October 15, 2025 • 36 mins
Watch Bloomberg Businessweek Daily LIVE every day on YouTube: http://bit.ly/3vTiACF.
A US judge has ordered the Trump administration to pause plans to fire thousands of federal workers during the government shutdown while labor unions challenge the move.The ruling on Wednesday from US District Judge Susan Illston in San Francisco follows layoff notices that have gone out to more than 4,100 federal employees since last week.
The order isn’t a final decision on the merits of the case. It means that more than two dozen federal agencies named in the case cannot send out new layoff notices if they involve programs that include labor union members that sued. The decision means the government must halt action on notices that already went out while the judge weighs whether to impose a longer-term block.
Today's show features:
- Laura Davison, Bloomberg Washington Deputy Bureau Chief, on Judge Blocks Federal Firings During Government Shutdown for Now
- Dan Letter, President and incoming CEO of Prologis, on earnings and the industrial real estate market
- Mizuho Senior Consumer Analyst David Bellinger on Walmart on Path to Trillion Dollar Status After OpenAI Alliance
- Bloomberg TV and Radio International Economics & Policy Correspondent Mike McKee and Bloomberg News Economics Editor Molly Smith on Beige Book and latest Eco Data
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Week Daily reporting from the magazine that helps global leaders
stay ahead with insight on the people, companies, and trends
shaping today's complex economy, plus global business, finance and tech
(00:23):
news as it happens. The Bloomberg Business Week Daily Podcast
with Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:32):
There's a lot of headlines out of Washington on this
Wednesday afternoon. A federal judge just ordering the Trump administration
to pause plans to fire thousands of federal workers during
the government shutdown, a shutdown that is now in its
fifteenth day. Carol, really stretching on here and a lot
of folks there in Washington, in the federal government more broadly,
I should say, outside of Washington too, really dealing with
a lot of uncertainty. Who are furloughed or been laid off.
(00:55):
This now going before the courts, this pause in place,
and we're going to talk about it more with Lord Davison,
who are Washington Deputy Bureau Chief.
Speaker 3 (01:02):
She joins us.
Speaker 2 (01:03):
Now, Laura, I mentioned that uncertainty. I can't put too
fine a point on that. Where do things stand now
now that we have this judge's ruling, not a final
decision on the merits of the case, what does it
mean for those workers who are very worried about their
position here in the government going forward.
Speaker 4 (01:18):
So it means that federal agencies right now have to
stop and hold all the plans for the firings that
took place last week. So that means that those people
will be able to keep their jobs for now, and
that any future rounds of firings, as the White House
suggested yesterday is coming, will also be halted. This is
just a temporary block, as you mentioned, they are just
paused and there will be a decision to come later
(01:39):
on the merits of the case about whether these can proceed.
It was quite a dramatic moment this afternoon because just
before this ruling came out, Russell Vote, speaking on the
Charlie Kirk podcast, said that he expects that layoffs would
exceed ten thousand people right now, we've seen about four
thousand or so that have perceived layoff notices. So this
is very much a clash of where the White House
sees things going as where the judge came in and said, hey, look,
(02:03):
you got to hold your horses.
Speaker 2 (02:04):
Here, Lord, what's the status of conversations among lawmakers on
Capitol Hill? Among lawmakers and the White House, the Trump
administration just about sort of where we are in this
shutdown and where it's going from here. I know there's
a lot of concern about back pay, so the President
was able to arrange for members of the military to
be paid this week by moving some money around. The
(02:25):
uncertainty begins to kind of compound and amasses as time
goes on. Here, what's the status of those negotiations so
much as there are negotiations here between Republicans and Democrats.
Speaker 4 (02:35):
Yes, there are negotiations happening, and the House is still out.
They've been out for the full three weeks of this shutdown.
We're now on day fifteen. The Senate is in session,
but they've continued to vote on the same bill, and
they have had no progress, and there's been no really
behind the scenes discussions happening. You've had small groups of
moderate members trying to talk together, but those haven't really
yielded anything. But the thing about a shutdown is that
(02:56):
the first couple of days there's not much pain. But
as the shutdown goes on the pain in compounds you see,
you know, today, this week and last week, we've had
you know, millions of federal workers who have missed paychecks.
You know, military members are getting paid at least this
first paycheck, in this August fifty or rather October fifteenth paycheck,
they'll be paid, but it's unclear if later in the
month that the shutdown persists, if they will. You know,
(03:17):
we've already started to see some delays with with air travel.
You know, those could mount as the month, as the
months go on here, So this is very much unknown
about how this ends. But we do know that as
the shutdown continues, things get more and more painful and
unsustainable from political standpoint.
Speaker 5 (03:32):
Not good for that any workers though that might be
furloughed and not getting paid. But I want to ask
you something about this because it made me kind of
scratch my head.
Speaker 6 (03:40):
Lord.
Speaker 5 (03:40):
My understanding is that this isn't the final decision on
the merits of the case. But also it has to
do with union workers. How many of government workers are
union workers. I didn't realize that there was a distinction.
Speaker 4 (03:54):
Yeah, there's a high percentage of federal workers who are unionized.
I don't know the exact figure, but there's a patchwork
of unions that represent various agencies, and they've been very involved,
you know, in the process here. You know, we really
saw them start to mobilize earlier this year in regards
to the Doge firings, as that happened very swiftly. This
is one of the things that they've kind of realized
that they need to get out in front of these
(04:15):
cases a lot, because once you know, workers leave the building,
they have their badge taken away, they had their emails
taken away. It's really hard to bring some of those
people back, even if they are later if the firings
or later ruled illegal. So you see sort of a
change in strategy here of you know, wanting to make
sure that those workers don't leave, leave their posts, get
out the door while the merits are being decided.
Speaker 5 (04:34):
Laura always appreciate it. Laura Davidson, of course, joining us
from our doc bureis. She's Bloomberg News Washington Deputy Bureau Chief.
Speaker 1 (04:41):
You're listening to the Bloomberg Business Week Daily Podcast.
Speaker 5 (04:44):
Catch us live.
Speaker 1 (04:45):
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Speaker 5 (04:55):
Okay, listen, we're going to talk a little bit about
earnings right now. I am alsto curious to see what
our next guest has to say about some of these
big macro issues that are coming at us. Dan Letter
is president and incoming CEO pro logist. He takes over
as CEO in January. He joins us from our San
Francisco studio, and we should point out that the company
shares a rallying. They're up after they reported better than
(05:16):
expected quarterly earnings. They boosted their forecast. They talked about
data center opportunities, which is always something that catches investors' attention. Stocked,
by the way, it's up fifteen percent.
Speaker 7 (05:25):
Year to date.
Speaker 5 (05:26):
Dan, great to have you here with David and myself.
I do want to talk earnings, but we got to
ask about the macro backdrop, whether it's trade talks between
US and China, government shutdown, rare earth materials, minerals. What
do you really watch when it comes to some of
(05:46):
these big macro issues.
Speaker 8 (05:48):
Well, thanks for having me. It's great to be here.
Coming off this earnings call. This was certainly a topic
for us. We had a tremendous quarter. As a matter
of fact, we broke a record this core for leasing.
We leased sixty two million square feet of space throughout
our one point three billion square foot portfolio. And you
(06:09):
think about that in context. Sixty two million square feet
is the equivalent of leasing Central Park in Manhattan twice
over again in one quarter. So our team working tirelessly
around the world least one million square feet a business
day during the third quarter. And certainly these macro business
(06:31):
trends are telling by our customers, who are the frontline
of the economy.
Speaker 2 (06:37):
You look at the softer data and there is still
some anxiety among a lot of business leaders about where
things are headed. Maybe that's restricting them from making some
of the capex expenditures that they would have otherwise. You're
detailing for us very strong numbers, and I wonder what
that says to you just about the capacity of these
business leaders to look through or pass the uncertainty surrounding policy,
(06:58):
including trade policy. Give that's a sense of the moment
that we're in right now, as you understand it from
talking to your customers about how they're feeling about the
business climate going forward.
Speaker 8 (07:07):
Sure, it's a great question. One of the things we're
most proud of at Prologius is our customer franchise. We
have unique proprietary data, and we have unique relationships. Just
given the size and scale these relationships, and after what
has really been two to three years of uncertainty, going
back to rate hikes two and a half years ago,
we see our customers actually getting off their back foot.
(07:28):
What we've seen over this last quarter is actually customers
moving from caution to optimism.
Speaker 5 (07:34):
Huh wow. Why because things are getting settled in terms
of trade tariff? Like, what is it that has calmed
some of your customers.
Speaker 8 (07:46):
I think our customers realized, after a couple of sluggish
years of not making many decisions, that they have to
make long term decisions. And that's what they do when
they do business with Prologies, and they have to look
through the short term noise in order to ensure that
they're positioned for growth going forward.
