scarlet: u.s. stocks closing higher, rising for the first time in four days. joe: what did you miss? scarlet: oil tumbles. joe: and the looming fed rate hike. is the data that strong? and france's future. the second round of regional elections take place sunday. we take a look at the political landscape. we begin with the markets. first gain this week. the s&p 500 stayed at its average. we have seen movement back and forth. a half percent short of its record high. street., we broke the

it was nice to see an update. nothing special. day of the week. we did not see anything crazy happen in commodities with the exception of south africa but we will get to that. a much quieter day. lower.: still a grind what struck me was energy shares recovered even as oil prices didn't. there is a willingness to come in a little bit here on the energy needs. joe: we had initial claims that jumped to its highest in five months. it is still incredibly low. not necessarily the number you want to see less than a week before what is presumed to be the first that rate hike. scarlet: let's take a dive into the bloomberg terminal. it is looking like a done deal here.

the fed will announce the interest rate decision. they have increased to 80%. we're just shy of the 80% number. up.ge move we are double from where we were. interesting,t was if you fast-forward and look ahead to january, just in case the federal reserve doesn't move , people are looking a 69% odd of the rate hike. move forward to march. perhaps this may be the next time the fed may do something. that is probably not going to happen but you can see the odds move a little bit. a lot of question over whether the fed can execute the tightening. moving to april. it is no longer such a sure

thing. joe: it feels like there are so many possibilities. slow, one and done. it will be exciting. i want to dive into the terminal. all the action was in south africa where the president saxby sacked theister -- finance minister. gold is going to be terrible. is actually doing really well. that is what this white chart shows. it is not doing terrible from every perspective. gold that isne is surging. the idea is costs, raw material costs have gotten cheaper. not everyone hates this. if you are a south african gold

miner this is a nice day for you. scarlet: absolutely. you can see all the charts and more on twitter. we mentioned crude oil. opec members show no signs of slowing down production. the drop in oil prices is good for consumers. i want to bring in our guest. joe: why hasn't this happen? guest: it has. you shouldn't be looking at nominal sales. it is a headline number we get published but it is misleading. it also gets pulled down by the strong dollar. if you look at it in real terms, and if you look at what people are spending on services, the

numbers look great. they have done what you have .xpected given the drop why are markets focused on sales? sales.s after the retail it is what goes into gdp. markets use resale as the proxy for total consumption. when prices are falling it doesn't work. scarlet: maybe we are looking at the wrong data. we are not buying stuff, we are buying services. joe: a lot of these metrics we peoplecome used to, focused on manufacturing. isst: the services sector nearly six times bigger. .e have this focus on the isn there is a big reaction to it. what we should be looking at it of theless visible bits

economy. millions of small sector economies that are doing well. the catastrophe in the oil business. scarlet: you have quantified how much this current leg lower is ustained -- move.s a huge guest: it has been very split. if you are supplying equipment for the consumer related economy it has been great. >> what do you into core inflation readings? there is this question of is -- what doan effect

you extent that is the case? stuff has to be moved across the country. that is all gone down. has gone out. not by much but it has gone up. the fed measure has not gone up because it has a lot of medical costs that have come down thanks to obamacare. i think next your it rebounds. i think the focus should be on the services rather than the goods. they are not being appreciated by investors. guest: absolutely. the variable is the one that is moving. it is a much bigger weight of medical costs. we know the insurers have been raising the premiums aggressively for the new premium

year. wages are rising at 2.5%. that cannot be sustained. say why lot of people is that that anywhere close to hiking seeing as they are so far from inflation targets. the fed says we feel confident it will get they are. do you think the fed has that confidence warranted? guest: why haven't they started hiking already? 6-9 months ago. the tightening of the labor market is slow moving but a sustained trend. you cannot wait until the white of the eyes of inflation. that is far too late. to be ahead of the game. when unemployment is at the level that you say is

sustainable, you can't ignore it. point,u get to that monetary policy should be neutral. it isn't zero rates. we need to start moving away from that emergency setting. guest: next week will take us further into that realm. thank you for joining us. coming up, we will speak to goldman sachs about the looming fed rate hike. is the data strong enough to warrant one? ♪

