if we have problems in taiwan i'd be interested to know stephen's take on that that looks to me like we're years away and i wanted to say one thing about growth the us has always depended on immigration for growth but we're one of the few countries that doesn't have sort of a rational policy towards immigration what do we need who do we want how many do we want it's just sort of you know random and of course it's become really acute the problems recently yeah i mean bad policy equals bad outcomes and we're seeing a lot of bad outcomes stephen uh give us your sense of what you're seeing as a result of this supply chain issue as ken is referring to stephen has that been a major issue you talked about the chips for the mammogram machines what else can you give us color on in terms of the nightmare that is the supply chain log jam right now you know it it cascades through so you certainly have the chips but you also you know i think we just see the freight issues and you know freight and supply certainly you know we're lucky that most of our supply and most of our manufacturing is actually still done in america you know you'd be very proud marie i think you might know this but all of our mammography machines for the world are made in the united states on the east coast between connecticut and delaware of all things uh you know most of our molecular tests are made in san diego and so we have you know a very strong u.s supply chain
which has worked well the one caveat for us is we are dependent on the chips that come from elsewhere in the world and that's been our biggest challenge you know we're excited that partners like intel are investing in huge facilities in the united states i think that'll be great over time but that's going to take years for those fab facilities to come on but i do think you know having more production in the united states in the long run is going to be good for both the u.s economy as well as the global supply chain and all of us companies so you know but i think you know we're all seeing just the increase in freight costs you know fuel costs everything cascading through and that is creating a lot of the challenges we're all trying to balance and deal with right now and a and a truck driver shortage uh which of course is critical uh to getting the product from from a to b elizabeth jump in here well i think what is intriguing to me is kind of how the how the tight labor market is impacting real disposable income wages are going up but the fact is it's being eaten up uh increasingly by inflation so i think we're going to see an explosion maria in wage increase demands i think workers are going to be going to their bosses and saying looking i'm not making ends meet and all the numbers in this first quarter kind of attest to that real real personal disposable incomes down not because people aren't getting more money but because inflation is so hot still your thoughts can no that's very well put i mean i think well we are going to see more of a wage price uh spiral than the fed and many commentators are admitting uh that you've seen reports recently in papers saying no inflation expectations are anchored if i'm a worker i'm not looking at some market inflation expectations i'm looking at my wage going up less than inflation which seems to be going up more and more and the labor markets white hot it's hard to imagine we're not going to see very big wage increases over the next year and some of that's going to fuel back into keeping up inflation which i see still being very high three and a half four percent even perhaps by the end of 2023 and you've got pricing power stephen go ahead please oh i was just going to say to build on ken's exact comment you know i was talking to somebody an independent businessman the other day who supplies goods to jack in the box and some of those things and you know he was talking about the eight and a half percent that we show as a headline rate he said boy everything i'm dealing with is a lot more than that the cost of eggs the cost of chicken the cost of transport you know all those things are going up at a higher rate so you know we're all trying to balance those those areas and and not wanting to pass on all of those costs to consumers or to our customers because we want to be you know very responsible in that and find the efficiencies to manage through it but there's a limit you can do that right stephen i mean at some point something's got to give if you're paying more for the components for your products you're going to raise prices you've got that pricing power are you expecting those prices to go higher by year end we're you know we're trying to moderate as much as we can and still take a longer term more conservative approach to our pricing increases and just trying to find more and more efficiencies that we can along the way having said that certainly we're going to have to take some along the way yeah sure ken rogoff uh how does the fed change things we're going to get a uh interest rate hike next week at the fed's may meeting we are expecting a 50 basis point hike are you expecting several 50 basis point hikes oh goodness yes i mean i think we're at least going to get a few before they slow the economy slows down enough that they start uh giving pause i mean obviously uh the fed was fighting the last war in its decision making i think the big mistake here was really the big stimulus that came in march 2021 which was much too much much too late and the fed was in an awkward position because inflation hadn't gone up yet biden hadn't reappointed the fed chair yet which he had hanging over the fed so there are many people saying this is historic mistake worst feat ever i think this was a case where the progressives came into washington breathing fire the academic profession was saying you're never going to see inflation again and the fed listen for too long to that yeah i think that's great analysis there because after that it wasn't the end of the spending you also had an infrastructure package following and you also had efforts to keep pushing through the build back better agenda which some people called five trillion dollars in cost even though they were calling it 3.9 trillion dollars in cost it did not go through but there's still an effort to push that through stephen we invited you on to talk about your earnings and the great performance that logic is in let me give you a minute or so to go through the growth story uh before you go i appreciate you joining the panel here because it's all connected and we were able to connect the dots on a very disturbing gdp report out this morning oh sure well thank you again for having us marie you know we are we're we're so excited the way our team has responded to both provide the covent test but also provide our base business and you know you've known our company for a while we care deeply about trying to impact women's health on a global basis and as covet hopefully subsides we get back to really that core mission that we're all excited about we even announced earlier this year a long-term partnership with the women's tennis association the wta that i think is one of the great sports organizations in the world that's been fighting for women's rights really now for 50 years and you know all about women's health women's rights women's equality and is the most perfect fit for us as a company to be allied with them as well as we try to carry this message out you know really women's health has been lagging in the world we need to get it where every woman can go to a doctor be taken seriously and dealt with properly yeah i amen to that ken rogoff now the focus will turn to apple and to amazon after the close apple is a really important story giving us a uh a hand into the consumer into the china and the supply chain nightmare uh into what's going on in terms of the broad macro story your thoughts on what we should be looking at in terms of the apple quarter after the close tonight maria i have to beg off this questions as my daughter now works at apple uh so i probably shouldn't comment on it but obviously the tech stocks have done extremely well but now it's been challenged as interest rates go up because they're very interest sensitive well i think that's terrific that you gave us that disclosure ken thank you for that it's always a pleasure to see you and gentlemen thank you very much for uh playing with us here on a busy morning stephen mcmillan ken rogoff cheryl cassoni liz peek tammy bruce always a pleasure and an honor to be with all of you have a good thursday
2022-04-29 12:49