Speaker 5 (08:02):
So you're talking about Amazon Home Depot, FedEx Ups, Giga
Cloud Technology. I mean, these are some of your big customers.
So you're talking about these guys are feeling more sure
about the outlook than maybe they did over the last
couple of years.
Speaker 8 (08:14):
Yeah, precisely, as a matter of fact, coming out of
a cycle. We're really in just a classic real estate
cycle right now, and what you're seeing typically at this
point in the cycle is it's the big, well capitalized
customers that lead the way out of this part of
the cycle.
Speaker 2 (08:30):
This is a basic question you'll forgive me for. But
when we talk about warehouses, what are we talking about.
Are these just simply places to store stuff or are
they places where there's a lot of movement, a lot
of products coming in and out. When we talk about
the bread and butter of your business, what are you building?
Speaker 3 (08:44):
What are you leasing out?
Speaker 8 (08:45):
Yeah, thanks for that question. We own nearly six thousand buildings.
These buildings are located in twenty countries in markets that
represent about seventy eight percent of the world GDP. As
a matter of fact, in twenty twenty four, we had
the equivalent of nearly three percent of the world GDP
go through these buildings. Our focus in building this portfolio,
(09:07):
curating this portfolio over the last forty two years is
having the highest quality, best located logistics real estate close
to consumers.
Speaker 5 (09:18):
So where are you geographically building out the most and
you know, where are you looking to kind of increase
your square footage or buy properties or by land.
Speaker 8 (09:29):
Well, the way we've set this organization up is our
teams are calibrated to look for good deals around the
world and we're heavily focused, certainly this year on build
a suits with our customers. We're actually going to we're
on track for maybe our highest build a suit volume
ever And what does that mean. That means we have
a contract in place with these customers before we start
(09:50):
building for them. And we're seeing that broad based across
most of the sectors as well as geography is spread
throughout the world.
Speaker 2 (09:59):
I bet you can do an interview without being asked
about AI, So forgive me, We're going to do it,
and I want to ask about it in two ways.
The first sort of how it's changing the way that
you conduct your business. And then the second question is
picking up on what Carol said, you looking at the
demand for data centers maybe changing your business tack as well.
Where do you see opportunity as this revolutionist it's called
continues and there's the need for more space for processing
(10:22):
all of this data.
Speaker 8 (10:24):
Yeah, it's AI is here, and it's big, and it's
big at Prologious certainly we have all sorts of different
operational and tools that we're building to make our teams
more efficient and to be able to help them move faster.
But when you think of AI and Prologis, we announced
today we now have five point two gigawatts of power
(10:47):
either secured or in the advanced stages of being secured
in sits mostly Tier one tier two sites in the
United States, and then the Tier one market's called flap
D or the double M in in Europe. So prologist
is now we've long been in the higher and better
use business.
Speaker 9 (11:05):
But again given that.
Speaker 8 (11:06):
Footprint we have close to these consumers. Well, the next
wave in the modern economy is the digital economy, and
AI and data centers are the logistics of that digital economy.
Speaker 5 (11:20):
We're talking about Dan Leonard, he's president of Prologist. He
is incoming president, incoming CEO excuse me, takes over that
spot come January. Wait, Dan, so give you an idea
just to like have explain your business. How much is
logistical warehousing right now? How much is data center? And
where do you see the most growth going forward? Especially
(11:40):
on a day where Meta, Microsoft, Blackrock, there's more all
doing data center. You know deals and it feels like
a lot's happening in Texas to point that out as well.
So give us an idea of you're mixed today and
where the growth is happening.
Speaker 3 (11:56):
Well, I look at our.
Speaker 8 (11:56):
Growth in our base portfolio. Wener control fourteen thousand acres
of land close to these consumption centers that I mentioned.
We can build out another two hundred and forty million
square feet out of that land bank. That's a tremendous
amount of space. And when it comes to data centers,
(12:18):
this power that we've secured, We've long been in the
higher and better use business. Think about the fact that
logistics and warehouses is typically the cheapest house on the block.
We've always been in the business of optimizing that real
estate value for our investors. And data centers are certainly
a trend right now that we're able to capitalize on
given the footprint and the raw material that we own
(12:38):
and control.
Speaker 2 (12:39):
I sort of note a headline here across in the
Bloomberg terminal that the judges blocked federal firings during the
government shut down for a no how we're talking about that.
A few moments ago, as we were talking about the
Beige book from the Federal Reserve DAN and what that
was telling us about the state of this economy. And
one thing they're in is how difficult it is to
find workers, particularly workers to do construction. And I think
a theme to the AI story is amid all of
(13:00):
this demand, it's hard to get folks to build the
data centers that we need to buffet all of it.
And I wonder if your company is dealing with that
as well, just the difficulty of keeping pace with how
fast all this is moving.
Speaker 3 (13:14):
Yeah, thanks for that question.
Speaker 8 (13:16):
I think about that as we look at what is
the replacement cost rent to build the next marginal building,
whether it's logistics or data centers, And we look at
that right now and the cost the rent to build
that next building is actually twenty five percent higher than
market rents today. And then I look at that relative
(13:39):
to our in place rents today, it's actually nearly forty
five percent. And one of the key issues is the
cost to build are getting that much more expensive and
labor is certainly a factor there.
Speaker 5 (13:49):
Interesting. Hey, one thing just to follow on, going back
to data center and your build out, you talked about
also the acquisition of five point two gigawatts of power.
It's a lot. How much though, is in terms of
the build out for data centers, you've got to track
it with having access to power and does that slow
some of the buildout just got about thirty seconds.
Speaker 8 (14:08):
You know, this five point two gigawatts that we're quoting
is just a portion of the universe of opportunities. We
actually have given our size and scale with our six
thousand buildings as fourteen thousand acres of land. We already
own this land in these buildings at logistics bases, and
so we brought in in house expertise. We have a
very large energy business. We've got one gigawot of power
(14:29):
that we will be generating off our rooftops by the
end of twenty twenty five. So we've been building that
energy capability that gives us just a better relationship with
the power companies.
Speaker 9 (14:38):
Yeah, and so we're in great shape there.
Speaker 5 (14:40):
Listen a great interview. When I want to keep going,
I wish we could Dan come back soon. Dan let
our president incoming president of Prolague, is joining us here
on Bloomberg. Stay with us. More from Bloomberg Business Week
Daily coming up after this.
Speaker 7 (14:55):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
a lit weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 5 (15:09):
The ai world. Walmart kind of moving in on this.
I feel liked as a result, it's on track to
kind of join the elite crop of companies with a
trillion dollar valuation. It announced a partnership we might remember,
with Open Ai, and that really kind of pushed the
stock to a record high. And there's one analyst that's
really noticed this, and this is David Bellinger. He's over
at Mizuho and he is joining us right now to
(15:33):
talk a little bit about his thinking. He is senior
consumer analyst. He's got an app and form rating on
the raw on the stock one hundred and fifteen dollars
price target. You've had this rating for a while. Yeah,
up your price target in early June. The stock's up
I think about twelve percent since then. Good to have
you here, talk to us about your call.
Speaker 6 (15:50):
Great, thanks so much for having me on. Yeah, Walmart,
we launched on this company back in April. We made
it a top pick in June and This is actually
our e commerce top pick just given all that they've done,
and we pointed out since twenty fifteen, these guys have
spent more than two hundred billion dollars in cumulative CAPEC spend.
We think they basically caught up to Amazon now this
(16:10):
past decade. It's it's essentially taken that long. But you've
got the e commerce business in the US almost at
about one hundred billion dollars annual run rate, and that's
actually sort of turn profitable now. So you're seeing all
these levers come into play, whereas the Amazon's run rate
significantly higher. It's not disclosed, but it's if you could
back into it, there's some estimates that the annual GMV
(16:32):
of all the sales that they push through is in
the five hundred billion plus type range.
Speaker 2 (16:36):
The phrase is agentic commerce. Help me understand what that
is and sort of what Walmart is saying it's going
to deploy here across its website.
Speaker 6 (16:44):
Great question. We spent a lot of time working on
this about three months ago, but it's somewhat foreign to us, right,
and so we dove into it, and it's essentially you
could have a software synthetic agent that researches products, finds
products for you, and could essentially buy it on your behalf.
So you're essentially going.
Speaker 5 (17:02):
From you've got kids, you should.
Speaker 3 (17:04):
Be shot at the front step. Yeah, you essentially go.
Speaker 6 (17:07):
From an assistant to an agent who knows your preferences,
has all your credit card information, and could make purchases
on your behalf if you if you give it that
functionality and just think about things like your weekly grocery run.
Something really easy. They know what twenty forty items you buy,
they could do it. Say hey, hey, Dave, you know
do you want to do your weekly grocery order? Head yes,
(17:29):
and go for it. There's also some other use cases
that one weren't starting to talk about, but like a
solution based of I've got my kid's birthday party.