scarlet: let's get to mark crumpton. mark: dan malloy will use an executive order to ban gun sales on people on no fly list. he would make netiquette the first state to do so. he said the state is working to get access to federal lists. advocates oppose the no-fly list proposal because they say it violates the rights of people who haven't been convicted of a crime. advisors to present obama are finalizing a plan that would expand background checks on gun sales without congressional approval. officials are exploring closing the gun show loophole that allows people to buy weapons at gun shows and online without a background check. ted cruz has won the highly coveted endorsement of one of

iowa's most prominent evangelical leaders. he says the three-time failed candidate for governor leads in conservancy advocacy groups. hillary clinton has won the endorsement of the american federation of government 70,000es representing workers in the federal government and district of columbia. the nominations for the golden globes are out. nominees for best most in -- motion picture included carol, mad max, broom, and spotlight. television, empire, mr. robot, atlanta, noarcos. get more on these and other breaking stories at bloomberg.com. back to you. scarlet: the markets have all

but priced in an interest rate increase. the fed may want to wait, two reasons, the carnage in junk bonds. it has slumped to a six-year low. the second reason is the economy. manufacturing is contracting and gdp is growing. it is possible the fed pulled .nother lucy and the football joining us now, the chief economist at goldman sachs. joe: thanks for joining us. what did you take from his comments that the economy is starting to create before the hike. should the fed wait longer? guest: it is a moot point. the decision has been taken in terms of what happens next week. the question is what is the signaling beyond next week. that is still very much in play. the fact that we have seen some

weaker data is true in the manufacturing sector. at the margin that is a reason message. cautious there is a limit to that because they also want to keep options open and i think the incentive is still there to keep the march meeting on the table for a rate increase without committing to anything. joe: one of the phenomenon's is the unemployment rate -- the economy is generally disappointing but on the unemployment rate it has fallen .aster than people's forecasts do you see a falling aggressively going into next year, exceeding the forecast? guest: we think it will continue to fall. a year ago, two years ago there was a bigger contrast

between what you saw in unemployment and in other rates. while there is still some gap that is shrunk recently. there is a fairly convincing message that the labor market may come down substantially. -- ink both scarlet: we talk about how the fed has gotten the unemployment rate wrong. why are we all getting it wrong? guest: basically because potential growth is lower than almost anybody expected five years ago. in that environment the gdp numbers, which have been disappointing year after year, they are that good of a guide to

performance of the economy. the labor market indicators, while men are perfect, how -- while none are perfect, if you look at the labor market indicator you have to say that we have made a lot of cyclical progress. guest: why not just way -- joe: why not just way? there is argument to be made that inflation is picking up. we have a couple of good months of rising wage growth. why not way and see if anything materializes. why the rush to go now? moot: again, it is a point. it seems like the decision has been made. joe: from intellectual argument. guest: it's a credible case. it woulde nuanced than have been six months ago. six months ago i would have said

--should wait until 2000 2016. there is still a good risk management argument for that. we have made more progress on the labor market. more than expected. there is a good case and a baseline, why not way until you thatore tangible evidence wage inflation is picking up? i would say that is a credible argument. they have telegraphed the intention. having said that has the fed the filled its mandate on full employment or does the jobless rate need to continue to track lower like it did in 2007? guest: i don't think it has the filled its mandate on either the employment site or the inflation side.

in both cases there is still a shortfall. it is the context of a short-term interest rate. you haveit until entirely fulfilled your mandate on both of those, then you probably will be too late. from that perspective there is certainly a case to go before you fulfilled your mandate. that should be december 2015 or march 2016. i don't think you should wait until you are back at the target. joe: we have seen an impressive drop in unemployment. investorsrly note to pointed out that if you adjust for the labor force participation we are not much better than europe. while the u.s. force participation rate is headed down in other countries, the u.k., japan, labor force

participation rate continues to rise. what is going on in the u.s. with the labor force that is not happening in other developed economies? guest: one differences the increase in female labor force participants that occur between the 1960's and the 1990's, which was more structural societal change is, like many social trends, it is happening later in other countries and that is having impact. i don't think you can necessarily say because other countries have seen flat or high forceforce -- labor participation rates you should count all of the participation as cyclical. i think there is some cyclical labor market slack that has hidden. downe revised my estimates of the proportion of the weakness due to cyclical

factors. we are not at full employment yet despite the 5% and employment rate. scarlet: it is because of our working mother predecessors. be sticking with us. next we will discuss how changing demographics will affect the global economy. and look at shares of adobe up 4%. ♪