Speaker 4 (17:37):
What do I need?
Speaker 6 (17:37):
There's going to be twenty kids there, make me gift baskets,
get me food, all these things a theme like it.
Speaker 5 (17:43):
Do that. Yeah, Yeah, it's kind of fascinating. Think about
when you're on Amazon and they're like, hey, do you
want to just do one purchase or do you want
to set it up? So it's like taking this all
to the next level. To some extent, even when we
do grocery shopping, it's like a list comes up because
we do it online. It's like this is just taking
this to another.
Speaker 6 (17:58):
Level pretty much much. But it's also as as a
discovery angle of we sell this chat GPT. They have
this overnight new product of things that they think you
would like as a recap in the morning, certain things
like that we could see the products being pushed to
you or things that you've searched for in the past,
and hey, this could be a nice complimentary product for
(18:19):
your recent purchase. And now you'll basically have the ability
to put all of that product from Walmart into that
summary and you have a quick, easy buy, instant checkout.
But and then this could unlock a lot of e
commerce growth still even on top of that one hundred
billion dollars. So there's no great way to size this,
and that what I've been telling the investors when I
(18:41):
get asked to size this is Walmart's grown the US
e commerce business about fifteen percent year over year for
each of the last twelve quarters. There's a time when
Amazon did that north to twenty percent for years. Maybe
we just have this double digit twenty percent growth and
perpetuity for Walmart and that that could be a big.
Speaker 2 (18:58):
Lever for them, Carol noting that you the spectru of
Walmart joining this trillion dollar market cap club. So your
price target one fifteen, as Carol said, the book cases
one thirty five.
Speaker 3 (19:07):
I correct, how would they get there?
Speaker 2 (19:09):
So this is like rare air or rare company in
the sense that when I think of those trillion dollar
plus companies, most of them are tech companies.
Speaker 3 (19:16):
They're not retailers like Walmart.
Speaker 9 (19:17):
Right.
Speaker 6 (19:18):
Yeah, it's a very elite group of you know, ten
plus companies that have gotten there. But you've seen it
very high multiple for Walmart. Cheers. I cover the retail
space amount of companies ten to twenty times earning.
Speaker 9 (19:31):
This is forty three current.
Speaker 5 (19:34):
Almost forty two.
Speaker 6 (19:35):
Yeah, and what's really changed that is you've had these
alternative and accreative business lines come in so that the membership,
the marketplace advertising. You essentially had Walmart move the needle
where you're You're You've got double digit earnings growth potential here.
The total company has about a four point five percent
operating margin that could easily go to six US could
(19:57):
be seven to eight percent. So it's all these ac
businesses that are turning on and they're essentially twenty percent
of the company's operating profit, but they're the highest margin,
they're the fastest growing. One big question we have and
Walmart needs to address this is with all this agentic shopping,
what happens to the digital advertising businesses of these companies.
So Walmart said about a five billion run rate, Amazon
(20:20):
sixty sixty five billion. Why do you need to serve
these sponsored ads? If an agent is going to shop
in your behalf and they circu this is what you
want to buy?
Speaker 5 (20:30):
That just exciting. Yeah, having said that, I want anybody
to know what I'm buying. But no, But we've also
talked with people about AI that at some point maybe
you do have ads to some extent, Like you've got
to figure out how we're going to pay, what's the
revenue stream or are we all paying to make use
of it? And when we talk about it agentic AI,
(20:51):
isn't everybody going to be on it? So Amazon, maybe
we'll have some collaboration, you know, in terms of feeding
into it. So I'm just this is thisn't assumption that
Walmart owns this space for a long time on its own,
But shouldn't we assume this is the new search engine. Yeah,
and so everybody's going to be on it.
Speaker 6 (21:08):
It seems like this will brought it out, but that
there will be a priority, a list of who they
point product to, so that because they pay for it. Yeah,
it seems like this these you know, chat GPTs a
perplexity with their browsers. They'll be the gateway to spending
and they'll essentially charge a take rate or facilitation fee.
Speaker 5 (21:25):
Yeah.
Speaker 6 (21:26):
No one knows the economics of this Walmart partnership yet,
but maybe.
Speaker 5 (21:30):
Nobody knows the economics of any of these partnerships. Everybody says,
we've got this deal right and we're going to do this.
Speaker 6 (21:34):
But anyway, there could be you know, one hundred basis point,
two hundred basis point take rate. It's it's kind of
up in the air, but that'll point you to Walmart.
They'll take a slim margin on that product and then
on that advertising piece. We think at some point Walmart,
if you've got these grocery brands, like say you know,
a serial company, they want to be in that ten
(21:55):
twenty thirty items you're getting every week. Maybe they have
to pay a slotting fee and that could offer at
some of the chat GPT marketplace facilitation fee that Walmart's paying,
So essentially, you would have these grocery brands pay to
beat in your weekly basket for your replenishment type order.
Speaker 2 (22:12):
David Bellchie, let me ask you just about the timeline
for all of this. You point out in your note
this is exploratory at this point, but you know, the
announcement came out with a lot of splash yesterday and
there's a lot of excitement surrounding it. Obviously when you
look at the stock price, your sense of the timetable
how quickly this is going to be something that Carol
or I or you could take advantage of when you
were shopping at Walmart.
Speaker 6 (22:32):
When we started looking at this speaking to experts, the
pace of adoption and escalation was so rapid it was
starting to scare a lot of retailers and they had
to make the shift of what do we do start
to build up their product catalogs because that feeds into
these lllms. So we think this could be a small
piece of this year's holiday sales, maybe it's one or
(22:54):
two percent of transactions, but then what does it go
to next year? Could be ten percent, like that that's
sort of the blue sky scenario.
Speaker 5 (23:02):
Just twenty seconds. Does this mean that eventually they don't
need their own website because people are going to be
buying through chat, ChiPT or something else.
Speaker 6 (23:10):
Just quickly, not necessarily. You've got these big marketplaces. Maybe
people still go there directly, but it looks like these
these new sources are becoming a big area of traffic
and referral traffic to Walmart dot com.
Speaker 5 (23:23):
How quickly does w Yeah, you got.
Speaker 2 (23:25):
My great said, says Paul Sweeney has always said he
wants to be a Walmart rereader in his retirement.
Speaker 3 (23:29):
It seems like this is definitely the death.
Speaker 5 (23:30):
Knell on that doesn't always say that doesn't. Hey, how
quickly just ten seconds? Says Walmart get to a trillion
in your.
Speaker 6 (23:37):
View, we're on our way. It's got to be about
one hundred and twenty five dollars stock price or upside
target like you said, it's one thirty five, so it
could happen relatively soon. But we'll see what the next
steps are.
Speaker 5 (23:49):
It's one to wait and change, and right now it's
got an eight hundred and sixty seven billion dollar market cap.
Really great, Thank you so much to see you, Thank
you yeah. Coming into our studio, David Bellinger, zooo, senior
consumer analysts.
Speaker 1 (24:00):
Stay with us.
Speaker 7 (24:01):
More from Bloomberg Business Week Daily coming up after this.
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You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eas during
Listen on Apple Karplay and Android Auto with the Bloomberg
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Speaker 5 (24:19):
Live on YouTube.
Speaker 2 (24:22):
David Uray here in for Tim Stentevek with Carol Master
on Bloomberg Business Week Daily.
Speaker 3 (24:26):
The latest Beige book coming out. I guess if we
use the formal term, that's the.
Speaker 2 (24:29):
Summary of commentary on current economic conditions by Federal Reserve district.
We're talking about each Federal Reserve Bank gathering anecdotal information
on current economic conditions in each of those districts, reporting
it up to the FED and giving us some flavor
for how folks in those districts are talking about business owners,
business leaders are feeling about the economy at this moment,
and what they're seeing is of course, coming in advance
(24:49):
of the next FOMC meeting at the end of this month,
that I'm kind of excited.
Speaker 3 (24:53):
Twenty eighth, twenty ninth, you're getting excited.
Speaker 5 (24:54):
I always do well this.
Speaker 3 (24:56):
You know, a lot of strange factors to this one.
Speaker 2 (24:58):
You know, will we will get that CPI day that
we can talk a little bit about that maybe as
well with Michael McKee, Bloomberg TV and Radio's international economics
and policy correspondent. He's in our Bloomberg News DC bureau
and here with us in New York, Blomber News Economics
editor Molly Smith.
Speaker 3 (25:11):
Mike, let me start with you.
Speaker 2 (25:12):
This is an impossible task to synthesize these many pages
just a few minutes after across the Bloomberg.
Speaker 3 (25:17):
But what are your takeaways?
Speaker 2 (25:18):
I think back on the last page book that we got,
and you know, I think that the broad indication I
remember is how there's flats declining consumer spending because from
many households, they were worried about the path of the economy,
worried about these tariffs and the effects they were going
to have going forward. Picking up on the headline, Carol
just read a moment ago. Sounds like we're seeing more
of the same here with this iteration.
Speaker 10 (25:38):
Yeah, pretty much. You asked how consumers and companies are feeling.
I think the word would be me economic activity slowed
and we saw hiring basically flat according to the Beige Book,
nobody's really going out and adding employees. That there is
some sign according to the Bage book, that the companies
are increasing the pace of layoffs and some are adopting
(25:59):
more technology. They say, I guess a word for AI.
Prices rising a little bit because of tariffs, and there
are concerns about spending which is slowing. Consumers starting to
pull back, with the exception of autos, which the base
book says was driven by people try to buy electric vehicles.
Speaker 9 (26:20):
Before the end of the tax credit at the end
of September. So right now it.
Speaker 10 (26:24):
Looks like the economy is still moving ahead, but there's
you get kind of a different picture. And I'll be
interested in molly viewing this from this Beage book and
what it's saying. And the Atlanta Fed's GDP NOW number
for the third quarter, which is about three point eight percent, Well,
I come on in.
Speaker 11 (26:42):
I think what stood out to me here is just
this continued observation of this bifurcated economy between high and
low income consumers. And that's what the page book noted
here is that hiring comes unders were still going out
buying luxury, travel and accommodation, that those kinds of categories
we're still strong, but that lower and middle income households
(27:03):
still seeking discounts and promotions in the face of rising costs.
So this is like just a very much like something
that we've been seeing for It feels like, I mean,
this is pretty much to me what has defied every
recession call.
Speaker 6 (27:16):
That we've had for like the last two years.
Speaker 11 (27:18):
It's that high income households are increasingly making up the
share of overall consumer spending right now. It's I think
just right about fifty percent.
Speaker 5 (27:27):
Yeah, it's a big deal.
Speaker 10 (27:28):
You know.
Speaker 5 (27:28):
It's funny because I was thinking about LVMH came out
I think with their results and their share surge to
suggesting that maybe that slump and luxury demand is easy
because we have seen it in the space. Having said that, Molly,
we're in this kind of void a little bit when
it comes to government data, right we are expecting that
the CPI print I think later this is supposed.
Speaker 3 (27:47):
To be today, right today, it was supposed there supposed
to be.
Speaker 11 (27:50):
But in the absence of that, I compiled for you
all of the other private sector.
Speaker 5 (27:55):
Thank you out there.
Speaker 6 (27:56):
You're so welcome.
Speaker 11 (27:58):
There aren't that many though, honestly, which is something that
Powell had observed yesterday when he was speaking at the
NAPE conference that unlike the job market, we have so
many private sector alternatives there to see what's going on
with labor demand, with hiring, with wage growth, inflation not
so much so. There are a couple of companies that
(28:19):
compile price growth throughout the US, but it really is
biased towards the good space.
Speaker 6 (28:24):
They don't do as good of a job.
Speaker 11 (28:26):
Looking at services inflation, there are a couple of companies
that specialize in housing inflation in particular, but they.
Speaker 6 (28:32):
Don't really get the overall views.
Speaker 11 (28:33):
So if we're really looking at just what goods inflation
seemed to do in September, you definitely did see some
signs of tariff pass through in certain categories, But in general,
a lot of these economists are saying that the expectation
is still the inflation will eventually level off.
Speaker 2 (28:49):
Like I'm going to guess that these policymakers are going
to take Molly's data and couple with what we get
from the Labor Department, the CPI data that's been delayed,
just help us understand the mechanics of that and how
the FED is kind of fine its way through this
very strange moment with a shutdown extending into to three
weeks now, and I'm just I'm curious how much of
a hindrance that is for them as they plot a
path forward here if any of that kind of resonated
(29:11):
what you heard from Chair Pal yesterday.
Speaker 10 (29:14):
Well, I think there are nineteen members of the Open
Market Committee, and I think we had nineteen downloads of
Molly's story today about alternative.
Speaker 9 (29:28):
They're looking at alternative data to the extent that they can.
Speaker 10 (29:31):
And remember they are also in constant contact with companies
and with small businesses and consumers to an extent in
their districts the twelve regional bank president, So they're getting
a picture of what people are saying is happening immediately
rather than looking at the past data. And they're going
to be making their decision based on what their estimate
(29:52):
of what is excuse me, what is going to happen
going forward, rather than what has already happened. They will
have a pretty complete CPI report because the data was
all gathered.
Speaker 9 (30:04):
Before before the government went out.
Speaker 10 (30:07):
But the concern is whether they will have any October
data because we're getting deep into the month and they'll
be able to collect less and less of it as
the month goes on, so they really have to do
start relying on forecasts for what they think is going
to happen, and in that case what you get is
different districts see different developments in markets.
Speaker 9 (30:28):
And this has just been.
Speaker 10 (30:31):
A story throughout the Federal Reserves time in being because
the country is one big country, but there are a
lot of different changes.
Speaker 9 (30:41):
We were talking about prices from tariffs coming through, but
we're also seeing.
Speaker 10 (30:45):
Reports in the page book here about how in the
agriculture industry and low scale manufacturing they're having trouble finding workers,
and that was a big theme.
Speaker 9 (30:54):
At the NAME conference yesterday.
Speaker 10 (30:57):
There's going to be a big worker shortage next year
in these or paid manual labor industries, and that could
drive up prices as well. So a lot of cross
currents out there for which there isn't great data right now.
Speaker 2 (31:10):
And Molly kind of complementing that as I look at
the summary in the bag book that was just released,
labor supply and the hospitality, agriculture, construction, and manufacturing sectors
have reportedly strained in several districts due to recent changes
to immigration policies. This is the other kind of big
story looming here, the effect that this administration's cracked down
on immigration is going to have on the economy. So
there you have the anecdotal evidence born out. What are
(31:33):
we seeing in the data when it comes to the
effects that that policy is having on the labor market
in the US.
Speaker 11 (31:37):
I think this is such a big debate right now
as to what kind of shape the labor market is
in because in the one hand, you're looking at weaker
hiring numbers that you're thinking that the job market has
significantly slowed.
Speaker 5 (31:50):
And it's true the piece of hiring has.
Speaker 11 (31:52):
Come down substantially, but labor supply has come down substantially
as well. So do you need a strong of job
growth if the working population is that much smaller? I
think that's really the key debate right now, And there
was a blog post from a Dallas fed economists recently
that argued, no, you don't need that strong job growth
because the labor force is that much smaller. So it's
(32:14):
really still key to make that distinction of is the
labor market really weakening or is it rebalance.
Speaker 5 (32:20):
It's just a reminder of like kind of all of
the tensions that are coming out at US that maybe
are changing the read on statistics. Mike, I want to
bring you in because on that note, still coming at investors,
still coming at economists, still coming at business leaders, the
trade tensions between US and China. So we've got kind
of that going on and trying to figure out the
impact on that still yet to be determined. At the
(32:41):
same time, we've got to read on the big banks
this week, which is another read on the US economy
and how things are going. How do you fold all
of that in.
Speaker 10 (32:50):
Well, if you're at the FED, you hive off what's
happening with the banks and earnings at Wall Street, because
it's a kind of a different world. To a certain extent,
it can represent what's going on in the economy if
you're talking about things like mortgages.
Speaker 9 (33:03):
And car loans, of which they are not making a
whole lot.
Speaker 10 (33:08):
The merger and acquisition business is doing very well, and
the stock trading and bond trading and currency trading businesses
are doing very well, we learned this week. But that's
not the real economy, and that's not what's happening to
the people on the ground across America, and so they're
not really looking at those things. They are looking at
(33:29):
whether or not people's wages are going up, and whether
they're keeping pace with inflation, and what we think the
inflation rate is, and also what consumer sentiment is, whether
people think they want to buy something now or whether
they're pulling back because they're concerned about the overall economy.
One point I want to make about what Molly was
(33:49):
just talking about in terms of do you need workers
the conference I was just at the Economist conference, they
were making the point that even though we automate more
stuff or we may not need as many workers as
certain industries, particularly agriculture and construction, need a lot of
trained workers, or less trained for agriculture than for construction,
(34:13):
and the many of those were filled by immigrants, and
the euphemistically worded change in immigration policies, as the Facebook
put it, is causing a real problem. There was one
survey one company put out at this meeting that said
there's gonna be five hundred thousand short construction workers next year,
(34:35):
and that's going to really slow down the housing industry,
which of course is a big contributor to.
Speaker 12 (34:39):
The economy as long as there's demand to build, well,
I would I mean, looks do the board here, Of
all times to pull back on construction workers, this would be,
I would say, a pretty good time to do it,
because builders are slowing the pace of construction anyway.
Speaker 11 (34:53):
There's so many new homes available on the market that
have been sitting unsold because they had been ramped up
when mortgage rates were a lot lower, and now mortgage
rates are where they are, people are not buying these homes.