.oe: we are back we back with the goldman sachs chief economist. goldman put out research with the question of did globalization altered the phillips curve. did the fact that there is all changeobal labor the dynamic? what were the conclusions? wast: the basic conclusion the wage setting for all of us is more dominated by domestic factors than many people believe . while we did find some evidence that there was global spillover impacte wage growth, the in the united states is quite small. other economies, maybe economies

you get a bigger impact, in the u.s. it is generally pretty small. the basic reason is the part of the economy that was directly competitionlobal and direct labor market competition in particular is relatively small. there are plenty of examples. it is not something that is sufficiently pervasive to have a big impact. joe: there has been a lot of talk in recent months about global demographics and the impact on inflation and interest rates. they have argued as the global workforce, working age population shrinks levels will start to see wage pressure build and this long downtrend in inflation turn around.

it sounds like based on your research you don't buy it. the global workforce is not such a coherent thing and the trend will not necessarily materialize. >> it is one of their reason for being skeptical on this, population and slower wage growth has a two-sided affect. it has an effect on the supply of labor and if that was the only thing you would expect outward pressure on wages. it also has an effect on demand for durable goods. there is a corresponding effect on the demand side of the economy. which one of those outweighs any point in time is difficult. we wouldn't be comfortable making a strong blanket statement about the impact of demographics on inflation. what we do know is that population aging and population

growth is going to mean slower .rowth in real gdp inflation is the hardest. have a grand unified theory for this global decline in rates and inflation we have seen? unified -- at grand unified theory maybe putting it strongly. there may be some obvious factors. one is that if you go back 35 years then you are basically back in the volcker attempt to bring down inflation. rates were very restrictive because they wanted to bring inflation down to low single digits. that was always going to be temporary. joe: thank you for joining us. i'm am looking forward to the rate decision to see what happens. ♪

scarlet: what did you miss? let's get to mark. mark: president obama has signed a bill that create sweeping changes in how teachers are evaluated and how the worst schools are push to improve. >> the bill makes long overdue fixes to the last education law replacing the one size fits all approach to reform a commitment to provide every student with a well-rounded education. >> it is a rewrite of the no child left behind ball taking power away from the federal government and gives it back to the states. students will have to take federally required reading and math exams. a neurosurgeon testified today

that freddie gray's net could not have occurred the way the maryland state autopsy report concluded. he testified as an expert witness at the trial of the officer. cordffered a spinal injury. porter faces a penalty of 25 years in prison. the governor of massachusetts says a passenger train that left the station without a driver was tampered with. someone who knew what they were doing tampered with the train. lefts 50 people aboard and the train station this morning and travel through four other stations without stopping before power was cut. no passengers were hurt. quartetof the tunisian nobel peaceeir

prizes today. feeling ofhe euphoria and pride does not obscure the grief, sorrow and anger they feel about recent acts of terror in beirut, paris and sharm el sheikh. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com. back to you. >> thank you so much. let's get a quick recap. the first gain of the week for u.s. stocks. but the s&p 500 shot of its record high, stuck at its moving average to the upside we saw energy shares recover for a second day. quite as exciting as we have seen earlier this week. most of the excitement was in south africa. major swings. thatows all the risk

abounds in emerging markets. >> let's go for a deep dive. as we talk about the federal reserve, investors are looking at ahead to the process of bringing liquidity from the financial system and parking their cash in the states with most liquidity possible. you can see right here this chart shows they are basically parking it in products that have a weighted average of maturity of 35 days. that is the lowest since 2006. yet to go back to here because it is even lower than that time in 2010. investors want to be liquid. they're waiting to see how markets react before they put money to work to seek that yield. joe: a great measure of sentiment. i want to dive into the terminal. it came in 7% year-over-year growth. that is impressive.