So builders, accordingly are pulling back on construction. So of
course this is a real strain for these companies, but
in the grand scheme of where they're sitting right now,
(35:14):
not so bad in terms of a time where you're
kind of slowing the pace anyway.
Speaker 5 (35:18):
All right, good stuff, guys, lot going on at when
it comes to these economy and trying to really figure
out what is the way forward. Bloomberg TV and Radio
International Economics and Policy correspondent Michael McKee, along with Bloomberg
News Economics edit at Mollie Smith.
Speaker 1 (35:31):
This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
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(35:52):
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Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
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(00:23):
news as it happens. The Bloomberg Business Week Daily Podcast
with Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:32):
There's a lot of headlines out of Washington on this
Wednesday afternoon. A federal judge just ordering the Trump administration
to pause plans to fire thousands of federal workers during
the government shutdown, a shutdown that is now in its
fifteenth day. Carol, really stretching on here and a lot
of folks there in Washington, in the federal government more broadly,
I should say, outside of Washington too, really dealing with
a lot of uncertainty. Who are furloughed or been laid off.
(00:55):
This now going before the courts, this pause in place,
and we're going to talk about it more with Lord Davison,
who are Washington Deputy Bureau Chief.
Speaker 3 (01:02):
She joins us.
Speaker 2 (01:03):
Now, Laura, I mentioned that uncertainty. I can't put too
fine a point on that. Where do things stand now
now that we have this judge's ruling, not a final
decision on the merits of the case, what does it
mean for those workers who are very worried about their
position here in the government going forward.
Speaker 4 (01:18):
So it means that federal agencies right now have to
stop and hold all the plans for the firings that
took place last week. So that means that those people
will be able to keep their jobs for now, and
that any future rounds of firings, as the White House
suggested yesterday is coming, will also be halted. This is
just a temporary block, as you mentioned, they are just
paused and there will be a decision to come later
(01:39):
on the merits of the case about whether these can proceed.
It was quite a dramatic moment this afternoon because just
before this ruling came out, Russell Vote, speaking on the
Charlie Kirk podcast, said that he expects that layoffs would
exceed ten thousand people right now, we've seen about four
thousand or so that have perceived layoff notices. So this
is very much a clash of where the White House
sees things going as where the judge came in and said, hey, look,
(02:03):
you got to hold your horses.
Speaker 2 (02:04):
Here, Lord, what's the status of conversations among lawmakers on
Capitol Hill? Among lawmakers and the White House, the Trump
administration just about sort of where we are in this
shutdown and where it's going from here. I know there's
a lot of concern about back pay, so the President
was able to arrange for members of the military to
be paid this week by moving some money around. The
(02:25):
uncertainty begins to kind of compound and amasses as time
goes on. Here, what's the status of those negotiations so
much as there are negotiations here between Republicans and Democrats.
Speaker 4 (02:35):
Yes, there are negotiations happening, and the House is still out.
They've been out for the full three weeks of this shutdown.
We're now on day fifteen. The Senate is in session,
but they've continued to vote on the same bill, and
they have had no progress, and there's been no really
behind the scenes discussions happening. You've had small groups of
moderate members trying to talk together, but those haven't really
yielded anything. But the thing about a shutdown is that
(02:56):
the first couple of days there's not much pain. But
as the shutdown goes on the pain in compounds you see,
you know, today, this week and last week, we've had
you know, millions of federal workers who have missed paychecks.
You know, military members are getting paid at least this
first paycheck, in this August fifty or rather October fifteenth paycheck,
they'll be paid, but it's unclear if later in the
month that the shutdown persists, if they will. You know,
(03:17):
we've already started to see some delays with with air travel.
You know, those could mount as the month, as the
months go on here, So this is very much unknown
about how this ends. But we do know that as
the shutdown continues, things get more and more painful and
unsustainable from political standpoint.
Speaker 5 (03:32):
Not good for that any workers though that might be
furloughed and not getting paid. But I want to ask
you something about this because it made me kind of
scratch my head.
Speaker 6 (03:40):
Lord.
Speaker 5 (03:40):
My understanding is that this isn't the final decision on
the merits of the case. But also it has to
do with union workers. How many of government workers are
union workers. I didn't realize that there was a distinction.
Speaker 4 (03:54):
Yeah, there's a high percentage of federal workers who are unionized.
I don't know the exact figure, but there's a patchwork
of unions that represent various agencies, and they've been very involved,
you know, in the process here. You know, we really
saw them start to mobilize earlier this year in regards
to the Doge firings, as that happened very swiftly. This
is one of the things that they've kind of realized
that they need to get out in front of these
(04:15):
cases a lot, because once you know, workers leave the building,
they have their badge taken away, they had their emails
taken away. It's really hard to bring some of those
people back, even if they are later if the firings
or later ruled illegal. So you see sort of a
change in strategy here of you know, wanting to make
sure that those workers don't leave, leave their posts, get
out the door while the merits are being decided.
Speaker 5 (04:34):
Laura always appreciate it. Laura Davidson, of course, joining us
from our doc bureis. She's Bloomberg News Washington Deputy Bureau Chief.
Speaker 1 (04:41):
You're listening to the Bloomberg Business Week Daily Podcast.
Speaker 5 (04:44):
Catch us live.
Speaker 1 (04:45):
Weekday afternoons from two to five these during listen on
Applecarplay and Android Otto with the Bloomberg Business app or
watch us live on YouTube.
Speaker 5 (04:55):
Okay, listen, we're going to talk a little bit about
earnings right now. I am alsto curious to see what
our next guest has to say about some of these
big macro issues that are coming at us. Dan Letter
is president and incoming CEO pro logist. He takes over
as CEO in January. He joins us from our San
Francisco studio, and we should point out that the company
shares a rallying. They're up after they reported better than
(05:16):
expected quarterly earnings. They boosted their forecast. They talked about
data center opportunities, which is always something that catches investors' attention. Stocked,
by the way, it's up fifteen percent.
Speaker 7 (05:25):
Year to date.
Speaker 5 (05:26):
Dan, great to have you here with David and myself.
I do want to talk earnings, but we got to
ask about the macro backdrop, whether it's trade talks between
US and China, government shutdown, rare earth materials, minerals. What
do you really watch when it comes to some of
(05:46):
these big macro issues.
Speaker 8 (05:48):
Well, thanks for having me. It's great to be here.
Coming off this earnings call. This was certainly a topic
for us. We had a tremendous quarter. As a matter
of fact, we broke a record this core for leasing.
We leased sixty two million square feet of space throughout
our one point three billion square foot portfolio. And you
(06:09):
think about that in context. Sixty two million square feet
is the equivalent of leasing Central Park in Manhattan twice
over again in one quarter. So our team working tirelessly
around the world least one million square feet a business
day during the third quarter. And certainly these macro business
(06:31):
trends are telling by our customers, who are the frontline
of the economy.
Speaker 2 (06:37):
You look at the softer data and there is still
some anxiety among a lot of business leaders about where
things are headed. Maybe that's restricting them from making some
of the capex expenditures that they would have otherwise. You're
detailing for us very strong numbers, and I wonder what
that says to you just about the capacity of these
business leaders to look through or pass the uncertainty surrounding policy,
(06:58):
including trade policy. Give that's a sense of the moment
that we're in right now, as you understand it from
talking to your customers about how they're feeling about the
business climate going forward.
Speaker 8 (07:07):
Sure, it's a great question. One of the things we're
most proud of at Prologius is our customer franchise. We
have unique proprietary data, and we have unique relationships. Just
given the size and scale these relationships, and after what
has really been two to three years of uncertainty, going
back to rate hikes two and a half years ago,
we see our customers actually getting off their back foot.
(07:28):
What we've seen over this last quarter is actually customers
moving from caution to optimism.
Speaker 5 (07:34):
Huh wow. Why because things are getting settled in terms
of trade tariff? Like, what is it that has calmed
some of your customers.
Speaker 8 (07:46):
I think our customers realized, after a couple of sluggish
years of not making many decisions, that they have to
make long term decisions. And that's what they do when
they do business with Prologies, and they have to look
through the short term noise in order to ensure that
they're positioned for growth going forward.
Speaker 5 (08:02):
So you're talking about Amazon Home Depot, FedEx Ups, Giga
Cloud Technology. I mean, these are some of your big customers.
So you're talking about these guys are feeling more sure
about the outlook than maybe they did over the last
couple of years.
Speaker 8 (08:14):
Yeah, precisely, as a matter of fact, coming out of
a cycle. We're really in just a classic real estate
cycle right now, and what you're seeing typically at this
point in the cycle is it's the big, well capitalized
customers that lead the way out of this part of
the cycle.
Speaker 2 (08:30):
This is a basic question you'll forgive me for. But
when we talk about warehouses, what are we talking about.