becker than german gdp. it is better than portuguese. ireland, it had all this austerity. that is impressive. >> got a get behind that. another chart, our next guest has economic data and says it should be the focus for markets, not the initial readings that come out. paul, i want to show you something else. i'm not that fancy but ideally have job reports. white line is an initial reported numbers. the yellow line is the revised numbers the final print. it tends to be higher than the first reported number as far back to 2010. the exceptions are made here,

april hear of this year, going back to around here in 2012. this is offensive to me because i get excited about the monthly jobs report. you say we should wait on it. >> you can get excited or just don't invest on the back of that. it is not just the jobs data. it is across the board. we have two key problems at the moment. the first issue is the nature of this recovery is unusual. large businesses and small companies have had a different cycle. normally they are close together. what we're seeing right now is large companies are going along ok. the small companies, the dynamic part of the recovery. it doesn't exist. it is abysmal. what we are is the initial data is saying this is what everyone is doing. then we find out that small companies have been taking off

and that changes the data. >> what are you looking at specifically right now. what data points should we try to use to capture that? >> what we have to look at is no data points at all or all data points. you have to have a very broad -- broad view. that is down, that is the end of the world. it is not saying anything constructive. nothing at all. money factoring is going back to half percent. it is on a totally different issue. you have to sit back and look at the entire body of data. this is what economists to. traders tend to look at the latest data item. the markets price of the initial data item. they don't pay attention to the revisions. why does that matter? central banks are run by economists, not by traders. this is a good thing. have started to

pay more attention to what the markets do and how they react, and responding to markets. guests: i am skeptical about this. we had one dubious comment about market volatility. that is a mean they are actually paying that much attention. but, the market based participants. the fed is packed full of lawyers, people who have no idea about anything. if we look at the ecb you have central bankers at the bank of england. you would think the u.k., it would be the u.k.. minority of the central bank. idle actually think the feedback loop is that big. markets are not as important as they like to think they are. joe: you say the isn is providing no signal and manufacturing in the u.s. is still growing over 2%. what leads you to that conclusion? guest: it is in theory a real measure of activity.

are your export orders going up or down. datau actually look at the , it is not a real number. it is nominal. are you selling more cars, the valley of the car sales are going down. that is not the question. are you selling more units, not his -- not what is the value. that creates a distortion between real and nominal. a lot of the problems that we have, this distinction. they don't sell a broad so much. no real nominal distinction problem. look at the european pm eyes. nominal value is very buoyant because the euro is weak or. there you have a boost to the pm eyes coming through. we don't distinguish between nominal properly. scarlett: as you can this the metrics tell us where we are in

the deleveraging cycle. cycle, in the leveraging we are pretty much done on the private sector. if we look at the private sector the u.s. has completed its process. the u.k. and eurozone is starting to get back to some kind of credit growth. maybe a little more deleverage but we are basically done. that allows the normal growth printers to go through. the problem is asia. we have had growth supported by a real leveraging cycle over the last few years. particularly in china. they may have another last gasp but we are coming to the end of the leverage cycle. shift, a da real secret eyes global a common need -- economy. emerging asia is going into a

deleverage cycle. >> what is this data of u.s. capitol ski spending. how do you see that? guest: the world has changed. what is really changed in the global economy or in development at over the course of the last 10 years is a shift in the way people do business. you have had a big increase in the people who are self-employed. self-employed people use it is different. scarlett: that is an accurate gauge of what is happening. >> not what is really going on in terms of capital spending. if i can use my brother as an example. we were skiing earlier this year. he is running his business from his ipad. running his business,

sending of e-mails and so on. .here is one thing he had to do he had to pull the ipad out of the hands of my six-year-old niece who wanted to play angry birds. ipad consumers spending or capital spending? in data it is consumer spending. this morning i was in my hotel doing e-mails and my morning comments. i'm doing it in my laptop. my laptop. i am once again subsidizing shareholders. this is a very common. what is capital these days? a lot of the times it is not showing up in data. scarlet: fascinating stuff. you are sticking with us. we will discuss the bank of england and why mark carney is stuck in the middle of the fed and the ecb. ♪

scarlet: it's time for the bloomberg business flash. the biggest stories in the news now. ford is making an investment in electric vehicles. the company plans to add 13 new electric vehicles by 2020. represents the largest ever electrified vehicle investment in a five year time. . second time was the charm for bank of america.

the firm persuaded regulators to boost internal controls. if the fed had not approved the plan they could have been forced to cut dividends or stock buybacks. profitsstems posting that beat estimates. 22% in $1.3eased billion. in shares are gaining 5% extended training. -- trading. maintained england its rating. the bank of england is caught somewhere in the middle. we're back with paul donovan. joe: not long ago it seemed there was talk bl we had a reason to move before the fed. higher wage growth, tighter labor. that seems to be gone. what is going on? guest: it has tightened policy

two years before the fed did. began back last september. on the balance sheet started to roll over. we have already had tightening. canadian we put in charge of the central bank stood up and said i'm going to interfere in the mortgage market . that is a tightening. the bank of england is doing everything except raise rates. we have three pillars of central-bank policy. two of those three are already being tightened. in november, officials highlighted the weaker outline for emerging markets and said they were volatile to slow down. you don't see that reflected in sentiment. are we at completion levels? >> i don't think so.