Are these just simply places to store stuff or are
they places where there's a lot of movement, a lot
of products coming in and out. When we talk about
the bread and butter of your business, what are you building?
Speaker 3 (08:44):
What are you leasing out?
Speaker 8 (08:45):
Yeah, thanks for that question. We own nearly six thousand buildings.
These buildings are located in twenty countries in markets that
represent about seventy eight percent of the world GDP. As
a matter of fact, in twenty twenty four, we had
the equivalent of nearly three percent of the world GDP
go through these buildings. Our focus in building this portfolio,
(09:07):
curating this portfolio over the last forty two years is
having the highest quality, best located logistics real estate close
to consumers.
Speaker 5 (09:18):
So where are you geographically building out the most and
you know, where are you looking to kind of increase
your square footage or buy properties or by land.
Speaker 8 (09:29):
Well, the way we've set this organization up is our
teams are calibrated to look for good deals around the
world and we're heavily focused, certainly this year on build
a suits with our customers. We're actually going to we're
on track for maybe our highest build a suit volume
ever And what does that mean. That means we have
a contract in place with these customers before we start
(09:50):
building for them. And we're seeing that broad based across
most of the sectors as well as geography is spread
throughout the world.
Speaker 2 (09:59):
I bet you can do an interview without being asked
about AI, So forgive me, We're going to do it,
and I want to ask about it in two ways.
The first sort of how it's changing the way that
you conduct your business. And then the second question is
picking up on what Carol said, you looking at the
demand for data centers maybe changing your business tack as well.
Where do you see opportunity as this revolutionist it's called
continues and there's the need for more space for processing
(10:22):
all of this data.
Speaker 8 (10:24):
Yeah, it's AI is here, and it's big, and it's
big at Prologious certainly we have all sorts of different
operational and tools that we're building to make our teams
more efficient and to be able to help them move faster.
But when you think of AI and Prologis, we announced
today we now have five point two gigawatts of power
(10:47):
either secured or in the advanced stages of being secured
in sits mostly Tier one tier two sites in the
United States, and then the Tier one market's called flap
D or the double M in in Europe. So prologist
is now we've long been in the higher and better
use business.
Speaker 9 (11:05):
But again given that.
Speaker 8 (11:06):
Footprint we have close to these consumers. Well, the next
wave in the modern economy is the digital economy, and
AI and data centers are the logistics of that digital economy.
Speaker 5 (11:20):
We're talking about Dan Leonard, he's president of Prologist. He
is incoming president, incoming CEO excuse me, takes over that
spot come January. Wait, Dan, so give you an idea
just to like have explain your business. How much is
logistical warehousing right now? How much is data center? And
where do you see the most growth going forward? Especially
(11:40):
on a day where Meta, Microsoft, Blackrock, there's more all
doing data center. You know deals and it feels like
a lot's happening in Texas to point that out as well.
So give us an idea of you're mixed today and
where the growth is happening.
Speaker 3 (11:56):
Well, I look at our.
Speaker 8 (11:56):
Growth in our base portfolio. Wener control fourteen thousand acres
of land close to these consumption centers that I mentioned.
We can build out another two hundred and forty million
square feet out of that land bank. That's a tremendous
amount of space. And when it comes to data centers,
(12:18):
this power that we've secured, We've long been in the
higher and better use business. Think about the fact that
logistics and warehouses is typically the cheapest house on the block.
We've always been in the business of optimizing that real
estate value for our investors. And data centers are certainly
a trend right now that we're able to capitalize on
given the footprint and the raw material that we own
(12:38):
and control.
Speaker 2 (12:39):
I sort of note a headline here across in the
Bloomberg terminal that the judges blocked federal firings during the
government shut down for a no how we're talking about that.
A few moments ago, as we were talking about the
Beige book from the Federal Reserve DAN and what that
was telling us about the state of this economy. And
one thing they're in is how difficult it is to
find workers, particularly workers to do construction. And I think
a theme to the AI story is amid all of
(13:00):
this demand, it's hard to get folks to build the
data centers that we need to buffet all of it.
And I wonder if your company is dealing with that
as well, just the difficulty of keeping pace with how
fast all this is moving.
Speaker 3 (13:14):
Yeah, thanks for that question.
Speaker 8 (13:16):
I think about that as we look at what is
the replacement cost rent to build the next marginal building,
whether it's logistics or data centers, And we look at
that right now and the cost the rent to build
that next building is actually twenty five percent higher than
market rents today. And then I look at that relative
(13:39):
to our in place rents today, it's actually nearly forty
five percent. And one of the key issues is the
cost to build are getting that much more expensive and
labor is certainly a factor there.
Speaker 5 (13:49):
Interesting. Hey, one thing just to follow on, going back
to data center and your build out, you talked about
also the acquisition of five point two gigawatts of power.
It's a lot. How much though, is in terms of
the build out for data centers, you've got to track
it with having access to power and does that slow
some of the buildout just got about thirty seconds.
Speaker 8 (14:08):
You know, this five point two gigawatts that we're quoting
is just a portion of the universe of opportunities. We
actually have given our size and scale with our six
thousand buildings as fourteen thousand acres of land. We already
own this land in these buildings at logistics bases, and
so we brought in in house expertise. We have a
very large energy business. We've got one gigawot of power
(14:29):
that we will be generating off our rooftops by the
end of twenty twenty five. So we've been building that
energy capability that gives us just a better relationship with
the power companies.
Speaker 9 (14:38):
Yeah, and so we're in great shape there.
Speaker 5 (14:40):
Listen a great interview. When I want to keep going,
I wish we could Dan come back soon. Dan let
our president incoming president of Prolague, is joining us here
on Bloomberg. Stay with us. More from Bloomberg Business Week
Daily coming up after this.
Speaker 7 (14:55):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
a lit weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 5 (15:09):
The ai world. Walmart kind of moving in on this.
I feel liked as a result, it's on track to
kind of join the elite crop of companies with a
trillion dollar valuation. It announced a partnership we might remember,
with Open Ai, and that really kind of pushed the
stock to a record high. And there's one analyst that's
really noticed this, and this is David Bellinger. He's over
at Mizuho and he is joining us right now to
(15:33):
talk a little bit about his thinking. He is senior
consumer analyst. He's got an app and form rating on
the raw on the stock one hundred and fifteen dollars
price target. You've had this rating for a while. Yeah,
up your price target in early June. The stock's up
I think about twelve percent since then. Good to have
you here, talk to us about your call.
Speaker 6 (15:50):
Great, thanks so much for having me on. Yeah, Walmart,
we launched on this company back in April. We made
it a top pick in June and This is actually
our e commerce top pick just given all that they've done,
and we pointed out since twenty fifteen, these guys have
spent more than two hundred billion dollars in cumulative CAPEC spend.
We think they basically caught up to Amazon now this
(16:10):
past decade. It's it's essentially taken that long. But you've
got the e commerce business in the US almost at
about one hundred billion dollars annual run rate, and that's
actually sort of turn profitable now. So you're seeing all
these levers come into play, whereas the Amazon's run rate
significantly higher. It's not disclosed, but it's if you could
back into it, there's some estimates that the annual GMV
(16:32):
of all the sales that they push through is in
the five hundred billion plus type range.
Speaker 2 (16:36):
The phrase is agentic commerce. Help me understand what that
is and sort of what Walmart is saying it's going
to deploy here across its website.
Speaker 6 (16:44):
Great question. We spent a lot of time working on
this about three months ago, but it's somewhat foreign to us, right,
and so we dove into it, and it's essentially you
could have a software synthetic agent that researches products, finds
products for you, and could essentially buy it on your behalf.
So you're essentially going.
Speaker 5 (17:02):
From you've got kids, you should.
Speaker 3 (17:04):
Be shot at the front step. Yeah, you essentially go.
Speaker 6 (17:07):
From an assistant to an agent who knows your preferences,
has all your credit card information, and could make purchases
on your behalf if you if you give it that
functionality and just think about things like your weekly grocery run.
Something really easy. They know what twenty forty items you buy,
they could do it. Say hey, hey, Dave, you know
do you want to do your weekly grocery order? Head yes,
(17:29):
and go for it. There's also some other use cases
that one weren't starting to talk about, but like a
solution based of I've got my kid's birthday party.
Speaker 4 (17:37):
What do I need?
Speaker 6 (17:37):
There's going to be twenty kids there, make me gift baskets,
get me food, all these things a theme like it.
Speaker 5 (17:43):
Do that. Yeah, Yeah, it's kind of fascinating. Think about
when you're on Amazon and they're like, hey, do you
want to just do one purchase or do you want
to set it up? So it's like taking this all
to the next level. To some extent, even when we
do grocery shopping, it's like a list comes up because
we do it online. It's like this is just taking
this to another.
Speaker 6 (17:58):
Level pretty much much. But it's also as as a
discovery angle of we sell this chat GPT. They have
this overnight new product of things that they think you
would like as a recap in the morning, certain things
like that we could see the products being pushed to
you or things that you've searched for in the past,
and hey, this could be a nice complimentary product for
(18:19):
your recent purchase. And now you'll basically have the ability
to put all of that product from Walmart into that
summary and you have a quick, easy buy, instant checkout.
But and then this could unlock a lot of e
commerce growth still even on top of that one hundred
billion dollars. So there's no great way to size this,
and that what I've been telling the investors when I
(18:41):
get asked to size this is Walmart's grown the US
e commerce business about fifteen percent year over year for
each of the last twelve quarters. There's a time when
Amazon did that north to twenty percent for years. Maybe
we just have this double digit twenty percent growth and
perpetuity for Walmart and that that could be a big.
Speaker 2 (18:58):
Lever for them, Carol noting that you the spectru of
Walmart joining this trillion dollar market cap club. So your
price target one fifteen, as Carol said, the book cases
one thirty five.
Speaker 3 (19:07):
I correct, how would they get there?
Speaker 2 (19:09):
So this is like rare air or rare company in
the sense that when I think of those trillion dollar
plus companies, most of them are tech companies.
Speaker 3 (19:16):
They're not retailers like Walmart.
Speaker 9 (19:17):
Right.
Speaker 6 (19:18):
Yeah, it's a very elite group of you know, ten
plus companies that have gotten there. But you've seen it
very high multiple for Walmart. Cheers. I cover the retail
space amount of companies ten to twenty times earning.
Speaker 9 (19:31):
This is forty three current.
Speaker 5 (19:34):
Almost forty two.
Speaker 6 (19:35):
Yeah, and what's really changed that is you've had these
alternative and accreative business lines come in so that the membership,
the marketplace advertising. You essentially had Walmart move the needle
where you're You're You've got double digit earnings growth potential here.
The total company has about a four point five percent
operating margin that could easily go to six US could
(19:57):
be seven to eight percent. So it's all these ac
businesses that are turning on and they're essentially twenty percent
of the company's operating profit, but they're the highest margin,
they're the fastest growing. One big question we have and
Walmart needs to address this is with all this agentic shopping,
what happens to the digital advertising businesses of these companies.
So Walmart said about a five billion run rate, Amazon
(20:20):
sixty sixty five billion. Why do you need to serve
these sponsored ads? If an agent is going to shop
in your behalf and they circu this is what you
want to buy?
Speaker 5 (20:30):
That just exciting. Yeah, having said that, I want anybody
to know what I'm buying. But no, But we've also
talked with people about AI that at some point maybe
you do have ads to some extent, Like you've got
to figure out how we're going to pay, what's the
revenue stream or are we all paying to make use
of it? And when we talk about it agentic AI,
(20:51):
isn't everybody going to be on it? So Amazon, maybe
we'll have some collaboration, you know, in terms of feeding
into it. So I'm just this is thisn't assumption that
Walmart owns this space for a long time on its own,
But shouldn't we assume this is the new search engine. Yeah,
and so everybody's going to be on it.
Speaker 6 (21:08):
It seems like this will brought it out, but that
there will be a priority, a list of who they
point product to, so that because they pay for it. Yeah,
it seems like this these you know, chat GPTs a
perplexity with their browsers. They'll be the gateway to spending
and they'll essentially charge a take rate or facilitation fee.
Speaker 5 (21:25):
Yeah.
Speaker 6 (21:26):
No one knows the economics of this Walmart partnership yet,
but maybe.
Speaker 5 (21:30):
Nobody knows the economics of any of these partnerships. Everybody says,
we've got this deal right and we're going to do this.
Speaker 6 (21:34):
But anyway, there could be you know, one hundred basis point,
two hundred basis point take rate. It's it's kind of
up in the air, but that'll point you to Walmart.
They'll take a slim margin on that product and then
on that advertising piece. We think at some point Walmart,
if you've got these grocery brands, like say you know,
a serial company, they want to be in that ten
(21:55):
twenty thirty items you're getting every week. Maybe they have
to pay a slotting fee and that could offer at
some of the chat GPT marketplace facilitation fee that Walmart's paying,
So essentially, you would have these grocery brands pay to
beat in your weekly basket for your replenishment type order.
Speaker 2 (22:12):
David Bellchie, let me ask you just about the timeline
for all of this. You point out in your note
this is exploratory at this point, but you know, the
announcement came out with a lot of splash yesterday and
there's a lot of excitement surrounding it. Obviously when you
look at the stock price, your sense of the timetable
how quickly this is going to be something that Carol
or I or you could take advantage of when you
were shopping at Walmart.
Speaker 6 (22:32):
When we started looking at this speaking to experts, the
pace of adoption and escalation was so rapid it was
starting to scare a lot of retailers and they had
to make the shift of what do we do start
to build up their product catalogs because that feeds into
these lllms. So we think this could be a small
piece of this year's holiday sales, maybe it's one or
(22:54):
two percent of transactions, but then what does it go
to next year? Could be ten percent, like that that's
sort of the blue sky scenario.
Speaker 5 (23:02):
Just twenty seconds. Does this mean that eventually they don't
need their own website because people are going to be
buying through chat, ChiPT or something else.
Speaker 6 (23:10):
Just quickly, not necessarily. You've got these big marketplaces. Maybe
people still go there directly, but it looks like these
these new sources are becoming a big area of traffic
and referral traffic to Walmart dot com.
Speaker 5 (23:23):
How quickly does w Yeah, you got.
Speaker 2 (23:25):
My great said, says Paul Sweeney has always said he
wants to be a Walmart rereader in his retirement.
Speaker 3 (23:29):
It seems like this is definitely the death.
Speaker 5 (23:30):
Knell on that doesn't always say that doesn't. Hey, how
quickly just ten seconds? Says Walmart get to a trillion
in your.
Speaker 6 (23:37):
View, we're on our way. It's got to be about
one hundred and twenty five dollars stock price or upside
target like you said, it's one thirty five, so it
could happen relatively soon. But we'll see what the next
steps are.
Speaker 5 (23:49):
It's one to wait and change, and right now it's
got an eight hundred and sixty seven billion dollar market cap.
Really great, Thank you so much to see you, Thank
you yeah. Coming into our studio, David Bellinger, zooo, senior
consumer analysts.
Speaker 1 (24:00):
Stay with us.
Speaker 7 (24:01):
More from Bloomberg Business Week Daily coming up after this.
Speaker 1 (24:08):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eas during
Listen on Apple Karplay and Android Auto with the Bloomberg
Business app, or watch us.
Speaker 5 (24:19):
Live on YouTube.
Speaker 2 (24:22):
David Uray here in for Tim Stentevek with Carol Master
on Bloomberg Business Week Daily.
Speaker 3 (24:26):
The latest Beige book coming out. I guess if we
use the formal term, that's the.
Speaker 2 (24:29):
Summary of commentary on current economic conditions by Federal Reserve district.
We're talking about each Federal Reserve Bank gathering anecdotal information
on current economic conditions in each of those districts, reporting
it up to the FED and giving us some flavor
for how folks in those districts are talking about business owners,
business leaders are feeling about the economy at this moment,
and what they're seeing is of course, coming in advance
(24:49):
of the next FOMC meeting at the end of this month,
that I'm kind of excited.
Speaker 3 (24:53):
Twenty eighth, twenty ninth, you're getting excited.
Speaker 5 (24:54):
I always do well this.
Speaker 3 (24:56):
You know, a lot of strange factors to this one.
Speaker 2 (24:58):
You know, will we will get that CPI day that
we can talk a little bit about that maybe as
well with Michael McKee, Bloomberg TV and Radio's international economics
and policy correspondent. He's in our Bloomberg News DC bureau
and here with us in New York, Blomber News Economics
editor Molly Smith.
Speaker 3 (25:11):
Mike, let me start with you.
Speaker 2 (25:12):
This is an impossible task to synthesize these many pages
just a few minutes after across the Bloomberg.
Speaker 3 (25:17):
But what are your takeaways?
Speaker 2 (25:18):
I think back on the last page book that we got,
and you know, I think that the broad indication I
remember is how there's flats declining consumer spending because from
many households, they were worried about the path of the economy,
worried about these tariffs and the effects they were going
to have going forward. Picking up on the headline, Carol
just read a moment ago. Sounds like we're seeing more
of the same here with this iteration.
Speaker 10 (25:38):
Yeah, pretty much. You asked how consumers and companies are feeling.
I think the word would be me economic activity slowed
and we saw hiring basically flat according to the Beige Book,
nobody's really going out and adding employees. That there is
some sign according to the Bage book, that the companies
are increasing the pace of layoffs and some are adopting
(25:59):
more technology. They say, I guess a word for AI.