the u.k. is exposed to the global financial system. shockwaves and affects the city of london. a relatively important part of the u.k. economy. it has large amounts of manufactured products, none of the cars are british of course. but it is made in the u.k.. the service sector industry as well. the main shock for me for the u.k. economy would be if europe matches up again. consumerited states rolls over. they seem to be indulging in their customary hedonism. joe: i have to go back to the comment about the canadian selected over more qualified british economist. what makes you say that? guest: it is not for me to suggest but if i were asked to serve my country in that

capacity i would be happy to make the sacrifice. joe: has he made mistakes? guest: i think he has. he came in thinking he was coming into the bank of canada and the bank of england is not the bank of canada. he came from the dictatorship were i decide this and this is what happens. but that is not how it works. scarlet: is he focusing on the wrong thing? guest: i don't think he is. core inflation is the main driver. we have to accept commodity prices are valuable. core should matter. joe: awesome stuff. paul donovan, global economist. scarlet: bank of england one of the. the second round could be a different story print we explain. ♪

scarlet: coming up on bloomberg, denis mcdonough will join with all due respect to talk politics. don't miss it. i'm scarlet fu. what did you miss? time to turn to france. after the terror attacks they found the first round of regional elections. the national front party attracted 6 million votes. jonathan, i want to give you a set up here. a map of the voting shows the national front was ahead in six of the 13 regions. the party leader one more than 40% in their region. a poll cast doubt on whether the national front will be able to hold their lead in round two

this sunday. a number of socialists are respected to vote this time around. thank you for joining us. there is question about whether the party will carry any regions. is the national front a major party? it has been around for a long time. it made its breakthrough in 1986. in 2002 he made the second round of the french presidential elections. this has been a long time coming. the security situation in europe, the refugee crisis, it created a perfect storm for him. they have yet to gain any practical experience in terms of governing.

now that they are heading into the second round, what do you see from the national front that suggest they are ready to take a more pragmatic role in politics? >> i am not sure if pragmatism is their aim. what they want to do is to use presidency that they managed to win as a showcase for not so much their policies, because they don't have a lot of autonomous power, but to showcase their discourse and rhetoric, to get the spotlight on them to start a long -- started long presidential campaign. that is the real prize. they have already done really well before. ,he weakening of the socialists not performing well, divisions about who their candidate is going to be in the conservative mainstream right, there are plenty of signs that le pen

could do well. scarlet: everywhere europe,everywhere in more radical parties are starting to gain. has anyone in the establishment figured out a strategy for countering it or are they flailing desperately attempting to hold back? guest: the big problem they have is that they have been presiding over a bad economic situation for a long time for no -- with no power to deal with it. all the big policy decisions that effect growth in europe are in the hands of supernatural bodies -- super national bodies. -- populism has been a round for a long time. the freedom party in government already a decade ago.

with the economic crisis, the situation has gotten worse. nationala demand for government to actually take some powerback, and colons -- corresponding to that, control of borders, which is in violation of european integration. scarlet: does that mean adopting to the national front policies or platforms? guest: the problem the national it is notis that clear what they could do if they got their hand on national party power. leaving the euro, reinstating the borders between france and neighboring countries with which it has deep and intense economic exchanges. people live in one country and work in another. all of these policy ideas are

impractical. what is powerful is the rhetoric, the appeal to people of sins -- feeling -- feeling lost. that government doesn't get anything done. joe: all right. thank you for joining us. we'll be right back with what you need to know for tomorrow's trading day.

retail: don't miss this sales for tomorrow. this sets the tone for the holiday shopping season. joe: everyone says you cannot

read too much into them. and consumer sentiment at 10:00 a.m.. another read on the consumer. scarlet: we will be back with more b >> i am mark halperin.

>> i am john heilemann. ♪ >> heavy dewey decimal system day, sports fans. welcome to the north lawn of ye old white house. first, some polls about the people who want to be the next tenant of this auguste residence. the cbs national poll