Prices rising a little bit because of tariffs, and there
are concerns about spending which is slowing. Consumers starting to
pull back, with the exception of autos, which the base
book says was driven by people try to buy electric vehicles.
Speaker 9 (26:20):
Before the end of the tax credit at the end
of September. So right now it.
Speaker 10 (26:24):
Looks like the economy is still moving ahead, but there's
you get kind of a different picture. And I'll be
interested in molly viewing this from this Beage book and
what it's saying. And the Atlanta Fed's GDP NOW number
for the third quarter, which is about three point eight percent, Well,
I come on in.
Speaker 11 (26:42):
I think what stood out to me here is just
this continued observation of this bifurcated economy between high and
low income consumers. And that's what the page book noted
here is that hiring comes unders were still going out
buying luxury, travel and accommodation, that those kinds of categories
we're still strong, but that lower and middle income households
(27:03):
still seeking discounts and promotions in the face of rising costs.
So this is like just a very much like something
that we've been seeing for It feels like, I mean,
this is pretty much to me what has defied every
recession call.
Speaker 6 (27:16):
That we've had for like the last two years.
Speaker 11 (27:18):
It's that high income households are increasingly making up the
share of overall consumer spending right now. It's I think
just right about fifty percent.
Speaker 5 (27:27):
Yeah, it's a big deal.
Speaker 10 (27:28):
You know.
Speaker 5 (27:28):
It's funny because I was thinking about LVMH came out
I think with their results and their share surge to
suggesting that maybe that slump and luxury demand is easy
because we have seen it in the space. Having said that, Molly,
we're in this kind of void a little bit when
it comes to government data, right we are expecting that
the CPI print I think later this is supposed.
Speaker 3 (27:47):
To be today, right today, it was supposed there supposed
to be.
Speaker 11 (27:50):
But in the absence of that, I compiled for you
all of the other private sector.
Speaker 5 (27:55):
Thank you out there.
Speaker 6 (27:56):
You're so welcome.
Speaker 11 (27:58):
There aren't that many though, honestly, which is something that
Powell had observed yesterday when he was speaking at the
NAPE conference that unlike the job market, we have so
many private sector alternatives there to see what's going on
with labor demand, with hiring, with wage growth, inflation not
so much so. There are a couple of companies that
(28:19):
compile price growth throughout the US, but it really is
biased towards the good space.
Speaker 6 (28:24):
They don't do as good of a job.
Speaker 11 (28:26):
Looking at services inflation, there are a couple of companies
that specialize in housing inflation in particular, but they.
Speaker 6 (28:32):
Don't really get the overall views.
Speaker 11 (28:33):
So if we're really looking at just what goods inflation
seemed to do in September, you definitely did see some
signs of tariff pass through in certain categories, But in general,
a lot of these economists are saying that the expectation
is still the inflation will eventually level off.
Speaker 2 (28:49):
Like I'm going to guess that these policymakers are going
to take Molly's data and couple with what we get
from the Labor Department, the CPI data that's been delayed,
just help us understand the mechanics of that and how
the FED is kind of fine its way through this
very strange moment with a shutdown extending into to three
weeks now, and I'm just I'm curious how much of
a hindrance that is for them as they plot a
path forward here if any of that kind of resonated
(29:11):
what you heard from Chair Pal yesterday.
Speaker 10 (29:14):
Well, I think there are nineteen members of the Open
Market Committee, and I think we had nineteen downloads of
Molly's story today about alternative.
Speaker 9 (29:28):
They're looking at alternative data to the extent that they can.
Speaker 10 (29:31):
And remember they are also in constant contact with companies
and with small businesses and consumers to an extent in
their districts the twelve regional bank president, So they're getting
a picture of what people are saying is happening immediately
rather than looking at the past data. And they're going
to be making their decision based on what their estimate
(29:52):
of what is excuse me, what is going to happen
going forward, rather than what has already happened. They will
have a pretty complete CPI report because the data was
all gathered.
Speaker 9 (30:04):
Before before the government went out.
Speaker 10 (30:07):
But the concern is whether they will have any October
data because we're getting deep into the month and they'll
be able to collect less and less of it as
the month goes on, so they really have to do
start relying on forecasts for what they think is going
to happen, and in that case what you get is
different districts see different developments in markets.
Speaker 9 (30:28):
And this has just been.
Speaker 10 (30:31):
A story throughout the Federal Reserves time in being because
the country is one big country, but there are a
lot of different changes.
Speaker 9 (30:41):
We were talking about prices from tariffs coming through, but
we're also seeing.
Speaker 10 (30:45):
Reports in the page book here about how in the
agriculture industry and low scale manufacturing they're having trouble finding workers,
and that was a big theme.
Speaker 9 (30:54):
At the NAME conference yesterday.
Speaker 10 (30:57):
There's going to be a big worker shortage next year
in these or paid manual labor industries, and that could
drive up prices as well. So a lot of cross
currents out there for which there isn't great data right now.
Speaker 2 (31:10):
And Molly kind of complementing that as I look at
the summary in the bag book that was just released,
labor supply and the hospitality, agriculture, construction, and manufacturing sectors
have reportedly strained in several districts due to recent changes
to immigration policies. This is the other kind of big
story looming here, the effect that this administration's cracked down
on immigration is going to have on the economy. So
there you have the anecdotal evidence born out. What are
(31:33):
we seeing in the data when it comes to the
effects that that policy is having on the labor market
in the US.
Speaker 11 (31:37):
I think this is such a big debate right now
as to what kind of shape the labor market is
in because in the one hand, you're looking at weaker
hiring numbers that you're thinking that the job market has
significantly slowed.
Speaker 5 (31:50):
And it's true the piece of hiring has.
Speaker 11 (31:52):
Come down substantially, but labor supply has come down substantially
as well. So do you need a strong of job
growth if the working population is that much smaller? I
think that's really the key debate right now, And there
was a blog post from a Dallas fed economists recently
that argued, no, you don't need that strong job growth
because the labor force is that much smaller. So it's
(32:14):
really still key to make that distinction of is the
labor market really weakening or is it rebalance.
Speaker 5 (32:20):
It's just a reminder of like kind of all of
the tensions that are coming out at US that maybe
are changing the read on statistics. Mike, I want to
bring you in because on that note, still coming at investors,
still coming at economists, still coming at business leaders, the
trade tensions between US and China. So we've got kind
of that going on and trying to figure out the
impact on that still yet to be determined. At the
(32:41):
same time, we've got to read on the big banks
this week, which is another read on the US economy
and how things are going. How do you fold all
of that in.
Speaker 10 (32:50):
Well, if you're at the FED, you hive off what's
happening with the banks and earnings at Wall Street, because
it's a kind of a different world. To a certain extent,
it can represent what's going on in the economy if
you're talking about things like mortgages.
Speaker 9 (33:03):
And car loans, of which they are not making a
whole lot.
Speaker 10 (33:08):
The merger and acquisition business is doing very well, and
the stock trading and bond trading and currency trading businesses
are doing very well, we learned this week. But that's
not the real economy, and that's not what's happening to
the people on the ground across America, and so they're
not really looking at those things. They are looking at
(33:29):
whether or not people's wages are going up, and whether
they're keeping pace with inflation, and what we think the
inflation rate is, and also what consumer sentiment is, whether
people think they want to buy something now or whether
they're pulling back because they're concerned about the overall economy.
One point I want to make about what Molly was
(33:49):
just talking about in terms of do you need workers
the conference I was just at the Economist conference, they
were making the point that even though we automate more
stuff or we may not need as many workers as
certain industries, particularly agriculture and construction, need a lot of
trained workers, or less trained for agriculture than for construction,
(34:13):
and the many of those were filled by immigrants, and
the euphemistically worded change in immigration policies, as the Facebook
put it, is causing a real problem. There was one
survey one company put out at this meeting that said
there's gonna be five hundred thousand short construction workers next year,
(34:35):
and that's going to really slow down the housing industry,
which of course is a big contributor to.
Speaker 12 (34:39):
The economy as long as there's demand to build, well,
I would I mean, looks do the board here, Of
all times to pull back on construction workers, this would be,
I would say, a pretty good time to do it,
because builders are slowing the pace of construction anyway.
Speaker 11 (34:53):
There's so many new homes available on the market that
have been sitting unsold because they had been ramped up
when mortgage rates were a lot lower, and now mortgage
rates are where they are, people are not buying these homes.
So builders, accordingly are pulling back on construction. So of
course this is a real strain for these companies, but
in the grand scheme of where they're sitting right now,
(35:14):
not so bad in terms of a time where you're
kind of slowing the pace anyway.
Speaker 5 (35:18):
All right, good stuff, guys, lot going on at when
it comes to these economy and trying to really figure
out what is the way forward. Bloomberg TV and Radio
International Economics and Policy correspondent Michael McKee, along with Bloomberg
News Economics edit at Mollie Smith.
Speaker 1 (35:31):
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